The FTC’s Mortgage Assistance Relief (MARS) Rule which took full effect on January 1, 2011 is designed to help distressed homeowners avoid mortgage relief scams through a combination of: 1) an Advance Fee Ban; 2) required Disclosures; and 3) a Prohibition against certain types of claims. See my previous Blog for details: Mars Rules Hope to Block Loan Scams.

Although targeted at Loan Modification Companies, The Rule is causing great concern for Realtors and other real estate professionals handling short sales.  Since short sales in part seek to provide debtors with relief from deficiency loan liability, the challenge has been how to do their job effectively without risk of liability for violating the MARS Rule in short-sale negotiations where they often discuss their clients’ delinquent mortgage situations, or refer clients to companies that specialize in loan workouts.

The National Association of Realtors (NAR) requested that the FTC carve out disclosure exemptions for home sales but that request has been denied. The result is Realtors handling short sales could be exposed to fines of up to $11,000 per day for non-compliance with the Rule.  To facilitate compliance, the California Association of Realtors (CAR) has created four new Disclosures to be used in short sales each of which is formatted with the type sizes and emphasis required under the Rule. Two of these concern short sales and two concern notice to tenants concerning post-foreclosure occupancy rights.  These new Disclosures are:

     (1)   Mortgage Assistance Relief Services Short Sale Negotiation Notice;

    (2)   Mortgage Assistance Relief Services Offer of Mortgage Relief Notice;

    (3)   Notice of Termination of Tenancy within One Year after Foreclosure (Giving Tenant At Least 90 Days to Vacate)

    (4)   Additional Information Regarding Termination of Tenancy within One Year After Foreclosure Giving Tenant Less Than 90 Days to Vacate).

As with any new law, the enforcement and applicability of the MARS Rule may change as courts ultimately interpret its full legal effect.  Meanwhile it is critical that all people involved in real estate transactions be aware of and comply the Rule’s requirements. If you are a Realtor, be sure to stay current with the legal forms being provided by your State Association of Realtors.  We will also seek to keep you informed in these periodic Blog postings.

The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are a real estate professional involved with short sales or in anyway providing communication or advice to upside-down owners, be sure to get competent legal advice in your State immediately before giving any advice.

If you have specific questions about dealing with upside down loans or real estate, feel free to contact us at sjbeede@bpelaw.com.  We offer a $200 flat fee attorney consultation to review your situation and help you evaluate and choose the best opportunities. This can be done in person or by phone. If interested, please call us at 916-966-2260.

In November, 2010, the Federal Trade Commission passed a rule that bans providers of mortgage foreclosure rescue and loan modification services from collecting fees until homeowners have a written offer from their lender or servicer that they decide is acceptable (FTC MARS Rule).  Called the Mortgage Assistance Relief Services (MARS) Rule, it is designed to protect distressed homeowners from mortgage relief scams that have sprung up during the mortgage crisis. Bogus operations falsely claim that, for a fee, they will negotiate with the consumer’s mortgage lender or servicer to obtain a loan modification, a short sale, or other relief from foreclosure. Many of these operations pretend to be affiliated with the government and government housing assistance programs.

The MARS Rule has three key components:

1.   Advance fee ban - Under this provision, mortgage relief companies may not collect any fees until they have provided consumers with a written offer from their lender or servicer that the consumer decides is acceptable, and a written document from the lender or servicer describing the key changes to the mortgage that would result if the consumer accepts the offer. The companies also must remind consumers of their right to reject the offer without any charge.

2.   Disclosures - The Rule requires mortgage relief companies to disclose key information to consumers to protect them from being misled and to help them make better informed purchasing decisions. In their advertising and in communications directed at individual consumers (such as telemarketing calls), the companies must disclose that:

    (a)  They are not associated with the government, and their services have not been approved by the government or the consumer’s lender;

   (b)  the lender may not agree to change the consumer’s loan; and

   (c)  if companies tell consumers to stop paying their mortgage, they must also tell them that they could lose their home and damage their credit rating.

Companies also must explain in their communications to consumers that they can stop doing business with the company at any time, can accept or reject any offer the company obtains from the lender or servicer, and, if they reject the offer, they don’t have to pay the company’s fee. The companies also must disclose the amount of the fee.

3.   Prohibited claims - The MARS Rule prohibits mortgage relief companies from making any false or misleading claims about their services, including claims about:

   (a)  the likelihood of consumers getting the results they seek;

   (b)  the company’s affiliation with government or private entities;

   (c)  the consumer’s payment and other mortgage obligations;

   (d)  the company’s refund and cancellation policies;

   (e)  whether the company has performed the services it promised;

   (f)  whether the company will provide legal representation to consumers;

   (g)  the availability or cost of any alternative to for-profit mortgage assistance relief services;

   (h)  the amount of money a consumer will save by using their services; or

   (i)  the cost of the services.

