Troubled Real Estate Loans

Troubled Real Estate Loans

When a lender is working with a borrower to get a problem commercial loan resolved the loan typically goes to “workout”. When a commercial loan is criticized internally, when it’s out of covenant, or when the borrower fails to pay or pays late the loan will often go the workout department of a bank unless the bank uses a special servicer or, at really small banks, the workout is handled by the commercial loan officer on the line. Commercial loans can end up in the workout department if they are in monetary default or in technical default. A commercial loan can be considered to be non-performing whether it’s in monetary or technical default.

Technical Default vs Monetary Default

A monetary default occurs when the borrower is late on or does not make payments. A technical default occurs when the borrower violates other terms or covenants within the commercial note.
Typical technical defaults that will land a commercial loan in the workout department are:
• The value of the collateral (the property) and therefore the LTV (Loan to Value) dips below the prescribed percentage
• The owner fails to maintain the property as prescribed.
• Borrower fails to maintain insurance
• Borrower fails to pay taxes
• Borrower fails to submit financial statements on schedule (if required)
• Borrower fails to maintain liquidity or reserve ratios
• Borrower misallocates or mis-distributes profits
• A separate loan with the lender goes into default
The list goes on. And since commercial loans are between two businesses the borrower is expected to be more savvy and be more equipped than, say, a consumer. Therefore the terms and covenants in commercial loans are not regulated to the same degree as residential property loans and that means that the borrower should pay close attention to the covenants and be prepared to meet them lest she be caught blindsided by the workout department. Make no mistake the private lenders are much more flexible and creative in their workout strategies than traditional lenders are. Private lenders:
• Reduce principal
• Reduce interest rates
• Extend terms
• Modify the loan so its interest-only
• Accept a deed-in-lieu
Private lenders can do just about anything that’s legal and the borrower agrees to in their workouts. Banks and credit unions cannot, they’re regulated and those regulations dictate their workout options.

Commercial Loan Workouts at Banks

A commercial workout officer’s job is to collect what the bank is owed, in full, and make the bank “whole” on the loan. A good commercial workout officer knows about his assets, his borrowers, the local market and his vendors and uses all of those resources to collect. Depending on the size of the bank and the size of the loan a commercial workout officer may be very hands on or may direct the recovery and workout from behind a desk across the country. Because banks are regulated the rules and guidance around workouts varies significantly from those of private lenders.
Loan workout arrangements need to be designed to help ensure that the institution maximizes its recovery potential. Further, renewed or restructured loans to borrowers who have the ability to repay their debts under reasonable modified terms will not be subject to adverse classification solely because the value of the underlying collateral has declined to an amount that is less than the loan balance. So in short, if the borrower and guarantors of a distressed commercial real estate loan can write the check and you’d rather extend the loan, restructure the loan or what-have-you, the fact that the property is worth less than is owed is not the determining factor for whether or not the bank has to action on a CRE loan in technical default (default for reasons other than non-payment). It also say that bank’s must do whatever will allow them to maximize capital recovery (essentially).

Analyzing Repayment Capacity of the Borrower

Basically look at the whole borrower and the guarantors. If they have the ability to continue to pay and their future ability to pay is defensible then carry on.
Evaluating Guarantees
A good guarantor with a solid contract means you can keep reporting the loan is in good standing.
Assessing Collateral Values
A new appraisal may not be necessary in instances where an internal evaluation by the institution appropriately updates the original appraisal assumptions to reflect current market conditions and provides an estimate of the collateral’s fair value for impairment analysis. The documentation on the collateral’s market value should demonstrate a full understanding of the property’s current “as is” condition (considering the property’s highest and best use) and other relevant risk factors affecting value.
Classification of Renewals or Restructurings of Maturing Loans
Many borrowers whose loans mature in the midst of an economic crisis have difficulty obtaining short-term financing or adequate sources of long-term credit due to deterioration in collateral values despite their current ability to service the debt. In such cases, institutions may determine that the most appropriate and prudent course is to restructure or renew loans to existing borrowers who have demonstrated an ability to pay their debts, but who may not be in a position, at the time of the loan’s maturity, to obtain long-term financing. The regulators recognize that prudent loan workout agreements or restructurings are generally in the best interest of both the institution and the borrower.

Classification of Troubled CRE Loans Dependent on the Sale of Collateral for Repayment

This section speak specifically to how to classify the loss or potential for loss with a CRE loan. Specifically it indicates that when the sale of CRE is necessary to repay a loan the amount that that property is under water should be classified as “doubtful” but use that term sparingly.

Classification and Accrual Treatment of Restructured Loans with a Partial Charge-off

When you restructure a loan and charge off a piece the remainder of the loan is at worst substandard (rather than ‘doubtful’). It goes on to say that one workout strategy might be to separate the loan into two enforceable loans, and then you put the senior piece on your books as ‘accrual’ in many cases (meaning ‘its all good’).

Implications for Interest Accrual

If you restructure a loan that is not already in nonaccrual keep it out of there but document everything. If the restructuring happens after it hits nonaccrual then you’re going to need 6 months more of good history before you move it back to accrual. A sustained period of repayment performance generally would be a minimum of six months and would involve payments of cash or cash equivalents.

Commercial loan workouts from the secured lender’s perspective

Every loan workout of a distressed company is distinct. Numerous factors drive the secured lender’s strategies and tactics, including whether the borrower has a sustainable core business, strength of management, the type and value of the lender’s collateral, cash flows, industry strengths and weaknesses, junior debtholders and lienholders and the potential effects of a Chapter 11 bankruptcy proceeding. These factors and others affect the strategies and leverage of a secured lender in taking action to protect and assert its rights and interests, as well as its ability to structure an exit strategy. No single strategy is effective for every workout situation. Lenders, workout counsel and consultants must be prepared to roll with the waves and change their strategies and tactics. However, certain steps should be considered in most workouts by a secured lender.
Distressed borrowers tend to hope that financial problems will go away and solve themselves over time. Secured lenders often do the same when issues surface with their borrowers. Seldom, however, do such problems solve themselves without special and immediate attention. Red flags—such as declining cash flow and sales, loss of major customers, ineptitude or changes in management, failure to meet budgets and projections, requests for over-advances, borrowing base issues and failure to pay as agreedrequire immediate explanation, evaluation and attention. If management’s explanations or the secured lender’s field audits do not provide adequate explanations and solutions to the issues, independent workout consultants should be retained, as discussed below.

Retention of Experienced Workout Consultants

Experienced workout consultants are critical to a successful workout and restructuring of a distressed borrower. Too often, a secured lender and/or borrower will delay the retention of a consultant, unwilling to incur additional costs. However, the cost of a secured lender’s consultant typically can be added to the outstanding debt, and the consultant may later be a critical witness for the secured lender in a bankruptcy proceeding or litigation. An experienced workout consultant retained by the borrower can produce cash savings that more than cover the retainer agreement. The consultant should examine special issues such as unfunded pensions, leases, long-term contracts, litigation, cash flows and management issues. Advice in these areas can dramatically improve the results of a workout. Secured lenders should always consider having their counsel retain the consultant in order to potentially protect the consultant’s work product as Attorney Work Product. At times, a secured lender may require its borrower to retain a consultant as a condition to further lending under a forbearance agreement, as discussed further below. Whether retained by the secured lender or borrower, an experienced workout consultant can provide significant value. However, it is important that the scope of work and fees be addressed in advance to minimize disruption to the borrower’s operations and to keep costs as low as reasonably possible, so the borrower benefits from the process.

Documentation and Collateral Perfection Analysis

Prior to proceeding with a workout, a secured lender and its counsel should always perform a documentation and collateral perfection examination. Updated Uniform Commercial Code, tax lien and judgment lien searches should be performed on an urgent basis at the beginning of a workout. Security and loan agreements, landlord waivers, deposit account control agreements, intercreditor agreements and guarantees should be examined to assure that all executed copies are in the file. Perfection on special collateral, such as trademarks, patents and other intellectual property, in addition to causes of action of the borrower in litigation, should be examined. Secured lender’s counsel should also examine whether any delays in perfection might cause any concerns that the secured lender’s liens could be avoided as a preference or fraudulent conveyance in a bankruptcy proceeding. Finally, the effects of a bankruptcy proceeding on the rights of the secured lender should be examined and considered by the secured lender and its counsel in forming the strategies for the workout.

Collateral Review, Analysis and Valuation

Field audits of inventory, accounts receivable and equipment should be performed to assure the accuracy of the borrower’s borrowing base and other collateral reports. The potential of obtaining additional liens on unencumbered assets and second liens on collateral in which another party has a lien should be considered as consideration for continued lending. Going-concern and orderly liquidation appraisals should be considered in the event of a bankruptcy proceeding or foreclosure. The retention of the appraiser by secured lender’s counsel should be considered in order to potentially protect the appraiser’s report as attorney work product. All of the above should be completed in order to help the secured lender, its counsel and other advisors form a strategy going forward, both in and out of a bankruptcy proceeding. The secured lender and its advisors should develop a special strategy for any “icebergs,” i.e., collateral that deteriorates without the ability to move it.

Cash Flow Budgets and Projections

Short-term (four weeks, thirteen weeks) and long-term cash flow budgets and projections should be performed by the borrower and tested by the secured lender and its advisors to determine what additional over-advances or funds from equity or other interested parties are necessary to accomplish the restructure. “Budget-to-actual” reports should be required on at least a monthly basis in order to assure budget compliance.

Forbearance Agreements

Forbearance agreements are often requested by distressed borrowers during the restructuring period to avoid interruption by the secured lender. However, a properly drafted forbearance agreement can also provide signifi cant benefi ts to the secured lender. The following benefi ts to the secured lender should be considered in the forbearance agreement:
• acknowledgment by the borrower of the outstanding balance, to avoid or reconcile any disputed balance
• acknowledgment by the borrower of specific current defaults and the right to accelerate, to avoid future disputes or defenses regarding defaults (defaults should be waived only in rare instances)
• acknowledgment by the borrower that it has requested the forbearance, to establish consideration for any concessions to the secured lender
• establishment of a “forbearance termination date” or “drop dead date,” by which the borrower must resolve certain issues (i.e., over-advances, refi nancing, covenants, defaults or sale of the business or division)
• amendments to the loan agreement, such as reducing the amount of the loan commitment, increasing the interest rate or providing forbearance fees
• acknowledgment that the secured lender has a valid and properly perfected security interest, without any defenses
• acknowledgment by the borrower that the loan agreement is enforceable, without defenses
• full release and waiver of defenses by the borrower
• conditions of the forbearance, such as:
• retention of a workout consultant, who will provide regular status reporting to the secured lender
• retention of an investment banker or broker to sell the business, or a division or certain assets on an agreed upon schedule
• liquidation of excess inventory
• utilization of additional collateral, guarantees or credit support
• execution of additional documents, giving the secured lender an opportunity to cure any document or lien perfection issues
• additional fees and increased interest in consideration for the forbearance
The secured creditor should always avoid exerting excessive “control” over the operations of the borrower, to avoid a claim of equitable subordination to other creditors or becoming a “responsible person” for taxes or environmental claims. For example, a secured creditor should never force or tell a debtor to pay or not pay other specific creditors.

Credit Support

Guarantees, letters of credit and other modes of credit support such as “last out” participation in favor of the secured lender, which may have been refused at the loan inception, may be obtained from equity owners in a restructuring. Guarantees, letters of credit and certain other types of credit support are not affected by the automatic stay in the event of a bankruptcy proceeding (discussed below) because they represent third-party agreements between the secured lender and a nonborrower third party.

Pre-Bankruptcy Remedies

All realistic pre-bankruptcy proceeding remedies should be considered by the secured lender, its counsel and advisors. This includes:
• Reservation of rights
• Notice of default
• Acceleration of all obligations
• Uniform Commercial Code foreclosure on personal property collateral
• Real estate foreclosures
• “Friendly” foreclosures, where the borrower surrenders the collateral to the secured lender
In all events, the secured lender should assert only those rights provided “within the four corners of its documents” and applicable law, to avoid claims by the borrowers and other creditors such as “equitable subordination” or the much-maligned theory of “deepening insolvency.”
Potential Actions of the Borrower
All potential actions of the borrower should be anticipated and considered by the secured lender internally with its counsel and advisors, and then discussed and considered with the borrower. This includes:
• Out-of-court restructuring, including concessions by both the secured and unsecured creditors
• Assignments for the benefi t of creditors—an orderly state law process whereby all assets are transferred to an independent third-party trustee, who performs an orderly liquidation and distributes the proceeds in accordance with the priorities of law (often different from state to state)
• Liquidation under state law—the borrower and its advisors perform an orderly liquidation under the corporate laws of the applicable state statute
• the automatic stay—creditors are prevented from collecting amounts owed by the debtor, foreclosing on the debtor’s collateral and terminating contracts
• at least initially, the debtor cannot pay any unsecured creditors that existed as of the commencement of the bankruptcy
• expensive litigation against the debtor can be stayed
• the debtor is allowed to assume the contracts it desires and reject the contracts it considers burdensome.

