Posted tagged ‘Foreclosure’

Foreclosure in Alabama: The Right of Redemption (ROR)

November 12, 2015

As foreclosures have been a concern for many in this economic climate, it is important to know Alabama law provides significant protection for foreclosed homeowners through the right of redemption. Redemption is a personal right created by statute that allows former homeowners, junior lien holders, spouses and children of former homeowners, and others with an interest in a property, to reclaim their interest for one year after the date of the foreclosure sale

Click the link for a copy of those allowed to redeem under Alabama law:

The right of redemption expires after one year. Generally, the price paid by the redeeming party is the price of the property bid at the foreclosure plus those other charges allowed by statute. The redeeming party may also have to pay interest at a rate of 12% on those amounts paid by the current owner of the property towards the upkeep and maintenance of the property.

A listing of the allowable charges is shown here:

A right of redemption is generally not created when the sale of the property is to a third party by the party who purchased at a foreclosure sale. If you do purchase a property that has been foreclosed in the past year, it is important that a title commitment is reviewed prior to purchasing the property. Redemptions are uncommon but do occur. Often, the redeeming party has been able to obtain the money required to purchase the property through alternative forms of financing (borrowing from family, winning the lottery, etc.).

A good rule of thumb is to purchase a foreclosed property at a price less than what it sold for at a foreclosure sale. While this may seem elementary, many don’t check the foreclosure sale price prior to purchase.

Among the reasons for doing so are:

1. Foreclosed properties are often in a poor state and in need of repairs

2. If your purchase price is more than the price bid at the foreclosure sale, you may be required to purchase a redemption bond, adding a significant amount to your settlement costs at closing. This is because a redemption bond is intended to protect the new homeowner in the event the purchaser is reimbursed by the redeeming party by an amount less than what he paid;

3. If an authorized party wishes to exercise their right to foreclosure, you want to make sure you get a good return on your investment.

If you are a former homeowner that has been foreclosed on, remember these rules:

1. Take pictures of every part of the property prior to leaving. This will enable you to rebut any additional costs claimed for permanent improvements to the property

2. Get out within 10 days of receiving written demand for possession by the foreclosing party. This is usually standard operating procedure for foreclosures. Failure to comply results in a forfeiture of your right of redemption.

written by Yellowhammer Insurance, Inc.


Alabama Right of Redemption (ROR)

November 12, 2015

In Alabama, there is a right of redemption for one year after a foreclosure. The right of redemption is the right to purchase the property from the current owner, even if that person does NOT want to sell the property. Because people are getting SO MUCH bad advice on this topic, I decided to help clarify things on one point: How much does it cost to redeem?

Many different categories people have the right of redemption. That list is outside the scope of this post.

You can lose your right of redemption if you don’t comply with the Ten Day Notice to Vacate. That topic is too complicated for this post.

After a lender foreclosure, if the former owner wants to redeem, they must pay the following charges, all at 12% interest:

1. Amount bid on the courthouse steps; plus

2. Insurance premiums paid or owed in the meantime; plus

3. Ad valorem taxes paid or owed in the meantime; plus

4. Any other debt owed to the current owner of the property; plus

5. The value of permanent improvements.

a. Case authority in the early 20th century involved fights over whether “repairs” counted as “permanent improvements.” The courts said permanent improvements include anything done to improve the property, anything erected on the property, anything added to the property, AND any repairs to the property.

b. In a recent Alabama Supreme Court case, the property foreclosed was a warehouse. The purchaser completed revamped the property and turned it into a manufacturing facility. The value of those permanent improvements was a very large $$ amount. When the former owner tried to redeem, he said they didn’t count as permanent improvements because they didn’t “improve” the property, they completely changed the nature of the property. Alabama Supreme Court said, “too bad,” they are improvement and they are permanent, they qualify.

c. There have been some court battles over “value” vs. “cost.” The courts are clear, it is the VALUE, not the cost. If you spend $1,000 and increase the value $50,000, you get the $50,000. If you spend $100,000 and increase the value only $25,000, you get only $25,000.

d. The value of improvements is determined as follows:

i. The redeeming party sends a letter to the current owner stating his/her intention to redeem and asking for a statement of all lawful charges.

ii. The current owner has 10 days to respond with a statement of “all lawful charges” including the value of permanent improvements.

iii. If the current owner fails to respond within 10 days, they lose their right to demand the value of the permanent improvements.

iv. If the current owner responds in 10 days and places a value on the improvements, the former owner has 10 days to accept that number or contest it. If he/she contests it, the former owner has 10 days to appoint a referee and notify the current owner. If the former owner misses his deadline, he loses the right to contest the value of the permanent improvements.

v. The current owner then has ten days from receipt of the notice about the referee to appoint his OWN referee. If he misses this deadline, he loses the right to claim the value of the improvements.

vi. The two referees meet and try to come up with a value. The referees can be anybody. They don’t have to be appraisers or real estate agents.

vii. If the two referees cannot agree, they (the referees) appoint an umpire. Whatever value has two votes to support it wins, and that is the value.

viii. If someone disagrees at that point, they can hire lawyers and go to court.