In addition, the rule bars mortgage relief companies from telling consumers to stop communicating with their lenders or servicers. Companies also must have reliable evidence to back up any claims they make about the benefits, performance, or effectiveness of the services they provide.

All provisions of the rule except the advance-fee ban become effective December 29, 2010. The advance-fee ban provisions became effective January 31, 2011.

Most people in the real estate and lending community applaud this effort to protect already upside-down homeowners from predators promising help but who in reality are only out to take their money. However, passing a Rule is one thing, understanding and implementing it is another. In my next Article I’ll discuss the challenges being faced by the Real Estate industry to comply.

The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are upside-down on your loan(s), or if you are being tempted by companies promising to get you a loan modification and enable you avoid foreclosure, get competent legal advice in your State immediately before giving them any money up front.

If you have specific questions about your upside down loans or real estate, feel free to contact us at sjbeede@bpelaw.com.  We offer a $200 flat fee attorney consultation to review your situation and help you evaluate and choose the best opportunities. This can be done in person or by phone. If interested, please call us at 916-966-2260.

While the real estate recession lingers on, one segment of the market is hot and competitive: buyers seeking to snap up great deals. This has led to a situation we haven’t seen since the height of the real estate bubble: multiple buyers going after the same property.  While the winner is generally determined by whose purchase offer is accepted first, sellers and their agents are finding themselves in lawsuits by angry buyers who lost out yet who claim their offer was “accepted”.  To clear some of the confusion, the following analyzes the law in California on when is a purchase offer actually accepted and enforceable.

WHAT MAKES A VALID OFFER? - Real Estate law, indeed all contract law, is based upon a relationship of “Offer” and “Acceptance”.  To be effective, a real estate Purchase Offer must at a minimum identify: 1) the Subject of the offer, ie: the Property; 2) the Consideration, ie: the purchase price to be paid; 3) the Time for performance, ie: the closing date; 4) it must be in writing; and 5) it must be delivered to the Seller or their authorized agent.  Once a Purchase Offer is delivered, the Seller then has a “Power of Acceptance”. They can accept it as is; they can reject it totally; or they can respond with different terms, ie: a counter-offer.  In most instances of residential purchase in California, prospective Buyers use forms created by the California Association of Realtors (CAR) which provides for these terms as well as many other terms that generally must be agreed upon by Sellers and Buyers to reach a clear and unambiguos agreement and to comply with California laws.

AN ACCEPTANCE MUST BE UNQUALIFIED - To be effective, an acceptance must meet the terms proposed by the offer exactly, precisely, and unequivocally. It must be unconditional, and it cannot add new terms or conditions. A qualified acceptance is a counteroffer. An offer is not accepted if the acceptance adds a new condition. An offer qualified by new terms or conditions becomes a counteroffer and accomplishes a rejection of the offer. After a counteroffer, the original offer may not be accepted by the offeree.

A COUNTEROFFER MUST BE ACCEPTED IN FULL TO BE ENFORCEABLE - The counteroffer is a new proposal that must be accepted by the original offeror. A counteroffer that is not accepted by the original offeror-counterofferee has no further legal significance, and no legal relationship is created. However, on acceptance of the counteroffer by the counterofferee, a contract is formed that is binding on and enforceable against the counterofferor.  A counteroffer includes the terms and conditions of the original offer. When an offeree makes a counteroffer, all of the terms of the original offer are incorporated into the counteroffer, except as modified by the counteroffer. Effect of a counteroffer to two offerees - When a counteroffer is made to two or more persons, each has the capacity to accept the offer. A counteroffer to two or more offerees that provides for an acceptance by the highest bid is binding on the counterofferor.

METHOD OF ACCEPTANCE IS GOVERNED BY THE TERMS OF THE OFFER - When the method of communication is permitted by the terms of an offer and is reasonable under the circumstances, an acceptance, on being placed in the course of transmission, is legally effective to create a contract. To be considered “in the course of transmission,” the acceptance must be placed beyond the control of the offeree. However, an offeror can prescribe the method of acceptance to be used. Real estate purchase contracts, including the CAR contracts, generally specify a method of acceptance that must be followed.  When the method of acceptance is specified by the offeror, no other method is sufficient.  When an offer does not require a specific mode of acceptance, any reasonable and usual method is acceptable. If an offer merely suggests a permissive method of acceptance, any reasonable manner of acceptance is effective. The offeror can specify that an acceptance is not effective until received by the offeror. When an offeror does not want to be bound to a contract without knowledge and does not want to assume the risk of actual receipt, the offer can provide that the acceptance will not become effective until it is actually received by the offeror or the offeror’s agent. With such a provision, no contract is formed unless the acceptance is actually received by the offeror or the agent prior to the termination of the offer.