Real Estate Attorney

When you need legal help to solve Troubled Real Estate Loans, 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


Recent Posts

DOPL Hearings

Title 2 Firearms

Cybersquatting Law

Tax Law Forms

Don’t Leave A Dog Or Child In The Car

Foreclosure Lawyer Grantsville Utah

Ascent Law St. George Utah Office

Ascent Law Ogden Utah Office

Utah Real Estate Code 57-1-3

Utah Real Estate Code 57-1-3

Utah Code 57-1-3: Grant of fee simple presumed.
A fee simple title is presumed to be intended to pass by a conveyance of real estate, unless it appears from the conveyance that a lesser estate was intended.

A fee simple defeasible is a conveyance of property that has conditions placed on it. The holder of a fee simple defeasible possesses the property as a fee simple subject to that condition. If the condition is violated or not met, then the property will either go back to the original grantor or a specified third party.

Types of Fee Simple Defeasible Estates

There are three types of fee simple defeasible. The first two confer future property interests in the person granting the property. The other type has the future interest going to a specified third party.

• Fee Simple Determinable: A fee simple determinable automatically ends the interest in the property when a condition is violated or not met. The person granting the property interest retains a “possibility of reverter,” meaning that if the condition is violated, the property will automatically shift back to the grantor without having to take any further action. In order to create a fee simple determinable, the words of conveyance must be durational (e.g., as long as, so long as, during, while, or until). An example of a fee simple determinable would be: A to B so long as the property is used as a school. B would have a fee simple interest in the property so long as the property is used as a school. If, however, the property is no longer used as a school, then the property will automatically go back to A.

• Fee Simple Subject To Condition Subsequent: A fee simple subject to a condition subsequent is very similar to the fee simple determinable except that the violation of the condition would give the original owner the option to take back the property. Thus, the property does not automatically shift to the original owner. Instead, upon violation of the condition, the original owner has the option to reassert a right to the property. This option is called a “right of reentry.” In order to convey a fee simple subject to condition subsequent, the words of conveyance must state that the original owner can retake the property if the condition is violated. An example of a fee simple subject to condition subsequent would be: A to B, but if the property is used for commercial purposes, then A has a right of reentry. Again, B has a fee simple interest in the property so long as the property is not used for commercial purposes. If, however, the property is used for commercial purposes, then A can retake the property.

• Fee Simple Subject To Executory Limitation: A fee simple subject to executory limitation is basically the same as a fee simple defeasible, except that it confers a future property interest in a third party, and not the original owner. In order to create a fee simple subject to executory limitation, the original owner would use either durational or conditional words that establish a condition and a third party to whom the property would go to if the condition is not met or is violated. Like a fee simple determinable, the property shifts automatically and does not require the third party to take any action. The third party interest is called a “remainder.” An example of a fee simple subject to executory limitation would be: A to B only if the property is used as a place of residence; if not used as a place of residence, then to C. Thus, B has a fee simple interest in the property. If, however, the property is used as something other than a place of residence, then the property will automatically shift to C. It is important to note that A, the grantor, no longer has an interest in the property

Understanding Fee Simple vs Leasehold Ownership

• Fee simple ownership: Fee simple ownership is probably the form of ownership most residential real estate buyers are familiar with. Depending on where you are from, you may not know of any other way to own real estate. Fee simple is sometimes called fee simple absolute because it is the most complete form of ownership. A fee simple buyer is given title (ownership) of the property, which includes the land and any improvements to the land in perpetuity. Aside from a few exceptions, no one can legally take that real estate from an owner with fee simple title. The fee simple owner has the right to possess, use the land and dispose of the land as he wishes — sell it, give it away, trade it for other things, lease it to others, or passes it to others upon death.

• Leasehold ownership: A leasehold interest is created when a fee simple land-owner (Lessor) enters into an agreement or contract called a ground lease with a person or entity (Lessee). A Lessee gives compensation to the Lessor for the rights of use and enjoyment of the land much as one buys fee simple rights; however, the leasehold interest differs from the fee simple interest in several important respects. First, the buyer of leasehold real estate does not own the land; they only have a right to use the land for a pre-determined amount of time. Second, if leasehold real estate is transferred to a new owner, use of the land is limited to the remaining years covered by the original lease. At the end of the pre-determined period, the land reverts back to the Lessor, and is called reversion. Depending on the provisions of any surrender clause in the lease, the buildings and other improvements on the land may also revert to the lessor. Finally, the use, maintenance, and alteration of the leased premises are subject to any restrictions contained in the lease.

Important leasehold terms to know:
• Lease Term – The length of the lease period (usually 55 years or more)
• Lease Rent – The amount of rent paid to the Lessor for use of the land
• Fixed Period – The period in which the lease rent amount is fixed
• Renegotiation Date – Date after the fixed period that the lease rent is renegotiated
• Expiration Date – The date that the lease ends
• Reversion – The act of giving back the property to the Lessor
• Surrender – Terms of the reversion
• Leased Fee Interest – An amount a Lessor will accept to convey fee simple ownership

Fee simple is absolute title to land, free of any conditions, limitations, restrictions, or other claims against the title, which one can sell or pass to another by will or inheritance. A fee simple title has a virtually indefinite duration. It is also called fee simple absolute. Today, the law presumes an intention to grant an estate in fee simple unless an indication to impose conditions or limitations is clearly stated. It is most common way real estate is owned in common law countries, and is the most complete ownership interest one can have in real property. Other estates in land include the fee simple conditional, the fee simple defeasible, the fee simple determinable, the fee simple subject to a condition subsequent, the fee simple subject to an executory limitation, and the life estate.

Fee Simple Ownership

When a property deed states that the owner has fee simple ownership, he owns the property above the surface of the land and the mineral properties below the surface of the land. The mineral properties may include oil, gas, mineral rocks or coal. Many deeds do not include fee simple ownership, and thus, there may be several ownership interests connected to the mineral estate of a tract of land. Having fee simple ownership indicates the property owner owns both what’s above and under the surface of the land.

Property Deed Description

A property deed includes language that names the grantor and grantee as well as wordings that describe the grantor or seller’s intent to transfer his ownership interest in a property to the grantee or buyer. The deed also includes a description of the property, such as the address and other identifying information, the property lot and the subdivision.

Transferring the Title

With a warranty deed, the grantor warrants that the property is free and clear of liens and encumbrances and that he has the ownership rights to transfer title to the grantee. The grantee does not make any guarantees with a quit claim deed; the grantee simply receives any ownership interest the grantor has in the property. Typically, if the seller has fee simple ownership in the land, he owns the entire estate to the land. If the grantor transfers his entire ownership interest in the land, the buyer becomes the new fee simple owner. The deed may include words, such as fee simple ownership or fee simple absolute, which indicates that the grantor has absolute ownership interest in the land.

Absolute Ownership Interest

Fee simple ownership is the highest type of property ownership, whereas with a life estate ownership interest, for example, the owner only has lifetime ownership rights to the land. Fee simple owners may use and dispose of the entire land as permitted by law, and they are granted absolute ownership to the land. The property passes to the fee simple owner’s heirs upon death unless the owner has transferred title to the property during his lifetime or by way of a will.

Performing a Title Search

With many land purchase agreements, sellers are not required to disclose who owns the mineral properties connected to the property. Many property owners do not know who actually owns the mineral estate, anyway – the subsurface rights may have been stripped from the deed many generations in the past, or may never have been included with the surface deed. The Recorder’s Office in the county where the property is located is generally the best place to perform a search and discover the chain of title to a particular tract of land. Many counties maintain a record of deeds that trace back to the 1800s.

A concurrent estate describes the various ways in which property can be owned by more than one person at a given time. Three types of concurrent estates are:

• Tenancy in common: Tenancy in common is the most common type of ownership. Ownership is assumed to be a tenancy in common unless stated otherwise. A tenancy in common is a form of ownership of title to real estate by two or more persons. Although they have a unity of possession, they each have separate and distinct titles. In the event that one of the tenants in common dies, his or her title passes not to the other tenant in common, but to his or her estate or heirs.

• Joint tenancy: is a form of ownership in which the tenants own a property equally. If one dies, the other automatically inherits the entire property. This is known as the right of survivorship. Thus somebody cannot will a joint tenancy, and probate is not necessary under a joint tenancy. A person could not take a property as a joint tenant with a corporation, because a corporation cannot die. It would be taken as a tenant in common. If a joint tenant dies owing debts, the surviving joint tenants are free of the unsecured debts. Joint tenants cannot be created by law; therefore the parties who wish to be joint tenants must make it clear in the conveyance document. A joint tenant has the right to sell, mortgage, or transfer their interest without the consent of the other joint tenants. To create joint tenancy there has to be unity of time, title, interest, and possession. That is the most important thing to remember. You may want to say it again: time, title, interest, and possession. You can also remember the acronym TTIP. It is not much of a word, but it worked for me, so hopefully it will work for you too! Joint tenancy would be terminated if any one of those four unities is destroyed. Therefore a person who buys interest of a joint tenant would be a tenant in common with the other joint owners

• Community property: is property acquired by the spouses during marriage. Community property laws vary from state to state. Community property is owned by both regardless of whose name is on the title.

• Separate property is sole ownership, and is property acquired before marriage or property received by gift or inheritance. Separate property can be transferred without the non-owning spouse’s consent or signature.

• A partition is a court action to divide ownership interest if the owners cannot reach an agreement. Partitions can be used by tenants in common or joint tenants to dissolve ownership interest.

Real Estate Attorney Free Consultation

When you need legal help with real estate law 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


Recent Posts

Utah Divorce Code 30-3-3

Signs That You Should Get A Divorce

Paying The Debts Of A Deceased Relative

Slip And Fall Accident Lawyer

Negligent Torts

Utah Estate Probate Forms

Pre-Foreclosure Title Reports

Pre-Foreclosure Title Reports

Pre-foreclosure refers to the legal situation a property is in during the early stages of being repossessed. Reaching pre-foreclosure status begins when the lender files a default notice on the property, which informs the property owner that the lender will pursue legal action toward foreclosure if the debt isn’t paid. The property owner can pay off the outstanding debt at this point, she can reverse the default status by making up the late payments so the home is no longer in pre-foreclosure, or she can sell the property before it goes into foreclosure. When a homebuyer takes out a loan to purchase a property, he signs a contract with the lending institution to repay the loan in monthly installments. These monthly installments cover a portion of the principal and interest payments on the mortgage. He’s said to be in default if he fails to make payments for at least three months. Pre-foreclosure cannot begin until he is at least three months delinquent. A pre-foreclosure home that goes up for sale is typically referred to as a short sale. The sale can be a private transaction between the homeowner and the buyer, but the buyer’s offer must be approved by the bank before the sale can be finalized. The purchase price may be less than the outstanding loan balance, which is why the sale is said to be “short.” Not all short sales are pre-foreclosures, however. Homeowners sometimes elect to sell their properties by any means possible before their defaults reach this stage.

A pre-foreclosed home can be inspected by the buyer before making an offer on the home. The buyer could be an investor looking to purchase the property for less than its full market value, and then sells it at a higher price for a profit. If the homeowner lists the property for sale through a real estate agent, prospective buyers will contact the listing agent. The lending bank must approve any short sale and will hire one or more real estate brokers to prepare a Broker Price Opinion (BPO)—an estimated market value based on an analysis of similar homes that have recently sold in the local market. The estimated market value helps the bank decide whether the proposed sales price is acceptable. A home that is sold during the pre-foreclosure phase can be a win-win-win for all three parties involved. The homeowner is able to sell the property while avoiding the damage that a foreclosure would have on her credit history. The buyer might be able to snag the property for below market value. The lending institution is able to effectively transfer the mortgage to the buyer and avoid the cost of going through a foreclosure. But buyers of pre-foreclosed homes should be aware of any property liens or unpaid taxes on these homes because these can potentially become their responsibilities after they purchase the properties. The buyer should also factor in the costs of repairs and renovation if the pre-foreclosed home is in a poor state, or he might risk ending up with expenditures that surpass his budget. If the homeowner does not cover the due payments and does not sell the home during the pre-foreclosure period, the lender will eventually sell the property, typically at auction. The bank owns the property at this point and is more likely to try to sell the property at an even lower price rather than maintain its ongoing expenses, such as taxes and insurance. Mortgage lenders take possession of real estate to recoup losses on a defaulted loan. The steps in the foreclosure process are governed by California law. When foreclosure begins, the lender obtains a title report or title guarantee to verify certain information about the property.

A title report, also called a title guarantee or trustee’s sale guarantee, is issued by a title insurance company and contains public records concerning the property in foreclosure. The foreclosing agent verifies the names of all owners of record and other interested parties so that they can be notified of the default and all phases of the foreclosure proceedings. Most California home loans are subject to non-judicial foreclosure; however, when a foreclosure requires a court judgment, or judicial foreclosure, the lender may use a type of title report called an abstract of title. A title report includes a legal description of property that serves as collateral for the loan in foreclosure. This ensures that the legal description contained in the loan documents matches the legal description on file with the recorder’s office or other record’s authority within the home’s jurisdiction. The title report typically includes a survey or map of the property, which illustrates the location of the property and its boundaries. The map or survey may also show the property’s orientation in relation to adjoining properties. An abstract of title contains a survey or other recorded illustration of the property. The sequence of liens appearing in a title report determines the priority for repayment of liens. The sequence of priority typically runs in this order: federal IRS liens, local property taxes and assessments, the first mortgage holder, home equity or line of credit lenders, and miscellaneous liens and court judgments.

