5 Foreclosure Laws You Need to Know

REPRINTED FROM REALTOR MAGAZINE APRIL 2008

Regulations relating to foreclosure differ by state, so check your state’s statutes.
One place to start is a Web site such as www.foreclosurelaw.org.

1. Notification of intent to foreclose. Many states require that a lender notify the borrower in advance (30 days, for example) before obtaining a court judgment to foreclose.

2. Nonjudicial foreclosure. Many states permit lenders to add a clause to a mortgage document that permits the lender to foreclose and sell the property without obtaining court approval.

3. Deficiency judgment. Some states permit a lender that forecloses on a mortgage to file a judgment against the borrower entitling the lender to collect from the defaulted borrower any amount of the outstanding mortgage not covered by the sale price.

4. Right of redemption. Some states (New Jersey, for example) permit a defaulting borrower to satisfy the loan default and recover the property if done within a specified amount of time after the property is sold.

5. Military service. If the borrower or the borrower’s spouse is on active military duty, the Civil Relief Act of 2003 prohibits a lender from foreclosing on the mortgage. In addition, the borrower may qualify for an interest rate reduction or even a temporary suspension of mortgage payments.

Don’t forget the HOPE Now Alliance. This new private-sector program negotiated by the federal government should help borrowers with subprime adjustable rate loans that will reset in 2008 or 2009 avoid foreclosure.

The voluntary plan encourages lenders to help qualified subprime borrowers refinance their loans into an FHA-insured or other more affordable mortgage without prepayment penalties. Lenders may also freeze the interest on ARM products at the introductory rate for five years to assist borrowers who are unable to qualify for refinancing. For more information, go to www.hopenow.com.

7 Dos and Don’ts for Legal 1031 Exchanges

Reprinted from REALTOR MAGAZINE APRIL 2008:

Rochelle Stone and John Mangham of Starker Services Inc. in Los Gatos, Calif., share these tips on how to avoid common legal mistakes in 1031 exchanges.

1. Do know how to count. Like-kind exchange rules allow 180 days to complete the transaction, which includes the 45 days for the identification of a replacement property. Weekends and holidays count, and no extensions are granted, so don’t get it wrong.

2. Don’t assume a second home qualifies for an exchange. Vacation property must be an investment (which means you don’t live there for more than 14 days a year or 10 percent of the time it’s rented) or used in a trade or business to qualify for a 1031 exchange.

3. Do exchange for a property equal or greater in value. If your client exchanges for a property of lesser value, the unspent money will be taxable as capital gains.

4. Do replace your debt. Taking out a mortgage at a lower level during an exchange creates a taxable event. If your clients want a lower mortgage payment, they have to bring cash to the transactions.

5. Don’t ignore recapture. Any depreciation an investor has previously taken must be deducted from the basis of the property before calculating any gain.

6. Don’t forget to set up the exchange before the transaction closes. You need to include a stipulation in the purchase agreement so that the funds from a property’s sale transfer to a qualified intermediary instead of to the sellers during the closing.

7. Do give the buyers and exchangers a refund on any earnest money advanced from their own cash for a property that is later transferred through a 1031 exchange. This refund will come from the intermediary, who will replace the amount with exchange funds.

5 Common Deal Killers

About the Author

Tracey Rumsey has more than a decade of experience as a mortgage loan officer. She is the chair of the Utah Mortgage Lenders Association Education Committee and is also a mortgage and real estate continuing education instructor licensed with the Utah Division of Real Estate.

Any number of pitfalls can arise during a transaction that prevent the buyer or seller from signing on the dotted line. In her book, Rumsey offers common scenarios she’s seen and how to overcome them. Here are five:

1. Title complications. The title is legal evidence of the ownership of the property and is crucial when trying to help your client buy or sell. But problems can arise when such issues as death, divorce, guardianship, and bankruptcy enter the picture. Review the title carefully — this goes for buyer’s agents too. Troubleshoot any potential title issues early on. Direct sellers to a real estate attorney to resolve any problems. And don’t just take the seller’s word when it comes to the title — look it up yourself. Most title companies offer access to a limited amount of title information through their Web sites.

