Author: Daniel Hamad

People purchase properties for various reasons.  Some people need a first home, or a new home.  Some want a vacation house.  Others live part time in different places.  Think of the so-called “snow birds” for an example of this, where they live summers in the north and winters in the south.  No matter the intended use of the property, purchasers can find loans.  But depending on the intended use, the requirements of lenders may vary.

Properties break down into three large categories: 1) primary homes; 2) second homes; and 3) investment properties.  Each carries various risks and therefore lenders put various requirements on them.

Primary Homes

Primary homes (also known as primary residences) are just what they sound like – the home that the homeowner lives in.  The homeowner must live there the majority of the time, and must not use it as a rental property.  A loan granted on this type of property will likely be significantly lower priced than a loan granted on any other type of property, for reasons we will get into later.  Lenders are also more likely to grant this type of loan, for the same reasons.

Loans approved as primary home loans generally require that the homeowner have the intention of either moving into the property (in the case of a purchase) or of remaining on the property (in the case of a refinance) at the time of the loan closing.  If the homeowner knows that they will not be living in the property, they cannot assert to the bank that they will be, and they will not be obtain a primary home loan for the property.  In fact, at the time of closing, they will be required to certify that they intend to live on the property.

Second Homes

Second homes is a somewhat nebulous category which includes seasonal homes and homes for people that, for example, live half the week in one location and half the week in another.  This category is stuck between primary home loans and investment properties because though many people own multiple properties, they don’t always own those properties for the purpose of making money off of them.

Investment Properties

This is the second most common type of property, after primary homes.  Investment properties are those which, for example, you would rent out to offset part or the entire purchase price.  Whether you plan on actually making a profit or not, the property may be considered to be an investment property, depending on how you use it, and how much you use it personally.

Investment property loans are more expensive than primary home loans, and are more difficult to get.  Why?  Well, let’s think about this logically.  Let’s say a homeowner is having trouble meeting all of their obligations.  What are they going to stop paying first?  The mortgage on the home they actually live in, or the property they see only a few times a year, if at all?  The answer must be that they will do everything they can to retain their actual home, and will let the investment property go.  This translates into investment property loans being given a higher risk rating than are primary home loans.  Therefore, interest rates are higher.

Nothing requires you to be the occupant of a home.  But if the owner will not be the occupant, they must inform the lender.  The lender will determine whether they are still willing to lend on the property, and at what interest rate.  A lender may also consider different factors in granting an investment property loan, such as the possibility of rental income.  Under no circumstance should the owner misconstrue their intent with regards to the property.  If they are caught doing this, it will only cause trouble down the line.  This is not to say that just because a property is purchased as a primary home, it can only ever be used as one.  However, at the time of the closing of the loan, there can be no intent already formed to use it in a way inconsistent with the terms of the loan.

Remember, no matter your property type or where you live, Penner Law Firm and Hartford National Title can assist you!

In today’s housing market it is not at all unusual to find homeowners holding property which has been significantly devalued.  In many cases, the remaining amount owed on the mortgage is now significantly above the actual value of the home.  In other words, the loan-to-value ratio is now over 100%, despite months or years of payments.  This is known as being “upside down” or “under water” on the mortgage, and results in the homeowner being unable to pay off your mortgage just by selling the property.

In addition to this, based on the economic conditions and job markets of today, many borrowers find themselves behind on their mortgage payments.  When these two conditions combine, homeowner’s choices begin to narrow rapidly.

While the particulars vary by property owner, generally there are four options available for getting out from under an upside down mortgage, which include:

1. Loan modification and/or payment plan
2. Sell the property and/or short sale
3. Deed in Lieu of Foreclosure
4. Foreclosure

A loan modification or payment plan is the most straightforward method of solving a problem of falling behind on payments.  These options also have the added benefit of enabling the homeowner to stay in the home.  In order to obtain a payment plan or loan modification, the homeowner would contact their lender and work directly with them.  No attorney needs to be involved.  The lender would lay out the requirements that the needs to meet and it would be the homeowner’s responsibility to show that they meet the requirements.  If you have a temporary lack of funds, they may be able to set up a payment plan where you pay less for a few months and make the difference up later.  Payment plans are most common with issues of temporary unemployment, illness, or other issues which result in a short-term lack of funds.  If, by comparison, a homeowner is not expecting to be able to make up the payments later, a true loan modification may be necessary.  This is an option where the bank agrees to lower the interest rate or make some other change to the loan, in order to make it more affordable to the homeowner.  The bank would do this if they believe they would make more money in the long run by reducing the interest rate or balance, than they would if the loan failed and went into foreclosure.

If the homeowner’s financial situation is more serious and a reasonable reduction in monthly payments will not help, it may be difficult to stay in the property.  The question then becomes how to best leave the property.  How will the homeowner leave with the most money, the least debt, and best credit rating, possible.  A homeowner will want to get the property on the market as soon as possible.  The best idea is to get the property on the market before the lender starts sending notices of default or of foreclosure.  Recognizing that the mortgage is under water, the home will likely have to go through the short sale process.  The homeowner will again have to work with the bank, making them aware of the situation.  If a deal has been made with a purchaser, the sale price will not cover what is owed on the mortgage, and the money is not available to cover that difference, the bank will have to be convinced to forgive the remaining debt.  This is the very definition of a short sale.  A homeowner will most certainly want to have an attorney assisting you at this point, as negotiating with the bank can be a long and complicated process, requiring the homeowner to submit significant personal and financial information to the bank.

