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Focus on Third Party Sales -
Part I
- Our affiliated trustee company
Northwest Trustee Services reports that many of its foreclosure
auctions are now resulting in the property being sold to third
parties. In fact, in a recent week fully one half of its
sales were made to third parties!
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In a typical foreclosure
cycle, most of the foreclosure auctions are sparsely attended,
and the winning bid is the bid placed by the foreclosing
servicer (the "beneficiary"). Typically this bid consists
of the total debt due, increased by the costs of foreclosure.
In a declining or flat market, oftentimes the servicer's bid
(referred to as "offset bid") is the only bid, and thus the
property is sold to the servicer (often referred to as
"reverting"). In a rising market the offset bid might be
less than the property value, and if that gap is wide enough,
third-party bidders get interested.
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- Usually foreclosing
beneficiaries love third party bidders. That's because it
costs a lot to hold and sell the foreclosure property.
When a third party wins the auction, the beneficiary incurs none
of these costs.
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- In the past several months
Northwest Trustee noticed that even where an offset bid would be
low enough to attract bidders, there were real problems in
making potential bidders aware of the sale. Sifting
through legalese in newspapers, or driving through neighborhoods
looking for posted notices on property, were ineffective tools
in marketing foreclosure auctions. The solution was
creation of an interactive, user-friendly website.
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NorthwestTrustee.com allows potential bidders to cruise
through sales data from home, review offset bids, and (soon)
even look at pictures of the property. The website has
been highly praised by the investor community. In fact, it
receives upwards of 10,000 hits every Thursday (sales are held
on Fridays). And one result is a greatly increased number
of third-party sales!
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What's Happening at RCO . .
. on the Road Again
- 2005 is shaping up to be
another busy year of traveling. We've just wrapped up a week at the FBR
Open in sunny Scottsdale and have been busy catching up with clients and friends
at the MBA Servicing Conference in Orlando this week. Stephen, Lance,
David and Jon have enjoyed visiting with folks during their time at the USFN and
AFN booths and at the various sessions and evening events.
- In March we'll be visiting a
number of clients in California, then returning to Huntington Beach April 20-22
for the USFN Spring Seminar . For details on the USFN seminar, please call
1-800-635-6128 or visit
www.usfn.org
- We look forward to seeing all
of you On the Road Again!
- Recipient USFN Diamond Award of
Excellence
- Washington | Oregon | Alaska
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Announcements
Washington
Office
- We are pleased to
announce Lance Olsen was named Assistant CFO USFN-
way to go Lance! Congratulations!
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Alaska Office
Our affiliated Alaska office,
Routh Crabtree, apc, has recently made some exciting changes!
Sergey Tarasov has been appointed Default Manager and oversees the
Foreclosure, Bankruptcy, and Eviction departments. He has a BS
degree from Far Eastern State Marine Academy in Vladivostok, Russia, and
an MBA from University of Alaska. Andrew Ratliff has joined us as
Foreclosure Analyst. Andrew has a BS degree in accounting from
Oklahoma State University.
Welcome Sergey and Andrew!
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- Meet the Idaho Team
- We are
pleased to announce that our Idaho Foreclosure Team is now fully
operational. In the past, we handled Idaho nonjudicial
foreclosures by monitoring and managing a subcontractor.
Although
the results were good, we desired
more control over the
Idaho process so that the files could
be handled with the same sense of urgency and
commitment to problem-solving that the industry has come to
expect from our own staff in Oregon and
Washington.
Beginning October 2004, therefore, we took over all functions in
the Idaho foreclosure process to ensure that servicers and
investors receive an equally high level of service from us in
Idaho as well.
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also pleased to announce this team will soon be expanding with
an additional team member as well as gearing up to incorporate
Montana foreclosures in the very near future.
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- Todd
Hendricks
Todd is a graduate of the University
of Washington and has been in the foreclosure industry since 1999.
He oversees the daily operations, reviews documents and notices,
coordinates sales, and deals with borrower calls. Outside the
office, Todd is an avid skier and hiker.
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Krista Shull
Krista graduated from Central
Washington University and joined the company in 2002. She
deals with new file setups, drafting documents, setting sales
and client calls and requests.
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- Send an E -Mail to Lance:
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lolsen@rcflegal.com
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- Send an E-mail to Todd:
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thendricks@northwesttrustee.com
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- Send an E-Mail to Krista:
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kshull@northwesttrustee.com
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- This Month's
Featured Articles
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. .
From the outset, the lender client
asked its title company to establish which deed of
trust was in first position .
. .the
title company tried -- but ultimately failed -- to
solve the
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priority mystery . . .]
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[. . .
our own lender client expressed
pessimism that the issue would be resolved
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before
the foreclosure sale
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- A Classic Who's on First
- Determination of Foreclosure Team
Provides the Ultimate Save
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We had completed a foreclosure for the lender client last November,
the property reverting to the lender. During the entire
foreclosure, however, there was a question whether another lender
had a prior deed of trust that would survive our foreclosure.
