While not the only culprit, fishy appraisers have caused a tidal wave of predatory lending, mortgage foreclosure and real estate litigation, and, more recently, blistering criminal prosecutions.
Understanding appraisals’ parameters, methodology and time value, appraisers’ licensure and standards, and what is meant by “intended use” is critical to consumer finance litigation.
Real Estate Appraisals and Appraisers
An “appraisal” is an opinion of value of a parcel of land and any structures and improvements.
Although the “actual value” cannot be ascertained until the lot is sold, appraisals should be independent, impartial and objective opinions of market value based upon facts and circumstances known to the appraiser at the time.
Some appraisers specialize in residential or commercial properties, some value both, while others offer comprehensive business valuations including valuing personalty and intellectual property.
Standards for Appraisals
Appraisal practice is governed by the Uniform Standards of Professional Appraisal Practice, (“USPAP”), and any appraisal done in connection with any federally related transaction must be in accordance with USPAP.
USPAP is overseen by The Appraisal Foundation, a private nonprofit organization establishing appraisal licensure‘s minimum qualifications, which, in turn, is overseen by the Congressionally created Appraisal Subcommittee.
Although requiring appraisers to arrive at an opinion of value using a methodology consistent with these standards, industry practice and the appraisal assignment, USPAP does not dictate exactly how an appraisal must be performed.
Methodology for Appraising
Appraisals commence with information gathering - - including a site visit and taking photographs - - to ascertain recent sales of other comparable market properties, any income and expenses the property is generating, and cost of repairing any damage.
Next, appraisers determine an opinion of value using “sales comparison approach” (analyzing past comparable sales in the market), “income approach” (analyzing value based upon income the property produces), or “cost approach” (analyzing cost of rebuilding premises).
The task’s scope, intended user’s identity and nature of intended use factor into which approaches is used. For example, the sales comparison approach is heavily used in valuing single-family residential real estate, while the income approach is employed to value rental properties or businesses.
Time Value of Appraisals
Just as a picture only depicts its subject at a moment in time, an appraisal’s opinion of value may become stale immediately after its effective date.
For example, because both the market and property’s condition may rapidly change, a cluster of area foreclosures, extensive wind and water damage, or skyrocketing labor and/or building materials costs may quickly moot an otherwise valid opinion of value.
Similarly, hidden or latent defects unknown to the appraiser which are not visible upon inspection may also diminish the appraisal’s validity.
What is Meant By Intended Use
Because USPAP requires that each appraisal is performed with a specific, stated use in mind, an appraiser may utilize, ignore or weigh differently any of the approaches to value depending on the intended use.
For example, valuing a building for insurance purposes versus an outright sale may lead to applying different methodologies, which may produce differing opinions of value.
USPAP also requires that an appraisal identify its intended users. For example, in a traditional residential real estate financing setting, an appraisal is commissioned by the lender, who is the intended user for purposes of ensuring that if a mortgage default occurs the loan is sufficiently collateralized.
Monday, March 29, 2010
Saturday, February 27, 2010
Joint Defense Privilege: Strength Lies in Numbers
The recent In re Condemnation by City of Philadelphia, 981 A.2d 391 (Pa.Cmwlth.2009) opinion demonstrates what a powerful tool the Joint Defense Privilege is for limiting legal costs and resolving multi defendant disputes quickly, cheaply and efficiently.
The "joint defense" - - or "common interest" - - privilege extends the attorney-client privilege to information-sharing and developing joint litigation strategies between and among counsel for co-defendants.
As the In re Condemnation Court noted:
To fall within the privilege’s protection defendants must “share a common legal, as opposed to a mere commercial or business, interest in the matter” and demonstrate that the: (1) communications were made in the course of a joint defense effort; (2) statements were designed to further that effort; and (3) privilege has not been waived. In re Condemnation, 981 A.2d at 397, n4.
Unfortunately, because of a lack of case law, including the absence of any Pennsylvania Supreme Court authority, issues surrounding the Joint Defense Privilege’s scope and availability remain unresolved.
To best invoke this tool, and cut needless legal expense incurred by duplicative communications and resolution of secondary issues amongst and between defendants, the following must be done. First, ascertain if a true common legal interest exists among or between the parties with whom the communications are to be shared. Second, execute a written joint defense agreement confirming that the participating defendants understand and agree as to the joint legal interests and to what communication the privilege extends.
Through pooling resources, joint interviewing of clients and witnesses, and unification of defense efforts, the Joint Defense Privilege streamlines and focuses litigation and profoundly reduces the costs incurred in defense.
The "joint defense" - - or "common interest" - - privilege extends the attorney-client privilege to information-sharing and developing joint litigation strategies between and among counsel for co-defendants.
As the In re Condemnation Court noted:
[T]he joint defense doctrine is highly desirable because it allows for greater efficiency in the handling of litigation. Frequently, co-defendants with essentially the same interests must retain separate counsel to avoid potential conflicts over contingent or subsidiary issues in the case. To avoid duplication of efforts, such defendants should be able to pool their resources on matters of common interest. This can be done most effectively if both counsel can attend and participate in interviews with each other's clients.