If a first mortgage is foreclosed and the property is sold at auction, or title reverts to the mortgage lender, subsequent liens are extinguished, or wiped out. Mortgage lenders rely on title reports to ensure that all parties with a recorded interest in the property are notified of foreclosure proceedings. One of the trickiest aspects to buying during this stage of foreclosure is finding properties. That’s because some of these houses are not yet on the market. Start your search by looking on Zillow for pre-foreclosures. This information is free after you register with a free account. Or, check your local newspaper for foreclosure notices. You may also want to market yourself with online postings, signs, fliers or postcards with a message such as “Willing to pay CASH for your home.” Once you find a property, go see it so you can get a better idea of its location and condition. This could facilitate a casual meeting with the owner or a chatty next-door neighbour. Remember, the owner is probably still living in the home, so be judicious. It’s not uncommon for homeowners to resolve their financial problems, so you need to do your homework and verify whether the property is still in default. The trustee who filed the paperwork to initiate the foreclosure should be able to provide this information. Or, contact a local foreclosure specialist to help you. Once you’ve done considerable homework, it’s time to contact the homeowner by letter or phone call and let them know that you’re interested in their property. Remember that homeowners facing foreclosure are distressed, so enormous amounts of tact are required. Try to arrange a meeting so you can get a better look at the property and potentially discuss a possible sale. If the owner is willing, take a tour of the property. Determine how much you’d need to spend on repairs and subtract that amount from your breakeven number. If you’re not comfortable estimating repair costs, consider taking your contractor along for the tour — just remember to be considerate of the owner’s circumstances. Many factors will figure into your offer, including regional real estate appreciation and the potential for increasing value. Ideally, your offer will be considerably lower — perhaps 20 percent or more — than your breakeven number.

Be creative. For instance, an owner may be more willing to flex on price if you allow them to stay in the property for 30 to 45 days while they find a new place to live. Once a deal has been reached, draw up a purchase agreement. If that’s not within your realm of expertise, turn to either a real estate agent who specializes in foreclosures or an attorney for assistance. Make sure that the agreement makes the deal contingent on a full title search conducted by a title company and a professional inspection of the property. An escrow company, which acts as a third party, can manage the transfer of money and property ownership. Not all homeowners will welcome your interest in their pre-foreclosure home — and that’s fine. Others, however, will realize that, by selling during this stage, they may be able to salvage some equity and minimize damage to their credit record. Quite simply, a title is the right to own a property, and a title report is a record of that ownership. The title report also contains other crucial information you need to evaluate your potential investment—such as liens against the property, easements, and CC&Rs. That’s why it’s so important that you review the report carefully. Do not skip or rush this step. If you’re bidding on a property listed on an auction site like Auction.com, be sure to review the Foreclosure Property Report on the Property Detail Page. But because many foreclosure properties are sold “as-is,” it’s your responsibility to contact a local title company to do a full title search of the public records concerning the property. The title company or a real estate attorney can help you review the report. When a property changes hands, the transfer is recorded in the public records. As the home is sold over time, the title report will list the date of each sale as well as the names of the parties in each transaction.

A lien is a legal interest in a property. It applies to—and stays with—the property itself, not its past owner. A title report might list several different liens:

• Property taxes: When property taxes become delinquent, the local taxing authority can place a lien on the property in the amount of the past due taxes, plus interest and penalties. Property tax liens are issued a so-called “superior” status, which means that if the property is sold, property taxes must be paid before any other existing liens.

• Mortgage liens: This is perhaps the most common form of a lien. The buyer may be listed as the owner, but the mortgage company has a legal interest in the property as well. That interest must be paid in full when the property changes hands.

• Mechanic’s liens: This is a lien formed when a contractor begins work on a home. It ensures the contractor will get paid. If the owner and the contractor get into a spat and the owner refuses to pay what’s due, the contractor will leave the lien in place.

• Income taxes: If a property owner falls behind on income taxes, a lien will appear on the title report, even if the owner makes a payment arrangement with the IRS.

Other legitimate liens include liens for unpaid child or spousal support, or judgments filed as the result of a lawsuit. An easement (also known as a right-of-way) gives access to third parties other than the owner. Someone with an easement can cross your property line without receiving prior permission. The title report identifies an easement’s location as well as the person or entity to which the easement was awarded. Most easements are issued to utility companies; the easement grants the utility company access to its equipment. That doesn’t sound like a problem—unless the equipment is buried in your back yard.

The utility company can dig up your yard to reach it and isn’t required to compensate you for any damage. In another case, you might discover that your neighbour has the right to use your driveway. CC&Rs (Covenants, Conditions & Restrictions) are rules that property owners must follow if the home is part of a homeowners association (HOA) or planned unit development (PUDs). CC&Rs can limit anything from the size of a driveway to how tall you can grow the grass in your front yard. Most CC&Rs are relatively harmless, but don’t take them for granted, especially if you’re buying an investment property that you want to resell or rent. Some buyers won’t buy any property that’s part of an HOA. And if you have tenants, you’ll be responsible for making sure they follow the rules, or you risk getting fined, or worse.

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


Recent Posts

Bus Accidents

Contested Divorce Cases

Primary Caretaker In Divorce

401k In Divorce

Power Of Attorney For Living Wills And Healthcare

What Is A 506(c)?

Timeline Of An Eviction

Timeline Of An Eviction

There are good tenants and bad ones, just as there’re good landlords and bad ones. In Utah, the legal term for an eviction is an unlawful detainer suit. Landlords wishing to evict a tenant must go through a formal process and obtain a court order before they can have a tenant evicted. Any attempts to evict a tenant without a court order are illegal. Actions like turning off utilities or changing the locks without a court order are known as self-help evictions, and they could result in a lawsuit being successfully filed against you. Before landlords can file an eviction suit, the law requires you to provide 3-days notice to tenants to correct a deficiency or leave the premises.

Generally, the eviction process in Utah takes just a matter of days or weeks from the time the landlord files the lawsuit to the time the tenant is out of the property. 11 to 28 days is common, provided that the process has been followed correctly. If the tenant contests the eviction, it could take longer.

Utah is among the more landlord-friendly states. Courts in Utah normally award triple damages (minus attorney’s fees) to landlords in the event of an eviction especially for past due rent payments. However, it can be very difficult to actually collect on a judgment from an evicted tenant if they have few assets in their name to collect against.

Reasons to evict a tenant

 Common reasons for evictions in Utah include non-payment of rent and material violation of lease terms.

 Landlords can also file nuisance evictions due to suspected criminal activity on the premises, loud parties, rowdy behavior, gambling, and the like. The landlord must sufficiently demonstrate to the courts that the tenant has been causing a nuisance.

 You cannot evict unless you have a court order authorizing you to take possession of the property. You can’t evict if you are illegally discriminating against a protected class. The Fair Housing Act prohibits housing discrimination on the basis of race, religion, sex, national origin, familial status, and pregnancy. If you evict someone for a lease violation, the tenant may challenge the eviction and present evidence that they were, in fact, in compliance with the lease, or that they corrected the deficiency within 3-days. As a landlord, it is important to make sure there’s nothing that can be used against you in court. The eviction case could fail if the judge finds you in violation of the landlord-tenant lease. Before proceeding with the eviction process, ensure you were acting in accordance with the following laws:

According to the Law, Landlords should
• Maintain a habitable living space, by conducting all feasible and relevant repairs
• Maintain common areas, in a manner that guarantees safety and sanitary conditions
• Maintain electrical systems, plumbing, heating, and hot and cold water
• Follow the applicable local eviction procedures
• Maintain any air conditioning system in an operable condition
• Comply with all relevant building, safety, health, and housing codes

In some cases, the Law also allows tenants to repair any problems and deduct the cost of the repair from their rent. Remember, the renter will also be given a chance to present their case during the eviction proceedings.

Eviction Process

Every part of the eviction process must be followed exactly or a landlord risks delaying the process, potentially allowing a renter to continue living on his property rent free. If, a landlord takes any illegal eviction steps, he could end up owing his renters money. Illegal eviction tactics include changing the locks or raising the rent with the intent of pricing them out of the rent and making them move.

Notice Period

Before filing an eviction a landlord needs to provide notice to his tenants regarding the reason a lease agreement has been terminated and the tenant needs to move. These notices include a Pay Rent or Quit, Cure or Quit Notice, or an Unconditional Quit Notice. Typically the reason for the notice dictates how much time you must give the tenant to correct the situation or vacate the property before filing for eviction. Some notices can provide as little as 3 business days for the tenant to pay rent or vacate, while other notices may require more than two weeks.

Filing The Eviction Lawsuit

If your tenant fails to vacate the property after having provided them with proper notice, the next step is to file an eviction lawsuit. Once eviction paperwork is drafted according to your state’s guidelines, the eviction lawsuit is filed with the court and the clerk of the court must issue a summons for each of the defendants.

Serving The Eviction Lawsuit

A notice for eviction must be served according to state laws. Some states allow a landlord to serve the eviction paperwork directly to the tenant. Alternatively you can hire a professional process server to serve the tenant their eviction paperwork if your state allows it. Some states allow you to post an eviction notice to the premise and mail a copy to the renters as a last resort if all other service attempts have failed. An eviction lawsuit usually has two main purposes:

 To obtain a judgment for any amounts owed under the contract, and;
 To regain physical possession of the property

Tenant’s Opportunity To Respond

After being notified of the pending court case, the tenant has the right to challenge the eviction. While that commonly consists of a sweeping denial of whatever they are accused of doing, the tenant also can raise defenses at this time. That means challenges to the habitability of the unit, failure to make repairs or unfair treatment. If the tenant has made a reasonable sounding denial, the landlord must then go to court and prove each aspect of the eviction claim. A landlord should have excellent records and support to disprove any claims made by the renter.

Setting A Court Date

Consider working with an attorney familiar with your local landlord tenant laws. They can review the pleadings and determine whether you might have a defense and advise you accordingly. If you have sufficient evidence of a breach of contract by the tenant and that all tenant claims are false or unsubstantial it is highly likely that the Court will sign a judgment and issue an order for a writ. The Writ of Possession is the court order executed by a law to remove a tenant and their belongings on a set date.

Delivering And Executing The Writ Of Possession

Assuming that the court found in the landlord’s favor, the court will issue a document called a Writ of Possession, which provides that the landlord now has the right to possession and directs the county sheriff to evict the tenant from the premises. The landlord must deliver the writ to the Officer, who then posts a notice to vacate on the premises.

After the applicable period, the Officer will come back, and this time he’ll do a civil standby while your landlord and helpers actually move your stuff out. If you tell them they have to transport and store your personal property somewhere safe and secure. They can make you pay to get your stuff back from storage, so this is not a great option.

The Timeline

From the day the tenant receives a notice to quit to the day they are removed from the property anywhere from 3 to 9 months may elapse. So much of eviction process depends on how aggressively the landlord pushes the matter and how vigorously the tenant defends it. When the landlord charges ahead and the tenant puts up no resistance the whole process may only take a couple months. On the other hand when a tenant digs in their heels and the landlord does not force the issue the case may linger for much longer. Failing to provide the correct eviction notice may lead to dismissal of your case. Ignorance of the tenant/landlord law is not a defense, and many local judges have a zero tolerance approach to infringements.

Dealing with an Evicted Tenant’s Property in Utah

You should have a crew of people ready when the sheriff arrives to carry out the eviction process. Have tarps, boxes, and bags on hand. Sometimes the tenant leaves some personal property behind in the rental unit. If that happens, the law enforcement officer should put the property in a safe location or storage. The officer will then notify the tenant of the property.

The tenant has 5-days to retrieve the property without paying anything. Otherwise, the landlord is allowed to donate or sell the property after 15 days. The period can however, be extended for further 15 days in certain conditions.

Rights and Responsibilities of Tenants When Signing a Lease Agreement
Lease is a legally binding contract between you and your landlord. Under a typical lease, a landlord can’t force you to move out of your rental apartment, unless you repeatedly violate any of the lease terms. The landlord must take specific procedures to bring to an end the tenancy. Should a tenant cause substantial damage to the property, landlords may give them an unconditional quit notice.

When a tenant breaks a lease, the law obligates them to continue paying the rent for the full lease term, regardless of whether they continue to live in the rental unit. In some cases, you are no longer obligated to pay rent, even if the lease term hasn’t expired yet. For example:

 The Rental Unit is Unfit: If your landlord fails to adhere to the requirements of the local and state housing codes, it’s considered a violation of your rights under laws. In court, a judge may rule in your favor by declaring that you have been constructively evicted from the property.
 Military Deployment: You also have the right to break a signed lease if you enter active military service afterward.
 Your Landlord Violates Your Privacy Rights or Harasses You: In Utah, it’s illegal for the landlord to alter the terms of the lease agreement before the end of the existing lease term unless it’s explicitly permitted in the lease. If the landlord harasses you, attempts to enter the rental unit, or makes attempts to access the rental unit for reasons which aren’t legal, you can break the lease. Before you do so, get a restraining order against the landlord first. Should the landlord continue with their attempts to access your rental unit even after that, you’re free to provide a notice to break the lease.

 The Apartment is Illegal: If you find out that the apartment you’re renting is, in fact, illegal, you won’t face any penalty for breaking your lease agreement. You may be entitled to a portion of the total rent you’ve paid during the course of your tenancy. The landlord may also be compelled to help you get a new rental property.

