What Is The Unsecured Debt Limit For Chapter 13?

What Is The Unsecured Debt Limit For Chapter 13

In Chapter 7 bankruptcy, there is a limit to how much money you can earn. A chapter 13 bankruptcy, which is only available to individuals and married couples, places a cap on how much you owe. This amount is adjusted every few years. The most recent adjustment was April of 2019. Below, we’ll discuss debt limits, how they work, and what you can do if you owe more than the Chapter 13 debt limits allow.
As of April 1, 2019, Chapter 13 debt limits are:
• $1,257,850 in secured debts; and,
• $419,275 in unsecured debts.
For those who don’t know, secured debts are those that are secured against some form of collateral. For instance, a mortgage is a secured debt because the loan is backed by the home itself. Car loans are also secured debts. Unsecured debts are usually credit card debt, medical debt, or personal loans.

Chapter 13 Bankruptcy Basics

Chapter 13 allows a debtor to reorganize their debts into a lump-sum monthly payment that is executed over the course of three or five years. Those who owe a lot of money in secured debt tend to choose Chapter 13 over Chapter 7 because it allows them to retain possession of their home or car. To save your home or car, however, not only would a debtor need to be able to repay the arrearages, they would have to continue to make payments on the car loan. In some cases, they may also qualify for a cram down which allows them to reduce the overall cost of the debt to the current value of the car. You can also qualify to have some (if not all) of your unsecured debt discharged at the end of your bankruptcy. The problem that some debtors face with Chapter 13, is that the debt limits aren’t high enough, especially in places like Manhattan or California where housing costs are extremely high. This leaves debtors in a bit of a quandary as to how to proceed.

What Happens if I Exceed the Debt Limits?

If you happen to exceed the Chapter 13 debt caps, there are two options available to you. Those are:
• Chapter 11 bankruptcy and
• Chapter 20 bankruptcy.

Chapter 11 Bankruptcy

Generally, only businesses file under Chapter 11. However, individuals can too. The process is similar to Chapter 13, but it does not have a fixed end date. Chapter 11 bankruptcies are executed over the course of an undetermined amount of time. Chapter 11 bankruptcies are typically much more costly and cumbersome than Chapter 13 or Chapter 7 bankruptcies making them rarely the top choice of individuals. Nonetheless, it is an option for those who are dealing with millions of dollars in secured or unsecured debt.

Chapter 20 Bankruptcy

Chapter 20 is not an actual chapter of bankruptcy but is so named because the debtor first files under Chapter 7 and immediately follows up with a Chapter 13. They do this so they can discharge enough of their debt to get themselves under the cap. However, Chapter 7 only discharges unsecured debt, so the debtor must have gone over the unsecured debt cap while simultaneously being under the secured debt cap.

Exceptions to Chapter 13 Debt Limits

There aren’t really any exceptions to the Chapter 13 debt limits, but only specific debts qualify to be included in those debt limits. These include:
• Contingent debts – Contingent debts are those that are only triggered upon some contingency. As an example, a personally guaranteed business loan would remain in good standing until the business defaults. If the business doesn’t default, then it wouldn’t be counted toward the Chapter 13 debt limit.
• Non-liquidated debts – Non-liquidated debts are those in which the amount you owe is either uncertain or your liability is uncertain. These could include personal injury lawsuits that are pending.

Debt Limits for Chapter 13 Bankruptcies

If your debts exceed the allowed amounts, you can’t file for Chapter 13 bankruptcy. Chapter 13 bankruptcy is a powerful tool for people with regular income who can pay back some of their debts. Chapter 13 allows you to reorganize your debts so that you pay back some in full and some in part, all the while receiving protection from the bankruptcy court.
But you can’t qualify for Chapter 13 bankruptcy if your debts are too high. Read on to learn about debt limits for Chapter 13 bankruptcy.

Limits on Unsecured Debt

Unsecured debt is one that doesn’t have some property or asset serving as collateral for the payment of the debt. Most debts are unsecured. Common examples include credit card debt, medical bills, utility bills, lawyer’s fees, and rent. Chapter 13 is only available for people who have less than $419,275 in unsecured debts. Most debtors have less than $419,275 in unsecured debts. The exception is people with substantial medical bills.

Limits on Secured Debt

A secured debt is one that has property as collateral. If the debtor defaults or doesn’t pay on the loan, the lender can take the property. For most people, the two most familiar types of secured debt are mortgages on real estate and car loans. A secured lender who’s not paid could foreclose on a house or other real estate, or repossess a vehicle. In order to qualify for Chapter 13 bankruptcy, you must have less than $1,257,850 in secured debt (as of April 2019; the amount for cases filed before that date is $1,184,200). While that might seem like a lot, a person, family, or a sole proprietor of a business owning more than one piece of property could easily have mortgages exceeding that threshold. For instance, in certain expensive real estate markets, a single middle-class family home could have a mortgage that size. It’s more likely that a Chapter 13 debtor will have a problem with the secured debt limit than the limit on unsecured debt.

Strategies to Meet the Chapter 13 Bankruptcy Debt Limits

If it looks like your debts exceed the Chapter 13 debt limits, you still might be able to file for Chapter 13. You are not eligible to file for Chapter 13 bankruptcy if your debts exceed a certain amount. That is, if you have too much debt, you can’t use Chapter 13. But, if upon first glance, it appears that your debts exceed the limit, take a closer look. You may be able to exclude certain debts from the calculation or use other strategies that will bring your debts below the limits.

What Are the Chapter 13 Debt Limits?

You are not eligible to file for Chapter 13 bankruptcy if the total of your non-contingent, liquidated debts exceed the limits set by the bankruptcy law. The limit amounts change every three years. As of April 1, 2019, if your secured debts (mortgages and liens) add up to more than $1,257,850 or your unsecured debts add up to more than $419,275, Chapter 13 may not be available to you. If it seems like your debts are too high, you might still qualify for Chapter 13. Here’s why:
• Your debts might not be below the limits.
• You might be able to use strategies to get your debts below Chapter 13 limits.
Review and Categorize Your Debts
Take the time to carefully review and categorize your debts. You may find that:
• some of your debts do not count toward the debt limits, or
• you may be able to divide certain secured debts into secured and unsecured portions — thus increasing your unsecured debt and decreasing your secured debt.

Determine Which Debts Don’t Count Towards the Debt Limit

You must list contingent and un-liquidated debts in your bankruptcy papers but they do not count toward the debt limits.
Contingent debts: These are debts that you have no obligation to pay unless a specific event, called a contingency, occurs. Most often, these are personal guarantees that you don’t have to pay unless someone else, often a business, defaults. If the contingency event hasn’t happened, the debt does not count toward the debt limits. You might think that co-signed debts are contingent (for example, you agree to co-sign on your brother’s car loan with the understanding that he’ll pay the debt), but that’s usually not the case. Even if you have an agreement with the other person that you will not have to repay the debt, legally you are equally responsible.
Un-liquidated debts: These are debts where your responsibility to pay has not been determined, or where the amount cannot be readily determined. This category often includes accident and other personal injury claims. Breach of contract claims, where the contract is for the payment of money and the amount can be easily calculated, may not qualify as un-liquidated.

Divide Debts into Secured and Unsecured Portions

With lien stripping and cram down you remove a lien, or part of a lien, from secured property in bankruptcy. The portion of the removed lien is converted to unsecured debt. In this way, you increase your unsecured debt amount, but decrease your secured debt amount. This might help you stay under the debt limits.

If You Still Don’t Qualify, Consider Chapter 20 Bankruptcy

Chapter 20 bankruptcy is a two-step strategy to deal with your debts in the bankruptcy court. It can help if you really need a Chapter 13 (for example, perhaps you want to keep your home or car and need Chapter 13 to catch up on back payments, or maybe you have debts that will be wiped out in Chapter 13, but not Chapter 7) but your debts are too high to qualify.
Here’s how Chapter 20 bankruptcy works:
First, you file for Chapter 7 bankruptcy (this assumes, of course, that you can pass the Chapter 7 means test and meet other eligibility criteria for Chapter 7). In Chapter 7, you wipe out unsecured debts (assuming they are eligible for discharge). Reducing your unsecured debt load may then allow you to meet the Chapter 13 debt limits. If so, you then file for Chapter 13.
Keep in mind, that you won’t be able to get a discharge at the end of your Chapter 13 case because you just got one in Chapter 7. However, Chapter 13:
• gives you additional time (the length of your repayment plan) to catch up on secured debt or non-dischargeable debt that you can’t afford to pay all at once, and
• may allow you to cram down or strip off liens. (Your ability to do this in Chapter 13 varies by district. Check with an experienced bankruptcy attorney in your area.)
Special Strategies for Married Debtors
Married couples who need to file for bankruptcy can use additional strategies if it looks like their debts may exceed the Chapter 13 debt limits.
Spouses Can File Under Different Chapters
If one spouse’s debt puts both over the limit for a joint filing, you might get around the debt limits by having one spouse file for Chapter 7 bankruptcy and the other file for Chapter 13 bankruptcy. Here’s how it might work:
This requires a sophisticated legal analysis if:
• you have assets that are not protected by exemptions
• you live in a community property state
• you are claiming ownership of property as tenants by the entirety, or
• you are planning to use lien stripping or cram down.
Check with an experienced bankruptcy attorney in your area to make sure you are fully aware of any consequences.

Claim Expanded Debt Limits in Joint Cases

If you are a married couple filing a joint Chapter 13 bankruptcy, some courts will expand the debt limits. Others, however, won’t allow for any expansion. If your court is more flexible on the debt limits when it comes to joint Chapter 13 bankruptcies, this is likely how it will work: If you each qualify for Chapter 13 separately, the court will allow the Chapter 13 case to proceed (even if your debts taken together are above the limits). This does not mean that you have to file two cases, but it does mean that each spouse must have a source of income that could support a Chapter 13 plan and each spouse’s debts, individually, must not exceed the Chapter 13 debt limits. To determine the amount of debt, each spouse must include joint debt in its full amount along with that spouse’s individual debt.

Free Initial Consultation with Lawyer

It’s not a matter of if, it’s a matter of when. Legal problems come to everyone. Whether it’s your son who gets in a car wreck, your uncle who loses his job and needs to file for bankruptcy, your sister’s brother who’s getting divorced, or a grandparent that passes away without a will -all of us have legal issues and questions that arise. So when you have a law question, call Ascent Law for your free consultation (801) 676-5506. We want to help you!

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506

Ascent Law LLC

4.9 stars – based on 67 reviews


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Complex Lender Liability Issues In Foreclosure

Complex Lender Liability Issues In Foreclosure

Lender liability is an area of law that protects borrowers who have been wronged by lenders that failed to uphold their contractual obligations or treat them fairly in regard to loans and loan agreements. Whether borrowers have contractual relationships with lenders for small operational expansions or to fund multi-million dollar projects, financial service providers must treat them fairly. When they don’t, borrowers have a right to take action.

When determining whether it is time to pursue legal action against a lender, and involve an experienced attorney to guide you through the process, consider the following:

• Breach of contract: Lenders have long used civil lawsuits to sue borrowers who breached loan agreements. With the rise of lender liability, borrowers now also have a right to sue lenders who breach contractual obligations established in a loan agreement, such as failing to honor a loan commitment. By working with attorneys who have experience in this area of law, borrowers can position themselves to bring effective claims and seek recoveries of their damages.

• Fraudulent conduct: Lender liability may arise from the fraudulent conduct of lenders, such as fraudulently induced agreements, misrepresentation, predatory lending, or other violations of state or federal laws, including the False Claims Act. While fraud may result in criminal investigations and criminal penalties or civil sanctions, borrowers will need to take legal action in civil court to recover their own damages.

• Breach of fiduciary duty: Fiduciary duty refers to the obligation one party (the fiduciary) has to act in the best interest of another. Depending on the circumstances, lenders may argue to limit borrowers in bringing claims that the lender-borrower relationship was fiduciary in nature. However, borrowers can work with attorneys to explore their options in determining whether a fiduciary duty may have arisen in regard to carrying out loan agreement terms or was assumed by a lender due the scope of their control over a borrower.

• Bad faith: Lenders have an obligation to deal fairly with borrowers and handle loan agreements and relationships in good faith. There are many ways they may fail to do this that can be grounds for lender liability claims, including improper default or foreclosure notices, improperly enforcing personal guarantees, wrongfully interfering with third party contractual relationships or a borrower’s daily activities, wrongfully failing to honor or renew loans, and more.

Lawyer objective in lender liability cases is to ensure banks, financial services, and other lenders treat their customers and borrowers fairly. Because these financial institutions have considerable power and deep resources, working with an attorney becomes critical to leveling the playing field. As such, borrowers who have been wronged by lenders that violate a duty of fair dealing or good faith should take initiative to involve a lawyer as soon as they can. Doing so can make the difference in one’s legal journey, and can help ensure the correct steps are taken at every phase. Lender liability is a complex and evolving area of law, and it is not one all attorneys are equipped to handle.

Avoid Legal Liabilities In Bank Foreclosures

The involuntary sale of real estate properties by banks or other note holders can expose the latter entities to lender liability suits and/or liabilities or liens that pass with the property if either proper procedure is not followed. Avoid additional legal trouble by working with an experienced lender’s lawyer.

Our mortgage lender foreclosure team manages the entire process including:
• Ensuring the chain of paperwork is complete
• Establishing the note holder’s right to commence foreclosure action
• Providing notice prior to sale of foreclosed property
• Attending mediations as required by court rules
• Spotting potential liability issues that the lender could face upon assuming title to real estate owned properties
• Advising on title insurance issues and asserting title insurance claims when appropriate
• Obtaining required ratification orders
• Drafting audits
• Closing on the passage of title instruments
• Determining the costs and benefits of pursuing a deficiency judgment after a loss

Managing Lender-Owned Property

As the economic and real estate landscape evolves, so do the legal implications of handling foreclosed property and bank owned homes. For this reason, it is crucial to remain up to date on jurisdictional and statutory requirements such as whether “as-is” clauses in legal ads are effective in the jurisdiction or if an affirmative obligation to make disclosures concerning the real estate is required. Similarly, the Uniform Commercial Code carries its own strict set of statutory rules that must be complied with in order to pass good title to the property acquired by a lender in the event of a UCC foreclosure and avoid jeopardizing the ability to obtain a deficiency judgment, which rules are especially sophisticated when intangible property changes hands. In addition to overseeing the foreclosure process in court, Ascent Law LLC has bank lawyers can also help parties avoid liabilities associated with the sale of the foreclosed property.

Attorneys should consult with you on all relevant points including:
• the cost/benefit of promotional advertising
• appropriate auctioneers
• bidding strategy and terms of sale

Avoiding Foreclosure Auctions

In some cases, foreclosure may not be the best course of action for asset protection. With advice of legal counsel, a “deed in lieu of foreclosure” solution may be possible. Furthermore, lenders may opt instead to work with the property owner, bringing payments up to date, or working out other more cost effective alternatives. Whatever course of action is ultimately chosen, compliance with all applicable state and federal laws are mandatory. Working with an experienced mortgage lending law firm is the best way to ensure that the chosen course of action meets all legal requirements.

