Tag Archives: foreclosure

How To Deal With Liens On A Property At Auction

judge-houseIf you’re an investor and you’re looking at a property, such as a foreclosure auction or some other distressed sale type of transaction, you may find that many of these have liens. If a property has been through foreclosure it’s most likely that the prior owner or the borrower may have other financial problems. If someone is being foreclosed then they may have tax liens, child support liens, or other delinquencies. In fact, it’s more likely that they do because they probably stopped paying other expenses before they stopped making mortgage payments. Most people pay their mortgage up until the last minute because they want to have a roof over their head. They may not care too much about their car payment or credit card payment, but a house payment is very important. So, there are most likely other liens that accrue on a property prior to the foreclosure, and knowing about them is an important part of the due diligence in looking at a foreclosure property.

So, what do you do if there’s a lien on a property you’re bidding on at auction?

One way to deal with liens on a property at auction is to factor them into the price. For example, if a property is worth $500,000 and there’s $50,000 worth in liens, then you should only bid up to $450,000 so you account for the lien expense. However, if your financing the property and you’re getting a mortgage, it’s easy to get a mortgage for the property itself, but when it comes time to pay a $50,000 lien you may not be able to borrow that money, So, you may have to come cash out of pocket, which for most investors is not a desirable way to use your cash.

A trick to dealing with these types of circumstances, that many of our investor clients use, is lien mitigation. This works by listing out all the liens that show up on a certified title search prior to bidding at an auction. Then, in advance of that auction, contact each one of the creditors directly, one at a time. Let them know that you are a potential investor, that you want to buy the property and you’re not the borrower, you don’t owe them money, you just want to buy this property. Once that is clearly stated, ask if they be willing to negotiate to get the lien removed from the property. You can also remind them that in doing so they’re not waiving their right to the lien. They are still owed that $50,000 from the individual associated with it, but the lien is not attached to the property anymore.

Sometimes after a foreclosure or auction part of a lien might be wiped out anyways, or harder to collect. In most cases many creditors are willing to take pennies on the dollar just to get some money coming in. The federal government is notorious for taking less money for liens that are owed to them. For example, we have had clients who’ve reported paying a couple hundred dollars to erase a $50,000 federal tax lien.

So, once you have your lien mitigation taken care of you can go to the property’s auction and bid for it knowing that the $50,000 lien will not affect you. The other competing bidders won’t have this valuable piece of information so they’re going to lower their bids to account for the lien. This in turn gives you a competitive advantage over the other bidders at that sale.

2015 Housing Market – Another Year Of Slow, Incremental Growth

canstockphoto21442914February 2015 had the lowest level of foreclosure filings, which includes default notices, scheduled auctions and bank repossessions, since July 2006. At 101,938 foreclosure filings in the U.S., activity was down 4 percent from the prior month and had decreased 9 percent from a year ago. Despite the national decrease in foreclosures in February, looking at year-over-year numbers, 22 states reported increases in foreclosure starts. Additionally, 25 states reported year-over-year increases in foreclosure auctions and 15 states reported increases in REOs.

When reviewing the housing market over the past year it is safe to say that it was a decent, but not great, year. This can be attributed to the low level of properties for sale in many markets in the U.S., which foreclosure rates specifically contributed to. The continued decline of distressed properties, since its peak in 2010, has limited the available inventory in the housing market.

Other factors that contribute to the current inventory of existing homes being lower than it should are homeowners not having enough equity to sell their homes right now to move to new properties or them being under/behind on their mortgages.

So what does this mean for the housing market looking forward?

In order to forecast what’s going to happen in the rest of 2015’s housing market, we should apply the concept of supply and demand. In regards to homeowners not having enough equity, Rick Sharga, executive president at Auction.com, seems to think, “As home prices increase, and borrowers pay down their balances, this situation will ultimately resolve itself.” In an article by RealtyTrac, Rick goes on to say, “On the new home front, builders continue to proceed with caution – January single family housing starts actually fell from relatively weak December numbers – and the homes being built tend to be higher-priced than what entry-level buyers can afford. Until these situations change, low inventory will keep sales relatively flat, and keep prices relatively high.”