THE CAR RESIDENTIAL PURCHASE AGREEMENT (5/10) contains the following terms:

1) “Acceptance” means the time the offer or final counter offer is accepted in writing by a party and is delivered to and personally received by the other party or that party’s authorized agent in accordance with the terms of this offer or a final counter offer. 

2) “Delivery” means the personal receipt by Buyer or Seller or the Individual Real Estate Licensee for that principal (unless other terms are stated).  The means of that delivery can be by messenger, mail, e-mail, fax, etc.

3) “Terms and Conditions of Offer” includes the language: “Seller has the right to continue to offer the Property for sale and to accept any other offer at any time prior to notification of Acceptance”. 

BOTTOM LINE:  To create a binding and enforceable real estate purchase contract: 1) the Purchase Offer must be clear in its terms; 2) the Acceptance must be in writing and agreeing to the exact same terms; and 3) the Acceptance must be delivered to the offeror using the method stated in the offer.

WHAT IS NOT AN ACCEPTANCE:  The simple answer is any response to the offer that does not meet the above definition. For example:

1)  An oral acceptance does not create a contract for the sale of real estate (Statute of Frauds - must have a writing).  However, other types of contracts including rental agreements can be created orally;

2)  A phone call “I’m coming to your office to accept” - it’s just an oral acceptance;

3)  When there is no real meeting of the minds: the writing says it’s accepted but the communication conveying it states that there are other terms.

AVOIDING LAWSUITS - There is no realistic ability to assure that no-one will sue another to enforce what they believe is an acceptance.  Winning that battle is another thing.  Often the filing of a lawsuit can be strategic to scare the Seller and competing Buyers.  If there is some reasonable grounds, this can be effective especially since such lawsuits tie up the property’s title (Lis Pendens).  Such grounds can include:

1)  The terms of the offer state one method of acceptance but the Seller or their agent states another - this is not uncommon with REO sales where the terms require written acceptance of the offer by the Seller but requires communication to be e-mailed through Seller’s agent;

2)  Written acceptance was delivered to agent’s office but agent didn’t personally know of it.  Is the acceptance enforceable? Possibly, but not if the terms of the offer require delivery to Seller, ie: agent is not authorized to bind the Seller so acceptance is not valid until received by Seller (unless Seller has withdrawn prior counter-offer or accepted other offer first.

The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. The key here is that if you are a party or agent involved in a dispute over a real estate contract, get competent legal advice in your State immediately so that you can determine your best options.. If you’re an agent, be sure to check your E&O coverage for when you must report possible claims. You could get sued by both sides. 

Here at BPE Law, we have over 50 years experience assisting and representing brokers, agents, buyers, and sellers in real estate transactions and disputes of all kinds. We know what we’re doing and we can work seemlessly with your insurors if needed.  If you have specific questions about your transaction, feel free to contact me at sjbeede@bpelaw.com. Or give us a call at (916) 966-2260.

Upside-down borrowers, frustrated with a lack of lender willingness to modify their loans and desperate to keep their homes, often turn to lawyers who promise to stop foreclosures and force lenders to modify loans. But all too often what appears to be a meritorious Complaint gets quickly thrown out by the Courts and the borrower ends up still losing their home… plus thousands of dollars in legal fees. 

Significantly, in these cases the borrower typically requests and is granted a Temporary Restraining Order (TRO) to stop the pending foreclosure sale.  It appears as a quick victory. But a TRO is just a short-term stoppage for approx. two weeks at which point the borrower must convince the court to grant a Preliminary Injunction stopping foreclosure for the entire time it takes to get the case to trial which could be two years or more.  Here is where the lenders are winning the war.

The following analyzes several of the legal arguments raised against the lenders and what has happened in the Courts. The cases cited all originated in California state courts but were decided in the Federal courts. The decisions appear consistent with what is happening in other states. 

