MARKETABLE vs. INSURABLE TITLE FOR REO FILES General Rule: All marketable title is insurable. Not all insurable title is marketable. What is the difference? Title policies are regulated by the State of Florida and all title commitments are issued with exceptions. Schedule B contains general exceptions common to most properties, such as easements of record, surveys and property taxes, and exceptions which are particular to each property. For example, mortgages to be released, death certificates to be recorded, homeowners association liens, judgments potential liabilities, against the property owner and IRS tax liens are particular to a certain property. The principle difference between “insurable” title and “marketable” title is the fact that for insurable title, the title insurance underwriter, after a risk assessment of the exceptions allows the title agent to issue a title policy without “clearing all the title exceptions” as would normally be done when issuing marketable title. For example, a title search reveals that a deed from a prior owner failed to include marital status. The deed in question was recorded 17 years ago. The underwriter determines the degree of risk as to another person claiming an ownership interest in the property is very low and this exception is not cleared prior to closing. Thus, this issue could arise in the future. In contrast, marketable title is a title that is clean; has no defects that will come up again in a future title examination when the property owner attempts to obtain financing or more importantly tries to sell the property. In the example given above, for issuance of marketable title, a corrective deed would have been requested to ensure that no other person had an interest in the property arising from that deed. Unfortunately, a great number of foreclosures are riddled with title problems. This past year alone, Sunbelt Title’s REO Division through examination has revealed countless problems which required the lender to go back and either re-foreclose the property or obtain the necessary releases or corrective documents. For example, the following is actual language from a recent REO contract: “15. Condition and Conveyance of Title: Seller agrees to deliver insurable title and agrees to pay for the Buyer’s policy of title insurance from the Title Insurance Company of Seller’s choice as listed below. Seller will not be responsible for any “Gap” title insurance coverage and will not under any event provide an Affidavit of Title or similar documents in which Seller is requested to make representationsor warranties with respect to title.” As a result, the necessity to have an independent title exam performed for anyone who is wiling to accept the REO seller’s title policy cannot be over emphasized. Such title policies often have countless exclusions for liens, etc. leading buyers to have a false sense of security. Additionally, due to the many nuances of REO transactions, that examination should be made by experienced and qualified individuals familiar with REO, such as Sunbelt Title Agency. A recent and alarming trend is the proliferation of title companies involved in foreclosure that are run as a sweat shop and or are located outside of the state. Many of these companies are unfamiliar with many of the nuances of Florida Law or pay little attention to detail, and often employ under qualified or inexperienced people. The result is missed issues and further claims. How does this affect an REO sale? In Florida, the successful bidder at a foreclosure sale obtains title by a Certificate of Title issued by the Clerk of Court. This instrument conveys title but may be subject to any claims and interest not included in the foreclosure action. Here are some typical issues which contrast marketable and insurable title: a. Title companies will typically not insure any state of facts which may be shown on an accurate survey. The survey may disclose premises which are out of possession, cut off by easements, improperly bounded, illegal structures, encroaching improvements and the like. These are all typical impediments to marketable title. Sometimes these exceptions can be cleared up with the proper affidavit from a seller, but only if the seller has owned the property for more than two years. This is unlikely in most REO sales. b. Rights of persons in possession or tenants: If there is a lease that predated the mortgage, it may not be cut off by the foreclosure. Also, in many cities, tenants may have certain rights that cannot be cut off, such as rent control and/or rent stabilization. These are also impediments to marketable title because there are people who have rights in the building that survive the foreclosure. c. Building code and easements, covenants and restrictions: There is no guarantee that the premises comply with any building codes, and violations of record may not be cut off in a foreclosure. Most REO’s are sold “as is and where is” without any representation that the premises are legal or comply with any regulations. Also, covenants and restriction are not typically cut off in a foreclosure and they survive, even if they are being violated. If any laws, regulations, codes, covenants or restrictions are violated by the premises or their use, there is a problem with marketable title. d. The title policy from loan origination or otherwise may insure against certain liens of record. If the liens are still of record, despite the fact that there is now “insurable” title, the seller still does not have marketable title until and unless the liens of record are removed. THIS MATERIAL IS PROVIDED SOLELY FOR EDUCATIONAL PURPOSES. IT IS NOT INTENDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UPON BY ANYONE OBTAINING A COPY OF THIS MATERIAL FOR THAT PURPOSE. SPECIFIC LEGAL QUESTIONS SHOULD BE REFERRED TO AN ATTORNEY
