Archive for the 'Real Estate' Category

How Can Your Foreclosure Affect You?

No one wants to foreclose, but it happens if you fall behind on your mortgage payments and have no way of catching up. While you want to move on from the whole experience, your credit score won’t let you.

A foreclosure can hit your credit up to 300 points, and if you’ve missed several mortgage payments before filing for foreclosure, it can negatively impact your credit score even more. A foreclosure appears on your credit report as of the date you file, not the date of sale. It stays on your credit report for seven years.

Besides carrying around the foreclosure on your credit report for years, what other affects can foreclosures have on your life?

Foreclosures and Family

After the housing bubble burst in 2008, foreclosure rates increased substantially. Many families lost their homes to foreclosure. Foreclosure Sign

Studies demonstrate that families who faced foreclosure saw their earnings fall more than families who did not experience foreclosure. After one earner lost his or her job, foreclosure was nearly inevitable. Moreover, families who lost homes to foreclosure were more likely to seek government assistance programs for support. They also tend to double up or share their home after filing for foreclosure, but before the house is sold.

Bankruptcy and Foreclosure

If you are contemplating bankruptcy, you may also be facing foreclosure. If you fall three months behind on your mortgage payments, it may be beneficial to think about filing for bankruptcy to avoid foreclosure. Although financially, bankruptcy is considered a “last-resort” option, it can hold off creditors, including your mortgage company, while you’re sorting out your financial troubles.

Bankruptcy only prevents foreclosure in some cases. If you file for Chapter 7 bankruptcy, it means you don’t have the financial means to pay any of your bills. In that regard, the bankruptcy releases you from your obligation to pay your debts. However, Chapter 7 bankruptcy does not prevent foreclosures. While your obligation to repay is released, the lien on the house isn’t canceled because it serves as collateral if you cannot repay. With Chapter 7 bankruptcy, the homeowner often surrenders his or her home.

Chapter 13 bankruptcy gives the debtor an opportunity to work out a new agreement with the lender. Lenders can come to an agreement with the debtor consisting of paying off the late payments and late interest for up to 5 years as part of a new loan agreement. If you can pay the new loan payment and make all your payments on time, after the five years are completed, you can keep your home.

It is important to note that while bankruptcy and foreclosure have a negative impact on your credit, foreclosures remain on your credit report for seven years, whereas bankruptcies remain for ten years. Nevertheless, creditors look at foreclosures more seriously than bankruptcy that don’t include a house.

Foreclosures and Your Estate Plan

If you inherit a house that is behind on its mortgage payments or already in foreclosure, you have a couple options. Assuming the homeowner is behind on mortgage payments, the person to whom the house is left does not have to accept the inheritance or the debt associated with the property. If the beneficiary can’t afford the mortgage payments, insurance or maintenance, the beneficiary may disclaim the property and it would be passed to the next person designated. If no one claims the property, the home would likely go into foreclosure.

If the house is going into foreclosure, you want to make sure the house is not in your name and is still the property of the estate. If it is in your name, the foreclosure will affect your credit. If not, it has no bearing on your credit. In that case, the estate may be responsible for the deficiency judgment.

Foreclosure and Divorce

Financial problems are cited as one of the leading causes of divorce, so it should come as no surprise that foreclosures and divorce often go hand-in-hand. If you’re behind on your mortgage and going through a divorce, you must figure out who is responsible for the mortgage debt.

Many couples take out their mortgage and hold title jointly. In that case, both parties are responsible for the debt. However, if either spouse holds title in his or her name alone, that spouse is solely responsible for the debt and is the only person the bank may pursue for any deficiency judgment after a foreclosure.

Three Things to Know When Buying Your First Home

For most people, your home purchase will be your biggest financial investment you will ever face. Buying your first home is one of the most exciting things you can do, but it’s also one of the scariest. Suddenly, a large sum of your monthly income is spent on your mortgage and unexpected maintenance such as electrical repairs, insulation, and re-roofing. The expenses can add up, and what once was a seemingly sound investment can turn into a huge regret.

