Closing Costs

insurance company is probably a waste of your precious time. Life insurance companies rarely deal directly with homeowners.

6. Brokerage Firms

Deregulation has opened the “fi nancial services” floodgates to stock brokerage firms to participate in real estate loans.

Today, most full-service brokerage firms have a wide assortment of loan programs, including conventional loans and home equity loans. Although they are still small players in the refi nancing field, there are currently several major brokerage firms in the United States (with local offices near you) as well as many small brokerage houses in your city that offer real estate loans. Search the internet or look in your local yellow pages under “stockbrokers.”

7. Hard Money Lenders Hard money lenders tend to be

individuals or small companies that loan only on local properties that they can keep a close eye on. The easiest way to find hard money lenders is the Sunday classified real estate section of your local newspaper. Hard money lenders’

advertisements will scream out at you:

“no qualifying,” “easy cash,” “no credit required,” “cash within days.”

Then again, you may not need to find hard money lenders--they will fi nd you! Hard money lenders typically subscribe to special foreclosure listing services that give them a daily list of properties in foreclosure. These lenders then send you a le er or promotional mailer advertising their loan services.

In fact, if you’ve already been served with a complaint or received a Notice

of Default, you have probably been flooded with these advertisements.

(Hint: proceed with caution, for reasons discussed in Section E3, above.)

8. Individuals and Real Estate Investors

The problem with individuals who loan money as a living (not family and friends) is that they tend to charge a higher rate of interest than commercial banks or savings banks. Nevertheless, these individuals may be an excellent sources of home equity loans, provided the interest rates and fees are acceptable to you.

It may be diffi cult to distinguish

between an individual investor and a

hard money lender, especially if the

proposed interest rate is incredibly

high. (If you are confronted with this

dilemma, you can assume you are

dealing with a hard money lender,

regardless of whether it is an individual

or a company.)

may be set as a percentage of the loan amount, such as 1% or 2%. Some lenders will refund the application fee if you don’t qualify, while others will apply the fee towards your closing costs if your loan is funded. If, however, you qualify for a loan and choose not to take it, you o en forfeit the application fee. Check a potential lender’s policy before you plunk down any money.

• Appraisal fee. Because a lender must make sure that your property is worth enough to provide adequate collateral for the loan, it will hire a state-licensed appraiser to calculate your property’s current market value.

You pay the cost of the appraisal, which oen ranges from $300 to

$1,000, depending on the size of your property.

• Title search. Before your lender will consider giving you a loan secured by your property, it will have a title insurance company or an a orney (depending on your state) conduct a search of the county recorder’s office. The purpose of the search is to determine the chain of title and what claims are recorded against your property, such as mortgages, deeds of trust, mechanic’s liens, a achments, easements, liens and judgments. The fee can range anywhere from $500 to several thousand dollars depending on the value of your property. Once again, you will pay this fee out of the loan proceeds. You will not pay this fee if your loan is not funded.

• Title insurance. Your lender wants to be assured that you have clear and unimpeded title to your property

and that its lien (i.e. mortgage or deed of trust) will be recorded in the correct priority position. To avoid the possibility that someone else may claim title to your property or that another lien is senior to your lender’s, your lender obtains insurance from a title insurance company. The cost is based on the value of your property, and can run anywhere from $500 to several thousand dollars. Like everything else in a refi nance, this one-time insurance premium is deducted from your loan proceeds.

• Credit report. The cost of credit

reports comes to about $15 to $60 per report. Some lenders will charge this expense upfront when you apply for the loan, while others will simply deduct the expense out of your loan when it is funded. If the loan is not funded, you are not responsible for the cost.

• Impound account. If you prefer, lenders will set up a special account (called an impound account), in which you pay your taxes and insurance on a monthly basis. Out of this account, your lender will pay your property taxes and property insurance premiums. Lender prefer to be responsible for these payments so they can verify that payments are made (and your property’s value is protected). When the loan is funded, the lender will require that the

escrow company withhold enough funds in an impound account to fund several months of tax and insurance payments.

