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Michigan Abolished Dower

Robert Franco — Wed, 01 Feb 2017 13:50:20 EST

Michigan's dower statute has been on the books for more than 170 years. Only a handful of states recognize dower rights, and the number is shrinking. Interestingly, in Michigan the legislature finally took the steps to get rid of it because it would have needed to be revised in light of Obergefell v. Hodges (legalizing gay marriages).

Dower is often seen as an antiquated, unnecessary law that complicates real estate transactions because it provides even a non-title holding spouse with a real property interest. Dower was intended to help women in an era where they were not permitted to own property. Dower provided them income from their husbands' real estate if he passed. Even after women were allowed to own property, dower remained as a means of balancing out economic disadvantages they faced.

According to Blacks Law Dictionary "dower" is defined as:

dower. At common law, a wife's right, upon her husbands death, to a life estate in one-third of the land he owned in fee. With few exceptions, the wife could not be deprived of dower by an transfer made by her husband during his lifetime. Although most states have abolished dower, many states retaining the concept have expanded the wife's share to a life estate in all the land that her husband owned in fee.

And, if you are curious, the husband's counterpart was known as "curtesy."

curtesy. At common law, a husband's right, upon his wife's death, to a life estate in the land that his wife owned during their marriage, assuming that a child was born alive to the couple. This right has been largely abolished. Also spelled "courtesy."

I do not believe that any state still recognizes curtesy, but all of the remaining states that recognize dower have extended it to include husbands, as well as wives. Ohio's dower statute, for example, provides that "a spouse who has not relinquished or been barred from it shall be endowed of an estate for life in one third of the real property of which the consort was seized as an estate of inheritance at any time during the marriage." (for the full statute see R.C. 2103.02).

Michigan's statue was different; they retained the traditional dower pertaining only to wives. The statutes provided that "the widow of every deceased person, shall be entitled to dower, or the use during her natural life, of 1/3 part of all the lands whereof her husband was seized of an estate of inheritance, at any time during the marriage, unless she is lawfully barred thereof." MCL 558.1.

After the Supreme Court held that same-sex marriage was a Constitutional right, the Michigan legislature reviewed all of their statutes that might be problematic because they contained gender specific terms relative to married couples. (See Analysis of the Michigan Constitution and Statutes Affected by Obergefell v. Hodges). A dower right for a "widow" only, in the lands of her "husband" was clearly a potential problem that could have spurred many lawsuits. So, the legislature added MCL 558.30:

Sec. 30. (1) Notwithstanding sections 1 to 29, and except as otherwise provided in subsection (2), a wife’s dower right is abolished and unenforceable either through statute or at common law.
(2) This section does not apply to either of the following:
(a) A widow’s dower elected by a woman whose husband died before the effective date of the amendatory act that added this section.
(b) If a widow’s husband died before the effective date of the amendatory act that added this section, the widow’s right to elect dower under section 2202 of the estates and protected individuals code, 1998 PA 386, MCL 700.2202.

As of April 6, 2017, the effective date of the new law, dower in Michigan is no more... except for widows whose husbands pass before then.

The Affordable Care Act ("Obamacare") Allows Tax Credits for Small Employers

Robert Franco — Fri, 16 Aug 2013 12:50:32 EST

One of the premier goals of the Affordable Care Act ("ACA") is to get everyone covered by some form of health insurance. The main aspect most people hear about is the "mandate" that employers provide health insurance to their employees. While this mandate only applies to those employers with 50 or more employees (and it has been delayed until 2015) the ACA encourages small businesses to provide health care coverage by offering attractive tax credits. Proper understanding of the ACA, and some planning, can help you maximize your tax credit.

To qualify for the tax credit, you must be an "eligible small employer." This is defined as an employer with fewer than 25 full-time equivalent employees with average annual wages not exceeding $50,000, and the employer must pay at least 50% of the health insurance premiums for a qualified plan purchased through the health care exchange.

While this seems fairly straight forward, the definition of "employee" has several exceptions. For example, part-owners of the business and their relatives may not count. In some circumstances, seasonal workers may not count, either. This may actually be favorable for the business in qualifying for the tax credit. If the business has more than 25 employees, or the average annual wage exceeds the applicable limits, it is possible that not all of the employees will count for purposes of determining the tax credit. The downside, or course, is that the employer cannot claim any credit for the premiums paid for these non-qualifying employees, either.

For 2014, the amount of the credit is up to 50% of the employer contributions to employee health care plans. The full amount of the credit is available to employers with 10 or fewer employees who have average annual wages of $25,000 or less. The credit is reduced on a sliding scale if the employer has more than 10 employees, and a separate reduction applies if the average wages of the employees is more than $25,000 and up to $50,000. The credit may also be reduced if the employer premiums paid are more than they would have been if the employees had been enrolled in a small group market in the state where they work.

Tax credits reduce the amount of tax owed, dollar for dollar. This is preferable to a deduction, which reduces taxable income. To be consistent, the amount of the credit that a business qualifies for reduces the deduction for health insurance premiums paid by the same amount; e.g. you cannot claim a tax credit and a tax deduction for the same premium paid. Also, this particular tax credit is "non-refundable," which means that if the credit reduces your tax liability below zero you do not get a refund, and part of the credit goes unused. Any unused credit, however, can be carried backward to past tax years or forward to future tax years.

It is also important to note that the tax credit has been available since 2010 - although the amount of the credit was previously limited to 35%, rather than 50%. In those prior years, it was not required that the insurance be purchased through the exchange (because no exchanges existed).

