Options to Get Rid of Your Property - Communicate With Your Lender

A. Communicate With Your Lender

2. Options to Get Rid of Your Property

If you decide to get rid of your property, but want to do it on your own to stop the foreclosure, here are your options:

a. Sell Your Property (Chapter 10) The most expedient strategy is to sell your property as quickly as possible.

Chapter 10 discusses how to use a real estate agent, prepare your property for sale, price your property for a quick sale, market your property, negotiate oﬀers and counter-oﬀ ers, and remove contingencies so that the sale closes in time to beat the foreclosure. You’ll also learn how to structure a “short sale,”

where your lender accepts less than the amount of your outstanding loan as payment in full. Finally, if you can’t ﬁnd a buyer willing to pay market value for your property in time to avoid the foreclosure sale, Chapter 10 covers sales to equity purchasers--individuals who pay you a fraction of your equity to get title to your property--and the pitfalls you need to guard against.

b. Give Your Lender a Deed in Lieu of Foreclosure (Chapter 11)

Another strategy is to deed your property to your lender in exchange for ending the foreclosure. Giving a deed in lieu of foreclosure maybe the most eﬃ cient method of giving up your property, although it also has pitfalls you need to guard against. For

example, many lenders will refuse to accept a deed in lieu if there are junior liens on your property. Chapter 11 helps you assess the advantages and disadvantages of a “deed in lieu” (as it’s called) and how to negotiate with your lender to accept one.

• R eal estate transactions rely heavily on paperwork. Think back to your own closing day--you probably felt like you were signing an endless stream of documents and that you should have brought a suitcase to carry them all home.

The loan documents you will need to review to learn how to stop

note, and either deed of trust or the mortgage (depending on which documents your state uses). These documents describe the rights and responsibilities of you and your lender. When you fail to adhere to your responsibilities, these documents provide the mechanism for your lender to foreclose. They also provide a basis for you to stop a foreclosure if there are any inconsistencies between your loan documents and the foreclosure

Chapter

UNDERSTANDING THE DOCUMENTS 2

UNDERLYING A FORECLOSURE

A. Promissory Note...18

1. Parties to a Promissory Note ...18

2. Reviewing Your Promissory Note...18

3. Understanding the Promissory Note... 20

4. Types of Promissory Notes ... 26

B. Deed of Trust ... 27

1. Parties to a Deed of Trust ... 28

C. Mortgages ... 36

1. Parties to a Mortgage ... 36

D. Reviewing Your Deed of Trust or Mortgage...37

If you understand the signiﬁ cance of these documents and the provisions they contain. Skip this chapter and proceed to either Chapter 3 (if yours is a nonjudicial foreclosure) or Chapter 4 (if yours is a judicial foreclosure).

A. Promissory Note

The ﬁrst loan document you signed was a promissory note. The promissory note is the document in which you promised to repay the money that was loaned to you. The note sets forth the amount you borrowed, the interest rate and the particulars of how the loan is to be repaid. Typically no more than one to three pages in length, a promissory note is relatively easy to understand.

1. Parties to a Promissory Note There are two parties to a promissory note:

a. Borrower

The borrower is the person who borrowed the money. The borrower is sometimes referred to as the “payor” or

“obligor.” This includes you and anyone who co-signed the loan, such as a

spouse, non-marital partner, or business partner.

b. Lender

The lender is the ﬁ nancial institution that originally loaned you money and any ﬁnancial institution (or investor) to whom your original lender subsequently sold your note. The lender is sometimes referred to as the “payee,” “oblige,” or

“holder.” When you borrowed money to purchase or reﬁ nance your property, the lender was probably a bank, savings bank, mortgage company, credit union, insurance company, family member or friend, or perhaps, the seller of the property. The current lender may be a company or investor that specializes in buying loans from the original lenders.

2. Reviewing Your Promissory Note

To stop the foreclosure, you’ll need to understand the terms and conditions of your particular promissory note. You will also need to determine:

• the amount you have already paid on the note

• the amount you are in arrears, and

• the balance of your loan.

If the foreclosure documents recorded against your property are inaccurate, you’ll probably have a basis to stop the foreclosure.

When you purchased or reﬁ nanced your property, your original lender (or the escrow oﬃcer) had you sign a promissory note and gave you a copy.

If you don’t have a copy of your signed note, get one as soon as possible. Your current lender should have a copy.

However, if you don’t want to ask

your current lender, or aren’t sure who

they are, you can request a copy from

the escrow company. If the escrow

company can’t help you, send a wri en

request to your original lender similar

to the sample leer set out below. Before

sending the leer, telephone the lender’s

oﬃce and get the name of an oﬃ cer that

you can speciﬁcally send the leer to.

Make sure you keep a copy of the le er.