Here’s a list of things every new homeowner should know as they become homeowners.

Lender Responsibilities: TILA and RESPA Requirements

Finding the right lender is just as important as finding the right home. Some lenders make promises they can’t keep, and borrowers suffer as a result. Lenders who are unable to provide funding can result in the borrower losing their earnest money deposit and the offer on the home. It is important to find a lender that you feel you can work with and who can get you a good mortgage insurance rate. Home Sold

Lenders are bound by Federal laws such as the Truth in Lending Act (“TILA”) and Real Estate Settlement Procedures Act (“RESPA”). These regulations were enacted to protect consumers in their dealings with lenders and creditors. All lenders must provide their customers with disclosures consistent with TILA and RESPA before closing. These requirements include a loan estimate and closing disclosure, which contains the final details about the mortgage loan, such as projected monthly payments, loan terms, and how much you will pay in fees and closing.

What Happens if Something Affects the Property?

Say you found your home, you’re in escrow, and you’re waiting to close, but then the unthinkable happens: a fire breaks out and destroys the property, or a random “Act of God.” What happens then?

If the purchase contract between the parties does not specify who is to bear the risk of damage or loss between execution of the purchase contract and close of escrow, the liability of the parties is governed by the state in which the property resides. Each state is different. For instance, California statute assumes no fault on the part of the buyer for the risk of loss or damage to the premises. In that regard, the seller bears the risk should the property unexpectedly go up in flames.

If all or a material part of the premises are damaged before title or possession is given to the buyer in California, the buyer can cancel the contract and recover any portion of the purchase price paid. If, however, the “Act of God” occurs after the buyer has taken possession or received title, the buyer bears the risk of loss or damages to the premises. Thus, if the premises are damaged, the buyer still must complete the contract and pay the balance of the purchase.

Title Insurance

Another thing to consider when buying your first home is title insurance. When you purchase your house, you may not realize that it is encumbered. In other words, a third party may have legal right to your land which may be superior to yours and restricts your ability to use and enjoy your land. Sometimes, the encumbrance is minor. Other encumbrances may be more substantial.

For example, a government agency may have a utility easement running through your property which prevents you from building that Olympic-size swimming pool you always dreamed of.

Title insurance is meant to protect against these types of unforeseen property disputes by searching the property’s title history before you purchase. The title history should disclose what rights others may have with respect to the property.

Moreover, title insurance insures against any additional “defects” which were not found through the title search and not otherwise expected or excluded in the policy. Depending on the type of title insurance, the insurance may be able to pay off your mortgage in the event that a defect causes you to lose the property. If you buy a property using a home loan, your lender will require that you also obtain title insurance.

New Bill Makes it Easier for Surviving Spouse to Fight Foreclosure

California Attorney General Kamala Harris is supporting a bill that expands the state’s Homeowners’ Bill of Rights. Under the expansion, the Homeowners’ Bill will include a provision designed to help surviving spouses and children stay in their homes after the primary mortgage holder passes away.

All too often, a couple buys a property but only one spouse signs the original loan documents and thus becomes the primary borrower. After the primary borrower passes away, the remaining spouse (typically the widow) is unable to pay the mortgage. As a result, the house is foreclosed.

The bill is known as the Homeowner Survivor Bill of Rights, Senate Bill 1150. If enacted, it would expand the current California Homeowners’ Bill of Rights to provide protections for homeowners against foreclosure. In that regard, the Survivor Bill is meant to protect surviving spouses and children from losing their home after losing their loved one.

Homeowner’s Bill of Rights

The California Homeowner Bill of Rights was enacted in 2012 to ensure fair lending and borrowing practices, and to guarantee basic fairness and transparency for homeowners in the foreclosure process. For example, mortgage servicers were restricted from taking steps to advance the foreclosure process if the homeowner was working on securing a loan modification. Another provision required purchasers of foreclosed homes to give tenants at least 90 days before starting eviction proceedings. California Homeowner Bill of Rights

In its current form, the survivor spouse is at risk of losing his or her home due to foreclosure. Recent hearings on the Homeowner Survivors’ Bill revealed banks insist on speaking with the primary mortgage borrower. Even if the primary borrower has passed, the bank would not modify the loan to include the surviving spouse because the deceased spouse could not sign the loan modification.