Lender Liability Defenses

Common types of lender liability defenses – An attorney represents financial institutions involved in commercial litigation over the following types of lender liability allegations:
• Commercial foreclosure issues
• Bank or mortgage fraud
• Predatory lending
• Misrepresentation
• Breach of contract
• Breach of fiduciary duty
• Bad faith claims
• Usury

Understanding Lender Liability Lawsuits

Lender liability lawsuits borrow from two areas of law: Tort claims and contract law. Contract claims involve a breach of contract or breach of a loan agreement. Tort claims allege that some financial injury occurred to the borrower due to:
• Fraud,
• Negligence,
• Breach of fiduciary duty,
• Fraudulent concealment, or
• Breach of the implied covenant of good faith.
In tort cases, a borrower typically alleges that the lender is guilty of some kind of malfeasance and that the initial contract is unenforceable. For example, if a borrower alleges that a lender agreed to extend the maturity date of a loan upon request and then refuses when the time comes, the borrower can bring a lender liability suit against the lender. Key to cases alleging negligence is the extent to which a lender owes a borrower a duty of care. A possible defense to a tort claim is that the lender owed the borrower no such duty and fulfilled their end of the loan contract that the borrower agreed to. However, this would not insulate a lender from a claim of fraud or fraudulent concealment. Even in cases where a duty of care can be established, the lender can argue that the borrower was also negligent. A lender can also blame a third party for contributing negligence to the borrower’s damages. Lastly, a suit against a lender must be brought within the statute of limitations.

Litigating Lender Liability Lawsuits

To avoid lender liability lawsuits in the first place, lenders should require that borrowers sign a forbearance agreement as a contingency to negotiating a settlement. The agreement should contain standard releases and waivers as well as an alternative dispute resolution requiring mediation prior arbitration or lawsuit. This ensures the borrower cannot file any action in a court of law against the lender. However, in certain cases, the borrower will still be entitled to a jury trial.

What To Do After A Lawsuit Has Been Filed

After the borrower has filed a lender liability suit, the lender is tasked with examining the merits of the case against them. The lender will need to:
• Be responsible for gathering facts and evidence,
• Place an internal hold and preserve all documents related to the borrower
• Investigate the terms of the agreement to determine whether or not an arbitration clause exists. If it does, the case can be moved out of the courts.
Mediation is not outside the realm of possibility, and the lender should also analyze whether or not the borrower can file for bankruptcy.

Responding To a Lender Liability Lawsuit

After the lender has determined that there are no grounds on which to compel arbitration, the first move in a lender liability suit is to find any grounds on which to dismiss the case. The lender may also want to move the case from state to federal court. The most aggressive response at the lender’s disposal is to file a cross-complaint or an anti-SLAPP motion.

Anti-SLAPP Motions In Lender Liability Lawsuits

SLAPP suits (known as strategic lawsuits against public participation) allege that the plaintiff in a suit is attempting to silence or intimidate the defendant by burdening them with the cost of a lawsuit. The defendant must prove that the lawsuit lacks even a modicum of merit. If a defendant files an anti-SLAPP motion, the court will determine, based on the merits of the case, whether or not the lawsuit should move forward. To determine whether or not a lawsuit has merit, the court will use a two-factor test. First, the court will decide whether the suit hinders the exercise of the defendant’s constitutional rights. If the court determines that the suit does impede the exercise of the defendant’s rights, the court will then determine whether or not the lawsuit has a probability of prevailing based on the merits of the claim. If the court believes the case has no merit, or is unlikely to prevail based on the evidence presented, the anti-SLAPP motion will be granted and the case will be dismissed. Anti-SLAPP motions are best employed if a defendant files a lawsuit in retaliation after a lender has exercised their rights to collect a debt.

Advantages of Borrower Representation

Due to the knowledge and insight into the strategy of a lender liability defense, a lawyer who represents lenders may have a slight advantage should he or she come to represent a borrower. In these cases, the attorney will need to determine what duties the lender owed to the borrower. He will also need to determine whether the lender broke or breached the trust or contract.

Bank and Lender Liability

Lender liability litigation typically includes claims for breach of fiduciary duty, promissory estoppels, breach of contract, or related statutory violations. The claims typically allege that the lender engaged in conduct that resulted in the failure of a project or undertaking by the borrower. Lender liability claims are oftentimes complex, both in terms of developing the facts and applying the relevant law. We have experience with these claims. Foreclosure litigation proceedings require a firm with a particular understanding of Utah foreclosure law, as well as experience with the types of complicated legal issues that these cases typically pose. Attorneys have experience in the various types of legal issues facing the mortgage lending and servicing industry. Attorneys possess the skills to manage complex foreclosures involving residential homes, condominium projects, office buildings, apartment complexes and other commercial properties. Real Property Litigation practice includes foreclosure on defaulted mortgage loans, deeds in lieu of foreclosure and the sale of REO properties for our mortgage lenders. In addition, the practice encompasses trial and appellate representation before federal and state courts. Attorneys counsel and defend clients on matters involving the Truth-in-Lending Act (TILA), the Fair Credit Reporting Act (along with state credit reporting acts), Fair Debt Collection Practices Act (FDCPA), Fair and Accurate Credit Transactions (FACTA), Real Estate Settlement Procedures Act (RESPA and the Consumer Protection Act Equal Credit Opportunity Act (ECOA). Working closely with Bankruptcy and Restructuring Department, representation of lenders and loan servicers extends to serving as counsel in connection with the purchase or sale of debt, restructuring, and the enforcement of the rights of lenders, including commercial mortgage foreclosure proceedings and bankruptcy lift-stay proceedings.

Foreclosure Attorney Free Consultation

When you need legal help with real estate law and foreclosures in Utah, please call Ascent Law LLC for your free consultation (801) 676-5506. We want to help you.

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506

Ascent Law LLC

4.9 stars – based on 67 reviews


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The CFPB’s Effect On Foreclosures

The CFPBs Effect On Foreclosures

Consumer Financial Protection Bureau (CFPB) issued rules to establish new, strong protections for struggling homeowners facing foreclosure. The rules also protect mortgage borrowers from costly surprises and runarounds by their servicers. “For many borrowers, dealing with mortgage servicers has meant unwelcome surprises and constantly getting the runaround. In too many cases, it has led to unnecessary foreclosures.” Mortgage servicers are responsible for collecting payments from mortgage borrowers on behalf of loan owners. They also typically handle customer service, escrow accounts, collections, loan modifications, and foreclosures. Generally, borrowers have no say in choosing their mortgage servicers. Lenders frequently sell loans to investors after the mortgage deal is signed, and the investors, not the consumers, often choose the servicers. Even before the financial crisis, the mortgage servicing industry at times experienced problems with bad practices and sloppy recordkeeping.

As millions of borrowers fell behind on their loans as a result of the crisis, many servicers were unable to provide the level of service necessary to meet homeowners’ needs. Many simply had not made the investments in resources and infrastructure to service large numbers of delinquent loans. Consumers complained about getting the runaround and being hit with costly surprises. Now, with millions of homeowners in distress, many borrowers are continuing to experience serious problems seeking loan modifications or other alternatives to avoid foreclosure.

Strong Protections for Struggling Borrowers

The CFPB’s mortgage servicing rules ensure that borrowers in trouble get a fair process to avoid foreclosure. Borrowers shouldn’t have to worry about mortgage servicers cutting corners or losing applications for relief. They should be told about their options and given time to apply and be considered for loan modifications and other alternatives. Most of all, they shouldn’t be surprised by the start of a foreclosure proceeding until they have had time to explore all available options. If they act diligently to seek alternatives, they should not face a foreclosure sale before their applications have been evaluated. The new protections for struggling borrowers include:

• Restricted Dual Tracking: Under the CFPB’s new rules, dual-tracking when the servicer moves forward with foreclosure while simultaneously working with the borrower to avoid foreclosure is restricted. Servicers cannot start a foreclosure proceeding if a borrower has already submitted a complete application for a loan modification or other alternative to foreclosure and that application is still pending review. To give borrowers reasonable time to submit such applications, servicers cannot make the first notice or filing required for the foreclosure process until a mortgage loan account is more than 120 days delinquent.

• Notification of Foreclosure Alternatives: Servicers must let borrowers know about their “loss mitigation options” to retain their home after borrowers have missed two consecutive payments. They must provide them a written notice that includes examples of options that might be available to them as alternatives to foreclosure and instructions for how to obtain more information.

• Direct and Ongoing Access to Servicing Personnel: Servicers must have policies and procedures in place to provide delinquent borrowers with direct, easy, ongoing access to employees responsible for helping them. These personnel are responsible for alerting borrowers to any missing information on their applications, telling borrowers about the status of any loss mitigation application, and making sure documents get to the right servicing personnel for processing.

• Fair Review Process: The servicer must consider all foreclosure alternatives available from the mortgage owners or investors those with decision-making power over the loan to help the borrower retain the home. These options can range from deferment of payments to loan modifications. And servicers can no longer steer borrowers to those options that are most financially favorable for the servicer.

• No Foreclosure Sale Until All Other Alternatives Considered: Servicers must consider and respond to a borrower’s application for a loan modification if it arrives at least 37 days before a scheduled foreclosure sale. If the servicer offers an alternative to foreclosure, they must give the borrower time to accept the offer before moving for foreclosure judgment or conducting a foreclosure sale. Servicers cannot foreclose on a property if the borrower and servicer have come to a loss mitigation agreement, unless the borrower fails to perform under that agreement.
Mortgage borrowers should not be surprised about where their money is going, when interest rates adjust, or when they get charged fees. The CFPB’s rules help every borrower, whether struggling or not, by bringing greater transparency to the market with clear and timely information about mortgages. These rules include:

• Clear Monthly Mortgage Statements: Servicers must provide regular statements which include: the amount and due date of the next payment; a breakdown of payments by principal, interest, fees, and escrow; and recent transaction activity.

• Early Warning before Interest Rate Adjusts: Servicers must provide a disclosure before the first time the interest rate adjusts for most adjustable-rate mortgages. And they must provide disclosures before interest rate adjustments that result in a different payment amount.

• Options for Avoiding Costly “Force-Placed” Insurance: Servicers typically must make sure borrowers maintain property insurance and if the borrower does not, the servicer generally has the right to purchase it. The CFPB’s rules ensure consumers will not be surprised by this insurance, which often can be more expensive than the insurance borrowers buy on their own. The rules say servicers must provide more transparency in this process, including advance notice and pricing information before charging consumers. Servicers must also have a reasonable basis for concluding that a borrower lacks such insurance before purchasing a new policy. If servicers buy the insurance but receive evidence that it was not needed, they must terminate it within fifteen days and refund the premiums. When mortgage servicers make mistakes, records get lost, payments are processed too slowly, or servicer personnel do not have the latest information about a consumer’s account, the consumer suffers the consequences. The CFPB’s rules will require common-sense policies and procedures for handling consumer accounts and preventing runarounds. These rules include:

• Payments Promptly Credited: Servicers must credit a consumer’s account the date a payment is received. If the servicer places partial payments in a “suspense account,” once the amount in such an account equals a full payment, the servicer must credit it to the borrower’s account.

• Prompt Response to Requests for Payoff Balances: Servicers must generally provide a response to consumer requests for the payoff balances of their mortgage loans within seven business days of receiving a written request.

• Errors Corrected and Information Provided Quickly: Servicers must generally acknowledge receipt of written notices from consumers regarding certain errors or requesting information about their mortgage loans. Generally, within 30 days, the servicer must: correct the error and provide the information requested; conduct a reasonable investigation and inform the borrower why the error did not occur; or inform the borrower that the information requested is unavailable.

• Maintain Accurate and Accessible Documents and Information: Servicers must store borrower information in a way that allows it to be easily accessible. Servicers must also have policies and procedures in place to ensure that they can provide timely and accurate information to borrowers, investors, and in any foreclosure proceeding, the courts.
Recognizing that small servicers approach servicing quite differently, the CFPB made certain exemptions to today’s mortgage servicing rules for small servicers that service 5,000 or fewer mortgage loans that they or an affiliate either own or originated. These servicers are mostly community banks and credit unions servicing mortgages for their customers or members. The mortgage servicing rules take effect in January 2014. The CFPB plans to work with mortgage servicers to ensure an easy transition to implementation. To help with compliance, the CFPB will, among other things, be issuing plain language implementation guides and, in coordination with other agencies, releasing materials that help servicers understand supervisory expectations. For many of the new rules that require specific notifications, the rule contains model and sample forms. As the effective date approaches, the CFPB will also give consumers information about their new rights under these rules.

Consumer Financial Protection Bureau Expands Foreclosure Protections
The changes also help ensure that surviving family members and others who inherit or receive property generally have the same protections under the CFPB’s mortgage servicing rules as the original borrower. “The Consumer Bureau is committed to ensuring that homeowners and struggling borrowers are treated fairly by mortgage servicers and that no one is wrongly foreclosed upon.” “These updates to the rule will give greater protections to mortgage borrowers, particularly surviving family members and other successors in interest, who often are especially vulnerable.” Mortgage servicers are responsible for collecting payments from the mortgage borrower and forwarding those payments to the owner of the loan. They typically handle customer service, collections, loan modifications, and foreclosures. To address widespread mortgage servicing problems, the CFPB established common-sense rules for servicers that went into effect on January 10, 2014. The CFPB issued proposed amendments to those rules in November 2014, and the final rule issued today adopts many of the proposed provisions. However, the Bureau made a number of changes in the final rule after considering comments received from the public. The rule issued today establishes new protections for consumers, including:

• Requiring servicers to provide certain borrowers with foreclosure protections more than once over the life of the loan: Under the CFPB’s existing rules, a mortgage servicer must give borrowers certain foreclosure protections, including the right to be evaluated under the CFPB’s requirements for options to avoid foreclosure, only once during the life of the loan. Today’s final rule will require that servicers give those protections again for borrowers who have brought their loans current at any time since submitting the prior complete loss mitigation application. This change will be particularly helpful for borrowers who obtain a permanent loan modification and later suffer an unrelated hardship such as the loss of a job or the death of a family member that could otherwise cause them to face foreclosure.

• Expanding consumer protections to surviving family members and other homeowners: If a borrower dies, existing CFPB rules require that servicers have policies and procedures in place to promptly identify and communicate with family members, heirs, or other parties, known as “successors in interest,” who have a legal interest in the home. Today’s final rule establishes a broad definition of successor in interest that generally includes persons who receive property upon the death of a relative or joint tenant; as a result of a divorce or legal separation; through certain trusts; or from a spouse or parent. The final rule ensures that those confirmed as successors in interest will generally receive the same protections under the CFPB’s mortgage servicing rules as the original borrower.

• Providing more information to borrowers in bankruptcy: Under the CFPB’s existing mortgage rules, servicers do not have to provide periodic statements or early intervention loss mitigation information to borrowers in bankruptcy. Today’s final rule generally requires, subject to certain exemptions, that servicers provide those borrowers periodic statements with specific information tailored for bankruptcy, as well as a modified written early intervention notice to let those borrowers know about loss mitigation options. Servicers also currently do not have to provide early intervention loss mitigation information to borrowers who have told the servicer to stop contacting them under the Fair Debt Collection Practices Act. Today’s final rule generally requires servicers to provide modified written early intervention notices to let those borrowers also know about loss mitigation options.