Finally, if the bank will not agree to a short sale, or if a purchaser is unable to be found, a homeowner may decide to consider a Deed in Lieu of Foreclosure, or the Foreclosure process itself.  A Deed in Lieu of Foreclosure is, in short, a process in which the homeowner turns the home over to the bank voluntarily.  The bank would then forgive the remaining amount owed under the mortgage.  This also avoids the long and hassle-filled process of dealing with an actual foreclosure, and may not harm your credit to the same extent.  The foreclosure process itself can be long and draining to both a homeowner and their credit report.  Please check back later for a future article detailing the foreclosure process.

No matter what process a homeowner chooses, they should not delay in making or enacting their plans.  Homeowners should contact experienced attorneys as soon as possible to discuss the best course of action in any particular case.

Being foreclosed on is stressful.  In today’s economy, banks are foreclosing on large numbers of homes every day.  It’s important to remember that you’re not alone.  More than that, the banks don’t like doing it.  If they (or you) can come up with a profitable (or loss-mitigating) alternative to foreclosure, they’ll jump at it.  But what you may think is a good alternative may not be the same as what they think.

Anytime you’re facing foreclosure, you should contact an attorney immediately.  There’s enough stress in your life without trying to handle the bank, and the law, alone.  If you can’t afford an attorney, there are programs out there to assist you.  If you can, or if you know someone who can pay for you, you can find an attorney dedicated to your interests, willing and able to represent you.

In Connecticut, the security instrument usually used to secure a loan is called a mortgage (or “mortgage deed”).  This mortgage is recorded in the land records of your town, unlike in many states, where the mortgage or alternative security instrument may be recorded at the county level.  Recording this document alerts others that your home is not owned only by you, but also by the bank – and that the bank has certain interests in it.  The mortgage spells out these rights, and allows the bank to take the home (foreclose) if the requirements of the loan are not met.

All foreclosures in Connecticut go through a judicial process.  This is not necessarily true in all states in which Penner Law Firm does business, but in Connecticut, there is no alternative process.  This is both a benefit and a burden.  It tends to slow the process down, as the banks are forced into overcrowded courts and face clients with attorneys able to delay the process further.  But it also means additional cost to you, in order to appropriately protect your interests.

The process in Connecticut can be carried out through either a strict foreclosure, or a decree of sale.  “[T]he determination of value is a major factor in the decision whether to allow a foreclosure by sale rather than a strict foreclosure.” Farmers & Mechanics Bank v. Arbucci, 24 Conn.App. 486, 487, 589 A.2d 14, cert. denied, 219 Conn. 907, 593 A.2d 133 (1991).  In the case of strict foreclosure, the process does not actually end in an immediate foreclosure auction or sale.  Rather, title to the property is transferred directly from you to the lender.  The court will give you a certain amount of time to make payments on the loan current, in order to protect your interest in the home.  If you fail to do so, the lender will (and must) record a certificate of foreclosure listing certain information.  If a decree of sale is used instead, the court will establish certain guidelines for holding a foreclosure sale.

Throughout this process, the borrower may usually pay off the loan and retain title to the property – right up until the process is completed in full.  This is also known as a borrowers equity of redemption.  There are also many opportunities a skilled attorney can take advantage of to delay the process.

Due to the fact that most lenders lose money in the foreclosure process, a lender is often open to alternative processes to avoid foreclosure.  Talk to an attorney immediately upon receiving notice of foreclosure to learn about short sales, deeds-in-lieu of foreclosures, and other alternatives.  In fact, do not wait until you receive notice.  The moment you start to fall behind on your mortgage, contact an attorney.  The earlier you start, the more you can be helped.  Attorneys’ fees can be more reasonable than you think.  More importantly, the earlier you contact an attorney, the more money they can save you in the long run.

Cooperative associations are not common in Connecticut, and the difference between condominiums and cooperatives escapes many.  Both are forms of living in a community, be it in apartment-style buildings, townhouse-style buildings, or some other form of construction.  Both can offer very similar benefits and privileges.  But the legal set-up of the associations and land which lay behind these developments is significantly different.  In this blog, we will discuss primarily cooperative living arrangements, also known as “co-op’s,” whose setup is governed primarily by Chapter 828 of the Connecticut General Statutes, also known as the Common Interest Ownership Act (“CIOA”).

By its very nature, and contrary to the thinking of most, the individual units of a co-op are not real estate.  One corporation (or other legal entity), usually titled something like “XYZ Cooperative Association,” owns the land and all property upon it, including the individual units.  This is the only real estate that truly exists – the unit “owners” do not own any real estate.  There is then propriety leases signed between the unit owners and the association.  This is the way it was, at least, until CIOA.

Not owning actual real estate has certain serious implications.  For example, ownership of the unit would not be recorded in the land records of your town (or county).  There would therefore be no way to record a lien against only one unit.  This means that, for instance, a loan could not be secured by a mortgage deed against only one unit.  To be clear, the association could still mortgage property and have liens filed against it, but the unit owners could not.  It also means that real estate taxes could not be levied against the property.

CIOA changes some of this.  In exchange following certain formalities, which a good real estate attorney could handle, co-ops (and their individual unit owners) can now treat everything as individual real estate.  Transfers are now accomplished by deed, rather than simply corporate records.  Therefore mortgages and others liens can be recorded against the individual units.  But still, real estate taxes are levied against the corporation and not against the individual.  This means that your association fees still pay your taxes, and that you get no separate tax bill.

In addition to the benefits inherent in organizing as a co-op rather than a condominium association, such as the bundling of taxes, co-ops are supposed to offer a form of living where the owners more closely work together.  Co-ops may bundle other fees, such as heat, sharing furnaces and the like, rather than requiring each other to buy and maintain their own furnace.

In the end, it’s up to each individual association to decide both how to organize, and what to allow.  A co-op can act basically as a condominium association, or can be quite different.  There is a great deal of choice in the matter.