Real Estate Law: Alternatives to the Worst Case Scenario

 Posted on May 27, 2016 in Property Taxes

As the foreclosure bubble wheezes out its last bit of hot air, the courts and tax collectors are no longer borrower friendly or sympathetic in regards to hardships and distressed markets. The dockets are backlogged and the various tax administrations are seeking relief for the debts owed and collateralized by real property.

Asset managers will advise borrowers to work with their attorneys and attempt to mitigate the loss as much as possible. Alternative methods include escrow analysis, loan modifications, repayment agreements, Short Sales, and the Deed in Lieu.

In cases of default each circumstance warrants individual review. If the loan has only been deemed as " nonperforming " for a short time, an escrow analysis should be conducted to evaluate any surplus or shortage being held for the payment of taxes and/or insurance. These funds can be recalculated or reapplied when restructuring the loan. A loan modification or repayment agreement is ideal for this type of defaulted borrower. Being proactive about the situation and working diligently to become current on the payments goes a long way with your lender, while sheltering you from litigation and credit risk.

In the extreme case whereby the defaulted loan is severe, alternative options are still available to the borrower. In determining best resolution two factors present: attached liens and equity. The short sale option allows the homeowner to sell the home on the open market with lender approval. Lender approval stems from the selling price of the home, outstanding liens and payoffs associated with the closing transaction, and the net seller proceeds being drawn from the sale. Second liens require approval by each subordinate lien holder and the selling price of the home must include the satisfaction of all liens attached to the property. *Municipal liens (water liens and utilities) assumed by the purchaser can often be nullified under new ownership. However, the new owner assumes all risk and obligation of the balance owed should the municipality enforce the debt.

The Deed in Lieu (of foreclosure) is a means to voluntarily surrender the property. A competent attorney should be able to negotiate the terms of the DIL, often waiving any deficiency or collection attempt on the remaining debt. Although this can be devastating to many, borrowers are best served by getting free of the burden sooner rather than later. When the market crashed many tried to hold on for far too long. If you cannot get out from under it, the best option you have is to cut loose of it. The quicker the issue is resolved , the quicker one can begin to reestablish.

In the case of a tax lien, the servicer or lender may be able to satisfy the tax collector, tax certificate, or tax sale prior to occurrence. Tax lien redemption varies by city, township, county, and state, often appearing more intimidating than it really is. Many tax issues can be resolved prior to tax foreclosure and ownership transfer. A bankruptcy stay can shield against the collection of tax installments and provides exemption under the filing.

As these matters can become quickly convoluted, it is highly recommended that one seek the advice of an experienced attorney specializing in the areas of real estate law to consult you of your options and rights. Not only can an attorney protect your rights, competent legal teams will review your origination file to ensure proper compliance procedures and protocols were followed by the lender, servicers, and title companies involved at the time the loan was originated and throughout the life cycle of the loan. As a layman, it is nearly impossible to beat the bank or the government. Proper representation in these matters can make all the difference. In order to consult with an expert in the field, contact us today.