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Navigating Short-Sales and Foreclosures in 2014
Laura M. Wellen Thrasher, Dinsmore & Dolan Cleveland, Ohio
“Just let it go to Foreclosure”
Understanding the Foreclosure and Short‐Sale Universe and how it effects your Divorce Client
First and Foremost we are Divorce Attorneys We are not Accountants, not Tax Attorneys, not
Bankruptcy Attorneys Protect yourself at every juncture Sample Language:
“While the Firm of ABC, has entered into this engagement agreement to represent your interest in the matter of your Divorce from Mrs. Spouse, it is recognized and agreed that the firm of ABC is NOT acting and will not act as legal counsel in the matter of the foreclosure of the residence located at 123 S. Main St., Anywhere, OH. You have represented to ABC that you have received a default notice. It is recommended that you engage counsel specific to the foreclosure of your real estate. It is further recommended that you seek the counsel of a Bankruptcy Attorney”
Knowing what you Don’t Know
Laura M. Wellen, Esq. Thrasher, Dinsmore and Dolan, LPALwellen@tddlaw.com
The Problem
Laura M. Wellen, Esq. Thrasher, Dinsmore and Dolan, LPALwellen@tddlaw.com
Wife was divorced in July 2013. It is now June 2014.
Wife has saved up some money and seeks to buy a home. When she seeks out a Mortgage Broker she finds she is still on the Maritial Property and it is in fact being foreclosed upon.
Wife comes to you seeking a counsel on what if anything she can do.
The real property located at 367 Glenn Drive, Anywhere, Ohio, is presently titled to both parties, and is encumbered with a primary mortgage with Third Federal Savings and Loan. As such, the parties hereby agree that all equitable and legal title will be transferred to Husband, and shall hereafter be held by Husband, free and clear of any claim of Wife. Concurrent with the execution of this Agreement, Wife shall execute a Quit Claim Deed and/or such other documents as may be necessary or helpful to clear her name from the title to said parcel of real estate.
Commencing July 1, 2013, Husband shall pay the mortgage, real estate taxes, and all other expenses relative to said parcel of real estate, and he shall indemnify and save the Wife absolutely harmless thereon. Within one‐hundred and twenty (120) days of the execution of this Agreement, Husband shall effectuate the refinance of the primary mortgage upon the residence thereby releasing Wife from any and all liability thereon. Wife shall vacate the premises no later than July 1, 2013.
Husband shall be responsible for all costs associated with ownership of the marital residence beginning July 1, 2013 and at all times thereafter. Husband shall pay all expenses, including by not limited to the mortgage, taxes, interest, insurance and maintenance costs, related to the property and Husband shall indemnify and hold absolutely harmless Wife from any such expense, claim or liability whatsoever arising from, or in any way related to the property.
Laura M. Wellen, Esq. Thrasher, Dinsmore and Dolan, LPALwellen@tddlaw.com
The Problem Language in the Decree
Determine as soon as possible WHO is on the Note: Husband Wife Both Best Practices –
Get a copy of both the Note and Mortgage Determine the type of Loan Get a Credit Report
The Bank/Lender has ZERO interest in letting one party off the hook
Determine WHAT debts are on the property HELOC or 2nd Mortgage
Laura M. Wellen, Esq. Thrasher, Dinsmore and Dolan, LPALwellen@tddlaw.com
Who and What Matters
Timing Matters
Laura M. Wellen, Esq. Thrasher, Dinsmore and Dolan, LPALwellen@tddlaw.com
“We’ve missed a few payments”
Pre‐Foreclosure aka Default Notice
Foreclosure
Mediation
Active Docket
Foreclosed – pre ‐ Sherriff’s sale
Post Sherriff’s Sale
Pre‐ Complaint
Litigation
Mediation
Pre‐ Discovery
Post‐Discovery
Post‐Decree
Contempt
Determine WHEN your client is in EACH process –
Foreclosure Divorce
Wife and Husband are on the Note
There is no HELOC or 2nd Mortgage
Review the Docket
Husband has been served and Answered.
Wife has neither been served nor Answered.
Husband moved the Court to have the Foreclosure sent to Mediation.
