Real Property Security
Fall 2014-2015
Professor Brian O’Dell No Textbook, Handouts Only
Real Property Security; Week Two, August 22; Class Meets Once a Week, Friday
When foreclosure isn’t a preferable you can do:
(1) Loan modification – modify long-term to lower payment, no second closing needed. This is primarily what banks like to do. HAMP, Prop LM In House Mod, forbearance, and repayment plans.
(2) Short sale (Liquidation) – sell property without foreclosure one bar can make payment. Property owner attempts to sell property on his own, offers received from potential sellers must be approved by the bank.
(3) Deed in lieu foreclosure (Liquidation) – Saves on attorney’s fees because bank doesn’t have to Sue to give foreclosure. Borrower basically just hands over keys.
If possible bank always tries to avoid foreclosure; foreclosure is not preferable because bank must pay: real estate commissions, maintaining property, taxes, insurance, etc. Bank will attempt to do a loan modification if possible.
New topic: At Real Estate Closing
(A) The note is not recorded, the mortgages recorded.
(B) Mortgages usually automatically transfer and follow note when transferred.
(C) Allonge: same thing as an endorsement on a note. When note is sold by one bank to another the note must be endorsed so that the new bank can enforce the note. An allonge is just a page endorsement attached to the back of the note.
(D) Waterfall: When you pay a mortgage payment it is applied like a waterfall: interest, escrow, and then principal. This could be important if you submit a partial payment.
(E) Mortgages: you transfer a note by endorsement; you transfer your mortgage by assignment. Mortgages must be originally recorded after a closing.
(F) How do you get around having to rerecord the mortgage every time it is transferred? When you get a mortgage the lender will typically elect “MERS Inc.” as its nominee, so when the mortgage is transferred from your bank to another the mortgage doesn’t have to be re-recorded, because “MERS” stays the nominee but the holder of the mortgage really changes, this is a way to get around recording taxes, and requirements. The mortgage does not need to be reassigned to another person other than MERS unless one of three situations occurs:
(1) If the loan is paid in full
(2) If the mortgage is sold to a bank who is not a MERS member
(3) In case of a foreclosure. In the case of a foreclosure the mortgage is reassigned from MERS to whichever bank is doing the current foreclosure.
Real Property Security – Week Three Notes
Class Discussion: Continue On With The Mortgage Document Clauses:
(1) Escrow Amount: usually includes insurance and state taxes. Can sometimes be PMI as well. Bank wants you to escrow so they can collect the interest money from the balance they hold in trust. At end of year if escrow is overestimated bank can only hold three months of cushion in escrow for next year, at end of year the bank has to refund any leftover that is over 3 months. If the bank underestimates you may have to pay in lump sum. Or it would be divided over the next year, 12 monthly payments. Just depends on the bank.
(2) Super Lien Priority: Priority of liens on a property: means who gets paid first when property is sold if foreclosed on (or if the lien holders sue to collect debts), called first priority position (second and third etc.). Generally first in time has first in priority. First to record gets first priority. However, tax liens take super priority in most circumstances.
(3) Forbearance: This is an in house loan modification that is available as a quick fix for a borrower who has fallen behind. E.g. late by $1200; the bank forbears the $1200 and splits it into payments over a year rather than default on it because it isn’t such a big deal. Lender doesn’t lose rights just because they agree to forbear.
(4) Notice to one is notice to all: all the bank has to do is notify one person on the mortgage. Wife and husband separated; wife lets it default e.g.
(5) When will bank accelerate? Acceleration means to call the whole amount due of a loan. Acceleration is a prerequisite to foreclosure. Borrower can still decelerate loan by curing the amount that they are behind. After statutory waiting period is up after borrower defaults, acceleration is generally sent after 45 days of delinquency (being in default). Borrower can still cure deficiency up until 5 days before foreclosure.
Real Property Security Week Four Notes
Dividing Up Insurance Policy Proceeds
Continuing On With Standard Mortgage Document Clauses:
(6) Hazard Insurance – (2 Cases)
Borrower buys insurance for benefit of the bank. The bank will get notice if the borrower doesn’t pay (notice of lapse) or if the house burns down (notice of loss). Generally the insurance company will issue a check for borrower AND (not or) the bank. The borrower then signs it and sends the check to the bank to endorse and depo
(B) The action required to cure the default;
(C) a date, not less than 30 days from the date the notice is given to Borrower, by which the default must be cured; and
(D) that failure to cure the default on or before the date specified in the notice may result in acceleration of the sums secured by this Security Instrument, foreclosure by judicial proceeding and sale of the Property,” and that also informs the borrower “of the right to reinstate after acceleration and the right to assert in the foreclosure proceeding the non-existence of a default or any other defense of Borrower to acceleration and foreclosure.”
Real Property Security Week Five Notes – September 12th
Loss Mitigation – Typically done by loan modification or loan liquidation; borrower must usually apply for modifications. Loan servicer does not have to provide loan modification or loss mitigation, but when they do they now have to abide by the CFPB. Bureau of Consumer Financial Protection, (Real Estate Settlement Procedures Act).
Types of Loan modifications/Loss Mitigation/Liquidation:
(1) HAMP (Home Affordable Modification Program) (HAMP participation is voluntary by servicer, borrower must send in affidavit of financial hardship, must be delinquent/ or close to it, mortgage must have been originated before Jan 1, 2009). HAMP mods generally lower the interest, principal forgiveness; not common (Down 10 120%; owing more than what the house is worth). Bank motivated to do HAMP because government gives the bank money to participate in it. HAMP assists borrowers by modifying their first lien mortgages so that the monthly payments are lower and more affordable.
(2) Short Sale – Short sale is when the owner tries to sell their house on their own to get out of the mortgage. Must ensure that there are no secondary liens because those secondary lenders will still be owed their due, primary liens get their money first, so the secondary lender must agree to the short sale, borrower must show hardship, must be in default or close to it etc..
