Waiver and Estoppel in Mortgage and Foreclosure Law: A Comprehensive Guide to Understanding Your Rights

Waiver and Estoppel in Mortgage and Foreclosure Law: A Comprehensive Guide to Understanding Your Rights

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Estoppel is a long-standing legal principle that prevents someone from being wronged unjustly by the actions or words of someone else. Found in many common law legal systems throughout the world — including in the United States, Canada and the UK — it essentially prevents someone from contradicting something that they did or said in the past.

Based in equity and common law, estoppel is also a concept that’s used in international law. Different forms of estoppel can vary greatly from one country to the next, though.

In the U.S., estoppel is often found in mortgage and foreclosure law, and ensures that one party lives up to what they say they’re going to do, or doesn’t do unfair damage to another party. It prevents someone, for instance, from saying they’re going to do something only to not do that in the future.

Below, we’ll discuss estoppel in more depth, including the main types as well as how it pertains to foreclosure cases.

Types of Estoppel

There are many forms of estoppel. Some of the most common ones include …

  • Equitable estoppel: This involves a promise that one party makes to another, ensuring that they don’t do harm to another.
  • Promissory estoppel: This involves a clear and definite promise made from one party to another. It’s found often in contract law, protecting a party from significant financial losses if the other party didn’t fulfill their promise.
  • Collateral estoppel: This prevents one person from re-litigating an issue that the courts have already decided. It essentially prevents one party from abusing legal resources and engaging in legal harassment.
  • Reliance-based estoppel: This focuses on the reliance of one party on an action or statement.

Other types of estoppel include estoppel by deed, estoppel by silence and estoppel by record.

Estoppel Certificates

Estoppel certificates are commonly used in real estate — both commercial and residential. These legally-binding documents confirm the obligations that a seller has to a buyer.

Many lenders and even some third-party entities will require estoppel certificates when a party wants to sell a property that has a tenant, or if the owner wants to refinance their loan. In many cases, the governing homeowners’ association (HOA) or condominium owners’ association will be the entity that issues this certificate.

The landlord is often the one that prepares the certificate, and it’s signed by the tenant or lessee. On the certificate will be listed any assessments, dues and fees that the new owner is responsible for taking over after the sale has been closed. 

Other pieces of information commonly included on these certificates include the lease terms, a confirmation that the lease is currently up-to-date as well as a statement that verifies that there weren’t any modifications made to the lease itself — or a list of any changes that were made and when they were made.

Waiver and Estoppel: Key Differences

Waivers and estoppels are often confused for each other. While they each have a place in common law, they are very different from each other.

An estoppel typically results from actions that are involuntary. This judicial device prevents a party from making an inconsistent claim.

A waiver, by contrast, is a voluntary action that one party takes that results in them surrendering, repudiating and/or renouncing a right or claim they have.

In law, waivers are typically used to resolve disputes, therefore, while estoppels are used to prevent such disputes from arising in the first place.

Estoppel in Mortgage and Foreclosure Transactions

Estoppel certificates are commonly used in commercial real estate. The document is used to do many things, including preventing a tenant from challenging statements that landlords made in the past.

When a commercial property is sold, the buyer of the property relies on estoppel certificates so they can understand what the terms of a lease are. This will ensure that the new entity that’s purchasing the property is completely informed regarding all of the legal and financial standings of it before they finalize the transaction. 

In addition, estoppel can be used to prevent a lender from asserting a claim that’s inconsistent with previous actions or statements it did or made. Similarly, they can be used to prevent borrowers from contradicting or denying that they took a previous action or made a previous statement.

Estoppel in Foreclosure Defense

In some cases, estoppel can be used as an affirmative defense in foreclosure proceedings. They can prevent lenders from asserting a claim that’s inconsistent with another claim they made in the past or action that they took.

It ultimately prevents a party from luring another into any legal position that would be termed disadvantageous to them. 

In addition, estoppel can be used to prevent a borrower from being penalized unfairly if a lender made a mistake. If, for example, the lender made a statement or included a statement in a contract and then figured out later they made a mistake, they cannot unfairly penalize the borrower for that mistake.