1.  I MADE ALL THE TRIAL MODIFICATION PAYMENTS AND GAVE THEM ALL THE DOCUMENTS THEY ASKED FOR. THE COURT SHOULD COMPEL THEM TO MODIFY MY LOAN   -  This argument is often raised as part of a lawsuit to stop a foreclosure from occurring.  The underlying arguments are: 1) the lender did not handle my HAMP modification application properly (Negligence claim); or 2) I met the lender’s or HAMP’s loan mod requirements but the lender denied the modification anyway (Beach of Contract claim) ; or 3) the lender never intended to give me the modification, they just wanted to get my Trial Mod payments (Fraud claim).  Most loan modifications on homes are being done under the government’s Home Affordable Modification Program (HAMP).  Where a borrower doesn’t fit HAMP’s guidelines, many lenders have their own “proprietary” modification programs.  The legal question is whether a borrower can force the lender to modify if they fit within the guidelines.  The courts routinely are saying: “No”.  In January, 2011, in the case of Phipps v Wells Fargo Bank, the Federal Court ruled that a Borrower has no right to sue a lender to force a HAMP modification. Even before this, in the 2009 case of Pantoja v Countrywide Home Loans, the Federal Court ruled that California laws do not impose a duty to modify a mortgagor’s loan.

2.   THE LENDER PROMISED ME THEY WOULD EXTEND THE FORECLOSURE SO I COULD COMPLETE MY MODIFICATION BUT THEY THEN FORECLOSED ANYWAY. THE COURT SHOULD UNWIND THE SALE AND GET MY HOME BACK  - Again the courts are routinely saying: “No”. In the 2010 case of Mehta v Wells Fargo Bank (Fed Ct decison 3/29/2011), the Court ruled: a gratuitous oral promise to postpone a sale is ordinarily unenforceable. Typically the loan agreements require that any modification be in writing and signed by all. Alternatively, the borrower must have proviuded the lender with some “consideration” to which the lender is not otherwise entitled. Merely submitting modification application documents is not consideration nor is it enough to have continued making Trial Mod payments.  Without a written agreement with the lender extending the sale, the foreclosure will not be rescinded.

3.   IF THE LENDER CANNOT PRODUCE THE ORIGINAL PROMISSORY NOTE, THE COURT SHOULD BAR THEM FROM FORECLOSING  -  This “standing” argument has received extensive publicity natonwide, especially concerning the rights of MERS to foreclose.  Although early rulings tended to vary, Courts are more generally ruling in favor of the foreclosing lenders. As stated in Pantoja v Countrywide Home Loans, under California law there is no requirement to produce the original note prior to completing a non-judicial foreclosure (Trustee’s Sale).  A different result could possibly arise in a Judicial Foreclosure although that process is extremely rare in a home foreclosure.  Similarly, the courts agree that MERS has a right to foreclose when MERS is named in the Deed of Trust (which is most often the case).

4.   I WOULD HAVE PAID BUT THE FORECLOSURE NOTICE WAS DEFECTIVE  - California has a “Tender Rule” which requires the borrower to allege and to prove not that they “concievably” could have paid, but it was “plausible” that they would have paid.  Simply put, actual proof of real capacity to pay is needed.  Court rulings are consistent: If you couldn’t pay anyway, a defective notice was not the cause of the foreclosure.

The bottom-line in all of this is to be wary in believing that just because the lender may have mishandled your loan modification, a court will help you out.  At a basic level, a loan is a contract between the lender and borrower in which the lender gives the borrower money in exchange for the borrower promising to repay the loan on the terms in the written agreement.  Courts will generally not interfere in the contractual agreements of parties unless one of the parties breaches the agreements or does some other illegal action.

Obviously the above analysis just touches the surface of where the law is today.  Hundreds and perhaps thousands of cases are moving through the courts as borrowers seek to keep their homes.  In some cases, different courts will reach different rulings from those stated in this Article.  However, it does appear that these decisions are likely to be widely followed.  In fact, just yesterday a Sacramento Superior Court judge denied a Preliminary Injunction after having granted a TRO and allowed the foreclosure to continue. The judge’s legal reasoning cited all of the cases identified above and more. 

The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are upside-down on your loan(s), especially if you’re facing a lender lawsuit, or if you are considering suing your lender, get competent legal advice in your State immediately so that you can determine your best options.

If you have specific questions about your upside down loans or real estate, feel free to contact us at sjbeede@bpelaw.com.  We offer a $200 flat fee attorney consultation to review your situation and help you evaluate and choose the best opportunities. This can be done in person or by phone. If interested, please call us at 916-966-2260.

I’m often asked about whether a Lender would rent back to a debtor after a foreclosure. Generally the answer is no since there may be a new buyer at the foreclosure or, if the lender gets the property back as an REO, they typically want to re-sell it as soon as possible. But this may be possible with a Deed in Lieu of Foreclosure (”DIL”), particularly if the loan is owned by FannieMae (FNMA). 