If you are a "small employer" who pays (or has paid) at least 50% of your employees health insurance premiums, you should consult with a tax professional to see if you qualify for the credit. Tax years 2010, 2011, and 2012 can be amended if you did not claim the tax credit for which you qualified. This could result in substantial refunds, or the credit can be applied to future tax years.

If you were unaware of the small business tax credit for employee health insurance expenses, or if you did not believe you would qualify, you should have your tax advisor take a second look. It is possible that the some of your employees hours or wages would not count toward qualifying for this valuable tax credit.

Also, if you have not previously offered health insurance to your employees, this may be a good time to reevaluate your benefits plan. Although the mandate does not apply to employers with fewer than 50 employees, the tax credit could make it affordable for you to offer your employees health insurance. Health insurance is one of the most valuable benefits an employer can offer to help attract and retain good employees.

Robert A. Franco has a Master of Laws degree (LL.M.) in Business and Taxation. His firm offers a wide range of representation to small businesses, including tax advice, employment law issues, business succession planning, and litigation services.

Ohio Minimum Wage Increased to $7.85/Hour

Robert Franco — Thu, 03 Jan 2013 10:48:09 EST

Effective January 1, 2013, the minimum wage in Ohio has increased 15 cents to $7.85/hour.

A constitutional amendment in 2006 tied the minimum wage in Ohio to the inflation rate measured by the Consumer Price Index. Ohio employers with gross receipts of more than $288,000 must pay the new minimum wage, $7.85 per hour. Employers with gross receipts of $288,000 or less must pay the federal minimum wage, which is currently $7.25 per hour. The federal minimum wage has not changed since 2009.

Tipped employees, those who are engaged in an occupation in which he/she customarily and regularly receives more than $30.00 per month in tips, must receive a minimum wage of $3.93 per hour plus tips, an increase of 8 cents. Employers must be able to show that tipped employees receive at least the minimum wage when direct or cash wages and the tip credit amount are combined.

Also, as a reminder to all employers, the following information must be maintained for at least 3 years:

Name
Address
Occupation
Rate of Pay
Amount paid each pay period
Hours worked each day and each work week

Click here for the Ohio Department of Commerce 2013 Minimum Wage Poster, which should be posted in a conspicuous place in the workplace.

Ohio House Republicans Aiming to Repeal Ohio's Estate Tax

Robert Franco — Fri, 29 Apr 2011 10:36:18 EST

Republicans in the Ohio House of Representatives have announced changes they want to make to the Governor's budget, including eliminating the Ohio estate tax by 2013.

Currently, Ohio taxes estates worth more than $338,333, although property transferring to a surviving spouse is exempt. But, this could change if House Republicans have their way - seeking for repeal of the estate tax by 2013.

Opponents of the estate tax claim that the 5% to 7% tax is responsible for wealthy residents leaving the state in retirement to avoid the potential cost to their heirs. Some states have more favorable estate tax rates, or none at all. For example, Florida, a popular retirement destination, has no estate tax.

The main opposition to the repeal would likely come from local governments who keep about 80% of the estate taxes collected. In 2010, the estate tax generated $230.8 million for local governments to pay down debt, fund road repairs, and other services. With the Governor's budget forcing a 33% cut in general revenue to local governments, they won't want to give up another source of revenue.

Personally, I am not opposed to a modest estate tax; and with a top rate of 7%, I consider Ohio's estate tax to be moderate. However, improvements could be made. The exemption of $338,333 is a little low. Perhaps raising the exemption and adding a portability feature, to allow a surviving spouse to utilize any unused exemption from a pre-deceased spouse, would be a welcome change. This would be more in line with recent changes to the federal estate tax.

As for an incentive to leave Ohio, I believe repealing the estate would do very little. There are plenty of other reasons to leave the state for retirement, such as the climate, which the legislature really can't change. There is also the issue of income taxes (some states don't have income taxes) which is a much higher rate of taxation than the estate tax.

Still, a repeal of the estate tax could benefit many Ohio residents... so we will have to keep an eye on the Republican efforts.

DIY Wills and Trusts

Robert Franco — Thu, 03 Mar 2011 17:57:08 EST

There is a lot to be said for "doing it yourself," and saving a little money. I get that. These days, you can find templates for Wills and Trusts online with the click of a mouse. You can purchase pre-printed forms, for a few dollars, that seem very simple to complete yourself. The appeal of DIY Wills and Trusts is easy to see. Who wants to pay an attorney a few hundred dollars when it all seems so easy, right?

Well... it isn't always the bargain it seems.

I have seen legal documents that individuals have prepared themselves, and some do a pretty good job. Other times, however, things get missed... things that an attorney would have noticed. There is also the issue of the legal advice you get when you ask an attorney for help. Sometimes, people make poor choices because they aren't aware of the alternatives.

Here are a few examples of instances that made me say, "I wish they had come to see me before they did this." In many cases, it would have SAVED them money.

First, a Will that was prepared by a decedent. It was properly prepared and executed - it is a valid Will. However, there was a section titled "Executor's Powers" that stated that the Executor shall have the following powers which may be exercised without need for court approval. Then there were four blank lines... with NOTHING filled in. I would assume that she didn't know what kinds of powers an Executor should have, so it was left blank.

Thus, the estate will get an executor appointed who has no powers. Most things that need to get done will require court approval and notice sent to all of the heirs and legatees. The cost of administering the estate will now be more than it would have cost to have an attorney draft the Will.

Second, a Trust prepared by decedent. It also was properly perpared and executed and is a valid Trust. However, what the pre-printed forms did not do was explain how to properly "fund the trust." Nothing was actually ever transferred to the trustee to hold in trust.

Thus, we have a Trust that holds no property and everything the decedent owned will have to go through the probate court to be distributed... and it most likely will not be distributed according to the decedent's wishes. This decedent may have saved some money by setting up her own Trust, but the cost of administering the estate will much more.