• Loan origination fee (“points”). This

is a fee you pay to your lender

for obtaining a loan. The loan origination fee is o en expressed in terms of “points,” where each point represents 1% of the loan amount. Points are likely to be one of your biggest closing costs, and unfortunately they are rarely negotiable. Points are charged only if the loan is granted. They are deducted from the loan proceeds when funded.

• Lock-in fee. Some lenders charge a lock-in fee of 1% to 2% of the loan amount if you want them to guarantee in writing the interest rate the lender is be charging at the time you applied for the loan, regardless of whether interest rates subsequently go up (or down!).

• Mortgage insurance (“MI”). This insurance should really be called

“loan default insurance” because it protects your lender if you default on your loan and the property is foreclosed. Although it would seem logical that a lender should pay for MI, no such luck. This cost is also pushed onto you. The good news is that lenders do not require mortgage insurance unless you are refi nancing more than 80% of the value of your property. The cost is usually .03% to 1% of the loan amount.

• Notary fee. This fee covers the services of a notary public, a person licensed by the state to verify that people’s signatures on legal documents are genuine. This is a one of the smallest fees you will pay, oen $100 or less.

• Recording fee. All loan documents (i.e. mortgages or deeds of trust) are

recorded in the recorder’s offi ce of the county where the property is located.

The cost to record, between $25 to

$100 depending on your county, is charged to you.

•

chapter

USING YOUR MILITARY STATUS 7

TO STOP FORECLOSURE

If you don’t have a military connection. Skip this entire chapter if you are not in the military, not the dependent of someone in the military, or did not co-sign a loan with someone in the military.

O ne of the primary benefits of the Soldiers’ and Sailors’ Civil of 1940 A. Are You Covered by the SSCRA? ...152

1. Are You on Active Duty? ...153 2. Are You a Servicemember Covered by the SSCRA?...153 3. Are You a Co-Signer for or a Dependent of a Servicemember on

Active Duty? ...153

4. Was the Debt Incurred Before Active Duty Began?...153

5. Was the Servicemember “Materially Aff ected”? ...154

B. How to Use the SSCRA to Reduce Your Interest Rate and Payments ...155

1. Send Your Lender a Le er...155

2. What to Expect From Your Lender ...156

C. How to Use the SSCRA to Stop a Nonjudicial Foreclosure ...157

1. Send a Leer to Your Lender ...157

2. What to Expect From Your Lender ...157

D. How to Use the SSCRA to Stop a Judicial Foreclosure ...159

1. File Affidavit With the Court ...159

2. What Your Lender Will Do ...159

3. If You Don’t Respond to the Lawsuit ...160

protection of active military personnel and their families (and anyone who co-signed a loan with them) from foreclosure. Although the SSCRA will not relieve you of your obligation to repay your loan, it will allow for temporary suspension of collection actions (including foreclosure) while you are on active duty.

The SSCRA has far-reaching eff ects and may be used to:

• stop a foreclosure. If you are on active duty, you may get immediate relief from a pending foreclosure. (See Sections C and D.)

• invalidate a foreclosure sale. If your property was sold while you were on active duty, you may be able get your property back. (See Sections C and D), and

• reduce your loan interest rate . While you’re on active military duty, you may be entitled to a lower than market interest rate on your property loan—even if you’re not in foreclosure. This may signifi cantly reduce your monthly payments. (See Section B, below.)

This chapter helps you assess whether or not you are eligible for

protection under the SSCRA. You’ll also find a helpful overview of how you can use the SSCRA to stop your foreclosure.

This chapter does not, however, go into depth regarding the court documents or procedures you might need. At some point, you may need to consult with an aorney or your military commander.

You can also research the military website, www.military.about.com, for specifi cs.

A. Are You Covered by the SSCRA?

To use the SSCRA as a “shield” to stop the foreclosure, you must be able to show a court that all of the following apply:

• You are on “active duty,” or you are the dependent or co-signer of a servicemember on active military duty.

