Penner Law Firm Blog

RESPA Question & Answer
June 7, 2010 by Victoria Forcella under RESPA Q&A
Question - How should the loan summary section on page 3 of the Good Faith Estimate (“GFE”) and line 202 of the HUD-1 Settlement Statement (“HUD”) be completed on a reverse mortgage?

Answer – The initial principal limit should be used in place of the “loan amount” on reverse mortgages because there is no “loan amount” on a reverse mortgage. The initial principal limit should therefore be listed on the GFE and the HUD. It can simply be inserted in place of the “loan amount” on page 3 of the GFE; however, it should be listed outside of the borrower’s column on line 202 of the HUD.

Question - Will an 1100 line item need to be included as a finance charge under the Truth In Lending Act (“TILA”) if a settlement agent charges a fee for an additional title service which is not required by the lender?

Answer – No. If a settlement agent chooses to charge a fee for an additional service which is not associated with processing or administrative services of title insurance and is not required by the lender, the fee must not be included as a finance charge under TILA. The fee should be listed in one of the open lines in the 1100 field and should be appropriately labeled. 24 CFR § 3500 and 12 CFR § 226.

Question – May the amount listed on line 803 of the HUD-1 Settlement Statement (“HUD”) be a negative number?

Answer – Yes. In the case of a “no closing cost” loan where the borrower is not responsible for loan origination charges or certain third party fees the amount listed on line 803 will appear as a negative number. This will result from the fact that the “credit,” appearing on line 802, is larger than the origination fees listed on line 801. The third party fees that will be covered by this “credit” should still be listed in the borrower’s column as they normally would be.

Question – If there is a technical error on the HUD-1 Settlement Statement (“HUD”) is the broker considered to be in violation of Section 4 of RESPA?

Answer – No. The lender, and not the broker, is always ultimately responsible for any error on the HUD. If there is a technical error on the HUD the lender has 30 days to send out a revised HUD. If the lender does not re-disclose the revised HUD within 30 days then they are considered to be in violation of Section 4 of RESPA.

Question – May a loan originator charge a borrower an Application fee prior to issuing a Good Faith Estimate (“GFE”)?

Answer – No, loan originators may only charge a credit report fee prior to issuing a GFE. Borrowers cannot be forced to pay an Application fee prior to receiving a GFE because that would defeat the purpose of issuing a GFE so that borrowers may “shop around” for the best rates and terms using the information provided to them in that GFE.

Question – What services and charges may be included in the 1100 series of the HUD-1 Settlement Statement (“HUD-1”)?

Answer – The 1100 series of the HUD-1 is reserved for charges associated with “title services”, These charges may include attorney’s or notary fees; fees resulting from the preparation of a commitment, title examination, clearance of underwriting objections, and preparation and issuance of title insurance policies; and any administrative service required for the performance of any of the “title services” including, but limited to, commitment fees, processing fees, and wire fees. Fees listed in the 1100 series should not be itemized, but should instead all be included in the “title services”.

Question – Do mortgage loan originators have to provide borrowers with a written list of third party settlement service providers?

Answer – Yes, whenever a borrower is permitted to shop for third party settlement service providers they must be provided with a written list of settlement service providers. The mortgage loan originator must provide the borrower with the written list, on a separate sheet of paper, at the time of issuance of the Good Faith Estimate. All borrowers must be provided with at least one name of a settlement service provider that will be able to provide the services listed for the fees specified. 24 C.F.R. Part 3500

Question – May a party listed on a permissible third-party provider list pay a fee for inclusion on the list?

Answer – No, under 24 C.F.R. §3500.14 all listed third-party providers would be considered to have been referred by the mortgage loan originator and/or mortgage company. Thus, no person listed on the permissible third-party provider list may pay the mortgage loan originator or mortgage company fees for such referral.

Question – If a Good Faith Estimate (“GFE”) is issued prior to an interest rate lock should the loan originator provide the borrowers with a revised GFE?

Answer – Yes. A loan originator must provide borrowers with a revised GFE within three days after an interest rate lock. The new GFE must show the date on which the interest rate lock expires and any changes that resulted from the interest rate lock.

Question – Can lender fees be listed as “Paid Outside of Closing or POC” on the Good Faith Estimate (“GFE”) or HUD-1 Settlement Statement (“HUD”)?

