All Forum Posts by: Dion DePaoli

Lots of questions in there, let's see if we can address them all:

1. Advantage of Marital Waiver vs Deed of Trust?
I am not sure 'advantage' is the right word here. A Marital Waiver is when the spouse acknowledges a lien on the subject property, subordinating their interest in the real property to the lien holder. In Missouri a spouse must either be on the DOT or sign a waiver. The Mortgagor (or Borrower spouse) subordinates their interest as a function of the security instrument execution. There is probate law in the state which requires the same the spouse to acknowledge.

2. Does putting both spouses on the Deed (taking title to the property) create liability for both spouses?
Yes. If you are both vested in title to the real property, the owner of the real property, whom ever it may be, would bare the liability of the real property.

The best defense against this liability is insurance first and then you could also look at vesting the property into a Limited Liability Corporation or similar as additional layers of liability protection.

Another concept here which is being jumped over, if you are married your assets are joint by law through the marriage. So in your question, the separation that you are asking about essentially does not exist. Your spouse does not own assets which you do not have an interest in and vice versa. This is also why the Waiver or DOT must be signed by the non-borrower spouse.

3. What happens in death of a spouse?
There is probate law which handles this. The spouse holds an interest in the real property as it is a joint asset, even if the spouse is not a Tenant In Common. Upon the death of the borrower spouse, the deceased spouse interests are eliminated (they are dead) so the living spouse who is still alive has all of the other spouses interest.

4. Can a foreclosure take place in the event of the death of a borrower spouse?
Not without default. The death of the borrower spouse does not create the ability for the DOT owner to seek remedies. Through marriage the living spouse has an interest which pass to the living spouse as an heir, well it doesn't really pass as much as the interest of the dead spouse are now consolidated in the living spouse. That said, you will have to make payments or face foreclosure.

5. Mortgage in one spouse name, both on title, does this diminish the ability for the non-borrower spouse from obtain future mortgages on other properties in line with maximum mortgages?
The property is assumed to be a marital asset unless proven otherwise. In most cases any property acquired during the term of the marriage is marriage property. So trying to put a spouse on title versus the other spouse in an effort to qualify or obtain more mortgages will not really work. Another way to look at this which gets passed over by many who ask this question, is that more than likely the total debt service is still under scrutiny not just the vested name on title liabilities. The marriage creates joint interest in property and the debts secured by said property if the property is used as collateral.

10 properties is not a small amount of properties and when you get to this point, you will likely be looking at getting the properties vested in a corporation (LLC, LP, etc) opposed to taking title in your names. You are in the business of real estate for sure at that point and will want to take further steps to create better tax situations for yourself.

While many folks look to find a loophole in this underwriting idea, it doesn't work all that often, again the debt service must still be there to qualify as a single spouse and that usually breaks the plan down. If you think about it, what would happen if the spouse dies? Well the survivor still has to pay all those debts or he/she will default, lenders get that point.

Additionally, the 10 property rule is a conventional loan guide and is not the case for all lenders. (conventional = Fannie/Freddie) A local bank who portfolios their loans may not have this guideline. So remember, it is not an absolute 10 and your done.

I think Bill Gulley is a Missouri guy who can look this over and add additional insight relative to your state.

The note request is likely not the full story here. On a credit report the trade line is reported by a Mortgage Servicer not the Mortgagee (Investor). Servicers do not hold the note in custody, so they would not be able to produce the wet ink note. Additionally, this would draw the credit agencies into issues of ownership through faulty endorsement chains and seems to lack any attention to the Assignment of Mortgage or lien.

The Fair Credit Act of 1970 allows consumers to view their credit profiles, which I always like to say are rumors about you and ensure they correct in fact. A fact might be the Original Note amount is incorrect on the credit report, which could be proven by sending in a copy of the note. In that sense, the trade line would be removed and not come back until the creditor updated to the correct information and paid to report again.

A foreclosure is allowed to be listed on a consumers credit report for 7 years. At the end of 7 years it is supposed to be removed, although it may take a letter to have it removed.

It costs money for any creditor to report to credit agencies. Additionally within credit item disputes they must respond in time. This gives a small advantage to the consumer but you could also wake a sleeping giant and make your credit worse by resetting the time counter for the derogatory trade line.

In regards to no way for folks to have original notes or security instruments, that is a little exaggerated. Lost notes are the minority not majority of files. The security instrument itself is majority of the time, perfected or recorded in public record along with any assignment of the security instrument. They are pretty easy to have and to hold and to get if you don't have one. All that said, I don't see the credit agencies getting involved with those types of disputes.

