Richard Zaretsky, Florida Real Estate Attorney

More and more I have been receiving telephone calls and emails wanting me to discuss issues relating to buyer foreclosures and short sales and REO properties. Everyone (both qualified but usually unqualified) seems is writing or buying books on the process, so I figured it may be time to put in my two cents and talk about title issues and due diligence.

A writer emailed me about the research and especially the title search costs associated with determining to bid upon a foreclosure property. He was upset that he would incur title search expenses and still not get the property. Apparently the seminar he went to did not fully disclose the inherent dangers to making millions from foreclosures. This was an excellent observation by the writer and so it deserves mention here.

Status of Title -

The status of title is one of the most important aspects of buying a property, whether it is privately, in a traditional sale, or on the courthouse steps from a forced (foreclosure or sheriff's) sale.

Just knowing that the seller is the owner (the person losing the property) or has a right to sell (the clerk of the court) is totally inadequate information. Although a court ordered sale MAY remove inferior liens from the title, you must ascertain if all inferior liens were properly named in the lawsuit (unless they arose after the filing of the lis pendens - if the lis pendens was indeed filed along with the complaint for foreclosure).

Lis Pendens -

[Here is some lawyer background on the lis pendens: see the link A LAWYER'S EXPLANATION OF THE FORECLOSURE PROCESS for a full explanation of the foreclosure process and lis pendens - Suffice it to say that the "lis pendens" is popularly and incorrectly referred to as the foreclosure complaint (ie: "I was served with a lis pendens"). The key document is the complaint, not the lis pendens. The lis pendens means "pending litigation" and is directed to the real estate and provides notice in the public records to the public that there is litigation pending regarding that real estate. By error some foreclosure complaints get filed without there being a lis pendens and that will result in a title issue at the end of the case. Any claim against the real estate that arises after the filing of the lis pendens is usually wiped out by the foreclosure without naming that claimant in the law suit. Any claim arising before the filing of the lis pendens must be named in the complaint if it to be removed via the foreclosure process.]

The problem is there are liens that cannot be foreclosed, such as unpaid real estate taxes and code enforcement liens. As to the latter item, in Florida at least such a lien on any property owned by the property owner extends not only to the subject violated property but to all property owned by that owner and located in that county. Such liens can be very large and are difficult to reduce through a local administrative hearing procedure. If the property was owned by the common owner at the time of the code enforcement lien, then the foreclosure (or even a tax deed sale) will not eliminate that code enforcement lien.

Unrecorded Issues -

Then you also have the issues of items that are not even recorded liens but can still become a problem after the sale. A prime example is an improvement that was never permitted with the government, or a property line encroachment that a neighbor now seeks to enforce. The improvement could be required to be removed. Usually this problem can be resolved by backward engineering of the improvement - but that can be expensive since you need to hire an engineer to inspect the unauthorized improvement, prepare plans for it and then certify that the improvement as it exists is in compliance with all building codes presently in effect.

You will find that buyers of foreclosures generally have on staff persons that understand the title priority law and know how to research it efficiently on their own. If there is no staff, then the individual professional buyer has that knowledge. Understanding and having the knowledge to research the liens avoids the costs but not the time to research before you bid. Understanding the building codes is also helpful but in a foreclosure sale it is almost never an option to be able to inspect the property on site prior to the actual bidding process. Due diligence is a cost of being in the foreclosure purchasing business and must be considered the number two priority in your list of whether to buy a property or not - with number one being does it makes economic sense to make the purchase.

Copyright 2009 Richard P. Zaretsky, Esq.

Be sure to contact your own attorney for your state laws, and always consult your own attorney on any legal decision you need to make. This article is for information purposes and is not specific advice to any one reader.

Richard Zaretsky, Esq., RICHARD P. ZARETSKY P.A. ATTORNEYS AT LAW, 1655 PALM BEACH LAKES BLVD, SUITE 900, WEST PALM BEACH, FLORIDA 33401, PHONE 561 689 6660 RPZ99@Florida-Counsel.com - FLORIDA BAR BOARD CERTIFIED IN REAL ESTATE LAW - We assist Brokers and Sellers with Short Sales and Modifications and Consult with Brokers and Sellers Nationwide! Shortsales@Florida-Counsel.com New Website www.Florida-Counsel.com. See our easy to find articles at Need Short Sale Information? - These Articles Probably Answer Your Question

Today I used a new technical defense to successfully defeat a motion for summary judgment for foreclosure and I wanted to pass it on to other attorneys (or those who know attorneys) helping homeowners in foreclosure.

This happened in Florida, but other states' rules could provide the same type of relief.