Answer – No. The GFE and HUD-1 do no permit lender fees to be listed as POC. The GFE is a standardized form that is used to help borrowers shop for the best loan rates. Allowing the GFE to contain lender fees that were POC would impair a borrower’s ability to compare rates. The same theory applies to the HUD-1; lender fees that are POC may not be listed so that borrowers may easily compare their GFE to the HUD-1.

While lender fees that are POC may not be so listed on the GFE and HUD-1 they may be listed as a Lender Credit.

Question – Can a mortgage loan originator send a borrower the Good Faith Estimate (GFE) via e-mail?

Answer – Yes. So long as the borrower has provided the mortgage loan originator with written consent that disclosures may be provided electronically, the mortgage loan originator may send the GFE electronically. It is important to note that oral consent is not permissible and that the borrower has the right to withdraw consent at any time; however, a borrower’s withdrawal of consent does not affect the enforceability of any document which had been previously transmitted electronically. 15 U.S.C. §7001(c).

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Owner Occupation of Property: Primary Homes, Second Homes, Investment Properties
March 1, 2010 by Daniel Hamad under Mortgages, real estate
People purchase properties for various reasons. Some people need a first home, or a new home. Some want a vacation house. Others live part time in different places. Think of the so-called “snow birds” for an example of this, where they live summers in the north and winters in the south. No matter the intended use of the property, purchasers can find loans. But depending on the intended use, the requirements of lenders may vary.

Properties break down into three large categories: 1) primary homes; 2) second homes; and 3) investment properties. Each carries various risks and therefore lenders put various requirements on them.

Primary Homes

Primary homes (also known as primary residences) are just what they sound like – the home that the homeowner lives in. The homeowner must live there the majority of the time, and must not use it as a rental property. A loan granted on this type of property will likely be significantly lower priced than a loan granted on any other type of property, for reasons we will get into later. Lenders are also more likely to grant this type of loan, for the same reasons.

Loans approved as primary home loans generally require that the homeowner have the intention of either moving into the property (in the case of a purchase) or of remaining on the property (in the case of a refinance) at the time of the loan closing. If the homeowner knows that they will not be living in the property, they cannot assert to the bank that they will be, and they will not be obtain a primary home loan for the property. In fact, at the time of closing, they will be required to certify that they intend to live on the property.

Second Homes

Second homes is a somewhat nebulous category which includes seasonal homes and homes for people that, for example, live half the week in one location and half the week in another. This category is stuck between primary home loans and investment properties because though many people own multiple properties, they don’t always own those properties for the purpose of making money off of them.

Investment Properties

This is the second most common type of property, after primary homes. Investment properties are those which, for example, you would rent out to offset part or the entire purchase price. Whether you plan on actually making a profit or not, the property may be considered to be an investment property, depending on how you use it, and how much you use it personally.

Investment property loans are more expensive than primary home loans, and are more difficult to get. Why? Well, let’s think about this logically. Let’s say a homeowner is having trouble meeting all of their obligations. What are they going to stop paying first? The mortgage on the home they actually live in, or the property they see only a few times a year, if at all? The answer must be that they will do everything they can to retain their actual home, and will let the investment property go. This translates into investment property loans being given a higher risk rating than are primary home loans. Therefore, interest rates are higher.

Nothing requires you to be the occupant of a home. But if the owner will not be the occupant, they must inform the lender. The lender will determine whether they are still willing to lend on the property, and at what interest rate. A lender may also consider different factors in granting an investment property loan, such as the possibility of rental income. Under no circumstance should the owner misconstrue their intent with regards to the property. If they are caught doing this, it will only cause trouble down the line. This is not to say that just because a property is purchased as a primary home, it can only ever be used as one. However, at the time of the closing of the loan, there can be no intent already formed to use it in a way inconsistent with the terms of the loan.

Remember, no matter your property type or where you live, Penner Law Firm and Hartford National Title can assist you!

Tags: investment property, lending, mortgage, primary home, real estate, second home | Comments (0)
Upside Down Mortgages: Loan Modification, Short Sales, Deeds in Lieu, and Foreclosure
February 15, 2010 by Daniel Hamad under Foreclosure, real estate
In today’s housing market it is not at all unusual to find homeowners holding property which has been significantly devalued. In many cases, the remaining amount owed on the mortgage is now significantly above the actual value of the home. In other words, the loan-to-value ratio is now over 100%, despite months or years of payments. This is known as being “upside down” or “under water” on the mortgage, and results in the homeowner being unable to pay off your mortgage just by selling the property.