981 A.2d at 397.
981 A.2d at 397.
To fall within the privilege’s protection defendants must “share a common legal, as opposed to a mere commercial or business, interest in the matter” and demonstrate that the: (1) communications were made in the course of a joint defense effort; (2) statements were designed to further that effort; and (3) privilege has not been waived. In re Condemnation, 981 A.2d at 397, n4.
Unfortunately, because of a lack of case law, including the absence of any Pennsylvania Supreme Court authority, issues surrounding the Joint Defense Privilege’s scope and availability remain unresolved.
To best invoke this tool, and cut needless legal expense incurred by duplicative communications and resolution of secondary issues amongst and between defendants, the following must be done. First, ascertain if a true common legal interest exists among or between the parties with whom the communications are to be shared. Second, execute a written joint defense agreement confirming that the participating defendants understand and agree as to the joint legal interests and to what communication the privilege extends.
Through pooling resources, joint interviewing of clients and witnesses, and unification of defense efforts, the Joint Defense Privilege streamlines and focuses litigation and profoundly reduces the costs incurred in defense.
Wednesday, January 27, 2010
Res Judicata Bars TILA Recovery
In the recent Stuart v. Decision One Mortg. Co., LLC, 975 A.2d 1151 (Pa.Super. 2009) opinion, Pennsylvania's Superior Court barred defaulting mortgage foreclosure defendants from asserting Truth In Lending Act, 15 U.S.C.A. §1601 et seq. (“TILA”) rescission claims in a subsequent proceeding under res judicata.
Specifically, after allowing a default judgment to be entered against them in a mortgage foreclosure in which they failed to assert any counterclaims or defenses, the Stuart v. Decision One Mortg. Co., LLC plaintiffs asserted TILA rescission and money damages claims against their mortgage lender in a separate proceeding.
In affirming the trial court’s “judgment on the pleadings” grant, the Superior Court ruled that “rescission relates to the very transaction that formed the basis of the foreclosure action to which a default judgment was entered”, “res judicata applies not only to claims that were made but also to claims that could have been made” and that “a successful TILA claim would . . . undermine the {mortgage foreclosure} default judgment”. 975 A.2d at 1152-1153.
Further, Pennsylvania’s Superior Court adopted the R.G. Financial Corp. v. Pedro Vergara-Nunez, 446 F.3d 178 (1st Cir. 2006) ruling in holding that because the Stuart v. Decision One Mortg. Co., LLC plaintiffs “had the opportunity to raise rescission as a defense to the foreclosure and failed to do so” they “cannot sit out one cause of action and then force the opposing party into another action over an issue that both could and should have been raised in the first place”. 975 A.2d at 1154.
The Stuart v. Decision One Mortg. Co., LLC opinion’s impact for mortgage lenders will be enormous.
Default judgments in mortgage foreclosures will hereafter eviscerate TILA rescission claims throughout the Commonwealth of Pennsylvania.
Specifically, after allowing a default judgment to be entered against them in a mortgage foreclosure in which they failed to assert any counterclaims or defenses, the Stuart v. Decision One Mortg. Co., LLC plaintiffs asserted TILA rescission and money damages claims against their mortgage lender in a separate proceeding.
In affirming the trial court’s “judgment on the pleadings” grant, the Superior Court ruled that “rescission relates to the very transaction that formed the basis of the foreclosure action to which a default judgment was entered”, “res judicata applies not only to claims that were made but also to claims that could have been made” and that “a successful TILA claim would . . . undermine the {mortgage foreclosure} default judgment”. 975 A.2d at 1152-1153.
Further, Pennsylvania’s Superior Court adopted the R.G. Financial Corp. v. Pedro Vergara-Nunez, 446 F.3d 178 (1st Cir. 2006) ruling in holding that because the Stuart v. Decision One Mortg. Co., LLC plaintiffs “had the opportunity to raise rescission as a defense to the foreclosure and failed to do so” they “cannot sit out one cause of action and then force the opposing party into another action over an issue that both could and should have been raised in the first place”. 975 A.2d at 1154.
The Stuart v. Decision One Mortg. Co., LLC opinion’s impact for mortgage lenders will be enormous.
Default judgments in mortgage foreclosures will hereafter eviscerate TILA rescission claims throughout the Commonwealth of Pennsylvania.
Thursday, December 10, 2009
Amherst Bowl Father Son Football Tournament
Several years ago I put together a father son Thanksgiving Day football game hoping to fill those empty morning hours and hang out with my son.
I succeeded beyond my wildest dreams.
Celebrating its 6th year, the tournament, christened "The Amherst Bowl", has swollen to 127 players spanning 6 football fields and 12 teams playing 5 continuous football games in authentic AFC or NFC team jerseys.