The problems inherent in DIY Wills and Trusts are made worse by the fact that they do not get noticed until someone passes away... when it is too late to do anything about it.

The fees an attorney earns by creating these documents isn't for the attorney's typing skills; rather it is for the advice you get to make sure that your estate plan is properly created to carry out your wishes. It ensures that your plan is effective - not merely that you have a valid Will or Trust, but to make sure it accomplishes the goals that drove you to create it in the first place.

And... sometimes the advice you get upfront from your visit to an attorney can keep you from making the wrong choice about the method chosen to implement your estate plan.

For example, I recently had a client who wanted to set up an Irrevocable Trust to provide for his child's education. After some discussion, I talked him out of a Trust. There were several drawbacks that he had not considered. First, an Irrevocable Trust often must obtain its own Tax ID number and file annual income tax returns. Trusts are taxed at higher marginal brackets than individuals. Second, there are gift tax considerations and Trusts have to be carefully drafted so that contributions can qualify for the annual gift tax exclusion. This requires certain notices to be mailed to beneficiaries, with very specific requirements allowing the beneficiary to make withdraws from the Trust. This adds expense to administering the Trust.

Instead of a Trust, I recommended that he look into a 529 College Savings Plan. 529 plans grow tax free, so long as the funds are withdrawn for education related expenses. There is no need for annual tax returns, or notices mailed to beneficiaries. And, as a bonus, they get preferential treatment for creditors. Best of all - there are no attorney's fees for NOT getting a Trust.

Estate planning is more than filling out forms and signing documents. It's about getting the right advice and developing the best plan for you. When it comes to plumbing, by all means, try it yourself. If the pipe still leaks you know you need to call a plumber. But with an estate plan, doing it yourself can be risky... there is no leaking pipe to make it obvious that you didn't do it right. And after you pass is not the best time to learn that there was a better option.

Unemployment Benefits No Longer Count As Income Under HAMP

Robert Franco — Wed, 22 Sep 2010 10:30:04 EST

For a while at least, borrowers attempting to modify their mortgages under the Home Affordable Modification Program (HAMP) were able to use their unemployment benefits to show enough income to qualify. Fannie Mae has reconsidered this approach and unemployment benefits will no longer be counted as income.

Fannie Mae stated in a recent Lender Letter that "when a borrower is unemployed, a HAMP trial period plan or permanent modification may not be appropriate, and in some cases, the borrower may not have the ability to make the required payments." This will make it more difficult for borrowers to save their home while they are unemployed, but Fannie Mae may see this as a way to curb re-default on final modifications.

Unemployed borrowers, or those who become unemployed during a HAMP trial period, may qualify for forbearance. The minimum forbearance period is the lesser of six months or upon notification that the borrower has become re-employed. The servicer is responsible for tracking borrowers' employment status.

During a forbearance period, payments may be required. However, the payment required must be less than the borrowers' regular payment. The forbearance may be canceled, and the borrower will not be eligible for HAMP consideration, if these payments are not made on or before the last day of the month in which it is due. Exceptions for late payments can be made and the servicer should use good business judgment in determining whether forbearance payments were received in a timely manner or if mitigating circumstances caused the payment to be late.

Late fees cannot be charged while a borrower is in a forbearance plan and all late fees must be waived if a borrower is finally offered a permanent HAMP modification.

Borrowers will be evaluated for HAMP at the earlier of re-employment or 30 calendar days prior to the expiration of the forbearance plan. Borrowers who are not offered forbearance will be considered for HAMP, although unemployment benefits and any other temporary sources of income related to unemployment (such as severance) will be excluded from their income for qualification determination purposes.

If a borrower is denied forbearance, and/or considered ineligible for HAMP, they must be notified in writing and informed of other options, such as short sale or deed-in-lieu. The notice must also identify the steps the borrower must take in order to be considered for those options.

Help Now Available for Homeowners Underwater on Their Mortgages

Robert Franco — Wed, 08 Sep 2010 15:04:52 EST

In an effort to help responsible homeowners who owe more on their mortgage than their home is worth, the government recently announced an FHA Short Refinance Option. This program would allow underwater homeowners to refinance and get at least 10% of their mortgage forgiven permanently. There are some qualification requirements, but those who qualify could take advantage of the program to reduce their mortgage debt.

An option that has been available for sometime as an alternative to foreclosure has been a short sale. In a typical short sale scenario, the homeowner is in danger of foreclosure and finds a willing buyer for his home. The problem that usually arises is that the buyer isn't willing to pay enough for the home to payoff the current mortgage. In these situations, a lender may be willing to take less and write off the balance to avoid taking the property back at a sheriff's sale. The advantage for the homeowner is that the bank also agrees not to pursue a deficiency judgment against him. The short sale, however, still usually results in an adverse impact on the homeowner's credit rating.

The "short refinance" allows the homeowner to keep his home by getting the bank to agree to allow him to refinance and accept less than the full balance due as a complete payoff. Both of these options would usually provide a greater return to the lender than they would otherwise get through a foreclosure. It is likely that a short refinance would also result in a reduction of the homeowner's credit score due to the write off of debt.

It is also possible that the amount of debt forgiven could be considered taxable income to the homeowner. It is advisable to talk to an accountant or tax attorney to evaluate the possible tax consequences of a short refinance. Typically, forgiven debt causes the inclusion of income under Section 108 of the tax code. There are exceptions, which is why it is prudent to check with a tax adviser.

HUD estimates that between 500,000 and 1,500,000 borrowers will refinance using this program and the net economic benefit will be between $11.774 and $35.322 Billion.