 You are a Victim of Domestic Violence: Under state law, tenants who have been victims of domestic violence have the right to end their tenancy without facing any financial or legal repercussions. Specific conditions must be met, however, such as proof of the act of domestic violence, police report and copy of an order of protection.

If you’re leaving the unit for any reason, your landlord is required to find a replacement tenant as soon as possible. This means that you may end up paying only a portion of the rent due for the remaining lease term. In re-renting the unit, the landlord cannot relax standards for accepting tenants. However, the landlord can add legitimate expenses to your bills, such as the costs of screening a new tenant, advertising the property and the like.

If the landlord is unable to re-rent the unit quickly, you will be liable to pay the due rent for the remainder of the lease term. That’s why it’s important that you also help your landlord find a new tenant.

How to Minimize Your Financial Liability

Assuming you don’t have any legal justification to break the lease but you still want to, it’s important to consider your options carefully, as follows.
• Check if your landlord or property management company has another property available in the area where you can move.
• Check if it’s possible to move into another property within the same building. This can be an easy and attractive option if your reason for moving is the need to get more room, or conversely you need to downsize.
• Talk to the landlord about your situation. Be concise and clear about your circumstances. Sometimes the reason for leaving could be an issue with your neighbor.
• Offer the landlord a qualified replacement tenant.

Many times, doing your homework to select and properly qualified renter will help you avoid an eviction down the road. If the unfortunate ultimately happens, be sure to follow all rules and procedures. The rules may appear burdensome to you but they’re there for a reason.

Eviction Lawyer Free Consultation

When you need legal help with an eviction 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


Recent Posts

Is Section 42 Applicable To Private Companies?

Utah Personal Injury Lawyers

What Is The Best Interests Of The Child?

Basics Of Adoption And Same Sex Couples

Legal Separation FAQs

Brady Handgun Violence Protection Act

Ascent Law St. George Utah Office

Ascent Law Ogden Utah Office

Post-Foreclosure Liability For Taxes

Post-Foreclosure Liability For Taxes

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 non-judicial, this article focuses on that process. Before the bank or servicer (the company that handles mortgage accounts on behalf of the bank) can officially start the foreclosure, it must mail the borrower a notice of intent to file a notice of default. 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.)

“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. 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. In order to fully grasp the information in this post, it’s important to understand the basics of a mortgage. Most people say “I’m paying my mortgage.” What they actually mean is that they’re paying their note.

The mortgage is the legal instrument that gives your lender the right to foreclose when you don’t pay the note, which is the instrument that evidences the debt. Mortgage and note are two separate things. This is an important distinction because in many jurisdictions, lenders have two ways of getting their money back from a homeowner who has fallen behind: they can either foreclose and sell the property OR try to enforce the note by suing the borrower personally. Sometimes they’ll try doing both at the same time, but not in Utah thanks to the one action rule. In Utah, lenders are prohibited from simultaneously suing for the outstanding mortgage balance and foreclosing at the same time. A judicial foreclosure must take place in the same action as the pursuit of a deficiency judgment. Only after the proceeds from the foreclosure sale have been applied to what owed can a lender is seeking a judgment on the remaining debt. To put it in plain English, when you get behind on your mortgage, your lender must foreclose first; they cannot sue you personally or attach money in your bank accounts before they have foreclosed on your home. Known as the “security first” rule, the law is intended to shield Utahans from multiple harassing lawsuits by lenders. Be aware that the one action rule does not apply in cases where a second mortgage lender’s security interest has been wiped out due to the first mortgage lender foreclosing. The first requirement, that you live in your home, is easy to understand and satisfy. The Utah anti-deficiency law is meant to shield homeowners from deficiency judgments, not investors. If you are the owner of a 100 unit apartment building and live in one of the units, your lender will still be able to seek a deficiency after foreclosure. In this example, you’re obviously a real estate investor.

If, on the other hand, you live in your home and rent out an apartment upstairs, your lender cannot seek a deficiency because your home only constitutes two units. The mortgage is the legal instrument that gives your lender the right to foreclose when you don’t pay the note, which is the instrument that evidences the debt. Mortgage and note are two separate things. This is an important distinction because in many jurisdictions, lenders have two ways of getting their money back from a homeowner who has fallen behind: they can either foreclose and sell the property or try to enforce the note by suing the borrower personally. Sometimes they’ll try do both at the same time, but not in Utah thanks to the one action rule. First and foremost, a lender cannot sue a borrower for a deficiency judgment where the foreclosure sale price is high enough to satisfy the outstanding mortgage balance.

By definition, a deficiency judgment arises when a home is underwater, the bank forecloses and the sale price is insufficient to pay back the mortgage balance. If your home sells at foreclosure for more than what you owe, there is no deficiency and can therefore be no deficiency judgment. As a practical matter, the scenario where a foreclosure sale completely satisfies the mortgage debt simply won’t apply to most Utah homeowners who are underwater on their property thanks to the national housing downturn. Assuming your home is underwater and you’re facing foreclosure in Utah, we’ll move on to the next important set of facts, which deal with the type of mortgage you have and the size of your property. If a mortgage is given to secure the payment of the balance of the purchase price, or to secure a loan to pay all or part of the purchase price, of a parcel of real property of two and one-half acres or less which is limited to and utilized for either a single one-family or single two-family dwelling, the lien of judgment in an action to foreclose such mortgage shall not extend to any other property of the judgment debtor, nor may general execution be issued against the judgment debtor to enforce such judgment, and if the proceeds of the mortgaged real property sold under special execution are insufficient to satisfy the judgment, the judgment may not otherwise be satisfied out of other property of the judgment debtor, notwithstanding any agreement to the contrary.

What does this legalese mean? Well, a mortgage is given to “secure the balance of the purchase price” of a home when you take out a mortgage to finance your property. If you’re like most of us and couldn’t afford to buy your home in cash, you relied on mortgage financing to buy your house. If you did, the Utah legislature believes that your lender shouldn’t be permitted to sue you for a deficiency and come after your personal assets after they’ve foreclosed on you. As long as your property is 2.5 acres or less in size and you used mortgage financing to purchase the property, you’re protected from a deficiency judgment. This provision adds an additional layer to the Utah anti-deficiency laws. Foreclosure by power of sale is a quick, inexpensive way for lenders to take back property; however, because there is no judicial oversight, the process is more highly scrutinized by the court. In this regard, Utah law says that a bank can foreclose by power of sale, but if they do they will not be permitted to seek a deficiency judgment. How do you know whether your home is subject to power-of-sale foreclosure? Although Utah allows both judicial foreclosure and power of sale foreclosure, power of sale is the most common. Look at your mortgage documents: If you have a Deed of Trust, your lender is entitled to foreclose by power of sale. It should be noted that the 2.5-acre requirement applies in the power of sale legislation just as it does in other areas. It is important to keep in mind that while Utah’s anti-deficiency laws are consumer-friendly, they are not uniform in application. There are limits to the protections from deficiency a judgment not only to purchase money mortgages and properties that are smaller than 2.5 acres in size, but also requires that the number of dwelling units not exceed two.

This limitation was put in place to protect homeowners from deficiency judgments while classifying real estate investors separately from homeowners. 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. 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. If you’ve lost your home through foreclosure, you may still be on the hook for taxes. This can happen if the foreclosure sale price is less than the amount you owed on your mortgage or other liens against your home. The extra amount you owe is called the deficiency. If the deficiency amount is forgiven or cancelled by the mortgage lender, then the IRS or state taxing authority might treat the forgiven debt as income, and then you’ll have to pay taxes on it. The same principles apply with short sales. Fortunately, at least through 2013, most people who lost their homes through foreclosure will not face income tax liability. This is thanks to the federal Mortgage Forgiveness Debt Relief Act of 2007. But there are some exceptions, and some people might face capital gains tax. When your foreclosure includes a cancellation of debt, you only have an obligation to report it as ordinary income if you were personally liable for the entire mortgage, despite the security interest your lender takes in the home. This amount will be reported in Box 2 of a 1099-C that the lender will send you.

You also need to calculate the capital gain that results from the foreclosure. To calculate the gain, subtract your tax basis in the home generally the purchase price plus the cost of home improvements you make from the home’s fair market value. However, if you’re not personally liable for debt that remains, use the outstanding mortgage balance at the time of foreclosure instead of the home’s fair market value. Similar to a foreclosure, any debt that your mortgage lender cancels because of a short sale is taxable only if the terms of your mortgage hold you personally liable for the full amount of the loan. Regardless of the tax consequences, your lender will report the debt cancellation on a 1099-C form. Through the end of 2019 you may have been eligible to exclude canceled debt from your tax return if it related to qualified principal residence indebtedness and met the requirements of the Mortgage Forgiveness Debt Relief Act. This could have also been applicable to debt that was discharged in 2020 provided that there was a written agreement entered into in 2019. Mortgages include those you obtained to buy, build or substantially improve a home and for which the lender retains an interest in the home until it’s paid off. A longstanding principle of tax law treats any type of debt forgiveness as a financial benefit, even if it comes at the expense of your home. This means that even if you are facing foreclosure you may incur an additional debt to the government, either in the form of Cancellation of Debt Income, or in the form of Gain from Foreclosure.

It is up to you to know what exceptions can eliminate the burden of Cancellation of Debt income. For example, debt forgiveness is not taxable if you’re insolvent. If you’re filing for bankruptcy and going through home foreclosure at the same time, you may not need to worry about additional tax liability. There is a distinction between those who can’t avoid foreclosure and those who choose foreclosure as an escape from a bad investment. “The only people I see getting burned by this have significant other investments “They are making a decision to let it go instead of paying for a bad asset.” Goold says there is another, lesser-known exception. The reason it is lesser known, perhaps, is that it is hard to take advantage of. In some circumstances, your bank may be willing to restructure your loan to reduce the principal. The government does not consider this taxable debt forgiveness, and it may just allow you to keep your home. The problem, of course, is that banks might have difficulty seeing the benefit of writing off part of your debt. You may be in a good position to enter this kind of negotiation if your mortgage is with a local community bank where you have personal relationships. If you choose to “short sell” for less than your home is worth, you should be aware that banks will not likely process the transaction immediately.

Foreclosure Lawyer 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

4.9 stars – based on 67 reviews


Recent Posts

Gun Curio And Relic Licenses

How Do Probate Records Show?

Asset Protection For Real Estate

Co-Habitation And Property

How A Trial Works

What Happens If A Married Couple Divorces And Neither Wants Custody Of The Child?

Closing A Foreclosure Sale With Third Party Bidders

Closing A Foreclosure Sale With Third Party Bidders

After a borrower defaults on mortgage payments, the lender (or the subsequent loan owner) will likely foreclose. Most foreclosures end in an auction where the property is sold to a new owner. During the foreclosure crisis, foreclosure sales frequently resulted in a deficiency, which means the property sold for less than the borrower owed the lender. But now that the real estate market has mostly recovered, foreclosure sales often bring in more money than the borrower owes.

How Foreclosure Sales Work

Depending on state law and the circumstances, a foreclosure is either judicial or non-judicial. At the end of the process, a trustee or an officer of the court, like the sheriff, will typically conduct a foreclosure sale. In the past, foreclosure sales almost always involved an auctioneer selling the property from the courthouse steps or another public area. Now, the auction can either be live (in-person) or online. Online foreclosure sales are becoming more and more common. At the foreclosure sale, the high bidder might be the foreclosing lender or a third party. If the lender makes a credit bid and no one else makes a higher offer, then the lender gets the property, and it becomes REO. If a third party makes the highest bid, that person or entity must then pay for the property with a money order, cashier’s check, or cash to become the new owner of the home. During the Great Recession, the purchase price at most foreclosure sales was either the loan balance or a lesser amount. Now, though, foreclosure properties often sell for prices that are more than what the borrower owes the foreclosing lender. The amount by which the purchase price exceeds the loan balance is called “excess proceeds.”

If a foreclosure sale results in excess proceeds, the lender doesn’t get to keep that money. The lender is entitled to an amount that’s sufficient to pay off the outstanding balance of the loan plus the costs associated with the foreclosure and sale but no more. Generally, the foreclosed borrower is entitled to the extra money; but, if there were any junior liens on the home, like a second mortgage or HELOC, or if a creditor recorded a judgment lien against the property, those parties get the first crack at the funds. Then, any proceeds left over after paying off these liens belong to the former homeowner.

What Happens If the Sale Amount Is Less Than the Total Debt

If the property sells for less than the borrower owes the lender, the sale results in a deficiency. Then, depending on state law, the lender might be able to get a deficiency judgment against the foreclosed borrower.

How to Find Out If Excess Proceeds Are Available

Typically, if a sale has excess proceeds, the trustee or other sale officer has to send a notice to the foreclosed homeowner’s last known address. But the last known address is usually the foreclosed property. Because most people don’t realize they’re due any excess proceeds, they tend to vacate a foreclosed property without leaving a forwarding address. So, it’s difficult for a trustee or other sale officer to find foreclosed homeowners after a sale. Because a sale might generate excess proceeds, it’s a good idea to track the process.

