Can You Draft a Contract For Deed? Should You?

As contract for deeds become more popular, the problems associated with them have also risen.  One problem that is becoming increasingly common is the practice of unqualified people drafting contracts.  A contract for deed is a complex legal document and as such should only be drafted by an experienced real estate lawyer.  A non-lawyer drafting a contract for deed arguably is practicing law without a license and, more importantly, doesn't have the knowledge to properly draft a contract for deed.

The non-lawyers that we often see drafting contract for deeds are real estate agents and title companies. In both cases, unless the person drafting the contract is also an attorney, they would be practicing law without a license.  Without a legal background, how does the lawyer know all the legal risks associated with the contract and the options available to the client to best protect their position?

It is not just non-lawyers who shouldn't be drafting contract for deeds.  Just having a law degree does not mean you have the knowledge and experience to properly draft a contract for deed.  While I am a licensed attorney and have some knowledge of criminal law, the fact is, I don't have enough knowledge or experience to represent a client facing criminal charges.  Likewise, many lawyers don't have enough knowledge or experience to properly draft a contract for deed for a client.

Contract for deeds are vital documents involving a great deal of money.  A bad contract for deed will haunt the client and can expose them risks that they aren't even aware of.  Anyone who tries to make you believe that drafting a contract for deed involves just "filling in the blanks" does not truly understand the risks associated with contract for deeds and what can be done to limit those risks. Anyone who says they can draft a "standard" or contract for deed that is "fair" to both the seller and buyer, also does not understand the legal issues that need to be negotiated between the seller and buyer whose interests are very different.

A seller or buyer needs to understand their possible risks and obligations under a contract for deed and ways to limit those risks and obligations.  In other words, they need someone who can draft a contract for deed that best protects their interests, something that only a knowledgeable, experienced real estate attorney can do.    

New Wells Fargo Short Sale Documents - Beware!

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Nothing is certain about short sales except that it continually changes.  A recent change that we have become aware of is that Wells Fargo has recently came out with revised Short Sale documents.  While they are not yet being required in all Wells Fargo short sale transactions, you need to be on the look out for these new forms becuase they have significant changes.

Not only are the changes significant, it is our view that no real estate professional should sign these documents.  To sign these documents would put you at risk with your client, the government and the short sale lender.

Short sales are risky enough without this added risk.

To view the new forms and read a more complete description of the objectionable changes, click the following link:  Danger, New Wells Fargo Short Sale Documents Put You At Risk

Bank of America Dabbles in Principal Reductions

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Bank of America and Ally Financial have agreed to participate in a test program designed to provide princple reductions for qualifying borrowers.  At this time, the programs are limited to areas hardest hit with foreclosures - California, Arizona and Michigan.  The program is funded by the US Treasuries "Hardest Hit Fund".

While we don't know the criteria or whether the idea of principle reductions will spread, it certainly is worth noting that lenders are now putting their toes in the water that they vowed never to enter.

For more on this story, click the following link:  Housingwire Prinicipal Reduction Story

Fannie Mae Will Not Purchase Mortgages Used to Purchase During the Period of Redemption

More red tape to kill short sales

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Short sales are a tough business - a long slow, unpredictable process.  Even if you get through the process there is no guarantee that the buyer will still be there.  Another huge hurdle has arisen.

THE FANNIE MAE SELLING GUIDE MAY PREVENT FANNIE MAE FROM PURCHASING MORTGAGES USED TO BUY PROPERTIES DURING THE PERIOD OF REDEMPTION.

The selling guideline is poorly written and it certainly can be argued that it either does not apply to Minnesota foreclosures because there is no there is no unexpired redemption period when the short sale closes because the owner has to redeem in order to complete the sale.  There is also a procedure to deal with this situation that is set out in the selling guidelines.

Click here to read the relevant selling guideline and the procedure to overcome the selling guideline. 

However, an argument that the guideline shouldn't apply in Minnesota or a procedure to deal with the situation doesn't matter if lenders don't want to take an additional risk by dealing with properties in the period of redemption.  Uncertainty kills deals.    

I have spoken to a number of lenders and mortgage brokers and it is clear that investors are fearful and really don't care it the guideline makes sense in Minnesota or that there may be a procedure to follow that may overcome the rule, they won't take a risk that Fannie Mae will not purchase the loan.

That leaves only those lenders who do not plan on selling their mortgages to Fannie Mae as sources of lending for sales during the period of redemption.  Unfortunately, it is a very real policy that those investors may pull back when they find out that they are the only ones willing to take this risk.

The impact of this turn of events is just another body blow to the real estate market.  This is another reason for sellers to not bother even trying a short sale, another reason for real estate professionals to avoid short sale (why risk all of the work put into a short sale only to see it inevitably fail even if the short sale approval is obtained) and another reason that the foreclosure inventory for the lenders will increase.  This, ultimately, will lead to a further decline in property values.   A LOSE, LOSE PROPOSITION FOR EVERYONE!   

For real estate professionals who work with short sales (or any property in foreclosure), you had better make sure that you can find a buyer, get the short sale approval before the period of redemption or the risk of a failed transaction just multiplied.

Tennis Any One? MERS Wins The Latest Point

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Monday, March 14th, 2011, 10:43 am

The battle between MERS and its opponents continues.  The latest point has been won by MERS. The Supreme Court of New York has ruled in favor of Bank of New York Mellon in a challenge to a foreclosure based on a MERS assignment of mortgage.

The court found that the assignment of mortgage was made and the original note was in the banks possession before they commenced the foreclosure.

While MERS won another point, they have not one the match.  Other courts, including a New York Bankurpcty court has ruled against a bank foreclosing a MERS assigned mortgage.  This later case can also be appealed to the Court of Appeals. And, finally, would the judge have arrived at the same decision if the bank could not have proved that it possessed the original note prior to the commencement of the foreclosure.

The main point everyone should take from this latest case is that those that argue that it is a slam dunk that MERS will lose are wrong.  We have different decisions in many different courts and it will be some time before a concensus will be reached.