Wake Up Tennesee: You Only Think the Foreclosure Mess Won’t Hurt You

PRACTICE AND PROCEDURE IN TENNESSEE
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The selection of an attorney is an important decision  and should only be made after you have interviewed licensed attorneys familiar with investment banking, securities, property law, consumer law, mortgages, foreclosures, and collection procedures. This site is dedicated to providing those services directly or indirectly through attorneys seeking guidance or assistance in representing consumers and homeowners. We are available to any lawyer seeking assistance anywhere in the country, U.S. possessions and territories. Neil Garfield is a licensed member of the Florida Bar and is qualified to appear as an expert witness or litigator in in several states including the district of Columbia. The information on this blog is general information and should NEVER be considered to be advice on one specific case. Consultation with a licensed attorney is required in this highly complex field.

Editor’s Alert To Tennessee Residents: LEGISLATURE CONSIDERING BILL TO PASS MAINTENANCE FEES AND ASSESSMENTS IN ARREARS ONTO HOMEOWNERS THAT WERE NOT FORECLOSED IN ASSOCIATION.

There are somethings you can do about this, one of which is obviously to ignore the issue and let the ill come to your door and find out you have to pay several thousand dollars to cover the lost association dues to the HOA. Right now the mood of Tennessee courts is to be very dismissive of the homeowner defenses and counterclaims. It is a bright red state. The judges are applying knowledge from years ago to a novel situation in which the parties are not who they appear to be and the money is not where it appears to be.

Because of that it would be wise for homeowners to unite and contact their legislators to NOT further burden them with already rising costs associated with foreclosures. But more than that, study, up, you end up with a first lien on the property and wipe out the mortgage that is being foreclosed, leaving with the homeowner with right of redemption that is far easier to satisfy than the one the bank is trying to impose based upon appraisal fraud at the commencement of the transaction.

I personally know several investors who are buying the liens from associations and foreclosing on the banks, getting considerable traction but not winning all the time.

So Tennessee wake up and smell the roses or the stuff that comes out of the back of a horse — it’s your choice.

TN bill would pass foreclosure fees to neighborhoods
http://www.wsmv.com/story/21634792/tn-bill-would-pass-foreclosure-fees-to-neighborhoods

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, 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.

BLOOMBERG: HOA V BOA: Homeowner Associations Step Up the Pressure on Banks

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Homeowner Associations Wake Up to Collections and Profit!!

FORECLOSING ON THE BANK!!

EDITOR’S COMMENT: Becker and Poliakoff in South Florida is probably the largest law firm representing homeowner associations in the U.S. Once upon a time I was a competitor in Florida when I represented several hundred associations. It was Becker, Poliakoff and Streitfeld until Jeffrey Streitfeld went on the Bench to become a Circuit Judge — and I might add, one of the best.

Some time ago I predicted that homeowner associations would wake up to the realities:

  1. The banks have a strategy where they don’t officially take responsibility for the property until they are forced to do so. They do this because they don’t want to pay HOA dues, maintenance and special assessments. They also avoid taxes sometimes, but that is a different  ball of wax. 
  2. Associations are realizing that they have rights to collect on homes where the homeowners dues, maintenance payments and special assessments have not been paid while the bank is the de facto owner of the property. 
  3. In many cases, when confronted with an aggressive and knowledgeable law firm, long steeped in HOA matters, the bank simply folds, pays up and everyone goes on their way. But in other cases, the bank still drags their feet leading to both a solution and an opportunity for the association: FORECLOSURE ON THE BANK. And Becker and Poliakoff and other attorneys representing associations have caught onto the fact that there is money in those mountains of paper. 
  4. As shown below, foreclosing on the banks not only recovers money where the bank finally pays up, but actually results in the sheriffs sale of the property at a legitimate auction in which the association need only bid the amount of its lien. Some people don’t realize that the lien of the association for unpaid dues, maintenance or special assessments is a perfected lien, if filed properly, and subject tot he exact same foreclosure process as any mortgage.
  5. When the bank pays, they pay interest, costs of filing, and attorney fees, which is a big ouch.
  6. When they don’t pay, the association gets a declaration from the Judge that the property is owned de facto by the bank, and then enters a final judgment of foreclosure, which results in the sale.
  7. If the Association is the winning bidder, they get the house. So if the unpaid dues are $10,000, the association gets it. And if the house even in a down market is worth $80,000, the Association turns around, sells the property at an attractive distressed price, nets $70,000 which can do a lot to correct their budget and to wash out the unpaid assessments on that particular condo, town-home, coop or HOA dwelling unit. There are some wrinkles here, but I don’t want to give the banks any help.
  8. This is why I have suggested that distressed homeowners actually partner with the associations in the foreclosure of their own home. Under the right configuration of facts and documents and pleadings and judgment, the homeowner can strip the mortgages (which are probably invalid anyway) as an encumbrance on their residential dwelling unit. The homeowner can exercise a right of redemption after the foreclosure sale eliminated the non-creditor pretender lenders from the title chain, pay off the HOA balance, and start paying dues, maintenance and special assessments. I suspect that Becker and Poliakoff is headed exactly in that direction and I applaud them for it.