2. Unrealistic equity expectations. Have a talk upfront about all of the costs of selling a home so that sellers don’t end up backing out at the last minute. Rumsey’s book offers a worksheet that you can walk through with your sellers to paint a realistic look at estimated final numbers on closing day. It takes into account such items as mortgage payoff, any mortgage prepayment penalties, sales commission, title insurance for buyers, closing and recording fees, and

property tax pro-ration. But what if you crunch the numbers and then the seller realizes she can’t afford to sell? Better to know now than after the cost of your time and money later.

3. Financing snags. Your buyers find the perfect property, you write up the offer, and then their financing doesn’t go through. It’s not just about having good credit when it comes to getting a loan. Educate yourself about the loan process so that you can help buyers foresee any potential problems. For example, a recent job change, a probationary period when starting a new job, and jobs that rely on commission income can pose problems in getting loans. Also, help prepare first-time homebuyers by learning the guidelines of your state’s housing loan programs, which may offer below-market interest rate loans and down payment assistance.

4. Appraisals. When appraisals come in at a value lower than the contract price, you have a major potential deal killer. So listing agents need to make sure they list the home at the right price from the beginning. To counter a low appraisal, you can provide the lender with the process you used to determine the price of the home and appropriate comps. But don’t call the appraiser, unless you were the one who ordered it. Do not expect a request for a second appraisal to be granted; they rarely are. One solution is to drop the sales price to match the appraised value, if it’s a small difference. Otherwise, you may need to take more drastic action, such as offering a commission reduction to get the seller to move forward. “None of us like dropping our profit margin to save a deal, but sometimes it’s what we have to do to get to the settlement table,” Rumsey writes.

5. Pre-approval letters. These letters issued by a loan officer tell you that after a full review of the buyer’s credit, income, and asset status, she is very likely to meet the requirements of closing on a loan. Not so fast. Before your seller accepts the offer, make sure the buyer really can close. There are varying degrees of competency when it comes to loan officers, just like any other industry. That said, some of these letters issued are after a thorough investigation into the buyer’s finances, while others came from a five-minute conversation. Read each letter carefully. Does the letter state the actual sales price that the home the buyer is approved to purchase? Does it state that the buyer’s credit status, income, and assets have been verified? If these questions aren’t answered, call the loan officer for clarification. If the answers are “yes,” you likely found a solid buyer, Rumsey says.

Sneak Peek

“Deals can be saved by proactive thinking at the beginning of the transaction. Blowups or delays just before settlement, no matter who is at fault, hurt your client and your reputation. Your clients may logically understand that the problem had nothing to do with you, but there may still be negative emotions tied to you that may prevent them from calling in the future when they need an agent.”

10 Tax Changes for 2008

From Realtor magazine, April 2008. Check with your tax advisor for applicability to your situation.

10 Tax Changes for 2008

Plan now and you’ll be in a better position to know what you’ll owe Uncle Sam this time next year.

1. More money for gas. The standard mileage deduction for business increases to 50.5 cents per mile. Note that mileage rates for medical or moving purposes fall to 19 cents per mile.

2. More money for retirement. You can contribute $5,000 to your IRA ($6,000 if you’re over 50) in 2008.

3. No breaks for sales taxes. The provision permitting taxpayers to deduct state sales taxes — a big plus in states with no income tax — expired at the end of 2007.

4. More tax breaks for retirement savings. Married taxpayers with joint income of up to $85,000 will be able to deduct IRA contributions if they file jointly; individuals with income of up to $53,000 can take the deduction.

5. Higher standard deduction. If you’re one of the two thirds of taxpayers who don’t itemize, you’ll be able to deduct $10,900 as a married couple filing jointly ($5,450 for singles) in 2008.

6. No tax on some capital gains. Joint filers whose taxable income doesn’t exceed $65,100 and single filers with income that doesn’t exceed $32,550 don’t have to pay any tax on capital gains they realize in 2008; the rate for other taxpayers remains at 15 percent.

7. More time to sell a house when you lose a spouse. Taxpayers who lose a spouse now have up to two years after that death to take the maximum exclusion of $500,000 in gain on the sale of a principal residence. The other requirements for the exclusion must have been met before the death.

