BluegrassForeclosure.com

Info and Tips about Ky Master Commissioner Sales

Rental Tip – What to do when a tenant wants out early?

Just in case you are new to the foreclosure investment market, you may be wandering what happens next?  You found that great investment, you got a great deal on it, now what?

Maybe you’ve never been a landlord before, or maybe you are still relatively new to the rental units.

Here are some observations from my trials and tribulations for landlording.  If you want some forms and other insights, please leave a comment or drop me a line.

First, I got a call last week from my two tenants.  They are a couple, but a young couple, and not married.  Which I don’t have a problem with, until they decided to break it off quite suddenly.  Normally I don’t mind and sometimes I am a stickler to the lease.  But they decided to break it off and of course, with one leaving, the other couldn’t afford to stay alone.

Question, should I let them both out of the lease?  Try to collect from each?  Look for a new tenant?

What would you do?

Tip #5

Master Commissioner Sale Tip #5

Ok, so we have discussed getting a lawsuit started and what happens when a foreclosure is actually filed.  The complaint has been filed, but how does the suit get to judgment?  The bank must have all parties added to the suit.  Any and all debtors, lienholders and/or taxing entities.

Once the complaint has been filed, the bank (or the party that filed suit), must get all parties served.  This means that each party must have notice of the suit.  Usually this is done by having the sheriff or constable deliver a copy of the complaint to each defendant personally.  You can also have the defendants served by signing for certified mail.  Even if the bank cannot find anyone, they can still proceed with getting service via a “warning order attorney.”

Once the bank has service on all of the parties, it can then file a motion for judgment.  There are several different types of judgment, but the end result is the same.  A motion is filed asking the court to enter judgment.  This motion also includes an order of sale and an order referring the case to the master commissioner of the county.  Once the court enters or grants this motion, the case is finally referred to the master commissioner.

Next:  once the case is referred to the master commissioner . . .

Read all of the Tips here.

Short Sale Tips

Here is how to go about successfully buying a short sale:

1. Search for short sale properties

2. Select a real estate professional

3. Investigate the mortgage and liens on the property

4. Write a complete offer

5. Negotiate

Read the rest of RealtyTrac Short Sale Tips.

2009 LRC Foreclosure Report

In 2009, the Legislative Research Commission examined foreclosures going on in the Bluegrass state.  Here are some excerpts from the Report.  Click to read the entire report: Foreclosure Report.

“In January 2009, the Program Review and Investigations Committee directed staff to study home foreclosures in Kentucky. The resulting report was to address three major objectives:
• describe the foreclosure process in Kentucky, including how laws in Kentucky compare to those in other states;
• describe recent foreclosure trends in Kentucky, as well as factors that have contributed to these trends; and
• identify the effects foreclosures have on neighborhoods, local government, and state government, including house prices and tax revenues.

. . . .

Here’s the Summary of the Report, but the entire Report is well worth the read: Foreclosure Report.

Summary

In January 2009, the Program Review and Investigations Committee directed staff to study home foreclosures in Kentucky. This report covers the foreclosure process, the number and distribution of foreclosures in Kentucky, causes and effects of the increase in foreclosures, and government programs that have been implemented in response to the increase.

Courts Handle the Foreclosure Process in Kentucky

In Kentucky, foreclosures go through a judicial process, meaning foreclosures are handled by the courts. When it is determined that a borrower is in default on a loan, the lender files a foreclosure suit with the circuit court. Typically, the homeowner does not respond to the filing, so the court issues a default judgment for the lender. The property is then referred to a court official, the master commissioner, who will auction the property. The lender will usually buy the property at the auction and relist the property for sale.

Some states use a nonjudicial foreclosure process, which means the process is not required to go through the courts. Other differences between states include whether the homeowner retains the right for a period of time to repurchase the property, and whether the borrower can be sued for any portion of the loan amount not covered by the sale of the property.

