Counseling Resources for Distressed Homeowners

If you are having trouble making your mortgage payments and you are facing the possibility of foreclosure, you should be aware of the following resources:

1. The US Department of Housing and Urban Development ("HUD") sponsors housing counseling agencies throughout the United States to provide free or low cost advice. To locate a HUD sponsored counselor near you call 1-800-569-4287 or search online here: HUD counselors.

2. The Michigan State Housing Development Authority's ("MSHDA") Homeownership Counseling Agencies can provide free assistance to Michigan homeowners. To locate a Homeownership Counseling Agency near you call 1-866-946-7432 or search online here: MSHDA Save the Dream program.

3. If you are an Oakland County resident, please review this prior article on resources available to you: Oakland County Offers Timely Real Estate Resources and Services.

Considering Using a For-Profit Loan Modification and Foreclosure Rescue Firm? Read This First!

Unless they are specifically exempt as provided by Michigan's Credit Services Protection Act (the "Act"), it is against Michigan state law, for for-profit loan modification and foreclosure rescue firms to charge a fee until all of the services promised by the loan modification company are completed. See MCL 445.1823(b). In other words, no upfront fees should be charged! This is becoming an increasing problem as certain companies and individuals are seeking to take advantage of people in distress.

The Act regulates credit services organizations. Unless specifically exempt under the Act, a credit services organization is a person or entity who, in return for consideration, attempts to sell, provide, or perform one or more of the following: (i) the improvement of a person's credit record, history, or rating, (ii) the obtainment of an extension of credit, (iii) advice or assistance regarding the the improvement or repair of a person's credit record, history, or rating, (iv) advice or assistance regarding the obtainment of an extension of credit, (v) advice or assistance regarding foreclosure of a real estate mortgage, and (vi) serve as an intermediate between debtor and creditor on behalf of the debtor regarding credit that was extended prior to any agreement to have the credit services organization serve as an intermediate. See MCL 445.1822.

For-profit loan modification and foreclosure rescue firms would fall within the definition of "credit services organization" unless they are specifically exempt as provided by the Act. There are multiple exemptions under the Act. However, they generally apply only to individuals and organizations that are already regulated by the State of Michigan. See the entire list of exemptions here: MCL 445.1822(C).

In addition, to prohibiting upfront fees, the Act prohibits credit services organizations from engaging in number of activities including, but not limited to, (i) charging or receiving from a buyer who is seeking a loan or extension of credit any money or other valuable consideration before the closing of the loan or extension of credit, (ii) making or using a false or misleading representation in the offer or sale of the services of a credit services organization, and (iii) failing to perform the agreed to services within 90 days following the date the buyer signs the contract for services. See MCL 445.1823 for the entire list.

Violators of the Act are guilty of a misdemeanor punishable by imprisonment for not more than 90 days, or a fine of not more than $1,000.00, or both. Each transaction in violation of the Act constitutes a separate offense. See MCL 445.1825. Additionally, the attorney general, county prosecutor, or victim may bring an action to, among other things, obtain actual damages, reasonable attorney fees, court costs, and punitive damages. See MCL 445.1824.

If you are seeking help, make sure that you familiarize yourself with Michigan's Credit Services Protection Act before you pay to obtain assistance. Read the entire Act here: Credit Services Protection Act.

Michigan's Electric Customers May Be Eligible For Financial Credit For Power Outages

There was an interesting Consumer Alert from the Michigan Department of Energy, Labor and Economic Growth today. Pursuant to Michigan Public Service Commission rules, electric customers may be eligible for a credit on their electric bill if they experience lengthy or frequent service outages.

The credit for residential customers is $25. The credit for commercial customers (and other classes) is based on the customer's minimum bill. Read this consumer alert for more information: Consumer Alert.

Fannie Mae's Guidelines Concerning Bankruptcy, Foreclosure, and Short Sales

Many residential homeowners who leave their homes as a result of bankruptcy, foreclosure, or short sale are wondering how long it will be before they have established an acceptable credit history in order to qualify for a new mortgage. Fannie Mae announced their guidelines in FNMA Announcment 08-16 which you find on their website at www.efanniemae.com. Depending on the event and the circumstances, it could be as short as two years or as long as five years. Furthermore, there are additional restrictions that could last up to seven years. See the announcement for the specific policies.

While Fannie Mae is not the sole authority on mortgage lending practices, they have a tremendous influence on direct lenders and home buyers. Fannie Mae is a government sponsored enterprise created by Congress which works with mortgage bankers, brokers, and other primary mortgage partners to ensure that those parties have funds to lend home buyers at affordable rates. Fannie Mae is not a direct lender, but instead operates in the U.S. secondary mortgage market.

In July of 2008 it was reported in the New York Times that Fannie Mae and Freddie Mac owned or guaranteed roughly half of the nation's $12 trillion mortgage market. See: Duhigg, Charles, "Loan-Agency Woes Swell From a Trickle to a Torrent", The New York Times, Friday, July 11, 2008.

Accordingly, if you want to follow U.S. mortgage lending trends you should keep up to date with Fannie Mae's policies and any subsequent changes. You can find out more about Fannie Mae's guidelines at www.efanniemae.com.

Exclusion for Qualified Principal Residence Indebtedness Extended until December 31, 2012

In my previous article When You Can Avoid Paying Income Tax on a Forgiven Mortgage, I discussed how the Mortgage Forgiveness Debt Relief Act of 2007 provided that qualified debt on a principal residence discharged between January 1, 2007 and December 31, 2009 was tax exempt.

Please be aware that pursuant to the Emergency Economic Stabilization Act of 2008, the discharge deadline has been extended until December 31, 2012. This is critical information for individuals facing the prospect of discharging mortgage debt in this difficult economy.