In addition to this, based on the economic conditions and job markets of today, many borrowers find themselves behind on their mortgage payments. When these two conditions combine, homeowner’s choices begin to narrow rapidly.

While the particulars vary by property owner, generally there are four options available for getting out from under an upside down mortgage, which include:
1. Loan modification and/or payment plan
2. Sell the property and/or short sale
3. Deed in Lieu of Foreclosure
4. Foreclosure
A loan modification or payment plan is the most straightforward method of solving a problem of falling behind on payments. These options also have the added benefit of enabling the homeowner to stay in the home. In order to obtain a payment plan or loan modification, the homeowner would contact their lender and work directly with them. No attorney needs to be involved. The lender would lay out the requirements that the needs to meet and it would be the homeowner’s responsibility to show that they meet the requirements. If you have a temporary lack of funds, they may be able to set up a payment plan where you pay less for a few months and make the difference up later. Payment plans are most common with issues of temporary unemployment, illness, or other issues which result in a short-term lack of funds. If, by comparison, a homeowner is not expecting to be able to make up the payments later, a true loan modification may be necessary. This is an option where the bank agrees to lower the interest rate or make some other change to the loan, in order to make it more affordable to the homeowner. The bank would do this if they believe they would make more money in the long run by reducing the interest rate or balance, than they would if the loan failed and went into foreclosure.

If the homeowner’s financial situation is more serious and a reasonable reduction in monthly payments will not help, it may be difficult to stay in the property. The question then becomes how to best leave the property. How will the homeowner leave with the most money, the least debt, and best credit rating, possible. A homeowner will want to get the property on the market as soon as possible. The best idea is to get the property on the market before the lender starts sending notices of default or of foreclosure. Recognizing that the mortgage is under water, the home will likely have to go through the short sale process. The homeowner will again have to work with the bank, making them aware of the situation. If a deal has been made with a purchaser, the sale price will not cover what is owed on the mortgage, and the money is not available to cover that difference, the bank will have to be convinced to forgive the remaining debt. This is the very definition of a short sale. A homeowner will most certainly want to have an attorney assisting you at this point, as negotiating with the bank can be a long and complicated process, requiring the homeowner to submit significant personal and financial information to the bank.

Finally, if the bank will not agree to a short sale, or if a purchaser is unable to be found, a homeowner may decide to consider a Deed in Lieu of Foreclosure, or the Foreclosure process itself. A Deed in Lieu of Foreclosure is, in short, a process in which the homeowner turns the home over to the bank voluntarily. The bank would then forgive the remaining amount owed under the mortgage. This also avoids the long and hassle-filled process of dealing with an actual foreclosure, and may not harm your credit to the same extent. The foreclosure process itself can be long and draining to both a homeowner and their credit report. Please check back later for a future article detailing the foreclosure process.

No matter what process a homeowner chooses, they should not delay in making or enacting their plans. Homeowners should contact experienced attorneys as soon as possible to discuss the best course of action in any particular case.
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How Reverse Mortgages Can Prevent Financial Exploitation of the Elderly
February 3, 2010 by Beth Grassette under Mortgages, Uncategorized
This article was published in The Reverse Review on February 2, 2010.

The abuse of the elderly is a widespread problem within the United States. Statistics produced by the National Center on Elder Abuse estimate that “between 1 and 2 million Americans age 65 or older have been injured, exploited, or otherwise mistreated by someone on whom they depended for care or protection.”[1] The realm of elderly mistreatment includes physical abuse, neglect, and financial exploitation. In seeking to address the problems posed by this situation it is necessary to understand why it is that the elderly are so vulnerable to abuse and why these figures seem to have risen so staggeringly.