Homeowner Associations in Need of Cash Sue to Force Foreclosures

By John Gittelsohn – Aug 23, 2011 9:01 PM MT

Ben Solomon, an attorney with Association Law Group, left, and Jane Losson, a board member of the Vintage East Condominium Association, stand for a photograph in Miami Beach, Florida. Photographer: Mark Elias/Bloomberg

Ben Solomon, an attorney with Association Law Group stands for a photograph while Jane Losson, a board member of the Vintage East Condominium Association, talks on the phone in the kitchen of repossessed unit in Miami Beach, Florida. Photographer: Mark Elias/Bloomberg

Members of the Vintage East Condominium Association in Miami Beach got tired of waiting for JPMorgan Chase & Co. (JPM) to foreclose on unit 9, so they sued the bank in February to take control of the property.

In June, more than four years after the owner stopped making payments, a judge ruled that JPMorgan lost its claim to the $144,000 mortgage. The apartment is now on the market for $87,500, and the association may stave off insolvency with proceeds from the sale and a new owner who pays monthly dues, said Jane Losson, a board member at the complex. Four of the 11 other owners at the property are also behind on dues.

“I find it an outrage that the bank had decided to do nothing and the other owners got stuck,” Losson, who’s had her Vintage East condo since 2004, said in a telephone interview. “If we get this unit sold, we’ll have a little money.”

Financially troubled condo associations are taking banks to court as foreclosure delays enable delinquent homeowners to stay in their buildings for years, often without paying dues that keep boards running. The groups start by pressuring lenders to speed up home seizures and take over payment of the monthly fees. In extreme situations, like the Vintage East case, associations may force banks to give up rights to the property.

“The lenders are stalling foreclosures,” Ben Solomon, the Miami Beach attorney for the Vintage East association, said in a telephone interview. “Our complaints say the banks abandoned their interest and either need to accept responsibility for the title or walk away.”

‘Mortgage Terminator’

Solomon, whose Association Law Group represented homeowner boards in 16 Florida counties with 15,000 delinquent owners, also won what he calls “mortgage terminator” lawsuits in claims against Bank of America Corp. (BAC), Citigroup Inc. (C), Deutsche Bank AG (DB) and Wells Fargo & Co. (WFC), according to court records.

About 60 million people, or one in five Americans, live in residences with condo or homeowner associations, according to the Community Associations Institute, a trade group in Falls Church, Virginia. States with some of the highest foreclosure rates — Florida, Nevada, California and Arizona — are also among those with the biggest share of populations in homeowner associations, said Frank Rathbun, spokesman for the 30,000- member trade group. The associations maintain residents’ common interests such as parking lots, roofs, landscaping and trash removal.

“About 50 percent of our members said the housing crisis and economic downturn have had a severe or serious impact on their association,” Rathbun said in a telephone interview.

Pushing Banks

About one in three Californians live in that state’s 45,000 condo and homeowner associations, said Kelly Richardson, an attorney who specializes in homeowner association law.

“Banks have been slow catching up to reality,” Richardson, with the firm of Richardson Harman Ober PC in Pasadena, said in a telephone interview. “When pushed, they’ll step up to the plate, but you have to push them.”