8. Less money back for some hybrid cars. While buying a hybrid car can still save you taxes, the tax credit has been phased out on many popular models such as the Toyota Prius. Check out the 2008 Model Year Hybrid List at www.irs.gov before you buy.

9. Tougher taxes for kids. Children 18 and under or fulltime students up to 24 years old will pay taxes at their parents’ tax rate for investment income over $1,700. Note that this rate doesn’t apply to wages a child earns.

10. Higher cutoffs for Social Security. The maximum amount of earnings subject to Social Security tax increases to $102,000 in 2008.

Return to Top

Last-minute Deductions

It’s not too late to save on your 2007 taxes, if you act fast.

• IRA contributions. You have until April 15 to add money to your traditional or Roth IRA. For 2007, you can contribute up to $4,000 ($5,000 if you’re over 50)
  
• Mortgage insurance premiums. If you acquired a new mortgage insurance policy on a first or second home in 2007 (either through purchase or refinancing) and have an income below $100,000 (for a married couple), you can deduct premiums for this year. If you financed with a VA or Rural Housing Service loan, you may also deduct prepaid interest for future years through 2010.
  
• Dependent care expenses. If you pay someone to care for a child under 13 years old, your spouse, or other dependent so that you can work or look for work, those payments are deductible regardless of your income.
  
• Alternative minimum tax exemption. Congress raised the AMT increase to $66,250 for a married couple for 2007 ($44,350 for singles). This is a one-year increase, although a similar provision may be passed before the end of this year.
  
• Mortgage forgiveness. If on or after Jan. 1, 2007, you had a portion of a mortgage loan on a principal residence forgiven during a loan restructuring, short sale, or foreclosure, you do not have to declare the first $2 million of forgiven debt as income.
  

7 Secrets to Successful — and Legal — Landlording

 

By Roth, an attorney in Florida, New York, and Washington, D.C., and author of The Successful Landlord (Amacom, 2004). ( from Realtor magazine).

Slower sales are compelling more home owners to rent their properties, at least for a while. If you’ve been asked to help, follow these tips from attorney Kenneth M. Roth.

1. Run renting like a business.

Even if your client is planning to lease only until the house sells, or the tenant is your second cousin, keep leasing on a professional basis. Establishing business rules and policies allows you to maintain objectivity if a tenant makes demands or is late with the rent.

2. Treat everyone equally.

Federal fair housing law, which prohibits discrimination on the basis of race, color, religion, sex, national origin, family status, or handicap, applies when real estate licensees advertise or lease any residential property. Although it’s completely legal to ask questions about a prospective tenant’s rental history, current employment, and financial history, it’s important to ask every applicant the same questions to avoid the appearance of discrimination. If your clients have a problem renting to anyone in a protected class, then encourage them not to rent the home, says Roth.

3. Use the right forms.

Although there are all-purpose leases available at office supply stores, it makes more sense to use a lease tailored to your specific property type and state laws, including landlord-tenant laws. Good sources are your local REALTOR® association or state bar association, says Roth.

4. Make your lease as specific as possible.

Spell out exactly what is expected of the tenant and the owner or manager. Who’s going to mow the lawn? How should emergency repairs be handled? Roth suggests making tenants responsible for repairs of less than $100 and letting the owner cover major repairs.

5. Write out a roadmap for defaults.

Your lease should spell out all the particulars and penalties of rent payment. It should state when the rent is due, where it must be paid, what late fees and interest you will charge, and at what point late payments will result in an eviction notice.

6. Don’t treat security deposits as a potential for profit.

Security deposits are intended to cover only repairs needed because of excessive damage to the property. They can’t be used to cover routine cleaning of a unit prior to releasing or to add upgrades. Also remember that in many states, security deposits must be kept in a separate account and you must pay interest to the tenant. Ask for the first and last month’s rent plus a security deposit, advises Roth.

7. Don’t be fooled by appearances.

A fancy car and lots of bling do not necessarily a good tenant make. Run a credit check on every prospective tenant. Tenants must sign an authorization to permit you to check their credit, and you can charge them for the cost. Also remember to keep credit information confidential. Don’t disclose what you know to others, says Roth.