Other supporters of the Survivors Bill reveal they had to send their deceased spouse’s death certificate twenty-five times to the bank before the bank would consider modifying the loan. This difficult process has caused many grieving spouses additional pain, annoyance, and heartache.

How Does the Survivor Bill Fight Foreclosure?

The Homeowner Survivor Bill of Rights addresses what its sponsors have defined as a “loophole in California law that fails to provide surviving spouses and children important protections against foreclosure that are available to other homeowners.”

Under the Survivors Bill, the surviving spouse would be able to apply for both a loan assumption and loan modification and become the single point of contact with the lender. In other words, the spouse would be able to assume the loan and modify it without the deceased spouse having to sign paperwork after death or having to send the bank numerous copies of a death certificate to prove the deceased passed.

The proposed legislation also requires mortgage servicers to communicate with the heirs and spouse directly instead of allowing mortgage servicers to foreclose without attempting to speak with the deceased’s family. The new legislation notifies the surviving spouse that they can step in, assume the loan and keep their home instead of inundating them with paperwork and conflicting, confusing information.

Protecting Your Real Estate Sale From Eviction Lawsuits

A couple from Idaho is faced with the difficult task of evicting a squatter that rented their home from someone posing as the landlord.

Brian and Renae Prindle moved out of their Canyon County home at the end of 2015 in order to expedite its renovation and sale. Little did they know that a woman named Debbra Smith signed a lease and paid a man who had keys to their home. Smith pays $1,550 to rent the home, although it is unclear whether she is current on her rent. The Prindles contacted local authorities who consider the case a civil matter. They have now filed a civil lawsuit to evict her. The Prindles are concerned the eviction will derail their chances of selling their home.

Is the Tenant’s Lease Valid?

Smith claims she signed a valid lease with a man who claimed to be the landlord of the Prindles’ home. It’s unclear whether she can provide a copy of the lease. Regardless, whether she can prove she signed a lease with the fake landlord is immaterial. A residential lease is a legally binding contract between a landlord and a tenant which affords the tenant the right to exclusive use and enjoyment of the residential property in exchange for money paid to the landlord. If a lease is signed between a tenant and a man posing as a landlord that has no legal right to the property itself, he does not have the right to rent the residential property. In that regard, the lease between Smith and the purported landlord is completely invalid.

What If the Tenant Pays Rent?

If Smith pays rent to the Prindles directly, does that change the relationship between Smith and the Prindles? Prindle House

In most states, the answer is yes, but only if the Prindles accept payment. By accepting rent from a tenant, even one who is not in the lease, the transaction creates a landlord-tenant relationship. The tenant has the right to exclusive use and enjoyment of the residential property, and the landlord is entitled to monthly rent. The transaction creates a month-to-month lease. It also becomes more difficult to evict the tenant.

Does the Tenant Have a Legal Right to Remain in the House?

A bona fide purchaser, or BFP for short, is a legal term used primarily when referencing real and personal property. It refers to the innocent party who purchases property for fair value without notice of any other party’s claim to the property. Because the bona fide purchaser is innocent and had no notice of another party’s superior rights, he has the right to retain the property or enforce obligations against the person who may have superior rights.

For example, let’s say Derek steals your bike then sells it to Joe. You later find out Joe is in possession of your stolen bike. If Joe paid fair value for the bike and can demonstrate he thought Derek was the owner of the bike prior to purchase, Joe would be considered a bona fide purchaser and have the legal right to the bike. Your only legal recourse would be against Derek, but you would have no legal right to your bike.

