Protecting Retirement Funds in Bankruptcy: What You Need to Know

Protecting Retirement Funds in Bankruptcy: What You Need to Know

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For some people, bankruptcy can provide a fresh start, a way out of a bad financial situation that has no other solutions. Bankruptcy can be a complicated process, though, since there are so many factors at play.

One of the most common questions that’s asked by people who are considering bankruptcy is whether they have to give up all their assets when they file — or whether all of their assets will be included in the bankruptcy assessment.

There isn’t a simple answer to that question, since there are different exemptions that exist for different types of assets. 

That being said, most retirement savings accounts are protected in bankruptcy. There are limits on those exemptions, though, as well as consequences for withdrawing any retirement money before bankruptcy.

There are universal rules and protections in place in federal law for individuals who are filing for bankruptcy. This includes protection from creditors who might try to go after your retirement savings to satisfy outstanding debts.

Bankruptcy exemptions can vary by state, of course, with some states providing more protection for retirement accounts than others do.

We take a deeper dive into this issue below.

Types of Retirement Accounts and Their Protection

The first thing to understand is that not all retirement accounts are the same, and each type is treated a little differently when it comes to bankruptcy protection.

In 2005, President George W. Bush signed the Bankruptcy Abuse Prevention and Consumer Protection Act into law. That essentially guaranteed substantial protection for all types of IRAs, or individual retirement accounts, that the federal tax code recognizes.

There are limits to how much money in Traditional and Roth IRAs enjoy protection for bankruptcy. This amount is periodically adjusted for inflation, with the current value at approximately $1.51 million.

In addition, SIMPLE IRAs, SEP IRAs and many rollover IRAs enjoy full protection from bankruptcy, no matter how much money is in them.

Federal law also generally provides protection against creditors to employer-sponsored retirement plans such as 401(k) and 403(b) plans, thanks to the Employee Retirement Income Security Act. That law, passed in 1974, also provides protection to pension plans and defined benefit plans.

How Bankruptcy Affects Retirement Income

As mentioned above, the funds that are in your retirement accounts are generally off-limits to credits during bankruptcy proceedings. However, if you have already retired and are collecting your retirement benefits, those funds are considered income and could affect the bankruptcy case.

In Chapter 7 bankruptcy cases, most states will require applicants to have income that is below the median level for the region. In lieu of that, they may require you to pass a Chapter 7 means test to prove that you can’t repay your outstanding debts.

Chapter 13 bankruptcy cases use your total income to determine how the outstanding debts that you have will be paid to creditors. That’s because Chapter 13 is a reorganization of debt rather than a liquidation like Chapter 7 is.

As such, the retirement benefits you receive could factor in the income calculation, which in turn could increase how much of your outstanding debt you will have to repay.

Benefits you receive from Social Security are exempt from bankruptcy proceedings, as long as the payments you receive are kept separate from other income you have.

Protecting Retirement Funds Before Bankruptcy

Before you file for bankruptcy, it is generally a good idea to meet with an experienced bankruptcy attorney who can help you navigate all federal, state and local laws. After fully analyzing your financial situation, they can help guide you on how to best protect your retirement assets from creditors.

While each individual case will vary, there are some general things that will apply to everyone.

For example, it may not be the best option to take money out of your retirement account to pay down your debt, as this could affect the exemptions you enjoy under federal and state bankruptcy law.

That’s why it’s so important to understand the potential consequences of withdrawing your retirement funds before you file bankruptcy, as it can significantly affect the outcome.

As mentioned earlier, since Social Security benefits are exempt from bankruptcy as long as the funds are kept separate from other income, it’s generally a good idea to have that money deposited into a separate bank account from all other money. This will ensure that you enjoy the full benefits of the bankruptcy protections for retirement funds.

State-Specific Exemptions for Retirement Funds

In addition to federal law, many states also have bankruptcy exemptions in place that protect state, county and city retirement accounts. Those who use the bankruptcy exemptions that are provided by their state are also allowed to use bankruptcy exemptions that are provided by the federal government.

Keep in mind that some states — including Texas, Hawaii and Arizona — offer additional protections for retirement accounts from creditors in bankruptcy cases. So, if you want to protect your retirement funds as much as possible, it’s crucial to understand what exemptions apply to you in your state and situation.

Lawsuit Protection for Retirement Accounts

Not all retirement funds are protected from lawsuits, though.

Employer-sponsored retirement accounts do provide some protection from these situations. However, IRAs aren’t exempted from federal lawsuits.

States also have varying takes on how IRAs are protected from lawsuits. One thing creditors can’t do, though, is seize retirement assets through a lawsuit for nonpayment of credit card debt.

The Importance of Professional Advice

As you can see, bankruptcy law can be quite complicated — and all of this just has to do with protecting your retirement assets. That’s why it’s so important to seek professional advice if you are considering whether bankruptcy might be right for you.