5 Hot Legal Issues

Source: NAR Legal Department (from Realtor Magazine)

The legal issues getting the most buzz in real estate circles these days are:

1. The risk of identity theft.

A 2007 study by Javelin Strategy & Research found that the average identity theft victim lost $5,720 to fraud. Access to clients’ confidential information makes brokers attractive targets for identity theft. To protect yourself, institute document management policies for both paper and electronic files. NAR has partnered with the Federal Trade Commission to develop brochures and other educational materials on protecting against identity theft, available at the Government Affairs section of REALTOR.org.

2. Sham affiliated business arrangements.

As a recent crackdown against real estate licensees and title company agents in Minnesota demonstrates, both state-level law enforcement and HUD are ready to play hardball against affiliated business arrangements that function only as shells for illegal kickbacks. Review NAR’s advice in The Letter of the Law section of REALTOR.org.

3. Outlawing rebates and incentives.

While the dozen or so state laws that prohibit real estate practitioners from paying incentives to consumers aren’t new, the recent focus on the legality of such statutes by the U.S. Department of Justice in states such as Kentucky have put this marketing practice under the microscope. Read more about the issue at REALTOR.org.

4. Disclosure obligations when a seller faces financial woes.

As declining home prices make short sales more common, the issue of how, when, and how much real estate professionals must disclose to other brokers and prospective buyers is getting a lot of attention. Do you have to tell cooperating brokers that they run the risk of a bank cutting the offered commission in the MLS? Will doing so breach your duty to a seller? NAR’s Short Sales Issues Work Group plans to have policy recommendations by summer, so stay tuned.

5. The persistence of mortgage fraud.

Current price instability in many local real estate markets provides an easier opening for fraud and makes it more challenging for appraisers to assess value. Brokers and sales associates who are eager to close deals and help pressured sellers may be tempted to turn a blind eye to one price on the HUD1 statement and another on the check. More recent fraud schemes include both foreclosure experts who take the title to the home without satisfying the loan and those who offer fraudulent reverse mortgages to hard-pressed seniors. Remember that even if you don’t profit and you’re only trying to help, it’s still fraud.

States Clamp Down on Sharks; Legitimate Investors May Feel Sting: BY GINO CISCHKE

This article was published on: 01/01/2008 (REALTOR MAGAZINE)

LAW: Foreclosures States Clamp Down on Sharks; Legitimate Investors May Feel Sting

BY GINO CISCHKE As the number of foreclosure filings climbs, increasing by 99.5 percent between the third quarter of 2006 and that of 2007, so does the number of laws designed to protect consumers from scams that pretend to help troubled home owners refinance.

It’s not that protections aren’t needed. Yet, as states busily try to stamp out such foreclosure “rescue” schemes, they’re enacting laws that sometimes snare legitimate investors. So if you’re buying foreclosure properties, or working with an investor client who is, you’ll need to exercise a little caution or you may end up on the wrong side of the law.

What New Laws SaySeveral states, including Illinois (SB 2349), Maryland (SB 761), Minnesota (325N), New York (SB 4744), and Rhode Island (H 7650), have been busy crafting laws to stifle foreclosure fraud. The District of Columbia, Massachusetts, and other legislatures are considering similar legislation.

Many of these statutes are based on the oldest state mortgage fraud law, California Civil Codes 2945 and 1695. Its principal aim is to give home owners the opportunity to cancel a sale that occurs during the foreclosure process. The California law, and most other state statutes that have followed it, requires that a sales contract include a “notice of cancellation,” which gives a seller a clear method for stopping the sale of a home within a certain time frame — typically five business days.

The newer laws also try to protect homeowners’ equity during foreclosure. They diverge from the California code, however, in their efforts to implement this goal. The California statute prohibits foreclosure purchases that take “unconscionable advantage” of the owner in foreclosure. Minnesota’s statute, enacted in 2004, broke new ground by stipulating that home owners who sell while in foreclosure must receive “consideration” that equals at least 82 percent of the home’s fair market value. New York’s Home Equity Theft Prevention Act followed suit in 2006.