Kentucky’s Foreclosure Rate Has Been Increasing

Data from the Mortgage Bankers Association’s National Delinquency Survey indicate that in Kentucky during the fourth quarter of 2008, 0.78 percent of loans entered the foreclosure process, approximately four times higher than the percentage in the 1990s. In the same quarter, about 7.5 percent of all loans were past due on at least one mortgage payment, an indication of borrowers at risk for future foreclosure. Nationally, rates were slightly higher. In the U.S., 1.03 percent of loans entered the foreclosure process and 7.8 percent were past due on at least one payment.

State data indicate that there are a higher number of foreclosures in the middle region of Kentucky. This could be due to a number of factors, such as a higher percentage of homeowners having a mortgage, and recent population growth increasing the demand for new mortgage loans, which have a higher probability of default. Foreclosure data collected from Daviess, Hardin, and Jefferson Counties show that some counties have experienced large increases in foreclosures in recent years, but other counties have not seen the same growth.

Causes of Increased Foreclosures

Nationally, the increased rate of foreclosures appears to be caused by a number of factors. Recent changes in real estate finance contributed to three main factors that led to more foreclosures: volatility in house prices, changing interest rates, and weakening employment. In recent years, an increasing number of loans have been sold to investors. This creates an incentive for lenders to issue more mortgages. The result has been that many lenders began to offer mortgages that had low initial interest rates, required little or no documentation of income, and required little or no equity. When interest rates increased and housing prices decreased, many borrowers could no longer pay their mortgages and were unable to sell their homes.

According to the Federal Housing Finance Agency, house prices in Kentucky have not been as negatively affected as in other states. An index that tracks property purchases and refinance appraisals shows a 3.4 percent national decline in house prices over the past year. In Kentucky, house prices increased 0.8 percent over the past year.

Rising interest rates increase the monthly payment for borrowers with an adjustable rate loan. The Federal Housing Finance Board reported that in 2006, 12 percent of the loans in its survey in Kentucky were adjustable rate loans, lower than the median of 15 percent for all states.

As of April 2009, the unemployment rate in Kentucky was 9.8 percent, higher than the national rate of 8.9 percent. Home prices most impact individuals trying to sell their homes, and interest rates impact borrowers with adjustable rate loans, but increasing job losses potentially impact all borrowers.

Effects of Foreclosures

In addition to losing the equity in the home, the loan default hurts a borrower’s credit score, making it more difficult and costly to get credit in the future. Borrowers not involved in a foreclosure also can be affected by difficulty accessing credit and paying higher interest rates.

The costs of foreclosures to mortgage lenders, servicers, and investors vary depending on the type of loan and contractual arrangements between lending institutions. Historically, loans are insured against mortgage losses through private mortgage insurance, and some of the losses are eventually recouped. Local sources estimated that a foreclosure costs lenders $25,000 to $30,000 on average.

Foreclosures negatively impact property values for homes nearby. This is primarily because the properties are not adequately maintained and the crime often increases at vacant property. Twenty-two neighborhoods in west Louisville had a net decrease in property assessments from their last assessment to 2009.

The total impact of foreclosures on tax revenues cannot be determined. In the case of a foreclosed property, current and past due taxes are first liens on a property and are paid from the proceeds of the foreclosure sale. This means that property tax revenues may be delayed but will be received. In addition, because of foreclosures, property values might decrease or not increase as quickly. However, lower property values do not necessarily result in reduced property tax revenues. Local property tax rates may be set so that the property taxes yield at least as much revenue as in the previous year. If property assessments increase less than 4 percent, state property tax revenues will not yield the 4 percent growth permitted under state law. Overall, state real property assessments and revenues are growing but at a lower rate than in previous years.

Federal, State, and Local Governments’ Responses to Increasing Foreclosures

Federal programs include Making Home Affordable, which offers a loan modification and loan refinance components; and the Neighborhood Stabilization Program, which deals with the effects foreclosed homes have on neighborhoods. The Neighborhood Stabilization Program has granted Kentucky $37.4 million and Louisville/Jefferson County an additional $6.97 million.

