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Short Sale/Foreclosure/Lender Issues

Court Holds That a Mortgage Broker and Lender Can Be Held Liable for Predatory Lending Practices Based on Alleged Misrepresentation to First Time Home Buyers

In Fuller v. First Franklin Financial Corporation, a California court of appeal reversed judgments of dismissal in favor of a lender and mortgage broker and directed the trial court to overrule the demurrers. 

In 2006, plaintiffs, first-time home buyers, engaged SFM to act as their mortgage broker in their purchase of a new home.  SFM worked with First Franklin in a scheme that resulted in plaintiffs obtaining two unfavorable purchase loans.  Among other things, the alleged scheme involved a fraudulent appraisal.  SFM hired an appraiser who chose properties that were not comparable to the property plaintiffs intended to purchase, which resulted in an inflated appraisal, and ultimately, higher loan amounts.  SFM knew the appraisal was inflated.  In addition, although plaintiffs wanted a thirty-year fixed loan, the broker offered them two loans, one that was limited to interest-only payments for the first three years and a second mortgage with a 9.5 percent interest rate and a balloon payment.  Although plaintiffs had credit scores that qualified them for better loan terms, the broker told them they did not qualify for any other loans and failed to explain the consequences of the loan terms, including the potential for negative amortization.  The broker also told them they would be able to refinance if they had trouble making payments in the future.  In addition, no party disclosed to plaintiffs that the closing costs included an illegal kickback from First Franklin to SFM. 

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Keeping Your Toes Free From Pain

Have you ever felt like a giant hand has picked you up and dropped you into a strange dark room?  In many ways that is the sensation many of us in the real estate industry have felt the past couple years.  The room is dark, unfamiliar and loaded with obstacles interfering with safe passage.  More frustrating, just as the path seems to clear, new obstacles materialize.  Quite a few of us have had our toes stubbed during these difficult times.

Over the past month, several obstacles have actually been moved or at least cushioned.  Unfortunately, there have also been new obstacles placed in our way.  These developments include the following:

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REO Transactions

5 Common Myths Concerning REO Sales:

Myth #1:  Sellers of REO properties are exempt from all disclosures.

While many REO lenders/sellers stamp all the contracts and disclosures with the statement Seller Exempt from all Disclosures, this is simply not the case.  CAR puts out an excellent chart that indicates which disclosures are required and which are not for REO properties.  REO sellers are exempt from providing the Transfer Disclosure Statement and the Residential Earthquake Hazard Report.  REO sellers are NOT, however, exempt from disclosing any material facts that they are aware of concerning the property.  While they do not have to use a TDS to disclose any material facts, they are required to disclose these facts in writing to the Buyer.  Further, while REO Sellers are exempt from providing a Buyer with a Natural Hazard Disclosure Statement, the law does not exempt them from disclosing many of the zones that are contained in such reports.  While this law makes little sense, it is highly suggested that the Natural Hazard Disclosure Report be provided to all Buyers since the REO Seller has affirmative duties to disclose such zones and there is really no way to properly do so without the use of such a report. 

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