In this case, the tenant could not claim she was a bona fide purchaser. The tenant did not purchase the home, only rented it. Even if she did buy the home for fair value, she still could not claim she was a bona fide purchaser because a title report would show that the true owners of the property were the Prindles. Therefore, she would be “on notice” that someone else was the legal owner of the property.

While Smith continues to reside in the home, she’s considered a squatter. A squatter is a term for a person who occupies a place that legally belongs to someone else when the owner hasn’t given permission for the occupation.

Will A Sales Contract Prevail?

Various disclosures are required in any home purchase contract. Most states require sellers to disclose whether any pending litigation exists on the property.

While the sellers understandably wouldn’t have known of the squatter until visiting the house, they would have to disclose to any potential buyer that there is litigation pending which could stall any potential sales contract. A savvy buyer’s agent would put a clause in a sales contract which states that the home purchase contract is subject to a successful eviction of the squatter, and would also include a definitive timeline.

Protecting Your Heirs from Foreclosure

It’s an all too familiar story – couple meets, falls in love, and gets married. They buy a house, but only one spouse signs the original loan documents and thus becomes the primary borrower. Then, the primary borrower passes away. The remaining spouse (typically the widow) is unable to pay the mortgage. As a result, the house is foreclosed.

This happens to many couples in the United States, and the spouse who didn’t sign the original loan documents scrambles to keep her home and pay the mortgage.

How can you avoid this scenario from happening to you?

Mortgage Protection Insurance

Mortgage protection insurance covers your mortgage if you lose your job or become disabled. It also pays off your mortgage when you die. Whether you benefit from mortgage protection insurance really depends on your health, financial situation and what you want to happen if the worst befalls you or your partner.

Mortgage protection insurance is life insurance that pays your mortgage after a certain triggering event such as death, disability, or job loss. The cost depends on the amount of your mortgage, your age, and your health. For disability mortgage protection insurance, costs also vary depending on your occupation.

If you purchased mortgage protection insurance that pays off your mortgage after your death, the insurance company sends a check directly to your mortgage company. This leaves your heirs with your home unencumbered by the mortgage. Payments also go directly to your mortgage company if you purchased job loss or disability insurance, but it only happens for a certain time period (about a year or two). Further, there can be a waiting period before payments are finally made.

Life Insurance

While mortgage protection insurance is a type of life insurance where the proceeds can only be used to pay one’s mortgage, many believe a better option is to have regular term life insurance. With life insurance, your heirs can use the money they receive in whatever way they see fit. Moreover, whereas mortgage protection insurance typically has an age limit (around 45 or younger for a 30 year mortgage, or 60 or younger for a 15 year mortgage), no age limits exist for life insurance.  Foreclosure

Further, on direct comparison, term life insurance can be cheaper than mortgage protection insurance. If you’re healthy and have never used tobacco, you pay more for coverage with mortgage protection insurance than you would for life insurance.

Mortgage protection insurance can provide benefits to those who don’t qualify for life insurance. For example, people with poor health or a record of past medical conditions may not be eligible for life insurance. Mortgage protection insurance is less strict and, as a result, more people qualify.

Regardless, financial experts typically do not recommend any insurance that only pays for specific bills such as mortgage protection insurance.

Financing the Home

If your heirs want to keep the home but are having a tough time paying the mortgage, they could refinance the loan. Refinancing the mortgage may help you get a better rate, lengthen the term, and lower the monthly payments. This option allows heirs to stay in the house. However, this may not be an option if you have damaged credit or for some other reason you cannot qualify for a mortgage on your own.

In that case, a reverse mortgage may work. Reverse mortgages do not have credit or income requirements, but you must be at least 62 years old and your mortgage balance must be around half of the home’s value or less. The loan is called a reverse mortgage because instead of making monthly payments to a lender, the lender makes payments to the borrower, and there are no monthly principal or interest payments.

With a reverse mortgage, you are still required to pay real estate taxes, utilities, hazard and flood insurance premiums. When the home is sold or no longer used as the primary residence, the cash and interest must be repaid, and the remaining equity can be transferred to the heirs.



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