Reliance and Estoppel

Like its name suggests, reliance-based estoppel focuses on the reliance of a party on an action or a statement. This form of estoppel is used often in cases where a person has relied on an action or statement from another party to their detriment.

This could include a situation where an individual asserts a set of factors to be the truth to someone else. In this case, the victim can use estoppel to show they’ve been harmed due to the incorrect statements that were made.

It’s used to prevent a party from contradicting a previous statement they made or action they took, or from denying that they did so.

Best Practices for Estoppel Certificates

There are a few best practices that you should follow for estoppel certificates.

First, ensure that you obtain the estoppel from the correct condominium owners’ association or HOA. These are the entities that should be responsible for issuing and holding the certificates.

Next, ensure that you review the estoppel certificate carefully, ensuring that it reflects the seller’s obligations accurately. It also must be signed and dated by all affected parties.

If anything seems off with the estoppel certificate, it could be null and void.

Estoppel in Litigation

Estoppel can be used in legal cases to prevent one party from making inconsistent claims. In other words, it’s used as evidence that can be used to defend a party who feels they have been wronged in a certain situation.

In addition, estoppel serves to prevent an issue from being re-litigated if a court has already ruled on the matter. This protects a party who, for instance, might be in a weaker financial and legal position than another — such as an individual tenant or buyer versus a large commercial real estate company.

Consumer Protection and Estoppel

Estoppel isn’t just used in commercial real estate and complicated legal contracts, though. It’s also used to protect consumers from deceptive or unfair practices on a number of levels.

In real estate, for example, estoppel can prevent a seller or lender from making assertions or claims that are inconsistent. It can be used against either of these parties if they try to contradict something they’ve said or done in the past, or try to deny that they did so.

In essence, it serves as great protection for everyday consumers.

Common Estoppel Mistakes

Some of the most common estoppel mistakes relate to the party from whom they were obtained and/or a failure to review what’s in them.

As mentioned above, if you don’t obtain the certificate from the correct condo owners’ association or HOA, you might be getting incorrect information and, as a result, an invalid document. If you don’t review the certificate to ensure the information is accurate, then you could be signing something that doesn’t give you the correct rights you deserve.

Understand Estoppel to Know Your Rights

Estoppel is a powerful tool that can be used to prevent parties from making assertions and claims that are inconsistent. It’s a principle of common law that can be applied to a variety of different contexts, from commercial real estate, to contract law, to even foreclosure defense.

Understanding the different types of estoppel and how you can use them to protect your rights is essential. Yet, gaining this understanding can be challenging, as it’s complex and hard to understand.

That’s why it’s always a good idea to consult with a trusted law firm that can educate you on everything there is to know about estoppel.

In Michigan, Babi Legal Group has more than 20 years of combined real estate experience, and more than 10 years of experience in business law, debt collection and settlement, bankruptcy and criminal law.

For more information, contact us today.

Understanding the Impact of the Service Members Civil Relief Act (SCRA) on Foreclosures

Understanding the Impact of the Service Members Civil Relief Act (SCRA) on Foreclosures

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Active-duty service members and their families receive legal and financial protections of a federal law called the Servicemembers Civil Relief Act, or SCRA. Any person who is serving in active duty, which includes the reserves and National Guard, can enjoy the many important benefits that the law provides.

While very beneficial, the SCRA can also be complicated to understand. That’s why it’s always advisable to reach out to a local legal assistance office if you meet the requirements of the program and are struggling to meet your financial obligations.

One protection that active-duty members receive under the SCRA is from foreclosures.

Below, we’ll discuss the SCRA in more depth, including how it pertains to qualifying individuals who are struggling to repay their mortgage obligations.

SCRA Protections for Servicemembers

The benefits that the SCRA provides to active-duty service members and their families are vast. It includes lower interest rates, protection against evictions and default judgments, postponement of matters in civil court, termination of their auto leases and phone service, coverage for life insurance, delays on foreclosures and much more.

The law applies to any individual who is “materially affected” by their service in the military. This includes any full-time active duty member of any of the five branches of the military, any reservist who’s on active duty and any National Guard member who’s on federal orders for 30 days or more, as well as their family members.

One of the provisions of the SCRA is that all credits have to reduce interest rates on all debts to 6% for any liability that was incurred before the borrower entered active duty. This reduced rate also extends for one year following active duty if the debt in question is a mortgage.

