short sales, mortgages and deeds in lieu of foreclosure · doing short refinances, filing...
TRANSCRIPT
▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬ 2017 Seminar Material
▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬
New Jersey Institute for Continuing Legal Education
A Division of the State Bar Association NJICLE.com
SHORT SALES,
MORTGAGES AND DEEDS
IN LIEU OF FORECLOSURE
S0211.17
c
SHORT SALES, MORTGAGES
AND DEEDS IN LIEU OF
FORECLOSURE
Moderator/Speaker
Regina L. Gelzer, Esq. Regina L. Gelzer, Attorney-at-Law, LLC (Toms River)
Speakers Carl E. Guzman, CPA Greenback Capital Mortgage Corporation (Teaneck) Nicholas P. Timpanaro Fortune Title Agency, Inc. (Roseland)
S0211.17
© 2017 New Jersey State Bar Association. All rights reserved. Any copying of material
herein, in whole or in part, and by any means without written permission is prohibited.
Requests for such permission should be sent to NJICLE, a Division of the New Jersey
State Bar Association, New Jersey Law Center, One Constitution Square, New
Brunswick, New Jersey 08901-1520.
Table of Contents Page Short Sales, Mortgages and Deeds in Lieu of Foreclosure 1 Mortgage Foreclosure and Deeds in Lieu of Foreclosure PowerPoint Presentation Nicholas P. Timpanaro 3 Short Sales What You and Your Client Need to Know PowerPoint Presentation Regina L. Gelzer, Esq. 21 Hope in the Aftermath for Distressed Borrowers PowerPoint Presentation Carl E. Guzman, CPA 29 About the Panelists… 43
1
Mortgage Foreclosure and Deeds in Lieu of Foreclosure
Presented By:
Nicholas P. Timpanaro, President Fortune Title Agency, Inc.
3
Foreclosure vs. Deed in lieu
• Foreclosure
– A judicial procedure when the mortgagor is in default; an involuntary conveyance
– 3 months to ???
• Deed in lieu
– An optional procedure when the mortgagor is in default, a voluntary conveyance
– 60 days to ???
4
Deed in Lieu Process
• Notice of Intention
• Title Search to determine creditors
• Filing of Complaint (optional)
• Filing of Lis Pendens (optional)
• Evaluation of property value
• Incentives to Mortgagor
• Right of recession
5
Mortgage Foreclosure Process
• Notice of Intention• Title Search to determine creditors• Filing of Complaint• Filing of Lis Pendens• Service on Creditors (Defendants)• Affidavit of Amount Due• Final Judgment• Writ of Execution• Sheriff’s Sale
6
Notice of Intention (NOI)
• Same Notice is filed for both Deed in Lieu and Foreclosure
• Sent to the borrower once the Mortgage is in default– Notice is sent by Regular and Certified Mail.
• Purpose of the notice is to provide the borrower with the following information:– Inform the borrower of the intended action
– The right to cure, including the sum of money needed to cure and when it is due to avoid foreclosure proceedings.
– The name and address and phone number of a person to contact.
– The name and address of the lender and telephone number of a representative of the lender for the debtor to contact if they disagree with the lenders assertion.
• If the lender accepts a voluntary surrender of the property prior to default the Notice of Intention does not need to be filed.
7
Search of Property and Debtor
• Need to search the property and the debtor in the County and State – Determine what liens or judgments are attached to the property prior to accepting a Deed in Lieu or filing a Complaint for Foreclosure.
• Deed in Lieu– 60 Year Search required if insurance is requested
• Foreclosure – Present Owner Search sufficient
– 60 Year search required if insurance is requested
8
Complaints
• Optional for a Deed in Lieu• Required for a Mortgage Foreclosure• Content of Complaint
– Explains why the lender is foreclosing the property. – States the Mortgage and Note terms and the default. – Sets up the ownership interest and any subsequent mortgages, judgments and liens.
– Describes the property in question.
• Must be filed with the State – Docket No. is assigned to identify the filed action.
