"Foreclosures Old and New Issues"
Foreclosure Hodge Podge Deanne R. Stodden Managing Partner Castle Meinhold & Stawiarski, LLC Agenda Title insurance options HAMP and HAFA update The eviction process and PTAFA Amos v. Aspen Alps 123, LLC Title products Title search – least expensive, DOT forward, no insurance Foreclosure Guarantee – one step up from a search, minimal insurance coverage, DOT forward Foreclosure Commitment – best coverage, two owner search, insurance product Title and the Foreclosure Mailing List Attorney reviews title and tax certification and looks for addresses for mailing list. If attorney has a title commitment, attorney will also be looking for title problems such as improper vesting, legal description errors, etc. Mortgagee’s Policy vs. Foreclosure Search or Insurance Product A mortgagee’s title policy (if one was purchased) insures the lender (and successors) in lien position at time of closing of loan. If there is a title problem such as a prior, unreleased lien or a legal description error, the lender can make a title claim under mortgagee’s policy. Foreclosure product insures or guarantees if addresses provided in documents are on mailing list, at end of foreclosure, lender will have clear or “marketable” title. Mortgagee’s Policy Lenders don’t generally purchase title insurance for second deeds of trust. Some problems can be insured over or “around” by title company insuring the foreclosure. Sometimes mortgagee’s policy title company will indemnify the foreclosure title company for a defect. Home Affordable Modification Program (HAMP) Effective 2/18/09. HAMP applies to loans originated on or before January 1, 2009. HAMP is a national program to modify first mortgage loans to an affordable and sustainable monthly payment amount. HAMP HAMP offers incentives to lenders and servicers to modify at risk borrowers who have not yet missed payments when servicer determines there is an imminent risk of default. Loans can only be modified once under HAMP. Lender or servicer, after reducing mortgage payments to no greater than 38 percent of the borrower’s debt- to-income will receive a Treasury Match for further reductions in monthly payments on a dollar-for-dollar basis, down to a 31 percent debt-to-income ratio. HAMP Servicers also receive up-front incentives of $1,000 for each modification initiated under the Program’s guidelines as well as a $1,000 payment for each year for up to three years for each borrower that remains in the Program. Lenders on mortgages that enter the Program while the borrower is still current but at risk will receive a one-time incentive of $1,500.00 and servicers will receive $500.00. HAMP Freddie Mac and Fannie Mae servicers must participate. Otherwise the program is optional. Most servicers have signed up to participate (over 130). 89% of mortgage loans are eligible for HAMP. Important note: Borrowers do not have a private right of action if servicer fails to comply with HAMP. Home Affordable Foreclosure Alternatives (HAFA) Effective April 10, 2010. Offers short sales and Deeds in Lieu. Complements HAMP – only HAMP eligible borrowers. Pre-approval of short sale terms prior to listing. Borrowers will be relieved of debt obligation. 2MP Program Second Lien Program 2MP was introduced along with HAFA. Allows for modifications of second mortgages. 2nd lien automatically modified if first lien is modified through HAMP. Evictions in Colorado Evictions are performed with the property is occupied or contains personal property. A post-foreclosure lender (who is now the owner) can exercise self-help, but may be liable for damages. The safest route for a lender post- foreclosure is to evict. Evictions in Colorado A pre-requisite to filing the action is a Demand for Possession being posted in a conspicuous place on the property. In a situation where there is rent at issue, the Demand for Possession must be posted at least 3 days prior to an eviction action being commenced in court. Evictions in Colorado After Demand for Possession is posted, a Complaint is filed with the court. (Can be county or district court) Complaint and a Summons to appear must be either served or posted (after a diligent attempt to serve) not less than 5 and no more than 10 days before the court date. Evictions in Colorado If the defendant does not appear at court date nor file an answer, a default judgment for possession enters. If the defendant does appear or files an answer, the defendant may stipulate to judgment entering in exchange for additional time to vacate. Defendant may also file an answer and the matter will be set for trial. Evictions in Colorado Trials are generally set no more than one week from the return date, but sometimes less. At trial, the plaintiff must prove he/she/it is entitled to possession. The defendant must show why the plaintiff is NOT entitled to possession. Lenders post-foreclosure generally must show that they are the owner to demonstrate they are entitled to possession. Evictions