In addition, the law provides protection against default judgments, eviction and foreclosure. The SCRA states that no property seizure, foreclosure or sale that’s being done for non-payment can happen if it’s made either during the borrower’s active-duty service or within nine months after that service ended.

The only exception is in the case where one of the above is being done to follow a court order.

This protection is a major benefit for all borrowers who qualify, but especially for those in states that don’t require judicial foreclosure.

Any qualifying individual can also request a delay of 90 days for any civil court proceeding if their service prevents them from appearing in court. This delay is automatically granted, and another 90 days can be added on top of that if granted by a hearing officer, magistrate or judge.

How the SCRA Applies to Foreclosures

In relation to foreclosures specifically, the SCRA provides protections to all qualifying borrowers who took out a mortgage prior to entering active duty. This is generally referred to as a “pre-service mortgage obligation.”

Those who meet these requirements can’t have their home foreclosed on while they are on active duty. The protection will in most cases extend for nine months following the active duty ending as well.

These protections are granted to active-duty members regardless of whether they informed their mortgage servicer or lender about their military status.

What the SCRA does, in this case, is allow service members to manage their mortgage obligations so they can avoid foreclosure. Active-duty service members and their families may have trouble meeting their financial obligations simply because they are away from home. This law ensures that they have adequate time to serve, come home and manage their financial obligations properly.

If service members are still having trouble meeting their mortgage obligations once the protection period ends, they can request a further stay of their foreclosure proceedings.

Waivers of Rights under the Civil Relief Act

All of the rights that are provided under the SCRA are given to all those who qualify automatically. Active-duty service members can choose to waive these rights, though they have to do so through a written waiver that they need to sign either during their military service or after it’s over.

Any waiver that is signed before an individual actually enters military service will be deemed invalid under the federal law.

If you are considering signing a waiver of your rights under the Servicemembers Civil Relief Act, you should read over all the waiver documents very carefully. It’s also a good idea to seek the advice of a qualified attorney who can inform you of what rights you are giving up so that you can fully understand whether it’s in your best interest to do so. 

Accessing SCRA Benefits and Protections

If you are looking for more detailed information on the SCRA, you should visit the official Servicemembers Civil Relief Act website. The site provides full details on the federal benefits that the law provides as well as the protections that are offered and who they are offered to.

Active-duty service members and their families will find this website extremely valuable so they can better understand the rights they are extended through the federal law. 

In addition to a wealth of resources, the website provides the ability to submit single record requests that certify Title 10 active duty status and much more.

Know Your Rights Under the SCRA

The SCRA is a federal law that provides important protections for active-duty service members and their families. This includes protection against foreclosure during active duty and for a period of time after that duty has ended.

It’s important to understand your rights under SCRA so you can take advantage of them, and seek help from local legal resources if you find yourself in financial trouble.

Babi Legal Group has more than 20 years of experience in real estate law, and more than 10 years of experience in fields such as debt collection, debt settlement and bankruptcy. 

Contact us today to learn more and to get advice on your rights under the SCRA.

Exposing the Impact: How Mortgage Securitization Affects Foreclosure Processes

Exposing the Impact: How Mortgage Securitization Affects Foreclosure Processes

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When multiple mortgages are bundled together into one big pool, it’s referred to as mortgage securitization. This process is done so that the mortgage loans can be sold to investors who can benefit from the interests that are paid on the loans.

It’s been around for more than 50 years now, but rose in popularity in the 2000s as an alternative investment to the traditional stock market. In essence, investors can purchase bonds in the mortgage pool, and then collect on the interest payments as profits when the loans are repaid on time.

Over the years, the process has evolved considerably, with new types of mortgage-backed securities being created.  This has happened because of the rising demand from investors for this type of security.

From a lender’s perspective, mortgage securitization frees up capital to allow them to extend additional loans. At the same time, it can increase the complexity of the foreclosure process for both the lender and the borrower.

That’s because the process involves creating mortgage-backed securities (MBS) and collateralized mortgage obligations (CMOs), which take the place of a traditional lender-borrower relationship.