9
Lis Pendens
• Optional for Deed in Lieu– Lis Pendens does not cutoff liens or judgments filed subsequent
to the Lis Pendens.
• Required for Mortgage Foreclosure– Lis Pendens stops other judgment creditors from attaching a lien
to the property allowing the lender to continue to Sheriff’s Sale.
• Content of Lis Pendens– The Docket No. and the defendants are listed in the caption.– The Mortgage Book and Page and a legal description of the
property are included in the body of the document.
• The filing of the Lis Pendens in the County Register/Clerk’s Office gives Notice to the world that the action is taking place.
10
Evaluation of Property
• Deed in Lieu
– Lender evaluates if the property is worth taking or if there are too many liens and judgments and a Foreclosure is a better option.
– If the property has no additional Liens or Judgments it is likely the lender would take a Deed in Lieu of Foreclosure.
• Mortgage Foreclosure Process
– Proceeds regardless of the number of liens
11
Incentives
• Deed in Lieu
– Some lenders will make a monetary offer to the debtor to entice them to give a Deed In Lieu of Foreclosure.
– Since the cost of taking a Deed In Lieu is less expensive that proceeding to a Foreclosure Action the incentive has become an acceptable practice.
12
Right of Recession
• The Fair Foreclosure Act states the following:– “If the lender receives a Deed in Lieu of Foreclosure, the conveyance shall be effective only if the Deed clearly and conspicuously provides: that the debtor may, without penalty , rescind the conveyance within seven days, excluding Saturdays, Sundays and legal holidays; and that such recession is effective upon delivery of a written notice to the lender or its agent or upon mailing of such notice to the lender or its agent by certified or registered mail, return receipt requested.”
• Underwriters are rejecting deeds without this clause.
13
Mortgage Foreclosure
• Service on Creditors (Defendants)
• Affidavit of Amount Due
• Final Judgment
• Writ of Execution
• Sheriff’s Sale
14
Other Optional Foreclosures
• Property Abandoned
• Property with no equity
• Strict Foreclosure
15
Abandoned Property
• Under the Fair Foreclosure Act if the property is abandoned you can apply to the courts for a order fixing the amount, time and place for redemption.
• An Affidavit or certification of knowledge the property is abandoned is filed with the courts and an application is filed with court and the office or Court can set a time place and amount for redemption.
16
Property With No Equity
• Shall be deemed to have no equity if the total unpaid balance of ALL liens against the property is equal to or greater than 92 percent of the Fair Market Value. The value is determined by a Licensed appraiser.
• An amount, time and place of redemption will be set by the courts
17
Strict Foreclosure
• This action is used when there is an outstanding lien or judgment not disclosed at the time of the optional foreclosures, Deed in Lieu, Abandoned Property and Property With No Equity.
18
What To Look Out For
• Bankruptcy– Provides an automatic stay on the property and a order vacating
the stay is required
• Estates– Make sure all heirs are included in the action
• Federal Liens – Any USA judgment or lien requires a Judicial Sale
• Taxes– Sometimes the Tax Liens can be worth more than the property
• Affordable Housing – There are restrictions in play if the property is subject to
Affordable Housing.
19
What you and your client need to know
Regina L. Gelzer, Esq.