Participation is voluntary and requires the consent of lien holders. In order to be eligible, the following conditions must be met:

The homeowner must be in a negative equity position;
The homeowner must be current on the existing mortgage to be refinanced;
The homeowner must occupy the subject property (1-4 units) as their primary residence;
The homeowner must qualify for the new loan under standard FHA underwriting requirements and possess a "FICO based" decision credit score greater than or equal to 500;
The existing loan to be refinanced must not be a FHA-insured loan;
The existing first lien holder must write off at least 10 percent of the unpaid principal balance;
The refinanced FHA-insured first mortgage must have a loan-to-value ratio of no more than 97.75 percent;
Non-extinguished existing subordinate mortgages must be re-subordinated and the new loan may not have a combined loan-to-value ratio greater than 115 percent;
For loans that receive a "refer" risk classification from TOTAL Mortgage Scorecard (TOTAL) and/or are manually underwritten, the homeowner’s total monthly mortgage payment, including the first and any subordinate mortgage(s), cannot be greater than 31 percent of gross monthly income and total debt, including all recurring debts, cannot be greater than 50 percent of gross monthly income;
FHA mortgagees are not permitted to use premium pricing to pay off existing debt obligations to qualify the borrower for the new loan;
FHA mortgagees are not permitted to make mortgage payments on behalf of the borrowers or otherwise bring the existing loan current to make it eligible for FHA insurance; and.
The existing loan to be refinanced may not have been brought current by the existing first lien holder, except through an acceptable permanent loan modification as described below

To facilitate this program, the U.S. Department of Treasury will provide incentives to existing second lien holders who agree to full or partial extinguishment of the liens.

The Short Refinance Program will be available as an option for loans closed after September 7, 2010 and before December 21, 2012. However, the program relies on loss coverage to be provided from funds under the Emergency Economic Stabilization Act of 2008 and if the availability of such coverage is delayed beyond September 7, 2010, implementation of this program may also be delayed.

This is an interesting program and a good idea in our current real estate market. Anyone who is underwater on their mortgage, but still current on their payments, may want to investigate the possibility of a short refinance if it looks like keeping current in the future will be a problem. The adverse credit and tax consequences may be well worth it for some homeowners.

For more on the program, see FHA's Mortgagee Letter 2010-23.

Fannie Mae May Penalize Loan Servicers for Foreclosure Delays

Robert Franco — Fri, 03 Sep 2010 11:06:56 EST

Fannie Mae recently announced its Foreclosure Time Frames and Compensatory Fees for Breach of Servicing Obligations. It updated the allowable foreclosure time frames for four states (FL, MD, NV, and NY) and stated that it may begin conducting reviews of servicer loan files, processes, or procedures. Where Fannie Mae finds delays in foreclosures, it will exercise its remedy to assess compensatory fees as deemed necessary.

This could mean that servicers will pursue foreclosures more aggressively to get more cases through the process within the allowable guidelines.

For each state, Fannie Mae has published guidelines for the allowable time lapses between the time the case is referred to the attorney for action and the completion of the foreclosure sale. These allowable time frames represent the time typically required for routine, uncontested foreclosure proceedings, given the legal requirements of the applicable jurisdiction. The timelines presume that there are no delays outside the control of the servicer or attorney such as diligent participation in an opt-in mediation or unavoidable judicial process or administrative delays.

These time frames range from as few as 60 days in Michigan, West Virginia and a few other states, to as many as 420 days in some parts of New York. In Ohio, the applicable time frame frame from referral to an attorney to sale is 210 days.

Although Fannie Mae is seeking to expedite foreclosure sales, it does remain committed to alternatives. It stated in its most recent quarterly filing that loss mitigation strategies, including loan modifications, should be done early in the delinquency stage.

We believe that repayment plans, short-term forbearances and loan modifications can be most effective in preventing defaults when completed at an early stage of delinquency. Similarly, we believe that our foreclosure alternatives are more likely to be successful in reducing our loss severity if they are executed expeditiously. Accordingly, it is important to work with delinquent borrowers early in the delinquency to determine whether a home retention or foreclosure alternative will be viable and, where no alternative is viable, to reduce delays in proceeding to foreclosure and obtaining recoveries.

But, remember that these time lines are for uncontested foreclosures. If a homeowner actively asserts a defense, or a counterclaim, these guidelines do not apply. Defending against foreclosure can delay the sale of a home by years. In one extreme case, here in Ohio, a homeowner was able to delay the sheriff's sale by 11 years, during which time he remained in his home without making any payments.

In 1996, Mr. Davet was served with a foreclosure notice on his Cuyahoga County, Ohio 1940’s 6 bedroom home. Unlike many homeowners that just take their foreclosure medicine and move on to rent, Richard Davet decided he was going to fight back against NationsBanc Mortgage Corp. and challenge them till the end in an Ohio court of law.

Davet planted his heels firmly and turned his fight into a full time job as he hit the books at the library of Case Western Law School. He began his fight by challenging the lawsuit and then prolonged the suit by flooding the court with motions, objections and affidavits, and he appealed the judge’s rulings at every chance, which bought him 11 years mortgage payment free in his home.

Mr. Davet attempted to take his fight the Supreme Court. However, it declined to hear his case.

Lenders, servicers, and large foreclosure law firms, sometimes referred to as "foreclosure mills," are notorious for abusing the rules. This can sometimes lead to valid counterclaims that can be asserted to protect the homeowners. The best examples come from New York, where one particular judge has cracked down on shoddy foreclosure practices.

Suffolk County Judge Jeffrey Arlen Spinner has made several headlines for canceling mortgages and even awarding homeowners with six-figure damages.