The bank filed its foreclosure some months ago and the homeowner tried to represent himself and did a poor job of it because there were several deficiencies in the pleadings filed by the bank. Then I came into the picture just 8 days before a scheduled court hearing to grant the bank's Motion for Summary Judgment of Foreclosure, at which time the public sale date for the house would have been set.

As with most foreclosure suits the promissory note could not be produced so the bank was going to produce at the hearing an Affidavit of Lost Promissory Note. This is permitted under a special state statute that creates a mechanism to prove up a financial instrument that was lost by the holder.

However, the Rules of Summary Judgment say that any pleading to be used by the moving party (here, the bank) must be filed with the court and provided to the other parties at least 20 days prior to the hearing.

The bank complied with the lost note statute (they had the lost note affidavit to give to the judge), but not the court rule about the 20 days, I argued -- and the judge agreed and denied their Motion for Summary Judgment.

This whole exercise was not to create a delay so the client can live in the house for free -- it was obtained so the client can complete a short sale (he still needs a buyer) and avoid a foreclosure deficiency judgment that will haunt him for the next 20 years.

I pass this on in the hope that this customary practice by the lenders will be recognized by attorneys and used to help out those needing more time to find a better solution than foreclosure.

Copyright 2009 Richard P. Zaretsky, Esq.

Be sure to contact your own attorney for your state laws, and always consult your own attorney on any legal decision you need to make. This article is for information purposes and is not specific advice to any one reader.

Richard Zaretsky, Esq., RICHARD P. ZARETSKY P.A. ATTORNEYS AT LAW, 1655 PALM BEACH LAKES BLVD, SUITE 900, WEST PALM BEACH, FLORIDA 33401, PHONE 561 689 6660 RPZ99@Florida-Counsel.com - FLORIDA BAR BOARD CERTIFIED IN REAL ESTATE LAW - We assist Brokers and Sellers with Short Sales and Modifications and Consult with Brokers and Sellers Nationwide! Shortsales@Florida-Counsel.com New Website www.Florida-Counsel.com. See our easy to find articles at Need Short Sale Information? - These Articles Probably Answer Your Question

This past week my office had 5 short sale buyer's walk from their contracts! Although I use an exclamation mark, it is not an unusual occurrence. In fact it seems that it takes 4 contact buyers to make a short sale finally happen. If that was an average for a traditional sale situation, Realtors and title agencies would be climbing the walls.

The general failure of short sale buyers to not close is the fault of the system created by the current finance and real estate sales market - but it needn't be. Just consider:

1. In a traditional sale, if there is a lien on the property does the Realtor negotiate to make the lien go away? Of course not. If there is a lien then the seller should get an attorney to clear the lien.

2. In a traditional sale the buyer is required to make a good faith reasonable deposit to escrow. Why on earth do we see buyer's making a deposit conditional on the lender accepting the "contract" (or whatever it is since there is no deposit). Why do we see $1,000 deposits for $300,000 contracts - that makes no sense either.

3. In a traditional sale the buyer makes inspections within a short period of time. In short sale contracts the "Effective Date" is when the Buyer is told the bank approved the contract for short sale. This encourages multiple contract offers by one buyer on several properties since any can be canceled for no reason shortly after lender approval. Inspections should be done in the traditional way - the cost is a risk to the endeavor by the buyer and the price offered should be part of the consideration of the offering being a "hard contract".

Lenders should encourage a change in conduct by rejecting outright any contract with post lender approval contingencies. That would vastly decrease the number of short sale buyer contracts that will never close - but increase the percentage of short sale contracts that indeed close!

Copyright 2009 Richard P. Zaretsky, Esq.

Be sure to contact your own attorney for your state laws, and always consult your own attorney on any legal decision you need to make. This article is for information purposes and is not specific advice to any one reader.

Richard Zaretsky, Esq., RICHARD P. ZARETSKY P.A. ATTORNEYS AT LAW, 1655 PALM BEACH LAKES BLVD, SUITE 900, WEST PALM BEACH, FLORIDA 33401, PHONE 561 689 6660 RPZ99@Florida-Counsel.com - FLORIDA BAR BOARD CERTIFIED IN REAL ESTATE LAW - We assist Brokers and Sellers with Short Sales and Modifications and Consult with Brokers and Sellers Nationwide! Shortsales@Florida-Counsel.com New Website www.Florida-Counsel.com. See our easy to find articles at Need Short Sale Information? - These Articles Probably Answer Your Question

Florida Attorney General Begins Enforcement of Mortgage Modification Firms

I just received an email from an ActiveRain Realtor member that stated basically the following:

"The Florida Attorney General office has set up "spot checkers" to find people/companies accepting up-front fees for negotiating loan modifications. When I was called, I answered yes to the question (do I get paid up front).