You should take note of the sale date, which will be included in the foreclosure documents you receive. After the auction, contact the trustee or officer that sold the property. (This information, including the trustee or officer’s name and phone number, should also be in the paperwork you received during the foreclosure, as well as in your local newspaper’s legal section where the sale notice was published. If you can’t figure out who conducted the sale or how to contact that person, call your loan servicer.) Ask if the auction generated excess proceeds. If so, be sure to give the trustee or officer your new address and follow up with a letter sent by both certified mail/return receipt requested and regular mail with your new address and contact information. Also, ask what you need to do to claim your share, if any, of the proceeds.

Credit Bid in a Foreclosure

At a foreclosure sale, the foreclosing lender usually makes a bid on the property using what’s called a “credit bid.” People sometimes think that the lender (or subsequent loan owner) will “repossess” their home in a foreclosure. But this description of the process that a lender uses to get ownership of the property isn’t accurate a foreclosure is different than a repossession. Repossession is a self-help remedy that allows a creditor to simply take possession of an item; the creditor doesn’t have to sue you first. In a car repossession, for example, the lender simply takes the vehicle back. With a foreclosure, however, the lender can’t just take your home. Instead, it must go through a specific process (a foreclosure) and hold a sale, which is typically a public auction. Anyone, including the foreclosing lender, can bid on the home at the sale. Normally, the lender will bid on the property using what’s called a “credit bid.” If the lender is the high bidder at the foreclosure sale, it then gets ownership of the home.

How Foreclosures Work

People who take out a home loan usually sign a security instrument, either a mortgage or deed of trust. This document gives the lender the right to sell the property through a process called foreclosure if the borrowers don’t make the payments or violate the agreement in some other manner. The foreclosure process will be governed, in large part, by state law and will be either judicial or non-judicial.

Judicial Foreclosures Go Through Court

The lender starts a judicial foreclosure by filing a lawsuit in court. If the court agrees that the borrowers have breached the loan agreement, the court orders the home to be sold at a foreclosure sale. (In two states, Connecticut and Vermont, the court may give the home’s title directly to the lender. This process is called a strict foreclosure.)

Non-judicial Foreclosures: No Court Action

In a non-judicial foreclosure, the lender follows particular out-of-court steps to foreclose. State law spells out exactly what the lender must do to complete the process. While the exact steps vary among states, the lender might have to do one or more of the following:
• mail the borrowers a notice of default or notice of sale
• record a foreclosure notice in the land records
• post a notice about the foreclosure sale on the property, or
• publish information about the foreclosure sale in the newspaper.
Once the lender completes the state-specific process, a foreclosure sale will take place.

How Credit Bids Work

At the foreclosure sale, which is an auction, the lender will usually make a credit bid. With a credit bid, the lender bids the debt that the borrower owes. Basically, the lender gets a credit in this amount. The lender can bid the full amount of the debt, including foreclosure fees and costs, or it might bid less. If the lender is the highest bidder at the sale and becomes the new owner of the property, but bids less than the total debt, it might be able to seek a deficiency judgment against the borrower. Whether or not the lender can get a deficiency judgment depends on state law. Other parties who bid on a property at a foreclosure sale must bid cash or a cash equivalent, like a cashier’s check. If a third party is the high bidder at the sale, the proceeds from the sale are used to repay the borrowers’ debt. (If the proceeds aren’t sufficient to pay off the full amount of the debt, the lender can, if state law allows it, get a deficiency judgment.) Often, though, the foreclosing lender is the high bidder at the foreclosure sale. After the lender buys the property at the sale and gets title to the home, the property is considered “Real Estate Owned” (REO).

Can Anyone Show Up at a Foreclosure Auction to Bid?

Foreclosure usually ends with the sale of the property at an auction. The highest bidder is the new owner of the property, but if no one shows up or bids high enough, the foreclosing bank becomes the owner. A foreclosure auction is usually completely open to the public, so anyone can show up, but some types of bidders are more common than others.

Lender Representatives

An agent or representative of the lender usually attends foreclosure auctions to protect their interests. The home needs to sell for an amount the lender deems acceptable, usually the total left on the mortgage plus the lender’s legal fees related to the foreclosure. The lender may send an agent to the sale even if state laws allow the lender to set a minimum bid ahead of the time. Some states let the lender set a minimum bidding amount before the sale, so the auction starts at that bid amount.

Homeowner

A homeowner can bid on their own property at the foreclosure auction. Although it’s not very common, as you need a cash deposit if you’re the winning bidder and must be able to finance the sale, it’s not illegal for a person to bid on their own property at a public foreclosure auction. However, while a third-party bidder isn’t on the hook for your loan debt, you may be, depending on your state’s laws. So, if you buy your home back at auction for less than what was owed, your lender may take you to court for the difference, which is known as a deficiency judgment. If your lender foreclosed, your state may give you a specific amount of time after the auction known as a redemption period to buy your home back, even if another person won it.

Investors

Investors often attend foreclosure auctions as a means to buy property at prices below the market value. Investors, especially those involved in the construction industries who don’t mind a house that needs work, may join forces and use pooled money to bid aggressively at auctions. Foreclosed homes are sold “as-is” and may have damage from the homeowner or as a result of the home staying vacant for weeks or months before the sale.

Auction Considerations

Each state has its own rules regarding the foreclosure auction process and money required if you’re the winning bidder. For example, in Arizona, you only need an earnest cash deposit at the auction, but you’ll have only a day to get the full bid amount. If you can’t get it together, the trustee can cancel the sale and you’ll lose you cash. In other states, you need the full amount upfront and must pay immediately after your win.
How to Recover a Bid Deposit When a High Bidder Defaults on a Foreclosure

Bid

Recently, in Utah Court of Appeals issued an opinion that provides a blueprint for a lender to pocket a cash recovery if it is outbid at a foreclosure sale but the high bidder subsequently defaults on its bid. If a foreclosure goes to resale because a high bidder defaults, a lender can reduce its original bid by the high bidder’s deposit and then recover those funds from the Clerk of Superior Court. In other words, the lender can acquire the property for less money (and less credit on the secured debt) and recover cash in the process. A foreclosure sale is a public event in which anyone can bid on the property being foreclosed. Usually the trustee conducting the foreclosure is the only person who attends the sale and, upon instructions from the lender, he places a credit bid for the lender. But sometimes the borrower, an associate of the borrower, or some other third party will out-bid the lender, either on the courthouse steps or by filing a higher “upset bid” during the 10-day period that follows the public sale.

While a lender exercising its foreclosure rights may submit a credit bid, any other high bidder must secure its bid with a cash deposit equal to 5% of the bid. The high bidder then typically has 30 days to pay the balance of the purchase price to the trustee. If the third-party bidder fails to close on the purchase, the trustee may move the Clerk of Superior Court to allow a resale of the property. Utah law imposes liability on a defaulting high bidder to the extent of the total if the amount of the final sale price is less than the high bidder’s original bid plus all costs of resale. The 5% deposit secures payment of this amount.
If you’ve defaulted on your mortgage loan, consider talking to a lawyer to learn about the foreclosure procedures in your state and find out whether you have any potential defenses to the action. You can also ask a lawyer for information about loss mitigation options, like a mortgage modification or short sale.

Foreclosure Lawyer 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


Recent Posts

Injury Lawyers

Can I Pay Back Family Before I File Bankruptcy?

Custody Problems?

My Credit Card Company Is Suing Me

Can I Get A Copy Of Grant Of Probate?

Child Custody Attorney Salt Lake City Utah

State Foreclosure Compliance

State Foreclosure Compliance

Because a foreclosure ultimately results in someone losing a home, courts take the process very seriously. If the servicer or current holder of the mortgage loan (called the “lender”) doesn’t strictly follow state law and act in accordance with the terms of the mortgage or deed of trust, you might be able to stop the foreclosure.

Typical Foreclosure Requirements

In most foreclosures, the servicer and lender must do some or all of the following to properly foreclose. (Although, the actual procedure will vary depending on the state and whether the foreclosure is judicial or non-judicial.)

Foreclosing Party Must Meet Pre-foreclosure Loss Mitigation Requirements
During the foreclosure crisis, several states enacted pre-foreclosure loss mitigation requirements. Typically, under these laws, the servicer or lender must:

• inform the homeowner about mediation options
• provide contact information so the homeowner can explore options to avoid foreclosure, and/or
• refer the homeowner to housing counseling agencies and legal services programs.

For example, Utah law requires the servicer to personally contact the homeowner by phone or in person 30 days before recording a notice of default (the official start to the foreclosure process in that state) to assess the homeowner’s financial situation and explore options to avoid foreclosure. If the servicer can’t reach the borrower, it has to satisfy specific attempt requirements. Federal law also has specific pre-foreclosure loss mitigation requirements. A lender’s failure to comply with pre-foreclosure loss mitigation requirements might serve as a basis for challenging the foreclosure.

Mortgages and Deeds of Trusts Often Require a Breach Letter

Mortgages and deeds of trusts often contain a clause that requires the lender to send a notice, commonly called a breach letter or demand letter, informing the borrower that the loan is in default before it can accelerate the loan and proceed with foreclosure. (The acceleration clause in the contract permits the lender to demand that the entire balance of the loan be repaid if the borrower defaults on the loan.)

The breach letter generally must specify:
• the default
• the action required to cure the default
• a date (usually not less than 30 days from the date the notice is given to the borrower) by which the default must be cured, and
• that failure to cure the default on or before the date specified in the notice may result in acceleration of the debt and sale of the property.
Because mortgages and deeds of trust are contracts, the lender must strictly comply with the terms to properly foreclose. If the lender or servicer neglects to send the breach letter and you raise this issue with the court, they might have to start the process over.

The Lender Must Follow State Procedures

Based on state law, the servicer or lender must provide appropriate and timely notice of the foreclosure. As part of the foreclosure, the lender or servicer might be required to:

• mail you a notice of default in a non-judicial foreclosure
• serve you with a copy of the complaint in a judicial foreclosure
• record certain documents in the local land records office
• serve you with a notice of foreclosure sale, and
• publish notice of the foreclosure sale in the appropriate place or manner (usually for a certain number of weeks in a newspaper in the county where the property is located).

These notices all have specific time limits and specific content requirements. For example, the notice might have to describe the property that’s being foreclosed, include the amount due, state the amount necessary to cure the default, and provide information about the person who you can contact to discuss the notice.

Regularities of Sale

When a court looks at the regularities of the foreclosure sale process, it conducts an examination to determine whether proper procedures were followed or whether there was some defect in the sale. Whether the court does this in all or most cases, or only under certain circumstances, depends on state law and foreclosure procedure.

In Utah, most foreclosures are non-judicial but the court must confirm the sale if the lender wants to pursue a deficiency judgment against the borrower. As part of the hearing to confirm the foreclosure sale, the court will routinely evaluate the regularity of the sale. At the hearing to confirm the sale, the court will review whether or not the lender followed proper foreclosure procedures by looking at things such as:

• the notices that the lender sent to the borrower
• the foreclosure sale advertisement that the lender published, and
• whether there was any fraud or other irregularities in the sale.
If the foreclosure sale was not proper, the court may order a resale of the property. If a lender doesn’t comply with all of the state-specific requirements, you might be able to force the lender to go back and re-do the foreclosure, or at least correct the defect, which can provide you with valuable time to try to work out an alternative. Major violations of the law, like if the lender failed to send you a notice of default as required by state law or a breach letter as required by the deed of trust, will probably cause the lender to have to start the foreclosure over. In this type of situation, a court will usually require a restart because, if you don’t receive proper notice, the foreclosure can come as a complete surprise. You might have little time to try to cure the default or work out a deal to avoid foreclosure. In general, courts aren’t likely to allow errors that deprive you of valuable time to resolve the problem. But if the error is minor and doesn’t cause you any harm, then it probably won’t stop the foreclosure. For example, violations such as the misspelling of a name are almost always considered inconsequential in the eyes of the court. In fact, some state statutes even specifically state that certain trivial procedural errors will not affect the foreclosure.

How to Fight the Foreclosure

If you think the lender committed a procedural error and want to fight the foreclosure, the way you go about it depends on whether the process is judicial or non-judicial.

Judicial foreclosure: In a judicial foreclosure, the lender files a lawsuit in state court. You will receive a foreclosure complaint, petition, or similar document, along with a summons. In this type of foreclosure, you will have the opportunity to raise defenses and counterclaims in an answer to the foreclosure complaint.

Non-judicial foreclosure: With a non-judicial foreclosure, the foreclosure is typically completed completely outside of the court system. There usually isn’t a court hearing or other opportunity for you to raise defenses or counterclaims so you’ll need to file your own lawsuit to bring up any procedural errors committed by the lender

Hire a Foreclosure Attorney

Lenders and servicers often make procedural errors in the foreclosure process, yet most of the time these errors go unchallenged by the homeowner. If you’re facing foreclosure and think that the lender or servicer has not complied with legal requirements, you should speak to a qualified attorney who can advise you about what to do in your circumstances.

The Foreclosure Process Step by Step

When a borrower fails to meet its loan obligations, the lender may try to foreclose on the property securing the loan. “Foreclosure” is just the series of steps a lender has to take in order to force the sale of such property and use the sale proceeds to recover its unpaid debt. This is simple enough in theory. However, except for professionals who deal with foreclosures on a regular basis, few understand the many steps involved in the process. Given the complexity, and the fact that these steps can vary from state to state, residential or commercial property, and even depending upon the terms of agreements between individual borrowers and lenders, it isn’t surprising the process may be a bit of a mystery. Nonetheless, since compliance with the foreclosure process can greatly impact the length, cost and outcome of these actions, a solid understanding of the foreclosure process is critical.