A knowledgeable and experienced bankruptcy attorney can provide invaluable insight and assistance, helping you to understand all applicable bankruptcy laws and then guiding you through the process from start to finish so your assets are well-protected.

The best way to ensure you’re making the most informed decisions is to consult with a local bankruptcy lawyer. Make sure that the bankruptcy lawyer you seek advice from is experienced and specializes in bankruptcy law in your state. 

They are the ones who will be best prepared to answer your specific questions about filing bankruptcy and how to best protect your retirement funds.

Trust the Bankruptcy Law Experts at Babi Legal Group

Filing for bankruptcy can affect your retirement savings as well as your income. However, there are protections in place for both Chapter 7 and Chapter 13 bankruptcies that can allow you to keep the assets you have in retirement accounts.

Some non-qualified accounts might not be protected, though, and the rules may differ depending on the state in which you live.

Consulting with an attorney who’s a bankruptcy expert can help to protect your assets, navigate all applicable rules and ensure you’re making informed decisions about your retirement funds.

At Babi Legal Group, we have more than 10 years of experience in bankruptcy law and can advocate for you and your rights. For more information, please contact us today.

How Predatory Lending Practices Lead to Foreclosure: A Grim Realty

How Predatory Lending Practices Lead to Foreclosure: A Grim Realty

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Despite regulatory measures meant to prevent it, predatory lending is a major problem in the U.S. today. People are sometimes desperate to purchase a home or are uneducated on specific details of mortgages, and some lenders seek to take advantage of that.

Predatory lending refers to any unfair, deceptive or abusive loan terms that predatory lenders impose on borrowers. Most of these loans will have high interest rates and fees, might strip the borrower of the equity in their home or even place a creditworthy borrower in a loan that’s rated for people with lower credit.

These lenders seek to take advantage of someone’s lack of understanding of financial vehicles by using aggressive sales tactics to get them to agree to something that isn’t in their best interest.

There are many different types of predatory lending practices, including subprime credit cards, overdraft loans and payday loans — all of which have interest rates that can only be termed as unreasonably high.

Anyone can become the victim of predatory lending, regardless of their income, demographics or education level. Understanding what predatory lending is, and what it can result in, is essential to avoiding signing on the dotted line for one of these loans.

Predatory Lending Tactics

Predatory lenders are looking to do one thing — take advantage of people who are vulnerable to lend them money at unreasonable terms.

“Vulnerable,” in this regard, can refer to many different people in many different situations. Vulnerable populations for predatory loans include people who have limited access to financial education, who are in a desperate situation when it comes to their housing and/or have low credit scores and, as a result, fewer options for credit than others.

Predatory lenders seek out people in these populations and then use deceptive practices to make them feel as if they’re getting a good deal. In reality, though, they take advantage of borrowers’ financial struggles, and profit from them, with high interest rates, exorbitant fees and other unfair loan terms.

These lenders know exactly what they’re doing, and they play to these borrowers’ emotions and situation. They might use aggressive sales tactics, exploit borrowers’ lack of understanding, and even ignore or hinder a borrower’s ability to repay debts.

Some even hire mortgage brokers to specifically target certain borrowers so they can sell them predatory loans.

One common tactic that these lenders use is called loan flipping. This occurs when a lender refinances a loan with a higher interest rate and fees, which ultimately hamper’s the borrower’s ability to repay the loan.

The Impact of Predatory Lending

There are many impacts of predatory lending, both on a micro and macro level. 

From a micro perspective, predatory lending can have a huge negative impact on individual borrowers. It can lead to them entering a debt spiral and experiencing significant financial struggles, which can ultimately lead to foreclosure for borrowers.

Not only can this result in borrowers losing their home, it can also create significant mounds of debt, financial instability and, in the worst case, even bankruptcy.

From a macro perspective, predatory lending can exacerbate social and economic inequalities, which then perpetuates cycles of financial instability and poverty.

That’s because predatory lenders often target minority groups, including ethnic and racial minorities, because they commonly have limited access to financial and credit resources.

Who is Affected by Predatory Lending?

While anyone can technically be affected by predatory lending, minority groups and those of lower economic standing are the ones who are often targeted by predatory lending. That’s because, in essence, these lenders rely on having an advantage of information over their borrowers, and these borrowers typically have less information and knowledge about finances and credit than others do.

In addition to minority groups, low-income families and individuals are often the target of predatory lending practices. So, too, are elderly homeowners who might not only not be “up-to-date” on predatory lending tactics, but also have limited access to additional credit.

Predatory lenders take advantage of these vulnerabilities, and much more, to prey on borrowers who often don’t know any better. That’s why anyone can be a victim of this type of lending, regardless of their income, demographic background or education level.

