All posts by tsammons

Help! I lost my living trust

Living Trusts, Wills

lostI have a client who keeps his living trust  in his freezer. Oh, don’t worry, he says, “It’s in a plastic bag.” He knows where it is, but I don’t think his kids will ever find it because he’s super secretive.

Another client kept his trust in a large safe at home. Someone broke in and stole the entire safe-and his trust went bye-bye. I don’t think the thief was after his trust.

In the last few years, I’ve had  dozens of client lose their living trusts and other estate planning documents. It happens a lot. The trust is kept in a big binder that says “Estate Planning Portfolio” so it’s not super easy to lose. If a client loses a trust, we set up a time to have the client come in to sign a restatement of the trust, a new will and new power of attorneys. The restatement “becomes” the trust so having the original trust is not necessary once the restatement is signed.

You can get by with copies of a trust, a trust restatement, power of attorneys and living wills, but you ALWAYS need to keep track of your original pour-over will (or any will for that matter). Only original wills can be filed after a death, not copies. Any property left outside your trust can end going to different heirs than those named under your trust if you have no original will.

For about the last 8 years, I’ve kept a scanned copies of the trust, will, power of attorneys and living will and that helps a lot when a client loses their originals.

The best place to store a trust is to keep the originals at home and tell your successor trustee where it is kept. Also keep a copy online somewhere. Yahoo, google and dropbox are all good for this.

I don’t recommend keeping a trust in a safe deposit box. The boxes are too hard to get into after a death and are a complete hassle most of the time. It’s okay to put a trust or will in a safe deposit box if you have a child or your successor trustee  as signers on the box and they can get entry to it. Otherwise, it’s a waste.

RIP: Illinois short sales

Bankruptcy, foreclosures-shortsales, Strategic Default

The year 2014 is here and short sales are the year’s first casualty. They are dead on arrival. Gone, done. The final nails in the coffin were the expiration of the Mortgage Debt Forgiveness Act (MDFA) and the sudden increase in deficiency judgments in Illinois during late 2013.

Now, I recommend short sales to almost no one.  Three reasons you should NOT do a short sale.

  1. Deficiency Judgment may be entered. To get a short sale approved you generally have to be behind on payments. Once you stop making payments and try a short sale, there is a 50% chance that it will close. If it does not close, it will end up being foreclosed and there is a strong possibility that a personal deficiency judgment will be entered against you. Not fun.
  1. You will get a taxable 1099 EVEN if the short sale closes. Many, many short sales do not close and end up as foreclosures. If you are foreclosed upon, there will be a 1099 issued even if the property was your primary residence. The MDFA expires on December 31, 2013 and this means that tax is owed on the 1099 issued after a short sale. Why would you do a short sale if you have a huge tax bill on the back end? Due to the 1099, it makes no sense to do a short sale (unless you are insolvent.
  1. Process is too difficult. I closed a lot of short sales in 2013. We became pretty good at getting some of them approved, but we still lost quite a few. The process is even worse now. Many lenders “service release” a mortgage to a new lender in the middle of a short sale. It seems that the new lender is almost always Bayview Loan Servicing. That means you get to start the short sale over again. Bayview has a crazy process and requires that it “net” 95% of the broker price opinion (BPO) amount. Considering the real estate commission is 6%, how are they supposed to net 95%? The buyer has to agree to pay more than the BPO for the closing to happen. If they net less than that, Bayview requires that the property be listed auction.com., which is an online auction site. The chances of closing one of these is slim.

The Chicago Sun Times had a nugget yesterday that 25% of Chicago area homes are deeply underwater. What are these people supposed to do now? With the death of short sales, there are two options: Stay in the home until the value increases or file bankruptcy.

 

Illinois deficiency judgment update

foreclosures-shortsales, Strategic Default

Deficiency judgments are still being entered in Illinois. Two more clients had judgments of around $50,000.00 each entered in the last two weeks. Oddly, the mainstream media has ignored this, probably because it is a confusing topic.