• Requiring servicers to notify borrowers when loss mitigation applications are complete: Whether a borrower is entitled to key foreclosure protections depends in part on the date a borrower completes a loss mitigation application. If consumers do not know the status of their application, they cannot know the status of those foreclosure protections. Today’s final rule requires servicers to notify borrowers promptly and in writing that the application is complete, so that borrowers know the status of the application and have more information about their protections.

• Protecting struggling borrowers during servicing transfers: When mortgages are transferred from one servicer to another, borrowers who had applied to the prior servicer for loss mitigation may not know where they stand with the new servicer. Today’s final rule clarifies that generally the new servicer must comply with the loss mitigation requirements within the same timeframes that applied to the transferor servicer, but provides limited extensions to these timeframes under certain circumstances. If a borrower submits an application shortly before transfer, the new servicer must send an acknowledgment notice within 10 business days of the transfer date. If the borrower’s application was complete prior to transfer, the new servicer must evaluate it within 30 days of the transfer date. If the new servicer needs more information to evaluate the application, the borrower would retain some foreclosure protections in the meantime. If the borrower submits an appeal, the new servicer has 30 days to make a determination on the appeal.

• Clarifying servicers’ obligations to avoid dual-tracking and prevent wrongful foreclosures: The CFPB’s existing rules prohibit servicers from taking certain actions in foreclosure once they receive a complete loss mitigation application from a borrower more than 37 days prior to a scheduled sale. However, in some cases, borrowers are not receiving this protection, and servicers’ foreclosure counsel may not be taking adequate steps to delay foreclosure proceedings or sales. The CFPB’s new rule clarifies that, if a servicer has already made the first foreclosure notice or filing and receives a timely complete application, servicers and their foreclosure counsel must not move for a foreclosure judgment or order of sale, or conduct a foreclosure sale, even if a third party conducts the sale proceedings, unless the borrower’s loss mitigation application is properly denied, withdrawn, or the borrower fails to perform on a loss mitigation agreement. The clarifications will aid servicers in complying with, and assist courts in applying, the dual-tracking prohibitions in foreclosure proceedings to prevent wrongful foreclosures.

• Clarifying when a borrower becomes delinquent: Several of the consumer protections under the CFPB’s existing rules depend upon how long a consumer has been delinquent on a mortgage. Today’s final rule clarifies that delinquency, for purposes of the servicing rules, begins on the date a borrower’s periodic payment becomes due and unpaid. When a borrower misses a periodic payment but later makes it up, if the servicer applies that payment to the oldest outstanding periodic payment, the date the borrower’s delinquency began advances. The final rule also allows servicers the discretion, under certain circumstances, to consider a borrower as having made a timely payment even if the borrower’s payment falls short of a full periodic payment. The increased clarity will help ensure borrowers are treated uniformly and fairly.

CFPB Attorney Free Consultation

When you need legal help with the CFPB in Utah, please call Ascent Law LLC for your free consultation (801) 676-5506. We want to help you.

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506

Ascent Law LLC

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Mortgage Servicing Rules And Foreclosure

Sometimes a homeowner can make a defense to a foreclosure based on a mortgage servicer’s violation of rules governing this industry. They also may have rights that they can assert under the federal Fair Debt Collection Practices Act (FDCPA). These defenses may not defeat the foreclosure entirely, but they may delay it or give you some leverage in negotiations. They also provide requirements for communications between the lender and the homeowner. If the lender fails to give you proper notice of the foreclosure under the rules, you may be able to delay the foreclosure until you receive notice. Also, if you submit your loss mitigation application 38 days or more before the foreclosure sale, this will trigger additional steps that the lender must take before proceeding with the sale. If it proceeds with the sale anyway, you can ask a court to cancel the sale, which will delay the process and give you more time to move or explore alternatives. You can also report a mortgage servicer to the Consumer Financial Protection Bureau (CFPB) if it violates these rules. People usually think of the FDCPA as a debt collection law, but it can be relevant to foreclosures in some cases. The language of the law is ambiguous, but some courts have ruled that a person or entity that tries to collect a payment on a mortgage or pursue a foreclosure can be defined as a debt collector within the meaning of the law. (Often, this will be the attorney of the foreclosing party.) On the other hand, some courts believe that the FDCPA does not cover foreclosures because collecting a debt is a different activity from enforcing a security interest. The U.S. Supreme Court will decide a case in the 2018-19 terms that will address whether the FDCPA applies to a non-judicial foreclosure, so this area of the law may change dramatically. Even if the FDCPA does not cover foreclosures, debt collection laws in your state may cover foreclosures. You can consult an attorney to determine whether your state’s law may extend further than the federal law.

Asserting Your Rights Under the FDCPA

The impact of the FDCPA on foreclosures often relates to the notice requirements under the law. A foreclosing entity that meets the definition of a debt collector must provide written notice within five days of first communicating with the debtor. This notice will identify the creditor, state the amount of the debt, and tell the consumer that they have 30 days to verify the debt. As a result, if you are at risk of foreclosure, you can dispute the existence or amount of the debt within 30 days of getting the notice. Continuing collection efforts before the debt is verified violates the FDCPA. Inappropriate charges that form part of the debt also violate the FDCPA, as does a failure to provide the homeowner with a verification of the debt. Moreover, failing to provide the homeowner with the required notice violates federal law. While identifying an FDCPA violation may not necessarily save your home, you can recover any monetary damages resulting from the violation, in addition to statutory damages up to $1,000. The Consumer Financial Protection Bureau is seeking comments through November 22, 2013 on an Interim Final Rule to address a small number of issues raised by mortgage servicers and others regarding the mortgage servicing and Home Owners Equity Protection Act (HOEPA) rules set to take effect January 2014. An Interim Final Rule is one that has already been approved and in this case, is scheduled to take effect January 10, 2014. However, the Bureau is nonetheless seeking comments on how stakeholders think they will be affected by the changes and further changes could be adopted to the Interim Final Rule before January.

The Interim Final Rule would amend:
• The Mortgage Servicing Rules under the Real Estate Settlement Procedures Act (Regulation X) (2013 RESPA Servicing Final Rule);
• The Mortgage Servicing Rules under the Truth in Lending Act (Regulation Z) (2013 TILA Servicing Final Rule); and
• The High-Cost Mortgage and Homeownership Counseling Amendments to the Truth in Lending Act (Regulation Z) and Homeownership Counseling Amendments to the Real Estate Settlement Procedures Act (Regulation X) (2013 HOEPA Final Rule).
The Interim Final Rule addresses these areas:
• How the certain issues regarding communications with borrowers under the servicing rules should be addressed in light of bankruptcy law and the Fair Debt Collections Practices Act (FDCPA); and
• Issues relating to communications with delinquent borrowers for early intervention.

Mortgage Servicing Rules for “Successors in Interest”

Effective as of April 19, 2018, successors in interest to property secured by mortgage loans that are covered by the Real Estate Settlement Procedures Act (“RESPA”) and Truth in Lending Act (“TILA”) now have certain rights under those acts. These amendments are part of the Consumer Financial Protection Bureau’s 2016 Mortgage Servicing Rule amendments to RESPA and TILA. The CFPB issued the new rules because “it had received reports of servicers either refusing to speak to a successor in interest or demanding documents to prove the successor in interest’s claim to the property that either did not exist or were not reasonably available.” The rules are therefore designed to make it easier for potential successors in interest to communicate with servicers and establish that they are successors in interest. At the outset, the new rules define a “successor in interest” as anyone who obtains an ownership interest in a property secured by a mortgage loan, provided that the transfer occurs under one of the scenarios listed in the new rule. The scenarios range from a transfer resulting from the death of the borrower to a transfer from the borrower to a spouse or child. The person does not have to assume the loan in order to be a successor in interest. The amendments create several potential pitfalls for servicers because certain obligations are triggered when a servicer receives actual or inquiry notices that someone might be a successor in interest. The amendments require servicers to “promptly” communicate with anyone who may be a successor in interest. Servicers must also only request documents “reasonably” required to confirm whether that person is in fact a successor in interest. And a “confirmed” successor in interest now has the same rights as the original borrower under RESPA and TILA mortgage servicing rules. Litigation is also inevitable because the amendments contain broad and imprecise language – such as “reasonably” and “promptly” that opens the door for lawsuits and cries for judicial interpretation.

A “successor in interest” is defined as “a person to whom an ownership interest in a property securing a mortgage loan subject to this subpart is transferred from a borrower, provided that the transfer is:
• A transfer by devise, descent, or operation of law on the death of a joint tenant or tenant by the entirety;
• A transfer to a relative resulting from the death of a borrower;
• A transfer where the spouse or children of the borrower become an owner of the property;
• A transfer resulting from a decree of a dissolution of marriage, legal separation agreement, or from an incidental property settlement agreement, by which the spouse of the borrower becomes an owner of the property; or
• A transfer into an inter vivo trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property.”

What should a servicer do when it receives correspondence from a potential successor in interest?

• Promptly respond and request documents: An aspect of the amendments that is bound to create headaches (and litigation) for servicers is that they have an obligation to respond when they receive correspondence providing actual notice that someone might be a successor in interest and when they receive a written request that puts them on inquiry notice that someone might be a successor in interest.

• Actual notice: Servicers must have policies and procedures to ensure that they “promptly facilitate communication with any potential or confirmed successors in interest” upon receiving “notice of the death of a borrower or of any transfer of the property.” Upon receiving the foregoing notice, servicers must then “promptly” request documents, determine the status of the person, and notify the person “that the servicer has confirmed the person’s status, has determined that additional documents are required (and what those documents are), or has determined that the person is not a successor in interest.” While it is unclear what constitutes a “prompt” determination, a determination is not prompt “if it unreasonably interferes with a successor in interest’s ability to apply for loss mitigation options according to the procedures provided in § 1024.41.”
• Inquiry notice: If a servicer receives any written request “that indicates that the person may be a successor in interest” and “includes the name of the transferor borrower” and “information that enables the servicer to identify the mortgage loan account,” a servicer shall respond by requesting, in writing, the documents the servicer reasonably requires to confirm whether the person is a successor in interest. The types of request that “indicate” the person may be a successor in interest are broad. For example, a written loss mitigation application from a person other than a borrower is a written request that indicates the person may be a successor in interest.

If the written request from the potential successor in interest does not have the required information, the servicer “may” respond by requesting more information. Servicers should also be mindful of the deadlines for responding to written requests for information under 12 C.F.R. § 1024.36(c) and 1024.36(d), which require acknowledging receipt within five business days and a substantive response within thirty business days.

• Request documents “reasonably” required to confirm the person is a successor in interest.

A “potential” successor in interest becomes a “confirmed” successor in interest if the servicer confirms “the successor in interest’s identity and ownership interest in a property.” But a servicer may only request “documents the servicer reasonably requires to confirm that person’s identity and ownership interest in the property.” The requested documents “must be reasonable in light of the laws of the relevant jurisdiction, the specific situation of the potential successor in interest, and the documents already in the servicer’s possession.” The servicer can also require documents it believes are necessary to prevent fraud or other criminal activity, e.g. if the servicer believes that the documents are forged. Subject to the foregoing, requesting a death certificate, executed will or court order might be reasonable. But it would be unreasonable to request certain probate documents when “the applicable law of the relevant jurisdiction does not require a probate proceeding to establish that the potential successor in interest has sole interest in the property.” Because the reasonableness requirement depends heavily on the relevant jurisdiction, servicers must take into account local laws when requesting documents.

How Do These Changes Impact RESPA And TILA?

A “confirmed successor in interest” is now a “borrower” for purposes of RESPA’s mortgage servicing rules and 12 C.F.R. § 1024.17 and a “consumer” for TILA’s mortgage servicing rules. 12 C.F.R §§ 1024.30(d) and 1026.2(11). Thus, a confirmed successor in interest is entitled to the same rights as the original borrower or consumer. For reverse mortgages, the changes only impact the rules that apply to reverse mortgages. See 12 C.F.R. § 1024.30(b). For example, a confirmed successor in interest is still not subject to the loss mitigation procedures in 12 C.F.R. § 1024.41, but a confirmed successor in interest is now entitled to a payoff statement under 12 C.F.R. 1026.36(c). There is no private right of action for claims by potential successors. While confirmed successors in interest have the same private right of action to enforce the rules as borrowers and consumers, the rules do not “provide potential successors in interest a private right of action or a notice of error procedure for claims that a servicer made an inaccurate determination about successorship status or failed to comply with § 1024.36(i) or § 1024.38(b)(1)(vi).” This, however, will likely not deter potential successors in interest from trying to assert such claims. Moreover, a confirmed successor in interest who has allegedly been damaged by a servicer’s failure to request documents “reasonably” required for the determination or a determination that was not “promptly” made might be able to assert claims under the new rules.
Coordination of Certain Mortgage Servicing, Bankruptcy and FDCPA Requirements.

The Bureau is clarifying compliance requirements in relation to bankruptcy law and the Fair Debt Collection Practices Act (FDCPA) through this rule and through a compliance bulletin the Bureau has issued. According to the CFPB, it has received a large number of questions from servicers about how the servicing rules relate to bankruptcy law and the FDCPA for example on issues such as how to communicate effectively with borrowers in light of their status in bankruptcy. The Bureau believes further analysis is needed to resolve some issues and may be issuing further amendments. In the meantime, the CFPB has addressed several issues in its new bulletin and interested parties are encouraged to read the bulletin. More specifically the bulletin:

• Confirms that servicers must comply with certain requirements of the Dodd-Frank Act and respond to certain borrower communications in accordance with the Bureau’s servicing rules even after a borrower has sent a cease communication request under the FDCPA.

• Provides a safe harbor from liability under the FDCPA with regard to such communications.

• In conjunction with the issuance of the bulletin, the Bureau is providing exemptions for other servicing communications that are not specifically required by the Dodd-Frank Act or other statutes. The exemptions will provide some relief for servicers in connection with the FDCPA and when the borrower has filed for bankruptcy. The exemptions are from:
• The requirement in § 1026.20(c) for a notice of rate change for adjustable-rate mortgages (ARMs) and the early intervention requirements in § 1024.39(d)(II) when a borrower has properly invoked the FDCPA’s cease communication protections.
• The early intervention requirements in § 1024.39(d)(II) and from the periodic statement requirements under 12 CFR 1026.41(e)(5) for borrowers while they are in bankruptcy.

Who Regulates Mortgage Lenders?

Mortgage lenders have to follow certain rules set forth by the federal government. These rules make sure lenders do everything they can to employ service that’s both fair and legal, and that they don’t take advantage of the general public. So, put simply, the federal government regulates the mortgage industry. It does this through a variety of agencies and a host of Congressional acts. The federal Truth in Lending Act (TILA) was designed to help protect consumers in their relationships with lenders. Regulation Z is the Federal Reserve Board regulation that implemented TILA. The act requires lenders to disclose information about their products and services to consumers, and aims to protect consumers from misleading practices by lenders. Another key component to mortgage regulation is the Real Estate Settlement Procedures Act (RESPA).

