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BADM 350 Ch15 Mortgages & Forclosures After the Recession

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on 23 February 2015

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Transcript of BADM 350 Ch15 Mortgages & Forclosures After the Recession

BADM 350 Ch15 Mortgages & Forclosures After the Recession
A. LEARNING OBJECTIVES:
1. HOW DOES A SUBPRIME MORTGAGE DIFFER FROM A FIXED-RATE MORTGAGE?
2. WHEN IS PRIVATE MORTGAGE INSURANCE REQUIRED AND WHY?
3. HOW DO TILA PROVISIONS PROTECT BORROWERS?
4. WHAT IS A SHORT SALE AND WHAT ADVANTAGES MIGHT IT OFFER BORROWERS RATHER THAN FACE FORECLOSURE?
5. WHAT RIGHTS DO MORTGAGE HOLDERS HAVE IF FORECLOSURE SALE PROCEEDS ARE INSUFFICIENT TO PAY THE UNDERLYING DEBT?
B. WHAT IS A REAL ESTATE BUBBLE?
C. WHAT IS A MORTGAGE?
D. WHAT IS THE DIFFERECE BETWEEN AN ADJUSTABLE RATE MORTGAGE AND A FIXED RATE MORTGAGE?
E. WHAT IS THE DIFFERENCE BETWEEN AN INTEREST ONLY MORTGAGE AND A SUBPRIME MORTGAGE?
F. WHAT IS A HOME EQUITY LOAN?
G. WHAT IS MORTGAGE INSURANCE AND WHO PAYS IT?
(MOST OFTEN REQUIRED IF DOWN PAYMENT OF AT LEAST 20% NOT MADE)
H. WHY ARE MORTGAGES RECORDED?
I. WHAT DOES THE TRUTH IN LENDING ACT (TILA) REQUIRE?
1. ANNUAL PERCENTAGE RATE – ACTUAL COST OF THE LOAN ON A YEARLY BASIS
2. PROHIBITS PREPAYMENT PENALTIES ON SUBPRIME LOANS
3. PROHIBITS LENDERS FROM COERCING APPRAISERS TO VALUATE PROPERTY FOR HIGHER VALUES
4. RIGHT TO RESCIND/CHANGE YOUR MIND WITHIN 3 BUSINESS DAYS AFTER LOAN CLOSES.
5. RIGHT TO RESCIND UP TO 7 DAYS AFTER RECEIPT OF TILA PAPERWORK.
CASE: IN RE KITTS, U.S. BANKRUPTCY COURT, DIST. UTAH, 2011
FACTS: Kitts entered into two mortgage loans with Winterfox LLC for $1.35 mil and $39,603.47. AS PART OF THE DEAL, KITTS PAID $87,500 IN LOAN ORIGINATION FEES. KITTS SUBSEQUENTLY FILED FOR BANKRUPTCY AND ALSO FILED A COMPLAINT AGAINST WINTERFOX FOR FAILING TO MAKE CERTAIN REQUIRED DISCLOSURES. WHILE THE BANKRUPTCY CT. DISMISSED THE ACTION, ON APPEAL THE U.S. DIST. CT. REMANDED THE CASE FOR FURTHER FACT FINDING CONCERNING DAMAGES FOR TILA VIOLATIONS AND KITT’S REQUEST FOR ATTORNEY FEES.
ISSUE: DO FINANCE CHARGES PAID FROM LOAN PROCEEDS, RATHER THAN PAID OUT OF POCKET BY THE DEBTOR, QUALIFY AS “FINANCE CHARGES” PAID BY THE CONSUMER UNDER TILA?
RULE: FINANCE CHARGES (WHETHER PART OF THE LOAN PROCEEDS OR NOT) ARE COMPENSABLE DAMAGES UNDER HOEPA.
APPLICATION: SINCE WINTERFOX FAILED TO PROVIDE ANY OF THE REQUIRED DISCLOSURES, A MATERIAL FAILURE TO COMPLY WITH HOEPA OCCURRED, AND REASONABLE ATTORNEY FEES MAY ALSO BE AWARDED.
CONCLUSION: PLAINTIFF WAS AWARDED TILA DAMAGES OF $4000 AND $87,500 PLUS $150,000 IN ATTORNEY FEES.
J. WHAT IS A FORCLOSURE?
K. WHAT IS A FOREBEARANCE?
L. WHAT IS A WORKOUT AGREEMENT?
M. WHAT SPECIAL HUD ASSISTANCE IS POSSIBLE?
1. IF LOAN AT LEAST 4 MONTHS DELINQUENT
2. BUT NOT MORE THAN 12 MONTHS
3. NOT IN FORECLOSURE
4. NOW ABLE TO MAKE FULL MORTGAGE PAYMENTS
5. LENDER FILES THE CLAIM AND HUD PROVIDES INTEREST FREE LOAN (HUD TAKES SECOND MORTGAGE LIEN)
N. WHAT IS A SHORT SALE?
