Short Sale Seller Beware – Court Holds Lender Approval is Not an Essential Element of Contract

On June 21, 2012, in the case of Cullinane v. Estate of Holly Vene, unpublished, the Michigan Court of Appeals addressed a case where a buyer sued the estate of a seller for specific performance on a short sale when the estate refused to close.  The majority of the court’s opinion dealt with the seller’s legal capacity to enter into a binding contract.  However, there was additional language that could severely limit the rights of sellers to back out of short sale contracts.

It is common practice in many areas for agents to simply add the language “subject to lienholder approval” on a short sale purchase contract.  While this language would protect a seller in the case where a lienholder did not approve the short sale, the Michigan courts now call into question whether this condition is material at all. 

In Cullinane, the court held that the term “subject to lienholder approval” was not an essential element to the contract. Therefore, the prospective buyer had the right to sue for specific performance even though there was no evidence that the lienholders had approved the short sale.   Therefore, even though the Estate attempted to back out of the contract, it was not allowed to do so. 

The best practice for agents is to include specific language that allows the seller to cancel the contract unless the lender’s approval is satisfactory to seller – in seller’s sole discretion – that seller can refuse to close under the contract. If the shorthand language is used, a lender can approve a short sale under whatever terms it wants, and the seller may not be able to cancel the contract.  Proper representation of sellers requires an agent to inform her client of that fact.  Careful drafting of contracts is essential to protect both yourself and your clients.

Court Finds Foreclosed Homeowners Not Liable for Removing Fixtures From Home

In the case of Gerber Federal Credit Union v. Shields, unreported, Docket # 303663, the Michigan Court of Appeals were faced with a case brought by a credit union against homeowners who allegedly removed cabinets, a sink and countertops from the home that the credit union had foreclosed. Gerber Federal Credit Union foreclosed on a house owned by the Shields. After the Shields moved out and the credit union took possession, they discovered that the items were missing from the home. In addition, the credit union provided evidence that the cabinets, sink and countertops in the Shields’ new home resembled the fixtures that had previously been installed in the foreclosed home. However, the court of appeals agreed with the trial court and held that the credit union did not prove that the Shields had removed the items. The case was decided based upon the relative credibility of the homeowner versus the credit union employee.

While this is interesting, this case was decided based upon a prior version of the foreclosure statute. As of December 22, 2011, under MCL §600.3278, a homeowner can be held liable for “physical injury” beyond “normal wear and tear” to a foreclosed property. This section is new so there is no case law interpreting it yet, so it is not clear what a court will determine to be “physical injury” to a structure. Certainly, using a sledgehammer to put holes in walls would fall within the statute, but it is questionable whether removing built in appliances or other fixtures would be deemed “physical injury.” Homeowners should take care before removing any built in items from a foreclosed home.

Bank of America Issues New Short Sale Guidelines

Bank of America has announced “Enhanced Second Lien Deficiency Waiver Guidelines”. It is important when processing a short sale to understand all of the latest programs in place by all of the lenders.  The latest announcement reads:  

Based on the Department of Justice settlement, effective June 1, Bank of America is extending additional support to homeowners in agreeing to enhanced 2^nd lien deficiency waiver guidelines.

Once you have determined if your homeowner may qualify for this waiver, contact your short sale specialist for establishing the amount to request for the 2^nd lien.

Basic qualifications:

Short sales initiated on or after June 1, 2012

 The 2^nd lien must be attached to a 1^st lien mortgage owned by Bank of America

Bank of America has also recently announced that they are paying up to $30,000.00 to homeowners for a successful short sale. Working with qualified Realtors and attorneys is necessary to obtain the best possible results for you.

 

Redman Law Firm Moves to Birmingham

On June 11, Redman Law Firm has moved its offices to downtown Birmingham, Michigan. From 2003 to 2006 Bruce Redman managed a firm in Birmingham. When the firm outgrew its space, it moved to Bloomfield Hills. But ever since moving out of Birmingham, Bruce, a life-long Oakland County resident, has wanted to move back.  Bruce said, “Birmingham has always felt like the right place for our firm. I grew up here. I rode my bike into downtown Birmingham as a kid. Our new loft space on Old Woodward in the heart of downtown is the perfect place for us.”

Redman Law Firm continues to specialize in Real Estate Law and Commercial Litigation. A large part of the firm’s practice has been to assist homeowners in working with their banks through the real estate meltdown.  We have seen property values drop more than 50% in some areas. Homeowners need to understand their options.  Banks are not going to tell you the best option for you.  Homeowners must consider Bankruptcy, Short Sales, Loan Modification and even “walking away”.  Explaining the process and the different options is what Redman Law Firm is all about. A real estate agent may have a lot of knowledge about the short sale process, but that does not mean that a short sale is necessarily the right option for every individual.  Personalized service is our calling.

