FACTS
A short sale alternative to foreclosure, that pays homeowners to sell at a loss, is the latest bailout tool the feds are putting to work. The Obama Administration recently started the Make Home Affordable Foreclosure Alternatives' short sale effort to help homeowners avoid foreclosures by giving them up to $3,000. Lenders and servicers can also get $1,500 each for short sale deals.
HAFA short sales are available for principal residences acquired before Jan. 1, 2009, which have a mortgage balance no larger than $729,750. The owner's monthly payment must exceed 31% of his or her income and homeowners must prove financial hardship.
Eligible homeowners also must have been previously considered for other federal foreclosure prevention options, but must be considered for the HAFA short sale before the loan is referred to foreclosure.
The lender can't require a cash contribution from the homeowner, nor can the lender require that the owner sign a promissory note at the closing. The lender also cannot go after the borrower for a "deficiency judgment" based on the difference between the selling price and the last mortgage balance.
Homeowners in successful short sales can get up to $3,000 to help with moving costs. Lenders and services can get $1,500 each to help cover costs of the deal. Homeowners can get pre-approved for a short sale before the property is listed and the lender will tell the homeowner the minimum amount acceptable in a short sale.
If the short sale fails, the program comes with a deed-in-lieu-of-foreclosure option; the owner hands over the property to the bank and, just as with the short sale, the lender or servicers can't request any cash from the homeowner, require a promissory note or pursue any deficiency judgments. (calsalin5110)
MORAL
Seems like a contradiction in terms to me. Anybody out there try this? Has it worked? Let me know along with the names of the lenders and I will pass it on.
ARIZONA PASSES FORECLOSURE CONSULTANT LAW SIMILAR TO THE ONE IN CALIFORNIA
FACTS
The Arizona Legislature has passed Senate Bill 1130. This act now regulates foreclosure consultants. Foreclosure consultants who do not comply with the new law are liable for actual damages suffered by the homeowner plus punitive damages not less than one and one half times actual damages and they can be charged with a misdemeanor. The definition of a foreclosure consultant is very broad.
IN CALIFORNIA FAILING TO FOLLOW THE CLOSING INSTRUCTIONS CAN COST THE TITLE COMPANY A LOT OF MONEY
FACTS
Plaza sued North American after North American distributed $53,853 to the attorney in fact of the buyer of real property--a payment Plaza refers to as a "kickback"--that was neither authorized by the closing instructions nor disclosed by North American before it made the payment. North American made the $53,853 payment after escrow closed, based on a last-minute escrow instruction it received from the owner of the property at or near the time of the closing of escrow and did not disclose it to Plaza the wholesale lender. The trail court held North American did nothing wrong. Plaza appealed.
The Fourth Appellate District said reversed. The court explained the trial court erred both when it found there was no breach of the closing instructions contract with Plaza because escrow had closed and when it failed to consider whether North American breached the closing instructions contract when it disbursed the $53,853 payment and closed the two loans to the buyer/borrower without first notifying Plaza of the last minute escrow instruction.
Plaza is a wholesale residential mortgage lender. In March 2007, Plaza loaned $1.1 million to Oliver Aleta for the purchase of a residence located in Northridge, Calif., owned by Monette Santillian (subject property). Aleta's part of the transaction was handled largely by Edward Peregrino, who acted as Aleta's attorney in fact. Plaza lent Aleta 100% of the purchase price, and funded the transaction by way of two loans secured by an $880,000 first deed of trust and a $220,000 second deed of trust. The first lien was a "five-year hybrid option adjustable rate mortgage" that gave Aleta the option to make an interest-only, or a minimum, monthly payment.
On March 1, 2007, Plaza disbursed the loan proceeds to Investors, which paid off (in what the parties call the "sub-escrow") the then-existing liens on the subject property. Investors sent the balance of the loan proceeds to North American for distribution in accordance with the closing instructions contract between Plaza and North American. North American represented that by signing the addendum to the closing instructions, the settlement "agent certifies that there are no additional payoffs or fees that were not disclosed to the lender either verbally or on an Estimated HUD-1." (Italics added.)
At some point in time before North American disbursed the balance of the loan proceeds, Santillian sent a written instruction to North American requesting that it pay $53,853 to Peregrino, Aleta's attorney in fact. North American complied and made the distribution to Peregrino on March 5, 2007. Because the $53,853 payment was not included on the estimated HUD-1, and because North American distributed the money to Peregrino without first disclosing it to Plaza, Plaza did not have actual or constructive knowledge of the payment until March 8, 2007, when it received the final HUD-1, or Final Settlement Statement, prepared by North American. The final HUD-1 disclosed for the first time the $53,853 payment to Peregrino under the rubric "Additional Settlement Charges."
Plaza sued North American for breach of contract, negligence and equitable indemnity. Plaza alleged that North American was contractually obligated to advise Plaza of "all . . . expected closing costs and disbursements prior to closing so that [Plaza] would be advised about the destination of its loan monies." Plaza further alleged North American breached that obligation when, without the knowledge of Plaza, North American disbursed $53,853 to Peregrino despite the fact that payment was not included in the estimated HUD-1. Plaza alleged that had it known of the request for such payment, and/or the fact that Peregrino had signed virtually the entire loan and closing documents on behalf of Aleta, it would have investigated this "irregular transaction" further and potentially not funded the loans at all.
