When refinancing your home, remember that it is your home. Make sure that refinancing is something you are doing that will have a positive effect on your finances. Make sure that you are doing it because you are sure that it will help you in the long run. Make sure that you are not doing it because “everyone else is.”

It’s your home and your money; make it your decision.

The Court System is finally standing up for the little guy!

History

Years ago, lenders conspired to bypass the mortgage recording systems put in place by local municipalities, as well as avoid the fees associated with the recording of assignments of mortgages. In order to accomplish this task, lenders formed a company known as the Mortgage Electronic Recording System or MERS. Many mortgages state that the owner of the mortgage is MERS as nominee for the lender. The issue here, is that MERS is not the actual lender or the note holder and one can only foreclose if they are in fact the party that has been defaulted. In the case of MERS, the investor is the owner of the note but MERS is the owner of record of the mortgage.

What Does This Mean?

In short this means that the note and mortgage are owned by seperate entities and a foreclosing party must own both in order to foreclose. If a borrower fails to make payments, then the borrower has defaulted on the note and the owner of the note therefore has a cause of action for default on the note only and is not able to foreclose. The note holder may have the right to a judgment on the note and may be able to attempt collections on the note but cannot actually institute a foreclosure proceeding. The mortgage document, which allows for foreclosure, has not been violated since the borrower has only defaulted on the note and has not offended the owner of the mortgage. A mortgage holder may still be able to institute a foreclosure proceeding against the borrower for other violations of the mortgage such as transferring the property without consent, condemnation of the premises, etc.. but the mortgage holder may not institute foreclosure proceedings based on nonpayment of the note. This means that under the new rulings by a Kansas Court, MERS does not have the ability to foreclosure the mortgage and the investor may only recover under the terms of the note.

Proof Of Ownership

A foreclosing lender must prove that it is the owner of the defaulted mortgage and note, and not the owner of only one of those two documents. In keeping with the Kansas Court, the Bankruptcy Court for the Southern District of New York threw out a first mortgage of more than $400,000.00 in its ruling. The foreclosing servicer and underlying investor could not prove that they were the actual owners of the mortgage. The underlying investor, U.S. Bank , could not prove that it owned the mortgage that was being foreclosed upon by it servicer, PHH Mortgage. The lenders here used MERS which allowed them to assign the loan without filing actual assignments in the Municipality’s recording office. Since there was no assignment of record, U.S. Bank was unable to prove that they were the aggrieved party and therefore, had no standing to foreclose.

Summary

Although these rulings are being or will be appealed by the lenders, these rulings show a change in the way the Court System is looking at foreclosures. After years and years of deferment to creditors and a bending of the rules when it comes to proof of claims in foreclosure and collections matters, the Courts are now requiring lenders to prove that they are in fact the aggrieved party and to provide proof. If the lender is unable to prove that they are the aggrieved party, Courts seem much less likely to simply defer to the creditors. It seemed that the burden of proving the debt has finally been shifted back to where it belongs. Now the lender must prove that the debt is valid and owned by them, before the Court will allow them to proceed.

What This Means For You

About 60% of all mortgages that were given out during the lending and refinance boom are held by MERS as nominee. There is a good chance that your mortgage is held in this fashion. If you can find your copy of the mortgage papers you signed all those years ago, look on the first page of the mortgage documents and see who is named as the lender or mortagee. If it is MERS as nominee, you may have a viable defense to foreclosure or may be able to have the debt completely relieved in bankruptcy.

Disclaimer

The rulings cited in this blog post are cases of first impression and the full ramifications of the rulings are not yet known. The ruling of the Kansas Court is not binding upon any other State and until the appeals process has been completed there is no way of knowing what the actual outcome may be. This article written to show the trend of the Courts in moving away from a creditor bias and toward a more fairly viewed interpretation of the law and rules surrounding mortgages and foreclosure. This is not legal advice but rather a resitation of facts and an analysis of what appears to be happening around the Country with the hopes that some of our collegues may be inspired to pursue these types of defenses to foreclosure proceedings and establish the rule of law more thouroughly and to give hope to those who are facing similiar circumstances.

If your mortgage is owned by a small lender or a non-participating lender or servicer such as Green Tree, or a federal credit union, or a local bank chances are that your lender is not participating in the MHA. Under these circumstances, modification of your current loan is still possible; however, the requirements and the lenders negotiations are different.

We are seeing a trend where large lenders bound by the terms of the MHA are selling off large portions of the nonperforming and slow performing loans to servicers and investors that are not subject to the MHA and therefore are not required to modify loans under that program. IndyMac Bank has sold what seems like all of their second mortgages to Green Tree  for what we can only infer to be this reason, although it may have some basis in their merger with One West Bank.

Major Differences

1. Under the MHA, lenders who offer a loan modification must reduce your monthly mortgage payment to 31% of you gross monthly income. Lenders who are non-participatory are not subject to the same regulations.