Below, we discuss how mortgage securitization affects the foreclosure process.

The Impact of Mortgage Securitization on Foreclosure

While mortgage securitization itself may not make any difference at all to you as a borrower, it comes into play heavily if you fall behind on your payments.

As if foreclosure wasn’t complex enough, mortgage securitization can make it even more challenging for homeowners to navigate the foreclosure process. Because of this, there can be delays, which can lead to increased costs for homeowners.

One of the main reasons for this is that when mortgages are securitized, there are many different investors rather than just one individual lender. Getting all of these investors together to get the foreclosure together can be a nightmare, which is why it’s often carried out by a trust.

This trust, though, doesn’t actually own the mortgage loan, even though they are the entity that often proceeds with the foreclosure. This can make it harder for homeowners to understand who owns their loan, which then makes it harder to communicate and negotiate with the lender.

The process can even be more opaque, which can make it even harder for homeowners to understand what options they have.

Unfortunately, the foreclosure risk is higher for homeowners who have loans that are considered high risk, such as subprime mortgages.

High-Risk Loans and Foreclosure

Borrowers who have high-risk loans typically have a poorer credit history and/or higher debt-to-income ratios than other borrowers. As such, they may only be able to qualify for high-risk loans.

While these loans will allow them to purchase a home, they also come with many downsides. Most of these loans — examples of which include subprime mortgages, title loans and payday loans — carry much higher interest rates and fees than standard mortgages, which result in higher costs for borrowers.

Credit score and credit history both play a big role in what loans a borrower qualifies for. They also determine the interest rate and the overall terms of the loan, which have a direct impact in how much the monthly payments will be.

Credit scores are used by lenders to determine how risky a borrower is and, as a result, which loans they might offer them.  

The double-edged sword for people with a poor credit score and/or history is that they are often more likely to default on their loans, since the loans are more restrictive and expensive, and since the borrowers themselves typically aren’t on solid financial ground.

The Effects of Mortgage Securitization on Homeowners

Higher-risk loans often come with stricter terms that provide reduced financial flexibility. In addition, mortgage securitization can provide even less flexibility, which can result in a higher debt burden for homeowners with these types of loans.

As most people know, foreclosure can significantly impact a person’s credit score. If they have a foreclosure on their record, their credit score is likely to drop a lot and will likely stay that way for an extended period of time. 

This can cause major issues when trying to obtain new credit in the future, even if it’s attempting to open a new credit card or get a car loan. That’s why it’s always advisable to avoid foreclosure whenever possible.

However, mortgage securitization makes the foreclosure process more complex than it already is. This means homeowners who are facing foreclosure might have a tougher time navigating the process on their own, if they don’t have the help of an experienced foreclosure attorney.

Alternatives to High-Risk Loans

Borrowers should consider all of their options before signing on the dotted line for high-risk loans.

Personal loans are generally considered safer alternatives to payday loans, since they typically have lower interest rates and fees. These loans can be used to cover unexpected expenses or consolidate debt, which can help a borrower improve their credit score over time.

When it comes to mortgages, there are many other low-risk options such as government-backed loans.

FHA loans provide an alternative to borrowers with poor credit and/or poor credit history, as they have favorable terms, lower interest rates and more flexibility. Some borrowers may also be able to take advantage of VA loans or USDA loans.

Some credit unions also offer mortgages, which could be a good option for some borrowers who struggle to qualify for a traditional mortgage through a major financial institution.

The Importance of Financial Literacy in Avoiding Foreclosure

If you want to avoid foreclosure, you need to understand all the terms of your loan, including the interest rate and fees that you pay. It’s also crucial to manage your debt properly so that you don’t fall behind.

If you are struggling to meet your payment obligations, it’s important to communicate openly and honestly with your lender as soon as possible. This will show good will, and also provide you with the most options for avoiding foreclosure.

It’s always best to get the most favorable mortgage possible, as it can naturally help you avoid foreclosure by providing you with better terms. You can improve your credit history by ensuring you make all your payments on time and reduce your debt as much as possible.

If you’re struggling with debt, seek professional help from various organizations that will provide assistance. You can create a long-term plan that includes saving and budgeting so you can afford a home and then avoid foreclosure once you buy one.