The REAL answer to the question BJ is "TIME". That is the only guarantee to remove derogatory credit lines. Sounds like your contact knows and agrees she was foreclosed. She likely will not be able to change that permanently until the time has passed. The best way to educate oneself on the in's and out's of credit reporting is to simply read the act.

It took me a moment to come back to this so I could read the bill and the amendments.

Personally, I disagree with you and do not understand the conclusions you are drawing from this bill. The bill calls for better servicing practices related to Primary Residence foreclosures. May concepts such as dual-tracking are already on the federal table from Dobb-Frank.

A short sale is an alternative to foreclosure. So I would argue the opposite of your view, that the bill should help more short sales take place. A lender can not just foreclose for the sake of foreclosure and must present the borrower with alternatives to foreclosure. The process must be documented and there is a penalty for failure to comply with this regulation.

Perhaps, there was a little down time on transaction levels while Mortgage Servicer made sure their ducks are in a row regarding proper paperwork, however over the long haul, I don't see how this stays shorts sales in really any manner. I don't see this as some way of controlling the inventory. The process creates a greater expense in the foreclosure of a Primary Residence for the Mortgage Servicer and thus the Investor.

Additionally, it is counter-intuitive in my opinion, to say that staying existing home foreclosures somehow helps the price level of new home starts. It is more often the opposite. When greater supply of existing homes are selling for less than the cost of construction, new home starts drop, they do not rise.

The bill is similar to other bills in some states, such as Illinois, which have adopted a similar ruling. That state requires as a function of the foreclosure process, the Mortgage Servicer and Investor to prove that alternative foreclosure concepts were exhausted. Again, this would mean an increase in short sales.

I will admit, sometimes these bills have unforeseen consequences outside of their design but this bill is pretty acute in its focus. As a note investor, I am in favor of cleaning up the servicing food chain to get better and faster results. Having a single point of contact at the Servicer and provided detailed written alternatives will serve to help move more inventory through in alternatives to foreclosure.

TARP is a US Government program that is not open for participation any longer. Not sure how a UK firm would have any involvement in that since it was US tax payer dollars.

What assets are they selling you?

What are the details to this deal in terms of loan balance, property value and coupon. How do you plan on structuring this, is it a sale or are you trying to stay in the deal somehow?

I do agree with Wayne Brooks and Bill Gulley that you may be diminishing your margins for no good reason. Apartment complexes, as I stated are pretty attractive investments. Larger capital players are willing to drive the cap rate down to low levels in order for them to get their money deployed.

The one counter concept to your pro-forma is that I think you may be able to reduce the down payment and end up with a better interest rate. I also recognize your return target is not known nor is the property cash flow stability or upside.

The advice there is don't over bid your proforma numbers for the sake of getting the property. When the numbers do not make sense any more, walk away.

There may be a little misunderstanding of the instrument (Land Contract / Contract for Deed) on your and Meg's behalf.

Some notes to the comments in the post:

1. The attorney who drafted the instrument is likely correct, she did not represent either party. LC/CFD are sort of one sided contracts for the benefit of the Seller. The Seller retains title to the real property granting the Buyer utility of the real property until the terms of the LC/CFD are fulfilled and then title fully conveys to the Buyer.

If there are specific provisions that you are concerned about, gives us a little taste and folks will comment on them.

2. LC/CFD does not have a universally accepted format or structure. Their use goes up and down with the market a bit but there has not been a push to get one widely accepted in every state or across state lines. That said, fundamentally, they still end up being pretty similar when written by a competent attorney.

3. Before it comes up, the failure for Meg to obtain legal counsel for her interests is now hindsight. That was her responsibility if she wanted to, when the deal was being created and finalized, not much she can complain about now, after the fact.

4. It is true that a contract for deed can trigger a Due on Sale clause allowing the Mortgagee to accelerate the note and call it all due. Whether that happened here is unknown. The foreclosure could be a result of non-payment from the Seller (Mortgagor).

Since this was a deal "Subject To" the mortgage at the time. Meg should have requested some form of payment lock-box system. It sounds like Meg paid the Seller but doesn't know whether the Seller paid the Mortgagee (Lender). In some LC/CFD the Buyer pays into a Trustee or similar which then splits the payment out to the portion due to the Mortgagee and the portion due to the Seller. That is Meg's protection her payments are keeping the property current in its debt obligations.

I would read through the LC/CFD and see if there is a provision in the agreement to this regard. Again, we don't really understand the 'real' reason for the foreclosure action, however she might have some ground to pursue collections from the Seller.

5. The likely bad news, Meg has no affinity over staying the foreclosure here. Meg is not a recognized party to the Mortgagee. While she has an interest in the property, created through the LC/CFD she is inferior to the Mortgagee.