First, in November, the judge canceled a $292,500 mortgage because of what he called IndyMac Bank's "unconscionable, vexatious and opprobrious" conduct during mandatory loan-modification negotiations (IndyMac Bank v. Yano-Horoski, 2005-17926).

In March, he ordered Wells Fargo to pay a homeowner $155,000 for entering his house without his permission and changing the locks (Wells Fargo v. Tyson, 2007-28042).

And then in April, the judge ordered Emigrant Mortgage to pay a couple $100,000 as damages for what he said was an "unconscionable, unreasonable [and] overreaching" mortgage agreement. (Emigrant Mortgage Co. v. Corcione, 2009-28917).

While I have not seen any of these types of rulings in Ohio (yet), I have witnessed some similar abuses. I have seen (or heard about) bad faith in modification negotiations, failure to provide discovery, attempts to force settlements without providing a current mortgage balance, etc. With the dockets clogged with foreclosures, it is only a matter of time until judges start to crack down on the questionable tactics of the lenders and their attorneys.

Another important consideration is the potential impact of a jury trial. With approximately 1 in 7 mortgages in foreclosure or delinquent, the odds are that someone on the jury will have a personal experience to relate to the homeowner. Right or wrong, many homeowners are fed up with the way lenders are treating homeowners - they got a bailout but the foreclosures are continuing.

Ordinarily, a jury trial cannot be had in a foreclosure case. However, the right counterclaims may entitle the homeowner to a jury trial. This should frighten the lenders and their attorneys. If Judge Spinner is willing to award homeowners more than $100,000 in damages, what would a jury do?

Foreclosure Prevention Scams: Be Aware!

Robert Franco — Tue, 29 Jun 2010 14:48:51 EST

With so many homeowners in foreclosure, there are plenty of potential victims for scammers to prey on. They are easy to find and desparate enough to be willing to try anything. It is a dream come true for con artists who have a plethora of scams to run on unsuspecting homeowners who are in need of help. The myriad of government programs, often complex in nature, make it easy for them to make their scam sound legitimate. Homeowners need to be aware of the variety of schemes designed to rip them off.

First, it is important to note that there is help available for homeowners facing a potential foreclosure. If you are behind on your mortgage and think that you may be in danger of losing your home, you should talk to your lender and ask for help. There are programs available, such as the Home Affordable Modification Program and ALT MOD, that your lender can (and should) discuss with you. You may also want to talk to an attorney to help you understand the process.

If you get served with a foreclosure complaint, you need to file an answer. At this point, you should definitely consult an attorney. If you simply ignore the foreclosure you could quickly lose your home by default judgment.

It is also important to note that if you are in a foreclosure situation, others may know about it - foreclosures are public records and it can make it easy for scammers to find you. They may contact you by mail, telephone, or e-mail and describe themselves as "foreclsoure consultants" or "mortgage consultants" offering "foreclsoure prevention" or "foreclosure rescue" services.

The scam artists use simple and straight-forward messages, like:

“Stop Foreclosure Now!”

“We guarantee to stop your foreclosure.”

“Keep Your Home. We know your home is scheduled to be sold. No Problem!”

“We have special relationships within many banks that can speed up case approvals.”

“We Can Save Your Home. Guaranteed. Free Consultation”

“We stop foreclosures everyday. Our team of professionals can stop yours this week!”

Once they have your attention, they use a variety of tactics to get your money.

The Office of the Comptroller of Currency published Consumer Advisory CA 2009-1 describing several common scams:

Foreclosure “rescue” and refinance fraud. The scam artist offers to act as an intermediary between you and your lender to negotiate a repayment plan or loan modification and may even “guarantee” to save your home from foreclosure. You may be told to make mortgage payments to the scammer directly — along with significant, up-front fees — and be told that the scammer will forward the payments to your lender. In reality, the scammer may pocket your money and leave you in worse shape on your loan. The scam artist also may tell you to stop making payments or stop communicating with your lender. Don’t follow that advice.

Remember that your mortgage lender should be the starting point for finding options to avoid foreclosure. You also should consider contacting qualified and approved credit counselors.

Fake “government” modification programs. Unscrupulous people may claim to be affiliated with, or approved by, the government or may ask you to pay high up-front fees to qualify for government mortgage modification programs. While government-supported mortgage modification and refinancing initiatives are legitimate, the scam artists’ claims are not. Keep in mind that you do not have to pay to benefit from these government programs. All you need to do is contact your lender or loan servicer.

The scam artist’s name or Web site may be very similar to those of government agencies. The scam artist may use such terms as “federal,” “TARP,” or other words or acronyms related to official U.S. government programs. These tactics are designed to fool you into thinking the scam artist is somehow approved by, or affiliated with, the government. The government is taking actions to stop this fraud, but you also need to protect yourself. So be wary of claims offering “government-approved” or “official government” loan modifications. Your lender will be able to tell you whether you qualify for any government initiatives to prevent foreclosure. You do not have to pay anyone to benefit from them.

Leaseback/rent-to-buy schemes. In this type of scam, you are asked to transfer the title to your home to the scammer, who will, supposedly, obtain new and better financing and/or allow you to remain in the home as a renter and eventually buy it back. If you do not comply with the terms of the rent-to-buy agreement, you will lose your money and face eviction. The agreement may be very hard to comply with, because it may require, for instance, high up-front and monthly payments that you may not be able to afford. In fact, the scammers may have no intention of ever selling the home back to you. They simply want your home and your money.

Remember that transferring your title does not change your payment obligations — you will still owe your mortgage debt. The difference will be that you will no longer own your home. If payments are not made on the mortgage, your lender has the right to foreclose, and the foreclosure and any other problems will appear on your credit report.

