HOA SCramble to Make Ends Meet BUt Are They Missing an Opportunity?

First thing to add to the list of things you ought to know before you buy is (a) whether the home is part of an Homeowners Association or Condominium or Cooperative association and second whether there are major repairs that are needed or under way because that may mean really big assessments. Once you have purchased the property, YOU are the person responsible  for payment of monthly and special assessments not the former owner and not the title company that issued you a title policy.

Even if you have a contract with the previous owner, unless the association agrees in writing that won’t enforce the special or delinquent assessments against you, they can still foreclose on the property just like a mortgagee can foreclose.

But here is where it  gets interesting. Most of the “good” decisions for borrowers came about as a result of two institutions fighting it out rather than David vs Goliath. They are considered to be on more even footing legally and practically by the person sitting on the bench wearing those black robes.

As I have already stated in numerous TV and radio interviews, the associations stand in a unique position to help correct the housing crisis.

If the Associations foreclose against the homeowner AND they name the originating lender and any assignee as junior lienholders or unsecured lienholders, there is a much better chance that the Judge is going to take a much closer look at the paperwork. Where that has occurred the I am receiving reports the association was successful. That raises the interesting prospect of allowing the homeowner to redeem on the association foreclosure and then have the house free and clear of the pretender lenders.

This same logic applies to  homes foreclosed by pretenders and then  abandoned or at least ill-maintained. The association should foreclose against the “former” homeowner and name the pretender as junior or unsecured. This might just revive a blighted neighborhood.

The fact remains that the Association does have its paperwork in order and the pretender lender never did.

Do Your Homework Before Buying into HOA Communities

by Chad Elliott, http://www.sheltertampa.com/homeowners-associations-foreclosures

Homeowners Associations Under Siege By Foreclosures

Do your homework on the Homeowners Association before Buying.

About one in six Americans currently live in a community run by a condo or homeowners association.  With the recent increase in foreclosures, some homeowners associations are running out of cash.  HOA’s are like miniature governments that depend on revenue to finance upkeep of common areas, community pools, tennis courts and private roads.

Homeowners-Association-ResearchBefore a property goes into foreclosure, many owners stop paying their monthly HOA dues. In fact, HOA fees are generally among the first bills struggling homeowners quit paying.   If they can’t afford their mortgage, then they aren’t going to pay their HOA fees.  Adding to the problem, some banks aren’t paying HOA fees on properties they have foreclosed on and now own.   As a result, association fees rise and the property may be less desirable to buyers.

In the current climate of foreclosures, it’s even more important for potential buyers to read the bylaws; as the bylaws will explain what services are provided and if there is a cap on the annual fees.   Some of the bylaws even include information on how they’ll handle foreclosures and payments of fees.  It’s also important to know how the board is managed.   Boards are typically managed two different ways; by the homeowners themselves, or by an outside company that has been hired by the homeowners association.  In the uncharted waters of foreclosures, a professional management company may be the best bet for a home owners and potential buyers.

Homeowners-Association-Balance-SheetWhen looking at the balance sheet of a homeowners association, a buyer should look at their reserves. Buyers want to make sure there is enough cash on hand to take care of maintenance and other services.  If there is no reserve fund, the association may have to impose special assessments when major projects become necessary.   If HOA’s don’t have reserves, they may be forced to close community amenities like parks, pools and community centers, because they can no longer afford to build and maintain them.

It’s also important for buyers to remember that Associations aren’t corporations.   They operate year to year. They collect in dues what they believe they need to pay for amenities and services that residents expect.  Even though many homeowner associations have the power to foreclosure if dues are in arrears, few have the money or means to do it.

Buyers need to do their due diligence; as it will help them avoid surprises after they move in.   Realtors who specialize in being a Buyer’s agent or who have the Accredited Buyers Representative designation can help guide a buyer to get the documentation they need; as well as they can find out how many foreclosures are in the area.

HOW TO USE A SECURITIZATION SEARCH

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WHAT IS A SECURITIZATION SEARCH?

Hopefully any securitization search will include all public records information that either name or describe your loan, and any information public or private that contains clues to what was done with your loan, who funded, it, and whether the receivables from your loan were mixed with receivables from other parties.