21
Has no actual legal existence
Product of negotiation between lender and seller
Lenders will want 80% ‐ 85% of outstanding mortgage
Some lenders will be more willing to bargain than others – commercial lenders will be more willing to negotiate than governmental entities
Driven by market conditions – a declining or depressed market favors short sales
Emphasize that this is a win‐win‐win situation – the seller unloads debt, buyer gets a bargain, lender converts a non‐performing loan
22
Process will take longer than a typical sale
Sellers may need to make minor, essential repairs or bring cash to closing
A poor financial picture works in the sellers’ favor –the worse the financial picture , the more likely to be approved for a short sale
A short sale may be consummated during the pendency of a bankruptcy with Court approval
Mortgage debt forgiveness ‐ enacted through the end of 2014, unknown going forward whether capital gains will be taxable
23
Be prepared to wait
Do not expect repairs or repair credits – this really will be an “as is” sale! Check into the possibility of a 203K loan, which will fund some repairs
The lender will require its own appraisal
The lender will have full control of the HUD
No side deals or “seller’s concessions”
24
Check for an outstanding tax sale certificate
If there is one, verify if there is a foreclosure action pending
If a foreclosure has begun, you will need Court approval for a short sale
25
Most lenders have short sale document packages online with all necessary forms
Buyers will need to submit financial worksheets, IRS 4056T forms, as well as hardship letters (handwritten is best!) and hardship affidavits
Bank of America – all documents must be submitted through the Equator portal. Attorneys will need to create an account as an agent
Real estate agents should be aware that commissions may be cut
Sellers’ attorneys – this will require a great deal of work on your part, so make sure to value your services accordingly
26
Hope in the aftermath for distressed borrowers
Carl E. Guzman, CPA
Copyright 2014 Carl Edward Guzman All rights reserved. No part of this manual may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording or by any information storage and retrieval system without written permission from the publisher. This book may
not be reproduced in any form without the written consent of the Author
29
What happened?
The number of homeowners in mortgage distress situations has dwindled over the last couple of years, but recent numbers show that millions of residential properties are still underwater. These homeowners need help and need the advice from professionals to avail them of their options. It's important to make sure that the clients are steered in the right direction. You don’t want a client doing a short sale when in fact they may be able to do a short refinance, Harp refinance, rent their existing home to cover their mortgage and rent for less elsewhere, OR maybe, after all the time that’s passed, the property is worth more and they can refinance or sell at full price.
In the last several years we had borrowers doing loan modifications. The practical implementation of the home affordable modification program was a failure. The failure was due to a lack of federal enforcement. The strong support for modifications has come from state and federal legislation who have come to issue a ruling that those who offer trial modifications must offer a permanent ones. We also had borrowers doing Short refinances, filing Bankruptcy, Short sales, Deed in lieu of foreclosure, and properties going into Foreclosure. All of these affect individual credit, equity, and net worth and consequently the ability to borrow.
30
Time Heals
As time has past, several important factors have changed opening up possibilities that did not exist before.
1. There has been significant property appreciation in the past few years so many owners can sell their homes at a greater price, or refinance because of the higher value, and possibly qualify for a reverse mortgage which requires substantial equity in a property.
2. Those who had damage to their credit scores are now reaching seasoning periods ( a period of waiting time after occurrence) where their credit has improved so that the combination of a better score and having the years pass after the event open up the possibility of refinancing or buying again.
31
Segmented Borrower Challenges
• Millennials – Newbies looking to buy their first home. Need to build credit. Need to have a job. Need to compensate for lack of credit and savings. May look to co‐signers.
• Baby boomers – May have equity erosion, loss of job, loss of savings, weakened cash flow, credit damage from the past, parental support obligations.
• Seniors – same as above with more potential medical problems as well as employability issues.
Assessing short term and long term needs is paramount in devising a strategy
32
Agency waiting period Chart (Fannie and Freddie)
33
How much time for forgiveness
Caveat – waiting periods are taken into consideration along with current history. Just because you met the waiting period does not mean its ok to be currently late on mortgage payments. • For Fannie Mae products, if you have foreclosed on a loan, the
waiting period is 7 years from the completion date and 3 years for extenuating circumstances (90% LTV).
• For a short sale or deed‐in‐lieu the waiting period is 4 years and for Chapter 7 bankruptcy the waiting requirement is 4 years from the discharge or dismissal date and 2 years for extenuating circumstances.
• For Chapter 13 bankruptcy, there is a 2‐year waiting period from the discharge date, a 4‐year waiting period from the dismissal date and a 2‐year waiting period for extenuating circumstances.