This act was enacted by Congress so buyers and sellers are given disclosures about the full settlement costs related to home buying. Mortgage lending came under heavy scrutiny following the 2008 financial crisis. Prior to the housing market crash, demand for mortgage-backed securities (MBSs) rose as investors became hungry for higher returns from their investments. Hedge Banks began relaxing their lending requirements, advancing mortgages to people with low credit scores often without any down payments at high interest rates. When values peaked, rates began to increase, making payments more expensive. Many homeowners were unable to afford their homes, and ended up defaulting, causing the market to crash. Because of the problems after the 2008 financial crisis, the Dodd-Frank Wall Street Reform and Consumer Protection Act piled on additional mortgage industry regulations to protect consumers, making regulations tougher against predatory lending and mortgage qualifying standards. Under changes signed into law in 2018, the act, escrow requirements for residential mortgages held by a depository institution or credit union are exempt under some conditions.

Mortgage Foreclosure Lawyer In Utah

When you need legal help with a mortgage or a foreclosure in Utah, call Ascent Law LLC for your free consultation (801) 676-5506. We want to help you.

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506

Ascent Law LLC

4.9 stars – based on 67 reviews


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Post Foreclosure Property Preservation

Post Foreclosure Property Preservation

When a bank or loan servicer takes possession of a home that has been through foreclosure, property preservation efforts are made to get the home prepared for potential buyers. Often, foreclosed homes are run down and need considerable renovation work before it’s possible to sell them. The sooner a bank or loan servicer sells the foreclosed property, the less money is lost. Therefore, property preservation efforts need to be handled quickly so that the bank or loan servicer recovers any lost funds as soon as possible. While a bank may prefer to sell a property without having to invest in property preservation, this is not often possible. Foreclosed homes are often left in such poor condition that banks cannot sell them even by reducing the asking price significantly. Usually, a property management or property preservation company needs to come in to perform any, several, or all of the following tasks:

• Boarding or securing: A vacant property needs to be secured to prevent thieves and vandals from damaging the property or carrying off appliances and equipment. Usually, a property’s lock is changed immediately after it is foreclosed on. Then, windows and doors may be boarded up while the home is cleaned and renovated. The home will be opened up again after it goes on the market and buyers begin to visit the property for viewings.

• Winterizing: Properties located in cold climates often need to be winterized so that cold weather doesn’t cause damage like frozen pipes or appliance malfunctions. Winterizing a vacant property typically involves draining the water lines and hot water tanks. Also, antifreeze is used in toilets and other plumbing fixtures. All the utilities in a vacant home are usually turned off as part of winterization efforts.

• Removing debris: Foreclosed homes are often in a state of disrepair. They are often littered with debris that could cause safety code violations or risks of infestation by pests. After foreclosure, a home is inspected and cleaned out.

• General cleaning: A major function of a property preservation company is to perform general housekeeping around the property. A dirty property will be unappealing to potential buyers, so contractors come in to vacuum, sweep, shampoo, dust, and mop until the property is presentable.

• Handling conveys maintenance orders: Putting a property in “convey condition” involves detailing information pertinent to ownership issues and mortgage issues regarding the home. Contractors need to verify that the priority is vacant and then detail all the maintenance that needs to be performed on the property.

• Maintaining a property’s lawn: A property’s value could drop if its lawn becomes overgrown. Also, an overgrown lawn can create a public nuisance and violate building or health codes. The bank or loan servicer currently in possession of the property will be held responsible for any code violations, so maintaining a property’s lawn is important.

• Removing snow: Some communities require property owners to keep sidewalks and driveways free of snow. Therefore property preservation companies have to come out to bank or loan servicer-owned properties to clear away snow build-up as necessary to address the property owner’s liabilities.

Buyers of properties that have previously been foreclosed on should be aware of any property preservation efforts that have been made to ensure that a home on the market has maintained its condition despite being vacant for an extended period of time. If preservation efforts are not made, it could cause damage that affects the home’s plumbing fixtures, appliances, and structural stability. When viewing homes, buyers should ask questions regarding what preservation efforts are being made so that they gain an understanding of the actual value and condition of the home. Banks sometimes foreclose on so many buildings it’s impossible to dispose of them quickly.

Offering to preserve and maintain foreclosed property requires actively marketing yourself to the banks and property management firms in your area. You and your teams also need the skills and licenses to do the job. The more services you offer, the more jobs you can take. Depending on your skill set, broadening your scope may require hiring employees or contractors, not to mention buying more equipment. When you’re just starting out, you can keep costs low by only taking jobs you can handle in-house with minimal equipment. Market research may tell you which services are most needed in your community. Property preservation is the process of caring for the inside and outside of a foreclosed property, be it vacant or occupied. Property preservation businesses work with banks and asset management companies to provide services such as repair, inspection, insurance claim management, and maintenance. Property preservation is also called “mortgage field services,” and getting involved with completing REO rehabs and property preservation repairs directly for national servicing companies will help your business succeed. Another great option is to work as a subcontractor for a company who also works with national servicing companies. In order to do this, you should become a Property Preservation Repair Vendor or an REO (real estate owned) Repair Vendor. REO, as you may know, stands for “real estate owned,” and is a real estate and property preservation term that organizations in the United States use to describe a certain class of real estate, or property. These properties are usually bank-owned properties that have been seized by the banks or lenders from residents who were unable to pay their mortgages. Once you’ve educated yourself about the property preservation business enough that you know what you’re doing, it’s time to find a few companies in your state, and fill out their online vendor applications. Keep in mind that banks are serious businesses you want your company to appear steady and reliable, so take all the usual precautions and they will want to work with you. You have to register online with the banks and other companies as they will not work with companies who have not. In order to get this work from banks, your company will have to actively market itself to the banks and the local property preservation companies in your state or area. This requires that your company and employees have all the skills and licenses necessary to perform property preservation so make sure you get those. In general, if you have more skills and more licenses stating that your are qualified to perform those skills, banks will be more interested in you, and send more work your way.

If you’re not comfortable calling people or speaking to them about your business, get comfortable. Some of the best recommendations in this business can come from word-of-mouth. If you’re already in the construction or repair business, you probably have some connections that can help you get started; if not, the banks and property preservation companies in your area can help you get started. When you first start out in the property preservation business, you should only take the jobs you can handle with limited personnel, doing them well and rapidly to make a name for yourself. As your business grows, and word-of-mouth or marketing does its job, you may want to take on larger job. HUD handles property preservation for properties that have been foreclosed on and will soon be foreclosed on – they also handle the property inspections, renovation permit, and access restrictions that they will pass on to you if you work with them. Always keep in mind while you are performing your work that part of your job is to make the properties look attractive to prospective buyers once the bank or management company is ready to resell them. Some people call this “curb-appeal,” and it’s a basic tenet of this business. HUD guidelines include property “accessories,” meaning swimming pools and spas and outbuildings like garages and sheds that may be on the property. There is also a registration fee that property preservation companies must pay on each property they want to care for – this fee may be reimbursed if the company owner completes the proper forms and submits to them HUD. Next, you need to meet at the property with your contractors (if you have them) and determine which repairs are necessary, and that the property can sit without much maintenance for a long period of time. Preparation for inclement weather is a large part of this step. While it’s true that many small property preservation businesses have a hard time getting off the ground and staying afloat, my best advice to you is to treat your business like your lifeblood, not like your side job. When you start a business, you want it to succeed, so it should be one of the most important things in your life. Don’t give up just because the going gets rough, and always provide the absolute best service to your clients and companies that you are capable of. Complete the work the way you were asked to, and take photos or write down issues you have for proof later. Remember, your clients need you, and your business will provide years of stability if you run it correctly.

If a homeowner is unable to complete repayments on their mortgage, they may be forced to default on the loan. If the owner defaults on the mortgage for a given number of months, the bank that originally loaned the homeowner the money to purchase the property can legally repossess it and take ownership of it. At this point, the property is referred to as a foreclosure or real estate owned (REO) home. The bank’s primary objective at this point is to recover as much cash from the loan as they can as opposed to accumulating real estate assets. As such, they will be motivated to sell the property as quickly as possible. Some homeowners take out a Federal Housing Association (FHA) insured mortgage. If the owner of a property that is backed by an FHA-insured mortgage defaults on loan repayments, he or she exchanges the property for an insurance claim payment through the Secretary of the Department of Housing and Urban Development (HUD), the Federal agents that manages national policy in this domain. Properties that have been traded in this manner are referred to as HUD homes. Both banks and the HUD will use the services of a private operative to sell the property on their behalf. The HUD refers to these contractors as management and marketing (M&M) contractors or asset management companies. These companies will also subsequently subcontract the sale and maintenance of the property to a third party, usually a realtor or local service provider. During this program, the companies that sell properties on behalf of the banks and HUD will be referred to as asset management companies (AMCs) or M&M contractors. As this program progresses, you will be taught the methods you can use to identify key AMCs, form productive relationships with them and position yourself as a key contact with whom they trade business opportunities. In addition, you will also learn how to identify and develop a network with the realtors who are awarded the REO listings. Forming effective relationships with such realtors will provide you with a further opportunity to secure profitable work. A foreclosure auction is just what it sounds like — an auction to sell a house that has been foreclosed on. You may have seen people on the HGTV channel who flip houses going to these auctions and bidding on foreclosed properties. Well, property preservation and REO businesses also deal directly with these foreclosed houses. At a foreclosure auction, the bank or lender who owns the property is not allowed to profit from the auction, and the properties are often sold at a loss. Any profit goes to the homeowner and any other liens that are present on the property. If the foreclosure auction doesn’t work, and the property doesn’t sell for any reason, it automatically becomes an REO property. Most of the properties you work on will be headed for foreclosure or may have already been foreclosed. Unfortunately (or fortunately depending on how you look at it), the majority will fall into the latter category. Luckily, this can mean big bucks for you. After the clean comes the makeover and, here too, you can offer your services and run a tidy profit in the process. Your customers will typically be banks, the HUD, realtors, and even investors. In many cities, local governments operate bylaws that specify that REO properties must be kept in a secure and good condition, both inside and out, at all times. Failure to do so can incur penalties of up to $1000.

As such, it’s in a lender’s/bank’s best interests to make sure the properties they own are kept in good condition at all times. The organization or entity that initially loaned the buyer the money to buy the home (the mortgagee) will be held responsible for maintaining it, regardless of whether the property was FHA-insured or not. In the case of an FHA-insured property, the mortgagees will have been pre-authorized by the HUD to spend a given amount of money on such maintenance work. We’ll talk about this in more detail on Day 5. If no FHA insurance was in place, the mortgagee or the people they appoint to manage the property on their behalf will set their own budget. Responsibility for preserving and securing REO properties is commonly allocated to an asset manager who works at the bank or is sub-contracted out to an asset management company (AMC) or M&M contractor. These groups or individuals will be tasked with reviewing the initial inspection report that the realtor or the realtor’s preservation company has published, and making the decision as to what aspects of the property should be restored and repaired and what should be replaced completely. They will also set a budget for the work and manage the tender process by which interested contractors bid for the opportunity to complete the project. Once the work is complete, they will also inspect it to ensure it is of an acceptable standard and will, ultimately, pay any invoices (we’ll discuss the important aspect of payment in a later session). In times of recession and downtown, there are a large amount of homes available for sale on the market and very few buyers. This makes property difficult to sell and means that foreclosed homes will be on the market for longer periods of time. To stand half a chance of selling them, banks and the HUD need to ensure that they are kept in good condition and maintained on a regular basis.

This is where you come in. Maintenance services involve a large number of tasks but typically include ensuring the interior and exterior of a property is kept clean and in good condition, maintaining any pool and outside areas and generally keeping everything in good shape. Providing these services can be lucrative because they are required on a monthly basis, giving you a steady stream of income. What’s more, if you were awarded the services to do the initial clean up and fix up, and you did a great job, you’ll have more of a chance of winning this ongoing business too. For this reason, when you prepare any quotation or bid for cleaning and/or transformation services, ensure you also include a section entitled “Optional ongoing maintenance services” in which you list tasks you are able to complete on an ongoing basis. Another top tip is to list “Optional decorating services,” “Optional repair services,” or similar. Sometimes an REO property can be on the market for a long time before the bank makes the decision to invest some additional cash into it in a bid to lure buyers. If you’ve planted the idea that you can provide painting and decorating services, you may also be given a chance to earn cash for interior decorating. Basically, you should ensure you take every opportunity to up sell additional services; you never know, you may just be taken up on them. Property preservation denotes a lender (or new owner if post-foreclosure sale) averting waste to the value of real property by repairing, securing, or maintaining the same, often times through third-party vendors. These steps could include (but are not limited to): changing locks, preventing squatters, winterizing to avoid damage, cutting grass to pre-empt a municipal lien, fixing damages such as broken windows, and other related precautionary measures. During the pre-foreclosure sale period, property preservation is governed by contractual obligations in the deed of trust. Once a foreclosure is complete, determining how to proceed requires evaluation of the home for signs of occupancy, extent of any damage, and remnants of any personal property. If the property is vacant, the new owner may change the locks and start the REO process.

Foreclosure Lawyer Free Consultation

When you need help with real estate foreclosure, please call Ascent Law LLC for your free consultation (801) 676-5506. We want to help you.

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506

Ascent Law LLC

4.9 stars – based on 67 reviews


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Judicial Vs Non-Judicial Foreclosure

Judicial Vs Non-Judicial Foreclosure

Utah foreclosures tend to be non-judicial, which means they happen outside of court. Judicial foreclosures, which go through the court system, are also possible. Because foreclosures in Utah are typically no- judicial. In most cases, under federal law, a servicer must wait until the borrower is over 120 days’ delinquent before officially starting the foreclosure process. To officially start the foreclosure, the trustee (the third party that administers non-judicial foreclosures) records a notice of default in the county recorder’s office at least three months before giving a notice of sale. The trustee mails a copy of the notice of default within ten days after the recording date to anyone who requested a copy. (Most deeds of trust in Utah include a request for notice, so borrowers typically get this notification. The bank or trustee mails a copy of the notice of sale to the borrower at least 20 days before the sale (if the deed of trust includes a request for notice).

Foreclosure means your creditor is trying to take your house and sell it to collect the money you owe. This happens when you get behind on your payments. Understanding the legal terms used with foreclosure can help you help yourself. Some definitions are:

• DEFAULT – A mortgage or contract is in default and foreclosure proceedings can begin as soon as you are late on one payment. Depending on the language in your loan documents, the lender may have to give notice before beginning a foreclosure.

• DELINQUENT PAYMENT – A mortgage payment is delinquent when it is not made on the day that it is due or within any “grace period” allowed by the lender.

• FORBEARANCE – An agreement where the lender agrees not to foreclose if you catch up your past due payments over a period of time. These payments will loan current.

• FORECLOSURE SALE – The forced sale by which your lender sells your property to pay your loan. A foreclosure sale has a bad affect your credit rating and future loans. The foreclosure sale takes place at the county courthouse.

• DEED IN LIEU OF FORECLOSURE – To avoid foreclosure when you know you will be unable to make your payments, you may consider handing over your deed to the lender. This is also called voluntary repossession. It means you are giving your house back to the lender. This may still affect your credit rating, but you may be able to avoid the cost of the foreclosure process.

• JUDGMENT – This is an order saying you owe money to the lender. The lender is then able to get the money through a foreclosure sale. In a non-judicial foreclosure your lender is not required to obtain a judgment before holding a foreclosure sale.

• DEFICIENCY JUDGMENT – A lender may be able to obtain additional money from you to recover their losses if the house sells for less than loan and cost to recover the money.