Bankruptcy scams. You may have heard that filing bankruptcy will stop a foreclosure. This is true — but only temporarily. Filing bankruptcy brings an “automatic stay” into effect that stops any collection and foreclosure while the bankruptcy court administers the case. Eventually, you must start paying your mortgage lender, or the lender will be able to foreclose. Bankruptcy is rarely, if ever, a permanent solution to prevent foreclosure. In addition, bankruptcy will negatively impact your credit score and will remain on your credit report for 10 years.

Debt-elimination schemes. Scammers may claim to be able to “eliminate” your debt by making illegitimate legal arguments that you are not obligated to pay back your mortgage. These scammers will provide you with inaccurate claims about applicable laws and finance, such as that “secret laws” can be used to eliminate debt or that banks do not have the authority to lend money. Do not stop making payments on your mortgage based on their claims.

A friend of mine from law school recently told me about a client that came to see him after her house was sold at sheriff's sale. She told him that she had been working with a "debt restructuring/negotiating firm" to help her keep her home. She paid them $1,000 for their "services." While they were "working with her lender" she was served with a Foreclosure Complaint. She called them and was told "not to worry about it because it wasn't a Notice of Sale." She believed them.

Next she was served with a Default Judgment Entry because she did not file an answer in her foreclosure case. Again, they said "don't worry about it." Then, she received a Notice of Sale and they told her that "they weren't really going to sell her home because they were still working out a deal."

Last week, her home was sold at sheriff's sale - the lender bought it back. The debt restructuring/negotiating firm told her that they had evidence, in the form of a forensic audit, of numerous violations by the lender of predatory lending laws. Of course, they wouldn't share this evidence with her unless she paid them another $1,000.

Remember, a foreclosure is a legal proceeding and you should "worry about it." You need to file an answer, and you should consult with an attorney. If it is possible to keep your home, you need to be proactive and communicate with your lender. Be vary wary if anyone tells you that you should not contact your lender or an attorney. And, you should be even more sceptical if anyone tells you not to make your payments, or worse - to make your payments directly to them!

Here is a list of "red flags" published by the Federal Trade Commission:

If you’re looking for foreclosure prevention help, avoid any business that:

guarantees to stop the foreclosure process – no matter what your circumstances

instructs you not to contact your lender, lawyer, or credit or housing counselor

collects a fee before providing you with any services

accepts payment only by cashier’s check or wire transfer

encourages you to lease your home so you can buy it back over time

tells you to make your mortgage payments directly to it, rather than your lender

tells you to transfer your property deed or title to it

offers to buy your house for cash at a fixed price that is not set by the housing market at the time of sale

offers to fill out paperwork for you

pressures you to sign paperwork you haven’t had a chance to read thoroughly or that you don’t understand.

If you’re having trouble paying your mortgage or you have gotten a foreclosure notice, contact your lender immediately.

There is legimate help available. First, I recommend consulting with an attorney. See if you can find one willing to give you a free consultation before you retain them.

Second, you can contact the Homeownership Preservation Foundation (HPF), a nonprofit organization that operates the national 24/7 toll-free hotline (1.888.995.HOPE). HPF is a member of the HOPE NOW Alliance of mortgage servicers, mortgage market participants and counselors. More information about HOPE NOW is at www.hopenow.com.

Third, if you think you may have been a victim of a scam, conact your state's Attorney General's office. Many attorney generals are actively pursuing scams that prey on homeowners. In Ohio, for example, Ohio Attorney General Richard Cordray announced lawsuits against two Ohio foreclosure rescue businesses for failing to provide services for which consumers paid, as a part of a national mortgage fraud sweep dubbed "Operation Stolen Dreams."

Alt Mod Provides Hope for More Homeowners

Robert Franco — Tue, 15 Jun 2010 14:19:59 EST

The Home Affordable Modification Program (HAMP) has been less than a stellar success. Very few of those who have been through the modification process have been getting permanent modifications. Often times, they go through a very lengthy application process and trial period plan only to find out that they don't qualify and are then even further behind in their payments. Now, there is hope for many of them. The Alt Mod program may finally spur the number of modification that was originally anticipated by HAMP.

As of April, lenders had initiated approximately 1.2 million HAMP trial period plans. There were 277,640 canceled plans, which is nearly as many as those that were successfully modified - 300,000. Trial period plans are generally canceled because of missed payments or the servicer determines ineligibility once all of the documents are submitted.

As one might expect, the red-tape involved in navigating through a HAMP modification is horrendous. Although the trial period plans are supposed to be three-month plans, they are often extended as the servicer continues to ask for more and more information. Unfortunately, while the trial period plan is on-going, the borrower continues to get further behind because the plan requires payments that are less that the full principal and interest due under the loan.

I am currently working with a client in foreclosure that went through a HAMP trial period plan (before he came to see me). Though he successfully made all of this required plan payments for 7 months, the servicer determined that he did not qualify because his monthly payments (including principal, interest, taxes and insurance), was less than 31% of this verified income. Why it took 7 months for them to determine that he ineligible for this modification, I can't figure out.

But there is still hope, thanks to a new program. On March 18, 2010 Fannie Mae issued Lender Letter LL-2010-04. Accordingly, for mortgage loans in active HAMP trial period plans initiated prior to March 1, 2010, all Fannie Mae-approved servicers must consider the Alternative Modification ("Alt Mod") prior to initiation of foreclosure for all eligible borrowers who were not offered a permanent HAMP modification after making payments under a HAMP trial period plan. Further, if a borrower completed all their trial period plan payments before LL-2010-4 was issued but failed to qualify for a permanent HAMP modification, the servicer must send an Alt Mod offer by June 18, 2010.