Before 2013, your chances of having a deficiency judgment entered were slim to none. Half way through 2013, we started to see deficiency judgments entered frequently. My unofficial, unscientific estimate is that there is about a 50% chance of having a deficiency judgment entered against you in an Illinois foreclosure now.

What happens after the deficiency judgment is entered?

In one case, the lender sent a letter asking for payment of about 5% of the judgment amount for a full release. This was a tremendous deal and the client just paid it. I hope that we see a lot of these settlement offers. In several cases, the client has heard nothing from the lender. This does not mean the judgment will just go away.

If a client does not settle, we have to assume that the lenders will place the judgment with a collection attorney and that the client will receive a “citation to discover.” This is served by the sheriff and the client has to go to court to tell what his/her income is and what assets the client owns. The purpose of this is so that the creditor can garnish the wages or take non-exempt assets from the client to pay the judgment So far, I have not had this happen to any client after a deficiency judgment was entered, but that does NOT mean it won’t happen. A judgment is good for 7 years, so time is on the lender’s side.

Can I be arrested due to the deficiency judgment?

No, debtor’s prison, popular in merry olde England, doesn’t exist here. Charles Dickens Dad spent a long time in Marshalsea debtor’s prison, which was the basis for Little Dorrit, a great book/movie. You will not be arrested. The only way that could happen is if you don’t show up to court after you were served a “citation to discover.” The judge has the authority to issue a warrant for your arrest if you are a no-show, so be sure to appear in court.

Will bankruptcy get rid of a deficiency judgment?

Yes, in fact, most clients have filed for chapter 7 to eliminate the deficiency judgment. This knocks out the judgment altogether. The filing fee in a chapter 7 is $306 and attorney’s fees are about $1000.00 so this is a very cost-effective way to solve the problem. If the client has a high income or the assets are over the exemption amount ($4,000.00 of non-IRA assets like checking/savings is exempt, $2400 for a car is exempt) then they have to file a chapter 13, which is more expensive and requires the client to make payments back to the lender over a period of either 3 or 5 years. If payments are completed in a chapter 13, then the judgment is vaporized. Filing a chapter 13 after a deficiency judgment is more involved and expensive than a chapter 7, but it stops collection efforts by the lender and it is the last defense if chapter 7 or a settlement are not possible.

Will I still get a 1099 if a deficiency is entered?

No, you won’t get a 1099. If the lender gets a deficiency judgment, there will be no 1099 (for the difference between the value of the property and what was owed the lender). Note: There WILL be a 1099 if you settle the judgment for less than the face amount without filing bankruptcy.

Will the deficiency judgment hurt my credit?

Yes. Like any other judgment, it will drag down your credit score until it is removed by bankruptcy, payment or settlement.

 

 

Deficiency Judgments popping up everywhere in IL

foreclosures-shortsales, Mortgages, Strategic Default

A few years ago, I wrote a post about how a subdivision in Florida called Lehigh Acres  had so many deficiency judgments entered against foreclosed owners that it should be called “deficiency judgment acres.” Unfortunately, the same can now be said for the Chicago area.

Foreclosure cases are way down in Chicago. They have dropped almost 60% over since last year. But, with the slowdown, lenders are now entering deficiency judgments  against homeowners on first mortgages in droves. Deficiency judgments were rare to nonexistent for the last 5 or 6 years (although they were always allowed by law in Illinois).

A deficiency judgment is a personal judgment against the homeowner for the difference between the market value of the property at the end of a foreclosure and the amount owed to the lender. The lender can try to collect the judgment by filing a wage garnishment or taking non-exempt assets from the homeowner. The only remedy for a homeowner is to settle the judgment, or to  file a chapter 7 or chapter 13 bankruptcy.