“Reinstating” is when the borrower catches up on the defaulted mortgage’s missed payments, plus fees and costs, to stop a foreclosure. Utah law provides the borrower with a three-month reinstatement period after the bank or trustee records the notice of default. Also, the loan contract might give you more time for completing a reinstatement. Check the paperwork you signed when you took out the loan to find out if you get more time to bring the loan current and if so, the deadline to reinstate. You can also call your loan servicer and ask if the bank will let you reinstate. In some states, you can redeem your home within a specific amount of time after the foreclosure. In Utah, though, foreclosed homeowners don’t get the right to redeem the home after a non-judicial foreclosure. When the total mortgage debt exceeds the foreclosure sale price, the difference is called a “deficiency.” Some states allow the foreclosing bank to seek a personal judgment, which is called a “deficiency judgment,” against the borrower for this amount. Other states prohibit deficiency judgments with what are called anti-deficiency laws. In Utah, the foreclosing bank may obtain a deficiency judgment following a non-judicial foreclosure by filing a lawsuit within three months after the foreclosure sale. A deficiency judgment is limited to the lesser of:

• The total debt (including interest, costs, and expenses of sale, including trustee’s and attorneys’ fees) minus the property’s fair market value, or

• The total debt minus the foreclosure sale price.

If you’re facing a foreclosure in Utah, it will likely be non-judicial in nature because most banks choose this cheaper, more efficient method. In this article, you’ll learn about non-judicial foreclosure procedures in Utah, as well as rights that might help you keep your home. (To learn about what to do, and what not to do, in a foreclosure, see Foreclosure Do’s and Don’ts.). Federal law usually prevents the servicer from initiating a foreclosure until the borrower is more than 120 days overdue on the loan. Servicers are also, under federal law, required to work with borrowers who are having trouble making monthly payments in a “loss mitigation” process. Residential foreclosures in Utah are typically non-judicial, which means the foreclosure happens outside of the state court system. The non-judicial foreclosure process formally begins when the trustee records a notice of default at the county recorder’s office. The notice of default gives the borrower three months to cure the default. At the foreclosure sale, the property will be sold to the highest bidder, which is usually the foreclosing bank. At the sale, the bank doesn’t have to bid cash. Instead, it makes a credit bid. If the credit bid is the highest bid at the sale, the property then becomes REO. In some states, you can redeem (repurchase) your home within a certain amount of time after the foreclosure sale. Under Utah law, however, foreclosed homeowners don’t get a right of redemption after a non-judicial foreclosure.

The foreclosing bank may obtain a deficiency judgment following a non-judicial foreclosure if it files a lawsuit within three months after the foreclosure sale. The deficiency amount is limited to the difference between the borrower’s total debt and the property’s fair market value. (Utah Code Ann. § 57-1-32). Utah primarily operates as a title theory state where the property title remains in trust until payment in full occurs for the underlying loan. Foreclosure is a non-judicial remedy under this theory. The document that secures the title is a deed of trust or trust deed. Utah law also permits mortgages to serve as liens upon real property and for judicial foreclosures to occur through the courts. Because the power of sale provisions in deeds of trust allow for a more expeditious process to effectuate foreclosure, this is the primary method used by lenders to foreclose. The documents are the trust deed, and in a commercial transaction, a security agreement. Sometimes the mortgage document is combined with the security agreement. Alternatively, a mortgage is filed to evidence the underlying debt and terms of repayment, as set forth in the note. Depending on the timing of the various required notices, it takes approximately 120 days to complete an uncontested non-judicial foreclosure. This process may be delayed if the borrower contests the action in court, seeks delays and postponements of sale, or files for bankruptcy. The documents are the trust deed, and in a commercial transaction, a security agreement. Sometimes the mortgage document is combined with the security agreement. Alternatively, a mortgage is filed to evidence the underlying debt and terms of repayment, as set forth in the note.

Depending on the timing of the various required notices, it takes approximately 120 days to complete an uncontested non-judicial foreclosure. This process may be delayed if the borrower contests the action in court, seeks delays and postponements of sale, or files for bankruptcy.
A trustee records a Notice of Default at the county recorder’s office. The Notice of Default includes the reason the trustee believes your loan is in default. A trustee must give written notice of the default to the borrower and anyone who has filed a Request for Notice. This is usually done by registered mail. Always arrange to get letters sent by registered mail. The notice is valid even if you fail to sign for it or pick it up from the post office. You will receive a copy of the Notice of Default. If you suspect you are in default, you should check with the county recorder to see if a notice of default has been filed. You may also file a request for notice with the county recorder’s office so you are notified of any default. A notice of default does not mean you have to move out, but you will have to move once the sale of the property is final. After the Notice of Default is filed, you must make a payment plan with your creditor. You will have to pay any past due payments, late fees, collection fees, and legal fees. This must be done within three months of the recording of the Notice of Default.

Otherwise, after three months the trustee can issue a Notice of Sale and you will have to pay the entire loan to avoid losing your property. If you do not cure the default, the trustee must give written notice of the time and place of the sale. Placing an ad in a newspaper once a week for three straight weeks. The last notice must occur more than 10 days but less than 30 days before the date of sale; and, Posting a Notice of Sale at least 20 days before the date of sale on the property and in at least three locations in the county where the property is located. If the house sold for less than what you owe the lender, they may, within three months after the sale, sue you for the rest of the debt owing and expenses. This is called a deficiency judgment. The deficiency judgment is limited to the amount the debt, interest, costs, and expenses of sale is more than the fair market value of the property at the date of the sale. The fair market value is the value of the property to the normal buyer on the date of sale. The fair market value is not always the amount the property sold for at the Trustee’s Sale.

What is a Mortgage Foreclosure?

When a trust deed or mortgage goes into default, the lender has the right to declare the entire balance of the loan due and file a lawsuit to collect the debt. To foreclose on the property in this manner, the mortgage holder must file a summons and complaint and serve them on you. You must file a response to these papers in court. It is not a defense that you cannot afford the payments. Once the mortgage holder has a judgment against you, a sheriff can serve an order called a writ of execution that allows your house to be sold to satisfy what you owe on the mortgage. Once the property sells, you have six months to redeem the property. To redeem the property, you must pay the amount the property was purchased for at the foreclosure sale plus any costs incurred by the mortgage holder, plus a 6% redemption fee. The judicial foreclosure process is one in which the lender must file a complaint against the borrower and obtain a decree of sale from a court having jurisdiction in the county where the property is located before foreclosure proceedings can begin. Generally, if the court finds the borrower in default, they will give them a set period of time to pay the delinquent amount, plus costs. If the borrower does not pay within the set period of time, the court will then order the property to be sold in the manner of normal execution sales. The non-judicial process of foreclosure is used when a power of sale clause exists in a mortgage or deed of trust.

A “power of sale” clause is the clause in a deed of trust or mortgage, in which the borrower pre-authorizes the sale of property to pay off the balance on a loan in the event of the their default. In deeds of trust or mortgages where a power of sale exists, the power given to the lender to sell the property may be executed by the lender or their representative, typically referred to as the trustee. Regulations for this type of foreclosure process are outlined below in the “Power of Sale Foreclosure Guidelines”. In a judicial foreclosure, the lender sues the defaulting borrower in state court in order to auction the property to recoup unpaid debts. In non-judicial foreclosures, the lender auctions the property without having to go to court. Rules regarding which types of foreclosures are allowed vary depending upon the state, with about half of the 50 states using a judicial foreclosure system. In judicial foreclosure, the lender must prove that the borrower has defaulted on their loan and pursue court action. If the borrower cannot pay the debt, the property is sold at auction by the county sheriff or another official. The winning bidder receives the deed to the property. The process usually takes between 6 months and 2 years. As the vast majority of foreclosures are uncontested, the U.S. financial industry has lobbied since the 19th century for non-judicial foreclosure – foreclosure that occurs out of the courts. Non-judicial foreclosure occurs when a mortgage contains a power of sale clause, allowing the lender to initiate a foreclosure sale without going through the courts.

The lender issues a notice of default and notifies the borrower of this fact, before conducting an auction of the home. The lender itself can bid in the auction, and the winner receives the deed to the home, although they then might be forced to sue for the eviction of the current residents. The process usually takes between 1 month and 1 year. The Mortgage Bankers Association (MBA) and other lending industry organizations tend not to like the judicial foreclosure system because it adds to their costs. Often, lenders and mortgage servicers themselves were overwhelmed with the volume of foreclosures and were unable to gather all the necessary documentation for the courts in time. As of the end of September 2012, according to the MBA, 6.6% of all loans were in foreclosure in judicial states, compared with 2.4% in non-judicial states. The MBA has blamed this on a “sluggish” process in judicial foreclosure states for a backlog in foreclosures. If a lender proceeds with a foreclosure on your home, it may be able to choose between a judicial foreclosure and a non-judicial foreclosure. Essentially, a judicial foreclosure means that the lender goes to court to get a judgment to foreclose on your home, while a non-judicial foreclosure means that the lender does not need to go to court. Every state allows a lender to get a judicial foreclosure, but not every state provides procedures for a non-judicial foreclosure. The difference between these processes can have an impact on how a homeowner makes a defense to a foreclosure, if any applies.

It also can affect the timeline of the process and how swiftly you need to move if you cannot prevent the foreclosure. The lender will bring a lawsuit in court, and a judge will review the evidence submitted by both sides. They may hold a hearing to decide whether the homeowner is in default on the loan. The homeowner can try to reach a settlement with the lender before the hearing to prevent the foreclosure. If the parties cannot reach a settlement, and the court finds in favor of the lender, the court will enter a judgment of foreclosure. This will trigger a foreclosure sale and may expose the homeowner to a deficiency judgment for any remaining balance of the loan not covered by the sale. Sometimes the lender or the trustee will give the homeowner time to catch up with the missed payments on the loan, or negotiate with the lender, before proceeding with a foreclosure. In this situation, they will send a notice of default. However, in other states, a lender might send a notice of default together with a notice of sale, or it might send only a notice of sale. Sometimes a lender only needs to publish notice in the newspaper and post it on the property. If you have a defense to a non-judicial foreclosure, you will need to file a lawsuit in court to raise the defense. By contrast, you would respond to the pre-existing lawsuit if you have a defense to a judicial foreclosure.

Foreclosure Attorney Free Consultation

When you need legal help with a foreclosure in Utah, please call Ascent Law LLC for your free consultation (801) 676-5506. We want to help you.

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506

Ascent Law LLC

4.9 stars – based on 67 reviews


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Foreclosure Hearing

Foreclosure Hearing

How hard it is to fight a foreclosure depends to a great extent on where you live. If your state requires the foreclosing party to sue you, this is called judicial foreclosure then, it’s easier and less expensive to jump into the existing lawsuit than it is to challenge a non-judicial foreclosure, which proceeds without court supervision. With a non-judicial foreclosure, you’ll have to bring your own lawsuit.

Challenging a Judicial Foreclosure

In a judicial foreclosure, the foreclosing party must bring a lawsuit to get the foreclosure started. You will be notified of the foreclosure lawsuit when papers called a summons and complaint are delivered to (served on) you. The papers will advise you of the lawsuit and give you a period of time within which you must respond if you choose to contest it. And, significantly, the foreclosing party will have the burden of proving to the judge that the foreclosure is justified under the terms of the mortgage. Whether or not you respond is up to you. Either way, the mortgage holder will be required to prove that the foreclosure is legal. The proof will typically consist of a thick bundle of documents purportedly containing various papers that you signed when obtaining or refinancing your mortgage, like a mortgage (or deed of trust) and a promissory note. There will also likely be notices, signed agreements, internal accounting of payments both made and missed and written statements under oath called declarations or, if sworn before a notary public, affidavits from employees with the foreclosing party or mortgage servicer who claim to have knowledge of:
• your missed payments
• the lender’s compliance with your state’s laws regarding foreclosure procedures, and
• the circumstances through which the foreclosing party came to own the mortgage.

As a general rule, if you don’t point out errors or omissions in the paperwork, the court will accept the papers as evidence that will support a foreclosure judgment and order for sale. If you do respond, you will have the opportunity to tell a judge why you think the papers are wrong and that foreclosure is not warranted. To contest the foreclosure, you must file an “answer” in most places. In it, you state your factual and legal arguments for opposing the foreclosure. If you have evidence of your own regarding these issues, you also can file your own sworn statements. For example, if the foreclosing party claims that you missed five payments, but you can prove typically with canceled checks that you missed only one, you would submit a statement under oath to that effect and attach your canceled checks. After you file your answer with the court, the foreclosing party may file a motion of summary judgment, which you must respond to, and the court will hold a hearing on the matter. The court will grant judgment in favor of the foreclosing party if there is no dispute as to the important facts of the case. But if the court denies summary judgment, the case will proceed toward a trial. Before the trial, discovery will take place. This is the process by which you and the foreclosing party ask each other for facts, documents, and other information prior to the trial. In a foreclosure, each side may ask the other to provide certain information (through a demand for production of documents, interrogatories, and depositions) that might help prove or disprove the right to foreclose. At the trial, the foreclosing party must prove it has the right to foreclose. Then you must prove that the foreclosing party should not be permitted to foreclose. You will both present your cases, sometimes through witnesses who can be questioned by the judge and cross-examined by the other side. For example, if there is a conflict over missed payments, both you and an official from the mortgage servicer would testify, and the judge would decide which of you is most likely telling the truth.

At the end of the trial, the judge will either:
• order the foreclosure to go ahead (and in many states, set the sale date), or
• dismiss the case, sending the foreclosing party back to the drawing board.

Foreclosure proceedings vary according to state legislation. The local government may set up a hearing to approve the potential foreclosure. Whether or not you should attend this hearing depends on what you want. If you are willing to move out of the foreclosed real estate without any protest, then you do not have to attend. If you want to dispute facts to defend yourself and to stop the foreclosure proceedings, this is your last chance to do so. Judicial foreclosures require a courtroom hearing before the foreclosure process can begin. When a lender wants to foreclose on a property, it must file a complaint with the courts. When the courts receive a legitimate complaint, they notify the borrower and set a hearing date. Judicial foreclosures offer a borrower a chance to argue his case and provide the borrower with options before undergoing the foreclosure process. If there is no dispute, a judge will grant the foreclosure and decide upon a fair amount to reimburse the lender. The property will be seized and sold in a public auction.

Non-Judicial Foreclosures

Non-judicial foreclosures do not extend borrowers the same flexibility as judicial foreclosures. No courts or judges are needed to approve these foreclosures. Instead, the lender will send a default notification to the borrower. Within this letter includes a “grace period,” in which borrowers are given a certain amount of time to pay the amount owed. If borrowers do not pay the owed amount, then lenders will issue a Notice of Sale. In non-judicial foreclosures, there are no courtroom hearings to attend. Any arguments or disputes you have must be settled with you bank or lender.

Reasons to Attend the Hearing

By attending the hearing in a judicial foreclosure, borrowers can defend themselves against the event. If the lender violated any contracts or laws or if you think your case constitutes an exception, this is your only chance to stop the foreclosure process judicially. You may be permitted to pay the balance owed to avoid foreclosure, but the lender also will expect all courtroom fees to be paid in full. Additionally, attending the hearing may slow the foreclosure process, giving you time to find alternative housing and save money for rent.