As the baby boomer generation ages, and the oldest members begin to reach age 65,[2] the number of elderly dependant on aid from surviving children, nursing homes, medical staff, and government agencies continues to grow. When this growing number of elderly meets and combines with the current economic recession a recipe for abuse and predation results.[3] During these financially precarious times the elderly are particularly at risk of succumbing to “get-rich-quick” schemes and other means of financial exploitation, such as the sale of unregistered securities and investment in bogus start-up companies, which may leave them in more dire financial straits than they began in. According to a Consumers Digest article about mistreatment of America’s elderly “[c]urrent estimates put the overall reporting of financial exploitation at only 1 in 25 cases, suggesting that there may be at least 5 million financial abuse victims each year.”[4]

With all of these statistics painting a gloomy picture of the reality surrounding financial abuse of the elderly in today’s day and age, reverse mortgages may offer a glimmer of hope and a potential solution to the situations that so many of America’s elderly find themselves in. A reverse mortgage, also known as a reverse-annuity mortgage or a home equity conversion mortgage, is a specially designed home equity loan for individuals age 62 and older which allows owners to convert a portion of the equity in their homes into an income stream. Typically, the loan proceeds are not required to be repaid during the homeowner’s lifetime, are not counted as taxable income, and do not affect the homeowner’s eligibility for Social Security or Medicare benefits.

Reverse mortgages were created as a mechanism to reduced financial stress on aging Americans who seek to convert the equity in their homes into a source of income without being required to sell their residence or relocate. For many elderly individuals, this system is particularly attractive as a means of securing an enjoyable retirement and ensuring that all lifetime needs are met. In the face of the potential for abuse and financial exploitation by trusted caretakers and unscrupulous financial predators, reverse mortgages offer elderly individuals the promise of financial security while maintaining their independence. By reducing reliance on adult children and other caregivers, as well as providing a source of income that may diminish the allure of financial schemes, reverse mortgages diminish the potential for abuse and exploitation. Reverse mortgages oftentimes empower the elderly to continue as active participants within society by removing the strain and restraints caused by financial pressures. The income produced from a reverse mortgage may also permit the aging baby boomers to preserve their dignity and sense of pride by allowing them to retain responsibility for their personal finances.

[1] Fact Sheet: Elder Abuse Prevalence and Incidence, National Center on Elder Abuse, (Washington, DC 2005) at 1.

[2] Shrestha, Laura B., Age Dependency Ratios and Social Security Solvency (Order Code RL32981), CRS Report for Congress (October 27, 2006) at 6.

[3] Abuse of Elderly Increasing in the Recession: The Warning Signs to Look Out For, FindLaw; As Recession Grinds On, Financial Abuse of Elders Takes a Growing Toll, The Boston Globe

[4] Wasik, John F., The Fleecing of America’s Elderly, Consumers Digest (March/April 2000).

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What’s in a Name: Name Changes in the State of Connecticut
January 21, 2010 by Beth Grassette under Family Law, Probate

As the character Juliet in William Shakespear’s Romeo and Juliet argued “[w]hat’s in a name? That which we call a rose by any other name would smell as sweet.” Despite this romantic sentiment declaring the importance of the object itself, rather than the name by which it is called, many individuals throughout the State of Connecticut and elsewhere demonstrate the perceived importance of a name by requesting a name change. There are many reasons why an individual may request a legal name change, including divorce, adoption, and personal preference.

Connecticut courts have held that in most circumstances “a person is free to adopt and use any name he sees fit” Shockley v. Okeke, 48 Conn. Supp. 647, 653 (2004), cert. granted 277 Conn. 923, appeal dismissed 280 Conn. 777. Courts in Connecticut have went on to reaffirm this notion by stating that “[o]rdinarily, an application for a change of name should be granted unless it appears that the use of the new name by the applicant will result in injury to some other person with respect to his legal rights, as, for instance, by facilitating unfair competition or fraud.” Id.; see also Don v. Don, 142 Conn. 309, 311-312 (1955).

Recognizing this right to a name, many states allow common law mechanisms for the change of an individual’s name, without the requirement of a judicial proceeding. In fact, according to a formal opinion issued by the Attorney General of the State of Connecticut in 1941, in the absence of statutory restriction, one could lawfully change his name without resort to any legal proceedings and for all purposes the name assumed would constitute his legal name. 22 Op.Atty.Gen. 249 (Oct. 17, 1941).

In the case that an individual wishes to utilize a judicial proceeding to change his/her name, there are three different proceedings that may be used to effectuate a change of name in Connecticut. The first is a petition to the Superior Court civil docket under Connecticut General Statute § 52-11 for a change of name. This statute grants the “superior court in each judicial district . . . jurisdiction of complaints praying for a change of name, brought by any person residing in the judicial district” and allows the Superior Court to “change the name of the complainant, who shall thereafter be known by the name prescribed by said court in its decree.” C.G.S. § 52-11.