State programs include the Kentucky Homeownership Protection Center, a central facility aimed at referring homeowners in need to certified counseling programs. On the local level, Jefferson County Circuit Court has implemented a foreclosure conciliation program that requires the mortgage holder to participate in a conciliation conference if the homeowner chooses. Some of these programs may have limited effectiveness. Evidence from loan modifications made by banks in prior years suggests that the redefault rate on loan modifications is high.

This report has six major conclusions:

1. Foreclosures have increased both nationally and in Kentucky. Kentucky’s foreclosure rate in the fourth quarter of 2008, 0.78 percent, was about four times higher than in the 1990s.

2. In recent years, an increasing number of loans have been sold to investors. This created an incentive for lenders to issue more mortgages, so they offered mortgages that had low initial interest rates, required little or no documentation of income, and required little or no equity. When interest rates increased, many borrowers could no longer pay their mortgages. A decrease in housing prices meant that many borrowers owed more on their homes than the market value of the house.

3. Weakness in the housing market affected the rest of the nation’s economy, and unemployment began to rise. As workers lost jobs, they had more difficulty paying their mortgages. Unemployment appears to be one of the factors contributing to the increase in Kentucky’s foreclosures.

4. Foreclosures can reduce the property values of other homes in the neighborhood.

5. If foreclosures were to cause total property assessments to be lower than they otherwise would be, property tax revenues could be impacted. Property assessments for the state as a whole have not decreased.

6. Federal, state, and local governments have responded to increases in foreclosures. Twenty-five states enacted 36 laws in 2008 or 2009 that deal with foreclosure issues relevant to this study.

Read the entire report here: Foreclosure Report

Tip #5

Continuing in our series on tips for finding property and bidding on the property at the foreclosure auction, let’s discuss how an entity gets judgment and what they can do with that judgment.

As discussed in our previous posts, once a bank or other financial entity has filed a foreclosure lawsuit, they have to add any and all parties that have an interest in the property.  Depending on the liens against a property, this could be quite voluminous.

Once all of those entities have been added to the suit, the Plaintiff (usually the bank), must get service on all of the defendants.  This includes the spouses of the actual borrower.  KRS 392.020 provides a “dower” and “curtesy” interest in a spouse’s property.  Thus, a bank often must add the “unknown spouse” of John Debtor, to extinguish any right that unknown person may have, simply by virtue of the statute.

Service on these individuals includes having a sheriff or constable delivering a copy of the complaint directly to them.  Or, the Plaintiff is able to have the Defendant sign for certified mail personally.  Either of these methods is commonly accepted as personal service.  If the Plaintiff cannot get personal service, as in the case of the unknown spouse (you cannot really serve an unknown person . . . ), the Plaintiff must obtain what is called constructive service on a defendant.  In Kentucky, the Plaintiff must request a “warning order attorney” be appointed.  The warning order attorney then sends out notice to the individuals that cannot be found, makes his/her report back to the court, and then the Plaintiff must wait 50 days to proceed.

Once service is made on everyone, the Plaintiff may then file a motion with the court for judgment and order of sale.  The court will then entertain all motions before the court and unless there is good cause showing, the court will enter judgment for the Plaintiff.  Along with the judgment is an order of sale, which directs the Master Commissioner to sell the property.

The Master Commissioner now has the authority to sell the property.

Next up – the sale notice, what information does it contain and how can you use it to your advantage.

Questions?  Leave a comment or question and let us know if these tips are helping.

Master Commissioner Sale Tip #4

We’ve discussed what the Master Commissioner is here and what a note and mortgage are here.  Let’s go over how the Master Commissioner actually gets the property and/or is ordered to sell the property.

As noted previously, Kentucky is a judicial state, meaning a foreclosure action must be filed in court and an order entered to sell it.  How does this happen?

