Welcome to Random Thoughts on Foreclosure

I like to believe most people are somewhat familiar with trusts and have some understanding of how they work. The trust has a trustee who directs the trust for the benefit of the beneficiaries of the trust. So the trustee doesn’t own the trust assets, the assets are held in trust for someone else.

In the foreclosure world, lenders are the beneficiaries, the trustee is usually a firm specializing in trustee/foreclosure work and the trustor is the borrower who conveyed bare legal title to the trustee when the borrower signed the deed of trust. The trustee stays in a dormant mode until the beneficiary directs one of two actions. The first is reconveyance of title to the trustor if the loan has been successfully paid off, the second is pursuit of foreclosure proceedings if the trustor is in default of the deed of trust. It’s really not very complicated, the trustee has limited authority and must always act for the benefit of the beneficiary.

Outside of the foreclosure world I came across a trustee who appears to have used the power of trustee to transfer property title from a trust into their own name. The full paperwork trail isn’t collected yet, but on the surface this appears to be one of those situations where someone should have gotten legal advice before taking that kind of action.

I had a telephone conversation today about a buyer who balked at completing a purchase because they questioned the validity of the property title. It was a good purchase price, very significantly under both previous sales and current comparable sales.

MERS was recorded as the owner of the mortgage, the mortgage had been transferred several times and lay dormant with no payments being made for a little over a year before foreclosure was finally initiated. The foreclosing lender received the property title after the foreclosure auction and the previous owner did not dispute the lender’s or MERS’ right to foreclose.

The issue, as perceived by the potential buyer, was that MERS was involved and the buyer had seen on a television show how title could be clouded by MERS involvement. The title company involved in the escrow issued a clear preliminary title report and was ready to insure title. So what’s the problem? The title company is willing to insure the purchase, the previous owner didn’t contest the foreclosure, but the buyer doesn’t believe title is good because they saw it on TV.

Personally, if a title company is willing to insure, I’m willing to believe there aren’t any significant property title issues.

The question often comes up on our discussion board about the effects of bankruptcy on the foreclosure process. Credit wise, they are both pretty significant impacts, both combined isn’t going to be much more of a credit hit rather than just either one of those events.

From a typical consumer perspective, the two main types of bankruptcy are Chapter 13 which is a repayment plan, and Chapter 7 which is a liquidation of debt. Chapter 7 now requires qualification, the qualification is a localized means test and if qualification cannot be obtained, the consumer will need to pursue a Chapter 13 repayment plan.

If a homeowner is facing foreclosure, neither bankruptcy chapter will eliminate the past due debt owed to the lender. A Chapter 7 bankruptcy with the home loan included can eliminate the borrower’s requirement to pay that loan. The home can be surrendered through foreclosure and the lender cannot seek a deficiency judgment for any looses they incur.

Chapter 13 bankruptcy can be used if there was a temporary reduction in income which is now resolved. The court will establish a repayment plan for 3 to 5 years to repay creditors either in full or in part. Normal payments would be ongoing with the bankruptcy plan payment as an additional monthly payment.

This article is for information use only, Bankruptcy is not to be entered lightly, consult with an attorney for advice appropriate for your situation.

When I woke up this morning, I lay in bed and wondered if I should get up and make coffee. Reflecting for a while, I decided it probably made sense to make the coffee. After coffee, we took a walk then I came back and mowed our lawn.

All very mundane, but I’m guessing the world actually isn’t ending.

Reading through news about foreclosure, I came across an article regarding Freddie Mac offering incentives for buyers of their foreclosed homes. The article states:

“The resale unit of Freddie Mac, Home Steps, will pay up to 3.5% of buyer’s closing costs”

This is one of the problems with people reporting on real estate who don’t have knowledge of the industry. Properly reported, that should read Freddie Mac will pay up to 3.5% of the purchase price towards the buyer’s closing costs. Nitpicking?

$150,000 purchase price x 3.5% = $5,250
$5,250 in closing costs x 3.5% = $183.75

Those are just samples but I believe it’s pretty obvious that a couple hundred dollars isn’t a big incentive, and lender closing cost assistance has usually been based on a percentage of purchase price for as long as I remember. Someday the foreclosure mess will ease and the reporters will find some other stories to mangle.