What is Foreclosure? Foreclosure is a legal proceeding for the collection of real estate mortgage and other types of liens on real estate, which results in cutting off the right to redeem the mortgaged property and often involves a judicial sale of the property to pay the mortgage debt. Who comes to the party? Parties in interest to the lawsuit can vary depending on the property. They include: the Plaintiff (individual or company seeking to foreclose), the Defendant(s) (entity in title to the property encumbered by the mortgage or lien which the action is being taken against), the condominium or homeowner’s association, if any, as well as any tenant or person in possession of the property encumbered by the mortgage or lien. In addition, a mortgagee may extinguish a prior lien by joining the lien holder in the suit as a party defendant and having the court expressly adjudicate that its interest is inferior. Venue: Under the “local action” rule, a foreclosure suit must be brought in the county in which the property is located. If the mortgage is secured by property located in more than one Florida County, the foreclosure suit may be brought in any of the counties where the property is located. Service of Process: The purpose of a summons and its service is to notify the defendant of the suit and allow him the opportunity to defend his rights. A judgment entered without service is void and can be set aside on motion at any time. Defects in service are waived if the defendant appears in the case and does not raise the defect. Lis Pendens: Except for the interest of persons in possession or easements in use, the filing for record of such notice of lis pendens shall constitute a bar to the enforcement against the property described in said notice of lis pendens of all interests and liens including but not limited to federal tax liens and levies, unrecorded at the time of filing for record such notice of lis pendens unless the holder of any such unrecorded interest or lien intervenes in such proceedings within 20 days after the filing and recording of said notice of lis pendens (F.S. 48.23 (1)(b)) Final Judgment of Foreclosure The final judgment is a key document in every foreclosure and must be carefully examined. It must contain the following: a.) The amount due the plaintiff; b.) A recitation that the plaintiff holds a lien superior to the interest of the defendants; c.) A description of the property or correct recording information of the mortgage to be foreclosed; d.) The time, date and place of the sale; and e.) An adjudication that the rights of the defendants and persons acquiring interests after the recordation of the lis pendens will be foreclosed; f.) Any extended right of redemption beyond the Certificate of Sale.In the Final Judgment of Foreclosure, the court shall direct the clerk to sell the property at public sale on a specified date that shall be not less than 20 days or more than 35 days after the judgment has been entered. The sale may be held more than 35 days after the judgment if the plaintiff consents. Notice of Sale: Notice of sale shall be published once a week for 2 consecutive weeks, in a newspaper of general circulation published in the county where the sale is to be held. The second publication shall be at least 5 days before the sale. (If the property is located in more than one county, the notice of sale must be published in each county in which the property is located and contain a description of all of the property to be sold, not just a description of the property in that county.) Certificate of Title: If no objection to the sale is filed within ten days of the sale, the Clerk shall issue a Certificate of Title. When an objection is filed, the court must hold a hearing and enter an order disposing of the objections before a Certificate of Title can be issued. Rights of Redemption: An owner has the right to satisfy the mortgage debt and discharge the foreclosure proceeding. He/she must redeem all amounts due on the mortgage debt including principal, interest, attorney’s fees and court costs. The right to redeem is before the filing of a Certificate of Sale or a date specified in the Final Judgment of Foreclosure for redemption by the owner. What should I do as the agent? Track the foreclosure docket online to determine what stage of foreclosure the seller is in. Based on the above information, you will know if you have enough time to take this listing and sell the property or if it’s too far along in the process.
