Hi Everyone, Here’s the follow up blog post from class today:
Here is a link to Julie Lyda’s blog with her fabulous graph showing the relationship between Notice of Trustee Sales and actual Trustee Deeds.
Definitions from the beginning of class:
Forbearance: Borrower is behind on one or two payments and works with the lender to make up the missed payments.
Repayment Plan: Typically done along with a forbearance. The missed payments are added to the end of the loan or made up over X months.
The above options are for SHORT TERM financial distress situations.
The options below are for LONG TERM financial distress:
Loan Modification: Could include one or more of the following:Temporary interest rate reduction, re-amortize the loan over 40 years, sometimes a principal balance reduction
Short Sale: The homeowners owes more than the home is worth, MUST sell, and does not have the money to make up the difference.
Foreclosure:The lender follows the laws of each state in order to take back possession of the home. Then they resell the home to try to recover their losses
Here is a link to the DFI website where you and your homeowners can read the DFI Interpretive Letter about who can and cannot perform loan modification services in WA State.
Here’s the Housingwire story about the failure of most loan modifications and how some banks are discovering that doing a foreclosure right away might save more the bank more money that a loan modification that will just end up re-defaulting anyways.
We talked about how a second mortgage debt survives a non-judicial foreclosure even though the lien is wiped off of title. The case from the WA State Supreme Court Opinion I mentioned in class was Beal Bank v. Sarich and the Docket number is 79875-3.
My research tonight turned up nothing on banks offering below their opening bid at the auction here locally. I have heard that this is happening in California. see paragraph three of this article. I’ve put out some requests to see if we can uncover something more on this topic.
Nothing new on the King County Sheriff’s website regarding foreclosure evictions.
I couldn’t find anything specific to the question about 15,000 homeowners “getting their foreclosures cancelled” I DID find some interesting class action lawsuits. This couple is working on getting their mortgage cancelled and trying for class action status, here’s another one filed by the NAACP, and here’s a series of articles along this same subject line.
UPDATE: Hat Tip to Carol Burns for sending me the article. It was 14,000 homeowners and it’s from the AARP website.
Finally, here’s a copy and paste from a recent Legal Hotline email that many of you forwarded to me. Thank you!
April 10, 2009
Legal Q & A
Question:
Licensed agent contacts a person in foreclosure to perform a short sale and gets the appropriate agreements in place. Agent has an LLC with which he buys properties and likes to buy short sale properties. He also wants to be able to make more money on the short sales via this strategy.
The now listed short sale goes on market. Agent’s LLC puts an option contract on the property that is unrecorded and void if the seller gets a better, higher offer. Once under option contract the agent’s LLC either buys the property or sells the option for a profit. So, he has made a profit on the real estate commission and sometimes on selling the option. There is full disclosure right in the purchase and sale agreement of this whole process. This also of course includes all parties agreeing, in writing, to these disclosures including the seller, buyer and bank.
Agent wants to put in the purchase and sale that goes to the bank and seller “Listing agent will attempt to purchase the subject property through short sale and intends to resell it for a profit. List agent has financial interest in the purchasing LLC.”
So all disclosures would be made in the purchase and sale and listing agreements. There are no lease backs or future dealings with the seller on the subject property. Seller accomplishes short sale, agent makes commission and some profit from selling the option, buyer gets a below market deal on the house. Are there any problems or violations with this approach?
Answer:
Yes. There is an irreconcilable inconsistency in the statement that agent’s option contract is void if seller gets a higher offer followed by the statement that agent will seek to sell the property to another buyer for more money. If agent, who represents seller, gets a higher offer, then isn’t the higher offer in fact a higher offer for seller, thus voiding the option contract and agent’s right to buy the property?
The whole premise of this transaction is that agent is going to profit at the expense of lender and seller and that will be okay because agent disclosed it. How does that make it okay? If seller’s agent can attract a higher offer for seller’s property, then agent has an obligation to present that offer to seller for seller’s benefit. It is to seller’s benefit to get a higher offer, even on short sale property. With a higher offer, seller has a better chance of lender accepting the offer, allowing a sale of the property. With a higher offer, there is less released debt that may become a personal obligation of seller after closing. With a higher offer, there is less released debt that may create tax implications for seller.
There is no spin to put on this transaction that results in seller being in a better position because seller’s agent took part of seller’s value in the property yet that is exactly what is happening under the facts presented. By analogy only, assume the property is encumbered for $200,000. agent options property for $140,000 and attracts a buyer for $180,000. Short sale lender, even with full disclosure, somehow approves the sale to agent for $140,000 and agent immediately sells to second buyer for $180,000. It is clear that agent is benefitted from this transaction. It is also clear that agent’s benefit is the direct result of the loss of $40,000 in seller’s value of debt reduction. The agent’s benefit is also the direct result of lender’s loss of $40,000 secured value in the property.
It is difficult to imagine that a truly well informed seller or lender would agree to these terms, but just because they do does not make this transaction okay. It is no different than agent just asking the seller and lender to divert $40,000 of the proceeds of the transaction to agent’s account. If for some unexplainable reason both say “yes”, it is still inherently wrong for agent to take those funds. Because agent is the listing agent, agent has a duty to take no action that is adverse or detrimental to seller in the transaction. By diverting seller’s proceeds, even in a short sale and even with approval, agent is unquestionably acting adversely and detrimentally toward seller.
Hotline Attorney Annie Fitzsimmons writes the Legal Hotline Question and Answer of the Week. Please submit questions to legalhotline@warealtor.org or call (800) 562-6027. Please have your NRDS number ready when you call or e-mail the Hotline with your question.
Thanks for a fun class today!