Home » Blog for Asset Protection News

The Sliding Scale that is the Mortgage Crisis

Since the start of the mortgage foreclosure crisis in 2007, the mortgage industry in the U.S. has changed significantly.

And, according to a recent piece in the Wall Street Journal, one of the latest changes being noted is a push by banks for larger down payments on mortgage loans. So the question becomes, does the requirement of more money down equal fewer people buying homes?

Down payments in 2010 are at an all-time high. An online real estate information base, Zillow.com, has been keeping track of median down payments required by lenders since 1997. This year’s median (22 percent of the home’s value) is the highest that number has been since the tracking began. The steep rise in required down payments has been especially rapid within the last five years. Sources report, that the 22 percent figure marks a doubling of the median down payment required from just three years ago. In other words, banks have reacted swiftly and decisively to the turmoil in the housing market.
It seems that lenders have largely driven the push for higher down payments as a reaction to findings that homeowners with more of their money on the line (i.e. those who make larger down payments up front) are less likely to default on payments or go into foreclosure than those with less money at stake. The Journal notes that, because many potential homebuyers cannot afford a 22 percent down payment, there’s been an uptick in applications for mortgage assistance programs designed to help select groups of people.

While owning a home has long been considered part of the “American Dream,” the real estate bubble’s devastating effects on the housing market has left some people questioning whether homeownership is in fact for everyone. In reality, when making the decision to buy a home you must be candid and honest with yourself. The consequence could be dire not only for you, but could have a ripple effect on the rest of your family as well.

Basil Ward is a contributing author to this blog and is currently serving as an intern for the Law Offices of Richard D. Seward.  Basil has been admitted to practice law as a Rule 9 Legal Intern in Washington State.

The New Economy and the Mortgage Crisis

The trouble with paying off the mortgage.

I recently learned of some friends who had paid off their mortgage on their home. In years past, that is not something that I would ever consider to be a risky transaction, but in today’s new economy, you cannot routinely expect that your money will be forwarded to the actual holder of your note, and you cannot expect to routinely receive the original note marked “paid in full” and you cannot routinely expect to receive a Release or Reconveyance of the Deed of Trust.

The problem is that the “note” on your home was likely sold by the originator that retained the servicing rights [1] then assigned to a Sponsor for securities underwriting, [2] and then ultimately to a New York Trust. In this process there was a lot of “double booking” of loans because these transactions were recorded by Mortgage Electronic Recording System (known as “MERS”) which relied on a “person” entering “info” into the system with no checks and balances to make sure the input data was accurate. People have been sued multiple times on single notes and other similar irregularities have occurred. Lastly, there is LPS or Lender Processing Services which is an intermediary between the loan Servicers and the lawyers who bring the legal action on defaults whether by non-judicial foreclosure or suit on the note. [3] One LPS employee recently testified in court that he signed “tens of thousands” of Notices of Default on properties where he had no knowledge that the debtor was actually in default. This is called “robo signing” which is just one factor that has destroyed the credibility of the process.

The lesson in all this is that in this New Economy it is more important than ever to be proactive in protecting your assets.You should not take the advice of a loan servicing employee that recommends that you stop or reduce your mortgage payments while your modification request is pending. The default will trigger late fees and other charges to the Servicer and your payments will be diverted to a suspense account held by the servicer and charged for these fees. They also are able to lend these funds in what are called “overnight loans” for huge profits. The lender will never see the money.

[1] Which is highly profitable and an industry which has come under considerable criticism for its questionable tactics which many say amount to fraud.  Expect more disclosures to surface in this area of the industry.
[2] The assignments were generally not legal under most jurisdictions as these notes are negotiable instruments and need to be endorsed and physically delivered to the endorsee to transfer ownership.  Most of these notes ended up in New York trusts which were used as bankruptcy remote entities to securitize the notes as mortgage backed securities.
[3] The legal process has been sloppy at best as large volumes of cases are handled by a few overworked lawyers that share legal fees (questionable ethics practice) with LPS for the case referrals.  The sloppiness is cause by the system that rates that lawyers based on the volume of documents filed with the courts.

Estate Planning for Your Pet

Everyone knows how important a properly executed estate plan can be. It can protect your assets, avoid a costly out-of-state probate proceeding, minimize estate tax liability and provide health care directives should you become incapacitated. But one area of the estate plan that many pet owners neglect to consider is what happens to your pets when you are no longer around. Read more

Is a Prenuptial Agreement Necessary?

Prenuptial Agreement…Those are two words that hopeless romantics, women like Anna Nichole Smith, and men like Kevin Federline hope to never hear.

While this document may be as un-romantic as your mother-in-law accompanying you and your spouse on your honeymoon, it may be more beneficial to your marriage than you may think. Any psychologist or divorcee will tell you that communication is paramount in a successful marriage and a prenup can function as the AT&T of financial issues. By clearly defining financial issues between the parties, it may reduce conflicts during the marriage.

In addition to providing clarification of any questions regarding financial issues during the marriage, it may act as a crystal ball of sorts and dispel any uncertainty as to the consequences of dissolving that marriage. Finally, if properly executed it may reduce the litigation costs of a divorce.
So how does one properly execute a valid prenup in Washington State? Well, the Supreme Court, in a case called In re the Marriage of Bernard recently set forth strict requirements that must be followed.  First, the agreement must be “substantively fair.” This means the agreement makes fair and reasonable provision for the spouse. Basically, the agreement must be fair in relation to the parties’ respective financial situations.