• The debt is secured by a mortgage or deed of trust against your property.

• You incurred the debt prior to your active duty in the military.

• You, or your dependents, still own the property.

• Your lender has started foreclosure proceedings.

• Your ability to meet your fi nancial obligations has been “materially affected” by your military service (see Section A5 below). (For example, your in-service income is substantially below your pre-service income or you’re stationed overseas.)

Courts have broad discretion in

interpreting and applying the SSCRA

to foreclosure situations. Courts are

sympathetic with a servicemember

unable to keep current on his or her loan

payments. Courts are almost always

compassionate to servicemembers

(and their co-signers and dependents)

aempting to stop foreclosures of their

property.

1. Are You on Active Duty?

If you are on active duty in the armed forces, you are entitled to special protection under the SSCRA. Section 532 of the SSCRA helps active military personnel by temporarily suspending all foreclosure proceedings (both nonjudicial and judicial, covered in Chapters 3 and 4, respectively).

2. Are You a Servicemember Covered by the SSCRA?

The SSCRA protects members of the U.S. armed forces (army, navy, air force, marine corps, and coast guard), including reservists, who are on active duty. The U.S. armed forces defi nes

“active duty” as full-time presence on a military base due to military assignment or full-time training prior to induction.

The SSCRA also protects offi cers of the Public Health Service who are detailed for duty with any branch of the military.

!

Not all military personnel are covered. The SSCRA does not protect servicemembers who are not on active duty, are on

unauthorized absence (“AWOL”), or are in a military prison.

3. Are You a Co-Signer for or a Dependent of a Servicemember on Active Duty?

Frequently, a spouse, friend or family member may have signed loan documents along with a service member. When a lender discovers that they cannot legally pursue the servicemember (because of his or her active duty status in the military), they may aempt to collect from a co-signer

on the loan. In these circumstances, the SSCRA extends to everyone who co- signed with an active servicemember.

The SSCRA also covers a service member’s dependents who didn’t sign the loan, such as children or a spouse.

In other words, a lender can’t proceed against a servicemember’s dependents while he or she is on active duty.

4. Was the Debt Incurred Before Active Duty Began?

The SSCRA applies only to debts incurred before you began active duty in the military.

Example: Five years ago, George

purchased a farm outside of Bowling Green, Kentucky. He later enlisted in the U.S.

Navy and was assigned to the Long Beach Naval Shipyard. Several months a er George went on active duty, he defaulted on his loan payments and his lender started foreclosure proceedings. Because George purchased his property before going on active duty, he can invoke the SSCRA and demand that his lender temporarily stop the foreclosure.

The SSCRA does not, however, apply to loans entered into a er beginning active military duty. If you borrowed money to purchase property while you were already on active military duty (or aer you’d le the military), the SSCRA will not stop your foreclosure.

Example: Henry, a buddy of George’s,

is also stationed at the Long Beach Naval

Shipyard. Aer being on duty for several

months, Henry purchases a house in Long

Beach. Almost immediately, he begins

missing payments and his lender initiated

foreclosure proceedings. Unfortunately

for Henry, the SSCRA (and its protection against foreclosure), does not apply to him because he purchased his property a er he was already on active duty.

5. Was the Servicemember

“Materially Affected”?

To understand your rights under the Act, you’ll need to learn a bit of

legal jargon. The SSCRA only covers servicemembers who are “materially affected.” A servicemember who cannot protect his or her legal rights or fulfi ll his or her fi nancial obligations because of being on active duty is “materially

affected.” Let’s look more closely at these issues.

a. Inability to Protect Your Legal Rights

If a servicemember is sued for

judicial foreclosure in court, and that servicemember cannot participate in the lawsuit because of active duty in another city, state or country, that servicemember may petition the court for a stay (postponement) until he or she can personally appear and participate.

In that event, the court must determine whether military service materially affects the servicemember’s ability to protect his or her rights.

Example: June purchased a triplex in Syracuse, New York, and took out a loan with Scarlet Credit Union. The next year, June volunteered for the Army and was assigned to a military base in Germany.