So, who qualifies for an Alt Mod? To be eligible for the Alt Mod:

The loan must have been evaluated and considered eligible for HAMP
The borrower must have been sent an initial HAMP offer, or started a HAMP trial period plan, prior to May 17, 2010 and whose first trial period plan payment was scheduled for June 2010 or before
The loan must be secured by a one-to four-unit owner-occupied property
The borrower must have made all required payments in accordance with the HAMP trial period plan but is ineligible to convert to a permanent HAMP modification
Any subsequent post trial period payment(s) due from the borrower must be submitted prior to executing a permanent modification agreement

Additionally, one of the following is required for Alt Mod eligibility:

The monthly mortgage payment ratio based on verified income was less than 31 percent
The target monthly mortgage payment ratio of 31 percent based on verified income could not be reached using the standard HAMP modification waterfall
The borrower failed to provide all income documentation required for a HAMP modification but meets the streamlined income documentation requirements for the Alt Mod

Clearly Fannie Mae recognized a problem with HAMP in that it wasn't providing enough help to homeowners. The Alt Mod program allows for a modification if the borrower met his obligations under the trial period plan and otherwise qualified, but failed to meet certain eligibility guidelines. I suspect that the Alt Mod program will provide relief to many of those who were turned down for permanent modifications.

My latest concern is whether or not the servicers are all "up to speed" on the Alt Mod program. In the case I am currently working on, my client has not received an Alt Mod offer. I took the initiative to send the Lender Letter to the lender's attorney who is involved in the modification process and I pointed out why I believe that my client qualifies. I'm looking forward to discussing the issue with him very soon.

Where there is a borrower who wants to keep his home and he would be able to if it can be modified, it doesn't make sense to foreclose. The trick is getting the lender, servicer, and foreclosure attorneys all on the same page and looking at the same information. The banks got their bailouts and there is clearly an emphasis on modification where it is possible. It is important to know about the various modification programs to ensure that they are doing all they can to get borrowers qualified.

Governor Strickland Signs H.B. 292 Banning Private Transfer Fees

Robert Franco — Tue, 15 Jun 2010 12:20:34 EST

Yesterday afternoon, Ohio Governor Ted Strickland signed H.B. 292 banning private transfer fee covenants. Private transfer fee covenants are recorded with the covenants, conditions and restriction to real property that purport to require the payment of a one-percent fee, usually to the developer, every time a home sells for 99 years.

The law now says that "a transfer fee covenant recorded in this state [after the effective date of the law] does not run with the title to real property and is not binding on or enforceable against any subsequent owner, purchaser, or mortgagee of any interest in real property as an equitable servitude or otherwise."

At common law, a covenant that does not touch and concern the land, such a mere obligation to pay a sum of money, is considered personal in nature and does not run with the land. Modern trends in real estate law are abandoning the touch and concern approach in favor of a more contractual approach to servitudes. Because of the uncertainty surrounding the manner in which courts may interpret these types of covenants today, several Ohio organizations lobbied for this bill. Lending their support were the Ohio Bar Association, the Ohio Bankers League, the Ohio Association of Independent Title Agents, the Ohio Land Title Association, and the Ohio Realtors Association.

Ohio is the tenth state to adopt such a ban and 12 other states are working on similar legislation. There is just something fundamentally unfair about requiring people whose grandparents haven't even been born yet to pay a fee for which they receive no benefit in return. Thankfully, our legislature has addressed the issue in a well crafted bill that makes it clear that they won't be enforceable here.

Ohio Senate Votes To Ban Private Transfer Fees, 32-0

Robert Franco — Mon, 31 May 2010 13:49:05 EST

A private transfer fee is a covenant that crafty developers could use to require every future owner of a lot in a subdivision to pay the original developer a 1% fee every time the home sells. Developers argue that this could provide capital for them to continue developing in a turbulent market where they can't get traditional financing. The Ohio legislature has determined that this would be damaging to the real estate market and, thus, is working on getting them banned in Ohio.

The economic theory is that the homes will be sold for less, because nobody would be willing to pay as much for a home with such a burden as they would a home without. However, there are concerns that unaware homeowners would be caught by surprise when they are ready to sell. Covenants are filed in the county recorders' office and buyers are deemed to be aware of them, whether they have actually read the "covenants, conditions, and restrictions," or not.

Transfer fees have been commonly used to fund homeowners' associations. But, unlike homeowners' associations' fees, there is no benefit to the homeowners or the property where there is a private transfer fee that benefits the developer. This is merely a covenant to pay a sum of money with no corresponding benefit.

I believe that these covenants would be unenforceable under the common law, which requires that such covenants must "touch and concern" the land in order to be binding on subsequent owners. But there have been some creative arguments raised that really make the application of such covenants questionable. The Ohio legislature is working to make it clear that these will not be enforceable in Ohio.

The bill was supported by several organizations in Ohio, including the Ohio State Bar Association, the Ohio Land Title Association, the Ohio Association of Independent Title Agents, the Ohio Bankers League, and the Ohio Association of Realtors. All of these groups believe that private transfer fees will further depress home values and create clouds on title to Ohio real estate.

Opponents of the bill, the company that has attempted to patent the "business strategy" and the Ohio Builders Association, urged the Senate to adopt legislation that simply required disclosure of the covenant. However, Sen. Seitz explained to the full senate why they opted not to do that.