Reasons Not to Attend the Hearing

If you do not attend the hearing in a judicial foreclosure, you will most certainly lose the case, and the courts will grant lenders the foreclosure. If you have no arguments to defend yourself, you may decide to skip the hearing. Attendance is not mandatory, so you will not be fined or prosecuted for not attending. If you are ready to get the whole process over with and behind you, then you may be able to catalyze the process by not attending. You also may omit expensive court costs and attorney fees by not attending the foreclosure.

What Should I Expect At My Foreclosure Hearing?

In some states, foreclosure hearings are held by the Clerk of Court or Assistant Clerk of Court, as judges rarely hear foreclosures. The Clerk of Court is only to hear cases involving “legal defenses.” Cases involving any other type of defense, such as defense of fraud cases, are to be handled through Superior Court. This is due to North Carolina being a “Power of Sale” state. There are three possible outcomes of a foreclosure hearing. The first outcome is that the Clerk of Court will deny the right to foreclosure. During a foreclosure hearing, a mortgage holder is required to prove four different components in order for the Clerk of Court to approve a foreclosure sale. Generally, the mortgage holder provides the Clerk of Court with documents supporting each of the four components. The four components considered at a foreclosure hearing are as follows:
• Reasonable debt occupied by the mortgage holder or party seeking to foreclose.
• Default on the debt
• The right for the mortgage holder to foreclose based upon the deed of trust to the home
• Notice of hearing was sent to the Debtor
If the mortgage holder does not prove the existence of the four components, the Clerk of Court will not approve the sale. The second outcome of a foreclosure hearing is the Clerk of Court will issue a continuance. Under Section 45-21.16C of the General Statutes, the Clerk of Court may continue a foreclosure hearing up to 60 days. This could be due to the Clerk’s conjecture that the issue can be solved with time. For example, the Clerk may issue a 60 day continuance if the Debtor is in the process of working something out with the mortgage company. If the Clerk issues a continuance at a foreclosure hearing and the Debtor is present at the hearing, the Debtor will receive a written order from the Clerk stating the continuance. The third outcome of a foreclosure hearing is the Clerk of Court will issue a “sale date”. More than likely, the Clerk of Court will approve a foreclosure sale if the mortgage holder can prove all four components mentioned above. If a mortgage holder is able to prove all four components, the Debtor will receive a “sale date”, which represents the date at which the Debtor’s home will be sold. The sale date usually follows approximately 20 days after the foreclosure hearing. Once a Debtor receives a “sale date”, the Trustee, whom is listed on the deed of trust, will then post a “notice of sale” flyer at the county courthouse bulletin board in addition to sending notice to the borrower. Once the sale date has arrived, Utah issues a ten day upset bid period. The ten day upset bid period allows for the filing of a bankruptcy within that ten day period in order to stop a foreclosure. If a bankruptcy is not filed before the sale date or during the ten day bid period, the Debtor will no longer own the property. If you have a foreclosure hearing or foreclosure sale date pending it is important that you immediately contact an experienced bankruptcy attorney to learn more about how you can save your home. When you have failed to pay your mortgage for multiple months, the mortgage-holder or its agent may initiate foreclosure proceedings to take possession of your home. While each state has specific procedures, most foreclosure hearings are conducted in a predictable way. Understanding the routine can do more than assuage your fear; it can help you catch errors in procedure or fact that enable you to fight the foreclosure.

Pre-Hearing

After the bank has made legally required efforts to get the homeowner to pay, it can file a Notice of Intent to Foreclose with the courts. The Intent to Foreclose is published in local newspapers. If there is still no resolution, the bank will file papers to foreclose. The homeowner will receive written notice and have a specified length of time to answer. If the homeowner answers, the court will schedule a hearing date at which both the foreclosure and homeowner must appear. It is in the homeowner’s best interests to answer and attend.

The Plaintiff – The Mortgage Holder

In front of the judge, the mortgage company will present documentation demonstrating that the mortgage was not paid and that all legally required steps to obtain payment have been followed. If the defendant does not show up in court, the judge will issue a summary judgment, allowing the mortgage company to expedite the foreclosure without the homeowner having a say in the matter. In other words, the judge will treat the case as if the homeowner never answered the original court papers. At this point, foreclosure and sale of the home can happen within weeks.

The Defendant – The Homeowner

When the homeowner has the opportunity to speak, she has a variety of options. She can ask for a minimum of 90 days to arrange payment of her mortgage; in most cases, she must work out a way to pay the full past-due amount, including fees and additional interest. She may also challenge the plaintiff’s case if there is proof that the mortgage has been paid, or that the facts are different from those presented. In any case, the defendant will almost always get more time to resolve the problem.

Outcome Of Foreclosure

If the defendant does not show up in court or does not respond, the mortgage company will obtain a summary judgment, at which point it can foreclose and auction off the house in as little as 30 days. A defendant who does appear in court has a variety of options, from requesting more time to arranging a Chapter 13 bankruptcy. In nearly every case, showing up for a hearing will at least get the defendant more time before any action is taken.

Will Your Foreclosure Take Place In or Out of Court?

In Utah, foreclosures are typically not done through court, although sometimes they take place at a courthouse. In some states, foreclosures must go through court. In others, it can proceed out of court. Find out what happens in your state. Foreclosures take one of two major paths: judicial (in court) or non-judicial (out of court). If your home loan is secured by a mortgage, chances are excellent you’ll go through a judicial foreclosure. If your loan is secured by a deed of trust, you’ll probably go through a non-judicial foreclosure. (Learn the do’s and don’ts when you’re in foreclosure.) The real estate industry in a particular state, and the laws that industry’s lobbyists have pushed through the state legislature, pretty much determine whether mortgages or deeds of trust are used there. Again, mortgages are usually foreclosed in court, while deeds of trust are typically foreclosed non-judicially. Though, it isn’t always clear what the foreclosure process will be. Even in a state where foreclosures are normally non-judicial, the lender might choose to foreclose through the courts. Not sure which document was used to secure your home loan? You can find out by:
• reviewing your original paperwork (that pile of documents you got when you closed escrow on your house)
• calling your loan servicer (the company to whom you make your payments)
• contacting a counselor at a local HUD-approved housing counseling agency and asking which document is typically used in your state, or
• visiting your local land records office and pulling up the recorded document (under your name or address) on the public-access computer. In some states, the borrower has a right to request a judicial foreclosure even if a deed of trust authorizes a non-judicial foreclosure.
In judicial foreclosures, your lender through its foreclosure attorney gets things started by filing a foreclosure lawsuit in the local court. You’ll receive official notice of the lawsuit when a sheriff or process server personally serves you with (or mails or posts on your door in some cases):
• a summons explaining your right to file a written response to the lawsuit and telling you how long you have to do so, and
• a copy of the document (called a petition or complaint) that requests the foreclosure and that sets out the reasons why the judge should issue a foreclosure order.
If you don’t respond, the lender will most likely get a default judgment authorizing the sale of the home. A default judgment means that you automatically lose the case because you didn’t respond to the suit. If you do respond by filing an answer with the court, the foreclosing party can’t get a default judgment. Instead, it will likely file a motion of summary judgment. You must respond to the motion or else the lender will win automatically. Even if you respond, the court may grant summary judgment in favor of the foreclosing party if there’s no dispute as to the important facts of the case. However, if you have a valid defense and the court denies summary judgment, the case will proceed toward a trial, at which you and the lender will present your evidence and arguments. The judge will then:
• order the foreclosure to go ahead (and in many states, set the sale date)
• postpone a final decision to give the lender more time to fill in a missing gap (proof of ownership, for example), or
• dismiss the case, sending the lender back to the drawing board.

Foreclosure Attorney Free Consultation

It’s not a matter of if, it’s a matter of when. Legal problems come to everyone. Whether it’s your son who gets in a car wreck, your uncle who loses his job and needs to file for bankruptcy, your sister’s brother who’s getting divorced, or a grandparent that passes away without a will -all of us have legal issues and questions that arise. So when you have a law question, call Ascent Law for your free consultation (801) 676-5506. We want to help you.

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506

Ascent Law LLC

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Assessment Of Environmental Risk Pre-Foreclosure

Assessment Of Environmental Risk Pre-Foreclosure

Foreclosures on commercial properties are decreasing. The average percentage of an institution’s overall environmental due diligence that was for foreclosures fell from 17% in 4Q11 to 9% in 4Q12. Additionally, 38% of respondents expect to see lower foreclosure volume in 2013, and another 45% expect levels to remain this year as last year. Even as commercial real estate foreclosures stabilize or decrease, lenders need to remain vigilant about their environmental risk exposure when foreclosing on commercial properties. Without a clear pre-foreclosure policy, a bank becomes especially vulnerable. If the property securing a loan transaction has environmental issues, there are a number of downsides, which is why most lenders require some type of environmental screening as part of their underwriting, particularly in today’s risk-averse climate. In general, environmental issues on properties used as collateral can:

• expose the bank to direct liability for cleanup costs as well as probable litigation;
• cause buyers to default if they are forced to divert cash flow to pay for cleanup; and
• damage a bank’s reputation, brand and image.

Environmental due diligence takes on even greater significance for lenders in cases of foreclosure. Most lenders require some type of environmental screening as part of their underwriting for new loan originations; most commonly following or requiring their borrowers to follow AAI/ASTM E 1527-05 protocol at origination. It is less common for financial institutions, especially small community banks, to have policies that dictate environmental requirements specifically for pre-foreclosure situations. The purpose of this Technical Brief for lenders is to explore how lenders’ policies for foreclosures are different than for other types of bank activities (i.e., new loans, refinancing, etc.).

When Lenders Become Owners

What makes foreclosures unique and potentially problematic is that they essentially turn lenders into owners, subjecting them to the same environmental liability that property owners face under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), even if they did not cause the contamination, and even if they sell the property quickly. As a result, regardless of whether or not they conducted (or required the borrower to conduct) environmental due diligence at origination, lenders should address it before foreclosing on a commercial property. Usually this is by having a Phase I environmental site assessment performed in accordance with the U.S. Environmental Protection Agency’s All Appropriate Inquiry (AAI) Rule or its equivalent, ASTM’s E 1527-05 standard.

A look at EDR Insight’s recent survey on commercial property foreclosures reveals that:
• 87% of lenders have some form of environmental due diligence requirements pre-foreclosure.
• 56% have a different scope of work for foreclosures vs. new originations/refis.
• 28% have vapor intrusion screening requirements pre-foreclosure.
When it comes to pre-foreclosures, banks typically have more stringent environmental due diligence (EDD) policies than for originations or refis.

In the case of originations, in general, the loan amount determines the level of EDD. In the case of pre-foreclosures, a Phase I ESA is required regardless of property value. “Any and all commercial real estate asset for which we are considering taking title (friendly or otherwise), we require a Phase I ESA as the initial EDD.” “What is truly different is the manner of interpretation. A ‘pre-lending analysis’, while thorough in its own regard, is largely intended to support the financial underwriting by facilitating ‘an informed business decision’. A ‘pre-foreclosure evaluation’ by contrast must consider potential liabilities that may occur if the tenets of Secured Creditor exemptions are inadvertently violated.” In addition, Phase II ESAs are generally more common pre-foreclosure. Banks face greater environmental risks in foreclosures. As a result, most banks will be quicker to progress to a Phase II than they would in pre-lending situations, according to a regional bank. Additionally, the likelihood of a bank conducting a Phase II “is greater for bank assets that have been acquired through a merger/acquisition,” because the level of environmental due diligence at origination is unknown, notes one risk manager from a Fortune 500 Bank. Whatever the reason, reliance on Phase II ESAs have been on the rise. The likelihood of “needing further intrusive investigation had historically been 17% to 23%.” “Through the end of 2012, the ‘hit rate’ had been closer to 30% to 35%, reflecting a need to be truly cognizant of any and all environmental concerns for purposes of valuation, as well as liability protection. The numbers in 2013 have largely shown a return to the historic lower levels of situations requiring Phase II ESAs.”

The High Cost of Contamination

If a bank forecloses on a contaminated property, cleanup costs can be considerable. Contaminated property can also be difficult if not impossible for a financial institution to sell. In one case, a bank originated a loan on a strip mall that once housed a dry cleaning facility, but conducted no testing on the property at the time of loan origination. When the bank later foreclosed on the property and conducted due diligence, the investigation detected significant soil vapor contamination and possible groundwater impacts. In the end, the total cost of the cleanup amounted to a significant one-third of the appraised value of the property. In developing a pre-foreclosure policy, banks should consider all types of environmental risks. Vapor migration/intrusion is one issue that is getting a significant amount of attention. Some environmental consultants automatically include consideration of vapor intrusion (VI) as part of their Phase I ESAs, while others do so only at a client’s request. Foreclosures present extremely different liability concerns for lenders than just extending credit, primarily because the lender is essentially becoming the unwilling owner of the property with all of the potential liability that carries. This is very different than being able to assert a secured creditor defense in a case where the borrower holds title to the site. As such, banks should define clear plans for pre-foreclosure environmental due diligence to effectively manage their risk exposure and avoid unwelcome environmental surprises in trying to resell the property.
In writing policies to manage their liability exposure when foreclosure appears imminent, lenders should consider:
• Writing a pre-foreclosure policy that is more stringent than those used for new loan originations, given the added risk exposure to the financial institution.
• Starting with an AAI/ ASTM E1527-05-compliant Phase I ESA to ensure the institution can qualify for CERCLA liability protection.
• Having a site visit conducted before tensions with tenants escalate and site access becomes an issue.
• Consulting with a trusted, qualified environmental professional to set triggers in bank policy for which loans would merit adding inspections for other environmental issues, like mold, asbestos, lead-based paint or vapor intrusion.

Why is an Environmental Risk Evaluation Important?

Potential environmental concerns associated with real property collateral represent a significant risk exposure. Although lenders may have secured creditor liability exemptions, in order to qualify for the exemption, lenders must demonstrate proper due diligence prior to lending and foreclosing. Even if the liability exemption is valid, the collateral may not be worth its appraised value and banks may have difficulty selling a contaminated site (if not cleaned up) without a significant discount or indemnity. Most importantly, the clean-up liability exemptions provide no protection from third party liability. Furthermore, remediation obligations may impair the borrower’s ability to repay the loan. Therefore, it is critical to evaluate environmental concerns identified in due diligence reports, establish risk control mechanisms, and manage the lender’s exposure to environmental liability.

What You Can Do

When reviewing environmental due diligence reports associated with collateral, the following considerations should be evaluated:
• Ensure that the proper level of due diligence was conducted based on the Environmental Risk Policy.
• Ensure that the due diligence report covers the entire collateral.
• Ensure that environmental reports are prepared by qualified environmental professionals and are conducted consistent with standard industry practice and federal guidelines for environmental due diligence.
• Conduct an all-inclusive review taking all aspects of the deal into consideration, such as: type of loan (purchase, refinance, SBA, pre-foreclosure, trust asset acceptance), loan amount, proposed changes to land use, environmental provisions of the Purchase and Sale Agreement, indemnity agreements, Provide an opinion as to the environmental condition of the collateral, provide a summary of environmental concerns and potential mitigants to assist credit management in their evaluation.
• Understand and summarize any ongoing environmental regulatory requirements, remediation activities, and/or continued obligations that may be required over the life of the loan.
• Evaluate potential implications associated with environmental risk/liability to the lender.