In Nevada — the state with the highest rate of foreclosure filings, according to RealtyTrac Inc. — delinquent homeowners owe associations about $150 million in back dues, said Steven Parker, president of Red Rock Financial Services, which collects debts for associations in Nevada and five other states.

“It’s probably at least $1 billion for the whole country,” Parker, whose company is a unit of FirstService Corp. (FSV), said in a telephone interview from Las Vegas. “Prior to foreclosure, we get almost nothing from banks. After the foreclosure, probably 30 percent of what we’re collecting is from banks.”

Drop in Foreclosures

U.S. foreclosure filings — notices of default, auction or seizure — fell to their lowest level in almost four years in July, as lenders and government agencies increased efforts to keep delinquent borrowers in their homes and paperwork delays slowed repossessions, RealtyTrac reported Aug. 11.

Filings have plunged for 10 straight months after state attorneys general began probing a practice known as “robo- signing,” in which lenders and servicers pushed through default documents without verifying their accuracy. The decline has been steepest in Florida and other so-called judicial states that require courts to approve foreclosures.

The bank delays have left homes in the delinquency process longer. U.S. homeowners facing foreclosure averaged 587 days without making a mortgage payment in June, up from 251 days in January 2008, according to Lender Processing Services Inc. (LPS), a real estate information company in Jacksonville, Florida.

Florida Delinquencies

In Florida, where 14 percent of homes with a mortgage have a foreclosure notice, the average delinquent borrower hadn’t made a payment for 719 days, or almost two years, LPS data show.

As of June 30, 18.68 percent of home loans in Florida were more than three months delinquent or in foreclosure, the most of any state and more than double the U.S. average of 7.85 percent, the Mortgage Bankers Association reported this week.

“Florida’s numbers continue to drive national numbers,” Jay Brinkmann, chief economist of the Washington-based trade group, said at an Aug. 22 news conference.

Banks often hold off on a foreclosure as long as they can to avoid paying dues, property taxes and occupancy costs, said John Rickel, chief executive officer of Association Dues Assurance Corp., a St. Clair Shores, Michigan, company that collects fees for community associations in 20 states.

“We probably have 100 to 300 banks that we’re trying to collect from right at the moment,” Rickel said in a telephone interview. “We’re always 100 percent successful in collecting against banks because they do have the funds available.”

Limiting Collections

Associations’ rights vary based on state law. In Nevada, the groups have “super priority,” which means they can collect up to nine months of back dues plus costs when a residence sells, even after a foreclosure. In other states, such as Arizona, homeowner associations can sue to garnish wages of delinquent residents, even if they have lost the property.

Florida law limits homeowner associations from collecting more than 12 months of back dues or 1 percent of the outstanding mortgage, whichever is less, after a foreclosure. That cap often doesn’t apply to banks, said Frank Silcox, president of LM Funding LLC, a Tampa, Florida-based company that advances cash to condo associations in exchange for the lien rights on past- due accounts.

“Our attorneys look for a reason the foreclosing bank isn’t entitled to the minimum,” Silcox said in a telephone interview. “Nine out of 10 times, we get the bank to pay.”

In one Miami Beach condo case, LM Funding collected $52,000 — counting late fees, 18 percent interest and collection costs — instead of about $3,000 the bank would have paid under the state limit, he said.

$148,000 in Dues

About 40 percent of LM Funding’s collections come from banks, with the balance from individual homeowners and through short sales, when the lender agrees to sell a property for less than the mortgage balance, Silcox said.

Bonnie Jordan, manager of the Bermuda Dunes Condo Residence Association in Orlando, said LM Funding advanced her $150,000 and recovered an additional $148,000 in back dues, helping the 336-unit development pay its bills after owners of 115 units went into foreclosure.

“We had $375,000 in bad debt,” said Jordan, whose complex charges monthly fees of $250 to $357. “LM Funding is recouping every dime for us.”

While banks present a potentially lucrative source of delinquent dues, they’re also a challenging target because they use legal tactics to prolong the foreclosure process, said Ellen Hirsch de Haan, an attorney with Becker & Poliakoff PA in Clearwater, Florida, who represents homeowner associations.