The Five Most Important Things to Consider Before Co-Signing A Loan

I have seen more and more situations where someone has co-signed on a mortgage loan so that a family member could purchase a house or condo. Usually it is a parent who is co-signing for an adult child who has had credit issues. Typically, the parent has income, assets and a credit score that allows their child to qualify for a mortgage.

There are five important things that the parent or other co-signer must consider before agreeing to co-sign on a mortgage loan.

The first thing that someone co-signing must understand is that they are just as liable for the loan as is the person moving into the property. And since the other person did not initially have the income or assets to qualify on their own, it is likely they are not going to be collectible if something happens to the property. For example, if the mortgage is foreclosed, and there is a deficiency remaining after the foreclosure, then the parent can be held completely liable for that deficiency. A parent with significant savings or investments may lose them to garnishment if their son or daughter does not make payments on the mortgage. And since there was some reason that the child stopped making the mortgage payments, the bank is more likely to try to collect from the parent who had good assets and a good credit score.

Second, if the child falls upon tough times and the property is listed for a short sale, again the bank will look to the parent’s assets when deciding whether to forgive any deficiency. It is possible that the bank may require the parent to pay all or a portion of the deficiency to approve a short sale.

Third, if the debt is forgiven in a short sale or foreclosure, the parent may have tax consequences. The forgiveness of debt is a taxable event. And although many times the income is exempt from taxation, the largest exclusion from income does not apply for a property that is not the borrower’s primary residence. Therefore, it is possible that if the property is foreclosed or short-sold, it may cause a taxable event for the co-signing parent.

Fourth, the loan will be reported on the co-signor’s credit report and may adversely affect their credit score.

Finally, if the property is a condominium, the co-signing parent may be held financially responsible for any unpaid condominium dues. Again, this may result in the garnishment of checking, savings, or securities accounts.

Before agreeing to co-sign for any loan, make sure you understand the risks involved. The bank has all of the rights to collect from the co-signor. Make sure you properly consider these possibilities, before making the significant financial decision.

Alternatives to Foreclosure

People who are having trouble making their house payments and are facing foreclosure often are often not aware of their options. Anyone in this situation should be counseled in the foreclosure process and five alternatives to foreclosure. These alternatives are: Refinance, Loan Modification, Bankruptcy, Deed In Lieu of Foreclosure and Short Sale. Until you understand each of these options and how they might affect you, you cannot make an informed decision.

Refinance/Loan Modification

For individuals who want to keep their homes, a Refinance or a Loan Modification is a good alternative. There is a streamlined refinance process which has been discussed on Real Estate 411 that allows you to refinance even if you owe more on your mortgage than your house is worth. A Loan Modification, which will allow you to reduce your monthly payment, is another option. To apply for a Loan Modification, you need to contact your lender and provide financial documentation such as paystubs, bank statements, tax returns and a hardship letter explaining why you need your loan modified.

 Bankruptcy

A Bankruptcy may be appropriate whether you intend to keep your house or whether you are giving it up to Foreclosure or Short Sale. A Chapter 7 Bankruptcy is a quick option that will allow you to discharge all of your debts in approximately 90 days. A Chapter 13 Bankruptcy is longer and you have to make monthly payments for 3 to 5 years. With a Chapter 13, however, you may be able to strip a second lien from your home by paying as little as 10% of the balance over time. So for many people this is a great option to reduce their debt load and payments and restore some equity in their home.

 Deed in Lieu/Short Sale

For people who do not want to keep their homes, sometimes Bankruptcy is also an option, but also, A Deed In Lieu of Foreclosure and Short Sale are other options. A Deed In Lieu allows you to turn the property back to the bank in exchange for a release of further liability. A Short Sale allows you to sell the property to a third party for less than the balance. Usually the seller will attempt to negotiate a release of liability in a short sale, however, sometimes the seller may have to bring cash to closing or sign a promissory note to pay the difference off over time. Usually the negotiated amount is less than the full balance, but it all depends upon the circumstances of each individual case.

There are federal programs such a HAMP which controls Loan Modifications and HAFA which governs Short Sales and Deeds In Lieu. And there are also state programs such as the revisions to foreclosure statute which mandates that banks discuss Loan Modifications with a borrower before beginning Foreclosure and also MSHDA’S Hardest Hit Fund which is designed to give unemployed borrowers a break. Unless you or your representative understands each of these options, you can make a mistake that costs thousands of dollars. You must work with someone who is familiar with all of these programs.