2. MHA Modifications must be for the entire term of the mortgage, however these other lenders are not required to make long term modifications. Many of the non-participatory lenders offer only short term solutions that stay in effect until the borrower’s hardship has passed. If the hardship affecting the borrower has not passed by the time appointed in the modification agreement, these lenders will typically extend the terms of the modification until such time as the borrower is able to resume normal payments, refinances, sells, or otherwise disposes of the mortgage.

3. Large lenders are overwhelmed with modification requests and papers get lost, the loss mitigation division is so large that you deal with a new representative every time you call, and they are unable to properly train the entire staff. Small lenders however, have a smaller depatments, one person is assigned to your loan in particular, papers are direct to your negotiator, and the modification typically takes less time with fewer missteps and errors.

4. Smaller lenders and investors typically give their customer service repesentatives and loss mitigation specialists much broader power than the large lenders do. This allows small lenders to expidite the modification process and to tailor each modification, forebearance or work out plan to the individual borrower’s needs unlike to cookie cutter approach mandated by the MHA and adopted by the large lenders.

Although your mortgage may be held by a non-participatory lender, there is still a good chance that a borrower can get a modification and some relief from the overpowering monthly mortgage bill. It is not as easy to predict the benefit the lender will offer or the terms of the loan modification but these lenders understand that reduced payments far exceed no payments at all and are typically willing to help borrowers with hardships. The loan modification waters remain murky regardless of the lender who hold the mortgage and note.

Related Posts:

1. Do I Need To Hire An Attorney To Do A Loan Modification?

2. The Top Five Loan Modification Myths!

3. Streamlined Refinance As An Alternative To A Loan Modification

Standard Fees

These fees apply to everyone regardless of where you purchase real estate. These fees include what are known as title fees which include, recording deeds and mortgages, searches run against the premises and people involved, and a one time insurance policy purchase to insure the buyer that they have the most superior to claim to ownership. Title insurance also insures the lender that they are in the first lien position.

Jurisdictional Fees

In New York, there is a tax placed on mortgages. Throughout the state, New York charges a a tax of .8% of the mortgage amount in taxes. In NYC, the City adds an additional tax of 1% of the mortgage amount. Additionally, New York State charges a processing fee of $125.00 to process some of their transfer documents and tax returns that are required.

Bank Fees

If you are using financing from a lender, there will be bank fees involved. Bank fees depend entirely upon the lender, your credit score, income, risk assessment and program you qualify for or choose. Therefore, there is no hard and fast rule as to lenders fees. However, there are some fees that are relatively standard; appraisal fee, credit fee, flood certification fee, tax assessment fee, document preperation fee, establishment of an escrow account, short term interest and a point ot two. If you are obtaining an FHA loan, there is also the addition of MIP (Mortgage Insurance Premium), which equals about 2% of the loan amount.

Attorney and Miscellaneous Fees

In addition to all of the fees above, there is the business of paying your attorney and other miscellaneouse fees such as adjustments for city, school, village and other taxes, transfers of warranties, water and sewer, etc… these fees are not standard. Therefore, they can be difficult to estimate which is why you should hire an experienced Real Estate Attorney who can help you determine these amounts.

Summary

As a general rule, we always tell our buyers to estimate that they will need 5-6% of the purchase price for closing costs. As long as they are prepared to have that amount of money available for the closing, if the amount is a little lower, it will be a pleasant surprise.

Before the offer

Before you make an offer to purchase the house of your dreams you need to make yourself look like a good buyer to the seller. In many instances, a seller will take less money for a fast closing with a secure buyer. If you don’t need a mortgage, all the better and the offer will be what is called an “All Cash” offer. If you, like most of the population, require mortgage financing, then the offer will be subject to you obtaining a mortgage in a certain amount. The less money you need from the bank the better as far as the seller is concerned.

Preapproval

Prior to making the offer on the house, make sure you have preapproval from a reputable lender. A preapproval is simply a letter from a lender that says, so long as everything you told us is true, we will offer you financing up to X amount. Having this document makes you look like a serious buyer who has done his/her homework and is ready to go forward. A preapproval is not a commitment and is based wholly on verbal communications with the lender. You should not need to allow them to run your credit or provide them any real documentation of obtain this.

Earnest Money

Part of the offer will include how much money you are willing to put in escrow on contract, also called a down payment. The terms of the contract of sale which you will execute with your attorney after the offer is accepted by the seller, allow for a return of these funds in most instances if the deal falls apart. It is something of a security blanket for the seller.  The larger the down payment, the better as far as the seller is concerned but the smaller the down payment the better as far as the purchaser is concerned. The old way of putting 10% on contract is no longer the way as the prices of houses have increased since that time. An acceptable down payment is about $10,000.00.

Offer

The Seller knows that what he is asking for is not what he is going to get; however, you do not want to seem as though you are not putting in a serious offer. Prior to the collapse of the real estate market, an offer withing 10 to 15 percent of the purchase price was considered a reasonable offer and would typically be considered by the seller. Times have changed and we are now in a buyers market. A reasonable offer in the current climate is 10 to 20 percent below asking price.