The second judicial proceeding that may be employed to change a name in Connecticut is the filing a complaint for a change of name as a family relations matter before the family docket of the Superior Court under Connecticut General Statute § 46b-1 (6). This mechanism is oftentimes used to restore the birth name of an individual as a result of divorce. § 46b-63 allows the Superior Court presiding over a complaint for a dissolution of marriage to “[a]t the time of entering a decree dissolving a marriage, the court, upon request of either spouse, shall restore the birth name or former name of such spouse.” The word shall in this statutory provision has been interpreted by the courts to indicate that a name restoration following a divorce is an automatic entitlement. The jurisdiction of the Superior court to grant a name change after a divorce is not limited to a name restoration at the time of divorce, but also allows a spouse to enter a motion to modify a divorce judgment at any time after a decree dissolving the marriage is granted in order to restore a birth name. C.G.S. § 46b-63(b).

The third judicial device that may be used to change an individual’s name within Connecticut, is an application for a change of name to the Probate Court for the district where the minor child and the plaintiff reside under § 45a-99. This section of the law grants the probate court “concurrent jurisdiction with the Superior Court, as provided in section 52-11, to grant a change of name.” Thereafter, an individual who applied for a change of name in the Probate Court may appeal the decision to the Superior Court under § 46b-1.”

By whichever mechanism an individual chooses to change their legal name, it is important to consult a qualified attorney to explain the differences associated with each process, counsel on the preferential mechanism for effectuating a change in the individual’s specific circumstances, and ensure that all of the requirements of the individual court are complied with.

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Splitting After a Split: Divorce and the Consequences of a Short Sale
January 18, 2010 by Beth Grassette under Divorce, real estate
A divorce can oftentimes exert considerable stress on a couple’s financial situation, resulting in the need to make important decisions about the distribution of assets and satisfaction of liabilities. Where a couple is faced with a property valued under what is owed on a mortgage or the prospect of foreclosure due to nonpayment, a short sale may be preferential. A short sale is the sale of real estate in which the sale proceeds equal less than the amount owed towards the mortgage or mortgages on the property. A short sale requires that the lender, or holder of the lien on the marital property, agrees to a discounted or reduced repayment of the loan.

In these circumstances, when a short sale is considered, there are frequently many benefits associated with retaining a qualified and knowledgeable real estate attorney. A competent attorney will be able to provide answers to all of your questions regarding the short sale process, as well as review your agreement with the lender and realtor in order to ensure that all potential ramifications of the short sale are accounted for. Important considerations may include tax consequences, credit score and reporting activities on behalf of the lender, and the potential for a deficiency judgment (an amount that may be owed to the lender representing the difference between the loan balance and the proceeds of a short sale).

The first important consideration, in deciding whether to utilize a short sale to solve a financial problem, is the potential effect of a short sale on the couple’s credit report and score. While a short sale will almost inevitably cause a decline in an individual’s credit score, a short sale’s impact on a borrower’s credit score will often depend on the timing of the short sale and will almost always be less than the decline resulting from a foreclosure. In most cases, the longer a borrower is in arrears and is unable to pay amounts owed to a lender, the worse the impact is on the credit score. If a borrower is able to remain current on mortgage payments during the short sale process, the decline in the credit score will be less significant. Understanding the resulting implications of a short sale and the way in which these implications will impact a couple in the future is an important step in making an informed decision regarding the disposition of the marital home.

The next issue to consider is whether the lender will have recourse against the borrower for the difference between the sale price of the property and the amount owed on the mortgage loan. A deficiency judgment is a judgment awarded by the court which allows a creditor to recover the unsatisfied portion owed on a loan after the sale of the mortgaged property fails to repay the debt owed in full. In order to assure that the lender will not pursue payment of the amount owed after a short sale, it is imperative that an attorney negotiate and draft a forbearance agreement on the borrower’s behalf. Such agreement will outline the terms of repayment and specify that the lender agrees to withhold their right to pursue payment for any amounts owed after the sale. Without the help of an educated attorney, practiced in contract negotiation, drafting, and real estate law, divorcing couples seeking to utilize a short sale may find themselves owing the lender money for years after the conclusion of the short sale transaction.

