Foreclosure Defense / Real Estate

Recourse vs. Non-Recourse Loans

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Recourse loan means that the lender may collect the outstanding loan balance, even after seizing and selling the collateral. Non-recourse means the lender only gets up to the value of the collateral and the rest of the outstanding balance is wiped out.  The outstanding balance after applying sale proceeds from collateral, is called the deficiency. The lender has two years from date of foreclosure sale to file suit to collect any deficiency.

Some states don’t allow recourse loans at all and are therefore called non-recourse states. Texas is generally a recourse state. Commercial loans are all recourse loans, unless specifically negotiated as non-recourse. Purchase Money Loans have recourse but Home Equity loans and Reverse Mortgages have no recourse unless such loans were obtained by fraud. Purchase Money Loans are those loans used to actually buy the property. 

Many homeowners have two mortgages on their home – a first and a second mortgage. Lenders rarely pursue deficiencies on the first mortgage unless the deficiency is a sizable amount. Following foreclosure by the first mortgage lender, second mortgage lenders will sometimes pursue a deficiency judgment.

In a deficiency lawsuit, the borrower/ homeowner has the right to argue that the property was sold for less than the Fair Market Value. If able to prove this to the court, the deficiency amount will be adjusted by applying the appropriate Fair Market Value to the then existing loan balance (as at the time of the foreclosure sale.) If successful, this will reduce the overall deficiency amount. 

Texas Law – Insurance Claims on Home Damage

By | Consumer Rights, Foreclosure Defense / Real Estate | No Comments

Starting Sept. 1, House Bill 1774 becomes law in Texas. Under this new law, many insurance companies will pay property owners as little, as late as possible. Texans can expect only more delays and denials.

The new law reduces the amount of interest insurance companies will have to pay to homeowners if they take too long to pay for a claim. Currently, if a court finds that the company delayed payment, the company must pay the claim with 18 percent interest. The new law reduces the interest down to about 10 percent.

The law also reduces the amount of attorney fees that homeowners can recover if they don’t estimate with 80 percent accuracy the amount of damages done to their home when they file suit against the insurer.

This might make it harder for homeowners to demand timely payment for the damages done to their homes and will make it more difficult for them to find lawyers willing to sue insurance companies.

Be diligent in filing and following up on your claim. If too much time has passed or you believe the claim was underpaid or wrongfully denied, find a lawyer that is willing to go up against the insurance company.

Quit Using Quitclaim Deeds!

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Maybe you’ve been told you can be released from liability for a mortgage by signing a Quitclaim Deed. This isn’t true. If you are attached to the loan via a Promissory Note, and not just to the deed/title, then even after you sign over your interest using a Quitclaim deed, you will still be liable for the loan. The Quitclaim Deed will not remove you from the debt obligation.

Questions to See Who is Liable For the Loan

  1. Is the debt (mortgage) showing up on your credit report or was your name simply just on the Deed document?
  2. Does the mortgage company show you on the Note as a borrower?
  3. Does your name show up on the mortgage statements?
  4. Is there a Deed to Secure Assumption from the other party?
  5. NOTE: Do not go by what’s showing up in the property tax records.

In Texas, sometimes a spouse is added only to the Deed pro forma (as industry habit), but not added to the mortgage debt (Note). Make sure first which of these documents you are attached to. Sometimes the Promissory Note will be called by  other names so check with the lender if in doubt. A short-cut is to check to see whether your name is on the mortgage statements – if so, you are on the Note. If your name is attached to the Note, the spouse/other party will need to refinance to remove your name, or find a buyer – no other way around it.

In the meantime, you could still indicate your intention to relinquish all rights and all liability. The proper way to do this is by using a Deed to Secure Assumption which will be signed by the other party who is assuming full responsibility for the mortgage debt. This must be used in conjunction with a Warranty Deed that will transfer your interest to the other party.

The Deed to Secure Assumption is a contractual agreement that may be filed into the county records for the world to see. It says that the other party has promised to be 100% responsible for the loan, even if your name is still attached to the loan. This does not mean the lender has to agree to it, but it gives you a chance to go after the other party for payment. The Deed to Secure Assumption also gives you the power to force sale under certain circumstances/ conditions.

So, although a Quitclaim Deed may be used to transfer property rights, it won’t release you from the debt and it is not the best way to transfer title as it does not come with any warranties. Title companies frown upon them for that reason.