Counter-Offer

Be prepared for the seller to propose a counteroffer. In some cases, this negotiation process can be made up of multiple counteroffers and can take some time. Remember that the purchase price is not the only negotiation tool available to you. You may be willing to pay more if the seller agrees to paint, leave some furniture, update the kitchen, etc… in many instances this is the time to think a little outside the box. Many sellers have difficulty assigning value to their home as memories and sentimentality’s, add fictitious value to the house. Sellers are often times willing to do work to the house or provide other incentives that may even be more costly.

Acceptance

Once the seller agrees to your offer, you will sign the binder to the contract and now is the time to call your Real Estate Attorney. Your next step will be signing the Contracts with your attorney.

Related Posts:

1. 7 Days To Owning A Home

2. 7 Days To Owning A Home: Day 1 – Your Credit

3. 7 Days To Owning A Home: Day 2 – Financials

4. 7 Days To Owning A Home: Day 3 – Where To Live?

5. 7 Days To Owning A Home: Day 4 – Where Do I Find My Dream Home?

6. 7 Days To Owning A Home: Day 5 – Brokers

Myth 1: You need to be late on your mortgage.
Truth: You DO NOT need to be late to modify your existing loan.

In fact the Home Modification Program Guidelines of March 4, 2009 (HMP) reward lenders for doing modifications on loans that are not delinquent with higher incentives paid to the investors and servicing companies. There is also a section named “Reasonably Foreseeable Imminent Default” which mandates that participating lenders or servicers run the NPV test on those loans not yet in default but will be in default should they not be modified.

Myth 2: You need to hire a Loan Modification Company or Attorney.
Truth: You do not NEED to hire an attorney or company to help you do a loan modification.

As the borrower, you are capable of completing the loan modification on your own without paying for assistance. There are free services available to you, should you seek assistance they can be found at HUD.gov and a slew of other websites including most state Attorney General’s websites. If you decide to use a service outside the free services be sure that the service has the ability and experience to help you. Loan Modification scams are prevalent throughout the country. Many states have instituted laws mandating that only certain people and companies can charge a fee to assist in a loan modification. Typically, licensed mortgage brokers, bankers, real estate brokers and attorneys are allowed to collect fees to assist in loan modifications. In New York State, you must be licensed to practice before the New York State courts or be a licensed mortgage broker to be allowed to charge an upfront fee for your services. Be careful dealing with any company that is not located close to you. We suggest that you chose a company located relatively close to you with a brick and mortar office who can provide a reference or is a referral.

Myth 3: A loan modification is a quick process.
Truth: A typical loan modification can take anywhere from one to four months.

We see that most modifications are resolved in about 90 days; however, we have had a few that took less than a month and some have taken as long as six months. There is no real formula as to timing but you must stay in touch with the lender regularly, at least once every fourteen days.

Myth 4: Everyone will qualify for a loan modification.
Truth: Not everyone qualifies for a loan modification.

The criteria is relatively specific and under the HMP and Making Homes Affordable Act, you need to qualify. The HMP Guidelines state that the lender can use a variety of techniques to lower your monthly payment to where you would qualify under the terms of the program.

• Interest Rate: A lender may choose to lower your interest rate to as low as 2% and the lender may choose to fix that rate or create a stepped rate fixed loan where the rate would increase by one percent after 5 years and then again after one year to a maximum of 4% (the Freddie Mac limit at the time of the modification) for the remainder of the loan.
• Principle Forbearance: Lenders may forbear principle to qualify a borrower for a modification. A lender may remove a part of the principle balance and not collect interest or penalties on that portion of the principle. That portion of the principle would have to be repaid upon selling, refinancing or otherwise transferring ownership of the premises.
• Principle Reduction: Lenders may at their option reduce the amount of principle owed by a borrower. Lenders typically do not use this option regardless of the value of the premises and the amount owed to the lender.
• Term of the Loan: A lender may extend the term of the loan to a maximum of 40 years to spread payment out and make payments affordable.
• Combinations: Lenders typically use a combination of these options to maximize returns and make the mortgage affordable. A lender may reduce the interest, create a stepped fixed loan, and extend the time period for repayment to 40 years so that the payment will be affordable and the lender will still make some profit on the loan.

Myth 5: I have no options because I don’t qualify under the MHA or HMP programs.
Truth: You may qualify under programs specific to your bank.

Although a borrower may not qualify for a modification under the HMP or Making Homes Affordable Act, the lender may still modify your loan or loans. Many lenders have modification programs other than those put forth by the current Administration. Modifications are costly to the lenders and investors; however, they cost far less than foreclosures and lenders are therefore willing to modify your loan in the hopes that you will make payments and remain current. Each bank has different programs and guidelines, so you need to contact your bank or a qualified representative to help you determine what program is right for you.

More Loan Modification Truths