By: By Benny L. Kass
DEAR BENNY: My wife and I received from our lender a repayment agreement for our original mortgage. This was a result of the bank initiating a foreclosure sale, which was temporarily suspended because we agreed to enter the Home Affordable Modification Program.
But the bank is asking us "to acknowledge that they are the legal holder and owner of the Note and Security Instrument and further acknowledges that if Lender transfers the Note, as amended by this Agreement, the transferee shall be the 'Lender' as defined by the agreement." It should be noted that this is not the original bank we signed the mortgage with.
We obviously won't sign this amendment and supplement to the original mortgage until we have an attorney review the documents. What do you think we should do? --Brian
DEAR BRIAN: Your lender is trying to protect itself by having you sign that document. Over the past several years, lenders sold their mortgage loan papers in bulk to such groups as Fannie Mae or Freddie Mac who "securitized" those loans and resold them to investors all over the world.
No one knows the whereabouts of the original promissory note that you initially signed.. And many judges throughout the country have told lenders, "If you cannot show me the original note, I will not let you foreclose on the property." So, your lender is basically "blackmailing" you. If you want the loan modification, you have to sign the agreement.
You really should get a lawyer to assist you. The lawyer will determine whether judges in your state require the original note. If they do, you may be in stronger bargaining position with your lender.
It should be noted that not all courts have adopted this position. The bottom line: You don't want your house to be foreclosed upon. Only you can make the decision, but get some legal advice before you sign that agreement.
DEAR BENNY: In 2006, the assessed value of my house had climbed to $756,000 and then dropped to $714,000, trailing the declining market. I filed an abatement based on erroneous information that my town was using, and was successful. My house was reassessed at $531,300, very close to my suggested valuation.
About the same time, I refinanced my house based on a bank appraisal of $678,000. Since then, my house valuation has decreased each year and it now has an assessed value of $442,600; our area is being re-evaluated this year.
Here is my dilemma: I firmly believe, based on almost daily research, that the market value of my house is somewhere in the low $500,000s. I think by filing this abatement, I shot myself in the foot. I know buyers look at the assessed value, which is easily accessed on our town Web site.
In my case, this differs dramatically from two years ago as well as the appraisal I had during the same month my abatement went through. Can I realistically list my house at what I consider to be market value and expect a real estate agent to explain these events to potential buyers, or am I stuck with an asking price closer to the current assessed value? --Karen
DEAR KAREN: I don't think you shot yourself in the foot; in fact, you have been paying real estate tax on the lower assessed value.
You can list your property for any amount you feel it is worth. Some real estate agents may balk if your valuation is too high, but if you have the research (comparables) showing what other similar houses in your area are selling for, you should be able to convince the agents of the value of your house.
From my experience, assessments in many parts of the country are not consistent with a home's true value. Many older homes are not carefully inspected, so the government assessor does not always know what kind of improvements have been made.
Keep in mind that based on today's economy we are in a buyer's market. Regardless of the price you set for your house, potential buyers will lowball their offers. Obviously, you do not have to accept any offer and have the absolute right to counter with a higher price.
When an offer is made either to a seller or a buyer, the recipient has three alternatives: you can accept it, you can counter, or you can reject it outright.
One suggestion: Because most buyers do not pay all cash, they will need to get a mortgage. Lenders will obtain an independent appraisal before committing a loan, and appraisers are coming in very conservatively with their valuations. So, to satisfy yourself, I suggest that you consider obtaining your own appraisal before you sign up with a real estate agent. It will be worth the $300-$500 dollars that most appraisers will charge you.
DEAR BENNY: I own a condominium unit in a fairly large association. Over the years with good management, we have amassed a sizable reserve account. Recently, the board announced that because we are earning only a very small amount of interest on this account, it wants to start investing these funds in the stock market. The announcement stated that with interest rates starting to increase, the board believes that the stock market will be a good place to earn more money for our association. Can the board do this?
DEAR CHARLES: If absolutely every owner in your association agrees to go to Las Vegas and gamble with your reserve account, I would reluctantly have to say this would be legal (although clearly inappropriate).
Notice that I said that every owner must affirmatively agree. Your board of directors has a fiduciary duty to all of the owners who elected them to their positions on the board. If they want to spend their own money on the stock market -- or in Las Vegas -- that of course is their business. They certainly have the right to spend their own money as they see fit.
But your reserve account does not belong to the board; it belongs to every owner in your association. The clear obligation of the board of directors is to invest your money in secure, insured investments -- even if that means that your money may not be earning as much as everyone would like.
Reserve accounts are very important to the well-being of any community association. If, for example, your elevator or your roof needs replacement, and if the association does not have enough money in reserve to pay for these matters, each owner -- including you -- may be faced with a special assessment. This may cost you a lot of money.
More important in today's market economy, lenders are insisting that a condo association have adequate reserves before they will commit to a mortgage loan. Indeed, the FHA loan -- which today is probably the most important mortgage around -- requires associations to have a minimum reserve requirement of 10 percent of the annual budget. For example, if your association's budget is $400,000, you have to allocate $40,000 annually for future reserves.
A reserve simply means that the association should have money set aside "in reserve" to cover the cost of future emergency or major repairs. Reserves are (or should be) an essential part of every community association.
Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column.