Prevention and Protection

Since predatory lending relies on a lack of information and education on the part of borrowers, the best way to avoid a predatory loan is to be educated about them. The more knowledge you have about predatory loans, and the more research you do about them, the better prepared you will be to avoid them.

In addition, it’s important to know what your credit rating is so you can identify any potential issues before even applying for a loan. Federal law allows all U.S. residents to obtain a free copy of their credit report at annualcreditreport.com.

When you are presented with a loan offer, it’s important that you read all the documents carefully and understand all of the terms before you sign your name on the dotted line. 

If you want more information or resources about mortgages, you can always seek help from credit and housing counselors, who can help you decide whether a loan is right for you.

Ultimately, it’s important to trust your instincts and ask questions. If a deal sounds too good to be true, it probably is.

Reporting and Addressing Predatory Lending

If you suspect that a company is using predatory lending practices, you should report it to the proper agencies. There are actually a few agencies that can help you in this regard, both from the federal and state level.

The Consumer Financial Protection Bureau (CFPB) accepts complaints on its website and over the phone. So does the Federal Trade Commission (FTC), which is an agency that’s dedicated to protecting U.S. consumers.

Legitimate banks, lenders and credit unions should all also have a regulatory agency that is responsible for oversight. You can find out which agency that is and report them there, too.

Every state should also have a consumer protection organization. In Washington State, for instance, the Washington State Department of Financial Institutions (DFI) is responsible for regulating and enforcing all lending practices.

By filing complaints with the appropriate agencies, you can help to hold predatory lenders accountable and prevent other borrowers from falling prey to their practices.

Seeking Justice and Compensation

If you believe you’re a victim of predatory lending and can prove that your lender violated federal or local laws, it might be a good idea to file a lawsuit. A good place to start is to contact your state’s consumer protection agency, as they can provide you proper guidance and support.

Federal law, and most state laws, provide consumers with the right to file a lawsuit against predatory lenders and seek compensation for damages incurred. It’s possible that if you’ve been a victim, you could gain compensation or some other form of relief.

If you believe you’ve been a victim of predatory lending in Michigan, contact the experts at Babi Legal Group. 

The Role of Regulation in Combating Predatory Lending

Predatory lending was a major cause of the 2008 financial crisis. In fact, subprime mortgages were the main driver of the U.S. economy, and many economies around the world, crashing.

To prevent a similar situation from happening in the future, the federal government passed the 2010 Dodd-Frank Act, which not only established provisions that sought to minimize predatory lending but also created the CFPB.

Many states have also established anti-predatory lending laws, with some outlawing practices such as payday lending completely.

Other agencies that play a role in regulating and enforcing lending practices include the FTC and Housing and Urban Development (HUD). Laws such as the Equity Protection Act also work to protect borrowers from predatory lending practices and other abusive loan terms.

While state-specific and federal laws, as well as federal agencies, were created to combat predatory lending, protections and rules are always subject to change.

Seek Justice and Compensation if You are the Victim of Predatory Lending

Predatory lending is a serious issue that can have devastating consequences for individual borrowers, entire communities and society at large. The key to avoiding predatory loans and protecting yourself from them is to increase education and awareness about them.

Regulation and enforcement also play essential roles in not only combating these predatory practices but also in promoting fair lending practices.

If you believe you’ve been the victim of predatory lending, you should seek justice and compensation, as well as report the practices to the relevant authorities.

In Michigan, the experts at the Babi Legal Group can help you with your claim. We have more than 10 years of experience in debt collection, debt settlement and bankruptcy, with another 20 years of experience in real estate.

To learn more, contact us today.

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.

Navigating Dual Tracking in Foreclosure: Understanding Your Rights and Options

Navigating Dual Tracking in Foreclosure: Understanding Your Rights and Options

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If a homeowner is having trouble meeting their mortgage obligations, they have the option in many cases to work out an arrangement with the lender. Such a modification could result in the lender agreeing to change the terms of the loan to provide financial relief to the borrower, allowing them to avoid foreclosure.

In many states, negotiations toward a loan modification can occur even after a lender has begun to foreclose on a home. Thanks to a federal law, borrowers can rest easy knowing that the foreclosure process must pause while the lender is considering a loan modification.

During the mortgage crisis, many mortgage services practiced what’s known as dual tracking. This meant they would continue to let a foreclosure case proceed while homeowners were also seeking to modify their loans.

Dual tracking unfortunately resulted in many borrowers being shocked to learn they were losing their homes to foreclosure when all along they had believed they were working toward a modification of their loan.

The federal government deemed this to be an unfair practice, though, since banks hold all the cards in this case. They can decide how long it takes to review and approach an application for a loan modification, as the foreclosure process in court gets streamlined for the banks’ benefit. 