The most restrictive of these new laws is Illinois’ Mortgage Rescue Fraud Prevention Act, which took effect Jan. 1, 2007. Illinois lawmakers upped the ante by inserting an additional requirement that limits to 125 percent of the total debt owed the amount a foreclosure purchaser can make when selling the property back to the original home owner. There’s no such limit if the home is sold to someone else. Most state laws apply when the documents initiating foreclosure, such as notice of default or notice of pending foreclosure, are issued. However, in Illinois, the law applies to any borrower 90 days delinquent on a mortgage.

These narrow restrictions will almost certainly make it more difficult for legitimate home buyers and investors to purchase foreclosures except through an auction process. If you or your investor clients have plans to purchase foreclosed property already owned by a bank or to buy preforeclosures, sometimes called short sales, exercise care.

Consult with a knowledgeable real estate attorney to determine exactly what rules your client must follow to purchase or sell such homes. In some cases, poorly worded laws may be punishing legitimate buyers in an effort to punish scammers. Don’t get caught on the wrong side of this equation.

A Scam in Five Acts1. Bill, who has owned his home for nine years, loses his job and faces foreclosure.

2. Unscrupulous XYZ Finance says it will pay off the mortgage, cover closing costs, and give Bill $20,000 in cash, in return for a quit-claim deed.

3. XYZ also will let Bill stay in the house, paying rent at twice his former mortgage payment, with the promise he can buy the home back later.

4. Bill bites, figuring he’ll use the $20,000 to cover his rent until he gets a job. He deeds over the house to XYZ for about half the home’s value of $400,000, giving up his equity.

5. In a few months, Bill can’t pay the new, higher rent, and XYZ evicts him.

Writer Gino Cischke is the senior vice president and legal counsel at RealtyTrac Inc. The Irvine, Calif., company provides listings of foreclosed properties for consumers and real estate practitioners on its Web site.

HUD Increases limits for FHA single family homes

$337,500 for most Cincinnati/Northern KY counties

$341,250 for most Columbus counties

Residential Title Fee Schedule

 

        

Phone: 513-686-7670 Fax: 1-888-485-3357

 

Residential Title Fee Schedule

 

Conventional Closing Fee        $225

 

Title Exam Search Fee        $100

 

FHA/VA closing            $375.00 (closing and title inclusive)

 

Commitment Binder            $60.00

 

Electronic Funds Processing Fee    $20.00

 

Lender’s Package Handling Fee    $10.00

 

2^nd Mtg. Closing Fee            $75.00 with title insurance

                    $125 without title insurance

 

Cash Closing    $325 (includes exam& closing fee*additional fees for recordings)

 

Please Note:     The above Cash Closing fee does not include any title protection for the buyer. A title report will not be issued for the above fee. An owner’s title insurance policy would need to be purchased at an additional cost to protect the buyer.

 

*Closing protection coverage available upon request for an additional fee on Ohio properties.

*All lender loans require lender’s title insurance in order for Residential Title to close transaction.

*Endorsements are an additional fee depending on type of endorsement required by the lender.

*Additional cost to record documents. Recording fees are set by the county auditors.

 

*Fee’s effective as of March 1, 2008!*

 

 

 

OHFA announces lower home buying rates for Ohio heroes

Excerpted from OAR newsletter:

COLUMBUS–Ohio’s everyday heroes now can receive a lower rate through the Ohio Housing Finance Agency’s (OHFA) First-Time Homebuyer Program. Ohio Heroes offers a 30-year fixed mortgage to first-time homebuyers who are active military personnel or military veterans, firefighters or emergency medical technicians-paramedics, healthcare workers, police officers or teachers.

The borrowers have to be full-time professionals and meet OHFA’s First-Time Homebuyer Program standard mortgage guidelines. The mortgage is being offered at a quarter of a percent under OHFA’s rate for the First-Time Homebuyer Program. In addition, a temporary federal exemption allows veterans who may have owned a home in the past three years to qualify under the First-Time Homebuyer Program.

To learn more about the Ohio Heroes program or to locate a lender in your area, visit www.ohiohome.org.