And, so while I respect the idea that we need to help home building and development, and normally would say it's a free market and maybe we could have dealt with this by simply saying we will let the buyer be aware and put it on the form: 'notice you are now subject to a 99-year covenant where you are going to pay somebody one percent every time the property sells;' even on stuff that subsequent buyers developed and improved at their own expense. We could do it by way of disclosure and that's what some states have done. But most of us realize that if you've ever been to a loan closing on your house, you're not going to sit there and read that pile of paperwork. Your just going to say 'give me my money' so I can get this house, and your not going to read the disclosures. So we opted not to do that.

And we opted after careful consideration in a very democratic process, the unanimous view of the committee was that this bill is appropriate.

Because there was an amendment added to the bill, it must now go back to the House for a vote. Because this bill originated in the House, it is expected to pass. Hopefully, yet this year it will go to the Governor to be signed and Ohio will have joined about 10 other states which have passed similar bans on private transfer fee covenants. About a dozen other states are considering legislation to deal with these types of covenants.

Home Affordable Modification Program (HAMP) Doing More Harm Than Good

Robert Franco — Wed, 19 May 2010 13:05:13 EST

In February 2009, the Obama Administration introduced a comprehensive financial stability plan that included help for homeowners - the Home Affordable Modification Program (HAMP). It is intended to provide eligible homeowners the opportunity to modify their mortgages to make them more affordable. It has even been extended to help unemployed homeowners and those who are "under water" on their mortgages. But, the program may not be all its cracked up to be... it may actually be causing more homeowners to lose their home to foreclosure.

To be eligible for HAMP, the mortgage loan must be secured by a one-to four-unit property which is the owner's primary residence. Condos, coops, and manufactured homes that are permanently affixed to the real property are also eligible. The borrower must be in default, at risk of imminent default, or in foreclosure and the borrower must be able to document a financial hardship (e.g. loss of job, divorce or separation, or reduced income). The loan must have been originated before January 1, 2009.

Participation in the program is required for all eligible Fannie Mae and Freddie Mac portfolios. Services are prohibited from soliciting borrowers who are less than two payments behind, but if such a borrower contacts the servicer, the program is an option. The program includes two steps - a three-month trial period and a separate modification agreement.

As incentives to modify mortgages, the servicer receives $1,000 for each borrower who successfully completes the trial period and executes a modification agreement. An addition $55 is paid to the servicer if the borrower was current but facing imminent default at the time of the modification, and an addition $1,000 annually for up to three years for each borrower who remains in the program. Under certain conditions, borrowers can receive an annual principal reduction of up to $1,000 for up to five years.

There are no costs to the borrowers and all late charges that accrued prior to the modification must be waived if the borrower successfully completes the trial period. Accrued interest and out-of-pocket escrow and other advances to third parties can be capitalized.

The borrowers must also verify their income and represent and warrant that they do not have sufficient liquid assets to make their monthly mortgage payments. In short, it must be determined that the borrower cannot afford their current payments and the program allows for reduction in the interest rate, and extension of the term of the loan for up to 40 years, and forbearance of principal to make the loan affordable.

Though this all sounds great, after all who could argue with modifying mortgages to help homeowners keep their homes and avoid foreclosure. However, the program doesn't always work in the homeowners' favor.

One of the problems is that the HAMP trial period requires the homeowner to make reduced payments, sometimes as little as half of their regular mortgage payment. However, the amount due under the loan isn't reduced and the partial payments are placed in a suspense account pending modification. Thus, HAMP does nothing to cure a default until the modification agreement is executed. In many cases, the homeowners are told at the end of the trial period (which is often extended beyond the three month period) that they do not qualify and they are actually further behind than when they started the workout plan.

The homeowner can do everything as they are instructed by the lender according the terms of the plan and wind up closer to foreclosure once the trial period is over. Participating in the program is no assurance that they will get the modification they thought was promised. The trial plan agreement contains vague statements that the homeowners may receive an offer to modify their mortgage, but the servicer is under no duty to modify the loan regardless of homeowners' compliance.

A look at the statistics for successful HAMP modification is alarming. As of the end of April 2010, participating services canceled 277,640 three-month trials since the program launched in March 2009, according to the Treasury Department. That is an 80% increase from the 155,173 total in the previous month. The main reasons for the cancellations are a missed payments from a homeowner or the servicer determines ineligibility once all documents are submitted. Often times, the servicer drags out the trial period by requesting more and more documentation, which further increases the homeowners' arrearage.

Canceled permanent modifications are up too. Through April, services canceled 3,744 permanent modifications since HAMP was launched, up from 2,879 the month prior. These are sue to missed payments since the documentation was already submitted during the trial period.

According to federal data, the program has helped about 300,000 borrowers to get permanent new loans. That is a remarkably low figure, given the 1.2 million trail plans that have been started. The number of canceled plans is nearly as many of those who have successfully modified their mortgages under the program.

Earlier this week, three New York residents filed suit against J.P. Morgan Chase & Co. alleging that the bank misled them about their chances of getting long-term reductions in their mortgage payments. The suit, filed in U.S. District Court for the eastern district of New York, says the three borrowers "relied on promises by [the bank] that they would be able to modify their loans so that they could avoid foreclosure" and so "invested their limited resources" in making payments.

Therein lies the problem. Borrowers, in good faith, rely on their services for help under a federal program and they aren't clearly warned of the risks of participating. Even if they do everything that is required of them under the trial period plan, they run the risk of not getting their permanent modification and then find out that they owe more than they did when they started. If they had any chance of curing their default when they began, they most likely face a certain foreclosure after their trial period ends. With the incentives for servicers, the program seems more apt to benefit them than the homeowners who so desparately need help.

If you are facing foreclosure and are presented with a "work-out" plan, you should consult with an attorney so that you fully understand the risks of participating. An attorney familiar with the HAMP guidelines can provide you with the information you need to decide how to pursue a mortgage modification and help you keep your home.