That’s no longer the case any more, thankfully. Below, we’ll discuss dual tracking in foreclosure, as well as what rights and options that homeowners have.

Laws and Regulations

There was a lot of uncertainty and turmoil in the immediate aftermath of the 2008 financial crisis, and many homeowners lost their homes to foreclosure in the process. Lenders — many of whom were to blame for the crisis thanks to subprime lending — took advantage of borrowers by continuing to foreclose on homes while also working out loan modifications.

In 2010, the federal government took action to protect borrowers by passing the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The Consumer Financial Protection Bureau, or CFPB, was created by that act, and it issued new rules for mortgage servicing that prohibited the practice of dual tracking.

Those rules were eventually codified into federal law and went into effect in early 2014.

There are many protections that the new rules put into place. In addition to completely prohibiting the practice of dual tracking, they also included a requirement that servicers couldn’t initiate foreclosure proceedings until a browser was more than 120 days delinquent on their loan.

Some states have ensured that these rules will permanently remain in place, even if the federal government decides to change course in the future. For instance, Minnesota, Nevada and California all have laws on the books that ban dual tracking.

The laws require all mortgage services to either deny or grant an application for a first-lien loss mitigation application before they begin or re-start the foreclosure process.

Your Rights in the Foreclosure Process

Even if your loan servicer is foreclosing on your home, you still have rights under federal law. This includes protection from dual tracking, whether you live in a state that has its own laws on the books or not.

According to federal law, once you submit a complete loan modification application to your mortgage servicing company, the foreclosure process has to be halted completely until the servicer completely reviews the application.

As long as the loan modification application is submitted at least 37 days before the scheduled foreclosure sale, the servicer must stop the foreclosure process entirely, according to the 2014 CFPB rule.

Mortgage Servicers’ Responsibilities

Mortgage servicers have certain responsibilities that they must abide by according to the dual tracking prevention law. Once the borrower submits the complete application for loss mitigation and the application is determined to be in pending status, then the foreclosure process must stop.

The servicer can’t claim that an application is duplicative if a prior application was denied by a prior mortgage servicer. That’s because the CFPB has determined that a transferee service has to comply with the requirements of the law, regardless of whether the prior servicer already evaluated a borrower for loss mitigation options.

A servicer can only proceed with the foreclosure process once again if they have determined the borrower isn’t eligible for loss mitigation, and any subsequent appeals have been exhausted; if the borrower rejects the option that the service offers them; or the borrower accepts an option but doesn’t comply with the deal’s terms.

Likewise, borrowers are prohibited from abusing this system by filing continuous applications for loss mitigation resolutions, just so that they might stall the foreclosure process.

Defending Against Foreclosure

If your mortgage servicer engages in dual tracking, you will have a solid case to defend yourself in the foreclosure proceedings. With the help of an experienced foreclosure law firm such as Babi Legal Group, you should immediately move to dismiss the foreclosure proceedings.

In many states, this must be done via a motion that will bring all valid foreclosure defenses to the court’s attention. Once such a motion is filed, the court will set a hearing on the matter to judge the defenses based on its merits.

Defending against foreclosure isn’t your only option, though. You can seek alternative solutions such as a second mortgage loan, which can be used to refinance your current mortgage with more favorable terms.

Second mortgages, such as home equity lines of credit (HELOCs) and home equity loans, can also be used to fund renovation projects or even pay off other high-interest debts such as credit cards. Keep in mind, though, that interest rates on second mortgages are typically higher than that on primary mortgages.

Taking Action to Navigate Dual Tracking in Foreclosure

Navigating the foreclosure process is never a simple task. It becomes even more complicated if you’re attempting to obtain a loan modification.

All homeowners should know the regulations and laws that restrict dual tracking in foreclosures, including both federal- and state-level regulations. If you’re facing foreclosure, make sure to clearly and consistently communicate with your mortgage servicer and keep clean records of all your interactions. 

If you believe that your mortgage service is dual tracking your loss mitigation application and foreclosure, make sure you talk to an experienced foreclosure attorney. They can help you understand your rights and fight for you if indeed your servicer is breaking any laws.

Another option is to seek help from a housing counselor who is approved by the U.S. Department of Housing and Urban Development (HUD) to prepare a loss mitigation application and learn about other options to avoid foreclosure.

The important thing for homeowners to do is seek professional assistance if you believe that dual tracking is occurring.

Understanding Equitable Subrogation in Foreclosure: Your Rights and Options

Understanding Equitable Subrogation in Foreclosure: Your Rights and Options

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Equitable subrogation is a common legal practice that’s carried out in the real estate and insurance sectors a lot. The legal doctrine allows one party to replace another party, asserting the remedies and rights of that other party in the process.

In real estate, equitable subrogation is often put into practice when a borrower refinances their mortgage. In this case, the new lender will extend credit to the borrower that acts as the new mortgage.