Remember: The fact that a document names or describes your loan does Not mean that the loan is in the pool or trust that is described. To the contrary, it appears as though no loans were actually transferred to a pool or trust unless and until one or more of the following had occurred:

  1. The loan account has been declared in default(remember that a declaration doesn’t make it so. Most borrowers accept the declaration as true because they know they have not made some payments. Those Borrowers don’t know or are ignoring the fact that many parties were promising to pay the obligation, and many of those promises preceded the application for loan, much less the loan closing).A securitization search will reveal the facts necessary to know or provide a reasonable basis for the belief that the loan payments continued to be made after the declaration of default (usually by the servicer) or that the trust or pool was dissolved and reconstituted under a different name and different documents.
  2. Foreclosure proceedings have begun either privately (non-judicial) or in the public records (judicial).
  3. The pretender lender has been ordered to either show the documentation or drop their foreclosure, and the Order was from a Judge of competent jurisdiction.

NOT ALL SECURITIZATION SEARCHES WILL PRECISELY NAME THE TRUST OR POOL: If the loan has traveled through Fannie, Freddie or Ginnae for a guarantee, it has been securitized but those entities, which are now essentially government agencies nationalized because of the mortgage crisis do not provide access to the secondary market information and even if you pay them, you will get very shallow data. Thus the analyst can see that the loan was definitely securitized or claimed as securitized, but he/she cannot report on the exact name of the pool or trust. The purpose of those entities is stated in their charter to be the facilitation of securitization of loans in the secondary market. The same is true for private deals which are not really private since they mostly involve public companies, but they are equally difficult to get a precise reading on the identity of a trust that or multiple trusts that could be claiming an ownership of the loan. It is behind this curtain that it was easiest fro the banks to change a few data points about the loans and sell them multiple times into multiple pools.

If the search does not produce the name of the pool trust, doesn’t that mean the search was useless and I lose (the bank wins)?

NO. The actual name of the trust or pool is irrelevant. What is important is that the loan is shown to be more likely than not claimed to be securitized. If the loan was claimed as securitized THAT MEANS you can shift the burden onto the pretender lender to prove its status and offer up real non-fabricated, unforged documents.It means that the receivable from your loan (your payments) was mixed with receivables and guarantees from other parties (other borrowers, insurers, counterparties etc.). It means that the promise to pay was changed from just your promise to a combination of promises from multiple people and entities, some of which were created solely for the purpose of serving as vehicles for the scheme of securitization. AND THAT MEANS the pretender creditor must sort it out— not you.

But that doesn’t mean you don’t have a problem. Because on private deals, the pretender will come in as though there was no securitization when you know there was. So you need as much evidence as possible to show that the loan was probably securitized — so a Judge will believe that there is fire behind the smoke and not that you are just trying to use civil procedure and discovery to delay the proceedings.

Is it better to have the name of the trust or pool than not to have it?

Opinion is split on this. For obvious reasons it is better to have the goods when you are asserting something as a fact to the Judge. But most Judges now know there is an issue with securitization. I believe that even if you have the name of the trust, you should not use it until you are forced to do so. The reason is that as a practical and tactical matter the more evidence you present the more you own it.

By presenting evidence of the securitization of the loan, you are playing into the hands of the pretender. You are accepting the burden of pleading and proving a case that is in reality a simple denial of a case that has either never been filed (non-judicial) or which has been filed with unsupportable allegations. Under the theory that if you use it you own it, your strenuous efforts to show that the loan WAS securitized will bite you in the behind when you defend the case on the basis that the transfer was never made.

My opinion is that it is better to say that the evidence will show that the receivable was not treated in away that is consistent with the pretender’s allegation that they are the creditor, and that the lien was defective or was rendered ineffective by the conduct of the parties.

Then what is the value of the securitization search?

If you don’t use the securitization search in tandem with a loan specific title search and get a thorough analysis of the highlights in the broken chain of title and how those defects appeared, then you are not using the securitization properly. The point is not to show that the loan was securitized and that securitization is evil. The point is to show that the lien in the public records of the county in which the property was located is invalid, unenforceable or void. The title search will show the current status of title tot he property as it appears in the public records. The analysis of that title will show the weak points in the title, whether there are clouds on title, title defects, breaks in chain of title etc. The securitization analysis also takes the facts as we find them, and then explains how the tittle defects came into being.

The securitization report and analysis makes sense out of a situation that is totally  counter-intuitive. Why would a bank intentionally lose money on a loan? That is the question in the mind of the Judge. It makes no sense. And in fact, no bank would intentionally lose money on a loan. So what is happening here? The answer lies in securitization or the intent to create the appearance of securitization, to be more precise. Through securitization neither the loan originator nor any of the securitizing parties had any money in the deal, nor did they have any risk of loss.They had no risk of loss because they were not using their own money or credit. Each party in the securitizing scheme was a paid service provider; each was paid for the same service: to create the illusion of a normal mortgage loan transaction.

