An Update on RESPA

I am compelled to write a blog about an admittedly boring but very important topic. RESPA has been a part of our world for decades but it is frequently misstated and misinterpreted. An example happened this week.

I became the attorney for a distressed homeowner and there is a variety of legal and practical issues. I contacted the listing agent who had the listing for all of an hour. She stated that she advised the client that he could not embark on an intended strategy because "it, violated RESPA". I asked her what aspect of the strategy violated RESPA. She replied that certain items could not be placed on the HUD-1. I asked where she heard this….."I took a two hour course" was the reply. Surely, the course did not specifically mention the strategy of this home owner and this was the agent's interpretation. I also noted on this agent's website that she is a Certified Distressed Property Expert although she admitted to me that she has done "very few” short sales. I understand that she took a two hour course and obtained this designation, but there is nothing like experience to become an expert in anything. An expert is not someone that has done “very few” of the expert area.

Well, to make a long story short, RESPA does not apply to this transaction and in fact, it does not apply to a number of transactions - especially today. RESPA has several exclusions to its applicability and does not apply to cash transactions as an example. In fact, you would not even need to utilize a HUD-1 in a non RESPA transaction (although practically speaking, this will be problematic).

The listing agent lost the listing to this home owner as a result. She caused extreme anxiety to the family because she indicated to them that they could go to jail!!!
Paddy Deighan

http://www.homesavers.pro

Everyone Must Stay in their Lanes in This Real Estate Market

I typically try and only write positive and useful blog entries. However the events of the past week have compelled me to blog and vent about some recent developments:

•an agent in New Jersey refused to relinquish a listing 45 minutes after it was signed and despite my directive to her (as the home owner's attorney) and the home owner himself, the agent listed the property in the MLS and is refusing to terminate the agreement. Worse still, is her buffoon broker threatened to place a lien on the property if the listing is not honored. The agent admitted that she had very little short sale experience and this is a complicated matter.
•another agent in New Jersey advised my clients that they should not file bankruptcy. The sought legal counsel and that attorney recommended that they file;
•an agent in California has refused to relinquish the short sale negotiation even after the home owner signed an agreement with a 3rd party firm. The agent is demanding an additional 1/2 percent for the short sale negotiation and she advised the client that the lender will pay it at close of escrow
•an agent in Florida advised my clients that they should not appear before a hearing officer in a foreclosure matter. Although I may have agreed with her, time was of the essence and she should not have advised the clients of this. It was the only option that we had but her advice severely upset the clients and she should not have commented on this,,,,

As the market becomes more challenging, there will be more bizarre occurrences. However, if everyone works together and stays in their lanes, more transactions will successfully close escrow. All of the above occured THIS week!!! It takes so much additional time for me to handle these matters because time is wasted on non productive matters.


Paddy Deighan

http://www.homesavers.pro

Foreclosure Defense is the Practice of Law

Foreclosure defense is the practice of law. You would not think that if your home is in default or foreclosure since there is a remarkable number of firms soliciting distressed home owners with offers of foreclosure defense and delay of foreclosure. Most of these firms have limited ability to help you, since they are not attorneys. Many are being charged with the unauthorized practice of law. My home state of New Jersey just took action against six such firms operating within the state.

The firms will try and lure you in with promises of foreclosure defense success or delay in the process to enable you to retain your home. I can fill an encyclopedia set with failures of such firms that I have been told about during the recent past.

There are many legal issues in regard to distressed real estate. There are tax, credit, deficiency judgment and many legal issues specific to foreclosure defense. Many people know some or most of the issues but they are neither qualified nor permitted to discuss them with you. Additionally, attorneys have access to information that is not available to non-attorneys.

The options that are available to a home owner are numerous. However, each has its own intricacies. Short sale, loan modification, deed in lieu, strategic walk away, foreclosure defense all have many variables that will determine the likelihood of success. I counsel home owners to not rely upon the advice of someone that has a vested interest in the outcome and this includes real estate agents. They are invaluable in the process but unless the home is sold, they do not receive compensation. So, what do you think the suggested course of action is – a short sale!! However a short sale is not always your best option, especially if you want to retain the home.

Foreclosure defense is the practice of law. Do not trust your most valuable asset and your biggest financial exposure to anyone other than a lawyer that specializes in this complex area of law and tax.

Paddy Deighan http://www.homesavers.pro

Use of Revocable Trusts Frequently Problematic in Short Sales

There is a new and disturbing trend in foreclosure cases and short sales. "Experts" are advising distressed home owners to place their home in a revocable trust and appoint themself as trustee. There would be advantages to this, but I am suggesting that such home owners consider some free legal advice - and yes, I understand and appreciate the value of "free" advice!!

This is arguably fraud. It would appear to a lender or a judge, that this is an attempt to cloud title or delay or obstruct the foreclosure process. If the short sale is unsuccessful, there could be serious ramifications to this maneuver. The reasons that many experts suggest to do this are valid, but there are other - less risky methods to achieve the same results.

At the point in time that a home is in default - more than 30 days past due - anything that a home owner does regarding title, is going to be closely examined by a Court or lender. Even placing the home in a trust just prior to entering default is problematic, so my advice is "DON'T DO IT". Another problem with this tactic is that (IMHO) about 85-90% of trusts are not properly established and maintained and consequently, they are voidable. I know of one lender that threatened to charge the home owner with the unauthorized practice of law for establishing a trust without the use of an attorney. It was a complicated matter, but the point is that the tactic of delaying foreclosure, attempting to cloud title or avoid transfer tax via revocable trust is challenging and will almost always appear to be fraud to a lender or judge. Another aspect of this tactic that is problematic is that the trusts are not being set up by an attorney and they need to be. Listing and buyer agents: my advice is to never ever aid a home owner in the development of a revocable trust (I have seen this a number of times). Advise a home owner that is considering this tactic to seek the counsel of an attorney and tell them "EVERYTHING". Do not selectively leave out details as the "devil is truly in the details" in such matters.

Unauthorized Practice of Law in Foreclosure Debate

Last week, I blogged about the case of Matrix Financial, Corp. v. Frazer in which the South Carolina Supreme court ruled that lenders cannot foreclose if they were found to be engaging in the Unauthorized Practice of Law (UPL). In real estate, the SC Supreme Court indicated that lenders are required to have attorney review of title search, document preparation, and close of escrow.

Well, it doesn’t take long for the lenders to take action (or their political puppets). It turns out that a state representative has introduced a bill to end the Unauthorized Practice of Law mandate of the Matrix Financial case. Predictably, this representative was the founder and shareholder of a South Carolina bank that violated the UPL regulations. Sounds like Barney Frank!! LOL

I researched the proposed bill and it has only been introduced and not gotten very far. It seems pathetic that state representatives can totally ignore their constituency and put their own (and campaign donors) interests ahead of the public.

Further research indicates that Suntrust Mortgage has as much as 1 BILLION dollars in uncollectable real estate notes because they never used attorneys to review title, prepare documents and close escrow. All of their construction to perm loans required a loan modification agreement at the end of construction. Many times this agreement changed the amount and terms. These clearly needed to be prepared by or reviewed by an attorney and apparently they never were.

We are in a push and pull legal real estate environment. Courts and legislatures are at odds and even within any jurisdiction; there are what appears to be inconsistent results. I have blogged about that too – the appearance of inconsistencies is the result of different facts and standard of review. The standard of review varies based upon the legal history of a case (appeal, ruling and determination by dispositive motion, final judgment by a judge or jury). So, as I have mentioned previously, it is essential to review cases and outcomes on a case by case basis.

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Unauthorized Practice of Law in Foreclosure Debate