Foreclosure Rules Vary from State to State

First of all, as with most real estate laws, foreclosure rights and procedures are different in each state. These differences can be minor variations in things such as how many times a lender must publish notice of a foreclosure sale, or the number of days a borrower has to respond to a lawsuit. They can also, however, vary significantly in terms of borrower and lender rights. For example, a borrower may or may not have the right of redemption, which is the ability to recover their property following a foreclosure sale by;
• paying the sale price, interest and other costs to the winning bidder or
• If the redemption happens before the sale, by paying the lender its outstanding debt and other costs.
Since these differences can vary so much between states, let’s take quick look at the most significant differences between states before diving into the foreclosure process itself.

Procedural Requirements

Because foreclosures result in the loss of property, including people’s homes, strict compliance with procedural items, such as the method and form various notices must take, is required. Accordingly, knowing when, where and what form notices must take (as well as all other procedural requirements) is critical to a successful foreclosure. While there may be some similarities, the procedural requirements for a foreclosure can vary widely from state to state.

Time to Complete the Process

Depending on the state, foreclosures can occur as quickly as 30 days, and up to seven months (or longer). Some states grant a borrower a right of redemption, and others do not. Generally redemption is not available in non-judicial foreclosures unless the deed of trust grants the right. Even where they are given, there is a great deal of variation among the states as to the period in which a borrower must exercise or lose its right to redeem (generally between six months and a year). Further, state laws may condition the right of redemption, or modify the time period in which it can be exercised, on different factors, such as:
• Requiring the borrower to redeem the property before the foreclosure sale
• The percentage of the unpaid loan amount at the time of foreclosure judgment
• Whether the property has been abandoned
• Whether the borrower relinquished possession to the new owner (the winning bidder at the foreclosure sale) following demand
• Whether the borrower lost its source of income following foreclosure
• In what year the mortgage was granted
• Whether a lender gets a deficiency judgment
• Whether the lender was the foreclosing buyer
• The type of property (e.g., agricultural), and
• The terms of the mortgage or deed of trust

Deficiency Judgments

Where the proceeds from the foreclosure sale aren’t enough to pay the borrower’s unpaid debt, the lender may be able to obtain a deficiency judgment against the borrower for the difference. Some states permit them, and some do not. Generally such judgments are not available where a deed of trust was used. Again, however, even where a deficiency judgment is permitted, the states can differ on their application, such as the time period in which it must occur and conditions on its availability (e.g., a borrower may be able to avoid a deficiency judgment if it agrees to a sale of the property prior to foreclosure).

Default by Borrower

The foreclosure process begins when a borrower defaults on its loan, whether by failing to make timely payments or meet its other obligations under the loan documents (e.g., failing to maintain property insurance). Evidence of the default is the linchpin of a lender being able to establish it has the right to foreclose.

Notice of Default

Following default, the lender sends a notice to the borrower that includes a description of the default and the time period in which the default must be cured. For example, if the default is a failure to timely pay loan amounts, the notice will state the amount due and when it must be paid. If the default is not cured before this period expires, the lender may begin the foreclosure process. Under certain circumstances, typically for commercial properties where the loan documents permit, the notice of default may also include a demand that the borrower sends the lender all rents from the property it currently has, and those rents it collects through the foreclosure process which aren’t used for certain property expenses approved by the lender.

Foreclosure Workout

Though not an actual part of the foreclosure process, in an effort to avoid the time, cost and other negative consequences of a foreclosure, following the default notice the parties may attempt a workout, or a restructuring of the loan terms, to avoid further defaults. Common workouts include forbearance, loan modification, a repayment plan, deed in lieu of foreclosure or short sale.

Acceleration Demand

If the borrower fails to cure the default before the period stated in the notice, the lender demands an acceleration of the loan. Acceleration means the amount due is no longer the missed payments, but rather the total amount of unpaid debt. The right to demand acceleration is granted in the loan documents, and the time required between the default notice and acceleration demand varies.
Lender Files Complaint / Trustee Issues Notice of Default
The next step depends on whether or not the state is a judicial foreclosure state or a non-judicial foreclosure state. Let’s walk through both scenarios.

Judicial Foreclosure: Complaint

In a judicial foreclosure action, if the borrower is unresponsive to the demand and acceleration letter, and no workout has been negotiated, the lender will begin the foreclosure lawsuit by:
• Filing a complaint or petition for foreclosure with the courts,
• Issuing summons to the borrower and all interested parties notifying them of the suit and stating the time period in which they must contest the foreclosure, and
• Recording in the county records a lis pendens (this is done to give notice to the public, subsequent lien holders and potential purchasers of the foreclosure).

The suit is filed in the county where the property is located, and asks the court for a judgment of foreclosure, an order for sale of the property, and in some cases a deficiency judgment. The complaint will name the borrower and all other interested parties. These can include, for example, guarantors to the loan, holders of second mortgages or other liens junior to the lender’s mortgage, or the IRS if a tax lien encumbers the property. The lender must notify each defendant separately by summons according to form, method and timing under state law. The complaint sets forth the lender’s argument that it is entitled to the relief it seeks. Typically a complaint will include the mortgage, all loan documents, state the default and amount due, and identify the property. Some states require the lender to file an affidavit of fact with the complaint, which affidavit attests to the amounts due, the amount of the unpaid principal balance, unpaid interest due, late fees, attorney fees, and other costs. Further, a person with personal knowledge of the affidavit’s contents must sign it. This means that no automated signatures are permitted. In some states, where the foreclosure is on commercial property, the complaint may also include a request that the court issue an order requiring the borrower to deposit all rents from the property into the court or other depository. Generally, in order to protect the value of the property securing the loan during the pendency of the foreclosure action, the court may use these rents to pay expenses relating to the operation of the property and make payments on the loan.

Non-Judicial Foreclosure: Notice of Default

In a non-judicial foreclosure, a third party referred to as the “trustee” handles the foreclosure instead of a court. The trustee, named in the deed of trust, is a neutral third party who owes a fiduciary duty to both lender and borrower. The procedure detailed in the deed of trust and loan documents will be followed so long as they meet the minimum borrower protections afforded under state law. Generally this begins with the lender notifying the trustee of the borrower’s default and how it may be cured. The trustee then issues a notice of default by:
• Sending all interested parties notice of the proceeding, the foreclosure sale and its date
• Recording a notice of the default in the county records, and
• Publishing notice in newspapers, posting on the property, or as otherwise required in the deed of trust and state law.

Foreclosure Attorney Free Consultation

When you need legal help with State Foreclosure Compliance, 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


Recent Posts

Does A Legal Separation Protect You Financially?

Surrender Your Home Or Foreclosure

Child Support and Parental Relocation

SEC Charges Pastor With Defrauding Retirees

National Firearms Act Of 1934

Child Access Prevention Laws

What Happens If I Can’t Get A Loan Modification?

What Happens If I Can't Get A Loan Modification?

Loan modification is a change made to the terms of an existing loan by a lender. It may involve a reduction in the interest rate, an extension of the length of time for repayment, a different type of loan, or any combination of the three.

Such changes usually are made because the borrower is unable to repay the original loan. Most successful loan modification processes are negotiated with the help of an attorney or a settlement company. Some borrowers are eligible for government assistance in loan modification.

How Loan Modification Works

Although a loan modification may be made for any type of loan, they are most common with secured loans such as mortgages.

• A loan modification is typically granted to a borrower in financial crisis who can’t repay the loan under its original terms.
• Successful applicants typically are represented by legal or other professional counsel.
• Some consumers have access to government programs that help mortgage-holders.
A lender may agree to a loan modification during a settlement procedure or in the case of a potential foreclosure. In such situations, the lender has concluded that a loan modification will be less costly to the business than a foreclosure or a charge-off of the debt.
A loan modification agreement is not the same as a forbearance agreement. A forbearance agreement provides short-term relief for a borrower with a temporary financial problem. A loan modification agreement is a long-term solution.

A loan modification may involve a reduced interest rate, a longer period to repay, a different type of loan, or any combination of these.
There are two sources of professional assistance in negotiating a loan modification:

• Settlement companies are for-profit entities that work on behalf of borrowers to reduce or alleviate debt by settling with their creditors.
• Mortgage modification lawyers specialize in negotiating for the owners of mortgages that are in default and threatened with foreclosure.
Federal government assistance also is available to some borrowers.

Government Programs

Mortgage loan modifications are the most common type because of the large sums of money at stake. During the housing foreclosure crisis that took place between 2007 and 2010, several government loan modification programs were established for borrowers.

Some of those programs have expired but government-sponsored loan modification assistance is still available to some borrowers. These include:

• Fannie Mae, the government-sponsored mortgage company, has a program called Flex Modification.
• Mortgages insured by the Federal Housing Authority may be eligible for modification through the agency’s FHA-HAMP program.
• Military veterans can get mortgage delinquency counseling through the U.S. Dept. of Veterans Affairs.
Some traditional lenders have their own loan modification programs.

Applying for a Mortgage Loan Modification

A mortgage loan modification application will require the details of a borrower’s financial information, the mortgage information, and the specifics of the hardship situation.

Each program will have its own qualifications and requirements. These are typically based on the amount the borrower owes, the property being used for collateral, and specific features of the collateral property.
If a borrower is approved, the approval will include an offer with new loan modification terms.

• Apply for a modification as soon as possible. To qualify for a modification, you’ll have to submit a complete “loss mitigation” application to your loan servicer. It’s best to submit your application as soon as you know you’ll have trouble making your payments or shortly after you fall behind. If you take several weeks or months to put your paperwork together, a foreclosure could start or continue, leaving you with less time to work out a foreclosure alternative.

• Send in all items the servicer requests. To get protection against dual tracking under federal and some state laws, you have to send your servicer a complete application. An application is complete once you’ve sent in everything that the servicer requested—like a financial worksheet, pay stubs, bank statements, information about your assets, tax returns, and a hardship statement. One of the main reasons that people often don’t get approved for a modification is because they fail to send in every document that the servicer requests. The servicer won’t make a decision your application until all of your items are in. If you leave out just one document—or send paperwork that’s outdated—the servicer will likely deny your request for a modification.

• Be sure to include every page of each required item. When you send your paperwork to the servicer, don’t omit any pages. For example, even if page three of your bank statement is blank, if the other pages say “Page 1 of 3” and “Page 2 of 3”, you need to send all three pages. Otherwise, the servicer will probably consider the document incomplete.

• Keep all correspondence you receive from the servicer. Be sure to retain all written communications you receive from the servicer, such as a confirmation letter that the servicer received your complete application or a letter telling you that certain items are missing. This information could be useful later on if you want to challenge a foreclosure by showing the servicer didn’t comply with servicing laws. (To learn what to do, and what not to do, in a foreclosure, see Foreclosure Do’s and Don’ts.)
• Learn about laws that protect you in the process. Servicers sometimes make mistakes when processing borrowers’ modification applications. Find out about the federal and state laws that protect you in the loss mitigation process so you can enforce your rights if the servicer fails to abide by the law. (Read about federal mortgage servicing laws that protect homeowners from foreclosure.)
Don’t:

• Send illegible documents. When you send your paperwork to the servicer, be sure that all pages are legible. Otherwise, the servicer might deem them unacceptable and deny your application. Be aware that what you consider acceptable and what the servicer considers readable might be different. The servicer won’t put in a lot of effort to decipher words or numbers that are potentially unclear. It’s in your best interest to make it easy for the servicer to read the documents by submitting only clear, clean copies.

• Lose your cool if the process isn’t perfectly smooth. Stay calm, even if you have to resubmit paperwork you already sent in. Resend whatever item the servicer asks for, and send it as soon as possible. If you get irritated with the servicer and insist that you already submitted all required documents rather than resending them, you’ll only hurt yourself. Remember that your servicer is likely getting thousands of requests for modifications—don’t give the staff an easy reason to turn down your request.
• Be afraid to get clarification. Be sure that you’re clear on exactly what items you need to send in. The servicer might request two pay stubs assuming that covers one month of your income. But if you’re paid weekly, bimonthly, or monthly, you might have to send in more or fewer pay stubs. If you need clarification, ask your point of contact. (Under federal law, in most cases, by the time you’re 45 days’ delinquent, the servicer has to assign a single person or a team to help you with the loss mitigation process.)
• Forget to put your name, loan number, and contact information on each page of every document you turn in. Normally, you get a few options for sending your documents to the servicer: by regular mail, overnight mail, fax, or secure email. Paperwork sometimes gets lost, so the best option is secure email. Whatever option you choose, be sure to put your identifying information on every page of each document. Otherwise, the servicer might misplace one page and think your application is incomplete. When possible, send all of your application documents at one time, which significantly reduces the opportunity for items to get lost.
• Assume everything is on track, even after you’ve sent in your complete application. After you send in your paperwork, remain in touch with the servicer. Call at least one time each week to check on the status of your application. Keep notes detailing when you called the servicer, who you talked to, and what you discussed. Also, be sure to ask if the servicer needs any updated documents or information from you.
What Are the Alternatives If Loan Modification Does Not Work for Someone?
What Happens If Someone Defaults on A Loan Modification? Is It Like

Essentially Having A New Loan?