To assume the position of first priority lien holder on the property, the new lender will pay the original lender the amount of money that’s owed on that loan. Through the doctrine of equitable subrogation, this will relieve the original lender of its lien holder rights, giving them to the new lender.

Equitable subrogation also differs from traditional subrogation. That’s because instead of the remedy being contractual, it’s equitable — meaning one debt is replaced by another.

Below, we’ll discuss equitable subrogation in more depth, including how it pertains to foreclosure and how you can protect your assets in the process.

The Role of the Insurance Company in Equitable Subrogation

Insurance companies exercise subrogation rights quite often, specifically when they are settling claims. Insurance companies have the right to exercise subrogation rights so they can gain reimbursement for payments that are made to policyholders.

An example would be if a driver got into an accident that wasn’t their fault and was injured in the process. That driver’s insurance company might be contractually obligated to provide coverage for the driver, helping them to pay medical bills associated with their injury — in addition to the amount they have to pay for any damage done to the car.

The money that the insurance company has to pay is considered their loss. Through equitable subrogation, the insurance company might have the right to reclaim that loss from the other driver’s insurance company — since that person was at fault for the accident.

Of course, this example doesn’t apply to all cases across the board. Some states are considered no-fault states for auto accidents, which essentially wipes out the ability of insurance companies to exercise equitable subrogation in this way.

Policyholders may also be affected by the insurance company exercising subrogation rights, as it could impact their own interests in a property.

Equitable Subrogation in Foreclosure Cases

Equitable subrogation can also come into play in real estate in some foreclosure cases where there are multiple lien holders on a single property, and it can have large ramifications on distribution once a foreclosure sale has been completed.

Sometimes, a senior lender will pay off a junior mortgage on the property, and then seek to be subrogated to the position of the junior mortgage. This would allow them to pursue a claim on the outstanding balance owed by the borrower and, ultimately, try to foreclose on the property to obtain its money.

By pursuing equitable subrogation, lenders can seek to obtain reimbursement for payments they made on the outstanding debt. 

At the same time, borrowers typically have options and rights to negotiate with lenders to avoid the foreclosure process altogether. However, this can be a complicated process.

That’s why if you’re facing the possibility of foreclosure, it’s important to have an experienced attorney on your side.

Proving Negligence of a Third Party

Equitable subrogation is meant to be a fair process, hence the name “equitable.” It’s possible, though, that one party may try to prove negligence by a third party.

The rules of how this must be done vary by state. Generally speaking, though, one has to show that a third party was responsible for the loss, which could include demonstrating clearly that they were primarily liable for whatever the loss was.

The party claiming negligence will have to back up their claims with proof by providing documentation such as insurance policies, contracts or other records that show the third party holds liability.

Understanding Subrogation Clauses in Insurance Contracts

Many insurance contracts will have subrogation clauses written right into them. These provisions will give the insurance company the right to pursue claims against third parties.

In essence, these clauses enable the insurer to get a reimbursement for any payments they must make to policyholders, if a third party was responsible for that loss — as mentioned in the example above.

These clauses can impact equitable subrogation, in that they can ultimately limit the insurance company’s right to pursue a claim against a third party. They could also affect the rights of both the third parties and policyholders alike.

Defenses and Waivers of Subrogation

It’s also common that defendants argue that equitable subrogation clauses cannot, or should not, be enforced in their case. There are many different angles they may take to defend their position.

One is that there was a lack of consideration given to their own claims, or that there isn’t a clear or direct relationship between the parties in the case. They also might argue that the subrogation clause is either unenforceable or ambiguous.

Again, depending on the state and how the subrogation clauses are written, it’s possible that defendants could be successful in this vein, if the insurer didn’t meet certain standards or requirements.

Waivers of subrogation could also affect the rights of equitable subrogation by limiting the ability of an insurance company to pursue a claim. In other words, there could be a limit to how much money, or a percentage, of the loss they are allowed to pursue using equitable subrogation.

Legal Framework for Equitable Subrogation

Case law in Florida has established the requirements for equitable subrogation. It has been established through the state court system as a fair remedy that ensures no lender is injured when they lend money to either businesses or individuals.

Equitable distribution has been used in Florida for disputes over real estate, in Land Bank of Columbia v. Godwin; over insurance; and over construction, in See Tank Tech, Inc. v. valley Tank Testing, LLC.

Florida’s legal framework for cases involving equitable subrogation could also impact other cases’ outcomes that involve both insurance and foreclosure claims. They could also affect the options and rights that insurance companies, lenders and homeowners have.

Seeking Professional Help

Equitable subrogation is certainly not a simple concept. Not only is it complex, but it can be up to interpretation.