Second, the agreement must be “procedurally fair.” To meet this requirement, you must: (1) fully disclosure the amount, character, and value of your property and (2) the agreement must be entered into fully and voluntarily with full knowledge by both spouses of their rights. In order to comply with this last part, adequate time must be given to your spouse to seek independent advice from an attorney. While they don’t necessarily have to speak to an attorney, it’s always a good idea to have them do so. As far as the time your spouse must be given, the courts are pretty clear that hours or days before the wedding ceremony is simply not enough time.

To avoid any potential legal pitfalls, you should ALWAYS seek the advice of an attorney before you attempt to draft or execute a prenup. Downloading a boiler-plate prenup from Legal Zoom and having your fiancé sign it could result in its invalidation and could cost you more in legal fees than simply hiring an attorney to do it right the first time.

While many believe marriage is a sacred institution, it’s important to remember that legally speaking, marriage is an institution formalized by a legal contract, and a prenuptial agreement is simply an addendum to that contract. The odds that your fiancé will view marriage this way are about the same as Charlie Sheen becoming a spokesman for the Betty Ford Clinic. However, setting aside some of the emotional aspects and looking at a prenup from an objective standpoint may help to open the lines of communication. Good luck!

oe Schodowski is a contributing author to this blog and has been admitted to practice law in the state of Washington.  He limits his practice to the areas of family law and criminal and civil traffic matters. The Law Offices of Joseph Schodowski, PLLC works in association with the Law Offices of Richard D. Seward, PC.

Community property and marriage: who owns what?

Marriage has many implications both personal and financial that should be considered.  One important, yet often ignored consideration is what happens to your personal and real property after you tie the knot.  Most couples operate under the old adage “what’s yours is mine.”  While this may be a good rule-of-thumb for property acquired after you are married with money that was earned after you said “I do,” it doesn’t necessarily apply to ALL property purchased before and after you exchange vows. Read more

Advice for the financially challenged

Welcome to the Asset Protection Newsletter & Blog, dedicated to helping our readers to protect their hard earned Assets.  [1] This Newsletter and Blog will also provide you with the information that the money center banks do not want you to know.  [2] Now with the extension of the Bush tax cuts there is even more pressure on congress to find more revenue sources by broadening the tax base.

The Federal Government is like a family that is unable to pay its bills without incurring more debt or invading retirement accounts – David Walker, former US Comptroller General, in a politically crafted understatement said, “We’re on an imprudent unsustainable fiscal path”. Read more

Debt and retirement: the true story

When it comes to retirement most individuals concentrate on saving enough money to live comfortably when they are no longer working. This should not be your only focus point when planning for your retirement. Many of the newly retired are going into retirement with large amounts of debt. This can be a killer for your retirement goals and dreams. Read more

2010 – the year without an estate tax

In 2010, and only 2010, the federal estate tax was repealed. What this meant was that the federal government was unable to tax the estate of an individual who passed away in 2010.

Many skeptics would find it hard to believe that the federal government sat idly by this past year and let millions of dollars in taxable revenue slip through their fingers. But this is, in fact, what happened. Famous names such as George Steinbrenner, Dennis Hopper, and Glen Bell (founder of Taco Bell) passed away this year, leaving behind large estates to be passed down to their families, with absolutely zero federal tax implications. From an asset protection standpoint, this lapse in government foresight is a blessing to us all.

But fear not skeptics, in 2011 the federal estate tax will be back in place. No one knows for sure what the tax rate will be, but sources have indicated that the tax could come back at upwards of 55% for all estates over $1 million dollars. This is a drastic change from the 2009 federal tax exemption, which was set at $3.5 million, with a tax rate of 45%.

While some might feel that an estate of $1 million dollars is a pie-in-the-sky dream, when you start adding up the value of a home, a 401K retirement account, and other savings, $1 million is not that far off. Individuals who live in areas with high property values could be especially susceptible. Those people who purchased homes 30 years ago, when property values in the Puget Sound area were much lower, could see significant gains in the value of their homes, greatly increasing the value of their estate and ultimately their estate tax burden.

Despite the 2010 lack of a federal estate tax, Washingtonians are still susceptible to a Washington estate tax on estates over $2 million dollars. In 2011, the possible hike in the federal estate tax, combined with the Washington estate tax, could result in a large tax burden for estates in Washington.
With proper estate planning, these estate taxes can be minimized or possibly avoided. Strategies that involve family gifting or the establishment of trusts can be very helpful in keeping the government from taking what is rightfully yours.

Attorney Jared Bellum is a contributing author to this blog.

Family Limited Partnerships

Have you heard about Family Limited Partnerships as an estate planning tool?
Family limited partnerships, or “FLP,” are an effective way of minimizing your estate tax burden, while at the same time transferring assets to family members at a lower value than in a direct transfer. While the IRS has investigated this type of estate planning tool for signs of abuse, the FLP is a perfectly legal way of reducing the value of your estate, as long as it is done correctly. Reducing the value of one’s estate has now become more important. With 2011 on the horizon, and Congress sitting on its hands, the estate tax is on its way back – with a vengeance! Read more

Inverse Condemnation

While the economic turmoil of the past few years made investors more aware of the pitfalls they may face when trying to build a secure financial future, few consider how their real estate holdings may be affected by a little-understood law called eminent domain. Asset protection strategies should not focus solely on the volatility of financial markets. Real estate value could be put at risk by government decisions that decrease the value of your land, but you may have recourse. Read more