In the last 5 years, I did not see a single deficiency judgment entered (on a normal residential mortgage). In the last 4 weeks alone I’ve seen these deficiency judgment entered:

Deutsche Bank $58,000.00 – Lake Co. condo.

Nationstar $50,000 – Chicago house

Nationstar $105,000 – Northwest suburban condo

Citimortgage- $25,000 – Northwest suburban house

Now, any time a mortgage company gets personal service on an owner in a foreclosure case (or substitute “abode” service on someone who answers the door) there is a real risk of a deficiency judgment being entered. If the lender is not able to personally serve you with the foreclosure complaint at the beginning of the case, then a deficiency judgment cannot be entered.

Why are so many deficiency judgment being entered? I don’t know the answer to this. For one thing, the volume of foreclosures is way down. Also FNMA and Freddie Mac have said that they intend to pursue strategic defaulters for deficiency judgments. Chancery court judges have clearly reversed course and now routinely enter them when they previously refused to do so.

So what does this mean to Illinois homeowners who have underwater properties?

  •  Strategic Default is dead. There used to be little to no risk in stopping payments on a first mortgage in Illinois. The 1099 issued at the end of the foreclosure was wiped out by the Mortgage Debt Forgiveness Act. That expires at the end of this year and I doubt it will be renewed. Also, the risk of deficiency judgment is now so high that it makes no sense to stop paying on a mortgage unless you plan to file bankruptcy.
  • Short sales are close to dead too. A favored strategy was to attempt a short sale, because the homeowner could get a release of deficiency from the lender.  But the Mortgage Debt Forgiveness Act is about to expire, meaning the homeowner will have to pay tax on the 1099 after the short sale closes AND if the short sales doesn’t close, the risk of deficiency judgment is way too high to try a short sale.
  • Bankruptcy’s the only route. The only sure-fire way to get rid of a deficiency judgment is to file a chapter 7 or chapter 13 bankruptcy. Chapter 7 is cleaner than Chapter 13, but there is an income limit (called the “means test”) that has to be met and an asset limit. I’ve had to file several bankruptcies for clients lately after deficiency judgments were entered. Chapter 13 bankruptcies are less desirable because the creditors have to be repaid, but the income and asset limits are very broad and most people can easily meet them.

 

By-owner sales are back

Real Estate-Purchases, Real Estate-Sales

 

When the real estate market crashed in 2008, the for-sale-by-owner market died along with it. I’ve handled maybe 3 or 4 for-sale-by-owner transactions in the the last 5 years, But, they are picking up now and I’ve had 5 by-owners in the last few months alone. Recently, a property even sold by-owner using zillow.com’s make me an offer feature. Here’s how to sell by owner:

 

How do I set the selling price?

Look at zillow.com and eppraisal.com and that will give you a rough idea. Most sellers interview at least one real estate agent and get a comparative market analysis from the agent and that will help to set a selling price.

 

What do I do when I find a buyer?

When you find a buyer, you should verbally agree on a price and ask the name and phone of the buyer’s attorney. Don’t sign any notes or scraps of paper indicating what the price is because that could be construed as a contract. Verbal agreements to sell real estate are not enforceable. It is just a way to narrow the issues and reach agreement later in writing.

 

How much earnest money do I request?

I don’t think that large earnest money deposits do anything. Usually the amount is between $1000 and $5000. Earnest money is returned to the buyer if agreement can’t be reached under the attorney approval, inspection or mortgage contingencies. The earnest money is sent to the seller’s attorney after the contract is fulled signed.

 

Is the earnest money check cashed?

I am shocked by the number of people who think that the earnest money check is not cashed. It will be cashed and held in the seller’s attorney’s trust account to be released to seller at closing.

 

Should I fill out disclosures before I get a buyer?

Yes, it is helpful to complete the required disclosures before you have a buyer. Then the buyer can just sign your disclosures with the offer. The required disclosures are: Real property disclosure, lead paint, mold and radon.