Lastly, it is important to determine the possible tax consequences of a short sale transaction for a couple investigating the use of a short sale in the distribution of assets during a divorce. The U.S. tax code taxes individuals based on income or gain. Income is defined as all income from whatever source derived whatsoever. According to American tax law, this definition of income includes cancellation of debt, because it is considered a freeing of assets under the case of U.S. v. Kirby Lumber Co., 284 U.S. 1 (1931). The tax code outlines specific cancellation of debt income which does not need to be included in an individual’s gross income in 26 U.S.C. § 108(f). These exclusions include:
- If the discharge of indebtedness occurs in a title 11 bankruptcy case;
- If the discharge of indebtedness occurs when the taxpayer is insolvent;
- If the indebtedness discharged is qualified farm indebtedness; and
- If the indebtedness discharged is qualified real property business indebtedness
The tax consequences are some of the most important and significant ramifications of a short sale transaction. The Mortgage Forgiveness Debt Relief Act of 2007 added another exemption to the above referenced list, known as the qualified principal residence exemption, in an attempt to provide relief for qualified taxpayers who were not covered by the traditional exemptions. The Act provides relief from taxation on cancellation of debt income, such as that experienced in a short sale situation, so long as the forgiven or cancelled debt was used to buy, build, or substantially improve a borrower’s principal residence, or to refinance debt incurred for those purposes and the debt was secured by the home. This new exemption may offer assistance to many individuals facing the possibility of a short sale; however, it is important to note that the exemption does not apply to second homes or investment properties. Due to the complicated nature and intricacies of the tax code, as well as the manner in which the tax code can be applied to different individuals in a variety of situations, an attorney can be an invaluable asset in determining whether a short sale is a desirable solution to a divorcing couple’s financial woes.
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Foreclosures: Stress and Money
January 14, 2010 by Daniel Hamad under Foreclosure
Being foreclosed on is stressful. In today’s economy, banks are foreclosing on large numbers of homes every day. It’s important to remember that you’re not alone. More than that, the banks don’t like doing it. If they (or you) can come up with a profitable (or loss-mitigating) alternative to foreclosure, they’ll jump at it. But what you may think is a good alternative may not be the same as what they think.

Anytime you’re facing foreclosure, you should contact an attorney immediately. There’s enough stress in your life without trying to handle the bank, and the law, alone. If you can’t afford an attorney, there are programs out there to assist you. If you can, or if you know someone who can pay for you, you can find an attorney dedicated to your interests, willing and able to represent you.

In Connecticut, the security instrument usually used to secure a loan is called a mortgage (or “mortgage deed”). This mortgage is recorded in the land records of your town, unlike in many states, where the mortgage or alternative security instrument may be recorded at the county level. Recording this document alerts others that your home is not owned only by you, but also by the bank – and that the bank has certain interests in it. The mortgage spells out these rights, and allows the bank to take the home (foreclose) if the requirements of the loan are not met.

All foreclosures in Connecticut go through a judicial process. This is not necessarily true in all states in which Penner Law Firm does business, but in Connecticut, there is no alternative process. This is both a benefit and a burden. It tends to slow the process down, as the banks are forced into overcrowded courts and face clients with attorneys able to delay the process further. But it also means additional cost to you, in order to appropriately protect your interests.

The process in Connecticut can be carried out through either a strict foreclosure, or a decree of sale. “[T]he determination of value is a major factor in the decision whether to allow a foreclosure by sale rather than a strict foreclosure.” Farmers & Mechanics Bank v. Arbucci, 24 Conn.App. 486, 487, 589 A.2d 14, cert. denied, 219 Conn. 907, 593 A.2d 133 (1991). In the case of strict foreclosure, the process does not actually end in an immediate foreclosure auction or sale. Rather, title to the property is transferred directly from you to the lender. The court will give you a certain amount of time to make payments on the loan current, in order to protect your interest in the home. If you fail to do so, the lender will (and must) record a certificate of foreclosure listing certain information. If a decree of sale is used instead, the court will establish certain guidelines for holding a foreclosure sale.

Throughout this process, the borrower may usually pay off the loan and retain title to the property – right up until the process is completed in full. This is also known as a borrowers equity of redemption. There are also many opportunities a skilled attorney can take advantage of to delay the process.

