Alaska Foreclosure Law

Alaska Foreclosure Law Presented by Ashley Callahan, Esq. FCSR, Region C 206-770-8835 Ashley.Callahan@stewart.com Housekeeping Matters      Please MUTE YOUR PHONE *6 is the mute feature If you do have a question, feel free to ask it anytime. Email Tami.Nissim@stewart.com with your name (especially if a group of people are in one room) so you receive credit for attending the Webinar. The presentation will be posted to the Region C website www.stewartregionc.com Mortgages vs. Trust Deeds     Both are security instruments that secure payment of an underlying debt by allowing the lender to foreclose upon the property upon default. Mortgages are typically foreclosed judicially through a court action requiring notice to interested parties who will be impacted by the foreclosure. Trust Deeds name a Trustee who has the authority to sell without judicial supervision. (“Power of Sale”) Power of Sale language – if the document does not grant a power of sale, the lender or trustee will need to judicially foreclose. Verify that a power of sale foreclosure was authorized. Notice Issues  Timing: – – – – Record Notice of Default: Not less than 30 days after default and not more than 3 months before trustee sale, the trustee must record a Notice of Default in the recording district where the property sits; Mail Notice of Default: Within 10 days after recording it, mail Notice of Default by certified mail to the last known addresses. The Notice of Default may be delivered personally in lieu of certified mail; Post Notice of Default Publish Notice of Sale once every four weeks before the sale date  Who Gets Notice: – – – – – The Grantor under the deed of trust (at last known address); The successor in interest to the Grantor (at last known address) if such interest is of record or if the trustee has actual knowledge of the successor’s interest; Any other person in possession of or occupying the property; Any junior lienholder of record or of whom the trustee has actual knowledge; Beware of HOA’s and Condominiums. Notice Issues (continued)  Omitted Parties: – – Those who don’t receive required notice are not effected by the foreclosure Proper notice is critical to us due to the rights of omitted parties.  Special Rules for Trustee: – – – – If the State of Alaska is a junior lienholder, the trustee must give the State, in addition to the Notice of Default, a supplemental notice containing details of the state lien; If the IRS is a lienholder, the trustee must provide actual notice 25 days prior to the sale (registered or certified) to the District Director of the IRS and it is good practice to enclose a copy of the Notice of Lien; In providing notice, the trustee is required to check the record and visit and inspect the property for a determination of whether there is another person in possession of, or occupying, the property. Review property posting affidavit for new construction and/or building materials on site. Additional notices may need to be made. Trustee is required to use “due diligence” in determining last known addresses, i.e. phone book, permanent fund records (pre 2004), what else? Rosenberg case (1986): Alaska Title could have discovered the Smidt’s address by several of the utility companies, or the State’s DMV. “…the mobility of Alaska’s youthful population compelled such a duty.” Court’s view versus reality. Notice Issues (continued)  Beneficiary Rules: – – – The beneficiary must inform the grantor (borrower) with information regarding amounts due to bring the loan secured by the Deed of Trust current; Lender also has a duty to “seasonably advise” a junior lienholder of the amount in default. Three day’s notice is insufficient. If the trustee has recorded Notices of Default two or more times, and each time the grantor cures the default, on the third time the beneficiary does not have to accept the cure and can instruct the trustee to foreclose. Right to Cure  If the default is cured, then it is as if the foreclosure never happened. All liens, including the foreclosing lien, are as they were before. Sale  Judicial Foreclosure – – – Court will order the State Trooper to sell the property at public auction to the high bidder; High bidder receives a Certificate of Purchase evidencing their high bid; Parties maintain a right to redeem property. Public auction by trustee after giving proper notice (see above); Occurs at the front door of the superior court courthouse in the judicial district where the property is located (unless the Deed of Trust specifies otherwise)    Non-Judicial Foreclosure – – Title agent ever asked to conduct sale? What to do when something goes wrong? – – – Highest and “best” bidder receives a deed from the trustee; Once executed and delivered, the Grantor, heirs, or assigns have no rights of redemption (unless the Deed of Trust specifies otherwise); Once recorded, the purchaser at the sale is entitled to immediate possession of property. Redemption Rights      Certain parties can redeem the property from the foreclosure sale. In Alaska, the debtor or a junior creditor may redeem property within 60 days of order confirming the sale. IRS - has 120 days from date of sale, or under applicable state rules, whichever is longer, to redeem the property. All other federal liens have 1 year from date of sale. – Take exception to federal redemptive rights if time period has not passed. Borrower typically has right to stay on the property until redemption periods expire. – May have to take exception to parties in possession on commitment & policies. Affidavits Required      Affidavit of Mailing Affidavit of Posting Affidavit of Publishing Affidavits should contain recitation of facts, not just legal requirements Consider Affidavit from beneficiary detailing facts regarding the default Trustee’s Deed Affidavit of Mailing Affidavit of Posting Affidavit of Publication Trustee’s Review of Affidavits    Prior to signing the trustee’s deed, the agent must carefully review all of the affidavits to ensure compliance with the foreclosure requirements; Compare Notice of Default Affidavit with trustee sale guarantee; If in doubt, have beneficiary substitute in a new trustee to sign trustee’s deed Post-Sale  After the trustee’s sale, the trustee must sign and record (in the judicial district where the property is located) the Trustee’s Deed and the affidavits mailing the Notice of Default, of posting, and of Publication of the Notice of Default (or Sale) Postponed Sale  The person conducting the sale may postpone the sale for any reason by announcing the postponement at the time the original sale was scheduled to occur; – Postponing for one hour is okay to deal with something that goes wrong  If postponed more than 6 months, prudent to repost and republish. What is Transferred?   