Posts Tagged ‘mortgage’

The Downsides of Reverse Mortgages

Mar 13, 2011 • No Comments • Personal Finance

A new lawsuit is challenging a reversal of regulation by the U.S. Department of Housing and Urban Development, insures more than 90 percent of reverse mortgages.  Prior to December 2008, HUD rules stated that a borrower or heir would never owe more than the home was worth at the time of repayment, according to the lawsuit.   Now, HUD policy that requires heirs to pay the full mortgage balance on a property in order to keep the home unless they are on the deed.  Considering that at least 20,000 borrowers have fallen behind on paying property taxes and insurance, HUD stands to lose about $1.4 billion if those delinquent loans are foreclosed.  The housing administration insures more than 90 percent of reverse mortgages, and its reverse-mortgage portfolio totals $51 billion.

A “reverse mortgage” isDownsides of Reverse Mortgages essentially a loan for a homeowner at least 62 years of age and who owns the primary residence free and clear of any liens. Alternatively, any existing mortgage(s) can be paid off through the reverse mortgage at closing.

Generally speaking, reverse mortgages can not be outlived.  As long as at least one homeowner lives in the home as their primary residence and maintains the home in accordance with FHA requirements (keeping taxes and insurance current) the loan does will not become due.

A reverse mortgage loan generally does not have to be repaid until the last surviving homeowner permanently moves out of the property or passes away. Once that happens, the estate has approximately six months to repay the balance of the reverse mortgage or sell the home to pay off the balance.  All remaining equity is then inherited by the estate.  The estate is not personally liable if the home sells for less than the balance of the reverse mortgage.

Reverse mortgages can make sense for seniors in many different financial situations, but there are also several potential downsides to reverse mortgages:

  • Taking out a reverse mortgage often rapidly depletes the home of its equity.  This can leave seniors feeling trapped in their homes, without hope of selling and moving, because a home can quickly lose enough value to make the homeowner upside-down.
  • Reverse mortgages simply delay the inevitable.  Since reverse mortgages require repayment after the homeowner sells the home, refinances, or passes away, the reverse mortgage is only putting off the inevitability of repaying the debt on the house.
  • Reverse mortgages are generally much more expensive than conventional home mortgages.  Because the lender is taking a risk by delaying payment until after the homeowner passes away or moves, they can justify higher interest rates and closing costs.  In the long run, reverse mortgages are a lot more expensive for homeowners and their heirs.
  • Reverse mortgages are issued on only 30 to 80 percent of the equity in any particular home, therefore taking out a reverse mortgage may not completely solve your financial problems.  Reverse mortgages do not allow you to realize all of the equity in the home, therefore the reasons and expectations for taking out a reverse mortgage must be compared against the actual numbers for the loan.

If you are considering a reverse mortgage, it is important not to rely solely on the marketing materials of lenders.  You should consult a financial advisor first, and discuss your motivation for considering a reverse mortgage. Only then can you determine whether your goals can be met by the equity in your home, your credit history, and your overall financial situation.

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Beware of “Temporary Modifications”

Dec 1, 2010 • 2 Comments • Foreclosure

On December 1, 2010, Chris Dodd’s final Senate hearing before his retirement featured testimony from senior Fannie Mae and Freddie Mac executives, who blamed mortgage servicers for triggering the mortgage meltdown.  As a bankruptcy lawyer practicing in Washington, D.C. and Virginia, I have had several clients report the following scenario to me. 

The homeowner misses a mortgage payment, and the lender threatens to begin the foreclosure process.  The homeowner calls the lender to try to work out a plan.  The lender states that the loan is now being “serviced” by either an in-house department or an outsourced servicing company.  The homeowner gives the servicer a call.

Fannie Mae and Freddie Max

The servicer states that, under either the lender’s company policy or some unspecified “federal program,” the homeowner will be able to “qualify” for a modification program, however, the homeowner must miss three or four monthly payments in order to qualify.  The servicer advises the homeowner not to pay the mortgage and to call back in two months.  Nothing is provided in writing.

The homeowner does as instructed, and the application for modification is initiated.  The homeowner provides all of the requested financial information, and fills out a slew of forms.  The homeowner is granted a “temporary modification,” which she is told should become permanent after three months of timely payments.  Again, nothing is provided in writing other than the application.  The lender signs nothing.

Three months later, after making timely payments, the homeowner calls the servicer to verify that the temporary modification has been made permanent.  The servicer then informs the homeowner that the lender’s insurance underwriter has rejected the modification.  A new three-month temporary modification application is issued (more documents to provide, more forms to be filled out).  This second modification is several hundred dollars more than the original modification. 