A complaint must be filed in the circuit court of the county where the property is located.  Not to get all legalese or anything, but the circuit court has jurisdiction and the county where the property is located is the correct venue.  So if the debtors or soon to be former owners have moved out, you don’t have to worry about filing wherever they are located.

The Plaintiff is the entity that files suit.  The Plaintiff has to have a legal right to begin a foreclosure.  In most cases, it is a bank that holds a note and mortgage against the property.  It can also be a trust (more on securitization later), a servicer for the trust, or some other lien holder, whether it be a tax lien or a judgment lien.

The Defendant(s) can be numerous, depending on what is going on with the property.  Most often the first defendants are the actual debtors.  If the debtors are not the actual owners of the real estate (such as commercial property), then you have to add the owners of the real estate, the tenants and anyone else that has an interest in the property.  You also have to add any tax lien holders, whether it is a federal, state, or local municipality, or a third party entity that has bought a tax lien.

Then you need to add any entity that holds a senior or junior mortgage, any other type of junior lien, or even unknown spouses, or unknown heirs, if one of the debtors is deceased.

As you can see, it can get pretty convoluted assuming what type of liens are recorded against a piece of property.

Next: how a foreclosure lawsuit gets to judgment.

Master Commissioner Sale Tip #3

For Tip #3, let’s discuss what happens pre-foreclosure.

For a foreclosure to begin, the debtor must go into default somehow.  Usually, this means that they have stopped paying and are 60 – 120 days delinquent.  There are numerous other ways listed in a note or mortgage for being in default.  These include not keeping insurance on the property, not naming the bank or finance company as the loss payee, not paying your taxes and numerous other reasons.  Read the fine print of your mortgage, you may be surprised the ways you can be delinquent.

Usually, before the subprime meltdown, the foreclosure would be automatically assigned to a foreclosure attorney.  Now, these days, the account first goes in “loss mitigation” and many of these departments are in-house for a loan company or servicer.  Loss mitigation specialists are trying to work with the debtor and figure out what can be done.  They may be able to qualify a debtor for a lower interest rate, lower rate of payment, tacking the delinquent months to the end and catching up the debtor current, or many other reasons.  If you think you may be to work it out with your bank, you have to call them.  You never know until you ask, present them with your financial situation, and see what the bank can do.  You must be willing to call your bank and turn over some financial information.  But many more banks are becoming much more creative to keep people in houses and not have to get the property back at a substantial loss.

Assuming that a loss mitigation deal cannot be worked out, the account goes to a foreclosure attorney.  Once that attorney gets the case, they order a title search to determine what kind of liens are against the property.  The attorney will learn a lot from this title search, such as the actual legal description of the property, what taxes are owed on it, what kind of tax liens are against the property, what other mortgages or liens are against it, if their client is in first position or quite possibly a lower position, and lots of vital information.

From this report, the attorney will prepare the complaint.  The complaint is the actual petition that is filed in the circuit court.  It must spell out how the bank holds a legal interest in the property.  The complaint must also notify everyone or every entity that has an interest in the property as well.  The bank has a legal duty to property notify all entities that a foreclosure action is being filed.  Hence, the title report is very important as it spells out exactly all of the entities that may have an interest in the property.

A bank then files the complaint in court and sends notice to all of the other entities.  This is called service.  You must “serve” these entities either by actually having a sheriff or constable hand the complaint to the actual defendant, or by having it mailed via certified mail.  This actually gives “notice” that a suit has been filed and gives the other parties a chance to respond.  This response is called an “answer” to the lawsuit and the entity has 20 days in which to file its answer.

Next: more on who is the “Plaintiff” and who is the “Defendant”.

Master Commissioner Sale Tip #2

Ok, so we went over what an actual Master Commissioner is and what he or she does here.