6. If the property is redeemed, the current owner gets to keep all rents earned up until the former owner “tenders” or offers to redeem.

7. If the property is redeemed, the current owner must give the former owner a credit for the value all minerals taken from the property and the value of all timber cut.

8. You can’t demolish structures during a right of redemption period. No matter how ugly you might think they are, that doesn’t count as a “permanent improvement.”

9. If the property is redeemed by the former owner, all liens that used to be on the property when he/she owned it, reattach after redemption (except, of course, the mortgage that caused the foreclosure.)

10. If the property is redeemed by a junior lien holder, all liens that used to be on the property before foreclosure AND that were superior to that junior lien holder reattach, except the mortgage that caused the foreclosure. In other words, Regions has a 1st mortgage, WAMU has a 2nd mortgage, IRS has a tax lien that is 3rd, Community Hospital has a judgment lien that is 4th and Bob’s Plumbers has a judgment lien that is 5th. If someone buys the Community Hospital judgment lien and then redeems, the WAMU mortgage and the IRS will lien come back on the property, but Bob’s Plumbers will not.

I hope this helps you. This is a complicated area of the law, and this blog is not intended as legal advice. There are SO many other little things that might change the above rules, you should always ask a lawyer for advice before making any decisions or taking any action. Written by Denise L. Evans

HUD Earnest Money Forfeiture and/or Return

November 19, 2013

The following provisions are applicable in all instances except those where HUD is unable or unwilling to close the sale, in which case the entire amount will be returned.

Investor Purchasers:

  • Uninsured Sales: 100% of the deposit will be forfeited to HUD for failure to close, regardless of the reason.
  • Insured Sales:
    • 50% of the deposit will be forfeited to HUD for failure to close if the purchaser is determined by HUD to be an unacceptable buyer.
    • 100% of the deposit will be forfeited to HUD if the sale fails to close for any other reason.

Owner-Occupant Purchasers:

Return 100% of the deposit when:

      • There has been a death in the immediate family (purchaser, spouse or children living in the same household).
      • There has been a recent serious illness in the immediate family that has resulted in significant medical expenses or substantial loss of income, thus adversely, affecting the purchaser’s financial ability to close the sale.
      • There has been a loss of job by one of the primary breadwinners, or a substantial loss of income through no fault of the purchaser.
      • For an FHA insured sale, HUD (or a D.E. underwriter) determines that the purchaser is not an acceptable borrower.  For an uninsured sale, the purchaser was pre-approved for mortgage financing in an appropriate amount by a recognized lender and, despite good faith efforts, is unable to obtain mortgage financing.  “Pre-approved” means a commitment has been obtained from a recognized mortgage lender for mortgage financing in a specified dollar amount sufficient to purchase the property.
      • There is other equally good cause, as determined by Ofori, in keeping with the spirit and intent of the above policy.

Return 50% of the deposit when:

      • For an uninsured sale, despite good faith efforts by the purchaser, there is an inability to obtain a mortgage loan from a recognized mortgage lender.

Forfeit 100% of the deposit when:

    • No documentation is submitted.
    • Documentation fails to provide an acceptable cause for the buyer’s failure to close.
    • Documentation is not provided within a reasonable time following contract cancellation.

Vacant Lot Sales:

The purchaser is considered to be an investor and instructions pertaining to investors will apply.

Listing Codes For HUD Foreclosures

November 19, 2013

IN – Insurable:
All properties listed as “INSURABLE” are eligible for FHA financing. All requests for insurance will be under Section 203(b) of the National Housing Act Program. An interest rate will be charged on the loan and is negotiable between the purchaser and lender. The mortgage may include some mortgage insurance payments.

IE – Insurable with Escrow Repairs:
Properties listed as “INSURABLE WITH ESCROW REPAIRS” means that certain repairs (not to exceed $5,000.00) are required to meet Minimum Property Standards for an FHA mortgage. These properties can qualify for FHA Section 203(b) mortgages if the purchaser and lender establish a repair escrow at the closing for the completion of repairs within 90-days of the closing.

UI – Uninsured:
Properties listed as “UNINSURED” means that certain repairs and or improvements are required to be eligible for an FHA 203(k) mortgage. The required repairs on most of these properties exceed $5000.00. Purchasers of these properties have the option to purchase “as-is” with cash or conventional financing. These properties are also eligible for an FHA 203(k) mortgage if the required repairs and or the improvements are completed within 90-days of the closing.

