Q: My home was recently foreclosed upon. The bank claimed I owed $375,000 on the day of the foreclosure, but the bank was the only bidder at $325,000. They then sold my house for $400,000, but are going after me for a deficiency of $50,000, plus legal and court costs. Is this legal? Is it fair? Kenyon.
A: Is it legal? In those states which allow lenders to seek a deficiency judgement the answer is yes. Is it fair? No, deficiency judgments are, in my opinion, unfair, but unfortunately there still are States whose laws allow a lender to seek a deficiency judgment – even if they sell the property for more than they claim you owe.
What’s a deficiency judgment? It is the difference between what the borrower owed the bank on the date of the foreclosure sale and the amount the property was sold at the sale. Many States believe this is totally unfair. Not only does the homebuyer lose his home, but she is now being asked to pay the lender that difference.
A recent Illinois case confirmed that when a lender forecloses in a State where deficiency judgements are allowed, that terminated the relationship between the lender and the borrower. If the lender subsequently sells the property for a profit, that’s money in the lender’s pocket.
The court made a point of challenging the borrower. If the home was worth more than you owed, why did you let it go to foreclosure; why didn’t you try to sell it? That’s an important fact to keep in mind. If you can sell – even with a loss via a short sale – don’t let you house go to foreclosure.
The case is Old Second National Bank v Jafry. (Second circuit, Appellant Court of Illinois).
Q: What is eminent domain? I am concerned that the government is considering taking my business property and I need to defend myself? Armin.
A: Armin. I will provide you with a very brief outline, but I strongly suggest you immediately talk with a local attorney who has experience in this complex area of law.
Oversimplified, the government – and that includes public utilities, railroads, and in rare cases a private developer – has the right to take your property so long as you receive a fair compensation. This is also called “condemnation”.
State and federal laws differ. Oversimplified, once the government decides it needs your property, it will generally make you an offer. Unless the dollar figure proposed is acceptable, you can reject the offer. Then there is known as a “quick take”. The government asks the appropriate court to deed your property to it. You will be made a defendant in this action.
You do have some legal defenses. For example: the government may not have a public purpose, or your property may not really be necessary for government use. Another defense is that your government does not have the legal or statutory authority to take your property.
Finally, you can tell the Court you believe your property is worth more than the government has offered. Typically – though not everywhere – the court decides the legal issues and a jury decides the value.
You will need an independent appraisal to present to the court. It also helps if you can get one or two real estate brokers to testify as to what the property is worth.
Your lawyer will guide you through the process. But you should also start planning ahead. In most cases, the government will win and take your property. While you may get more money than initially offered, where will you go? Look for alternative sites. What will they cost? Will you lose clients if you have to move to another neighborhood? Answers to these questions should be submitted to the court, so that any hardship you will incur may be considered in determining how much you should be paid.
Q: I am writing on behalf of our grandmother, who is 86 and doesn’t understand email. Would you be able to advise her on the following:
She has a revocable living trust. Does she need an attorney to make any changes? If not, do the changes need to be notarized? And do any changes have to be sent to the original attorney?
Also, are there different rules regarding based on where a person lives or where it was created? Marilyn and Nina.
A: Dear Nina and Marilyn: I am glad you are concerned about your grandmother. However, if you plan to have her make any changes, and especially if those changes benefit the two of you personally, please make sure that an independent witness is present to make sure your grandmother is competent and knows what she is doing.
Generally, it is advisable to have a lawyer who knows – and understands – the state law that the Trust says is applicable. State law may dictate whether the amendment needs to be notarized, but regardless, I always require those documents to be notarized. It helps if there is litigation.
If your grandmother makes the changes herself, it does not have to be sent – or approved – by an attorney. However, as with my comments on notarization, you stand a good chance of succeeding in litigation when the document has been prepared – or at least sent – to an attorney immediately after signing.
Finally, you ask which state law governs? That should be specifically stated in the Trust document itself. But if it is not, generally, it is the state where the drafter claims his/her residence.
OF INTEREST
I recently heard that contractors who were working on a housing development in Suffolk, Virginia found bones in the ground. I was curious and did a web search and apparently this is not so unique. In May of this year, bones of a Virginia Tech student missing since 1988 were discovered in Fayetteville, W. Virginia.
If you find bones while digging in your back yard, what should you do? They may be remains of a dog that was buried there in the past, or they may be from some other missing person.
The very first thing: contact the local police. If, for example, you have discovered a long-forgotten burial ground, depending on your state law you may be required to rebury the remains somewhere else in the county.
Talk with your attorney. She may have the same inexperience with this as I do, but can research the appropriate laws. The last thing you want to happen is to be hit with a large fine even if you unwittingly violated the law.
I thought I could provide an explanation how to distinguish animal from human bones, but the information the web is very confusing. Suggest you search: “finding bones in your yard”. Makes for interesting reading.
Q: My husband and I are in our early 70s, and have been living in our house for many years. Currently, we have a 5 1/2 percent interest rate mortgage with a balance of approximately $100,000. We have enough cash to pay off the mortgage, but have been given conflicting opinions as to whether to do that. What do you recommend? Casey.
A: Dear Casey: I will never recommend anything – only suggest. The final decision is yours to make after you do your homework.
Homeownership is the great American dream, and an even greater dream is to own your house free and clear. You say you have money to pay off the mortgage completely, but do you have enough money for the rainy day? I have had too many clients who are “house rich and cash poor”. In fact, recently, the Department of Housing and Urban Development (HUD) amended the requirements of a reverse mortgage by requiring borrowers to be able to prove they have the ability to pay the real estate tax and the insurance, and basically maintain the house in livable condition.
According to a recent study reported by the Consumer Financial Protection Bureau (CFPB), about 4.4 million retired homeowners still had a mortgage back in 2011.
According to David Reiss, a law professor at Brooklyn Law School in New York, the key to making the decision whether to keep your existing mortgage during retirement “should be part of a plan and not a response to a crisis”.
In other words, Reiss wrote, if your social security payments, retirement and other investment income is sufficient to make your monthly mortgage payment and meet your other retirement expenses, “there is no real reason that you have to get rid of the mortgage.”
However, if you decide to keep the mortgage, you should consider refinancing so as to take advantage of lower interest rates currently available. If there is sufficient equity in your house, you should be able to qualify for a refinanced loan.