Additionally, Daren Blomquist, vice president at RealtyTrac, gave his two cents on the matter saying, “Given that August 2006 was the peak of the housing bubble, this eight-and-a-half year low in foreclosure activity is a significant milestone and a sign that nationwide foreclosure activity is on track to return to historic norms this year — and is possibly even headed below historic norms given the skinny-jeans-tight lending standards over the past five years. In markets where foreclosures were processed more efficiently we are seeing foreclosure numbers now below pre-crisis levels in some cases. Conversely, the cleanup of deferred distress is continuing in markets where a logjam of in-limbo foreclosures is still lingering from the housing crisis — as evidenced by rebounding foreclosure activity in those markets.”

Due to the pricing of new homes not being the targeted price-point of entry-level buyers and the recent activity and inventory of foreclosures, the U.S. can expect the housing market to be relatively weak for the rest of 2015, or rather, another year of slow, incremental growth.

U.S. Foreclosure Activity for November 2014

U.S. foreclosure activity decreased nine percent this past November from the previous month, according to RealtyTrac’s Foreclosure Market Report. A total of 112,498 properties were reported having default notices, scheduled auctions, and bank repossessions. A little less than half of those properties started the foreclosure process in November while the other half had already begun the process. The number of foreclosure auctions was down sixteen percent from the prior month and total repossessions were down ten percent.

The states with the highest foreclosure rates were Florida (1 in every 462 housing units with a foreclosure filing), New Jersey (1 in every 478), Maryland (1 in every 581), Delaware (1 in every 693), and Utah (1 in every 750).

Florida was the only state, out of the five states with the highest foreclosure rates, to see a monthly decrease in foreclosure activity. Thirteen out of the last fourteen consecutive months Florida has had the highest foreclosure rate in the U.S., yet the state has seen an annual decrease of fifteen percent.

When asked about the Foreclosure Market Report for November 2014, the Vice President of RealtyTrac, Daren Blomquist said, “The housing market is struggling to find the new normal when it comes to a tolerable level of foreclosure activity in this post-Great Recession economy. Finding that new normal requires striking a balance between too much loan risk, which would result in another housing meltdown, and too little risk, which could result in a stunted recovery. Foreclosure rates on 2014-originated loans are actually higher than 2013-originated loans nationwide and in many markets, indicating that lenders are open to a slightly higher level of risk than we’ve seen over the past five years of extremely tight lending standards, but it’s unlikely that lenders will dial up that risk level too quickly going forward given that many are still dealing with working through a lengthy and messy foreclosure process on risky loans from the last loose lending spree.”

Will the U.S. housing market be able to “find the new normal” in foreclosure activity and reach the required balance between too much and too little loan risk? Only time will tell.

Quiet Title Action & Foreclosure Defense

court rulingQuiet title action is a way to clear or extinguish claims or encumbrances against a property title. It is performed as a court case, normally in civil court, possibly in circuit court depending on the jurisdiction. A property owner basically sues for quiet title in joining all third parties from ever making a claim of ownership, lien, or mortgage against the property. The case is presented to the court and there are certain conditions that the judge requires to be met. For example, the judge may require that notices be sent to potential claimants or the judge may require public advertisement of the quiet title action. And then anywhere from thirty to ninety days is allowed for potential claimants to bring their documentation.

Originally quiet title was used to resolve uncontested boundary disputes or used in cases where a company or another party is missing and can’t be contacted to sign off on a release of lien or release of mortgage. In the last couple years quiet title action has been used more often for foreclosure defense.

There are some advantages as to why this method of foreclosure defense is popular. First of all, the quiet title occurs in civil court which is a less lender friendly venue than foreclosure court. When lenders are in front of a foreclosure judge, the lenders typically prevail. On the other hand, it is a more even playing field for a borrower and a lender in a civil court. In a foreclosure court the lender can drag out a foreclosure for months and months, sometimes more than a year. In quiet title there is a statutory limit on how long the action has to take so the lender has a certain amount of time to respond with correct paperwork. Additionally, there are no “do overs” with quiet title action in civil court. If a lender’s paperwork is incorrect then it cannot withdraw and refile like foreclosure courts allow. Judges in civil court are more likely to be interested in the letter of the law where mortgage note documentation is either right or wrong and there is no room for error, while in foreclosure court there are sometimes allowances for slight deviations from accepted title practices.