This Is Not a Bill – Or Is It? Michigan Property Tax Appeals

                Each year, usually in early February, every property owner will receive a notice from their city or township assessor that says in bright red letters: “This Is Not a Bill”.  This notice is sent, not because the assessor wants to do so, but rather because every municipal assessor is required by statute to “estimate, according to his or her best information and judgment, the true cash value and assessed value of every parcel of real property [in their city or township].”  The purpose of this assessment is to determine the property owner’s tax bill for that calendar year. 

                While technically, “This Is Not a Bill” is true, if you do not challenge the information in this document, you lose the opportunity to argue about the tax bills you do receive in July and December of that year.  No wonder they tell you it is not a bill!

                Property owners have an opportunity to challenge the assessment, if they act quickly.  In the current environment, many homeowners are content to see that the assessor has lowered their assessment, believing that they have no option but to accept what the assessor has assigned as the valuation.  However, even if an assessment is lowered, the taxes are not necessarily lowered and the assessment may still be too high. 

Why Should I Challenge the Assessment?

• Taxes are based upon the properties’ taxable value, which may or may not be the same as the assessed value.  However, if the taxable value is at or near the assessed value, a reduction in the assessed value will result in a reduction in taxes. 
• If you successfully challenge the assessment, your tax savings over several years will be substantial.  You should not look at it as a single year’s savings.  Because of the caps in place on the increases in taxable value, a reduction this year may provide substantial benefits for many years to come. 
• A lower SEV may make your property more attractive to potential purchasers if it is on the market.  A lower SEV means that the new taxes (once they are uncapped after a sale) will be lower than otherwise. 
• By challenging this year’s assessment, if property values continue to drop, in the future it will be easier to reduce the assessed value again down to the true value of the property.
• “But my assessed value went down automatically.”  Yes, assessors have finally realized that property values are declining. But if last year’s value was too high and it is reduced this year, does the new value accurately reflect the true cash value?  Probably not.

 

How Do I Challenge the Assessment?

                Each municipality has their own procedure; however, common among them is that you must appeal the assessment by the deadline set by the assessor.  This may be as little as 3 or 4 weeks, depending upon the time the assessments are mailed.  Most municipalities will allow you to place a phone call to obtain an appointment.  At the scheduled date, you will appear before the board of review where you have the opportunity to present evidence (yes evidence!) to support what you believe the correct valuation should be.  The biggest mistake homeowners make is not being sufficiently prepared to present evidence of the true value of their property.  A listing of homes that sold in the area and the price at which they sold is not sufficient.  At a minimum, a spreadsheet listing three comparable properties that have recently sold and their sales prices, along with distinguishing features of each property (square footage, bedrooms, bathrooms, garage, etc.) will be required.  (The City of Birmingham has a sample form on its website to use for this purpose.)

                If you only want to vent and are prepared to have your request simply denied by the board of review, the above procedure is fine.  You will not spend any money; however, cutting corners like that will not give you the greatest chance at winning. 

How Do I Increase My Chances of Prevailing?

                Having hard facts – an appraisal instead of a list of comparable properties – and the ability to support the facts in the appraisal will make it more likely that you will win your appeal.  Knowing whether the assessor takes into account foreclosure sales or sales of bank-owned properties is necessary.  Knowing what other properties that have sold that are not contained on the comparables on the appraisal, and why they are not included, may also be important. Then, you must make a strong presentation based upon this evidence and answer the questions of the board of review.   In essence, you are putting together a “case” just as a lawyer would and by supporting your case with strong evidence, you are more likely to have positive results.  However, it is just as important to anticipate the assessor’s case as well.  If you are prepared ahead of time with the proper documentation and argument, you increase your chances of winning. 

Is It Worth Paying a Third Party to Represent Me?

                The answer to this question depends upon circumstances unique to each taxpayer.  If the amount of taxes that may be saved is higher than the amount you are charged by a representative, the answer is easy:  Yes.  However, there may be situations where even a huge reduction in the assessed valuation will not affect the amount of taxes to be paid.   An honest professional will tell you whether or not it is worth it to pay for their services.  Even if the amount of taxes to be saved in a single year may be small, once the taxable value is set, the future increases will come from that reduced figure.  This means that a single appeal may result in tax savings for many years to come. 