Since she is not a borrower on the security instrument and note, she will have a hard time trying to even talk to the Mortgagee about any possible resolution. Additionally and again, she doesn't know how far delinquent the Seller is, he may have NEVER made a payment.

For the record, I would think it pretty unlikely the Mortgagee is pursuing foreclosure due to the LC/CFD or a function of the DOS. It is more likely it is from lack of payment.

6. The invested capital from Meg. Well, that is a problem. Since Meg's interest is inferior to the Mortgagee, she doesn't have recourse with the Mortgagee. She may have some recourse, per the LC/CFD with the Seller. You would have to read the agreement and see what is inside to this affect. It may be nothing or little to nothing, unfortunately. This is why the part in #4 is important, it helps ensure the 'non-contracted' party to the LC/CFD (the Mortgagee) is dealt with properly as they are not a party to the contract and they must be paid.

As a potential remedy, she can go attempt to purchase the property and satisfy the Mortgagee's lien. This might be a short sale or it may not, that detail is not in your post. We don't understand what is owed versus what the property is worth. In the event, the property has some equity, she can go get a loan or raise some money and simply purchase the property from the Seller. There might be a clause in the LC/CFD which addresses this option with a price tag. If the Mortgagee is paid in full, then foreclosure is halted.

7. In the event Meg has some standing in the LC/CFD to pursue recovery of her invested capital and perhaps her payments to the seller, this will be a civil court action. Not an overly attractive case for attorney's unless the Seller has assets from which to collect. The process may cost Meg some decent dollars to pursue.

This is the danger of LC/CFD with unsophisticated or insufficiently advised Buyers in these types of agreements. In hindsight, she should have paid a lawyer to protect her interests when it all started.

If there is a breach of contract terms and the Seller has something to collect from then she will just have to continue to shop around for an attorney to help her. In reality, there is a chance she will loose every dollar she paid into and for the property. A horrible way to learn your mistake, unfortunately.

8. Meg might be making the wrong claims when calling attorney's, I suppose. Because of that, the attorney's are not interested in the case as it seems futile. Meg's argument is over the LC/CFD and the terms inside NOT the foreclosure.

Meg is not a borrower on the loan. It is not that Meg doesn't matter, she matters in the LC/CFD just not in the foreclosure. If the agreement was written well, then she can pursue the Seller for breach of contract. Again, depends on how it is written.

9. Wells Fargo 'noticing something' is a bit confusing. What do you think they should have noticed?

I can only speculate on this question, but to some extent, it sounds like you may incorrectly believe Meg's interest in the property is greater than what it is. Meg is essentially a tenant in the property as far as Wells Fargo is concerned and legally frankly. Meg is not an owner of the real property, so Wells Fargo doesn't have to recognize Meg in any manner but she might be named in the foreclosure suit as a defendant, which is standard stuff. Of course the notices come to the property addressed to the Seller, he is the borrower. Not Meg.

10. Plan of Attack:

a) Get an idea of the property value

b) Call the Seller and ask him to consider or enact the clause in the LC/CFD for Meg to purchase the property outright and figure out what that number is.

c) Have the Seller call Wells Fargo and get a payoff amount

d) Determine if Meg can get a loan or pay for the property. If she can, write up a contract and submit it to the Seller and have him submit it to the bank if it is a short sale. This may buy you some time in the foreclosure.

The end game here is really Meg buys the property formally or the bank finishes foreclosure and she looses the property. In that event, the recourse for Meg would be pursue the Seller for breach of contract, provided the terms in the contract are present and were breached.

Good Luck to you and Meg.

If this has strong cash flow, which doesn't seem like a stretch since it is being bid up, then I don't know if you need to worry about Seller financing so much. I would go chat with a bank or loan officer, apartment loans are still some of the higher LTV lower rate loans in the commercial arena.

As a borrower you will not control who the note sells to or how long the Seller holds it. Trying to engineer the future desire of the Seller might be an exercise in futility. I am not sure that would be something to get too involved with.

Further, the Seller wants some recourse or personal guarantee. In some cases the bank may not demand the same and you can find a non-recourse loan. As a footnote to that concept, you could simply offer a Land Contract/Contract for Deed to the Seller and see if that is enough security for him. You will not find a company who will guarantee the loan for you nor insure your payments to the Seller.

Perhaps in the event you and your company do not qualify for a bank loan or similar, then you will have an understanding of what your deficiency is in underwriting and you can engineer the Seller deal to allow for you to get over that hurdle and refinance in a year or two.

BTW, as Bill said no seller financed notes are insurable in today's market.

To some degree the post has some holes. 46 units ? Do you mean loans? Also, it sounds like you are the borrower note the lender. A guarantee comes to mind and can be structured in many ways.

Bottom line, not enough details.

Sure, post some details and happy to give some opinion.