Due to the fact that most lenders lose money in the foreclosure process, a lender is often open to alternative processes to avoid foreclosure. Talk to an attorney immediately upon receiving notice of foreclosure to learn about short sales, deeds-in-lieu of foreclosures, and other alternatives. In fact, do not wait until you receive notice. The moment you start to fall behind on your mortgage, contact an attorney. The earlier you start, the more you can be helped. Attorneys’ fees can be more reasonable than you think. More importantly, the earlier you contact an attorney, the more money they can save you in the long run.

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Cutting it Short: Divorce in an Era of Declining Home Values, Foreclosures, and Short Sales
January 12, 2010 by Beth Grassette under Divorce
In terms of divorce, the State of Connecticut is often referred to as an all property equitable distribution state. This designation means that the Court presiding over a divorce has the power to assign, to either spouse, any portion of the property of the parties, as there is no statutory exemption for the separate property of either spouse. In divorce lingo Connecticut is also considered a no-fault divorce state. A state which allows no-fault divorce does not require either spouse to demonstrate wrong-doing by the other spouse in order to file for a divorce.

Despite the fact that fault need not be proven to file for divorce in Connecticut, it can still play a crucial role in the distribution of marital property and allocation of financial assistance under Conn. Gen. Stat. Section 46b-81. Factors considered by the court include:
- The length of the marriage,
- The causes for the annulment, dissolution of the marriage, or legal separation,
- The age of the parties,
- The health of the parties,
- The station of the parties,
- The occupation of the parties,
- The amount and sources of income,
- The vocational skills and employability of the parties,
- The marital estate, liabilities, and needs of each of the parties and the opportunity of each for future acquisition of capital assets and income,
- The contribution of each of the parties in the acquisition, preservation or appreciation in value the marital estate.
So, inquiring minds may ask, where in this complex equation does the current economic situation fit in, including the realities of foreclosure and short sale? In most divorces the marital home is the family’s most valuable asset. Usually upon divorce, couples are faced with several options in the apportionment of the marital home. These options often include sale and division of the proceeds, the purchase-out by one spouse of the other spouse’s equity in the home, or maintenance of the current status-quo by allowing one spouse to remain in the marital home in the case of existing juvenile children of the marriage. Oftentimes, in today’s economy, these options are severely hindered by the financial status of the divorcing couple.

Due to declining home values, many couples are left with properties valued at less than what is owed on the mortgage. This frequently results in an inability to sell the property and the question of what steps should be taken in division of the marital assets. In addition to the problem of selling the marital home, many divorcing couples also face the prospect of foreclosure as income is diverted away from the home to other separate ventures. For both the couples facing the problem of dwindling home values and those starring at the face of foreclosure, a short sale may offer the best solution and compromise for all involved.

A short sale is the sale of real estate in which the sale proceeds equal less than the amount owed towards the mortgage or mortgages on the property. A short sale requires that the lender, or holder of the lien on the marital property, agree to a discounted or reduced repayment of the loan. Frequently, in today’s fiscal climate, lenders will approve the discounted repayment based on the financial hardship of the borrower, as a loss mitigation mechanism. For couples considering short sale as a solution to their economic woes, it is important that they act quickly, as the short sale process is often long and burdensome.

The first step in initiating a short sale is to contact the couple’s lender and explain the problematic financial position. Next, the couple should seek the assistance of a qualified realtor experienced in short sale and foreclosure situations to list and market the property to potential buyers. During these first two steps, it is also wise to seek out the assistance of a real estate attorney who may guide you through the often complex and frustrating short-sale process. A qualified attorney will be able to provide answers to all of your questions regarding the short-sale process, as well as review your agreement with the lender and realtor in order to ensure that all potential ramifications of the short sale are accounted for. Important considerations may include tax consequences, credit score and reporting activities on behalf of the lender, and the potential for a deficiency judgment (an amount that may be owed to the lender representing the difference between the loan balance and the proceeds of a short sale). It is important to have a knowledgeable and qualified attorney protect the interests of all parties involved in a short sale as well as to advise on the potential pros and cons of the transaction.