That’s why if you’re facing foreclosure and/or an equitable subrogation case, it’s important that you consult with an attorney who has years of experience in these fields. This attorney can help you navigate the complex legal issues that are involved in cases with equitable subrogation.

Lenders, homeowners and policyholders all have options and rights in equitable subrogation cases, which an attorney can help guide you on. They’re also experienced in negotiating these claims with insurance companies or pursuing claims against third parties.

Common Misconceptions

There are many common misconceptions involving equitable subrogation.

One is that it’s the same as conventional subrogation. A main difference between the two is that equitable subrogation as a remedy for a particular debt can’t be legally enforced but should be recognized. 

Another common misconception is that waivers of subrogation always are enforceable. Depending on how the waiver clause is written, and what state it applies to, it’s possible that it may not be enforceable, providing a loophole for defendants.

Frequently Asked Questions about the Process

What is the difference between equitable subrogation and conventional subrogation?

Equitable subrogation is referred to as legal subrogation, while conventional is referred to as contractual subrogation. The latter is based upon a contract between two parties, while the former doesn’t require such an agreement.

How does equitable subrogation affect policyholders and third parties?

Equitable subrogation could allow an insurance company to “step into the shoes of the policyholder,” assuming their rights in the process. Third parties may also have to pay compensation to cover losses an insurance company incurs.

What are the requirements for proving a case of equitable subrogation?

There are five conditions an equitable subrogation case must meet. The subrogee must be paid the full debt, the subrogee has to pay the original claimholder so their own interests are protected, the subrogee can’t act as a volunteer, the subrogation can’t harm any third parties’ rights, and the subrogee can’t be primarily liable for the debt in question.

Get Legal Help if You’re Facing Foreclosure

Equitable subrogation is a legal doctrine allowing a party to “step into the shoes” of another party so they can assert remedies and rights of that other party. Unlike conventional subrogation, it’s not based on a contract, and can arise at times in foreclosure cases.

Since equitable subrogation is such a nuanced and complex legal concept, careful consideration is required for the options and rights of all the parties involved. That’s why if you find yourself in such a case, it’s important to consult with an attorney who is experienced in foreclosure law and equitable subrogation.

Doing so will ensure that your rights and options are protected, and that you know how to navigate equitable subrogation in foreclosure cases.

What Is MERS Mortgage: A Simple Guide to Understanding It

What Is MERS Mortgage: A Simple Guide to Understanding It

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If you have a mortgage, you may not be aware that there is something known as the Mortgage Electronic Registration System, or MERS, that tracks its registry as well as any other mortgages that originated in America. 

The confidential database is used by companies throughout the real estate financial industry for trading and recording residential and commercial mortgages. The electronic registry makes it easier for lenders to register transfer details with the relevant county recorder whenever a loan is sold from one servicer to another.

While this may seem like a shady proposition for borrowers, it was actually created just to simplify and improve the efficiency of county land records, which can provide benefits to everyone. Plus, it’s a program that’s been approved by government agencies such as the Department of Veterans Administration (VA) and Federal Housing Administration, as well as government-sponsored entities such as the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association — better known as Freddie Mac and Fannie Mae.

Below, we provide a detailed look at what MERS is and how it works.

How MERS Works in the Mortgage Industry

MERS is basically just a database that allows for electronic registration of mortgage loans and deeds. It tracks mortgages for all member companies as they are sold from one financial institution to another, which happens relatively often.

After MERS was created, members no longer had to submit assignments manually to individual county recorders any time they bought or sold a loan. This helps to simplify the process and make it more efficient and accurate at the same time.

MERS plays a huge role in the mortgage banking industry, and is used by title companies, document custodians, lenders (warehouse, wholesale and retail), settlement agents, mortgage servicers and originators, county recorders, investors and even consumers.

The system digitizes all loans by assigning them a mortgage identification number, known as a MIN, when it’s registered in the database.

Benefits of MERS

There are many benefits that MERS provides to both lenders and borrowers. Because the process of recording loans and loan transfers is now simpler and more efficient, the cost of doing so is cheaper. This savings is realized not just by the lenders, though, but is also passed onto borrowers in the form of lower closing costs.

There are so many documents that are contained in a mortgage loan, and many steps that must be taken to record it properly. MERS helps to simplify the process by creating a one-stop shop for mortgage documents.

MERS doesn’t just reduce costs and improve efficiency, though. It also significantly improves transparency in tracking mortgage loans. The database is free for homeowners to access, allowing them to look up information on any of their mortgages that might be registered with the system. 

This free public access to information about home mortgages is a great step in ensuring that homeowners can easily look up which company owns their loan, in case there are any questions about it — or need to contact the company.

MERS and Real Estate

Some transactions of home loans will designate MERS as the mortgagee or the lender. These types of loans are referred to as “MOM” loans, or “MERS as Original Mortgagee.”