 

Who prepares the contract?

Generally, the buyer’s attorney will prepare the contract. The buyer’s attorney send it to the seller’s attorney by email to review. Then the buyer signs it and it is sent to the seller to sign. The buyer signs the seller’s disclosures (completed by the seller in advance) with the offer. I use an esigning program called rightsignature to let buyers/sellers easily sign and initial contract using their computer or Ipad. It works great and everyone gets a final signed copy once it is esigned.

 

How long does it take to get the contract signed?

It will take far longer than anyone wants. Often, it takes up to one week from the time of verbal price agreement to get the contract signed. Some attorneys are stuck in the past and can’t create a real estate contract quickly even though with document assembly software it takes very little time.

 

Who handles the scheduling the inspection, the appraisal and walk-through?

The seller and buyer have to coordinate these times between them.

 

Who signs the contract first?

The buyer signs the contract first and then the seller accepts it.

 

Should I get a mortgage pre-approval letter from the buyer’s lender?

Sure, why not. Many, many sellers tell me how great their new buyer is because he is “preapproved.” This always makes me laugh because I have seen many pre-approved buyers get shot out of the saddle and fail to qualify for a mortgage. In reality, all it means is that the buyer talked to a lender, but there is no guarantee that the buyer will be approved for financing. It’s better than nothing though.

 

What if a real estate agent asks to show my house?

Some real estate agents will agree to show your house, but they will ask you to sign a one-time listing agreement that pays them a commission if their buyer writes an offer. Generally, the agent will want a commission of at least $2000.00 and up to 2% of the sales price. It is negotiable. In the old days (80s and early 90s) this never happened, but is is fairly common now.

 

 

 

Help I’m stuck in an Illinois real estate closing and can’t get out!

Mortgages, Real Estate-Purchases, Real Estate-Sales

With the new, red hot real estate market, the length of real estate closings has increased dramatically. In the good old days, closings took 1 hour. Now, we routinely endure closings of 2 to 3 hours.

Why? Well, there’s a lot of reasons and we’ll get to those in a minute. First, here’s what happens at an Illinois real estate closing:

  1. Parties gather. The sellers’ attorney, buyers’ attorney, buyers and real estate agents meet at the title company location selected by the sellers’ attorney. The “closer” is there too and he or she is an employee of the title company whose assignment is to close the loan for the lender. The lender and loan officer usually don’t attend. The sellers rarely attend closing because they presign the documents. Some states handle closings in escrow where no one attends, but in Illinois we don’t use escrows and closings are done with everyone present at the title company.
  1. Buyer signs loan documents. The buyers sign their loan documents and those documents are sent by fax or email by the closer to the lender for “funding.” Funding means that the lender has checked the final loan documents, approved the figures on the final HUD statement, and has given the okay to disburse. Lately, lenders require 60-150 pages of documents to be send back for approval. The entire process of loan funding has pretty much gotten out of hand.
  1. Wired funds are received. The closer checks to see if the lender’s funds and buyers’ funds have been wired to the title company’s bank. At least 40-50% of the time, the lender’s funds have not been wired. Be sure to tell your lender that you expect the funds to be at closing. I have found that lenders do listen to this. (Side note: Title companies are so busy that at least 50% of the time we get no final figure for the buyer prior to closing. We have to estimate the amount and the final figure is a mystery until you get to closing.)
  1. Lender okays final documents and loan is funded. It usually takes anywhere from 30 to 90 minutes for the lender to review the documents and fund the loan. Often, they require picky changes and that slows things down. Some closers wait 60-90 minutes to send the documents to the lender for approval and that will slow things down for sure.
  1. Checks are issued and everyone is happy. Once all of the above happen, the closer issues the checks, gives the buyers their copies and everyone is happy happy.