Please stay tuned for Part 2 of this Article- Splitting After a Split: Divorce and the Consequences of a Short Sale.
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Cooperative Living in Connecticut
January 8, 2010 by Daniel Hamad under real estate
Cooperative associations are not common in Connecticut, and the difference between condominiums and cooperatives escapes many. Both are forms of living in a community, be it in apartment-style buildings, townhouse-style buildings, or some other form of construction. Both can offer very similar benefits and privileges. But the legal set-up of the associations and land which lay behind these developments is significantly different. In this blog, we will discuss primarily cooperative living arrangements, also known as “co-op’s,” whose setup is governed primarily by Chapter 828 of the Connecticut General Statutes, also known as the Common Interest Ownership Act (“CIOA”).

By its very nature, and contrary to the thinking of most, the individual units of a co-op are not real estate. One corporation (or other legal entity), usually titled something like “XYZ Cooperative Association,” owns the land and all property upon it, including the individual units. This is the only real estate that truly exists – the unit “owners” do not own any real estate. There is then propriety leases signed between the unit owners and the association. This is the way it was, at least, until CIOA.

Not owning actual real estate has certain serious implications. For example, ownership of the unit would not be recorded in the land records of your town (or county). There would therefore be no way to record a lien against only one unit. This means that, for instance, a loan could not be secured by a mortgage deed against only one unit. To be clear, the association could still mortgage property and have liens filed against it, but the unit owners could not. It also means that real estate taxes could not be levied against the property.

CIOA changes some of this. In exchange following certain formalities, which a good real estate attorney could handle, co-ops (and their individual unit owners) can now treat everything as individual real estate. Transfers are now accomplished by deed, rather than simply corporate records. Therefore mortgages and others liens can be recorded against the individual units. But still, real estate taxes are levied against the corporation and not against the individual. This means that your association fees still pay your taxes, and that you get no separate tax bill.

In addition to the benefits inherent in organizing as a co-op rather than a condominium association, such as the bundling of taxes, co-ops are supposed to offer a form of living where the owners more closely work together. Co-ops may bundle other fees, such as heat, sharing furnaces and the like, rather than requiring each other to buy and maintain their own furnace.

In the end, it’s up to each individual association to decide both how to organize, and what to allow. A co-op can act basically as a condominium association, or can be quite different. There is a great deal of choice in the matter.

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Sweeping Changes to the Closing Process: Dr. StrangeHUD, or How I Learned to Stop Worrying and Love the New HUD
January 5, 2010 by Jamie Feigelson under RESPA
This article is part three of a three part series by Attorney Jamie Feigelson.

The final chapter of the three part blog is here. At closing, one of the most important documents a borrower will sign is the HUD-1 settlement statement (“HUD”). The HUD-1 is critical, because it contains all the expenses associated with the transaction, cumulating in how much the borrower must pay. The old HUD was two pages; the new one is now three. The primary improvement to the new HUD is that it clearly shows how the numbers on the HUD should match the numbers you were given on your Good Faith Estimate (see previous blog), and the new third page illustrates the comparison for borrowers to review.

The big change for 2010 is this: most of the entries on the HUD direct you to the specific line on your Good Faith Estimate (“GFE”), for the corresponding number. In the past, lenders did not always require a GFE to be signed at closing. Now, however, not only must a GFE be signed, but it also must be compared side-by-side to the HUD at closing. Borrowers must sign both at closing; brokers and lenders alike must provide these documents for a borrower at closing.

The new HUD also has a section that reconciles any differences between the final numbers and those provided on the GFE. It is now easier to see if the lender might owe a refund to a borrower because of an inaccurate estimate. Plus, the final page of the HUD includes a summary of the loan terms, so there’s no confusion about the loan terms when a borrower reaches to closing table.

In summary, the changes HUD has made to these important lending and settlement documents appear to be positive for borrowers and banks alike. Everyone involved in a closing process is now fully informed of all fees before closing. At Penner Law Firm, we now have “guarantees closing costs” for our clients and service providers, thus ensuring costs for all parties.

My prediction: there are always those borrowers out there who seem to find some sport in trying to subvert the system. This also will create a learning curve, as HUD begins to deal with people who try to resist the new requirements. However, having worked with a new HUD, I see a positive change that will help consumers be better informed. We now have uniformity for the real estate closing process; something we all can agree is a good thing.

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Cooperative Living in Connecticut

Sweeping Changes to the Closing Process: Dr. StrangeHUD, or How I Learned to Stop Worrying and Love the New HUD

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