Once a quiet title action is complete, the owner is given a final judgment of quiet title. This is recorded in the land records in joining all other claimants other than those listed on the quiet title from ever brining claim against the property or against the property owner.

So how does one start a quiet title action? Start by getting a certified title search done to find out what items are currently showing against that title, what claims are being made, and what encumbrances or clouds are on that title. By knowing and understanding what clouds are on a title you can then figure out what the best avenue is to clear a property of encumbrances or claims through quiet title action.

Hidden Property Liens

If you are going to spend time looking for liens on real estate you don’t want to just get the most basic obvious liens, you want to make sure you are getting every lien there is, including the hidden liens. There are many types of liens but here are the seven most common types of hidden liens.

UCC Filings – Also known as universal commercial code filings, these are normally not filed in the land records office but rather with the secretary of state. If you are looking in the county records you may not find UCCs that exist for the property. The secretary of state may have a filing that can encumber the personal property.

Mechanics liens – These are liens and encumbrances that occur when a contractor, builder, or an individual does work on a property, for example putting on a new roof, and if the property owner did not pay for the roof then the contractor has a lien by statute on the property even if there is nothing filed in land records. This is the law in many, but not all, states. Most counties have a very specific procedure for the contractor to be protected on their efforts in improving that piece of real estate.

Civil court records – A property owner could have a judgment against them personally that automatically attaches to their property by statute. If this were the case it would not be stated in the land records. You would need to look in the civil court records, small claims and superior court to find something like this.

Probate records – Probate records can put encumbrances on a property. If there are transfers of property by statute, in the case of death or divorce, then that can affect the property and have liens accrued to the property.

Delinquent taxes –If you check the tax assessor’s office you may find that there are past due taxes on a property. If someone were to buy a property now and the previous property owner did not pay their property taxes for the previous year the new owner would be responsible for paying those delinquent taxes which could potentially be thousands of dollars.

HOA underfunding – If you are buying a house in a homeowners association or a condo complex and that complex has obligations like fixing the pool or paving the streets and they have not accrued money in their budget over the years, that HOA underfunding becomes a defacto lien on the properties because whoever owns them is going to have to pay for it when it comes due.

Easements – If you look at a property’s mortgages and deeds you may not find that there are current easements that allow adjacent property owners to have access to your property or even financially benefit from it. Generally, easements are written and recorded with the local assessor’s office so you would need to look there for any existing easements.

Once a lien has attached to a property there are very specific methods to have that lien removed. One way is to have the lien holder actually sign a release of lien that has to be filed in the land records. Until it’s filed, it will still show up on the title search. Another way is by statute. There are certain types of liens that automatically become inactive after a certain period of time. This depends on the type of lien, the statutes of the county, and what the laws were when the lien was filed.

When looking for liens on a specific property, remember to check for UCC filings, mechanics liens, the civil court records for judgments, probate records, delinquent taxes, HOA underfunding, and easements.

Foreclosed Property with Power Purchase Agreements

A Power Purchase Agreement, or commonly referred to as a PPA, is an agreement in which home and business owners, along with nonprofit and government groups, have a photovoltaic (PV) system installed on their property by a third party developer who typically owns, operates, and maintains the PV system and the property owner, or host, purchases the power that is produced by it. Depending on the agreement, there is usually no upfront cost for the host of a PPA and the agreement typically results in predictable electric bills and overall monthly savings. The right to receive the electricity is tied to the ownership of a property and thus is transferred with the title of the property whether it is a voluntary transfer or a foreclosure.