Understanding the Proposed Tax Notice
The Property Appraiser’s Office studies the real estate market
and reports what has happened to property values.
The property tax is the backbone of local government and helps provide services such as police and fire protection, streets and drainage construction and maintenance, environmental regulation, libraries, streetlights, garbage pickup, and parks and recreation. The taxing authorities, not the Property Appraiser, have control over the level of taxes, through the millage rate.
MARKET VALUE
The market value is the appraisal of what a willing buyer would most likely pay for your property (excluding costs of the sale). The property is assessed as of January 1, so the value reported is a reflection of the previous year’s real estate transactions and comparable property values in your area.
EXEMPTIONS
Your exemptions are deductions that apply to your property for Homestead or other special categories like those for disabled persons or seniors who meet certain income guidelines.
ASSESSED VALUE
Your assessed value is generally the market value limited by the Amendment 10 or “Save Our Homes” tax cap. This 1992 amendment to the Florida Constitution limits increases in the value of homesteads (your primary residence) to 3% or less per year.
TAXABLE VALUE
Your taxable value is the number the appraiser reports to the various taxing authorities and is the assessed value minus exemptions.
MILLAGE RATE
Taxing authorities calculate the annual tax rate, called the millage rate by dividing their total budget (their spending) by the total taxable value reported to them. The millage rate is simply a name for the rate, which the taxing authorities set in order to balance their budgets. Millage is a rate expressed in dollars per thousand (one mill just means you pay one dollar of tax for each $1,000 of taxable value).
Under Florida law, when a taxing authority sets a millage rate higher than the rate which would produce the exact same revenues as the previous year, they must properly advertise their action as a tax increase. This rate, which would result in no change in revenue, is called the rollback rate. As a practical matter taxing authorities are rarely able to adopt the rollback rate, since the cost of government services generally rises with the cost of everything else.
DATES TO REMEMBER
January 1 is the date that determines value; it is also the date for residency and ownership requirements to qualify for homestead exemption.
January 1 – March 1 is the normal filing period for Homestead and other exemptions such as widow/widower, disability, charitable organization, etc.
August Notice of Proposed Property Taxes, called TRIM notices are mailed to property owners mid-month. TRIM is an acronym for “Truth in Millage”. TRIM notices contain your taxing authorities’ proposed tax rates for the year, the locations and times for Taxing Authorities’ budget hearings, and the deadlines for filing petitions with the Value Adjustment Board.
The TRIM mailing starts the formal protest period, which is 25 days long. During the protest period, taxpayers can file formal notices to the county Value Adjustment Board to seek to have their assessment changed.
October Value Adjustment Board (VAB) hearings are held.
November Tax bills are mailed by the Tax Collector to all property owners of record.
FREQUENTLY ASKED QUESTIONS
Exactly how is my property value determined?
For taxation purposes, nearly all property has a value, including land, buildings, and tangible personal property used in business. By law, the appraiser must accurately determine fair market value (also called “just” value). To do that, standardized and accepted appraisal practices governed by Florida law, and the Uniform Standards of Professional Appraisal Practices are used. While sophisticated computer modeling techniques are used, they also periodically inspect all property. They consider:
• Recent selling prices of similar properties
• What it would cost to replace the property and how much depreciation is present.
• How much it costs to operate and maintain the property. (Commercial only)
• What rental income the property earns, if any.
What if I disagree with the Property Appraiser’s value?
Discuss it with the Property Appraiser and they will conduct an informal review. The review can be done any time during the year but most are soon after the TRIM mailing. After TRIM notices are mailed, you have 25 days to file a formal protest petition with the Value Adjustment Board.
So the Property Appraiser and Value Adjustment Board are not the same?
They’re completely separate by law. The VAB is the formal review board. An independent appraiser, called a Special Master, hears both sides and makes a written recommendation to the VAB. The VAB makes the decision. The value sought is always fair market value. Short of going to court, the decision of the VAB is final.
What does the “Save our Homes” or “Amendment 10” mean to me as a taxpayer?