A trustee’s sale transfers to the grantee all rights held by the person who conveyed the deed of trust (the grantor); All matters of record after the deed of trust recorded are wiped out if noticed; – – May not want to wipe out easements or beneficial agreements like leases Beware: partial assignments of DoT’s (Lynn Baker)  All matters prior to the deed of trust remain. Deed   In order to insure a sale or mortgage out of a foreclosure we require a deed into the purchaser or last redeeming party. Issuance of a deed does not mean that parties in possession have left the property, eviction may be necessary. This can apply to lessees also. Always want to confirm who possesses the property and take exception if needed. Problems with Foreclosure  The Affidavits. – – The recorded affidavits must state factual details about how all notice requirements were complied with. The trustee cannot simply be the mouthpiece for the beneficiary. Trustee must make his or her own independent evaluations if objections or questions are raised by the trustor, e.g. improper accounting of payments made. Consider affidavit by beneficiary before foreclosure process starts BFP defined Void Sale – no BFP can win Voidable Sale – BFP may win, but slim chance.  Void vs. Voidable and BFP’s – – – Other Problems  Wrong Property Address on Notice of Default or Sale – The sale is still valid if legal is accurate. May be used to get out of situations where title company may be at risk, i.e., attorney refuses to sign affidavit stating he inspected property and followed notice requirements and we are asked to sign trustee’s deed without such assurances.  Substitution of Trustee – Bankruptcy Issues  Upon filing bankruptcy petition, the “Automatic Stay” prohibits all creditors from attempting to enforce/collect upon a debt. – – – Prohibits commencing or continuing with a foreclosure. Automatic stay in effect even if creditor is unaware of the bankruptcy filing. MUST check for bankruptcy filings when insuring out of a foreclosure!  Creditors can motion the bankruptcy court for relief from the automatic stay. Upon a final order from the court granting relief, the creditor can proceed to foreclose. Bankruptcy Issues (continued)   Bankruptcy Trustee can abandon the property from the bankruptcy estate upon notice to creditors and no objection. Must have a court order confirming the abandonment of the property. Wait for 30 day appeal period to run. If foreclosure sale occurred before bankruptcy petition, the automatic stay does not toll the redemption periods. The Bankruptcy Trustee can redeem the property under state redemption rules. Bankruptcy Trustee has 60 days from the filing of the bankruptcy petition or the period under state redemption rules, whichever is longer, in which to redeem from a sale conducted prior to filing of bankruptcy petition. Bankruptcy Issues (continued)   Remember, a discharge of the debtor only impacts the personal obligation to pay the debt. Discharge does not remove liens against the property. Mortgages, Trust Deeds, tax liens, judgments are all liens against the property. Any sale out of foreclosure may still need to require release of liens against the property. Consider when insuring a purchase at a sale adding an exception about the potential right of the Bankruptcy Trustee or a Creditor to attack the sale because the sale amount was not for fair value. Soldiers and Sailors Act      Service members Civil Relief Act protects those in active military service, including National Guard and Reserves Protects them against foreclosure while in active duty or within 90 days of discharge. We must be satisfied that no party being foreclosed was in active service at time of foreclosure or discharged 90 days therefrom Require an affidavit concerning military service from attorney conducting the foreclosure or trustee. If you cannot obtain a satisfactory affidavit, insert the exception: “Any claim because of violation of the Servicemembers Civil Relief Act, formerly known as the Soldiers’ and Sailors’ Civil Relief Act of 1940, which restricts foreclosure proceedings against persons in the military service of the United States” Mechanic’s Liens   Individual subcontractor Mechanic’s lien may have priority over a prior recorded Mortgage or Deed of Trust. If this occurs, then foreclosure does not effect the mechanic’s lien. Deed in Lieu      To avoid a foreclosure, the borrower might deed the property to the lender. Risk is that a court may set the Deed-in-Lieu aside and treat as a mortgage if the court feels it would be equitable. A Deed-in-Lieu is subject to attack by a bankruptcy trustee as a fraudulent conveyance. Require an Estoppel Agreement along with the Deed-in-Lieu. Contact underwriting if you are asked to insure. Summary          Review notice requirements and compliance. Review redemption rules. Check for bankruptcy issues. Affidavit concerning Servicemembers Civil Relief Act or appropriate exception Require a deed out of the foreclosure. Be aware of “extended” redemption rights in IRS, fed. govt. or bankruptcy trustees, take exception if necessary. Senior liens and omitted parties are not impacted by a foreclosure. Discharge in bankruptcy does not remove liens against property. Beware that parties in possession, lessees, or partial assignees may still be on or have interests in the underlying debt. Take exception as necessary. Special Thanks To: Lynn Baker, President, & Larry Moss, Title Examiner, of McKinley Title & Trust McKinley Title & Trust, Inc. 3035 E Palmer-Wasilla Hwy; Suite 101 Wasilla, AK 99654 (907)376-2220