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From the outset, the lender client asked its title company to
establish which deed of trust was in first position. For months,
the title company tried -- but ultimately failed -- to solve the
priority mystery. We went to sale in November without a
resolution. Worse, a month before we went to sale, the other lender
issued its own foreclosure notice to our lender client, suggesting
that the other lender believed itself to be in first position.
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Our lender client asked us to monitor the other lender's foreclosure
and, if necessary, arrange to bid at the other lender's foreclosure
sale. Without being asked, our staff decided its task included
establishing whether our foreclosure had extinguished the other
lender's deed of trust, rendering the other lender's pending
foreclosure meaningless.
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end, our staff asked our lender client for certain documentation
from its own loan origination file. The week of the other lender's
foreclosure, the lender client finally was able to provide us two
very important documents from that file. One was a statement
received by our lender client from the other lender representing
that the other lender's HELOC loan balance was paid down to zero.
The other was the borrower's written instruction to the other lender
to close his HELOC account.
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Seizing upon this information, we immediately provided it to the
foreclosing trustee, urging it to bring these documents to the other
lender's attention to determine whether the other lender improperly
kept its HELOC account open after our loan was made. Because we
were now so close to the date of foreclosure, our own lender client
expressed pessimism that the issue would be resolved before the
foreclosure sale and sent us a check for over $18,000 with
instructions simply to pay off the other lender's loan to abort the
other lender's foreclosure.
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Acting under those instructions, we delivered the lender client's
payoff check to the foreclosing trustee. But our staff did not stop
there. Instead, they renewed our request for the foreclosing lender
to review whether, in fact, its HELOC account should have been
closed when our lender client's loan was originated. In response to
that request, the other lender did conduct a review and, despite the
payoff check in hand, concluded that it should have closed its HELOC
account when our lender client's loan was made. The other
lender further concluded that our lender client's foreclosure sale
had extinguished its own lien.
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Most importantly, thanks to the dogged determination of our staff
even after our lender client had given up hope, the other lender
refunded our lender client's money! Our staff doesn't just perform
as instructed. It does that and much, much more!
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. . . a
Servicer's
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ability to
recover
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for an advance
for
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property taxes
and
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insurance can
vary
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depending upon
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the language
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of the
Deed
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of Trust. . . .]
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Steven Linkon
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- For additional information
on the
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Monitor Senior Lien Department,
- please call or e-mail
- Julie
Ridding at
425.586.1955
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So, You Think You Know
A Default When You See One?
- By: Steven Linkon
- Attorney
If a borrower fails to pay
their real property taxes or insurance premiums, is this a
default that permits the Servicer to start a foreclosure action?
Be careful, depending on the language of your loan documents, a
borrower's failure to pay taxes and insurance may not
necessarily constitute a default. Handling these kinds of
delinquencies requires your extra attention, or else you may
improperly commence a foreclosure action or conduct a wrongful
foreclosure sale.
Typically,
the loan documents (i.e. Note and Deed of Trust) require a
"default" before the Servicer may commence a foreclosure
action. Thus, the Servicer needs to understand how a "default"
is defined in the Note and Deed of Trust. Many standard Note
forms limit a "default" to the failure to pay the full amount of
the monthly payment due each month. You may be surprised to find
that the Note is silent about the borrower's failure to pay
property taxes or insurance premiums.
Defining "Default"
Most Deed
of Trust forms contain provisions requiring the borrower to pay
property taxes and similar assessments if non-payment will
create a lien senior in priority to the lender's lien. But, if
the borrower does not pay the taxes, this is not automatically a
"default" that triggers the right to start a foreclosure.
Usually, something more must occur before starting foreclosure,
such as notice to the borrower and an opportunity to cure.
Similarly, a typical Deed of Trust requires the Borrower to
maintain proper insurance coverage. Failing this, the lender
may obtain insurance to protect its interest in the property.
However, a
Servicer's ability to recover for an advance for property taxes
and insurance can vary depending upon the language of the Deed
of trust. Typically the Deed of Trust will provide a procedure
that the Servicer must follow in order to obtain reimbursement
of advances for property tax or insurance. Only after this
procedure is implemented can the Servicer begin foreclosure.
The typical procedure calls for notice to the borrower that the
Servicer has made an advance for taxes or insurance and in
connection with the notice the borrower is provided a grace
period in during which the advance may be repaid.
If the
borrower fails to repay the advance after such notice and grace
period, a Servicer's options may be limited such that the
Servicer still may not be able to declare the loan in
"default." For example, some loan documents will permit the
lender to add the amount of a property tax or insurance premium
advance to the principal amount of the Note so there is interest
earned on the advance at the Note rate. But adding the advance
to the principal can mean that the advance is not recouped until
the loan is repaid. This does not have to be the result,
however, if the Deed of Trust contains covenants (i.e. promises)
that the borrower will pay the property taxes or insurance, and
the Deed of Trust includes the breach (i.e. violation) of a
covenant as a "default."