Many solar companies are doing property due diligence prior to signing a PPA to ensure the host who is signing is the owner of the property and that the property isn’t in the process of foreclosure. The reason for this is due to the fact that most property owners are paying off a mortgage to a bank when they sign a PPA and if that property owner were to fall behind on their payments then the bank would have the right to foreclose on the property. When a foreclosure occurs, the bank can then take the land, the house or building on the property, and all permanent fixtures attached to the house or building. According to Solar PPA Protection in Foreclosure, if the PV system is separate property, aka personal property or chattel, then the solar company can repossess it.  If the PV system is deemed a “fixture” then the bank that is foreclosing the property has the rights to the system. When this happens the solar company not only loses the ongoing energy payments they were receiving but also the money and resources it took to install the system itself.

It is recommended that any third party developer entering a PPA have a title search done on a property. A title search would generally help the developer protect their investments, assuming that, if a foreclosure is in the foreseeable future, they would either not proceed to enter the Power Purchase Agreement or they would ensure that the system is considered separate property so they could repossess it if a foreclosure were to occur.

MERS: What is it and how might it affect your mortgage?

mers

MERS

Often times on a title search report a reference to MERS appears in the mortgage section. But what does it mean and what is it referring to? MERS, the Mortgage Electronic Registration System, is a collection of recordings that was establish in the 1990s by the largest mortgage lenders of that time. Essentially, it was created to decrease the legal costs incurred by these lenders when transferring mortgages between themselves. They had begun doing such a large volume in mortgage exchanges and assignments that it was costing them millions of dollars. Thus, they created this electronic registration system which allowed them to keep the original mortgage recorded in MERS and then, within the system, identify who was the lender responsible for collecting payments, who owned the mortgage, etc. However, the question of whether or not it was constituted as a valid mortgage or valid assignee arose when the foreclosure crisis began in the mid-2000s. Even so, in most court cases, it has been established that as long as the underlying lender has the proper documentation then they have the authority to foreclose under MERS.

If you have a title search that shows MERS as the lender then, in theory, it is the lender of record but in all reality there is an actual bank behind it. However, the bank lender is not something that is reported in an official real estate property title search. For this reason, having a title representative do an extended search to look up the lender of record specifically within MERS so there is no doubt or question as to the actual beneficiary or lender is recommended.

Today, there are many ongoing cases of homeowners battling legal issues involved with the process of their property being foreclosed and questioning MERS as a beneficiary. However, MERS seems to be coming out on top. The court has been recognizing “assignment of mortgages through MERS and its equivalents as valid and enforceable, and that MERS may assign a deed of trust just as any other hold or beneficiary.” For example, this was the case in the ruling of Citing Martins v. BAC Home Loans Servicing, according to RealEstateRama. In a similar case, Opraseuth v. HSBC Bank USA, “the borrowers filed a suit against defendants alleging, among other claims, that the assignment from MERS was invalid because MERS did not specify it was acting as a subsequent lender’s nominee,”  as described in the article Northern District of Georgia Dismiss Borrower’s Challenge to Validity of MERS Assignment. This ruling found that, “the plaintiffs lack standing to challenge the assignment in this case because they were not parties to the assignment contract.” For an additional example, read Lexology’s Sixth Circuit Upholds Dismissal of Borrower’s Challenges to Foreclose on Their Property, in regards to the Dauenhauer v. Bank of New York Mellon case.

Tips for Getting the Best Value on Foreclosures

Although foreclosures have seen a recent dip in the market, a valuable return can still be made when investing in them and those interested in purchasing foreclosures should know the smart way to buy them. Whether you are buying a foreclosed house for your personal use or as a real estate investment you should know how to get the best value for the property. There are typically three stages at which one can buy a property during the foreclosure process. The first stage is known as a pre-foreclosure. This is when an individual can buy a property before the foreclosure is officially finalized and the homeowner is forced out. The second option is buying at a public auction. At this stage of the foreclosure the property has been sent to the county where a neutral third party, such as a trustee, will carry out the public auction. The third option is to buy post foreclosure. This occurs when there is not a higher bid than the default amount during the auction so the property is acquired by a lender. If a bank takes the property to resell they will list it with a real estate agency, this is then known as an REO, or Real Estate Owned.