in Colorado Lender/Plaintiff can show ownership by a PT Confirmation Deed or a PT CP and an affidavit that redemption periods have expired without a valid redemption being made. Protecting Tenants at Foreclosure Act (PTAFA) On May 20, 2009, the Federal Legislature passed what is known as Title VII Protecting Tenants at Foreclosure Act or “PTAFA.” PTAFA was drafted and enacted in response to complaints of tenants in properties that had been foreclosed that they were being summarily evicted. PTAFA PTAFA applies in the case of any foreclosure of “any federally-related mortgage loan OR ON ANY DWELLING OR RESIDENTIAL REAL PROPERTY AFTER THE DATE OF ENACTMENT.” PTAFA PTAFA requires that if a “bona fide” tenant is residing in the property as of the “date of such notice of foreclosure,” that the party that acquired the interest in the property shall take title to the property subject to the tenancy and therefore, must provide the tenant with a notice to vacate at least 90 days before the effective date of the notice or, in the event of a written lease, must honor the term of the lease or give the tenant 90 days, whichever is longer. PTAFA PTAFA defines a “bona fide tenant” as a tenancy in which: the mortgagor or the child, spouse, parent of the mortgagor under the contract (deed of trust) is not the tenant; the lease or tenancy was the result of an arms-length transaction; and the lease or tenancy requires the receipt of rent that is not substantially less than fair market rent for the property or the unit’s rent is reduced or subsidized due to a Federal, State or local subsidy. PTAFA The Act was poorly drafted and uses many of vague and/or undefined terms. This will likely result in increased litigation. Amos v. Aspen Alps 123, LLC Decided by the Colorado Court of Appeals in 2010. The decision is lengthy and deals the foreclosure of a condominium unit in Aspen. The foreclosure was pre-2008 statutory changes. Amos v. Aspen Alps 123, LLC One of two owners, Righetti, died several years before the foreclosure, and the Estate did not subsequently record any documents evidencing the transfer of ownership of the deceased. Amos, the other co-tenant, was the co- personal representative of the Estate, along with Righetti’s daughter. Amos received notice of the foreclosure and the Rule 120 hearing; Righetti’s daughter did not receive notice. Amos v. Aspen Alps 123, LLC Neither files a timely notice of intent to redeem, although there was evidence which the trial court rejected that Amos may have attempted to mail such a notice. Regardless, a notice of intent to redeem was never received by the public trustee. Amos tendered the full amount (over $1 million) on the 75th day of the owner’s redemption period, but the redemption was rejected for failure to file the notice of intent to redeem. Amos v. Aspen Alps 123, LLC The sale invited competitive bidding, and several parties bid up to $1.86 million. At that point, the bidders agreed to form an LLC to acquire the property jointly, although the trial court found that two of the three parties had no ability to bid further. The owners sought to set aside the sale based on the failure to notify Righetti’s daughter of the Rule 120 hearing, and to allow the redemption as tendered. The trial court found in favor of the lender and the LLC which received a public trustee’s deed, and awarded attorney fees to the LLC under the spurious lien statute based on the recording of a notice of lis pendens by the owners at the outset of the litigation. Amos v. Aspen Alps 123, LLC The court of appeals rejected the claim to set aside the sale for lack of notice, holding that the Estate received actual notice of the foreclosure and the Rule 120 hearing and was not prejudiced. The court approved the trial court’s rejection of the tendered redemption, because of the failure of the owner to comply with the notice requirements in the statute, based in part on the lower court’s finding that the notice was probably never mailed. Amos v. Aspen Alps 123, LLC However, the Court of Appeals reversed the trial court and agreed with the owner that unlawful bid rigging occurred. Under the Colorado Antitrust Act, C.R.S. § 6-4-106, “[i]t is illegal for any person to contract, combine, or conspire with any person to rig any bid, or any aspect of the bidding process, in any way related to the provision of any commodity or service.” Amos v. Aspen Alps123, LLC The court held that bid-rigging is per se illegal and remanded to the trial court for determination of the appropriate equitable remedy, directing the district court to set aside the sale to the LLC, and to either allow the individual high bidder to obtain title or to require a new sale with the attendant rights of redemption. Amos v. Aspen Alps123, LLC The court reversed the trial court’s award of attorney fees to the LLC under the spurious document statute (based on the recording of a notice of lis pendens) and reversed the judgment in favor of the LLC for slander of title.