About Title Insurance

November 13, 2013
If you borrow money to buy a home or property, a lending institution will probably make you buy a title insurance policy to protect its interest. As a consumer, it’s in your best interest to be well-informed about title insurance, how it works, and what to look for in title insurance.
What is Title Insurance?
Title insurance helps provide home buyers and/or mortgage lenders protection against losses resulting from unknown defects in the title to your property that existed before the closing of a real estate transaction.
Those unknown “deficits” could be:
  • outstanding liens on the property (e.g., unpaid real estate taxes by a prior owner).
  • encumbrances (anything that might hinder the owner’s right of ownership; e.g., errors or omissions in deeds, undisclosed errors, fraud, forgery, mistakes in examining records).
These deficits can result in additional costs in the future or even invalidate a home buyer’s right of ownership in the property. They might also invalidate the lender’s security interest in the policy. Title insurance policies cover the insured party for any covered losses and legal fees that might arise out of such problems.
What Do Title Insurance Agents/Companies Do?
Title insurance agents/companies search public records to develop and document the chain of ownership of a property. If any liens or encumbrances are found, the title company might require a home buyer to eliminate them before issuing a title policy. Title insurance agents might also hold money in escrow and perform closing services for an additional fee.
How Does Title Insurance Work?
Title insurance policies are indemnity policies – typically, they protect against losses arising from events that occur before the date of the policy, which is the date of closing. This is different from other types of insurance policies, such as auto or life insurance, which protect against losses resulting from accidents or events that occur after the policy is issued. A title policy is usually paid for with a one-time premium that is handled at the closing of the real estate transaction.
Who Needs Title Insurance?
Lenders – If a mortgage is obtained in order to purchase property, nearly all lenders require that a home buyer purchase the lender’s title insurance policy for an amount equal to the loan. A lender’s policy is issued to a mortgage lender. The policy gives the lender protection from covered losses arising from any defects in the title that have become known only after the insured property has been financed. The lender’s insurance policy will remains in effect until the amount financed has been repaid, the property is resold or refinanced.
Owners – Either a home seller or home buyer may buy an owner’s policy. In many areas, sellers pay for owner title policies as part of their obligation in the transfer of title to the home buyer. The question of who pays for the owner’s policy can be negotiated as part of a purchase agreement.
An owner’s policy is issued to a home buyer. It protects the buyer from covered losses arising from any unknown defects in the title that existed beforethe purchase which become known only after ownership of the property is acquired. Your owner’s policy remains in effect as long as you own or maintain an ownership interest in the insured property.
Marketing and Sales Practices
Although home buyers are free to shop around for a title agent or a title insurer, many home buyers do not. Because buyers are unfamiliar with title insurance, they tend to let lenders and/or real estate professionals who are parties to the home buying transaction make that decision.
Conflicts of interest can occur if the entities making the decision have a financial interest in a title agency/title company. Section 8 of the federal Real Estate Settlement Procedures Act (RESPA) prohibits people involved in a real estate settlement process from giving or accepting kickbacks or referral fees.
Key Points to Remember
  • Although a title insurance company will most likely be offered to you during the mortgage transaction process, you are not obligated to use it.
  • Be sure to ask what services and fees are included in the title insurance premium and any fees (e.g., cost of search and examination, closing services, etc.) that may be billed to you separately.
  • A lender policy only covers a lender’s loss. It does not protect a home buyer from losses arising from defects in title. Talk with a local, reputable real estate attorney not involved in the real estate transaction to find out if it is in your best interest to purchase an owner’s title insurance policy.
  • Make sure to ask about any available policy discounts. Premium discounts might be available if both owner’s and lender’s policies are purchased from the same title insurance company or if you are refinancing your loan. You might also ask about “reissue” or “substitution” rates.
  • Read all title insurance documents you get at closing, including the fine print. Ask questions if any items are unclear; or if any terms, conditions or amounts are not in line with something you may have been told before closing.
  • If you believe that a title/closing agent or title company in a real estate closing/settlement transaction is not following standard business practices (e.g., unexpected or undocumented fees, or requesting that you sign documents relating to the real estate or closing transaction that are not accurate), immediately report this to your State Department of Commerce.

So what is a HUD home?

June 3, 2011

When a lender must foreclose on, or accept a deed-in-lieu of foreclosure for, an insured FHA loan, they will file an FHA insurance claim for the unpaid balance.  Since the US Department of Housing and Urban Development (HUD) oversees the FHA, the title to the foreclosed property is conveyed to HUD.  Although HUD doesn’t actually foreclose or repossess the home, they are the receiver after the bank files the claim and they then begin the process to sell the homes through various contractors throughout the country.

What is earnest money and contingencies on HUD homes?

June 3, 2011

The earnest money requirements are usually lower than a typical purchase (usually $500-$1000 depending on price), but there’s a greater risk of losing the money. If you’re an owner-occupant, you can get 100% of the money back for specific reasons with adequate documentation (i.e. unable to obtain financing despite good faith efforts).

Investors should be more cautious. If your an investor and they accept your bid/contract and you decide not to close, you’ll lose all of the earnest money regardless of reason. One exception, if the house is “insurable” and HUD determines you’re an “unacceptable” buyer, then you’ll lose 50% of the EM. Unacceptable means that your lender refuses the loan if financing.