Canceling Hearings

“The banks are setting and then canceling hearings before the final judgment is eventually entered,” she said in an e- mail, “then setting and canceling the sale date, then failing to record the certificate of title, thereby postponing the actual transfer of title to the bank for months, or even years.”

Bank of America, with 1.1 million mortgages at least 90 days delinquent, addresses non-performing loans as fast as possible while complying with the law, Jumana Bauwens, a spokeswoman for the Charlotte, North Carolina-based bank, wrote in an e-mail. Bank of America loans in which borrowers were at least three months late were valued at $32.5 billion as of March 31, up from $26.97 billion a year earlier, according to Federal Deposit Insurance Corp. data compiled by Bloomberg.

“After exhausting all home-retention efforts, it is in the best interest of servicers and investors to move the foreclosure process along while abiding by Florida laws,” Bauwens said in the e-mail. “On average, homeowners are delinquent 18 months prior to a foreclosure sale. In judicial states like Florida, the process is longer.”

Bank Trustees

To compel banks to act, Solomon’s lawsuits start by suing the homeowner for unpaid dues as a way of seeking title to the property. Then he files a claim against the bank, contending the non-performing loan restricts the association’s right to sell the property because the mortgage is worth more than the home.

The bank defendant is usually a trustee for the loan that was sold into a mortgage-backed security, a legal structure that can leave the party responsible for a mortgage unclear.

Citigroup and Deutsche Bank declined to challenge lawsuits brought by Solomon because both banks were trustees, not the servicers of the delinquent loans, bank representatives said.

In March 2010, Citigroup lost a lawsuit over a Miami Beach condo with a $136,000 mortgage, according to court filings. Danielle Romero-Apsilos, a spokeswoman for the New York-based bank, declined to comment, saying Citigroup wasn’t the servicer.

Deutsche Bank

Deutsche Bank in September forfeited its right to a unit with a $149,300 mortgage to the Palm Aire Gardens Condominium Association Inc. in Pompano Beach, Florida.

“Litton Loan Servicing, the loan servicer for the loan, and not Deutsche Bank as trustee, was responsible for all foreclosure activity relating to the loan,” John Gallagher, a Deutsche Bank spokesman in New York, said in an e-mail.

Donna Marie Jendritza, a spokeswoman for Litton in Houston, declined to comment on the lawsuit, citing privacy restrictions. Litton, which Goldman Sachs Group Inc. is selling to Ocwen Financial Corp., wasn’t named in the complaint or other court documents.

“We sue whoever holds the mortgage,” Solomon said. “The bottom line is the bank had a loan and the mortgage got terminated.”

No Defense

Palm Aire Gardens also won title to a unit with a $184,410 mortgage after Wells Fargo failed to mount a defense because it no longer owned the loan, a transfer that wasn’t reflected in property records, said Tom Goyda, a spokesman. The bank would have defended the mortgage if it hadn’t sold the loan, he said.

The San Francisco-based bank had $9.6 billion in mortgages more than 90 days delinquent and $11.4 billion in non-performing mortgages on one- to four-family homes as of June 30, Goyda said.

JPMorgan, the lender in the Vintage East case, had $2.5 billion in second-quarter costs tied to faulty mortgages and foreclosures, it reported July 14.

“There have been so many flaws in mortgages that it’s been an unmitigated disaster,” Chief Executive Officer Jamie Dimon said in a conference call that day. “We just really need to clean it up for the sake of everybody. And everybody is going to sue everybody else, and it’s going to go on for a long time.”

Vintage East

Thomas Kelly, a spokesman for JPMorgan in Chicago, declined to comment on the Vintage East lawsuit or other cases in which the bank lost properties to homeowner associations.

The bank’s mortgage at Vintage East was on a studio apartment with $24,000 in unpaid back dues, said Losson, the board member. Other residents of the Art Deco complex, built in 1937 two blocks from the beach, loaned the association money to pay for roof and building repairs and wrote personal checks to cover insurance payments, she said.

“We’re still in precarious condition, but we can see our way out now,” said Losson, who estimated the condo association was owed $60,000 in delinquent dues. “We went up against JPMorgan Chase and we won. It’s a good story. There’s a way out of the morass.”

To contact the reporter on this story: John Gittelsohn in Los Angeles at johngitt@bloomberg.net.

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net.

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