January 10, 200X Mr. Neal Brown Branch Manager Pacific Hills Bank 1234 Hill Street Las Vegas, Nevada Re: Loan No. 34-44356 To Whom It May Concern:

I own the property located at 245 Pacific Drive, in the City of Las Vegas, Nevada. In July of 200X, I borrowed $155,000 from your bank. The original promissory note securing my property was given to you.

However, I don’t have a copy. Could you please provide me with a photocopy of my promissory note? I will call and arrange to pick up the document at your office.

Thank you in advance for your anticipated cooperation.

Sincerely, Michael Scher

Carefully review your note.

Promissory Note Breakdown:

1. Amount of indebtedness: The principal-actual--amount of money you borrowed.

2. Location of execution: The city where you signed the note.

3. Date of execution: The date the promissory note was signed.

4. Name of lender: The name of the person or company that lent you the money.

5. Address of lender: The mailing address of your lender.

6. Amount of indebtedness: The principal amount of money you borrowed is repeated here.

7. Interest eﬀective date: The date when interest began to accrue on the principal.

8. Interest rate: The amount charged by your lender for loaning the money.

The interest rate will be expressed as either ﬁxed (interest rate remains the same during the entire term of your loan) or adjustable (interest rate will ﬂ uctuate on an annual basis).

9. Installment amounts: For a ﬁ xed-rate loan, the payment amount typically is shown in both wrien and numeric form. (If you have an adjustable

interest rate, the installment amount will not be shown on the note, but will typically appear on your mortgage statements.)

10. Installment due date: The date of the monty that each payment is due (the vast majority of notes are paid monthly and due on the ﬁrst of the month).

11. Commencement date: The date your ﬁrst payment on the promissory note is due.

12. Final payment date: The date the

ﬁnal payment on your promissory

note is due.

13. Signature of borrower: You and your co-borrowers signed the note here. Your lender does not sign the note.

A sample Promissory Note Worksheet appears below, and a blank tear-out copy is included in the Appendix. Use it to record the relevant terms and conditions and compare with your deed of trust or mortgage.

3. Understanding the Promissory Note

There are seven basic components in every promissory note:

• principal

• interest

• term

• payment

• security

• acceleration, and

• negotiability.

The first four are fi nancial components. If you disagree with the amount your lender is claiming you owe (as set out in the foreclosure documents) it may become important for you to figure out whether your lender has calculated correctly the financial information, particularly the default amount (“arrears”). You will need to add up your missed payments, late fees, and penalties to determine your arrears. If you are unable to make these calculations, you may need to hire an accountant or bookkeeper. As we point out in Chapter 8, Using the Courts to Stop a Nonjudicial Foreclosure, lenders frequently make mistakes, especially if the note has an adjustable interest rate or unusual terms. A sample promissory note appears on pages 22-23.

An explanation of its important terms follows.

Date note is signed:

Borrower(s):

Lender:

Principal amount borrowed:

Interest rate:

Term (number of months, years or other arrangement):

Payment frequency (monthly or other arrangement):

Commencement data (date payments begin):

Payment amount:

Is there a reference in the note to the deed of trust or mortgage?

PROMISSORY NOTE WORKSHEET

a. Principal

The principal is the amount of money you borrowed from your lender. This amount does not include any interest, points, or other fees. If you reﬁ nanced your loan, it is the amount of the

reﬁnanced loan, not the amount of your ﬁ rst loan.

b. Interest

Interest is the fee a lender charges to loan money. Interest is calculated as a percentage of the unpaid principal, on a yearly (per annum) basis. The interest rate will be computed on a 365-day year, unless otherwise speciﬁed in the promissory note. The interest rate can be either:

* “ﬁxed”, meaning your interest rate will remain the same during the entire term of your loan, or

* “adjustable”, meaning that your interest rate will ﬂ uctuate on an annual basis as described in your promissory note. Lenders add a

“margin” (proﬁt) to a pre-selected index to determine the adjusted interest loan. (See the box below.) c. Term

Term refers to the period of time in which you have to repay the loan. The term can range anywhere from 1 to 30 years, and some newer loans have terms as long as 40 years.

d. Payment

Payment is the amount of interest and/or principal that you promised to repay on a monthly basis. Your promissory note

are to start, the amount of each payment and the repayment schedule (usually monthly). Some loans call for you to make monthly payments for several years and then a lump sum payment

ADJUSTABLE RATE INDEXES The most common indexes used by lenders are:

• Prime Rate based upon the discount rate established periodically by the Federal Reserve Open Market Committee. The prime is the interest rate charged by banks for short-term loans to its most creditworthy customers.

• District Cost of Funds (“COFI”), reflects the weighted-average interest rate paid by Federal Home Loan Bank Board District savings institutions for savings and checking accounts.

