Andrews Law – Real Estate Law, Business Law and Immigration Law Blog

A short sale, often referred to as a negotiated settlement, is used when a homeowner owes more than a property is worth. A buyer offers to purchase the property for the current market value, not what is owed on the property. For example, a house originally purchased for $350,000 five years ago may now have a market value of $200,000. Most of the time, banks will accept the new offer, and absorb the difference in price. This allows the current owner to walk away from the property for less than the original price, and the lender is able to have working capital, providing funds for future loans.
Very often, a short sale has less impact on a person’s credit report, and for a shorter period of time than a foreclosure.

Time is of the essence. The sooner the process is started for a short sale, the better the chance of successfully selling the property and negotiating a settlement. Delays may cost more money by eliminating potential buyers, and potentially continuing declines in property values. Whatever changes in the real estate market, it is better to know what the current atmosphere is, what the procedure is for moving through the process of a short sale, and how to proceed through the process.

Don’t go it alone. Even with all the resources available on the internet and well intending friends and family, seek outside, expert, non-emotionally vested counsel. It is important to receive sound counsel from an attorney that specializes and practices real estate law. Selling a house can be an emotional situation under the best of circumstances, a short sale is exponentially more emotionally charged, and that emotion can be a detriment to achieving the best outcome possible. An attorney that specializes in real estate law will be the resource that will take care of the negotiations, filings, and the “foot work” while the seller can take care of the things to keep moving forward with their life.

Whether leaving well in advance of the potential closing date, or at the last moment, DO NOT indulge in any acts that could be perceived as vandalism, you may be held liable to the lender for such damage. Though Arizona is an anti-deficiency state, it’s law will not cover removal or destruction of lighting, plumbing, heating fixtures, doors, tearing of carpet, etc. This is an event in a series of events called life; don’t let emotion and frustration rule logic and common sense.

Remember, life happens. It is not the end of the world to have to sell a house for less than it was originally purchased. You have worked hard for your money; there is no reason for your money not to work hard for you. If the housing market is not cooperating; become informed, use knowledgeable resources, be ready to move, and relax. Once the short sale is complete, it will start the clock toward an improved credit score, the ability to re-enter the house shopping market with various loans and programs available, and bring peace of mind.

Written by: David C. Scoggins

Please Note: This blog is not legal advice. Do not treat it as such or rely on it without consulting your own attorney or advising your clients to do so. This material is presented for educational purposes only, to apprise homeowners of the current general state of foreclosure litigation and possible defenses available to a defaulting borrower. Each borrower’s facts and circumstances are unique and the foregoing defenses and law may not apply to each situation.

Common Contract Errors and Omissions Checklist

By David Z. Kaufman
When Signing the Contract

√ Be sure everyone signs & dates the final page
√ Be sure everyone initials & dates each page of contract
√ Contract should have numbering “1 of xx pages”
√ Be sure all warranties etc. that are incorporated by reference are attached to basic contract.
√ If the contract is a form contract, all entries must be filled out (If the space does not apply use “NA” etc.)
Be Sure to Include:

√ Reasonable attorney’s fees & costs in collection
√ A provision for interest finance charge
√ A statement of which state law controls
√ A statement of where disputes must be resolved
√ The consequences of not paying, e.g., contract and warranty are void
√ Carefully Defined terms
√ A statement that only the written contract controls and that verbal statements do not make part of contract
√ A statement that the contract is the written contract plus its additions etc. so that warranties, exceptions, etc are incorporated by reference.
√ A requirement that all changes must be in writing
√ Beware of fixed dates for completion, is time really of the essence?
√ A clear statement that the Contractor cannot be liable for things that are out of their control (terror, weather problems, etc.)
Finally:

√ Are appropriate consumer protection laws are complied with (if applicable).

© Copyright 2010, American Bar Association.

In the mortgage crisis gripping this country, there is a great deal of attention focused on foreclosure and the damage it is doing to families, neighborhoods and the broader economy. Many people in mortgage trouble are begging their mortgage companies to “work with them.” In most cases, you just end up wasting your time with endless demands that lead nowhere. Most people have no idea that their telling the court about their financial hardships that led to foreclosure, or about the uncaring and uncooperative attitude of the mortgage companies is of no use. These are not defenses to foreclosure.

A mortgage is a contract, whereby the borrower agrees to pay and to do certain other things (See What is Foreclosure?). If the mortgage company claims that there is a default by the borrower, this begins the path to foreclosure. However, there are many issues which can be defenses to foreclosure, even if the borrower has failed to pay, maintain insurance, or pay taxes.

Defenses to Foreclosure
Defenses fall into two types – defenses and affirmative defenses. Defenses are responses that negate the claims of the Plaintiff, such as that you are not the right party to foreclose, or that my loan is not in default.