34
How much time for forgiveness
• With Freddie Mac and LP Super Conforming loan products, the waiting period after a foreclosure is 7 years from the completion date, and for a short sale or deed‐in‐lieu the waiting period is 2‐4 years.
• If you have filed for Chapter 7 bankruptcy, the waiting period is 4 years from the discharge or dismissal date and if you have filed for Chapter 13 bankruptcy the waiting period is 2 years from the discharge date and 4 years from the dismissal date.
35
How much time for forgiveness
FHA loans are the most forgiving when it comes to derogatory credit events. The waiting period after a foreclosure is 3 years and for a short sale or deed‐in‐lieu the waiting period can be anywhere from 0‐3 years from the completion date. If you have filed for Chapter 7 bankruptcy, the waiting period is 2 years and if you have filed for Chapter 13 bankruptcy, one year of the
prepayment period has to lapse in order to qualify.
36
How much time for forgiveness
For VA loan products, the waiting period after a foreclosure, short sale or deed‐in‐lieu and Chapter 7 bankruptcy is 2 years for a loan less than $417,000 and 7 years for a loan greater than $417,000. If you have filed for Chapter 13 bankruptcy, the waiting period is 7 years for a loan amount greater than $417,000, but it's mandatory to finish making all payments prior to qualifying.
Finally for USDA loans, the waiting period after a foreclosure, short sale or deed‐in‐lieu and Chapter 7 bankruptcy is 3 years and one year of repayment has to occur for Chapter 13 bankruptcy.
37
Mortgage Products & Options
• Standard mortgage products currently available –Fannie, Freddie, High bal jumbo, super jumbo, fha, FHA 203k, FHA “back to work,” Fannie home style, VA (100% cash out), USDA, HARP and alternative products for self employed e.g.. Asset depletion, pledged asset, reverse.
• Stated is gone unless non‐owner occupied.
• Non Qualified mortgage product or portfolio ‐which
May be the direction to go for those who cannot wait it out.
38
Strategies
• Fitting in “the box” is always going to give a borrower the best mortgage rate and choice.
• Therefore, those who had foreclosure, or gave their deed up etc.. Will have to wait and rebuild their financial weaknesses to get the best opportunity for the “best rate.” The best rate, for anyone who has ever taken a mortgage, in and of itself, is not the be all or end all. The opportunity has to factor into the decision. For example, and I’m not suggesting this as an alternative, but hard money loans exist because the borrowers care more about the financial opportunity that exists than they do the cost of the borrowed money. They want speed to close and they are willing to pay for it.
• My point is, there is a pot for every cover, and the most important important thing to do is know your reality and work with that reality to make the best financial and/or financing decision.
39
What can non prime borrowers do?
1. Work on improving their credit scores while waiting it out if time is not of the essence. My suggestion is never wait to improve your credit to get the best rate during a transaction. If the credit score is not high enough to qualify, then work on it to a point where you can get approved. If you score is good enough to apply, move the process along and improve the score afterward.
2. Look for programs that will increase equity such as a FHA 203 K. If the property is underwater, upgrading may build increased equity and allow a refinancing of the existing mortgage.
3. Explore what would be known as Non‐qualified mortgages which are essentially, out of the box loans that can get a borrower where they need to go. Current segments of the market are not being served by the Agency and Government Programs. There are qualified, credit worthy borrowers who have faced unique circumstances that have limited them from mortgage choices that can meet their home financing needs. Known as a “fresh Start “ program. Some programs offer:
40
What can non prime borrowers do?
• Contin….
• No seasoning or mortgage pay history required for borrowers who have experienced a bankruptcy, foreclosure, deed‐in‐lieu of foreclosure, or short sale
• Bank statement option for self‐employed borrowers
• FICO minimum 580
• DTI up to 50%
• LTVs up to 80%
• Manually underwritten
• All occupancy types
• Purchase, Rate/Term, & Cash‐Out Refinance
• Loan Amounts $150,000 to $1,000,000
41
What can non prime borrowers do?