Rinse and repeat.   Three months later, the second temporary modification is also rejected.  A new modification is drafted, and this time, the monthly payment is no longer affordable.  The homeowner declines to sign.  Foreclosure is initiated. 

At this point, the only options available to the homeowner are either (1) to accept the foreclosure or (2) to file for Chapter 13 bankruptcy protection.  Where is the sense in this process if it is intended to reduce, as Freddie’s Donald Bisenius claims, “unnecessary delays in an already lengthy foreclosure process”?  The scenario outlined above seems to me simply a way to drain an already strapped homeowner of a few months of payments, allowing time for the lender to work through its severely backlogged queue of already-pending foreclosures.  If you are facing foreclosure in D.C. or Virginia, call Lee Legal at (202) 448-5136 to learn your options.

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Washington, DC Officials Combat Foreclosures

Nov 11, 2010 • No Comments • Foreclosure

On October 27, 2010, Washington D.C. Attorney General Peter Nickles issued a Statement of Enforcement prohibiting the commencement of any foreclosure against a D.C. homeowner unless the security interest of the current noteholder is properly supported by public filings with the District’s Recorder of Deeds.  

Fighting Foreclosure in D.C.D.C. is a non-judicial jurisdiction in which foreclosure begins with a Notice of Foreclosure posted or mailed according to the form prescribed by the Recorder of Deeds.  The form requires identification of a “Holder of the Note” and a “Security Instrument” recorded in the land records of the District of Columbia.  The attorney general’s enforcement statement invites homeowners to inform the Office of the Attorney General if foreclosures “continue to be commenced or pursued with deceptive foreclosure sale notices” so that the Office may consider bringing enforcement actions to stop foreclosure proceedings and seek restitution for consumers.  In other words, if you believe that you are being foreclosed upon by a party other than the properly recorded mortgage holder, then you should call the attorney general’s office at (202) 442-9828.

The D.C. Council has also taken action.  This week the Council passed the “Saving D.C. Homes from Foreclosure Act of 2010,” an emergency bill requiring mortgage lenders to enter a 90-day mediation before foreclosing on a home.  The bill requires lenders to send homeowners a form to opt in or out of mediation along with the notice of foreclosure.  Homeowners then have 30 days to return the form.  If borrowers choose to enter mediation, they will have an additional 90 days to hammer out a new deal.  Previously, homeowners had just 30 days to agree on options other than foreclosure with lenders.  Click to read the entire Saving D.C. Homes from Foreclosure Act.

One out of every 971 homes in the District were in the process of foreclosure in October, and that number was expected to continue to rise over the next few months.  The recent actions taken by the attorney general and the D.C. Council are attempts to assist homeowners in the District facing foreclosure.  If you are facing foreclosure in D.C. then call Lee Legal at (202) 448-5136 to learn your options.

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Anatomy of a Foreclosure

Nov 4, 2010 • No Comments • Chapter 13, Foreclosure

Foreclosure property tracker RealtyTrac has reported that in the first half of 2010, a total of 1,961,894 foreclosure filings — default notices, auction sale notices and bank repossessions — were reported on 1,654,634 U.S. properties.  Foreclosure activity in the second half of 2010 shows no signs of slowing, if not accelerating.  Many of my clients seeking foreclosure help have asked me how a typical foreclosure works.  If you are seeking to avoid foreclosure in Washington, DC or Virginia, you must educate yourself and act quickly.

Notice of ForeclosureIn the current market, there are certainly many foreclosures that are not typical, and I have numerous anecdotal examples.  Mortgage lenders are extremely backlogged, and pending investigations of foreclosure mills in both federal and state courts are not exactly speeding things along.  In a typical foreclosure, however, here is a timeline of events:

1.  If you fail to pay your mortgage for 30 days past the due date, the lender will likely enter you into their “preforeclosure” database.  Realistically, however, most lenders wait until you are two to three months (60-90 days) delinquent on your mortgage payments before they will take any action, simply because the foreclosure process is expensive.

2.  How quickly your lender will move to foreclose on your property will depend on the amount of equity in your home:

A.  Your lender will move very quickly if there is significant equity in the home, and the lender feels it may be able to cover its loan on the open market within a reasonable period of time. 

B.  The lender can (and will) take much longer if your home is “under water,” that is, that you owe more on the mortgage note than the home is worth on the market.