• London Interbank Offered Rate (“LIBOR”), is an average of the interest rates on deposits

(Eurodollars) traded between banks in London. It is an international index that follows world economic conditions.

• Ten-year treasury notes, which fluctuate daily based upon market forces in the economy, and is the standard for most 30-year mortgages.

• Six-month certificates of deposit (“CODI”), which fluctuate daily based upon market forces in the economy.

• Twelve-month Treasury Averages

(“MTA”) is the 12 month average

yields of U.S. Treasury securities, as

posted by the Federal Reserve.

a “balloon payment.” Foreclosures are oen precipitated by a borrower’s inability to make a balloon payment.

e. Security

Promissory notes are either secured or unsecured. A secured note simply means that you pledged your property as collateral for payment of the note (security). A secured note gives your lender the right to sell your property to pay oﬀ the loan if you default. This involuntary sale of your real property is called foreclosure. Secured notes usually use the word “secured” in the title and in the description (“this note is secured”) so that the parties to the note, or subsequent purchasers, know that the note is secured by property.

(See “Negotiability” below.) Assuming the note is secured, the lender can foreclose on the security (property) if the borrower defaults in the terms of the promissory note.

By way of comparison, an unsecured note does not have property as security for its repayment. In that situation, if the borrower fails to pay the note, the lender can’t foreclose, but instead is required to ﬁle a lawsuit in court to collect the note.

f. Acceleration

An acceleration clause states that in the event you miss a payment (default), your lender has the right to declare the entire balance of principal and accrued interest due and payable. The purpose of an acceleration clause is to relieve your lender of the burden of having to sue you for each late payment one by one until the end of the loan. All promissory notes have an acceleration

clause. [However, notwithstanding the acceleration clause, once the foreclosure starts, there is still a period of time (called the “reinstatement period”) in which you can still stop the foreclosure by simply paying the amount that is in arrears.]

g. Negotiability

Negotiability refers to your lender’s right to sell your promissory note to a third party, such as private or institutional investors. Investors typically purchase these loans in quantity and at a

discount. This industry is called the

“secondary market.” The three largest purchasers of loans secured by real property in the secondary market are:

• Federal National Mortgage

Association, also known as “FNMA”

or “Fannie Mae” (www.fanniemae.

com)

• Federal Home Loan Mortgage Corporation, also known as

“FHLMC” or “Freddie Mac” (www.

freddiemac.com), and

• Government National Mortgage Association, also known as “GNMA”

or “Ginnie Mae” (www.ginniemae.

gov).

Once your loan is sold, the third party acquires all the rights and

obligations of your original lender under the promissory note. This means that even though your original lender’s name may appear on your note, someone else may actually own the note and the right to receive your payments.

Knowing who owns your note is vital to

negotiating and using other strategies in

this book. Although the holder may not

be your original lender, we use the term

MULTISTATE INITIAL INTEREST FIXED RATE NOTE--Single Family-- Freddie Mac UNIFORM INSTRUMENT Form 5206 5/04 (page 1 of 3 pages)

INITIAL INTEREST

^SM

NOTE

___________________, _ ,

[Date] [City] [State]

___________________________________________________________________________________________

[Property Address]

1. BORROWER’S PROMISE TO PAY

In return for a loan that I have received, I promise to pay U.S. $____ (this amount is called “Principal”), plus interest, to the order of the Lender. The Lender is

______________________. I will make all payments under this Note in the form of cash, check or money order.

I understand that the Lender may transfer this Note. The Lender or anyone who takes this Note by transfer and who is entitled to receive payments under this Note is called the “Note Holder.”

2. INTEREST

Interest will be charged on unpaid principal until the full amount of Principal has been paid. I will pay interest at a yearly rate of ___________________%.

The interest rate required by this Section 2 is the rate I will pay both before and after any default described in Section 6(B) of this Note.

3. PAYMENTS

(A) Time and Place of Payments

I will make a payment every month on the first day of the month beginning on _, . Before the first fully amortizing principal and interest payment due date, my monthly payments will be only for the interest due on the unpaid principal of this Note. The due date of my first payment including fully amortizing principal and interest is the first day of _______, _. I will make payments every month until I have paid all of the principal and interest and any other charges described below that I may owe under this Note. Each monthly payment will be applied as of its scheduled due date and if the payment includes both principal and interest, it will be applied to interest before Principal. If, on _____________, _, I still owe amounts under this Note, I will pay those amounts in full on that date, which is called the “Maturity Date.”

I will make my monthly payments at

_______________________________________________________

________________________________________________ or at a different place if required by the Note Holder.

(B) Amount of Monthly Payments

My monthly payment will be in the amount of U.S. $ _ until the due date of the first fully amortizing principal and interest payment. Beginning with the first fully amortizing principal and interest payment, my payment will be in the amount of U.S. $_.