For Tip #2, let’s discuss the difference between a “note” and a “mortgage”?  The note is the actual contract that loans money to an individual.  The individual agrees to pay back that money at a certain interest rate.  There can be one, two, or more individuals on the note.  So that is why sometimes you only see one spouse who has signed the note.  Most banks will want as many people obligated on the note though, so it is more than willing to take several other co-signers, if it can get them to sign.

The mortgage on the other hand, acts as a lien against the collateral, in this case, the collateral is the real estate, home, or other building that the bank will take an interest in.  If the debtor defaults, it is presumed that the bank will be made whole taking back its collateral and selling it off, to earn its money back from the note.  Kentucky still has dower and curtesy rights, something I’ll go over in a later post.  The short answer is that once an individual gets married, the spouse has an immediate interest in any property.  That is why there can be one spouse on a note, but both spouses must sign a mortgage.  That is also why you sometimes see a bank suing an “unknown” spouse.

For a mortgage to be enforceable, it must be recorded.  Kentucky is generally a “race-notice” state, meaning that the first person or bank to record its mortgage at the county clerk’s office, takes first priority.  Thus, it is a “race” to the courthouse to see who can file or record the lien first.  Recording the lien in the county clerk’s office gives “notice” to everyone else that you have a lien, what that lien is, and how much you are owed.  There are a few small exceptions to this rule, which I’ll go over in a later posting.

Every other entity that files a lien after that first lien just falls in line in order that they filed in.  A piece of property can have numerous liens on it, such as a first and second mortgage, judgment liens, home equity lines, and many others.  That’s why it is important for you to file a lien against a piece of property as quickly as possible.  Recording the lien puts everyone on notice of your interest in the property.

Right now, with so many banks foreclosing on their notes and mortgages, they have a glut of real estate owned that they need to get rid of.  A great time for the foreclosure investor.

I hope this helps clear up some questions about notes and mortgages.  For the next post, I’ll go over what happens pre-foreclosure.

Master Commissioner Sale Tip #1

Many folks approach me asking for tips on going to the Master Commissioner sale in their respective county.  Consequently, I am going to work on a series of tips for individuals who want to know more about an MC sale, what to expect, and how to find that hidden gem of an investment.  So if you have specific questions about an MC sale, then please leave a comment or drop a line.  I look forward to hearing from you.  Here is tip #1:

What is the Master Commissioner?

So you have listened to the late night infomercials and are wondering how to get into investing through foreclosure sales.  But you are not sure what goes on here in Kentucky and how foreclosed property gets sold.  Here you go.

Kentucky is what’s called a “judicial” state, meaning the bank or other financial institution must go through the court system, file a foreclosure action, and get a judgment along with an order of sale, to be able to have the property transferred back to them.  As many of you know, the note you sign when you buy a house or real property is the actual contract that obligates you to pay back the bank.  The mortgage, on the other hand, is simply a lien against that house, building or real property, in favor of the bank as collateral if you should default on your note.  That’s why sometimes only one spouse has to sign the note, but both spouses must sign off on the mortgage.  We can go over that in another posting.

So, back to the foreclosure process here in the Kentucky.  Once a judgment and order of sale has been entered by the court, a separate order gets entered which directs the Master Commissioner of the county to sell the property.  Many of you have heard of sheriff’s sale, which is the entity in many states that is authorized by statute to sell foreclosed property.  Here in Kentucky, the authorized entity with power to convey foreclosed property is called the Master Commissioner.

Each county has one and only one.  (Except maybe Robertson, which may not have one since it is so small).  The Master Commissioner is essentially a political animal.  He or she is an attorney and member of the local bar.  They are appointed by the circuit judge of the county, so they are usually well connected.  It’s usually good to be the Master Commissioner and he or she is authorized by statute to convey foreclosed property from a debtor who has defaulted back to the bank or possibly some other third party entity.

I hope this helps to begin explaining the process.  Again, send me an email or leave a comment to this post I will be happy to answer your questions.  I look forward to hearing from you.