Laura M. Wellen, Esq. Thrasher, Dinsmore and Dolan, LPALwellen@tddlaw.com
The Problem
Foreclosure Process
Laura M. Wellen, Esq. Thrasher, Dinsmore and Dolan, LPALwellen@tddlaw.com
Foreclosure Complaint – This is real litigation – all the Civil Rules apply
Mediation Mediator – Court Appointed vs. Bank Appointed Timeline – Delays the resolution Costs Know the options
Deed‐in‐lieu, Sheriff’s sale, loan modification, bankruptcy
Litigation AKA, Active Docket There are defenses, they are rare The DANGER of Google
BEWARE: The Bank Marches On
Protecting Wife’s Interest under the Foreclosure
Wife needs to answer the Complaint immediately
Wife needs to get involved in the Mediation Process
Protecting Wife’s Interest under the Divorce
File a Motion in Contempt
Keep Careful Records of the Fees
Prepare her for the possibilities
Laura M. Wellen, Esq. Thrasher, Dinsmore and Dolan, LPALwellen@tddlaw.com
THE PROBLEM
Default Notice – aka Pre‐Foreclosure Foreclosure
Mediation – Alphabet Soup Litigation
Post‐Foreclosure, Pre‐ Sherriff’s Sale Move to delay Sherriff’s Sale 60(B)
Sherriff’s Sale Scheduled Attended by the Bank and Buyers 1/3 the appraised value
Post Sherriff’s Sale Notice to Relocate
Laura M. Wellen, Esq. Thrasher, Dinsmore and Dolan, LPALwellen@tddlaw.com
WHEN – the key to knowing the options
Most counties now have a dedicated Foreclosure Mediator or Mediation Department
Some counties issue a Notice with the Summons and Complaint of the availability of Mediation
Either Spouse can move the Court to have the matter referred to Mediation
Mediation packet Extensive, monthly expenses, HAMP, “lost documents”
Pros and Cons Resolution, remain in the home, credit‐worthiness, costs, time,
outcomes
Laura M. Wellen, Esq. Thrasher, Dinsmore and Dolan, LPALwellen@tddlaw.com
Mediation
Obtained the mortgage on or before January 1, 2009.
Owe up to $729,750 on a primary residence or single unit rental property
Owe up to $934,200 on a 2‐unit rental property; $1,129,250 on a 3‐unit rental property; or $1,403,400 on a 4‐unit rental property
The property has not been condemned.
A financial hardship and are either delinquent or in danger of falling behind on your mortgage payments (non‐owner occupants must be delinquent in order to qualify).
Sufficient, documented income to support a modified payment – 31% Gross Monthly Income
Must not have been convicted within the last 10 years of felony larceny, theft, fraud or forgery, money laundering or tax evasion, in connection with a mortgage or real estate transaction.
Laura M. Wellen, Esq. Thrasher, Dinsmore and Dolan, LPALwellen@tddlaw.com
Making Home Affordable aka HAMPExtended Until Year end 2015
Eligibility Best Practices
Financial hardship – usually in affidavit or letter form. The borrower/client must outline why the hardship occurred. Feel free to use as much emotionally laden language as you like but be clear that there has been a reduction in the income of the household due to circumstances beyond the borrowers control.
Ultimately a modification – costs added on, term extended
Documented Income – the lender is going to lose the documents. The lender is going to lose the documents several times. Mail/Fax documents each time and keep impeccable records on this issue. Seek the assistance of the Mediator. Instruct your client to remit to you ALL of the
documents of ALL of the expense EVERY MONTH
31% of the Gross Monthly Income Regardless of the Divorce the Bank is likely to require
both incomes
The bank is likely to require 31% of BOTH for a modification
Save the Dream Ohio, aka, Hardest Hit Funds – no longer exists Principal Reduction Alternative (PRA)
Home is currently worth significantly less than owed on it; designed to encourage mortgage servicers and investors to reduce the amount owed on the home
Second Lien Modification Program (2MP) First mortgage was permanently modified under HAMP and a second mortgage
remains on the same property; may be eligible for a modification or principal reduction on the second mortgage
Veteran's Administration Home Affordable Modification (VA‐HAMP) Available to owners with VA insured or guaranteed loans – 31% still applies
FHA Home Affordable Modification Program (FHA‐HAMP) United States Department of Agriculture's (USDA) Section 502 Single
Family Housing Guaranteed Loan Program Specific to rural home owners – 31% gross still applies
Laura M. Wellen, Esq. Thrasher, Dinsmore and Dolan, LPALwellen@tddlaw.com
Alphabet Soup
Foreclosure vs. Short‐Sale
Foreclosure
The legal process to terminate the ownership of real estate that is collateral for a debt based on a mortgage.
Litigated Process
From Default Notice to Sherriff’s Sale can last as little as 6 months or as much as several years.
Client will be charged for EVERYTHING
Appearances 2x
Insurance
Judicial Report 2x
Deficiency
Short Sale
A type of pre‐sale in which the lender agrees to let the owner sell the property for less than the full amount owed and to accept the proceeds of the sale in satisfaction of the debt.