Affirmative defenses are responses that say that “yes, maybe the account shows that my loan is in default, but you did not give the required notices, you improperly force-placed insurance which created an improper overload on my account, you charged me late fees when I was not late which created an improper overload on my account, etc.

Failure of Condition Precedent
The standard mortgage document which was in use for most loans made in the past 6 or 7 years contains a provision requiring the lender to give “notice of default and opportunity to cure” prior to commencing foreclosure. In non-judicial states, a Notice of Default actually is the first step in the foreclosure process. In judicial foreclosure states, a Notice of Default or Notice of Acceleration is a pre-foreclosure event. However, it is almost always required, by the terms of the mortgage documents and often by state law as well. In judicial foreclosure situations, this step is frequently skipped. If the notice is not given as required, that may provide a defense to foreclosure.

Many states have other pre-foreclosure requirements, such as notification to borrowers claimed to be in default of foreclosure assistance sources. Again, if these requirements are not complied with, that may provide a defense to foreclosure.

The Right of the Plaintiff to Foreclose (Standing)
Due to the chaos that underlay the secondary market during the mortgage “boom”, there were many irregularities and breakdowns in the process of transferring mortgage loans from the lender (the “originator”) to the ultimate purchaser, generally through a series of transactions. During this process many documents were lost, not executed, or not executed properly.

To further complicate matters, in many cases the claimants to ownership do not want their names and identities showing up all over the country taking away consumers’ homes. As a result, they try to stay out of it, and to have the foreclosure done for them in the name of the mortgage servicer (the agent of the claimant), who most people think is the owner of their loan, although it almost never is. It is the servicer who calls you, sends you bills, has a customer service department you can call. Most people have never spoken the “owner” of their loan and do not even know who it is. However, many states require that the foreclosure be brought in the name of the “real party in interest”, but notwithstanding that, the servicers often take the lead role, even when the law forbids it. In states which require the Plaintiff to be the real party in interest, this situation results in a defense of legal standing – meaning that the foreclosing entity does not have the right to foreclose.

Another related defense comes from the lack of proper documentation referred to above. This is what underlies the “produce the note” strategy. Usually the “produce the note” strategy is not sufficient to defend against foreclosure. However, a careful analysis of the chain of title of the mortgage loan will often show irregularities which may have resulted in an ineffective transfer to the current claimant.

Loan Accounting
Amazingly enough, it is not at all unusual for the mortgage servicer’s records to be wrong. There are many reasons why this is so. As the loans moved through the pipeline from servicer to servicer, many mistakes were made and the new servicer would have no idea why or what was wrong. Charges are made to loans in error and then not fully removed. Borrowers are charged for force-placed insurance improperly. Payments are not necessarily credited. I currently represent a couple whose home was foreclosed upon even though they were not in default because of the failure of a servicer to post a payment made to the account. The property was on the verge of foreclosure sale before I became aware of the problem.

Origination Fraud
Many people were lied to by mortgage brokers and originators, made to believe they were getting a different loan than they actually got. Many people left the closing table thinking they would have a payment of a particular amount, then later learned that it was much higher, or adjustable when it should have been fixed, or interest only when it should have been amortizing, or that it contained an escrow for taxes and insurance when they found later that they had to pay that themselves in addition, or found that there was a prepayment penalty so they could not afford to sell or refinance.

We refer to these as “ambush closings” – borrowers not finding out about major changes until the very end, when it was often impossible or impractical for them to change their minds. If there was a major difference between what you were told and what they got, you may have been a victim of mortgage fraud. In some circumstances, this can be a defense to foreclosure.

Truth in Lending Violations
The Truth in Lending Act has special rules applicable to mortgage refinances. It was required that the borrowers be given full and accurate disclosures of their loan terms, and then they had three days to change their minds. However, an examination of the disclosures often reveals that they were not full and accurate. If this happens, the borrower may retain an extended right of rescission for up to three years beyond the date of the transaction.

Payment Application and Escrow Account Violations
Some borrowers have had problems with mis-applied or late-applied payments. Some borrowers were charged late fees for on-time payments. Others tell us that their lender or servicer “force-placed” their insurance, even though they had insurance in force. If any of these things happened, they may form the basis for a defense, at times even beyond the amount in dispute.

The two most important things to understand about defenses to foreclosure is that few if any borrowers have sufficient information to determine whether they have the ability to raise some or all of these defenses, and would not have any likelihood of being able to claim the defenses or to prove them. It is important that consumers have an overview of how this works, so they can work with a knowledgeable and experienced foreclosure defense attorney to determine what defenses may apply and to develop a strategy to utilize them as effectively as possible.

All litigation is about leverage. At the outset of a foreclosure, the consumer has none, and the mortgage company thinks it is in complete control. Unfortunately, most people who undertake to defend themselves do the wrong thing, and compound the problem by not only not raising viable defenses, but by making admissions that help the mortgage company and hurt them. Through the use of properly articulated and applicable defenses, it may be possible to develop meaningful leverage.