This is a 1992 amendment to the Florida Constitution that limits the annual increase in the assessed (not market) value of homesteaded properties to 3% or the National Consumer Price Index, whichever is less.
So Amendment 10 is a tax cap?
Not exactly. It’s a limit on the assessed value of the parcel. It’s not a limit on the taxes charged to the property. Taxes are a product of the value times the millage rates. The millage rate actually sets the tax level. Tax levels can change more or less than 3%.
What property is affected by “Save Our Homes”?
Only properties that have a Homestead Exemption.
What happens when I buy a new home?
The cap is removed anytime ownership changes. A new property owner should file for Homestead, which will establish a new value cap on your new home during January 1-March 1 of the tax year. You can file for a future year as soon as you buy a new home. If you already have
Homestead and there is no change to ownership, your exemption automatically carries from year to year. Other types of exemptions do require an annual filing.
Is the TRIM notice exactly what I can expect to billed for in November?
No, the TRIM notice is showing you taxes and exemptions, however, the full bill that you will receive in November will also include any special assessments, CDD’s, Solid Waste, etc that are collected by the tax collector for your district.
If I am closing in September or October, why am I paying a full year’s taxes, plus escrows for next year?
Most lenders require that any taxes that become due and payable with sixty days of closing be collected and held by the title company until the bill is available in November. The title company will collect an estimated amount of taxes plus assessments from the buyer (Prior to November) and prorate the taxes between the buyer and seller as normal. The escrow amount that you are paying is being sent to your lender in order to accrue for taxes next year.
How does my lender determine my tax escrow amount?
Most lenders use the prior year tax amount for the total amount to be escrowed. Lenders do not normally estimate tax increases, unless there is new construction. In November your lender will most likely pay your taxes regardless of the amount you have escrowed and then bill you for any shortages and readjust your escrow for the following year. Upon receipt of your copy of the tax bill or TRIM notice you may contact your lender to receive information on their policy regarding taxes.
DISCLAIMER
This newsletter is provided as a service to our clients and is for informational purposes only. Every effort is made by Sunbelt Title Agency to verify that the above information is correct. However, Sunbelt Title Agency makes no representations or warranties of any kind, express or implied, as to the information provided herein. You expressly agree that your use of the information found in this newsletter is at your sole risk. To the full extent permissible by applicable law, Sunbelt Title Agency disclaims all warranties, express or implied. Sunbelt Title Agency will not be liable for any damages of any kind arising from the use of this information, including, but not limited to direct, indirect, incidental, punitive, and consequential damages.
FEDERAL HOUSING FINANCE AGENCY
Contact: Corinne Russell (202)414-6921
Stefanie Johnson (202)414-6376
FHFA, Fannie Mae and Freddie Mac Announce HARP Changes to Reach More Borrowers
Washington, DC – The Federal Housing Finance Agency, with Fannie Mae and Freddie Mac (the Enterprises), today announced a series of changes to the Home Affordable Refinance Program (HARP) in an effort to attract more eligible borrowers who can benefit from refinancing their home mortgage. The program enhancements were developed at FHFA’s direction with input from lenders, mortgage insurers and other industry participants.
“We know that there are many homeowners who are eligible to refinance under HARP and those are the borrowers we want to reach,” said FHFA Acting Director Edward J. DeMarco. “Building on the industry’s experience with HARP over the last two years, we have identified several changes that will make the program accessible to more borrowers with mortgages owned or guaranteed by the Enterprises. Our goal in pursuing these changes is to create refinancing opportunities for these borrowers, while reducing risk for Fannie Mae and Freddie Mac and bringing a measure of stability to housing markets.”
Fannie Mae and Freddie Mac have helped approximately 9 million families refinance into a lower cost or more sustainable mortgage product, approximately 10 percent of those via HARP. HARP is unique in that it is the only refinance program that enables borrowers who owe more than their home is worth to take advantage of low interest rates and other refinancing benefits. This program will continue to be available to borrowers with loans sold to the Enterprises on or before May 31, 2009 with current loan-t0-value (LTV) ratios above 80 percent.