When you do a loan modification, they actually record a new deed of trust in the land records with the terms of the new loan modification. So, essentially if you fell behind in a loan modification, it’s just like falling behind on the original mortgage except the payments are lower and you’re not falling behind as fast as you were when the payments were higher.
The good news is the attorney can still file Chapter 13. Law office of Attorney James Logan has filed quite a few Chapter 13 for people who had modified loans. Because the payments are lower, a lot of times, the Chapter 13 will work out. You can always file a Chapter 13 after getting a loan modification if you want to try to hold on to your house. In some cases, people get second loan modifications and again, if their income situation is changed for the better, they may be able to get another loan modification from their lender.

What Are Some of The Other Alternatives to Foreclosures?

Once you start to fall behind on your mortgage, your first option is to call your lender and see if you can work out either some kind of forbearance. If it’s a temporary collection on your income or you’re just out of work for 6 months but now you’re back to work, and the forbearance means they’ll work out some program with you to catch you up on the 2 or 3 months that you missed. Attorney James Logan can do a reinstatement if you have funds available.
Sometimes, people get a tax refund that’s allowing you to catch up the mortgage. But what you don’t want to do is pull out money from your 401(k) to reinstate your loan, that’s a very bad idea because you’re paying the taxes and penalties on the withdrawal for the 401(k). And if you ultimately end up losing the house, you wasted all that money. So, it is strongly advised never to pull out money from a 401(k) or IRA to catch up loan or catch up a mortgage.
If you have some other source of funds that you can use to reinstate the loan, that may be an option. In Maryland, you can apply for mediation at a certain point during the foreclosure process and the mediation is where you can actually sit down with the lender and a mediator was appointed by the court and talk about options to save your home. Sometimes, that’s successful.
Your ultimate option is to file a bankruptcy. You need to file a Chapter 13 where the attorney can set up a payment plan to catch you up on the back payments on the mortgage or you can file a Chapter 7 and just basically buy yourself a few months in the house and wipe out all your liability on the house and walk away from it. Sometimes, people just realize that they are never going to be able to hold on to the house and they start to buy time and walk away.

Why Bankruptcy Would Be A Better Option?

Bankruptcy may be a better option for loan modification if you’re not too far behind in your mortgage and you have other debts that can be dealt with in a bankruptcy. So, those are probably the two situations where it makes more sense to file a bankruptcy. Unfortunately, by the time many people come to see a lawyer, they’re two, three, four years behind in the mortgage which they can’t afford just the regular payment.
If they file a Chapter 13, they’re looking at the regular payment plus another payment on top of that. So, if you can’t afford the regular payment, how are you going to afford the regular payment plus more on top? But if you’re only a few months behind, which is becoming more common as we emerged from the recession, we’re starting to get past all the crazy day mortgages. Those kinds of situations make sense.
In another case, if you have a lot of debts, a lot of times, we can file a Chapter 7 and get rid of all your credit card debt and other debts that are weighing you down and you can focus on getting a loan modification to save your home.
To learn more about federal and state laws that protect homeowners in the loan modification process, talk to a lawyer. If the servicer violates any of the laws mentioned in this article or treats you unfairly, you might have a defense to a foreclosure, which could give you leverage in the modification process.
To get assistance with completing your application or to learn more about different loss mitigation options, consider talking a HUD-approved housing counselor. You should not, however, hire a loan modification company to assist you.

Loan Modification Attorney Free Consultation

When you need legal help with a loan modification 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


Recent Posts

UCC Financing Statements

How Soon Must A Probate Be Filed?

Set Up A Trust

Asset Protection Pitfalls

Probate A Will

ATV Accident Lawyer Park City Utah

Foreclosure Lawyer Draper Utah

Foreclosure Lawyer Draper Utah

Credit for individuals has been in use—and regulated—since the earliest days of recorded antiquity, and probably well before that. Credit regulation began at least with the laws of ancient India and Babylon, but it probably started much earlier with nomadic hunter-gatherer chieftains who desired to straighten out borrowing and lending misunderstandings and abuses among clan and tribe members. In the United States, credit regulation began in the colonial period with the adoption of England’s legal system, and it continued after the American Revolution, expanding its geographic reach with the westward migration of settlers.

Throughout American financial history through World War II, mortgage and consumer credit was often hard to obtain, but since 1945, the amount of outstanding credit subject to regulation has taken on massive proportions. Interestingly, however, the postwar growth of credit has not been nearly as large as is often believed when measured in real (inflation-adjusted) terms. It is reasonable to assume that a complete return to a peacetime economy, occurred by 1955 following the Korean War. Calculating real compound annual growth rates from that year to 2008, mortgage credit grew 5.2 percent annually and consumer credit 3.9 percent. Both amounts actually declined in 2009.

If you are facing foreclosure, you may be a victim of predatory lending. Speak to an experienced Draper Utah foreclosure lawyer.
Like TILA, HOEPA has proven to be a relatively ineffective tool for controlling predatory lending. The vast majority of subprime loans do not meet the definition of “high-cost,” and therefore are not subject to any of HOEPA’s protections or prohibitions. HOEPA excludes some questionable costs—such as high prepayment penalties—from its points and fees threshold, and does not cover purchase money mortgages, reverse mortgages, or home equity lines of credit.

In addition, although HOEPA bans some predatory practices for covered loans, its prohibitions are either too limited or too onerous to provide adequate protection for borrowers. HOEPA, for example, appears to recognize that asset-based lending is abusive, but applies only when there is a “pattern or practice” of asset-based lending, and not when a lender fails to consider the plaintiff’s ability to pay in any one instance. HOEPA thus insulates from prosecution all but the worst asset-based lenders. In short, although HOEPA targets the worst loans, it has not been able to stem the rise in abusive lending practices.

Real Estate Settlement Procedures Act (RESPA)

The Real Estate Settlement Procedures Act (RESPA) ensures that borrowers obtain basic information about their loan during the transaction, prohibits certain practices that may increase settlement costs, and imposes certain requirements on loan servicing practices. RESPA applies to “federally related mortgage loans” secured with a mortgage on a one-to-four family residential property, which includes most home purchase loans, assumptions, refinances, home improvement loans, and equity lines of credit.

RESPA requires that lenders detail the costs associated with settlement, outline lender servicing and escrow account practices, and disclose any business relationships between settlement service providers. RESPA also prohibits certain potentially predatory practices that could increase settlement costs to the borrower. For example, RESPA makes it illegal to give or accept any item of value for referrals of settlement services or to give or accept charges for services not actually performed.

Finally, RESPA requires loan servicers to follow certain practices related to the servicing of the loan and any escrow account used for paying property taxes, insurance, and the like. Servicers must respond to the borrower’s written questions or complaints about servicing of the loan within 60 days, and must provide the borrower advance written notice before servicing of the loan is transferred to a new servicer. Although RESPA does not require lenders or servicers to maintain escrow accounts, where such an account is maintained, RESPA places limits on the amount of money the servicer may require the borrower to pay into the account, and requires that the servicer make payments on time to avoid late charges.
As important as these protections may be, RESPA’s reach is limited. Although some of its provisions create an explicit federal cause of action, thus allowing borrowers to file private suits, others (including some of the disclosure provisions) do not. Furthermore, disclosures offer only partial protection, for the simple reason that many borrowers do not understand the content of the notices they are given. In addition, settlement costs and servicing practices—while they can be unfair and abusive—are not the primary methods by which predatory lenders strip equity from their victims. Thus, for a predatory loan victim like Mary, who is in need of a statute that will offer her meaningful protection and relief, RESPA presents many of the same practical shortcomings as TILA and HOEPA.

Equal Credit Opportunity Act (ECOA) and Fair Housing Act (FHA)

Predatory lenders are by no means even-handed in where they ply their trade and whom they choose to target with their fraudulent practices. Often these lenders focus their exploitative practices on traditionally underserved populations where minorities, women, and the elderly are disproportionately represented. This practice, known as “reverse redlining”—defined as marketing bad loans to an area because it is home to members of a certain racial, ethnic, or other group protected under the law—is a civil rights issue, because it causes significant harm to minority communities in particular.

Like traditional redlining—the practice of denying prime or good loans to a minority area or community—reverse redlining has, in recent years, been held to violate both the Fair Housing Act (FHA) and the Equal Credit Opportunity Act (ECOA). Where these two laws can be used to combat predatory lending practices, the effect may be considerable, in large part due to the extraordinary range of remedies and procedural options these statutes offer.

In the broadest sense, the FHA and ECOA prohibit discrimination in the extension of credit and real estate-related transactions (defined to include mortgage lending). Both statutes permit recovery of compensatory damages (that is, money to make a victim whole for the injury suffered), punitive damages, and attorneys’ fees, in addition to “injunctive relief” (a legal term for nonfinancial steps that the court can order to right the wrong done or to prevent future harm). The FHA, in particular, provides a far more generous statute of limitations than most other federal statutes, and grants an automatic right to a jury trial. In addition, both the FHA and ECOA permit a finding of liability not just where discrimination is intentional, but also where a lending practice has an unnecessary disparate impact (a disproportionately negative effect) on a protected group. Given the right facts and a receptive court, these are powerful tools—far more effective than anything offered by TILA, HOEPA, or RESPA.

For all that these statutes offer, however, they also pose problems for those seeking to prosecute predatory lenders. First, the FHA and ECOA were designed to provide a remedy for discriminatory conduct—that is, conduct that treats protected groups differently from nonprotected groups. To prevail under these statutes, it is not enough to show that a lender subjected an individual to unfair or fraudulent practices; the victim must prove that she was subjected to the practices because of her race (or some other protected characteristic). That means, of course, that “equal opportunity” predatory lenders—those who prey equally, for example, on white and African American communities, young and old, men and women—may fall outside the reach of these laws.

Second, even where a lender has engaged in discrimination, it is not always easy to prove, especially for an individual without significant time and resources. For example, proof of discriminatory marketing usually requires evidence of how a lender treats a larger group of borrowers within a metropolitan community. An individual victim facing foreclosure may well lack the time or resources to marshal this kind of evidence or otherwise build a winning FHA or ECOA case.

Racketeer Influenced and Corrupt Organizations Act (RICO)

Although enacted to target organized crime, the Racketeer Influenced and Corrupt Organizations Act (RICO) has been used to combat various forms of consumer abuse.36 RICO authorizes civil suits by individuals who have been injured by certain criminal activity known as “racketeering,” including mail or wire fraud. RICO prohibits persons employed by or associated with an “enterprise” (which may be a corporation or other legal entity, or an informal association of individuals) from using the enterprise to engage in a pattern of racketeering activity.

Predatory lending frequently involves mail or wire fraud. This has allowed creative attorneys to assert RICO claims against lenders engaged in abusive practices. The remedies offered under RICO make it a potentially powerful legal weapon: where a borrower succeeds in proving a RICO violation, he or she may collect treble damages (three times the damages actually suffered) and attorneys’ fees and costs, which may be substantial. Courts have interpreted RICO broadly, to cover many different types of illegal schemes, with the result that the statute offers the potential to reach a wide range of predatory lending practices. RICO’s prohibition on conspiracy to violate its provisions also opens the door to claims against third parties (such as brokers) that may have assisted the lender in implementing the predatory scheme.

Despite the protections and relief available under RICO, its utility in the arena of predatory lending has limitations. First, RICO requires proof of far more than abusive loan practices. In general, proving the complex elements of a RICO claim is difficult and costly, and there is considerable disagreement among the courts regarding the proof required to establish a RICO violation.

Second, certain requirements of a RICO claim can be particularly difficult to meet in a predatory lending case. For example, “racketeering activity” usually requires proof of fraud, which as a legal matter can be difficult to show. RICO also requires proof of a “pattern” of racketeering activity, which means that an individual like Mary, who may be victimized through a single instance of illegal conduct, cannot take advantage of RICO’s protections. And even where such a pattern of illegal activity exists, it may be difficult to establish the existence of an “enterprise” through which the illegal activity was conducted.

Finally, although RICO offers significant monetary remedies, the statute leaves some remedial gaps. It is unclear, for example, whether RICO authorizes injunctive relief. Thus, even where a borrower wins a RICO action, the court may not be able to order the lender to cease its predatory practices or to require forgiveness of the loan.

The Federal Trade Commission Act

Section 5 of the Federal Trade Commission Act prohibits unfair or deceptive trade practices. An “unfair” practice is one that causes or is likely to cause consumers “substantial injury” that is not reasonably avoidable and is not outweighed by countervailing consumer benefits. A “deceptive” practice is a material representation, omission, or practice that is likely to deceive consumers acting reasonably under the circumstances. The FTC Act’s broad prohibition against unfair or deceptive practices has been applied to a wide range of actions, including abusive lending and loan servicing practices.

The FTC Act grants the FTC authority to bring administrative and judicial enforcement actions to attack unfair or deceptive practices by individuals, partnerships, or corporations, with certain exceptions (including banks that are regulated by other federal agencies). In the administrative context, the FTC issues a complaint and conducts its own investigation. Where it concludes that an individual or entity has engaged in illegal practices, the FTC may issue a cease-and-desist order to halt the illegal activity, and may then seek consumer redress in federal court for consumer injury. The FTC may also pursue other individuals or entities that knowingly violate the standards in a particular cease-and-desist order by suing in federal court to recover civil penalties.