How to Determine Legal “Owner” of Real Estate

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How can they tell me I’m not the owner!? We hear this question too often. Usually, a loan officer, realtor, or title company has told someone that they ARE NOT owner of record and the person is shocked and very upset. People have good reasons why they may think they own a particular property but the law is only concerned with legal ownership.   Property Deeds

Common Reasons Why People Believe They Own Real Property:

  • BUT I’ve paid the taxes for years!
  • BUT the property tax office has my name on the property account!
  • BUT I’ve been living on and maintaining the property for years!!
  • BUT I’m the one paying the mortgage/ who paid the mortgage!
  • BUT my grandpa left it to me when he died!
  • BUT we had an agreement that I would own the property!

So, what does the law say about ownership? The law says that we must look to the title/ deed records to determine ownership. Period. Absent a court order to the contrary, whoever is currently showing of record in the property deed records, IS the legal owner. If the legal owner is deceased, then the Estate of the deceased is the legal owner until the proper documents are filed by the heirs.

None of the reasons listed above matters UNLESS YOU ARE ALSO showing as current owner in the property deed records. This is because actual title to property is seen as being separate from the property tax account, separate from the mortgage loan, and separate from actual possession of the property.

If you aren’t sure whether you are the owner of record, check with your local county clerk. This will help avoid a situation where you pay thousands of dollars in taxes, maintenance, and mortgage payments, to later find that you are not the owner.

If you believe you should be showing as owner and are not, there are things that can be done to correct the situation. A lawyer can help you draft and file the proper deed documents, and/or help you clear inherited, court awarded, or other property into your name. This will keep the chain-of-title clear and put title into your name as owner of record.

How Liens Affect Real Property

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Liens affect property by creating a “cloud to title” which means that the lien essentially stains the title to where future buyers or title companies will hesitate to close on a sale.  Recorded money judgments (a/k/a Abstracts of Judgment) are not technically liens, but are commonly referred to as Judgment Liens because they cloud title. Most title companies will refuse to issue a title insurance policy unless liens are released (including recorded judgments). title-cloud-country

In Texas, the homestead may not be subjected to forced sale for the payment of debts except for certain types of liens. Most people claim their homes as homesteads. A person isn’t allowed to have 2 homesteads at the same time.

Some Of The Liens That Can Lead to Foreclosure:

1. Liens for Purchase Money of the Property;
2. Liens for Improvements;
3. Home Equity Liens;
4. Liens for Taxes;
5. Reverse Mortgages;
6. Liens in Place Before Establishment of the Homestead

Even for those liens that will not be able to force a foreclosure, they still stay on record. The title companies (and buyers) always prefer all prior liens to be cleaned up before closing on a sale transaction. Sometimes, the liens will be paid from the proceeds of the sale of the property. So, although the homestead may protect against foreclosure from certain lienholders, it does not make those liens disappear or make them noncollectable.

NOTE: For judgment liens, Texas provides a statutory method for getting a release of a judgment lien against homestead property—but only for judgments abstracted after 2007. If a judgment creditor (or other creditor or lienholder) wrongfully refuses to release a lien against a homestead, the homeowner can sue for Slander of Title and may be able to recover damages resulting from inability to sell the property.

Owner Beware – Adding Loved Ones to Property Title

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Say you’re dating the love of your life, and one day, he/she insists on being added to the title of your real property. Or perhaps, you must add him to the title because you want to take out a loan secured by the property but need to use your loved one’s credit profile. There are a few ways to approach this situation to ensure that you’re both protected. hands-heart-house

Suggested approach in order of preference:

  1. Just say no (if you’re using their credit this may not be an option.)
  2. Agree, on condition that your loved one also takes responsibility for any existing and future loans.
  3. Agree, but be clear on what percentage interest will belong to each of you.
  4. A combination of No. 3 and No. 4.

The same wisdom goes for family members who ask to be added to the title of your property. Sometimes, loved ones will ask to be added on the promise that they will handle utility payments, insurance premiums, groceries etc.  Don’t rely on this! Regardless of any promises to handle other bills, stick to the approaches listed above. Otherwise, the result will be that your loved one will forever have 50% interest in your property, and you won’t be able to enforce your side agreement for them to pay utilities, bills etc. Essentially, if your side agreement doesn’t make it into the deed document filed into the property record, the agreement is not enforceable as to the property.

If you do agree to add someone to your title, you MUST have a written document to reflect such agreement. The title document (deed) that you file into the property records must reflect the agreement in detail and without ambiguity. This will ensure that in the future, if there is ever a dispute as to that particular property, your intentions will be clearly indicated in written form.  If unsure how to draft such a deed, be sure to seek the help of an attorney so the language is properly crafted.

4 Smart Ways to Walk Away From a Foreclosure

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Perhaps you are at a cross-roads wondering what to do. Do I turn the house back over to the bank? Should I simply just walk away? Pack up and leave and hope this was all a bad dream? How do I start over? How do I begin to pick up the pieces? These are just some of the many thoughts that our clients have reported experiencing.

