Archives for June 2015

ZOMBIE HOMES

ZOMBIE HOMES are still around.  You know the zomie homes where the owner walked away due to the underwater mortgage.   Now the house is vacant.  There is no equity, no homeowner and nothing but blight.

It is a nightmare for the neighborhood and the neighbors.  Vacant homes breed vandalism. There are only two possible solutions.  The zombie homes are cured or killed.  Most of these vacant homes will end up as short sales, foreclosures or bank owned sales (REO).

The most effective method would be to maintain a short efficient foreclosure process.  It would seem unlikely since lenders, servicers of loans and our government are most certainly less than efficient.  Option two would be for the banks or the cities to aggressively take possession of the property and rehab or demolish the zombie homes.

FORCE PLACED INSURANCE

New force placed insurance mortgage restrictions. Failure by a lender to pay attention to these rules is severe.  In March, Wells Fargo along with others settled a class action lawsuit over its force placed insurance practices, resulting in a reported out of court settlement of about $19 million.  As part of the settlement Bank of America has agreed to forgo commissions on force placed insurance for a period of three years.

The rules originate from the Dodd-Frank reform and the Consumer Protection Act which requires a lender servicing a loan to verify and document that the homeowner’s insurance policy has lapsed and that there is no insurance on the property before imposing forced placed insurance (also known as LPI charges).  In addition servicers must provide each borrower with advanced notice prior to obtaining a forced placed policy and notify the borrower annually before renewing the policy.  The first notice is to be sent at least 45 days before purchasing the LPI policy.  The second notice is to be sent at least 15 days before charging the borrower for LPI coverage.

Generally speaking if the servicer requires the insurance to be escrowed, then the servicer must pay the insurance bill even if funds need to be advanced.

Should the borrower subsequently provide evidence of insurance, then the servicer must cancel the LPI insurance within 15 days and refund any premiums charged for duplicate coverage to the borrower.

Borrowers need to know they have rights regarding force placed insurance.

 

KNOW BEFORE YOU OWE – MORTGAGE RULES

On August 1, the Know Before You Owe mortgage rule goes into effect. One of the important requirements of the rule means that you’ll receive your new, easier to use closing document, the Closing Disclosure, three business days before closing. This will give you more time to understand your mortgage terms and costs, so that you know before you owe.

Giving you three business days to review your Closing Disclosure before you sign on the dotted line is designed to protect you from surprises at the closing table. It also gives you time to consult with your lawyer or housing counselor and ask all the questions you might have about the terms of your mortgage.

The new mortgage disclosures will delay the closing. First, the three business day rule is based on delivery of the disclosures.  Delivery is presumed based on the mailbox rule of adding an additional three (3) days.  So, the three day business rule is effectively a six (6) day rule.   Also, if there is a change to any one of three, very specific, and very important items, the lender must give another three business days to review the updated disclosure.  They are:

  • Increasing the annual percentage rate (APR) by more than 1/8 of a percentage point for a fixed rate loan or 1/4 of a percentage point for an adjustable rate loan (decreasing the interest rate or fees doesn’t cause a delay) or
  • The addition of a prepayment penalty or
  • Changes in the loan product, from a fixed rate to an adjustable rate loan.

However, many things can change in the days leading up to closing that won’t require a new three day review period, including typos on the forms, problems discovered on a walk through, and most changes to payments made at closing, including changes that require seller credits.  The Bureau does not care about the seller, only the consumer.
Remember:  Know Before You Owe mortgage rules go into effect on August 1st.

LIMIT YOUR BUSINESS LIABILITY

Limit Your Business Liability is easy if you have the right contract.  Just ask Cord Moving & Storage who has limited its liability when moving a customer’s goods. Cord Moving has successfully reduced its business liability by inserting a clause in its contract that does not require Cord Moving to replace the item damaged.  Recently, the Missouri Court of Appeals in National Information Solutions, Inc. v. Cord Moving & Storage Company upheld the provision because it was in “bold face type large than the rest of the contract”.  It must be “clear, unequivocal, conspicuous and include the word ‘negligence’ or its equivalent”.  It also does help that in the Cord Moving case the other party was also a commercial company, a so called “sophisticated business entity”,  and presumed to have the ability to negotiate terms in the agreement and thus knowledgeable in how to limit its business liability.

LENDER FINES COMING 8-1-15; HUD-1 GONE

HUGE LENDER FINES are coming after August 1, 2015.  This is when the HUD-1 goes away and new forms are to be used for consumer real estate closings. The Consumer Financial Protection Bureau (CFPB) who call themselves the “Bureau”, like the FBI does is solely funded on the fines it collections from violators.  Millions of fines are collected each year.  To stay alive, the Bureau must seek out violators, establish fines and must collect the fines for its budget.  Its 2015 budget is $618.7 million.  Remember the the CFPB mission is to make “rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their financial lives”.

The CFPB maintains the Consumer Financial Civil Penalty Fund (CPF) for this purpose. Collections of civil penalties are deposited into the CPF, and such funds are available for payments to victims of activities for which civil penalties have been imposed under the Federal consumer financial laws. If victims cannot be located or payments are otherwise not practicable, the Bureau is authorized to use such funds for consumer education and financial literacy programs.

The Bureau was established on July 21, 2010 under Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act Public Law No. 111-203 (Dodd-Frank Act).  The CFPB was established as an independent bureau within the Federal Reserve System.  The Dodd-Frank Act authorizes the CFPB to exercise its authorities to ensure that, with respect to consumer financial products and services: 1. Consumers are provided with timely and understandable information to make responsible decisions about financial transactions; 2. Consumers are protected from unfair, deceptive, or abusive acts and practices and from discrimination; 3. Outdated, unnecessary, or unduly burdensome regulations are regularly identified and addressed in order to reduce unwarranted regulatory burdens; 4. Federal consumer financial law is enforced consistently in order to promote fair competition; and 5. Markets for consumer financial products and services operate transparently and efficiently to facilitate access and innovation.

When an independent bureau is in charge of enforcing the regulations so it  can feed its budget, to issue lender fines, we all need to be watch out for this elephant in the room.

MISSOURI REAL ESTATE TAX SALES ARE TROUBLE

Get rich with no money down. The ultimate and perfect business plan.  One small problem.  The devil is in the details.  Investors at Land Tax Sales want to save a buck, so they go through the process themselves and find new ways to screw it up.  The latest tax sales trouble came when the purchaser of the property at the tax sale failed to give notice to all interested parties to the property.  The result was predictable.  The court set aside the tax sale.

In the Matter of Foreclosure Liens for Delinquent Taxes v. Parcels of Land, Case No. SC93982, the Supreme Court of Missouri affirmed the lower court decision to set aside the sale because the property was encumbered by two mechanic’s liens, and a properly filed mechanic’s lien is a substantial property interest that is subject to due process.  So, the lienholder was entitled to personalized notice by mail.  The Court reasoned that the lienholder’s name and address were reasonably ascertainable thus placing the burden on the purchaser at a tax sale to give notice.

Judge Wilson of the Supreme Court clarified the Court’s ruling by saying that this type of notice only applies to a mechanic lien claim for which a judgment has been obtained.   So the ruling would not then apply to a lienholder who has only filed a mechanic’s lien or a subsequent mechanic’s lien petition.  It is curious to me why the court would not require notice for someone who is prosecuting his claim under the law and according to the prescribed statutes.  The purchaser can easily determine the name and address of the person who filed the lien or who filed the lawsuit to enforce the lien.  So why not give him notice?  I often tell my client’s not to try and make sense of the law.

In closing,  good luck to all investors at tax sales who want to go it alone to save a buck.