Independent of its own administrative process, the FTC also has the power to challenge unfair or deceptive trade practices by filing a lawsuit directly in federal court, without first making a finding of illegal conduct. Under Section 13(b) of the FTC Act, the FTC may sue in federal court when it believes that the statute has been, or is about to be, violated. The court may issue an order prohibiting the illegal practices or requiring certain action, and also may award restitution and rescission of contracts.

Where the FTC has chosen to exercise its enforcement power to attack predatory lending practices, it often has been very effective. The FTC Act’s ultimate effect on predatory lending is limited, however. The FTC Act does not authorize lawsuits by individual consumers; only the FTC (and other agencies, in the case of some banks) can pursue potential violations of the law. Enforcement is therefore constrained significantly by practical considerations facing the FTC or any other agency, including political pressure and scarce resources. Although the FTC may be able to use its limited resources to prosecute some egregious instances of predatory lending involving a widespread pattern of predatory practices, only a small fraction of individual victims obtains relief under the FTC Act, and the vast majority of predatory lenders escape its reach. Thus, a borrower like Mary would be unlikely to be the beneficiary of relief from the FTC unless Acme’s practices were sufficiently egregious that the company independently had come to the attention of the agency’s investigators, or sufficient numbers of complaints had already found their way to the FTC to warrant a decision by the Commission to invest the agency’s resources in an enforcement action. In practice, the FTC is simply not a reliable source of redress for the average abused borrower.

Proving that your lender has violated the laws is a complex process. It is best left to an experienced Draper Utah foreclosure lawyer.

Draper Utah Foreclosure Lawyer Free Consultation

When you need legal help from a Draper Utah Foreclosure Attorney, 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


Recent Posts

What Happens When You Go To Court For A DUI In Utah?

If I File Bankruptcy Will I Lose My Property?

Coping With Psychological Damage After An Accident

Contract Termination

ATV Accident Lawyer North Salt Lake Utah

What Is The Difference Between Annulment And Legal Separation?

Foreclosure Lawyer West Jordan Utah

Foreclosure Lawyer West Jordan Utah

If you are facing foreclosure because you cannot afford the high payments, speak to an experienced West Jordan Utah foreclosure lawyer. You may be a victim of mortgage fraud.

According to the FBI, “mortgage fraud is defined as the intentional misstatement, misrepresentation, or omission by an applicant or other interested parties, relied on by a lender or underwriter to provide funding for, to purchase, or to insure a mortgage loan.” Mortgage fraud has been traditionally viewed by researchers, government authorities, and industry organizations as either fraud for property or fraud for profit.

Between the two forms of mortgage fraud, fraud for profit schemes “is of most concern to law enforcement and the mortgage industry” (ibid). These schemes are usually made up of fraudsters who are mortgage professionals and have extensive knowledge or experience in the mortgage/real estate industry. The problem, according to the FBI, was that fraud for profit schemes could be so damaging as to have devastating implications for the entire U.S. economy. There are various types of mortgage fraud, that include overinflated appraisals, fictitious financial statements, schemes that involve straw buyers, and foreclosure prevention fraud.

Predatory Lending vs. Mortgage Fraud

The thin line between predatory lending and criminal fraud can be very difficult to distinguish. Various acts of predatory lending can easily cross the line into outright criminal conduct and as a result, it is an important part of our analysis. With regard to mortgage fraud, “a lending institution is deliberately deceived by an actor in the real estate purchase or mortgage origination process”—such as a borrower, broker, appraiser or one of its own employees—into funding a mortgage it would not otherwise have funded, had all the facts been known Predatory lending on the other hand, according to the Mortgage Bankers Association (MBA), refers to unethical and detrimental lending practices to borrowers, “including equity stripping and lending based solely on the foreclosure value of the property. Some of these practices can be fraudulent, but defining an exact set of predatory lending practices has been difficult” A joint study by the South Carolina Appleseed Legal Justice Center and the Center for Responsible Lending (2003) found that, while predatory lending was not considered illegal in many states, the practice could be extremely harmful to the borrower since predatory lenders rarely ever considered the ability of their client to repay the loan. Predatory lending practices can be financially or racially motivated and can be very costly to an unsuspecting borrower. For example, borrowers may unknowingly be steered into a subprime mortgage when they qualify for a prime mortgage. Mortgage lenders, for example, may convince borrowers to obtain mortgages with attractive introductory terms and conditions under the guise that such conditions are fixed throughout the term of the loan.

Predatory lending also involves deliberate deception by mortgage professionals. In general, predatory lending includes charging excessive fees, steering borrowers into bad loans, which net higher profits, and abusing yield-spread premiums.

While predatory lending is harmful and widespread, it is mostly legal. Yet, under certain circumstances, the commission of predatory lending practices may easily cross the legal threshold and become criminal conduct. A mortgage broker who steers his client into a higher cost mortgage loan may at the time same time intentionally overstate financial information in order to qualify the client.

The majority of mortgage loans are originated by third party brokers and financial lenders. Once mortgages are originated and funded, financial lenders quickly package the mortgages and sell them to the secondary mortgage market where they are turned into securities and sold worldwide. The old days of a single bank owning, originating, funding, and serving a mortgage are long gone. The process of a obtaining a mortgage, which starts with the application of the loan and ends with the funding of the loan, has thus become much more complicated and involves many different agents and agencies. Breaking down the major actors, components, and stages of the loan origination process allows for a more precise understanding of the complicated and convoluted nature of the mortgage industry. The process of qualifying a borrower to obtain and complete a mortgage transaction involves many different stages.

What is Subprime Lending/Subprime Loans?

There are major differences between subprime and prime lending and understanding the concept and practice of subprime lending is an important aspect of this study. The practice of providing credit to borrowers with less than par or lower than average credit worthiness is known as subprime lending. Subprime lending involves various forms of credit including credit cards, auto loans, and mortgages. Several defining factors delineate a prime loan versus a subprime loan. The first is the credit risk of the borrower. Borrowers of subprime loans tend to have a higher risk of default.

The high credit risks posed by borrowers of subprime loans usually translate into higher fees and interest rates charged by the lender, which is the second delineating factor between prime and subprime loans. The fees and interest rates charged by the lender usually equate to higher monthly payments and upfront costs. Since the 1990s, interest rates on subprime loans have been approximately 2 percent higher than the average prime rate. Despite the higher costs associated with obtaining a subprime loan, borrowers usually have no other option.

Compared to the prime mortgage industry, subprime lending is characterized as having low standards of underwriting. The unprecedented growth of the subprime lending industry since the 1990s and the intense competition that ensued resulted in mortgage products for which anyone could qualify. If the borrower had a bankruptcy, a judgment, a foreclosure, or bad credit history, there would be a subprime loan available. The costs the borrower would have to pay for the mortgage, however, would be much higher in terms of fees and interest related charges. As the number of new financial lenders grew, so did the level of competition; banks were offering more non-traditional and exotic loans to subprime borrowers.

There was a general push by the federal government, private organizations, and the banking industry to increase the homeownership rate among minority families. Coupled with low interest rates and the introduction of new alternative mortgage products that contained attractive introductory incentives, the housing industry experienced tremendous growth, especially among the subprime lending sector.

The competitive environment of the subprime lending industry also led to the decline in qualification standards. Loans were handed out like candy on Halloween. When a financial lender offered a new promotional loan product primarily based on no proof of income required, a competitive lender would immediately introduce a loan that was easier to qualify, such as a no proof of income and employment history required. In order to stay competitive, lenders had to offer more attractive financial products for that were easier to qualify for. A popular mortgage product, for example, was the combo loan, which allowed borrowers to avoid purchasing mortgage insurance. The combo loan product offered the borrower two mortgages that combined, was 100 percent of the home’s value. Borrowers could purchase a home without putting a penny as down payment.

Subprime lending is a very recent phenomenon. Three decades ago, individuals with poor credit histories would have been denied credit but a several major federal deregulatory moves, beginning in the 1980s, changed all of this and set the stage for what we now know as subprime lending. At the same time, these deregulatory moves also opened the door to creative financing and intense competition in the lending industry, which altogether, created ripe conditions for irresponsible lending and outright fraud.

The process of financial deregulation that loosened banking and commerce restrictions and regulations began in the early 1980s. The deregulation fervor of the early Reagan administration was contagious and “gained widespread political acceptance as a solution to the rapidly escalating savings and loan crisis”. However, the financial legislation that was to follow would completely dismantle the regulatory infrastructure that kept the thrift industry under control for four decades prior. With several strokes of a pen, the financial industry completely changed. New and innovative products and lending practices grew from increased market competition and the desire to increase profits. Deregulation was seen by the Reagan administration and by many economists as the panacea to large government.

The Depository Institutions Deregulatory and Monetary Control Act (DIDMCA) profoundly altered the rules of the banking industry. One of the major changes included the creation of the Depository Institutions Deregulation Committee. The primary task of this committee was to phase out all usury controls, or caps on interest rates. Prior to that time, individuals with poor credit would have been denied credit but the DIDMCA “eliminated all interest rate caps on first-lien mortgage rates, permitting lenders to charge higher interest rates to borrowers who pose elevated credit risks, including those with weaker or less certain credit histories”. This deregulatory move also invited loosely regulated or unregulated institutions into the loan industry, which targeted borrowers who had credit problems. Subprime borrowers became unfortunate victims of the unregulated free enterprise system and became the prey of financial institutions who charged exorbitant fees and interest rates for basic loans. Similar to the Community and Reinvestment Act (CRA), the passage of the DIDMCA involved political motives, which subsequently resulted in disastrous consequences.

The 1982 Garn-St. Germain Depository Institutions Act, passed by Congress, was considered by many to be a primary cause of the savings and loans crisis. This legislation further loosened lending restrictions by preempting state law that restricted financial institutions from lending only conventional loans. It gave banks the authority to lend non-conventional mortgages, which greatly altered the landscape of the lending industry. Title VIII of the Garn-St Germain Act, cited as The Alternative Mortgage Transactions Parity Act of 1982 (AMPTA), provided authority to lending institutions to offer exotic mortgages that included:

• Interest-only mortgages
• Balloon-payment mortgages
• Negative-Amortization mortgage
• No documentation/low documentation or “stated” mortgages
• No down payment/100 percent financing mortgages

The Garn-St Germain Depository Institutions Act also gave banks the ability to charge their borrowers adjustable interest rates. Bank sanctioned ARM’s were intended to address the problem of asset-liability mismatches, a financial problem banks encountered when their liabilities did not correspond with profits earned from long term, low-interest rate mortgages. This major piece of deregulation was intended to strengthen the financial industry by reducing its susceptibility to changes in the financial market. The purpose of the act was “to revitalize the housing industry by strengthening the financial stability of home mortgage lending institutions and ensuring the availability of home mortgage loans”.

Other instrumental legislation included the 1977 Community and Reinvestment Act (CRA), which was signed into law by President Jimmy Carter. The CRA was intended to address a growing concern regarding the deterioration of urban cities, particularly low-income and minority cities in the U.S. Prior to the passage of the CRA, minority communities were often denied access to credit based on discriminatory practices such as redlining and steering. The passage of the act was intended to reduce discrimination in the credit and housing industry by giving financial institutions incentives to “make loans to lowand moderate-income borrowers or areas, an unknown but possibly significant portion of which were subprime loans”. The purpose of this legislation was to ensure that banks and thrifts would expand credit opportunities to a wider population, including homeownership and business opportunities to non-wealthy populations from lower income communities. The CRA was a product of a grassroots effort to provide affordable housing to minority communities.

The law has been modified twice in order to meet the increased monitoring requirements and needs of communities. It is important to note that the CRA set in motion the practice of subprime lending, but only among financial institutions that are federally regulated. The subprime mortgage lending industry that later emerged from the financial deregulations that took place during the 1980s (DIDMCA and the Garn-St Germain Depository Institutions Act) was not subject to the regulations of the CRA.
While these legislative plans set the stage for subprime lending, it was not until 1986 that real estate became widely viewed as a great investment. The demand for mortgage debt greatly increased after the passage of the Tax Reform Act of 1986 (100 Stat. 2085, 26 U.S.C.A. §§ 47, 1042), which prohibited tax deductions of interest on consumer loans, but allowed interest deductions on mortgages for primary residences as well as one additional home. The passage of this law gave consumers an incentive to obtain real estate to borrow against rather than using consumer credit. The combination of low interest rates in the mid 1990s and rising home values led to record rates of equity borrowing – subprime mortgage cash-out refinances were a popular loan product and a common method homeowners used to access the cash from their home equity.

Proving mortgage fraud in a court of law is complex. However you could use it to fight foreclosure. Speak to an experienced West Jordan Utah foreclosure lawyer today to know how you can save your home from foreclosure.

West Jordan Utah Foreclosure Attorney Free Consultation

When you need legal help with a foreclosure in Utah, please 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


Recent Posts

Self Storage Unit Lien Law

How Much Does A Legal Separation Cost?

Can I Put A Trademark On My Logo?

Divorce Lawyer Magna Utah

ATV Accident Lawyer Farmington Utah

Duties Of A Utah Probate Personal Representative