Evaluating environmental risks in real estate transactions

Evaluating environmental risks associated with real estate transactions is a standard, and often standardized, practice for sophisticated real estate practitioners. However, in light of several recent developments the uptick in transactions from the nadir of the recession, recent changes to risk evaluation standards, and a renewed regulatory emphasis on environmental compliance and enforcement in light of recent, high profile environmental releases now is an appropriate time for an update on identifying, evaluating, and minimizing environmental risks. In this context, the term “environmental risks” refers most often to risks stemming from environmental conditions of a property; however it may also refer to risks based on regulatory programs concerning a property or resource limitations. The specific environmental risks associated with a particular real estate transaction vary greatly depending on the property in question and type of transaction. Generally speaking, every property should be evaluated for potential soil and groundwater contamination, both onsite and on surrounding properties. Historical records, regulatory files, and possible resource or use restrictions should also be studied, depending on the nature of the transaction and the party’s particular interest.
Initial Risk Evaluations: Phase I Environmental Site Assessments and

Transaction Screens

Often, a Phase I Environmental Site Assessment is the first and only environmental risk evaluation conducted for a real estate transaction. The objective of a Phase I assessment is to identify the presence or likely presence of hazardous substances or petroleum on, in or at a property due to a contaminant release or under conditions that pose a material threat of a future release. In real estate transactions, Phase I’s are generally done for two reasons:

• to evaluate, on a limited basis, environmental risks associated with a property; and
• to satisfy one of the requirements for certain defenses to liability under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”), such as the “all appropriate inquiries” requirement of the bona fide prospective purchaser (“BFPP”) defense.
For parties who would prefer to conduct an initial evaluation that is even more limited than a Phase I, a Transaction Screen is an available option. ASTM just recently completed revisions to the standard for Transaction Screens, ASTM 31528-14, in February 2014. Among the revisions, one of the most significant is to make abundantly clear that a Transaction Screen is not a Phase I and will not provide CERCLA liability protection and may not provide a definitive evaluation of the presence or absence of environmental contamination at a given property. Specifically, the Transaction Screen is “intended for use on a voluntary basis by parties who wish to assess the environmental condition of commercial real estate where a Phase I Environmental Site Assessment is, initially, deemed to be unnecessary by the user and the parties do not seek CERCLA [BFPP or other Landowner Liability protections].” ASTM E1528-14, § 4.1. The prime candidates to obtain a Transaction Screen in lieu of a Phase I are commonly lenders or other parties who believe they already have CERCLA liability protections without needing to conduct all appropriate inquiries.

Environmental Risk for Lenders: CERCLA’s Limited Lender Liability Protection

While lenders are generally exempt from liability arising from the contamination of the property prior to the date on which title vests in the lender-owner, the exemption applies only so long as the lender does not participate in the management of the property and holds indicia of ownership primarily to protect its security interest. It is important to note that lender liability protections are not absolute. For example, lenders are not protected from CERCLA liability if they are deemed to participate in the operational management of the property, or if they arrange for offsite transport or disposal of hazardous materials. Furthermore, lenders can lose liability protections after taking title through foreclosure or another mechanism. The lender liability protections apply only to liabilities created by CERCLA, and possibly by a corollary state statute, if one exists. These provisions provide no protection against tort liability or liabilities created under other statutory provisions. Accordingly, prior to taking title, lenders who want to preserve as many future options as possible with regard to the ownership and operation and/or sale of the property should conduct a Phase I, at a minimum, to evaluate environmental risks associated with the collateral at issue. While a Phase I or a Transaction Screen serve important functions, both are limited tools. Neither addresses many potential non-CERCLA- or petroleum-related risks that may need to be considered at a particular property. These “non-scope” considerations include asbestos-containing materials, mold, wetlands, regulatory compliance, water resources, cultural and historic resources, endangered species, and occupational health and safety. Often, a Phase I will cover asbestos or mold, but few address many other non-scope considerations. Depending on the real estate in question, these additional risks can be quite significant and evaluating them requires careful consideration of the unique factors for the property in question. While either a Transaction Screen or a Phase I can be a good starting point, it often needs to be supplemented with a more thorough evaluation that assesses other potential risks, which may lead to liabilities, transaction delays, and additional costs associated with owning, holding title to or operating an impaired property, and in some cases even limit future exit strategies.

All summed up, from the lenders’ perspective, here are likely the most significant points to consider for your environmental process.
• Policy: You must have a written policy specific to your organization’s lending practices, it must be approved and annually reviewed by the board of directors, and there must be a knowledgeable senior officer responsible for its implementation. You must be able to document that you followed your policy, whatever it says, during an examination.
• Level of Effort: You should vary your level of effort for environmental due diligence based on the specifics of the transaction. You can use both in-house staff and third parties to complete the due diligence but the third parties must be monitored and their products evaluated by a knowledgeable person before making a lending decision based upon them.
• Beyond the Standard: Beyond ASTM and AAI, you should consider other liabilities associated with real estate not included in the standards. Further, you should look at potential environmental issues unrelated to real estate when devising your environmental policy.
• Pre-Foreclosure: Don’t participate in management or foreclose without appropriate environmental due diligence.
• Monitoring: You must monitor your portfolio, especially those environmentally risky properties.

Real Estate Lawyer Free Consultation

When you need legal help with a real estate lawyer in Utah, please call Ascent Law LLC for your free consultation (801) 676-5506. We want to help you.

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506

Ascent Law LLC

4.9 stars – based on 67 reviews


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1099 Tax Issues In Foreclosure

1099 Tax Issues In Foreclosure

As far as the Internal Revenue Service is concerned, a foreclosure is treated the same as the sale of a property. The bottom line is that once it was yours and now you no longer own it. The event can trigger a capital gain and, in some cases, you might also owe income tax on the amount of any part of the mortgage debt that’s been forgiven or canceled. The sale of real property normally goes through an escrow process. The seller receives statements showing how much the home was sold for. There’s no escrow period with foreclosures, however, lending bank simply takes possession of the home. The basic formula for calculating capital gains is to subtract the basis or cost of the property from the sales price. The difference is how much of a profit the seller made, or how much money was lost in the transaction.

In a foreclosure situation and without escrow statements, there’s no mutually agreed-upon sales price, but, there’s still a “sales price” for tax purposes. It will be either the fair market value of the property as of the date of the foreclosure, or the outstanding loan balance immediately prior to the foreclosure. It will depend on the type of mortgage loan you had. Your mortgage was either recourse or a non-recourse loan.

Recourse Loans

If you had a recourse loan, this means that you’re personally responsible for the debt. The lender can pursue you for repayment even after the property has been repossessed—it has “recourse.” In this case, the figure used as the sales price when calculating any potential capital gain is the lesser of the following two amounts:

• The outstanding loan balance immediately before the foreclosure minus any debt for which the borrower remains personally liable after the foreclosure
• The fair market value of the property being foreclosed
In addition to a capital gain, you can have canceled debt income from the foreclosure with this type of loan as well. Mortgages used to acquire homes tend to be non-recourse loans, while refinanced loans and home equity loans tend to be recourse loans. This is by no means an absolute rule, however. It can also depend on the state in which you reside.

Non-Recourse Loans

A non-recourse loan is one where the borrower isn’t personally liable for repayment of the loan. In other words, the loan is considered satisfied and the lender can’t pursue the borrower for further repayment if and when it repossesses the property. The figure used as the sales price is the outstanding loan balance immediately before the foreclosure of a non-recourse loan. The IRS takes the position that you’re effectively selling the house back to the lender for full consideration of the outstanding debt, so there’s generally no capital gain. You won’t have any canceled debt income, either, because the lender is prohibited by law from pursuing you for repayment. You’ll Receive Tax Reporting Documents

• Form 1099-A is issued by the bank after real estate has been foreclosed upon. This form reports the date of the foreclosure, the fair market value of the property, and the outstanding loan balance immediately prior to the foreclosure. You’ll need this information when you’re reporting any capital gains related to the property.

• Form 1099-C is issued by the bank after the bank has canceled or forgiven any debt on a recourse loan. This form will indicate how much debt was canceled. You might receive only a single Form 1099-C that reports both the foreclosure and the cancellation of debt instead of receiving both a 1099-A and a 1099-C if your lender both forecloses on the home and cancels the unpaid debt in the same year.

Reporting a Capital Gain or Loss

You can determine the sales price after you’ve determined what type of loan you had on your property. Report the foreclosure on Schedule D and Form 8949 if the foreclosed property was your primary residence. You might qualify to exclude up to $500,000 of gain from taxation subject to certain rules:
• The home was your primary residence.
• You owned the home for at least two of the last five years (730 days) up to the date of sale.
• You lived in the home for at least two of the past five years ending on the date of foreclosure.

Individual taxpayers can exclude up to $250,000 in gains, and married taxpayers filing jointly can double that amount. If the foreclosed property was mixed-use it was your primary residence at one time and a secondary residence at another time you can still qualify for an exclusion from capital gains tax under the modified rules for calculating your gain or loss. The rules are also relaxed somewhat for members of the armed forces.

Capital Gains Tax Rates

As of tax year 2019, the rate on long-term capital gains for properties owned one year or longer depends on your overall taxable income and filing status.
Single taxpayers:
• 0% if taxable income is under $39,375
• 15% if taxable income is from $39,375 to $434,550
• 20% if taxable income is over $434,550
Heads of household:
• 0% if taxable income is under $52,750
• 15% if taxable income is from $52,750 to $461,700
• 20% if taxable income is over $461,700
Married Filing Jointly and Qualifying Widow(er)s:
• 0% if taxable income is under $78,750
• 15% if taxable income is from $78,750 to $488,850
• 20% if taxable income is over $488,8503
These long-term capital gains income parameters are different from those that were in place in 2017. Rates were tied to ordinary income tax brackets before the Tax Cuts and Jobs Act (TCJA) went into effect. The TCJA assigned them their own brackets. It’s a short-term capital gain if you owned your home for less than a year. You must pay capital gains tax at the same rate that’s applied to your regular income in other words, according to your tax bracket.

When Discharged Debt Is Taxable Income

The Mortgage Forgiveness Debt Relief Act of 2007 (MFDRA) provided that taxpayers could exclude from their taxable incomes up to $2 million in discharged mortgage debt due to foreclosure a nice tax break indeed. Prior to 2007, discharged debt was included in taxable income. Then the MFDRA expired at the end of 2017, so discharged debt was once again considered to be taxable income by the IRS. Fortunately, this provision of the tax code is back again, at least for foreclosures that occur from Jan. 1, 2018 through Dec. 31, 2020. Title I, Subtitle A, Section 101 of the Further Consolidation Appropriations Act of 2020, signed into law by President Trump in December 2019, extends this provision through the end of 2020.5 You no longer have to concern yourself with paying income tax on debt discharged through foreclosure, at least through the end of 2020 and if your forgiven debt doesn’t exceed $2 million.

How Much Will a Foreclosure Affect a Tax Refund

Foreclosure is one of those difficult experiences certain homeowners may have to go through. Not only does foreclosure affect your credit rating, but it also can make it difficult to purchase another home in the immediate future. Additionally, there may be tax consequences attached to your foreclosure. In certain cases, foreclosed homeowners have been hit with a significant tax bill that often reduces or eliminates any tax refund due.

Foreclosure Tax Consequences

Often, the Internal Revenue Service (IRS) considers debt that’s forgiven by a lender because of foreclosure to be taxable income. Through calendar year 2012, the IRS is waiving taxation of mortgage debt forgiveness in certain cases. Because the IRS is waiving taxation of forgiven mortgage debt, any income tax refund isn’t affected by your foreclosure. However, foreclosures occurring in 2013 and beyond could affect the income tax refunds of those experiencing foreclosures. After foreclosure, the IRS could consider taxable any cash you took from your home as the result of a refinance. In addition to cash-out income, any income you took from a home equity line of credit (HELOC) could be taxable under IRS rules. Your forgiven mortgage debt and income gained from refinances or HELOCs might also be taxable at the state level.

Reporting Foreclosure Income

Taxable income resulting from forgiven mortgage debt and any cash-out refinances or HELOCs has to be declared in the year in which the foreclosure occurred. IRS taxation waivers of forgiven mortgage debt apply only to principal residences. However, money taken from a cash-out refinance or HELOC that’s applied to home renovation or improvement is often tax-exempt after foreclosure. Also, ensure the federal income reporting document (Form 1099) your mortgage lender gives you after your foreclosure is accurate.

Avoiding Taxation

Federal law considers debt discharged in bankruptcy, including potentially taxable forgiven mortgage debt, to be non-taxable as a result. Insolvency immediately before mortgage debt is forgiven also could exempt you from taxation of that debt. According to the IRS, insolvency is when the total of your liabilities exceeds the fair market value of your assets. Consult a tax professional if you’ve recently experienced foreclosure in order to discuss any income tax and tax refund implications.

Difference between A 1099-A and 1099-C

Selling real estate in this precarious market can be quite a task in and of itself. When the dust clears, sellers often are left to navigate through a maze of issues, not sure what to expect next. Many sellers have no idea what tax forms to expect from the lender, so they have no way of knowing if they received them. Two forms in particular, the 1099-A and 1099-C, create much of the confusion for sellers, their lawyers and their financial advisors. Every time real property is sold or transferred, the IRS must be notified. In a traditional sale of property, the seller will receive a Form 1099-S (Proceeds from Real Estate Transactions) to report the sale of the property to the IRS. This form is used to determine whether there is a gain or loss on the sale of the property. In a short sale or deed in lieu of foreclosure, the seller also receives a 1099-S because the property is sold willingly.

1099-A: Acquisition or Abandonment of Secured Property

However, in the case of a foreclosure, no 1099-S is issued because the “sale” is involuntary. Instead, the seller will receive a 1099-A (Acquisition or Abandonment of Secured Property) to report the transfer of the property. The 1099-A reports the date of the transfer, the fair market value on the date of the transfer and the balance of principal outstanding on the date of the transfer. Just like the 1099-S, the 1099-A is used to determine whether there is a gain or loss on the sale of the property. Many sellers mistakenly believe that if their property is sold in a foreclosure auction, they will not have any capital gain. This is not always the case. As a result of the adjustments to cost basis in certain situations, there may be a capital gain on property that is sold in a foreclosure auction. This may cause yet another source of unexpected tax liability that the seller is unable to pay.

1099-C: Cancellation of Debt

Now that short sales have become so common, many sellers understand they may receive a 1099-C (Cancellation of Debt), to report the cancellation of debt resulting from a short sale or deed in lieu of foreclosure. What comes as a surprise to many sellers is that they may receive a 1099-C as a result of foreclosure sale as well. Some sellers believe that if they allow their property to go into foreclosure, they will avoid the tax consequences of the cancellation of debt. However, the tax ramifications are the same for cancellation of debt income, whether it is generated from a short sale, deed in lieu of foreclosure or foreclosure. At the time the seller/borrower obtained the loan to purchase or refinance the property, the loan proceeds were not included in taxable income because the borrower had an obligation to repay the lender. When that obligation to repay the lender is forgiven or cancelled, the amount that is not required to be repaid is considered income by the IRS. The lender is required to report the amount of the cancelled debt to the borrower and the IRS on Form 1099-C, when the forgiven debt is $600 or greater. There are certain exclusions that can be used to reduce or eliminate the cancellation of debt income from taxable income. This includes discharge of the debt in bankruptcy, insolvency of the seller before the creditor agreed to forgive or cancel the debt, or, if the seller qualifies, relief pursuant to the Mortgage Forgiveness Debt Relief Act (MFDRA).