Some of the reasons closings are slower now that in the past are as follows:

–Title companies are understaffed and overbooked. Real estate was deader than a doornail from 2007 through the beginning of 2013. Now it is up 30-50%, but title companies have not added employees. I recently slogged through the swamp that was a 3 hour closing and our closer had 18 closings the next day. That is not even remotely possible. Given that it took her 3 hours to do my closing, I pity the poor buyers stuck in one of those 18. Most (90%) title company closers are really good and efficient at their jobs. It is not easy. There are a few, though, that are phantoms. If your closer leaves the room and disappears you are in for a long wait.

-Title companies don’t get HUD preapproved. The better title companies will get the HUD closing statement pre-approved by the lender before everyone gets to closing. This will speed up the closing a lot. A closer for a besieged title company will say “I didn’t have a chance to look at the package” and will print out the 150 page loan package from a pdf file and start on it while everyone sits there. Be sure to pack a sandwich if this happens because it will be a long wait.

-Buyers show up late. A surprising number of Buyers show up very late to closing. Last week, at a 9 am closing, we waited 1 hour while the buyer did his walk through of the property. He showed up at 10 am and the closing was a 3 hour blockbuster.

–Loan funding process is fundamentally flawed. The entire process of getting a loan “funded” is a joke that should be revised. The whole thing is self-serving and the lender is trying to protect itself from getting stuck with the loan for some minor defect.

So what can be done to speed things up? If you’re a Buyer, show up on time. Be sure that funds are wired to the title company the day before closing. Insist that your lender wire the funds in advance of closing (not during the closing). The rest is pretty much out of your control, but don’t be surprised if you are at closing for 2 plus hours.

Early Cook tax bill may ruin your 4th of July

Real estate tax

I’ve heard that the Cook County second installment real estate tax bill could be mailed as soon as this Friday June 28, 2013. This is depressing news and kind of a buzz-kill right before the 4th festivities.  I spoke to someone in the local assessor’s office who told me that the tax rate in Palatine is increasing a full one percent over last year so that should produce some jolly good, jumbo tax bills.

This is the second installment bill so it features any increase or decrease (best of luck on the latter) for the year. For the past few years, the bill was mailed very late by the county. This year they are Johnny-on-the-spot and it will be mailed early and will be due August 1, 2013.

Please be sure to check that your homeowner’s or senior exemptions are on the bill. If not, you can get the bill reduced by filing a certificate of error and that allows you to pay the lower amount.

 

Why your BofA Short Sale to an LLC may be DOA

foreclosures-shortsales

If you are trying to short sell your home and have a mortgage with Bank of America (BofA) there is a pretty good chance that you will get an offer from an investor doing business as a Limited Liability Company (LLC).  Large, well-funded LLCs are everywhere now and they are buying up properties quickly and paying cash.

A couple of LLCs that buy a lot of properties in Illinois are Waypoint LLC and IH2 Property Illinois.

If you are doing a short sale with BofA, I would not suggest accepting an offer from one of these LLCs because you will not be able to close. BofA will reject the LLC as a buyer and spike your short sale. Why would BofA do this? I was told that it’s …. cough, cough … “company policy” which means someone just made it up, and there really is no reason for this restriction.

BofA’s short sale rules are as follows:

1. LLC Buyer. If you have an LLC buyer you have to submit the articles of organization for the LLC and the operating agreement for the LLC. Most of the LLCs will give you this.

2. Members of LLC must be individuals. BofA will allow an LLC as a Buyer,  but only if the operating agreement of the LLC shows that an individual or individuals, and no entities, as members of the LLC– they will not approve a short sale where a trust, corporation or another LLC is the member of the LLC. The problem is that with large LLCs like those named above, there are no individual members. The members of the main LLC are always other LLCs or corporations. BofA will kill your short sale when they see an entity buyer within the LLC.

This only applies to BofA short sales, not to short sales in general. So don’t panic if you have a short sale lender other than BofA. Wisely, none of the other lenders look inside the Buyer’s LLC.

