Legal Issues That Matter


Buying Shortsale Properties

Joe Seagle was recently interviewed for his thoughts on the attorney's role in representing buyers of short sale and REO properties. Let us know your thoughts.


Three Things to Continue to Pay Even When You Can't (Aren't) Paying Your Mortgage

"Strategic Default" is the latest buzz term associated with foreclosure. From what we have seen, a person is strategically defaulting when they have the ability to pay their mortgage, but simply choose not to do so. The most cited reason for such strategic defaulting is that the property is simply not worth what is owed on the mortgage(s). Good thing we don't have the same attitude about our cars, or the default rates on auto loans would be much higher than they already are. But I'm digressing from what this blog entry is about....

Many of our clients who cannot (or will not) pay their mortgages decide to go to extremes and not pay anything associated with the property. To this, we tell them that there are at least three things they should keep paying if they are able to do so:

  • Hazard Insurance (including Liability coverage).

Most people also call this "Homeowner's Insurance." This insurance covers damages to the property, injuries incurred by visitors, tenants and residents (sometimes even when the injuries occur away from the insured property), and loss or damage to the homeowner's personal property such as furniture, electronics, clothing, jewelry, artwork, and electronics. If you stop paying your homeowner's insurance and let the policy lapse, the lender may force place their own insurance. However, this insurance -- in addition to being extremely expensive -- only covers damages to the dwelling itself in the event of fire or acts of nature. If someone breaks into the home and steals all of your belongings, or if a fire or storm destroys all of your electronics and furniture, you have no coverage from the lender's force-placed insurance. You simply lose everything, and it's up to you to replace it at your expense. For this reason, it's wise to continue to pay the hazard insurance premium. Although it may have been escrowed each month with your mortgage payment to the lender, there is nothing to prevent you from paying for the policy to the insurance company directly when the premium is due.


  • Homeowners' / Condominium Association Assessments or Dues

While a lender has to produce and original note and mortgage and jump through a lot of other regulatory hoops before it can complete its foreclosure, an owner's association has a much lower burden to bear before foreclosing on your property. For this reason, the owners association can foreclose much more quickly than a lender, and may do so in an effort to take control of the property and rent it out (even if for a short time) to a tenant in an effort to recoup unpaid assessments. If at all possible, it is best to continue paying these assessments as they come due.

  • Real Property Ad Valorem Taxes

In Florida, if ad valorem taxes are unpaid for over two years, then the property may be sold at a tax deed sale. This process also is much faster than a mortgage foreclosure action. Such a tax deed sale will wipe out your ownership as well as the lender's mortgage lien on the property, and put the new owner in possession of the property quickly. For this reason, it is best to pay taxes that are over two years old to avoid the tax deed sale possibility.

In the rush to strategically default, don't throw out the baby with the bath water.


Save $250 to Lose $25,000

Sometimes I feel like the doctor who has to tell a patient that she has a terminal disease. There is no cure and nothing I can do to solve their problem. It's a helpless feeling for me as an attorney.


Recently, I had that experience when a couple came to me for advice. They had found a house they wanted to buy at the foreclosure sale. The same bank had at least two or three mortgages on the property that they knew of prior to attending the sale. They knew this because they checked the online records at the courthouse before going to the auction. They had looked at the house and other houses in the neighborhood to come up with an idea of what the house would be worth at the sale and after they did their repairs. They even discovered a code enforcement lien or two on their own and determined how much those would cost to clear after purchase.


They felt that they had a grasp of every detail about the property and had no idea that they should spend $250.00 to have a professional title examiner or attorney conduct a full title search of the property. They went to the auction and -- to their happy surprise -- discovered that the bank's top bid for the property was going to be tens of thousands of dollars less than the amount owed on the mortgage. They started bidding. More seasoned bidders at the sale thought they were "newbies" to the auction who were trying to get into the "game" of buying and flipping foreclosed homes. The old salts deliberately drove up the bids. When they learned that the elderly couple only wanted to buy the home for their son and grandchildren to live, the bidding war stopped, and the couple got the house.


They poured tens of thousands of dollars into the home for repairs and code enforcement lien payoffs. After several months of hard work, their family was able to move into the home. Soon after, they received a letter from the foreclosing bank. The letter explained that the couple had purchased the property at the foreclosure sale under the bank's third mortgage. While the purchase price was enough to pay off that mortgage, the bank still had two more mortgages on the property, and -- if they wanted to avoid being foreclosed -- they needed to cough up over $50,000.00 more to the bank. That's when they came to us.