Collaborative Process
90 Days – the amount of time a Lender will usually require a home to be on the market prior to entertaining a short‐sale offer
NO 1099 Deficiency issue
Can take as little as 90 days and as much as 18 months
Potential buyer issues, personal vs. investment
Laura M. Wellen, Esq. Thrasher, Dinsmore and Dolan, LPALwellen@tddlaw.com
THE PROBLEM
Foreclosure
Ultimately the marital property will be disposed of by Sale or Loan Modification
Deficiency issue
Divorce
Husband in Contempt for failure to indemnify Wife
Seek fees for litigation of Foreclosure
Seek damages for funds expended on housing that arguably she could have saved had she been permitted to purchase a home
Deficiency Issue
Laura M. Wellen, Esq. Thrasher, Dinsmore and Dolan, LPALwellen@tddlaw.com
2/3 of the Appraised Value
The Mortgage Forgiveness Debt Relief Act and Debt Cancellation of 2007 Sunset at the close of 2013 Principle Residence U.S. Congress may extend
H.R. 3856 – extend through close of 2015
Joint and Several Liability Best Practices ‐ Negotiating in the Mediation for Wife to be
NOT named in any deficiency If out‐spouse, Wife, receives a 1099 – s/he may seek the
assistance of the DR Court
Laura M. Wellen, Esq. Thrasher, Dinsmore and Dolan, LPALwellen@tddlaw.com
Deficiency Issue
Likely sale back to the Bank for 1/3 of the appraised value
If there are filings between the JE and the Sheriff’s Sale this can take months to effectuate
Other Buyers have no interest in purchasing ahead of Sherriff’s Sale
Sherriff will eventually notice and evict the homeowner, although they will have some notice
Safety and Security issues for the homeowner between notice of sale and actual sale
The property no longer belongs to the homeowner
Laura M. Wellen, Esq. Thrasher, Dinsmore and Dolan, LPALwellen@tddlaw.com
Sherriff’s Sale
Sample Language – The parties recognize that the property is on the brink of being foreclosed upon and they have been
noticed by the bank of intent to foreclose. Wife has made all payments as agreed under the Courts Temporary orders of May 2013. Husband has failed to make the payments as agreed beginning in December of 2013. Husband agrees to bring the note current within 40 days of this agreement, thereafter Husband shall have no responsibility as to the martial home vis‐a‐vie Wife. The parties shall remain jointly and severely responsible as to their lender. Neither party shall hold the other harmless as to the property. Said property is encumbered by a first mortgage and a Home Equity Line of Credit both owed by the parties’ jointly to Chase Bank. Wife shall continue to attempt to sell the home, making it reasonably presentable and available for showing. Wife shall lower the asking price of the property to any point at which the parties can agree.
Wife shall have the right to exclusively reside in the real property known as 123 ABC Road, Anywhere, Ohio , 44026, until the close of the 2012‐2013 school year. Wife shall in all ways cooperate with Husband in listing the home for sale. In the event that the home is sold by the parties, whether by short sale or any other means, any net proceeds paid to the parties by such sale shall be paid The parties are the owners of real property known as 123 ABC Road, Anywhere, Ohio, 44026, and 1233 Fox Road, Put‐In‐Bay, Ohio . Both properties are in foreclosure . Neither party is assuming any of the debts related to the mortgage loans on either or both parcels of real property . Neither party is the other party as to any obligations related to the on either or both properties
Laura M. Wellen, Esq. Thrasher, Dinsmore and Dolan, LPALwellen@tddlaw.com
Foreclosure Eminent Pre‐Decree
Example: Foreclosure already pending client now would like a Divorce
Best Practices
Ask for the DR Courts assistance in the Complaint or by separate motion, ASAP
Ask that all parties be required to remit all the HAMP documents monthly to each other
Ask that the parties be required to sign all documents relating to a modification and/or mediation within 24 hours
Laura M. Wellen, Esq. Thrasher, Dinsmore and Dolan, LPALwellen@tddlaw.com
Foreclosure Eminent Pre‐Filing
Initially the clients Credit Rating will drop all other things being equal, the credit rating may start
to increase in 24 months
Fannie Mae will NOT permit a new loan to be issued for 5 years Can be reduced for extenuating circumstances
FHA will NOT permit a new loan to be issued for 3 years Can NOT be reduced for extenuating circumstances
Laura M. Wellen, Esq. Thrasher, Dinsmore and Dolan, LPALwellen@tddlaw.com
Credit and Foreclosure
QUESTIONS?
Laura M. Wellen, Esq. Thrasher, Dinsmore and Dolan, LPALwellen@tddlaw.dom
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