Know that there are many better options besides simply walking away – options that look out for you and your future! Walking away alone isn’t going to solve the problem. You must walk away with a solid plan and with your head held high. To ensure you can get back on your feet more quickly, you need to keep these 4 goals in mind:

4 Goals You Must Consider When Walking Away From a Foreclosure

  1. Walk away without a foreclosure showing up on the credit report.
  2. Walk away without owing the lender anything.
  3. Walk away without having to report any deficiency to IRS as forgiven debt.
  4. Walk away with some cash in your pocket.

Try working out some/all of the above so that walking away is not as detrimental to you and your family. If unsure as to how to go about reaching any of these 4 goals, find an experienced foreclosure lawyer to guide you. It will be well worth it.

Not having a foreclosure on your credit report means the difference between being able to buy another home within a couple of years, or getting denied for years to come. It also means the difference between being turned away for all sorts of credit purchases, or being approved. Whatever you do, don’t simply roll over and play dead. This is what the lender is hoping you will do.

Beware of Fake Real Estate Investors

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This situation is more common when a home is in foreclosure, but can happen anytime that a homeowner is under too much financial pressure and grasps at anything that resembles a solution. Sometimes, bad investors (buyers) will take the deed (take the property) and lease the home back to the homeowner, but never actually take over the loan, or pay the loan. The homeowner is then stuck – no longer owning the home, but still owing on the loan. You may not know if an investor is truly legit, but can prevent being caught in a bad situation by taking certain precautions:

Precautions to Take

  1. Look the investor up online. including any business or other aliases.
  2. Have a lawyer look at ALL the documents in the transaction (agreement, promissory note, deeds, etc.)
  3. Make sure the investor is taking over the loan outright by paying lender, OR
  4. That the agreement has a time-frame in which investor must take over, or else the deed reverts back to you, AND
  5. Agreement has a clause that says failure of investor to pay mortgage will cause deed to revert back to you.

If the investor is taking over the loan outright, confirm payment with lender before giving over the deed or keys. A lawyer can serve as a go-between for the exchange of funds for deed/keys. Trust me, the upfront cost of having an attorney oversee the process is nothing compared to losing your home plus your credit, and then being left still owing the lender.

If the investor is not taking over outright, call lender each month to verify payment of the mortgage. These are he main things you can do to protect yourself, your credit and your real estate. Remember, there are still good investors out there that can help prevent foreclosure and save your credit a little. You just have to find the right one. 

6 Things to Ask Your Realtor (Buyer)

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Buyers can do some things to avoid real estate disputes, or at least, to document their efforts at due diligence.

shutterstock_343813226_gold-houseASK YOUR REALTOR THESE QUESTIONS:

  1. Option Period – Do we have one?
  2. Earnest Money – What is the lowest we can pay?
  3. Inspection – Did we order one?
  4. Seller’s Disclosures – Did you spot any issues?
  5. Deed Restrictions – What will be the effect on my future renovations or future sale?
  6. Title Commitment – Do we need to research or object to anything?

Option Period. Buyers can pay a small fee to allow you to cancel the contract for any reason, for a period of time. You should always purchase an option period.

Earnest Money. This is the money that you put down while the contract is pending. The money is usually forfeited if buyer backs out after the Option Period has ended. So, pay as little as possible. The norm is usually around 1-2% of total purchase price. We have seen buyers mistakenly put down way too much (as much as 10%) and then lost the money.

Inspection. This is done to check the conditions of the house that may not be visible to the naked eye. Make sure to order one and review it. It is well worth the price because buyer can normally terminate the contract early if there are serious issues found.

Seller’s Disclosures. The seller is required to answer some questions about the condition of the property. Review the disclosures and ask your realtor if there are any items that raise concern e.g. flood zones, past notices of code violations etc.

Deed Restrictions. These are like rules in the area that affect how you can develop the land etc. This one is a big deal because you don’t want to purchase property to later find that you cannot obtain a permit to make renovations. It will be a very costly mistake. Ask a lot of questions e.g. Will the deed restrictions stop me from getting utilities connected? Adding a room? A guesthouse? Will the deed restrictions affect me when I’m ready to sell?

Title Commitment. The word commitment is basically the title company promising that it will issue a title insurance policy to protect the buyer from issues with title. The commitment is a document and will list any issues found during the title search, and also usually lists deed restrictions. Have your realtor explain the findings, and if still in doubt, consult with a lawyer who may be better able to spot potential legal issues.

Lastly, ask all these questions in written format (email) so that you have documentation that you did do your due diligence. This will help if you ever need to involve a lawyer!