4. If Equity exists, but there is a shortage of liquidity and earnings, explore the benefits of a reverse mortgage as a cash flow tool.
5. Add a co signer/borrower
6. Lease with an option to buy
7. Take seller financing
8. Utilize asset depletion programs and secured lines against liquid assets as compensating factors.
There are still many great options available today, and as the market changes more and more programs are trickling in to accommodate those borrowers
who have past blemished histories and those short on liquidity currently have low down payment purchase programs available.
42
About the Panelists… Regina L. Gelzer, Regina L. Gelzer, Attorney-at-Law, LLC, is a solo practitioner in Toms River, New Jersey. She has been practicing law in Ocean and Monmouth Counties since 1988, including several years as an Assistant Ocean County Prosecutor. Ms. Gelzer focuses her practice in real estate, bankruptcy litigation, small business collections and distressed property transactions. She is one of the few New Jersey attorneys to successfully recover title in a mortgage foreclosure rescue scam. President of the Ocean County Business Association, Ms. Gelzer has appeared on WABC-TV, CBS-TV, NPR’s Marketplace and Fox Network’s Mike and Juliet Show, and has consulted with the FBI owing to her expertise in foreclosure rescue scams. She has served as Special Counsel to the Chapter 13 Bankruptcy Trustee and is Past Chair of the Affiliate Committee of the Ocean County Board of Realtors. She is a frequent lecturer for ICLE and other attorney and realtor groups on distressed property transactions including short sales, foreclosures, deeds in lieu of foreclosure and bankruptcy. Ms. Gelzer is a cum laude graduate of the University of Pennsylvania and received her J.D. from American University, Washington College of Law. Carl E. Guzman, CPA is President and founder of Greenback Capital Mortgage Corporation and a Mortgage Broker/Banker in the firm’s Teaneck, New Jersey, office. A Certified Public Accountant and New Jersey and New York State-Licensed Real Estate Broker specializing in complex mortgage solutions, he has been assisting borrowers with financing needs for more than two decades and has closed hundreds of millions of dollars in mortgage loans. Mr. Guzman has served as a board member of the New York Association of Mortgage Brokers and Chair of the Association’s Education Committee. He has been on the Board of Trustees of the Teaneck Economic Development Corporation and has served as its Treasurer. He has served as an arbitrator on large real estate cases for the American Arbitration Association. Mr. Guzman has developed, authored, and conducted mortgage seminars through numerous universities and educational providers, and has lectured on “The Pros and Cons of Reverse Mortgages” for ICLE. He is frequently published and quoted in the news media and has appeared on TV and radio. Mr. Guzman received his undergraduate degree from Queens College, City University of New York. Nicholas P. Timpanaro is the founder and President of Fortune Title Agency, Inc. in Roseland, New Jersey, and widely recognized as a “Foreclosure Specialist” in the State of New Jersey, having worked in the foreclosure industry for more than 25 years. He predominately deals with complicated title matters, speaks on the foreclosure industry and handles negotiations with underwriters. In 2000 he opened Fortune Title Agency, Inc., where he expanded the business to not only service mortgage foreclosures, but also tax sale foreclosures, REO Property Sales, purchases, refinances and settlement services. The company now handles more than 55% of the foreclosures in the State of New Jersey in addition to being a full-service title agency.
43
Mr. Timpanaro is a member of the American, New Jersey and Pennsylvania Land Title Associations, and is Past President of Legal Vendors Network and Professional Business Builders. He is a title expert as well and has been in the Title Industry for more than 35 years. Mr. Timpanaro’s career began in 1980 as a title searcher for Title Abstractor’s Co. and in 1990 he was hired as Chief Title Examiner and Manager of the Foreclosure Department at First Financial Title Insurance Company. He was then offered the position of President at Commerce Title Agency, Inc., which he accepted in 1994 and proceeded to grow the company to produce more than 35% of all the foreclosures in the State of New Jersey. Mr. Timpanaro received his Producers License in Title Insurance from the Millburn School of Business.
44