For deeds of trust, MERS might be named as your loan’s beneficiary, and the organization can act as your nominee. Loans can also be assigned to MERS as the sole nominee, which makes there no reason to have separate assignments every time a loan is transferred.

For the most part, MERS has little if no impact on homeowners who are paying off their mortgages. However, it has been criticized in the past for making it challenging to determine which company owns a mortgage.

For instance, during the housing crisis of 2008, some homeowners who were facing foreclosure or seeking relief from their loans had trouble figuring out which company owned their loan and, therefore, which company they needed to contact for help.

Pros and Cons of MERS

There are many pros and cons that MERS provides to the mortgage industry.

As mentioned before, the database can save lenders and borrowers time and money by creating efficiency in the process of recording mortgage loans. It’s a convenient system for tracking mortgage loans and servicing rights that also creates transparency in the industry.

At the same time, there are some downsides to the database. 

The biggest downside for homeowners is that MERS can be confusing. While there is free public access to the system, it’s not always easy to navigate or figure out where information is.

One reason for this is that lenders look to save time and recording costs by putting the loan in MERS’ name as the nominee in the land records. This potentially hides what company actually owns the loan, which creates confusion and frustration.

Looking Up Your Mortgage on MERS

If you want to look up your mortgage on MERS, you can do so by visiting MERS’ website. Once there, you can search for your mortgage by its 18-digit MIN — which is often printed on your servicer’s online portal or loan statements.

You can also look up your mortgage with a certificate number provided by the VA or FHA, your borrower details or your property address.

If your home loan is provided by Fannie Mae, Freddie Mac or some other organization, MERS’ site provides resources for how you can look up your information.

Alternatively, you can contact the company that services your mortgage to figure out how to find your property on the MERS database. Freddie Mac and Fannie Mae also offer loan lookup tools right from their website.

Importance of MERS for Borrowers

The biggest question borrowers might have is how MERS is relevant and important for them. Knowing who owns your mortgage loan is essential if you want to make any changes to your loan.

For instance, if you want to refinance your mortgage but don’t have enough equity in your home to do so through traditional means, you’ll need to know whether Freddie Mac or Fannie Mae owns your loan. This is because each agency offers different refinancing programs — and requirements — and steps that you need to follow to apply.

Even if you don’t want to refinance your home, though, it’s important to know which company owns your mortgage in case you ever need to contact them for relief options or for simple questions.

MERS Makes Recording Mortgages Easier and Cheaper

Knowing what MERS is and how it works can serve you well if you ever need help from your mortgage company. The private electronic database tracks new mortgage loans, servicing rights and ownership.

In addition to streamlining the process of recording mortgages and transfers for the mortgage industry — thereby saving time and money for lenders and borrowers alike — MERS also creates transparency for homeowners. 

Anyone can look up information about home mortgages for free on the MERS website, through an 18-digit Mortgage Identification Number (MIN) that’s assigned to every loan in the system.

While MERS operates in the background for many homeowners, it’s an important tool for borrowers, lenders and the mortgage industry as a whole.

Home Affordable Refinance Program

Understanding the Home Affordable Refinance Program (HARP)

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When the financial crisis hit in 2008, thousands of homeowners across the country suddenly found themselves in a precarious position. The homes they owned all of sudden were worth less than how much they owed on their mortgage.

Combined with mass layoffs that occurred at companies all over, many of these underwater homeowners couldn’t afford to pay their monthly mortgage and were facing foreclosure. 

In response to the building crisis, the Federal Housing Finance Agency created a government-backed refinance program in 2009 called the Home Affordable Refinance Program. 

HARP, which was sometimes referred to as the Obama Refinance Program or the Obama Mortgage, was designed to help underwater homeowners refinance the mortgages they had — sometimes at lower interest rates.

While the HARP program ended at the end of 2018, borrowers still have options to refinance their mortgages if they find themselves underwater on their homes.

HARP Eligibility and Requirements

The HARP program was available only for homeowners that had mortgages that either Fannie Mae or Freddie Mac guaranteed. To qualify for the program, then, homeowners had to have a mortgage from either entity in place before May 31 of 2009.

The government’s goal with the program was to slow down the rate at which mortgages were being foreclosed on, while also helping homeowners who found themselves victims of subprime lending practices.

In addition to having these two types of mortgages, borrowers had to be up-to-date on their mortgage repayments, and the property also had to be in a good condition. Any borrower who vacated their property or had defaulted on their mortgage couldn’t qualify for a HARP refinance.

There were other requirements that borrowers had to meet in order to be eligible for HARP, including the fact that the loan-to-value ratio (LTV) needed to be 80% or more. 

Homeowners with either a first or second mortgage were able to qualify for the program.

