navigating short-sales and foreclosures in 2014 resources/cle/course_handouts/june...years of felony...

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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, [email protected]

The Problem


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.


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


Who and What Matters

Timing Matters


“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.


The Problem

Foreclosure Process


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


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


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


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.


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


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


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


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


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


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


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


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


Credit and Foreclosure

QUESTIONS?


navigating short-sales and foreclosures in 2014 resources/cle/course_handouts/june...years of felony...

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