Fortunately, they were eventually able to settle with the bank for less than what the bank wanted, but it was a cost they never intended to bear and it dug deeply into their retirement savings at a time when they simply don't have any more time to make it back at their age.


If they had spent about $250.00 on a title search of the property before going to the sale, the examiner would have pulled the actual complaint in the foreclosure suit along with all of the other documents in the foreclosure docket. Only in those unrecorded documents was it clearly stated that the bank was foreclosing its third and most-junior mortgage, leaving the other two ahead of it. Then they would have known that they would have been purchasing the property subject to two prior mortgages. At that point, they probably would have passed on the auction and waited for the bank to be the successful bidder at the sale. The old salts at the sale knew this. Our clients didn't.


This is not an uncommon tactic for a lender with multiple liens to take when exercising its rights to foreclose. It is completely within its rights to elect which mortgage to foreclose first. It is up to the foreclosure auction purchaser to beware and spend a little money up front to avoid losing a lot of money later.


The Affordable Care Act and What It Means for Individuals and Businesses

We are starting to get a lot of questions from clients about how the new healthcare and health insurance reform act (formally known as the Affordable Care Act) will affect them and their businesses. As you might guess, the response depends on whether the client is an individual or a business, how much money the client makes, pre-existing conditions, number of employees, etc.

In short, it's much too complicated to cover in a blog entry. So, instead, we are suggesting that clients first explore the Department of Health and Human Services website that explains the details of the new law and how it will affect you and when. The site is very useful and chock full of information, but the quickest way to view the new law's effects is the timeline provided on the site. By scrolling through the timeline, one can see what provisions will be implemented and when, and then obtain more details on how they work.

If you have questions about the new law and how it will affect you, we recommend that you check out this site for some education before you call us or your financial advisers for information. 


Butler Rebates, REO Closing Agents, and Short Sales

We represent many buyers in residential and commercial real estate closings. In doing so, we see settlement statements from title companies and closing attorneys across Florida. We’re amazed at the variations in the closing costs for settlement and title insurance. The settlement fees range from lows of $250.00 and highs over $1,700.00. Title insurance premiums, while promulgated by state law, vary too as the closing agents add to the statutory rates with abandon. Also, although Florida laws changed in October, 2008, to forbid the practice, many closing agents still charge separate junk fees for items such as courier, electronic storage, notary, copy, 1099 processing, and other fees that are required to be included as part of the “Settlement” or “Closing” fee.

We are also surprised at how often the buyer simply lets the seller, especially REO sellers such as Fannie Mae and foreclosing lenders, dictate where the closing is conducted. The general rule is that the party who is paying for the owner’s title insurance policy is the one who chooses who issues that title insurance policy. The FNMA addendum to contract, since early 2010, has permitted the purchaser to choose the closing agent. However, for whatever reason, many buyers continue to simply let the REO seller choose the closing and title agent.

Another confusing issue is that most buyers don’t push for their choice of closing agent when they are purchasing a short sale. Sure, they may have to pay the owner’s title insurance premium, but – with a little shopping for price and quality – the buyer can have their chosen title company handling the closing. The buyer has a lot invested in ensuring the short sale closing is completed in a timely manner. If the seller’s lender makes more money at the closing because the buyer is paying the title insurance, that may be the little “grease” that helps the closing clear the short sale lender’s objections.

Few title companies, such as PCS Title (our sister title company), understand that every little bit can help in getting the REO or short sale closing completed. To that end, PCS now gives a “Butler Rebate” of 40 percent of the owner’s title policy premium on every closing. This portion is deducted from the agent’s portion of the overall title insurance premium and is in addition to the discounts available for reissue credit or substitution rates. The higher the value of the policy, the greater the rebate.  We have found that, when such rebates are offered, buyers find it more appealing to choose their own title company to handle the closing, and the lenders find it more appealing to approve the sale, knowing that they’ll be pocketing more money to cover their losses.

So, if you’re buying a short sale or an REO, don’t hesitate to designate the title company. If doing so means that you must pay the owner’s title insurance premium, then be sure to use a title company that rebates a portion of the title premium to the one who is paying for it.

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