The Role of Lenders in Foreclosure Prevention

The lender holds many responsibilities, including working with borrowers to help them prevent foreclosure. In fact, lenders might even have incentives to modify your loan or offer you an alternative payment plan, rather than simply foreclosing on your home.

All lenders should communicate clearly with borrowers about what their options to avoid foreclosure are, and how to go about taking advantage of them.

Some of these options might include modifying the terms of the loan, reducing and/or pausing payments temporarily, or providing financial education and counseling services.

The Impact of Mortgage Securitization on Foreclosure Laws and Regulations

Mortgage securitization can be viewed as the “Wild West” of lending. Indeed, many high-risk mortgages such as subprime loans are credited with contributing to the financial crisis that happened in 2008.

That’s why the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law in 2010, to try to prevent another similar crisis. Among other things, it aims to regulate mortgage securitization.

Under the law, all lenders have to follow certain guidelines and disclose certain information to borrowers. It also provides homeowners with certain protections, such as the right to obtain a loan modification if they’re struggling to meet their debt obligations.

Laws are always changing, though, and when they change, processes change as well. That’s why it’s important for lenders and homeowners alike to stay informed about these changes so they know their rights and responsibilities.

Mitigating the Risks of Mortgage Securitization

Both homeowners and lenders assume certain risks with mortgages, and it’s always best for them both to mitigate these risks as much as possible.

Homeowners can do so by understanding the terms of their loan and managing their debt properly. Lenders can do so by communicating clearly and offering alternative repayment plans when necessary.

For both, accountability and transparency should be a priority. This ensures that the process is always fair and equitable, helps to prevent foreclosure and promotes financial stability in the process.

Consult with a Trusted Foreclosure Lawyer

Mortgage securitization can provide additional risk of foreclosure and complexity to the process. Having a higher-risk loan can also lead to reduced financial flexibility and higher debt burdens for borrowers.

That’s why it’s always a safer option to look at alternatives, such as government-backed loans or even personal loans to build your credit.

If you’re facing the possibility of foreclosure, it’s important that you consult with a trusted and experienced foreclosure lawyer who can help you understand your rights, responsibilities and options.

The attorneys at Babi Legal Group have more than 20 years of experience in all aspects of real estate law, as well as more than 10 years in debt collection and bankruptcy.

Contact us today to know your rights in foreclosure and mortgage securitization.

Understanding the Law: What Are Anti-Deficiency Laws?

Understanding the Law: What Are Anti-Deficiency Laws?

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When homeowners stop meeting their repayment obligations, mortgage lenders can initiate the process of foreclosure to recoup the losses that they’ve incurred. At the end of this process, the home is typically sold at a sheriff’s sale auction, with the proceeds going to the lender.

Sometimes, the amount that the home is sold for is less than what the borrower owed on this mortgage. If this happens, it creates what’s called a deficiency.

In some states, mortgage lenders are able to go after the borrower personally to cover this deficiency. However, anti-deficiency laws are in place in other states that prohibit or limit a residential mortgage lender’s right to recover this discrepancy from the borrower.

In certain situations, these anti-deficiency laws can protect borrowers from facing deficiency judgments, which can be extremely detrimental to their finances. 

Just like most other foreclosure rules, anti-deficiency laws are set on a state-by-state basis, with much variation, specific requirements and possible exceptions.

Deficiency Judgment: What Borrowers Need to Know

In states that allow it, mortgage lenders are able to file a civil lawsuit against a borrower to seek the difference between what the home was sold for at auction and the remaining outstanding balance on the mortgage. The lender obtains this through what’s known as a deficiency judgment, which is an official court order that requires the borrower to pay any remaining debt following a foreclosure sale.

As mentioned, what options a borrower may have to avoid a deficiency judgment depends on the state in which the home is located. In some states, borrowers can avoid a deficiency judgment by deeding their property to the lender before the process of foreclosure begins.

If you’re facing foreclosure, it’s extremely important that you know your rights as well as the rules and regulations regarding the process in your state. Because these laws can be complex and complicated, you should always consult with an experienced foreclosure lawyer to understand your options.