Unlike a foreclosure which is a forced transfer, a DIL is a voluntary transfer of the title to the property from the lender.  This saves the lender time and money. And it can allow space and communication for negotiations.  If a loan modification or a short sale is not possible, the DIL allows the debtor to get rid of the property while avoiding the deficiency judgment risk and credit damage of a foreclosure.  Here’s how it works:

In late 2009, FNMA started what it calls a “Deed for Lease Program” which combines a DIL with a Lease-back to the occupant for up to 12 months.  The program is targeted for qualifying homeowners who are facing foreclosure but do not qualify for a loan modification.  As stated by FNMA:  “This new program helps eliminate some of the uncertainty of foreclosure, keeps families and tenants in their homes during a transitional period, and helps to stabilize neighborhoods and communities.”   

The basic qualifying requirements are :

1.  It must be a first loan on a 1-4 unit property. The loan cannot be government guaranteed (FHA, VA, HUD, Rural Dev.); Any junior liens must subordinate;

2.  It must be the borrower’s primary residence or their tenant’s primary residence;

3.  The occupant must meet income and payment guidelines (similar to HAMP) and cannot be in bankruptcy or litigation involving the property or the loan.

If the occupant meets the qualifications, FNMA will Lease the property back to the occupant for up to 12 months after completion of the DIL at a market rent not to exceed 31% of the occupant’s monthly gross income.  What is very significant here is that the Lease-back can apply to tenants in the borrower’s rental property.  While we’ve not seen any other lenders offer a similar Deed for Lease program, a request for lease-back could be part of any DIL negotiations.

To learn more about the FNMA Deed for Lease Program, click on these links:

http://www.fanniemae.com/newsreleases/2009/4844.jhtml

https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2009/0933.pdf

https://www.efanniemae.com/sf/servicing/d4l/pdf/d4lfaqs.pdf

If you have specific questions about your upside down loans or real estate, feel free to contact us at sjbeede@bpelaw.com.  We offer a $200 flat fee attorney consultation to review your situation and help you evaluate and choose the best opportunities. This can be done in person or by phone. If interested, please call us at 916-966-2260.

The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are upside-down on your loan(s), especially if you’re facing a lender lawsuit, get competent legal advice in your State immediately so that you can determine your best options.

For the past three years, I’ve been regularly advising upside-down property owners on the challenges, risks, and strategies of dealing with their lenders and upside down loans.  Over 2,000 borrowers and their Realtors have consulted with us to determine what they should do.  As our nation’s economy slowly recovers, some solutions have improved such as lender’s willingness to do short sales while others have gotten worse such as the failure of loan modification programs.  And we’re now defending more and more clients from lender and collection company lawsuits seeking deficiency judgments.

At the request of several clients, we’re providing the following informational links to Outlines that can help owners and Realtors know which questions to ask and learn which way to proceed.

Guide for Upside-Down Property Owners

Outline for Property Owners Seminar

Outline for Realtors Seminar

If you have specific questions about your upside down loans or real estate, feel free to contact us at sjbeede@bpelaw.com.  We offer a $200 flat fee attorney consultation to review your situation and help you evaluate and choose the best opportunities. This can be done in person or by phone. If interested, please call us at 916-966-2260.

The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are upside-down on your loan(s), especially if you’re facing a lender lawsuit, get competent legal advice in your State immediately so that you can determine your best options.

Across the country, real estate agents are reporting a dramatic increase of lenders rejecting short sales and pushing forward with foreclosures.  This change of practice seems to be most evidence with Bank of America although they certainly are not alone.  In one recent case in Washington reported on KATU.com, the lender (Flagstar) rejected the buyer’s offer as being too low and demanded a higher price. When a new buyer agreed to pay the lender’s price, the lender rejected the deal and foreclosed anyway.  In a similar situation in California, BofA rejected an offer that was substantially higher than comparable sales (realtown.com).  So what is driving this change?  It may be the interaction of several changes. Here’s what may be going on:

1.  Changes at Bank of America - it is no great surprise that BofA’s foreclosure rate would increase. As reported here on Feb. 9, 2011(Changes coming to BofA), this lender has now divided itself in two with one part holding their good loans and banking business, and the other part - called “Legacy Asset Servicing” - holding the bad. And they’ve brought in a veteran forecloser from One West Bank to lead it.  The expectation is that the two year plus lag times which BofA has taken to foreclose will soon disappear as they push to get these bad debts off their books.

2.  Changes at Fannie Mae and Freddie Mac - These government sponsored enterprises (GSE’s) are the actual investors in nearly 90% of all loans being made today.  As the investors, they have the control over whether a short sale offer is accepted or rejected.  Now that the government wants to get out of the lending business (winknews.com), there is a push underway to wind down the enormous amount of bad debt on their books. On February 23rd, Fannie Mae announced what it has called the “STAR” program which will actually rate lender servicers and provide rewards for those who perform timely and fines for those who don’t.  This could mean that lenders that do not foreclose timely will be fined! (see Bob Hertzog blog).