                For a free consultation, contact Bruce Redman at 248-594-5959. www.redmanlawfirm.com

Top 10 Tips to Understanding Foreclosure

We are getting many questions from people having trouble making their mortgage payments. In response to the most frequently asked questions, we have compiled the following Top 10 tips:

1. Do be proactive. – The more proactive you are to resolve your impending issues, the more options you will have available to you.  Most all of these programs have specific timelines and since banks are so backed up and things are not happening overnight, you might find yourself out of luck. 
2. Do not think this will just ‘go away.’ – Just because you have not paid your mortgage in 4 months and have not received a foreclosure notice yet, certainly does not mean it is not coming.  Banks are very backed up and it is only a matter of time until you will receive your notice.  
3. Do not hide from your lenders. – If you hide from your lenders they are going to think you are unwilling to work something out until it is too late.  New programs are continually becoming available but you must know about them to take advantage of them.
4. Do seek professional help. – Professionals can explain how the process works and what options are available in a clear manner as oppose to searching the internet for advice. Too much bad advice is being posted out there and everybody’s case is unique.
5. Do not think legal representation is unaffordable. – Often these start-ups are charging much higher fees than attorneys because they are looking to make a quick buck and move on to the next thing.  Attorneys adhere to and practice under ethical guidelines which gives the client recourse against the attorney if things go aria
6. Do think all of your options through. – People often think that the first option is always the best or what their friend did will solve their issue too. In this instance, that is not the case. Since each case is different and there are many options available, understand them all before chart your course of action.
7. Do try again. – If your first attempt was unsuccessful for one reason or another, try the next option on your list.  
8. Do understand your lender does not want another house. ­– Banks inventory of houses has recently dramatically increased. They can not afford to continue taking houses into inventory and often will work something out very favorable to the borrower just so they don’t acquire another house.
9. Do know the foreclosure process. –  Michigan’s foreclosure process timeline is quite long and homeowners should use it to their advantage.  If foreclosure is the right answer for you, you can potentially live in your house for over a year for free.   
10. Do know what action your lender can take to collect the debt. – If a deficiency exists after all is said and done, your lender may have legal rights to try and collect the amount that you still owe.  This process is quite a long one and can affect you for years to come.

We are conducting a free seminar for property owners facing foreclosure on September 30, 2009 in Sterling Hts., Michigan.  For more information, call Bruce Redman at 248-594-5959 or visit www.redmanlawfirm.com.

Michigan Homeowners Facing Foreclosure Get Much Needed Relief

Effective July 5, 2009, Michigan’s foreclosure by advertisement statute was amended to afford greater relief to homeowners.  In Public Acts, 29, 30 and 31, the Michigan Legislature created a statutory right for homeowners facing foreclosure to meet with their mortgage companies to discuss loan modification alternatives.  And, to alleviate homeowners’ concerns that the mortgage companies hold all of the power, the new law even provides a remedy for homeowners who are wrongfully denied a loan modification by their mortgage company.

The new law provides that before they start the foreclosure process, a mortgage company must send a notice to homeowners giving them the opportunity to request a meeting with the mortgage company to discuss ways to avoid foreclosure.  The homeowners, however, must request this meeting – in writing – within 14 days of the date that the notice was sent.  This notice will also be published in the legal newspaper for the county where the property is located.  If the homeowners do not request the meeting, the foreclosure will proceed as usual.  If, however, the homeowners do request the meeting, the mortgage company is prohibited from beginning foreclosure for 90 days.  In preparation for the meeting, the homeowners will be asked to fill out paperwork and to provide proof of current income and expenses. 

For a homeowner in financial distress, the most exciting aspect of the new law is that it provides actual guidelines that a mortgage company must consider in assisting a borrower with a loan modification.  The statute provides that the mortgage company should target a monthly housing payment of no more than 38% of the borrower’s gross monthly income.  The housing payment includes principal, interest, homeowners’ insurance, property taxes, and any association dues.  To reach the 38% threshold, the mortgage company is required to consider the following:

• An interest rate reduction, as low as 3% for a fixed term of at least 5 years;
• A term extension, as long as 40 years from the date of the modification;
• Deferral of the payment of up to 20% of the loan balance until the end of the loan; and/or
• Reducing or eliminating late fees.

If the loan is owned by FNMA or FHLMC, or is government insured, the guidelines that have been adapted by those entities apply – the statutory guidelines do not apply. 

If the borrower acts in good faith, answers all questions and requests for documents fully, and signs any necessary paperwork, and the mortgage company refuses to modify the loan, then the borrower has a statutory right to bring suit against the mortgage company.  Alternatively, the mortgage company can still foreclose, however they must bring a judicial foreclosure, a much more time consuming and expensive process than the standard foreclosure by advertisement.