3.  To initiate a foreclosure action, the lender issues a notice of default at least 30 days before they begin with the procedure to sell the defaulter’s home.  To be valid, the notice must state that the borrower has breached the deed of trust and that the lender has the right to sell the property as a result.  The bank typically mails the notice to the borrower’s nominated address, or posts to the door; alternatively, the notice of default may be personally served on the borrower.

4.  After a second 30 day period has passed, the lender must serve a further notice on the borrower.  This “trustee sale notice” or “auction notice” must specify the place, date, and time of the foreclosure auction.  The trustee sale notice will state the amount of your unpaid mortgage balance, plus accrued interest, contractual penalties, and cost of the foreclosure.  The notice will also give the name and address of the trustee conducting the auction on behalf of the lender.

5.  Once an auction date has been set, you as the borrower have two options:

A.  Your first option to avoid the foreclosure sale is to repay the entire mortgage and fee balance (the “arrearage”) within at least 11 days prior to the foreclosure auction. 

B.  Your second option, if available, is to file for Chapter 13 bankruptcy protection, in which case your mortgage arrearage will be repaid over a period of three to five years. 

6.  Foreclosure auctions are usually held at the courthouse on Friday mornings.  If there is any equity left in your home, investors will gather to bid on the property.  The winner must pay cash on the spot.  In many cases, however, the amount owed on the property is more than the property is worth.  In those cases, the first mortgage holder may be willing to accept bids below what is owed on the first mortgage.

7.  If the property sells for more than the total all of the liens (mortgages and otherwise) and costs against the property, the former homeowner will be paid the difference.   Obviously, this does not happen very often.  After all, if there was equity in the home prior to the foreclosure, the borrower would have simply sold the home prior to the foreclosure.

8.  In most cases, the home will sell for far less than is owed on the first mortgage.  At that point, the lender has two options: obtain a judgment or issue a 1099 for forgiven debt.    The lender’s determination of which option to pursue depends upon the borrower’s last-reported income:

A.  If the borrower has other (usually real property) assets or very high income, the lender will obtain a deficiency judgment, which will be a collectable debt against the former borrower.  Once obtained, the lender can legally pursue collection efforts against the foreclosed-upon homeowner, including liening and garnishment.

B.  If the former homeowner’s income and assets are determined to be too low to pursue collection efforts, the lender can simply write off the debt and report to the IRS a 1099 statement of forgiven debt.  The borrower will be liable for the the amount of the “forgiven” debt as taxable income for the year of the foreclosure.

Virginia and the District of Columbia have the property market-stabilizing effects of our local federal government, so valuations and income levels are to a large degree innoculated to national trends.  I must stress, however, that the above timeline is a typical.  If you are facing foreclosure in either Washington, D.C. or Virginia, you should get advice on how to proceed in a manner best suited to your situation. 

If you receive a notice of default, act quickly and determine your options.  Call (202) 448-5136 to speak with a DC foreclosure attorney familiar with local foreclosure procedures in both Washington, D.C. and Virginia.

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What is a Bankruptcy Discharge?

May 27, 2010 • No Comments • Bankruptcy

What is a “Discharge” in Bankruptcy?

The whole reason to declare bankruptcy is to obtain a “discharge” of your debts.  When your debts have been discharged, they are no longer enforceable against you personally.  Once the court has entered a Discharge Order in your case, your creditors can no longer garnish your wages or attempt to collect against debts.  In short, a bankruptcy discharge entirely eliminates your personal liability on all discharged debts.

Pass-Through Liens

Although the bankruptcy discharge will eliminate your liability on most debts, the general rule is that “liens” will survive the bankruptcy unaffected.  “Liens” include the mortgage on your house, the financing on your car, most tax liens secured against property, and “security interest” collateralized finance agreements.

Permanent Injunction

Once statutory objection periods have elapsed, you will be entitled to receive a bankruptcy discharge.  The court will issue a Discharge Order, which is a permanent injunction to creditors against collecting on all discharged debts.  Basically, the discharge injunction replaces the Automatic Stay that commences with the bankruptcy filing.  

The Discharge Order prohibits creditors from calling you and permanently ends any pending lawsuits or garnishments.  Any judgments on debts arising before the bankruptcy was filed are void after the discharge.  

Consult a Bankruptcy Lawyer in DC

Achieving the maximum benefit from the bankruptcy discharge should be your main goal for filing bankruptcy in D.C.  Consult an experienced bankruptcy attorney in Washington, D.C. to ensure that all of your eligible debts are discharged in your bankruptcy.  Call Lee Legal at (202) 448-5136 or visit www.lee-legal.com for more information.

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