3.  Problems with Broker Price Opinions - The underlying cause of these rejections often is based upon the lender’s unrealistic opinion of the property’s value. When considering a buyer’s short sale offer, the lender has a responsibility to its investor to independently determine the value and for this they generally have their own real estate representative provide a broker price opinion, commonly called a “BPO”. While this should reasonably match up with what a buyer would be offering, it doesn’t always happen.  And sometimes it bears no relationship to reality.  Again and again we hear about lenders rejecting short sales and then opening the foreclosure sale with a bid even less than the short sale buyer would pay.  How can this make sense?  Well, there are some ways:

      (a)  Investor makes more money on a foreclosure - In many cases lenders’ and investors’ risk of loss is less than we might believe: (1)  lenders may have their own mortgage insurance policies in place that pay them only if there is a foreclosure;  (2) lenders may have some access remaining to TARP bailout money to offset bad loan losses; and (3) lenders such as One West who take over failed banks from FDIC may have government guarantees that pay them more if they foreclose (see: One West blog 8/2010).

     (b)  BPO is defective - Just because a bank requests their agent to run a BPO does not assure that it will be accurate.  In today’s marketplace, real estate values vary widely. If the agent does not use comparative properties of the same size, location, and physical condition, the BPO may tell the lender to demand a higher price than a buyer would be willing to pay.  If this happens to you, request a review of the BPO and provide good detail on the subject property and the comps.  A full-blown appraisal would be better but no-one wants to spend the money on this, especially if the lender is not really motivated to short sell.

    (c)  Negotiator Opposition - Even when everything seems right, the Short Sale must still be approved by the lender’s negotiator and this can add an element that has nothing to do with market value.  We recently were involved in a short sale with Chase in which the seller stayed current on their loan to avoid credit damage (he was a banker). The negotiator refused the short sale because, since he was current on the loan he must not have a hardship. She wanted him to pay the entire deficiency even though he had no ability to do so. This short sale eventually succeeded by “appealing upstairs” to a supervisor but it was a battle all the way. 

IN SUMMARY - Overall, there are five generally recognized reasons that Short Sale offers get rejected.  Make sure that the short sale offer you submit satisfies each of these:

      (1)  Price is too low:  Make sure to supply a fully and accurate comparative market analysis or approasal.  Be ready to counter a defective BPO.

      (2)  Short Sale Package Incomplete:  Don’t expect a lender to tale a hit on the deficiency if the Seller has not provided full information required to evaluate a hardship application, including net worth statement.

      (3) Seller does not Qualify:  If the Seller has assets that they can contribute to reduce the deficiency but refuses to do so, the lender may reject the short sale.  Bridging this requires analysis of the impact that a foreclosure could have on the Seller and on the lender.

     (4)  Buyer does not Qualify:  As with any offer, the lender must be reasonably confident that the Buyer will be able to complete the sale so be sure to provide at least a Prequalification Letter with the offer. Also, make sure that this is a third party transaction. If the Buyer is a friend, family member, or business associate of the Seller, it will probably be rejected as being a sham “straw buyer” seeking to stick the lender and then getting the property back to the seller.

      (5)  Bank sold the Loan:  Banks have thousands of loans on their books. Short Sale offers are often submitted to the lender who is receiving the Seller’s loan payments.  But they may only be a servicer if they have sold the loan.  Seek to get confirmation quickly that the lender still owns the loan… they may not know for certain themselves.

Meanwhile, if you have specific questions about your upside down loans or real estate, feel free to contact us at sjbeede@bpelaw.com.  We offer a $200 flat fee attorney consultation to review your situation and help you evaluate and choose the best opportunities. This can be done in person or by phone. If interested, please call us at 916-966-2260.

The information presented in this Article is not to be taken as legal advice. Every persons situation is different. If you are upside-down on your loan(s), especially if you’re facing a lender lawsuit, get competent legal advice in your State immediately so that you can determine your best options.

 In that matter, it turned out that the decision maker was the loan’s investor, FNMA.

Last Fall, controversy erupted nationwide when it was disclosed that lenders were falsifying Declarations legally required to foreclosure on defaulted property owners. The law requires that someone with personal knowledge of the facts declare under oath that the facts were true and that they justified the foreclosure.  In reality, banks were having staff members sign thousands and thousands of these Declarations without even reading them and with no personal knowledge of the facts they were swearing to.

Although the furor quickly died when banks promised to clean-up their acts, the Attorneys General of many States brought legal charges against the lenders. Last week, they unveiled a draft Settlement which contains a great many provisions which, if adopted, would end the abuses and inefficiencies which have plagued the loan modification process and led to the foreclosure of millions of homes.  Most controversial however is the requirement II.M. of the draft Settlement which would require lenders to consider and apply Principal Reductions as part of the loan modification process.  Opposition has been swift.