Caution with Payment Applications
Here is where caution is
advised: some Servicers desiring to recover an advance for
property taxes or insurance may be tempted to apply the next
monthly payment tendered by the borrower to reimburse the
advance. This diversion of the borrower payment may trigger a
"default" under the loan documents. But diverting a regular
monthly payment is often improper under many forms of loan
documents commonly in use. It is possible to be in a situation
where there is no "default" because the borrower is current on
the regular monthly payments, even though the Servicer has
advanced funds for taxes and insurance.
The
solution to this problem is to provide reasonable notice to the
borrower of the amount and purpose of the advances before
starting any foreclosure action and a warning that the failure
to reimburse the Lender for the advance will result in the loan
being placed in "default." If the advance is not repaid by the
borrower, the entire loan balance can be accelerated because the
typical Deed of Trust will permit a Lender to accelerate the
loan if the borrower is in breach of any covenant (promise or
obligation) contained in the Deed of Trust. The two covenants
covered by this discussion include the borrower's covenants to
pay the real property taxes and provide for insurance.
Just be sure
that the borrower is forewarned that you consider the
non-payment of property taxes and insurance to constitute a
breach of the Deed of Trust covenants before actually starting a
foreclosure action. The borrower may have justification for the
non-payment or may repay the advances. A little advance work can
prevent unpleasant litigation later.
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Affiliated
Company Highlight
Periodically this space will spotlight a
company that is part of the Routh Crabtree Olsen family of companies.
Our affiliated companies typically provide ancillary services to the
foreclosure, bankruptcy and eviction process.
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- Northwest Trustee Services,
Inc. ("NWTS")
- Monitor Senior
Lien Department
As
trustee, when we complete a foreclosure on a property we are
ultimately attempting to extinguish all junior lienholders,
resulting in a clear and marketable title to the lender we
represent. Alternatively, we would issue a trustee's deed to the
successful purchaser at the foreclosure sale. If you happen to be
in the shoes of a junior lienholder, it is extremely important for
you to protect your lien interest by monitoring the senior
lienholder's foreclosure action and, in cases where it makes
economic sense, arrange for representation and bid at the senior's
foreclosure sale. The Monitor Senior Sale Department was created to
assist lenders in monitoring and coordinating entry of bids to
protect their lien interests.
When the junior lienholder lender is made aware of a senior lien
foreclosure sale, it is imperative that the lender contact the
Monitor Senior Department and immediately forward a copy of
the foreclosure notice. If the junior lienholder lender does not
have a copy of the actual notice, the Monitor Senior Department
takes steps to retrieve the recorded notice from the County where
the property resides.
Following receipt of the Notice of Trustee's Sale, an analysis of
the debt must be made by the junior lienholder, taking into account
the property's fair market value, the amount of the senior lienholder's debt and the balance due the junior lienholder.
If the junior lienholder determines that bidding at the senior
lienholder's foreclosure sale will result in recovery of all or a
significant portion of the balance of their debt, they would advise
the Monitor Senior Department to proceed with coordination and entry
of their bid at the scheduled foreclosure sale. If the junior
lienholder determines that it does not make economic sense, they may
then elect to maintain a "monitor only" status throughout the
foreclosure, without entry of a bid.
Prior to the scheduled foreclosure sale, the junior lienholder will
make arrangements to deliver certified funds reflecting the maximum
amount they wish to bid, as well as providing the parameters under
which they would like us to bid on their behalf (i.e. opening
amount, dollar increments, max amount, etc.)
In the event that the junior lienholder lender is the successful
purchaser at the foreclosure sale, the Monitor Senior Department
will arrange to obtain and record the Trustee's Deed and/or
retrieval of any excess/surplus proceeds (subject to the
underlying state statute).
In
the case of a "monitor only" without entry of bid, and where
appropriate, we will endeavor to retrieve any available excess/
surplus funds to which they may be entitled.
In
addition, if it is determined that the property is occupied and an
eviction is necessary, arrangements can be made pursuant to the
lender's instructions to refer the eviction to legal counsel.
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- Follow Up on Affiliated
Company Spotlight
- B to B technology, Status Reporting via
the Web
If you have not yet signed up for a
User ID and Password, but would like to take advantage of this
technology, please contact Julie Ridding at 425.586.1955 or via e-mail
at
jridding@rcflegal.com.
- For a demo, please go to
http://www.northwesttrustee.com/clientweb
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- User ID: 7802 Password: test
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- Select
the "Washington", "Open Files", and "Select All Client Files"
options and press the "Search" button to view a list of files.
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- From the
list, you can click on the trustee number, for example, 7802.20002
to drill down to the detail, and from the detail page you can click
on the links in the "Documents" section to view individual
documents.
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3535 Factoria Blvd. |
Suite 200 | Bellevue, WA 98006
Phone 425.458.2121
| Fax 425.458.2131
Fannie/Freddie Designated
Counsel State of Washington |
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