How Anti-Deficiency Laws Work

Anti-deficiency laws are official statutes that are on the legal books of individual states. These laws were designed to protect borrowers from facing a huge mountain of debt even after they lost a home to the foreclosure process.

These laws usually apply to purchase money loans, or mortgages, which are loans that are used specifically to purchase real estate. In some cases, refinance loans might be protected from deficiency judgments if they’re secured by a purchase money security device.

While anti-deficiency laws can vary greatly in detail from one state to the next, generally speaking, they don’t apply to vacant land or commercial properties. This means that the borrower in both of these cases wouldn’t be protected from a deficiency judgment following foreclosure. 

Many states also require that the property in question be a borrower’s primary residence for it to receive protection under anti-deficiency laws.

State-Specific Anti-Deficiency Laws

In total, there are 16 states that have anti-deficiency laws on the books. They are Wisconsin, Washington, Oregon, North Dakota, North Carolina, New Mexico, Nevada, Montana, Minnesota, Iowa, Idaho, Hawaii, Connecticut, California, Arizona and Alaska.

It is important to note, though, that some of the states on this list also include limitations and/or exceptions. 

In California, for example, the anti-deficiency law only applies to a residential property that’s used as a primary residence and that has no more than four units. It also only applies to purchase money mortgages.

The anti-deficiency law on the books in Arizona protects certain types of properties, as long as they have a purchase money mortgage. The home must be either a single-family home or a single two-family home. In addition, the home must be on 2.5 acres or less. 

Each state that has anti-deficiency laws has its own specific rules, regulations, limitations and exceptions. That’s why it’s important to educate yourself about the specific laws that apply to where you live.

Limitations and Exceptions

In addition to exceptions and limitations on the type of property, many states’ anti-deficiency laws don’t apply to certain types of loan.

Home equity lines of credit or home improvement loans may not fall under the umbrella of covered debt for anti-deficiency laws. In some states, there are also exceptions in place for loans that cover multiple properties, or for properties that have multiple liens on them.

In all of these cases, the mortgage lender, or lenders, may have the right to seek a deficiency judgment against you if your property and/or your specific loan type isn’t covered under your state’s anti-deficiency law.

Knowing whether your property is or is not covered is important if you’re facing foreclosure, because it might steer you in one direction or the next when you’re weighing your options.

Avoiding Unpaid Debt After Foreclosure

There are, of course, many concerns homeowners who are facing foreclosure have. In addition to losing your home and having to find another place to live, you must deal with the fact that your credit is likely to take a significant hit for an extended period of time if your home is sold through a foreclosure process.

In addition to that, if the current fair market value for the home is a lot less than what you owe on the mortgage, you could be on the hook for a significant amount of debt, depending on what state you live in.

If your state does not have anti-deficiency laws, you may have options to avoid a deficiency judgment. If you know that your home is likely to sell for less at auction than what you owe on the mortgage, you could do what’s called a deed-in-lieu of foreclosure.

Essentially, this is an arrangement struck between you and your mortgage lender where you will sign the deed of your property back to the lender before they foreclose on it.

In this case, you will be giving up your rights in the property in exchange for the lender not foreclosing on you.

Some borrowers may enjoy major advantages if their lender will agree to this.

For one, you’ll be released from all the debt you owe in the home immediately, without the huge hit on your credit. You’ll also not have to face public notoriety that goes along with foreclosure, since most states require the lender to advertise the date and location of all sheriff’s sales.

It’s also a way to avoid being potentially responsible for a mound of additional debt if the lender seeks a deficiency judgment against you.

Lenders do not have to agree to a deed-in-lieu of foreclosure, though, and it may take some negotiating to get it done. That’s why you should consult with a foreclosure lawyer who can present you the best options to avoid being responsible for unpaid debt.

Know Your Rights When It Comes to Foreclosure and Deficiency Judgments

Borrowers who are facing foreclosure need to be well-educated on all aspects of the proceedings. Unfortunately, there is no across-the-board standard for foreclosures, as the process varies greatly from one state to the next.

Understanding what these rules are, and whether anti-deficiency laws apply to you, are important because it can help protect you in a foreclosure situation.

If you’re facing foreclosure, it’s essential to consult with an experienced and qualified foreclosure lawyer so you can know all of your rights and options under applicable state law.