To summarize, any sale or transfer of property, whether voluntary or involuntary, must be reported to the IRS. Form 1099-S is used for a traditional sale, short sale or deed in lieu of foreclosure; Form 1099-A is used for a foreclosure. A lender may forgive or cancel debt in any case – where it’s a short sale, deed in lieu of foreclosure, or foreclosure – which will result in the issuance of a 1099-C. In order to properly report these transactions on the tax return, sellers should seek advice from an experienced tax professional. When homeowners fall into lender foreclosure, several things may end up affecting them, including potential tax issues. The Internal Revenue Service treats foreclosures as sales of property and those properties’ former owners could be liable for certain federal income taxes. After foreclosure your lender may send you IRS Form 1099-A, Acquisition or Abandonment of Secured Property. Form 1099-A is used to show three key pieces of information that helps foreclosed homeowners determine their tax liability, if any. The IRS considers canceled mortgage debt that results when a borrower is foreclosed as income to that borrower. To account for their cancellation of foreclosed mortgage borrowers’ debt, mortgage lenders send them IRS Form 1099-A. Foreclosed mortgage borrowers’ principal loan balances are shown on Form 1099-A’s Box 2 and the fair market value (FMV) of their foreclosed properties in Box 4. Box 5 of Form 1099-A indicates whether foreclosed borrowers are personally liable for repaying their mortgage loans. Whether you’ll owe taxes on your foreclosure’s lender-canceled debt also depends on Box 5 of Form 1099-A. Mortgage borrowers shown in 1099-A’s Box 5 to be personally liable for repayment of their mortgages could face taxable income liability. States such as California are non-recourse and lenders foreclosing no judicially or without the courts can’t pursue borrowers for negative loan balances or deficiencies. Foreclosed borrowers in non-recourse states might not be held personally liable for repaying their foreclosed mortgages, thus eliminating any tax liability.

The difference between a mortgage’s principal balance shown in IRS Form 1099-A’s Box 2 and Box 4’s FMV is important. For example, if your foreclosed mortgage loan’s principal balance is $100,000 and its FMV $50,000, that $50,000 difference could be taxable income. Your mortgage lender could also overestimate your former home’s FMV shown in Box 4 of your 1099-A. Consider an appraisal to obtain an accurate FMV of your foreclosed home if you’re concerned about possible future tax liability. Foreclosing lenders might issue IRS Form 1099-A to borrowers as a kind of placeholder until they decide whether to issue Form 1099-C. In some cases, foreclosing mortgage lenders need time to decide whether they’ll be canceling their foreclosed borrowers’ mortgage debt. Mortgage lenders may issue Form 1099-A to borrowers and file copies with the IRS to indicate a foreclosure has occurred and that a debt cancellation decision is pending. If you’re issued Form 1099-C after foreclosure your lender has definitely canceled your mortgage loan’s debt.

Taxable Income Exclusions

It’s possible to exclude from taxable income lender-canceled mortgage debt resulting from a home foreclosure. The most common exclusion to the tax liability resulting from lender-canceled mortgage debt comes from the Mortgage Debt Relief Act of 2007. Through Dec. 31, 2012, mortgage borrowers whose principal residences were foreclosed may be able to exclude up to $2 million of lender-canceled debt. Insolvent foreclosed mortgage borrowers, with debts exceeding assets, may also be able to exclude lender-canceled debt from taxable income. The foreclosure itself is treated as a sale of the home. So, you might need to report it on Schedule D. You should receive Forms 1099-A with information about the sale.

What you’ll report as the amount realized on the sale depends on which of these applies:
• If you were personally liable for the loan. This is called a recourse loan.
• If you weren’t personally liable for the loan. This is called a nonrecourse loan.

On a recourse loan, the amount realized on the sale is the lesser of:
• The outstanding debt right before the foreclosure. Subtract any amount for which you remain liable right after the transfer.
• The fair market value (FMV) of the property transferred
On a nonrecourse loan, the amount realized on the sale is the full amount of the debt outstanding. This is as calculated right before the foreclosure.

You might be able to exclude the capital gain under the sale-of-principal-residence exclusion if both of these are true:
• You have a gain on the sale.
• The home was your main home.

Cancellation of Debt

If you were liable for the loan, you might have cancellation of debt income. You should receive a Form 1099-C with this information. This is usually the total amount of debt owed right before the foreclosure, minus the property’s FMV. Cancellation of debt income from property secured by a recourse debt is taxable. This is true unless exclusion applies. There are exclusions for these:

• Debt cancelled in a bankruptcy proceeding
• Qualified principal residence indebtedness
• Insolvency (your debts are more than your assets)

Foreclosure Attorney Free Consultation

When you need legal help with a foreclosure in Utah, please call Ascent Law LLC for your free consultation (801) 676-5506. We want to help you.

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506

Ascent Law LLC

4.9 stars – based on 67 reviews


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How Can I Get A Loan To Stop Foreclosure?

How Can I Get A Loan To Stop Foreclosure

If you’re facing foreclosure, an effective way of putting a halt to the problem is by getting loans to stop foreclosure. The reason is that foreclosures are extremely damaging to your credit score, not to mention the stress and hassle of being forced to move out of your home. However many homeowners facing foreclosure do not believe that they are eligible for the loans they need to save their homes. What can you do? It turns out your chances are better than you may think. Let’s look at the options.

Loans to Prevent Foreclosure

Traditional loans stop foreclosure effectively — if you can get them. A traditional lender like a bank or credit union will offer the best rates and look the best on your credit history when you later try to get financing for something else.

Unfortunately, traditional lenders can be extremely picky about whom they lend to. Homeowners facing foreclosure often do not have the best credit. In some cases, they may be facing foreclosure because of serious adverse life events that have cost them their jobs and income, leading them to tap out their credit to “stay afloat” — and which may be reflected in their credit scores.

In other cases homeowners are facing foreclosure because they came into things with sub-prime credit and obtained a mortgage from a sub-prime lender. Now, thanks to the housing crisis and its aftermath, sub-prime lenders have started closing their doors in Canada and calling in their loans. The borrowers who find themselves being asked to repay their mortgages often find there are no traditional lenders willing to take on borrowers with sub-prime credit.

Therefore, traditional loans are often not an option. Fortunately, they are also not the only option.

Getting a Loan to Stop Foreclosure

Learn the pros and cons of getting a new loan—either
If you’re facing a foreclosure, you might be able to refinance your loan or take out a reverse mortgage to save your home—although refinancing could be difficult and reverse mortgages are risky.

Refinancing usually isn’t possible if you’ve missed a lot of mortgage payments and have bad credit. While reverse mortgages don’t require credit qualification, taking out this kind of loan is usually a bad idea. Reverse mortgage loans are basically designed so that the lender eventually ends up with the home and have many other significant downsides as well.
Read on to learn more about refinances and reverse mortgages, why these options probably aren’t ideal ways to prevent a foreclosure, and alternatives to potentially consider.

Refinancing Your Loan to Stop a Foreclosure

With a refinance, you to take out a new loan to pay off the existing mortgage, including the delinquent amount, which will stop the foreclosure. You will need to have a stable income and, usually, equity in the home to qualify. By refinancing, you might be able to get a lower interest rate, which would reduce your monthly payment amount.

However, getting a better interest rate—or approved for a refinance at all—can be difficult if you’re facing foreclosure because you fell behind in your payments. Once you skip a payment, the lender will start reporting the delinquency to the three major credit reporting agencies: Equifax, Transition, and Experian. Your credit score will then fall. The more payments you’ve missed, the worse your score will be. People with bad credit generally can’t qualify for a mortgage refinance, let alone one with better terms than they already have. (To learn more about what happens after you stop making payments, see The Order of Events When You Stop Making Mortgage Payments.)

What’s a Foreclosure Bailout Loan?

A “foreclosure bailout loan” is a refinance loan that’s marketed to struggling homeowners to bring a home out of foreclosure. The homeowner takes out a new mortgage to pay off the loan that’s in default. You don’t have to have good credit, but these loans usually require you to have considerable equity in the property, and you’ll have to pay a very high interest rate. In almost all cases, you should avoid foreclosure bailout loans. People who can’t make their regular mortgage payments also tend to default on foreclosure bailout loans; you’ll probably find yourself back in foreclosure after getting this type of mortgage.

Also, you should be aware that some bailout lenders are scammers who are just trying to cheat you out of your money—or title to your home—and leave you in worse shape than you were in before.

Using a Reverse Mortgage to Stop a Foreclosure

If you can’t qualify for a refinance, another option—though not necessarily a good one—to stop a foreclosure is to take out a reverse mortgage to pay off the existing loan. The most widely available reverse mortgage is the FHA Home Equity Conversion Mortgage (HECM).

With a reverse mortgage, people who are 62 and older can get a loan based on their home equity. A reverse mortgage differs from a traditional mortgage in that the borrower doesn’t have to make monthly payments to the lender to repay the debt. Instead, loan proceeds are paid out to the borrower in a lump sum (subject to some limits), as a monthly payment, or as a line of credit. You can also get a combination of monthly installments and a line of credit. The loan amount gets bigger every time the lender sends a payment, until the maximum loan amount has been reached.

If you’re facing a foreclosure and you get a reverse mortgage, the reverse mortgage stops the foreclosure by paying off the existing loan. But reverse mortgages themselves are often foreclosed, and come with many disadvantages, like potentially losing your eligibility for Medicaid and high fees.

Alternative lenders are available who will take you on even if you have bad or no credit. As a rule, the main criteria are that you have at least 10% equity in your home and a steady source of income. Provided you have these things, alternative lenders can quickly write you a loan to stop foreclosure immediately.

Compared with traditional loans, alternative mortgages generally do not last as long. The idea is to use them as a “bridge” which allows you to stay in your home — and avoid seriously damaging your credit with a foreclosure — until you can get “back on your feet” financially. Since you retain up to 90% of the equity in your home, you can also refinance many of your other debts (such as property taxes) and help improve your credit score while you work back towards a traditional mortgage.

At HOS Financial, our Refinance Buy Back program will connect you with alternative lenders who will refinance your home even if you have bad credit. At the same time, we will also provide you with the credit mentoring you need to restore your credit record to good standing.
The result is that by the time you exit the program (usually in 2-3 years) you will have the kind of credit that allows you to walk into a bank and walk out with a regular mortgage. To make things even better, a part of the rent you pay while in the Refinance Buy Back program will be set aside to use as a down payment on your new mortgage.

Other Options to Consider

If you’re having trouble making your mortgage payments, consider looking into other foreclosure prevention options. A few different options to consider include getting a loan modification, reinstating the loan, working out a repayment plan, or giving up the property in a short sale or deed in lieu of foreclosure. You might also consider selling the home and moving to more affordable accommodations.

What Mortgage Foreclosure Solutions Are Available To Stop Foreclosure?

If you’re facing the prospect of losing your home, there are a number of mortgage foreclosure solutions available. Depending on your finances, these range from ways to keep your home (in many cases without needing to go to court) all the way to ways you can make a “clean exit” with minimum stress and damage to your credit report. Let’s look at what choices you have available to you.

The Price Of Doing Nothing

For many homeowners facing foreclosure, simply doing nothing is a very tempting option. Just the word foreclosure can be terrifying. As a result people often lose their homes, suffer terrible damage to their credit report (which may cost them the ability to get a loan on a car or even the ability to get a job), and may even find themselves staring down a sheriff armed with an eviction notice.

To make matters worse, if the home does not sell at a high enough price to satisfy the outstanding mortgage balance and court costs and legal fees and other expenses… you may find these bills hanging over your head long into the future.

The fact is that no matter how fearful the prospect of dealing with a foreclosure may be, doing something is always better than doing nothing. Even if you cannot afford to keep your home, simply talking to the lender and working out a “friendly foreclosure” will leave you far better off down the line.

If you can afford to keep your home in the long term but you are simply the victim of unfortunate circumstance, then this is an even better option.

Negotiating With the Lender

If your finances are in reasonably good shape but you happened to fall behind on your payments due to an emergency, there’s a very good chance your lender will be willing to negotiate. This is especially true if they have not actually brought the courts into play just yet. They may be willing to work out an alternative payment plan with you — this will allow you to stay in your home, and generally represents the best of all possible options.

Formal foreclosures are expensive and slow from the lender’s perspective. Therefore, if you can show them that you will be able to keep up with your payments in the future, the lender may be quite willing to work out a new schedule of payments that will bring you current again — and which will let you avoid foreclosure entirely.

Friendly Foreclosure or Short Sale?

Just as the name suggests, a “friendly foreclosure” does not involve an adversarial process where the lender tries to rip your home out from under you using the court system. Rather, in a friendly foreclosure you go to the lender and agree to hand over title and vacate the property in exchange for them calling it a “done deal.”

With a friendly foreclosure, you generally cannot be held liable for any excess expenses. While a friendly foreclosure will show up on your credit report, it isn’t nearly as damaging as a “formal” foreclosure.
Short sales are similar to a friendly foreclosure but usually you the homeowner are responsible for having the home sold. The proceeds of the sale go to the lender, who agrees that even if the home sells below market value they will consider the mortgage case closed. As with a friendly foreclosure, a short sale still hurts your credit — but, again, not as badly as the alternative.

Refinance to Keep Your Home

If you would prefer to stay in your home, or if your lender is not being cooperative, you can still save yourself from a court foreclosure. This works by simply paying the balance of the mortgage by refinancing.
In the event your credit is in good shape, you may be able to refinance with a traditional lender. If this is an option for you, it’s likely your best one. Unfortunately as a homeowner facing foreclosure you may not represent an attractive “credit risk” to traditional banks.

That’s why HOS Financial has a Refinance Buy Back program which does an “end run” around the traditional banking system by connecting you with private lenders. These lenders are willing to pay off your mortgage no matter what your credit score happens to be.

In fact, the HOS Financial program can stop foreclosures even if they’ve already begun to move through the court system. As long as your case is still inside the “Redemption Period,” HOS will pay the amount the judge has set — and put an end to the case.

After HOS Financials private lender takes over the mortgage, you keep living in your home. You don’t have to worry about any judgments on your record. Instead, a portion of your monthly rent is put aside to go towards a future down payment — so you will be able to smoothly transition back to a traditional mortgage in just a few years.

The Refinance Buy Back program does not stop there, either. While you’re in the program, you will work with HOS Financials expert credit counselors to bring your credit report back to good shape. As a result, by the time you are ready to go back to a regular mortgage, normal banks will be happy to see you walk through their doors.

If this sounds right for you, contact us immediately. Foreclosures mean that the clock is ticking, and you need to take action now or face losing your home forever.

Foreclosure Lawyer Free Consultation

When you need to stop a foreclosure, please call Ascent Law LLC for your free consultation (801) 676-5506. We want to help you.

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506

Ascent Law LLC

4.9 stars – based on 67 reviews


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