1. WITH LENDER AGREEMENT, SALE OF PROPERTY FOR LESS THAN LOAN BALANCE
2. LENDER MAY OR MAY NOT AGREE OR WAIVE DEFICIENCY BALANCE STILL OWING
O. WHAT IS A DEED IN LIEU OF FORECLOSURE?
1. ADVANTAGES?
CASE: MCLEAN V. JP MORGAN CHASE BANK, FL DIST. CT. APPEALS, 2012
FACTS: CHASE FILED A FORECLOSURE ACTION AGAINST MCLEAN. THE ATTACHED MORTGAGE IDENTIFIED A DIFFERENT MORTGAGEE AND LENDER. CHASE CLAIMED THE NOTE HAD BEEN LOST, STOLEN, OR DESTROYED. WHEN MCLEAN FILED A MOTION TO DISMISS, CHASE PRODUCED A MORTGAGE ASSIGNMENT DATED THREE DAYS AFTER IT HAD FILED ITS LAWSUIT. EVENTUALLY CHASE FILED THE ORIGINAL NOTE. ALTHOUGH THE ENDORSEMENT TO CHASE WAS UNDATED, CHASE FILED A MOTION FOR SUMMARY JUDGMENT. THE TRIAL CT. GRANTED CHASE’S MOTION AND MCLEAN APPEALED.
ISSUE: DID CHASE HAVE STANDING TO SUE AT THE TIME IT FILED ITS FORECLOSURE ACTION?
RULE: A PLAINTIFF’S LACK OF STANDING AT THE INCEPTION OF A CASE IS NOT A DEFECT THAT MAY BE CURED BY ACQUIRING STANDING AFTER THE CASE IS FILED.
APPLICATION: THE MORTGAGE WAS ASSIGNED TO CHASE THREE DAYS AFTER CHASE FILED THE FORECLOSURE COMPLAINT. THE RECORD EVIDENCE IS INSUFFICIENT TO DEMONSTRATE THAT CHASE HAD STANDING TO FORECLOSE AT THE TIME THE LAWSUIT WAS FILED.
CONCLUSION: SUMMARY JUDGMENT REVERSED.
P. WHAT IS A JUDICIAL FORECLOSURE VS. A POWER OF SALE FORECLOSURE?
Q. WHAT IS A DEFICIENCY JUDGMENT?
R. WHAT IS AN ACCELERATION CLAUSE IN A MORTGAGE AGREEMENT?
IF ONE PAYMENT MISSED, ENTIRE LOAN CAN BE CALLED.
CASE: MITCHELL V. VALTEAU, LA. CT. APPEALS, 2010
FACTS: MITCHELL HAD A HOME LOAN ON WHICH SHE DEFAULTED. THE LENDING BANK COMMENCED FORECLOSURE ACTION. THE TRIAL COURT ISSUES A WRIT OF SEIZURE AND SALE. SUBSEQUENTLY, MITCHELL AND THE BANK ENTERED INTO A REPAYMENT AGREEMENT THAT POSTPONED THE SEIZURE AND SALE. MITCHELL MADE TWO PAYMENTS AND THEN AGAIN DEFAULTED. THE TRIAL COURT ORDERED THE ORIGINAL PETITION BE AMENDED AND THAT THE AMENDED WRIT BE ISSUED, WHICH THE SHERIFF COMPLETED. WHILE THE SHERIFF WAS UNABLE TO SERVE MITCHELL AT HER RESIDENCE SEVEN TIMES, THE COURT APPOINTED A RECEIVER WHICH RECEIVED THE PROCESS FOR MITCHELL. THE PROPERTY WAS SEIZED AND SOLD. MITCHELL APPEALS CLAIMING SHE WAS ENTITLED TO A SECOND NOTICE OF SEIZURE WHEN THE FIRST SALE WAS DELAYED.
ISSUE: WAS MITCHELL ENTITLED TO A SECOND NOTICE PRIOR TO SEIZURE AND SALE OF HER PROPERTY?
RULE: THE FORECLOSURE PROCEEDING WAS SUSPENDED, NOT TERMINATED AFTER THE ORIGINAL NOTICE WAS RECEIVED BY MITCHELL.
APPLICATION: THE REPAYMENT AGREEMENT THAT MITCHELL SIGNED PROVIDED THAT THE EXECUTOR PROCEEDING WOULD BE PLACED ON HOLD FOR THE TIME THE REPAYMENT AGREEMENT WAS IN PLACE. IT ALSO PROVIDED FOR RESUMPTION OF THE FORECLOSURE IN THE EVENT OF A DEFAULT IN ITS TERMS, WHICH MITCHELL AGREED DID OCCUR.
CONCLUSION: TRIAL CT’S DECISION AFFIRMED THAT NO SECOND NOTICE WAS REQUIRED.
S. WHAT IS AN EQUITABLE RIGHT OF REDEMPTION VS. A STATUTORY RIGHT OF REDEMPTION?
A WRITTEN INSTRUMENT THAT GIVES A CREDITOR (MORTGAGEE) AN INTEREST IN OR LIEN IN A DEBTOR’S (MORTGAGOR) PROPERTY
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