Benefits of a HARP Refinance

There were a few different benefits of HARP refinance, all of which provided both short- and long-term advantages. This included lower interest rates, which in turn resulted in a new lower monthly payment.

It also allowed borrowers to convert their loan from an adjustable rate to a fixed rate, which provided long-term cost certainty and, as a result, financial stability. A HARP refinance sometimes even allowed borrowers to shorten the repayment term of their mortgage, from 30 years to 15 years, for example.

The FHFA released a report in March of 2019 that said almost 3.5 million borrowers refinanced using the HARP program, which shows just how popular and beneficial it was.

How to Apply for a HARP Loan

There were a few options that borrowers had to apply for a HARP loan. They could either work with a lender or mortgage broker, and while not all mortgage services participated in the program, most did.

One of the nice parts about the program was that borrowers didn’t need to refinance through the same lender who originated the original mortgage. This gave borrowers plenty of choice in refinancing.

Much like applying for an initial mortgage, lenders required borrowers to provide a lot of information to apply. This includes proof that they fit the parameters of the program, as described above.

To do this, borrowers needed to provide proof of income, have a credit check run and have an appraisal done on the home, which often also included a general inspection to ensure the property was in good condition.

Once the lender had that information in hand, they could process the application and start the underwriting process. When the process was complete, the result was a new mortgage with new terms that defined how much the borrower owed, what the new interest rate and length of the loan were, and what the resulting monthly payments were as well.

HARP Replacement Programs

Once the HARP program came to an end in 2018, both Freddie Mac and Fannie Mae launched new programs intended to help homeowners who had a high LTV ratio getting better terms on their loans. 

The two programs were called the Freddie Mac Enhanced Relief Refinance Mortgage and the Fannie Mae high-LTV refinance option, or HIRO. Both of the programs are similar in terms of their eligibility requirements, though each program has its own rules.

Which program homeowners can apply for depends on which of the agencies owns the loan on your home. There are many benefits of this program, first and foremost the fact that they are designed to help homeowners who have little to no equity in their home gain more favorable loan terms.

High-LTV Refinance Options

The two main high-LTV refinance options start with the LTV on your home to figure out whether you qualify.

The Fannie Mae HIRO plan, for instance, requires that your LTV ratio be as high as 95% for a variable-rate loan or 97% for a loan with a fixed rate. In either case, the dwelling must be a single-family home, and it must be the borrower’s primary residence.

The Freddie Mac program is available for loans that have LTV ratios as high as 95%. It’s a program that supplements the agency’s cash out refinance option. The maximum amount for a mortgage with a variable rate is an LTV ratio of 105%, though there’s no maximum ratio if you have a fixed-rate mortgage.

Both programs require a full appraisal of your home to confirm what the LTV ratio will be, since that ratio is calculated by comparing the value of your home to your total outstanding mortgage amount.

There are instances where your loan application might be able to be underwritten electronically, in which case you could potentially qualify for an appraisal waiver. If this happens, you will save money on closing costs, since the full appraisal won’t be needed.

There are some things about the new mortgage that results from these two programs that you should be aware of. While the programs are designed to give homeowners financial relief, they might require you to pay monthly private mortgage insurance, or PMI.

This monthly payment is in addition to your principal, interest, property taxes and insurance, and PMI can sometimes get expensive. In addition, PMI often does not go away for the life of the mortgage, meaning it’s a long-term, ongoing additional expense.

Refinancing with HARP

When it existed, HARP was a great program the federal government put in place to help homeowners who had underwater mortgages due to the financial crisis of 2008. In addition to potentially lowering the interest rates on the mortgage, HARP helped give some homeowners more favorable overall loan terms.

Now that HARP has ended, there are still refinance programs available to help struggling homeowners who find themselves with high LTV ratios. The Fannie Mae and Freddie Mac programs are two good ones, but can only be used if your mortgage is owned by one of these federal agencies.

Refinance options are available for other federally-backed mortgages, such as VA loans, FHA loans and USDA loans. All of these programs can help borrowers lock in a lower rate, which helps to reduce the monthly payment for the long run.

Explore Your Refinance Options if Your Mortgage is Underwater

The Home Affordable Refinance Program may no longer be available, but it served as the blueprint for many of the home refinance programs that are around today. This includes two programs offered by Freddie Mac and Fannie Mae, as well as others offered by the VA, USDA and FHA.

If you have a conventional mortgage through a private lender that’s not backed by a government agency, you may have options as well.

If you find yourself with an underwater mortgage with a high LTV ratio, it’s important to contact your mortgage servicer as soon as possible to figure out your options. Doing so before you fall behind on your mortgage payments is crucial if you want to qualify for some of the programs that are available.

Refinancing can be a great option for homeowners who are struggling to make their mortgage payments, as it can result in a lower interest rate and better overall terms.