As reported in DSNews.com, almost as soon as the draft Settlement was released, Bank of America’s CEO, Brian Moynihan, spoke out against the principal reduction requirement saying “it would not be fair to underwater homeowners who have struggled to remain current”.  Senator Richard Shelby of Alabama stated: “This proposed settlement appears to be an attempt to advance the administration’s political agenda, rather than an effort to help homeowners who were harmed by a servicer’s actual conduct”.  And Iowa Attorney General, Tom Miller, acknowledged that “too generous a program might encourage homeowners to walk away from properties…”.  This was followed by the Chairman of the House Financial Services Committee, Spencer Bachus, who called the draft an effort to “transform the mortgage servicing industry and fundamentally change the rules that have historically governed relationships among borrowers, servicers, and investors”. He asked: “Will forcing servicers to fund principal reductions for underwater loans they service affect the incentive of mortgagors to stay current on their loans?”

Obviously the proposed Settlement is just a draft at this point and the final terms may vary greatly from the initial proposal.  But judging from the initial media reports, there is a widespread opposition to intervening in the lender-borrower relationship by compelling principal write-downs.  If the investors who provide their moneys to lenders to make loans cannot rely on their right to enforce the loan terms when there has been a default, those investors may decide to invest elsewhere. If so, the availablity of loans, especially for the riskier borrowers, will become much more difficult to obtain.  No matter what else happens, the political discussion created as a result of the Robo-Signer scam could potentially change the entire financial system for both the better and for the worse.

Please take the time to review the draft Settlement and let your Attorney General and House and Senate representatives know how you feel on this issue. Watch this Blog and others as the revisions occur.

Meanwhile, if you have specific questions about your upside down loans or real estate, feel free to contact us at sjbeede@bpelaw.com.  We offer a $200 flat fee attorney consultation to review your situation and help you evaluate and choose the best opportunities. This can be done in person or by phone. If interested, please call us at 916-966-2260.

The information presented in this Article is not to be taken as legal advice. Every persons situation is different. If you are upside-down on your loan(s), especially if youre facing a lender lawsuit, get competent legal advise in your State immediately so that you can determine your best options.

As any observer of the real estate market knows, property pricing remains in the dumps with most sales being either short sales or foreclosures and REO’s. While the economy in general appears to be recovering, real estate has been lagging behind. 2011 is projected to see increasing foreclosures as lenders clean-out their backlog of defaulted loans. Meanwhile, we’re just starting into dealing with upside down commercial properties. For this reason, many economists project we won’t really turn the corner on real estate recovery until 2014 at the earliest.  So why might this be the best time to buy?  

1.   Properties are Undervalued - As reported in DSNews.com,  based on the latest Case-Shiller home price index, a study by Capital Economics shows that in the fourth quarter of 2010, housing was 21 percent undervalued when compared with disposable income per capital. Looking at data included in the index published by the Federal Housing Finance Agency (FHFA), the firm found that housing in Q4 was 15 percent undervalued as measured against individuals’ disposable income. Capital Economics says its results illustrate “housing is exceptionally undervalued,” and the gap is getting bigger. In its third quarter 2010 report, the research firm pegged the Case-Shiller index readings as 19 percent undervalued and the FHFA index as 14 percent below what would constitute a balanced housing value in relation to income.  This downward pressure on prices will continue as the foreclosures clear out, opening the gap even further.

2.  Financing Remains Very Affordable - On top of low prices, mortgage rates have fallen back a bit in recent weeks, leaving them even further below the 20-year average of 7 percent. Last week marked the third consecutive week that rates have continued to decline. A national survey conducted by Freddie Mac shows that the average 30-year fixed-rate has dropped to 4.87 percent, while the 15-year fixed-rate has slipped to 4.15 percent. When you wrap declining home prices and historically low mortgage rates together, Capital Economics says, “The incredibly favorable affordability and valuation environment is the housing market’s one big positive.”

3.   Government Financial Support May be Ending - As my readers know, the future of FNMA and Freddie Mac is in jeopardy. These Government Sponsored Enterprises (GSE’s) were originally created to provide a funding source for socially desireable but higher risk loans. When started, GSE’s provided funds for 30% of all loans. Today, that number is 90% and steps are being taken in Congress to get government out of the lending business or at least scale it back.  Last week, Freddie Mac published a Memo that starting June 1st, they will no longer purchase loans with loan-to-value ratios of less than 5%.  As these GSE’s retract from the marketplace, interest rates and down-payment requirements are likely to rise making home ownership less achievable.