The Note Holder will notify me prior to the date of any change in the amount of my monthly payment in accordance with Section 7 of this Note. The Note Holder will provide the title and telephone number of a person who will answer any questions I may have regarding the notice.

4. BORROWER’S RIGHT TO PREPAY

I have the right to make payments of Principal at any time before they are due. A payment of Principal only is known as a “Prepayment.” When I make a Prepayment, I will tell the Note Holder in writing that I am doing so. I may not designate a payment as a Prepayment if I have not made all the monthly payments due under this Note.

I may make a full Prepayment or partial Prepayments without paying a Prepayment charge. The Note

Holder will use my Prepayments to reduce the amount of Principal that I owe under this Note. However, the Note

Holder may apply my Prepayment to the accrued and unpaid interest on the Prepayment amount, before applying

my Prepayment to reduce the Principal amount of the Note. If I make a partial Prepayment, there will be no

changes in the due date of my monthly payment unless the Note Holder agrees in writing to the changes. If I

make a partial Prepayment during the period ending with the due date of my last interest only monthly payment,

the partial Prepayment will reduce the amount of my monthly payment. If I make a partial Prepayment after the

MULTISTATE INITIAL INTEREST FIXED RATE NOTE--Single Family-- Freddie Mac UNIFORM INSTRUMENT Form 5206 5/04 (page 2 of 3 pages)

due date of my last interest only payment, the amount of my monthly payment will not change unless the Note Holder agrees in writing to that change.

5. LOAN CHARGES

If a law, which applies to this loan and which sets maximum loan charges, is finally interpreted so that the interest or other loan charges collected or to be collected in connection with this loan exceed the permitted limits, then: (a) any such loan charge shall be reduced by the amount necessary to reduce the charge to the permitted limit; and (b) any sums already collected from me which exceeded permitted limits will be refunded to me. The Note Holder may choose to make this refund by reducing the Principal I owe under this Note or by making a direct payment to me. If a refund reduces Principal, the reduction will be treated as a partial Prepayment.

6. BORROWER’S FAILURE TO PAY AS REQUIRED (A) Late Charge for Overdue Payments

If the Note Holder has not received the full amount of any monthly payment by the end of calendar days after the date it is due, I will pay a late charge to the Note Holder. The amount of the charge will be __% of the overdue payment of interest during the period when my payment is interest only, and of principal and interest after that. I will pay this late charge promptly but only once on each late payment.

(B) Default

If I do not pay the full amount of each monthly payment on the date it is due, I will be in default.

(C) Notice of Default

If I am in default, the Note Holder may send me a written notice telling me that if I do not pay the overdue amount by a certain date, the Note Holder may require me to pay immediately the full amount of Principal which has not been paid and all the interest that I owe on that amount. That date must be at least 30 days after the date on which the notice is mailed to me or delivered by other means.

(D) No Waiver By Note Holder

Even if, at a time when I am in default, the Note Holder does not require me to pay immediately in full as described above, the Note Holder will still have the right to do so if I am in default at a later time.

(E) Payment of Note Holder’s Costs and Expenses

If the Note Holder has required me to pay immediately in full as described above, the Note Holder will have the right to be paid back by me for all of its costs and expenses in enforcing this Note to the extent not prohibited by applicable law. Those expenses include, for example, reasonable attorneys’ fees.

7. GIVING OF NOTICES

Unless applicable law requires a different method, any notice that must be given to me under this Note will be given by delivering it or by mailing it by first class mail to me at the Property Address above or at a different address if I give the Note Holder a notice of my different address.

Any notice that must be given to the Note Holder under this Note will be given by delivering it or by mailing it by first class mail to the Note Holder at the address stated in Section 3(A) above or at a different address if I am given a notice of that different address.

8. OBLIGATIONS OF PERSONS UNDER THIS NOTE

If more than one person signs this Note, each person is fully and personally obligated to keep all of the promises made in this Note, including the promise to pay the full amount owed. Any person who is a guarantor, surety or endorser of this Note is also obligated to do these things. Any person who takes over these obligations, including the obligations of a guarantor, surety or endorser of this Note, is also obligated to keep all of the promises made in this Note. The Note Holder may enforce its rights under this Note against each person individually or against all of us together. This means that any one of us may be required to pay all of the amounts owed under this Note.

9. WAIVERS

I and any other person who has obligations under this Note waive the rights of Presentment and Notice of Dishonor. “Presentment” means the right to require the Note Holder to demand payment of amounts due.

“Notice of Dishonor” means the right to require the Note Holder to give notice to other persons that amounts due have not been paid.

10. UNIFORM SECURED NOTE

This Note is a uniform instrument with limited variations in some jurisdictions. In addition to the

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