What is Job-Loss Mortgage Insurance?

In these uncertain economic times it may pay to insure that your mortgage payments will continue to be made in the event that you lose your job. Realty-Times has an interesting article that explains Job-Loss Mortgage Insurance. Read the entire article here:
Job-Loss Mortgage Insurance: Terms, Conditions, Eligibility.

What Disclosure Requirements Does a Seller of Michigan Residential Property Have to a Buyer?

Buying a home is one of the largest purchases that a person can make. Diligent home buyers obtain inspections to determine the condition of the property. However, the typical home inspection takes a few hours during one day and is largely based on what the inspector can see on that particular day. The weather, time of day, and time of year all may influence what an inspector observes. Furthermore, unless the home buyer seeks specific inspections and specific expertise, the inspector may not be able to fully evaluate certain aspects of the property (e.g. sewer line connection).

In order to determine what inspections are needed, buyers often rely on the disclosures that sellers make concerning the condition of the property. One of the leading causes of legal disputes between buyers and sellers is when the actual condition of the property differs from what the seller has disclosed to the buyer.

Seller Disclosure Act

In Michigan, the Seller Disclosure Act (MCL 565.951, et seq)(the "Act") governs a seller's disclosure requirements with respect to residential real estate transactions. Some of the key provisions of the Act include, but are not limited to, the following:

1. Unless an exception applies, a transferor of residential real estate must deliver to the transferee or the transferee's agent a written disclosure statement concerning the condition of the property which conforms to the Act. MCL 565.954. The form required by the Act is set forth in MCL 565.957.

2. Each disclosure required by the act is to be made in good faith. Under the Act "good faith" means honesty in fact in the conduct of the transaction. MCL 565.960.

3. The Act applies to the transfer of real estate consisting of not less than 1 or more than 4 residential dwelling units. MCL 565.952.

4. Under the Act transfers of Real Estate include sale, exchange, installment land contract, lease with an option to purchase, any other option to purchase, ground lease coupled with proposed improvements by the buyer or tenant, or transfer of stock or an interest in a residential cooperative. MCL 565.952

5. The seller disclosure requirements of the Act do not apply in all residential real estate transfers. MCL 565.953. Specific exceptions include, but are not limited to (see MCL 565.953 for all exceptions):

(a) Transfers pursuant to a court order.

(b) Transfers to a mortgagee by a mortgagor who in in default.

(c) Transfers by a sale under a power of sale.

(d) Transfers by a nonoccupant fiduciary in the course of the administration of a decedent's estate, guardianship, conservatorship, or trust.

(e) Transfers from 1 co-tenant to 1 or more other co-tenants.

(f) Transfers made to a spouse, parent, grandparent, child, or grandchild.

(g) Transfers between spouses resulting from a judgment of divorce.

(h) Transfers or exchanges to or from any governmental entity.

(i) Transfers made by a person licensed under article 24 of Michigan's occupational code (i.e. residential builders, residential maintenance and alteration contractors, and related salespersons) of newly constructed residential property that has not been inhabited.

6. The seller's disclosure statement must be delivered before the transferor executes a binding purchase agreement with the transferee or, in the absence of purchase agreement, before a binding installment sales contract is executed. Otherwise, the transferee will have the right to terminate the purchase agreement for a period of 72 hours after delivery of the seller's disclosure statement if it is delivered in person or for a period of 120 hours after delivery of the seller's disclosure if it is delivered by registered mail. In any event the transferee's right to terminate the purchase agreement expires after the property is transferred by deed or installment sales contract. MCL 565.954.

7. A transferor or the transferor's agent is not liable for any error, inaccuracy, or omission in any information provided in a seller's disclosure statement if the error, inaccuracy, or omission was not within the personal knowledge of the transferor, or was based entirely on information provided by public agencies or provided by certain experts (e.g. licensed professional engineers, professional surveyors, contractors, etc.), and ordinary care was exercised in transmitting the information. MCL 565.955.

8. An agent of a transferor is not liable for any violation of the Act by the transferor unless the agent knowingly acted in concert with the transferor to violate the Act. MCL 565.965.

9. It is not a violation of the Act if the transferor fails to disclose information that could be obtained only through inspection or observation of inaccessible portions of real estate or could be discovered only by a person with expertise in a science or trade beyond the knowledge of the transferor. MCL 565.955.

10. If information disclosed in accordance with the Act becomes inaccurate as a result of any action, occurrence, or agreement after delivery of the required disclosures, the resulting inaccuracy does not constitute a violation of the Act. MCL 565.956.

11. A city, township, or county may require disclosures in addition to those disclosures required by the Act and may require disclosures on a different disclosure form in connection with transaction subject to the Act. MCL 565.959.

12. The specification of items for disclosure in the Act does not limit or abridge any obligations for disclosure created by any other provisions of law regarding fraud, misrepresentation, or deceit in transfer transactions. MCL 565.961.

13. A transfer subject to the Act is not invalidated solely because of the failure of any person to comply with the Act. MCL 565.964.

Conclusion

Being aware of the requirements of the Seller Disclosure Act are critical to both buyers and sellers of Michigan residential property. Buyers need to understand what obligations a seller has to disclose property conditions so that they can adequately determine what inspections they need to obtain. This is especially true in an era of increasing foreclosures and more and more bank owned properties. Assuming seller disclosure requirements that don't exist can be a disaster for a prospective buyer. Similarly, sellers need to understand their legal obligations under the Act to avoid exposing themselves to liability. Understanding and complying with the Seller Disclosure Act can reduce risks for all parties involved in a residential real estate transaction.

Michigan's Seller Disclosure Act can be reviewed here: Seller Disclosure Act.