When Scarlet starts a foreclosure, June disputes their legal right to foreclose because she is on active duty. Because June’s ability to protect her legal rights in New York is materially affected by her military status in Germany, the SSCRA will apply and Scarlet will be prohibited from foreclosing (at least until June returns from active duty in Germany).

HISTORY OF THE SOLDIERS’ AND SAILORS CIVIL RELIEF ACT (SSCRA) In 1918, Congress formally recognized that servicemembers couldn’t

reasonably attend to their financial and legal commitments while serving during wartime. Finding it unfair for lawsuits to proceed to the detriment of someone who had volunteered in the armed forces or was drafted in time of war, Congress passed the Soldiers’ and Sailors Civil Relief Act of 1918. The SSCRA was intended to boost morale and allow U.S. troops to devote their attention exclusively to the war effort, without concern for their financial obligations back home,

The present SSCRA statute was passed in 1940 during World War II and has subsequently gone through only minor modifications. For foreclosure purposes, you’ll be primarily interested in Chapter 4, Section 532 of the SSCRA, which deals with promissory notes, deeds of trust, mortgages, and other liens.

PERIOD OF COVERAGE

If you are in the military, the Act

protects you the day you begin active

duty. The coverage also extends for

90 days after the date your active

military service is completed. This

protection extends to co-signers and

family members.

b. Servicemember’s Inability to Meet Financial Obligations

If a servicemember defaults on a loan obligation because he or she can no longer afford the payments due to being on active duty, that servicemember can contend that the military’s lower wages has “materially aff ected” his or her financial ability to pay debts as previously agreed. This issue arises because servicemembers typically receive substantially less income in the military than they received in private life, or they are in combat and unavailable to make loan payments.

In either circumstance, the servicemember (or a co-signer or

dependent) must file papers with a court asking it to stop the foreclosure until the servicemember is off active duty.

Example: John borrows $250,000 from Ace Financial Corporation to purchase a house in Grand Rapids, Michigan. Several years later, John volunteers for the U.S.

Navy and is assigned to Tampa, Florida, where he’s paid $1,500 per month. When John defaults on his monthly payments, Ace starts foreclosure proceedings. Because John’s active duty in Tampa materially affects his ability to meet his fi nancial obligations to Ace, John may invoke the SSCRA to stop the foreclosure until he returns home.

You will be pleased to learn that in determining the meaning of “materially affects,” courts have traditionally

favored the servicemember. In fact, the Supreme Court has declared that the Act must be read with “an eye friendly to those who drop their aff airs to answer their country’s call.” (LeMaistre v.

Leffers, 333 U.S. 1, 6 (1943).)

B. How to Use the SSCRA to Reduce Your Interest Rate and Payments

Regardless of the interest rate stated in your loan documents, your lender must reduce your interest rate while you are on active duty, assuming that you qualify under the “materially aff ected”

test. Your lender’s obligation to lower your interest rate is not aff ected by whether you are in default or there is a pending foreclosure. (50 U.S.C. § 526.)

Your only obligation is to give your lender a wrien request to lower the interest rate. Your lender is not required to lower the interest rate automatically if you are on active duty.

Of course, if your interest rate is lowered, your monthly payments will be correspondingly lower.

Example: Sally borrowed $320,000 from Hightop Financial Services to purchase a home in Reno, Nevada. The promissory note provided for an annual interest rate of 10%, payable at $2,667 interest-only per month.

Several months later, Sally was called up for active duty in the Air Force and stationed in Seale. Sally, aware of the SSCRA, notifi ed Hightop of her active duty in the Air Force and asked that her interest rate be reduced to 6% while she remained on active duty.

Hightop agreed and her monthly payments dropped to $1,600.

1. Send Your Lender a Letter

To reduce your interest rate on a loan you

obtained before entering active military

duty, you’ll need to send your lender a

leer. Include a copy of your military

orders. Mail the le er certifi ed mail,

return receipt requested, or by overnight