4.  Buy to Own or Invest, not to Flip - While there will always be opportunities for the knowledgeable and dilligent to make money flipping properties, declining prices and increasing loan costs will shrink the profit margins available as flippers find it harder to re-sell.  In contrast, those who buy for their home or for rental investment will benefit from 1) locking in the profit margin between current prices and actual value; and 2) potentially higher rental values as the ranks of renters swell with people who cannot obtain a loan to buy their own home. 

All of the above factors indicate that right now may be the ideal time to buy real estate, not for quick profit but for the long-term stability and financial growth that real estate has historically provided as a part of your overall financial plans.

If you have specific questions about real estate, investments, or any other legal issues, feel free to contact us at sjbeede@bpelaw.com.  We offer a $200 flat fee attorney consultation to review your situation and help you evaluate and choose the best opportunities. This can be done in person or by phone. If interested, please call us at 916-966-2260.

The information presented in this Article is not to be taken as legal advice. Every persons situation is different. If you are upside-down on your loan(s), especially if youre facing a lender lawsuit, get competent legal advise in your State immediately so that you can determine your best options.

As readers of my Blog are aware, there has been a legal issue in the nation as to whether MERS, the Mortgage Electronic Registration System, can foreclose on a Deed of Trust if they do not own the Promissory Note. First a little background.  A loan is generally made up of two documents: 1) the Promissory Note in which the borrower promises to repay the lender upon terms set forth in the Note; and 2) the Deed of Trust which gives the lender a security interest in the real property.  If the borrower defaults in payment under the terms of the Note, the lender can take the property based upon a foreclosure power contained in the Deed of Trust. Depending upon the State and the method of foreclosure used, the lender may or may not be able to obtain a court judgment against the borrower for any portion of the loan not paid (deficiency judgment).

During the growth of the real estate bubble from 2000-2008, lenders regularly sold the loans to get money to make more loans. This involved assigning the Note and Deed of Trust to the new owner and recording the assignment of the Deed of Trust.  This process was costing lenders millions of dollars in recording fees. Their solution to avoid this was the creation of a separate entity, MERS, which would be assigned the Deed of Trust but note the Note.  Then, if there was a default, whoever then held the Note would tell MERS to foreclose.  The legal question this raised was whether MERS had any real rights to enforce the loan default terms or were they merely an agent of the actual owner of the loan, ie: the holder of the Note.  This is very important because if MERS is only an agent, they have no legal right (”standing”) to take any action… only the holder of the Note can.  In States where foreclosure can only be done through a legal action (such as Ohio, Florida, and others), foreclosure actions by MERS started getting thrown out of Court when they could not prove that they also owned the Note. 

These early successes gave birth to law firms promoting that they would stop foreclosures by finding the disconnect between MERS and the Note holder.  However, it also started legal argument nationwide on whether this ownership of both the Note and Deed of Trust was required.  In May 2010, the US Bankruptcy Court in California ruled that if MERS did not own the Note, they could not foreclose on the debt (Case of Rickie Walker).  However, that did not settle the dispute.  As reported in DSNews.com , Courts around the country have continued to differ. Last week, a New York judge ruled that MERS cannot foreclose unless they own the Note.  But within days, judges in Kansas and Mass. ruled that ownership was not required. Other Courts, particularly the Minnesota Supreme Court, ruled that MERS could foreclose. On February 18, 2011, California Court of Appeals (4th Dist) ruled that MERS could foreclose (Gomes v Countrywide Home Loans). In that case, MERS was actually named in the Deed of Trust signed by the borrower and had authority to foreclose.  Different facts might bring a different result.

Only rulings by a State’s Supreme Court are binding on all lower courts in a State so it is likely that the dispute will continue.  However, consensus appears to be growing in the Courts around the nation that MERS does not need to own the Note to foreclose on the security.  Perhaps, although not stated, this reflects a judicial attitude that since the borrower has actually defaulted in repaying the debt, they should not be able to use the MERS technicality to avoid the consequences. 

Time will tell how this dispute eventually plays out. In the meantine, we advise that you do not get lured in by advertisements promising they’ll stop foreclosures because MERS doesn’t own the Note.

If you have specific questions about your loan and the lender rights or any other legal issues, feel free to contact us at sjbeede@bpelaw.com.  We offer a $200 flat fee consultation to evaluate your liabilities and strategize a resolution. This can be done in person or by phone. If interested, please call us at 916-966-2260.

The information presented in this Article is not to be taken as legal advice. Every persons situation is different. If you are upside-down on your loan(s), especially if youre facing a lender lawsuit, get competent legal advise in your State immediately so that you can determine your best options.