Illinois Deficiency Judgment: Still rare, but it can happen

foreclosures-shortsales, Strategic Default

I had a phone conference with a client whose house in the northwest suburbs was nearing the end of a strategic default. He stopped paying the mortgage about 1 year ago due to a divorce and the fact that the property was $100k+ underwater.

The sheriff’s sale was already done and he wanted me to review the order entered in court that confirmed the sheriff’s sale.

I almost spit out my morning coffee as I read this part of it:

“That there be entered an in personam  deficiency judgment in the amount of $136,000 against the Defendants _____________,  with interest as provided in Section 1508 (e) of the Mortgage Foreclosure Act.”

This meant that the lender, Harris Bank, went through the cumbersome, seldom used process of obtaining a deficiency judgment against the owners. The chances of this happening very slim, but it is allowed by law.

Usually the order confirming the sheriff’s sale says that a deficiency judgment is entered in rem against the property. Seeing this freaks out the client, but the words in rem  are nothing to be concerned about it.  The key words in this order that make it white hot are in personam, because when you see that, it means you have been hit with a personal deficiency judgment.

The client only had a few options:

  1. Pay  the lender.
  2. File a chapter 13 bankruptcy (he didn’t qualify for a chapter 7).
  3. File a motion to vacate the judgment and try to work something out with Harris.

I’ve written before about deficiency judgments and how they are extremely rare except when the bank is a small local lender or if the loan was a commercial loan (used to by an investment property).

This does not mean that the world is ending and everyone will now have a deficiency judgment entered against them. Anyone who has a mortgage with Chase, Bank of America, Wells Fargo, US Bank, Nationstar and the rest of the herd of residential lenders has a slim chance of having a deficiency entered against them. If you have a first mortgage with Harris Bank, I would be very cautious.

To me, this reinforces a couple of things:

  1.  It is almost always a good idea to try a short sale first before moving to a strategic default. Why? Because if the short sale closes, we can usually get a full release of deficiency from the lender, cutting off all liability to the lender.
  2. Deficiency judgments can’t be entered unless the defendant is personally served with the summons at the start of the case. If you are served by publication, no deficiency judgment can be entered. Clients have to be aware of the implication of being personally served with the summons and proceed accordingly.
  3. Filing bankruptcy is your final line of defense. If you have a high income, it is likely that you will have to pay the lender back some or all of the judgment, but if you qualify for a chapter 7, you will not have to pay anything to the lender.

Deficiency judgments in Illinois are still very rare, but they are allowed by law and lightning can  strike.

 

Buying a FNMA foreclosure gets a little more expensive

foreclosures-shortsales, Real Estate-Purchases, Uncategorized

If you buy a FNMA foreclosure, watch out for the fine print.  There’s a new paragraph recently added to the infamous foreclosure rider that could cost you some money.

I’ve written before about how FNMA buys are quirky and about what to watch for when buying one.

Starting in December 2012, the FNMA foreclosure rider that’s required was amended to include this more-than-a-little-overbroad statement:

Par. 10 (e) “Regardless of local custom, requirement or practice the Purchaser shall pay all costs and fees incurred in the transfer of the property, including all lender related costs and recording costs, except as expresly assumed by the Seller in this Addendum.”

This paragraph was not in prior versions of the rider and I don’t know how far FNMA will go  to collect from the buyer.

FNMA has to pay for title insurance, pay the real estate commission and give a tax credit under the rider, so those costs are “expressly assumed,” but that’s about it.  In the closing I handled,  the Seller used Par. 10 to charge  my client for state and county transfer stamps and for the $400 cost of obtaining the paid assessment letter from the association. Both of these costs are normally paid by FNMA. But, due to the brand new rider clause my client was stuck paying them.

There is not much that can done to prevent this, except to change the rider under the attorney approval clause (good luck with that). So all of you FNMA buyers out there, please beware that you might be stuck with some extra costs at closing.