Thus the securitization report and analysis is essential element in the foundation of any case for damages or injunctive relief. It explains why a lender would go out of its way to inflate the appraisal on the property being used as collateral for the loan. Thus it lies at factual foundation of a claim for appraisal fraud. It explains why a lender would avoid the task of using underwriting standards developed over centuries to determine creditworthiness and viability of a loan. The originating lender was not in fact making a loan. In fact, in most instances it never handled the money for the funding of the loan even as a conduit. Thus the securitization report and analysis forms the factual foundation for the holy grail of mortgage litigation: Quiet Title.

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Homeowner Association Liens Might be More Valuable Than Anyone Realizes

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Funny how things come full circle. Back in the 1970’s, 80’s and early 90’s I was heavily involved in representing hundreds of associations for homeowners — condominium, cooperative, and homeowner associations. I litigated everything from recreation leases, construction defects, to liens for unpaid assessments or maintenance expenses. I published several articles and conducted a number of seminars on the subjects affecting these associations. Back then the liens were simple and there were issues between associations and lenders, but they were usually easily resolved.

So I get a call from someone in Florida whose parent owned a condominium apartment in a condo I represented back when I did that sort of thing. It turns out he owns the property that his parents once occupied and he has been following my blog with great interest for a while now. And his main question was “If we can agree that the lien of the association is a valid enforceable lien, then is it possible that the defects in what appear to be liens and encumbrances with higher priority could put the Association in first position?”

BAM! I was an expert witness on condominium and homeowner association law, an experienced litigator of all sorts of issues for these associations, and even had a “foreclosure mill” of my own, that enforced the liens and collected the money due, since it was rarely the case than anyone would let the property go just for unpaid assessments. But it had never occurred to me that in many if not most cases, the current round of fake securitized mortgages was sitting behind a valid lien from the association.

To make a long story short,”Yes,” I replied, “if the initial mortgage is defective or defects were introduced into the chain after the closing with the homeowner, then a properly filed and duly executed lien by the association would be sitting in either first position, or a position in which they could claim first position. This would greatly increase the likelihood of earlier and full payment of all outstanding liens, together with costs, and attorney fees and interest.”

The ramifications of this epiphany are enormous. Most of the new construction in recent years has been subject to governance by enabling documents creating an association that has the powers of assessment, rule enforcement, hiring contractors for common areas, hiring lawyers etc. Most of these associations are looking at much higher percentages of people who are not paying the assessments and not paying off the lien because they are already underwater. Or more correctly, perhaps we should say that they THINK they are underwater because they THINK that the mortgage is a valid recorded instrument that is enforceable. Most likely they are wrong and that is the message of this blog — to get people to stop and think before they abandon the most valuable asset in their lives — and now to stop associations from ignoring the value of their liens.

Most associations are looking at these liens as less than worthless. Some of them are not even bothering to file the liens. But if they foreclose on their lien, they could name the mortgage holder of record as a junior or non-existent lienholder because the lender of record is no longer due any money or never was dude any money depending upon whether they originated the loan with their own money or credit, or if they were simply the typical straw-man sitting in as a fee paid performer to look like a lender but act like one.

As we have seen in more and more cases, when institutional plaintiffs (associations included) make the same allegations as borrowers are making in the courts they are taken far more seriously by the Judges. Proactive associations  could therefore go after these liens aggressively and do a favor for everyone — except the banks who have no money in the deal anyway.

By knocking out the pretender lenders as an institutional plaintiff representing dozens, hundreds of even thousands of homeowners whose assessments will be effected by the non-payment by other homeowners, the Association clears an easy path for collection in full, and for the homeowner to retain the property and live in it, thus avoiding the future problem of a ghost town or half empty association where there is not enough money or resources to get the job done of running and maintaining the condominium, coop, or homeowner association. What these associations need is for their lawyers to get up to speed on securitized loans, get securitization searches like the one we offer (see link next to my picture) and file against the banks, who, in my opinion, will fall like dominoes, settling the claims of the association with payment in full.

Whether you go all the way through foreclosure or you settle with the pretender lender, the property owner (homeowner) will have the path cleared for him to make the same allegations, but this time with greater weight than is currently received in courts around the country.

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