I had only 2 clients.

After what ended up being an interrogation, I agreed to refund the money of the 2 clients even though they never complained! I agreed to cease & desist for which there will be an agreement in writing. Here is the kicker - I have to pay a fine of $5,000 plus costs! A portion of the text of the Attorney General letter says, "As we discussed, you will be responsible for the attorneys fees and costs and investigative costs of this action. Our office will be seeking $15,000.00 as a stipulated payment with $10,000.00 of that amount being waived due to your refunds to the affected consumers. The remaining $5000.00 will need to be paid unless you can provide documentation of your inability to pay."

The message here is that the Economic Crimes Unit of the Attorney General is now actively investigating anyone undertaking activities that would come under the definition of Mortgage Foreclosure Consultant or activities that come under the umbrella of the Florida Fraud Prevention Rescue Act. I reported on the position of the Florida Bar in their Ethics Alert and now the matter was written up on the Daily Business Review at FORECLOSURES: STRICT RULES FOR LAWYERS.

EVERONE furnishing mortgage modification or foreclosure rescue services to Florida residents must be vigilant to the terms of this legislation!

Copyright 2009 Richard P. Zaretsky, Esq.

Be sure to contact your own attorney for your state laws, and always consult your own attorney on any legal decision you need to make. This article is for information purposes and is not specific advice to any one reader.

Richard Zaretsky, Esq., RICHARD P. ZARETSKY P.A. ATTORNEYS AT LAW, 1655 PALM BEACH LAKES BLVD, SUITE 900, WEST PALM BEACH, FLORIDA 33401, PHONE 561 689 6660 RPZ99@Florida-Counsel.com - FLORIDA BAR BOARD CERTIFIED IN REAL ESTATE LAW - We assist Brokers and Sellers with Short Sales and Modifications and Consult with Brokers and Sellers Nationwide! Shortsales@Florida-Counsel.com New Website www.Florida-Counsel.com. See our easy to find articles at Need Short Sale Information? - These Articles Probably Answer Your Question

This week the Florida Bar made public the outlandish and misleading representations that have recently plagued the mortgage modification industry in this state and probably nationwide. The mortgage modification industry has sprung up faster than mushrooms - mostly through mortgage brokers that have seen their ability to make loans dry up in this recession and are applying net office sales techniques to the mortgage modification boom. The problem is that many states have enacted new laws to put them out of business.

The situation is important enough that an "Ethics Alert"was issued by the Florida Bar on March 15th.

Typically, the mortgage modification firm - which often uses "net offices" just like in the good old lending days and are just where a sales person hangs out - will recruit an attorney to "watch" the modification process and they will advertise that there is an attorney "representing" the client's (the borrower's) interests. Typical language is, "our attorney will represent you in the modification process and review all of your documents," or similar. In reality the attorney does almost nothing or works under the direct control of a non-lawyer.

Florida passed a Mortgage Rescue Consultant law in 2008and many firms have sought to stay in the lucrative Florida mortgage assistance market by trying to skirt that law by using a letter opinion by the Florida Attorney General that exempts attorneys from work they doing in defending a client in a foreclosure. The result however is a plethora of ethics violations for the lawyers that get involved and Unauthorized Practice of Law (UPL) violations for the mortgage modification firm if they give any type of legal service.

Usually these firms charge between $1,500 to $3,500 for modification services - the price is often set by the salesman (who is not an attorney). The salesman gets an commission (anything above the set fee) and the attorney gets a nominal review fee - or something up to 10% of the total fee if special services are provided, such as using the attorney trust account to deposit the fee for clearance and then disbursement to the loan modification firm. The Bar also issued an instructive articleon how one modification firm was prosecuted, saying, "Florida lawyers are being approached about working with nonlawyers offering foreclosure-related services to consumers, but the proposals present a veritable minefield of ethical problems."

Copyright 2009 Richard P. Zaretsky, Esq.

Be sure to contact your own attorney for your state laws, and always consult your own attorney on any legal decision you need to make. This article is for information purposes and is not specific advice to any one reader.

Richard Zaretsky, Esq., RICHARD P. ZARETSKY P.A. ATTORNEYS AT LAW, 1655 PALM BEACH LAKES BLVD, SUITE 900, WEST PALM BEACH, FLORIDA 33401, PHONE 561 689 6660 RPZ99@Florida-Counsel.com - FLORIDA BAR BOARD CERTIFIED IN REAL ESTATE LAW - We assist Brokers and Sellers with Short Sales and Modifications and Consult with Brokers and Sellers Nationwide! Shortsales@Florida-Counsel.com New Website www.Florida-Counsel.com. See our easy to find articles at Need Short Sale Information? - These Articles Probably Answer Your Question