The new program enhancements address several other key aspects of HARP including:
• Eliminating certain risk-based fees for borrowers who refinance into shorter-term mortgages and lowering fees for other borrowers;
• Removing the current 125 percent LTV ceiling for fixed-rate mortgages backed by Fannie Mae and Freddie Mac;
• Waiving certain representations and warranties that lenders commit to in making loans owned or guaranteed by Fannie Mae and Freddie Mac;
• Eliminating the need for a new property appraisal where there is a reliable AVM (automated valuation model) estimate provided by the Enterprises; and
• Extending the end date for HARP until Dec. 31, 2013 for loans originally sold to the Enterprises on or before May 31, 2009.
An important element of these changes is the encouragement, through elimination of certain risk-based fees, for borrowers to utilize HARP to refinance into shorter-term mortgages. Borrowers who owe more on their house than the house is worth will be able to reduce the balance owed much faster if they take advantage of today’s low interest rates by shortening the term of their mortgage.
The Enterprises plan to issue guidance with operational details about the HARP changes to mortgage lenders and servicers by November 15. Since industry participation in HARP is not mandatory, implementation schedules will vary as individual lenders, mortgage insurers and other market participants modify their processes.
###
The Federal Housing Finance Agency regulates Fannie Mae, Freddie Mac and the 12 Federal Home Loan Banks. These government-sponsored enterprises provide more than $5.7 trillion in funding for the U.S. mortgage markets and financial institutions.
(Fact Sheet and Q & A follow)
Home Affordable Refinance Program (HARP)
Fact Sheet
Program Overview
The Federal Housing Finance Agency (FHFA) and the Department of the Treasury introduced HARP in early 2009 as part of the Obama Administration’s Making Home Affordable program. HARP provides borrowers, who may not otherwise qualify for refinancing because of declining home values or reduced access to mortgage insurance, the ability to refinance their mortgages into a lower interest rate and/or more stable mortgage product.
Homeowners Helped Since Program Inception
As of August 31, 2011, nearly 894,000 borrowers had refinanced through HARP.
HARP is only one refinancing option
HARP is only one of several refinancing options available to homeowners. Since April 2009 when HARP began, Fannie Mae and Freddie Mac have helped approximately nine million families refinance into a lower cost or more sustainable mortgage product. HARP is unique in that it is the only refinance program that enables borrowers who owe more than their home is worth to take advantage of low interest rates and other refinancing benefits.
Borrower Eligibility
• The existing mortgage must have been sold to Fannie Mae or Freddie Mac on or before May 31, 2009. Homeowners can determine if they have a Fannie Mae or Freddie Mac loan by going to: http://www.FannieMae.com/loanlookup/ or calling 800-7FANNIE (8 am to 8 pm ET) https://ww3.FreddieMac.com/corporate/or 800-FREDDIE (8 am to 8 pm ET)
• The program will continue to be available for loans with LTVs above 80 percent.
• Borrowers must be current on their mortgage payments with no late payment in the past six months and no more than one late payment in the past 12 months.
• Borrowers should contact their existing lender or any other mortgage lender offering HARP refinances.
Other Resources
http://www.MakingHomeAffordable.gov or call 1-888-995-HOPE (4673) http://www.KnowYourOptions.com or http://www.FannieMae.com/homeowners http://www.FreddieMac.com/avoidforeclosure
HARP Phase II Q&A’s
Why are you making these changes to HARP now?
For some time, FHFA, Fannie Mae and Freddie Mac (the Enterprises), lenders, servicers and private mortgage insurers (MI’s) have been engaged in a coordinated, industry-wide effort to find ways to increase the number of homeowners who are able to refinance through HARP. With mortgage interest rates at historic lows, we believe it is an opportune time to put the industry’s experience with the program to work so more eligible borrowers can refinance Fannie Mae or Freddie Mac-owned mortgages. Importantly, such refinances bring benefits to borrowers, to housing markets, and to the Enterprises and taxpayers.