Now, here are a few simple tips for getting the best value for a house during the foreclosure process.

ADDED RISK IF PROPERTY HAS NOT BEEN SEEN

A property is still owned by the homeowner up until the point of auction. Thus, when biding on a foreclosure at auction, you typically cannot go inside the house to examine its’ condition. This can potentially be an added risk. Owners who have had their houses foreclosed couldn’t keep up with their payments so they most likely couldn’t afford to upkeep their home. A foreclosed house can have severe water damage, ripped out carpeting, holes in the walls, or be stripped of kitchen appliances. These, and any other unexpected expense, are now costs the new homeowner will have to incur. Therefore, unless you have had the opportunity to see the interior of the home, it is advised that you set your maximum bid amount based on the assumption that there is damage that will need to repaired.

FIND OUT IF THERE ARE ANY LIENS ON THE PROPERTY

When buying a foreclosure, unexpected liens can arise that are not recorded or that you simply are not aware of. The easiest and safest way to be sure if there are liens on a property is to contact a title search company to perform a title search on the property for you. Another option would be to do some investigating of your own by reviewing the property records at the county recorder, clerk, or assessor’s office. Often time’s real estate agents are not fully aware of all liens so you should be sure to check, whether it be through a professional title abstractor or done yourself, before buying a home. To learn which liens are often unknown to real estate agents watch this short video, 8 Most Common Hidden Liens on a Property. If you are going to perform the liens search on your own check out this short tutorial for details, How to Search For Free Lien Records for Real Estate.

ESTIMATE REPAIR COSTS

Foreclosures tend to require extensive renovation and are generally sold as is so you should not expect a discount for repairs. Before purchasing a foreclosed home, it is a good idea to hire a home inspector to estimate the costs required for the repairs. Keep the estimated costs you receive from the inspector in mind and even add an extra 10% to your repair budget. This will help you stay closely within your overall budget. Again, this is not always possible for a home in foreclosure and your maximum bid should reflect your ability to bear this risk.

KNOW THE SALES PRICES OF COMPARABLE HOUSES IN THE AREA

When purchasing any real estate you should look at comparable properties, aka comps, and their recent sales prices. Robert Jenson, owner and founder of the Jenson Group at RE/MAX Central in Las Vegas says people really have to look at the comps in today’s current market conditions and write a competitive offer based on that. Sometimes the bank prices the homes really low, and the home will have multiple offers over list price within hours. Sometimes it’s priced too high, and you can come in lower. A lot of times, buyers will come to me and say, ‘We want to write offers for half price.’ It just doesn’t work that way." By researching what similar homes are selling for at market value, you will be able to establish an accurate range of prices to base an offer or bid on.

High-end Foreclosures Skyrocket as National Rates Come Down

Recently released data from RealtyTrac, shows that overall foreclosure rates are trending down 23% through October 2013, but foreclosure activity on homes in the $5 million-plus range is up 61% from the same period last year.  Although these high-end properties account for a tiny portion of the market, less than a total of 200 in 2013, the financial impact on a foreclosing lender can be significant.

“A home selling for $5 million or above represents the ultra-luxury end of the market, and so far in 2013 we’ve had 34 properties close over that price with the average sale being $7.7 million,” said Emmett Laffey, CEO of Laffey Fine Home International, covering the five boroughs of New York. “Any foreclosure properties in this type of ultra-luxury market usually get purchased very quickly since there is one thing all super rich buyers’ want, an outstanding deal on a real estate transaction, and in most cases foreclosures of this magnitude come with several million more dollars of built-in value.”

Even though California high-end foreclosures are down from a year ago, RealtyTrac still reported that “Florida and California together accounted for more than 60 percent of all ultra-high-end foreclosure activity” in 2013.

Leading the market for luxury home foreclosures is Miami, Fort Lauderdale, and Pompano Beach in Florida.  Other national hotspots include Los Angeles and Orange Counties, California; Fulton and Cobb Counties, Georgia; Orange County, Florida; Long Island New York and Northern New Jersey respectively.