Which borrowers may be eligible for an enhanced HARP?
In general, borrowers must meet the following criteria:
• The mortgage must be owned or guaranteed by Freddie Mac or Fannie Mae.
• The mortgage must have been sold to Fannie Mae or Freddie Mac on or before May 31, 2009.
• The mortgage cannot have been refinanced under HARP previously unless it is a Fannie Mae loan that was refinanced under HARP from March-May, 2009.
• The current loan-to-value (LTV) ratio must be greater than 80%.
• The borrower must be current on the mortgage at the time of the refinance, with no late payment in the past six months and no more than one late payment in the past 12 months.
Given the eligibility criteria, can you estimate how many borrowers may refinance through HARP as a result of these changes?
For many reasons it is very difficult to project the number of mortgages that may be refinanced under the enhancements to HARP, including the future path of interest rates, borrower willingness to undertake a refinance transaction and the number of lenders and servicers who choose to offer the program. Given current market interest rates, our best estimate is that by the end of 2013 HARP refinances may roughly double or more from their current amount but such forward-looking projections are inherently uncertain. The more important point is that material changes have been made to enhance access to the program but HARP, before and with these changes, is not intended to serve all borrowers, or even all underwater borrowers. It is targeted just at borrowers with loans owned or guaranteed by the Enterprises that meet the eligibility requirements set forth above.
What about borrowers whose loans are not owned or guaranteed by Freddie Mac or Fannie Mae?
Neither FHFA nor the Enterprises have the legal authority to extend HARP to borrowers whose mortgages are not owned or guaranteed by Fannie Mae or Freddie Mac.
What do borrowers need to do to take advantage of HARP?
The first step is for the borrower to learn if his or her mortgage is owned or guaranteed by Freddie Mac or Fannie Mae by visiting the Enterprises’ websites. Each Enterprise has a web tool for that purpose. If the mortgage is owned or guaranteed by Fannie Mae or Freddie Mac, the borrower should contact his or her existing lender or any other mortgage lender offering HARP refinances.
Are offers from companies promising to help borrowers get HARP loans legitimate?
Borrowers do not need to use third party companies that advertise themselves as “mortgage experts” or “foreclosure specialists” to apply for a HARP loan. Before calling such companies borrowers should talk first with their mortgage lender.
Is there a maximum loan-to-value (LTV) ratio for HARP?
There is no longer a maximum LTV limit for borrower eligibility. If the borrower refinances under HARP and their new loan is a fixed rate mortgage, there is no maximum LTV. If the borrower refinances under HARP and their new loan is an adjustable rate mortgage, their LTV may not be above 105%.
Is HARP the only refinance program available to borrowers?
Our task the past few months has been to evaluate an existing program – HARP – to assess if it could be enhanced to better reach its target population of borrowers whose mortgage balances exceed the values of their homes. HARP is only one of several refinancing options available to homeowners and is unique in that it is the only refinance program that enables borrowers with little to no equity in their homes to take advantage of low interest rates and other refinancing benefits. Indeed, Fannie Mae and Freddie Mac have helped approximately nine million families refinance into a lower cost or more sustainable mortgage product since April 2009 and we will continue to work to provide those opportunities in a responsible way.
Are mortgages on condominiums eligible for refinance under HARP?
Condominiums are already eligible under HARP and, under the enhanced program, condominiums that originally met Enterprise requirements remain eligible.
What are the circumstances under which appraisals are not required?
We are further streamlining the Enterprises’ existing use of AVM (automated valuation model) estimates of properties. Where there is a reliable AVM estimate of value provided by the Enterprises, a new appraisal will not be needed. Where there is not a reliable AVM value, a new appraisal will be required.
When will these enhancements become available?
Timing will vary by mortgage lender. The Enterprises will be sending operational instructions to lenders by November 15th. Some lenders may be able to accommodate mortgage applications.
sunbelttitleagency 