The trash talk begins on Labor Day and echoes through our Township’s lunchrooms and playing fields with kids wearing prior years’ jerseys like badges of glory.
During Thanksgiving’s wet early morning hours, we map out and line the fields and set up tables overflowing with cakes, water, hot chocolate and coffee.
The horde shows up at around 8:00 a.m. eager to see to which to team they have been assigned, whom their teammates will be, and exactly how gloriously muddy the field is.
Shirts are distributed, rules are gone over, and at 8:30 a.m. the carnage begins.
During the ensuing rigidly timed five games, fathers put their middle aged bodies at risk while relieving their youth and playing football with their sons.
Throughout the morning soccer balls, cleats and shin guards are collected and donated to "Heads Up Soccer" which transports and distributes them to impoverished third world youth.
Additionally, monies raised are donated to "Katie at the Bat"
(http://www.katieatthebatteam.org/), improving inner-city youths’ lives through athletics, literacy, nutrition and health, and the arts, and "Adam Spandorfer Memorial Fund" (http://www.adamsfield.org/), raising monies for Variety Camp where children with disabilities can play baseball.
Although, at the Tournament’s end, some dads needed help getting off of the field, Thanksgiving tables were abuzz that evening with boasts of heroic plays, grudges revisited, and glorious victories.
Until next year, when we do it bigger and better and raise more equipment and money.
Wednesday, October 28, 2009
Recent Circuit Opinions Curtail RESPA Exposure
In the recent Hazewood v. Foundation Financial Group, LLC, 551 F.3d 1223 (11th Cir. 2008) and Arthur v. Ticor Title Ins. Co. of Fla., 2009 U.S. App. LEXIS 13090 (4th Cir. 2009) opinions, the 11th and 4th Circuit limited lenders and tile insurers’ Real Estate Settlement Procedures Act ("RESPA") 12 U.S.C. § 2601, et seq. exposure.
RESPA protects consumers "from unnecessarily high settlement charges caused by certain abusive practices". RESPA’s prohibitions are limited to "certain abusive practices" (but not excessive fees in general) and bars settlement service providers from giving "kickbacks" for referrals or charging or splitting fees for unperformed services.
Fortifying Filed Rate Doctrine Defense
Although some argue that it provides broad relief for "overcharges" and is aimed at reducing real estate settlement services costs, RESPA is silent on whether a violation occurs for charging fees above the market rate, above the rate filed with and approved by a state regulatory authority ("Filed Rate"), or otherwise excessive.
In affirming the RESPA claim dismissal, the Hazewood court held that RESPA "does not provide a cause of action for excessive fees—that is, charges where a service was performed, but the plaintiff feels she was overcharged by the service provider."
Although the Hazewood plaintiff alleged charging fees in excess of the rates defendant had filed with, and approved by, the state, the 11th Circuit rejected dividing fees into "reasonable" and "unreasonable" portions by ruling that plaintiffs’ conceding "that a service is actually performed in exchange for a settlement fee" may not avoid RESPA claim dismissal "by arguing that the 'excessive' portion of the fee was 'unearned'".
While unremarkable on its face - - RESPA is neither a "price-control statute" nor prohibits overcharges or fees exceeding provider's Filed Rate- - Hazewood is helpful when viewed in light of the Filed Rate defense, i.e., that a plaintiff who is not overcharged for settlement services—as measured by service provider's filed rate—cannot pursue a RESPA claim.
Hazewood extends this approach in holding that, even if defendant charges above the state- regulated Filed Rate, there is no RESPA violation because any claim must be brought under state law.
Relaxation of Title Insurers’ RESPA Exposure
The Arthur v. Ticor Title Ins. Co. of Fla. Court held that a title insurer is not liable under RESPA despite splitting fees and charging fees above its Filed Rate when both the insurer and "split fees recipient" performed settlement services.
Like the Hazewood Court, the 4th Circuit rejected the argument that fees could be divided into a reasonable, legal portion (the Filed Rate amount) and unreasonable, illegal portion (the amount exceeding the Filed Rate) ruling that RESPA "does not authorize a court to divide charges into valid and invalid parts and to decide that the invalid part is not for services performed" or "create liability for improper pricing".
The 4th Circuit also rejected the assertion that fee-splitting constituted a "kickback" in violation of RESPA because the split fees agents "indisputably performed settlement services".
RESPA protects consumers "from unnecessarily high settlement charges caused by certain abusive practices". RESPA’s prohibitions are limited to "certain abusive practices" (but not excessive fees in general) and bars settlement service providers from giving "kickbacks" for referrals or charging or splitting fees for unperformed services.
Fortifying Filed Rate Doctrine Defense
Although some argue that it provides broad relief for "overcharges" and is aimed at reducing real estate settlement services costs, RESPA is silent on whether a violation occurs for charging fees above the market rate, above the rate filed with and approved by a state regulatory authority ("Filed Rate"), or otherwise excessive.
In affirming the RESPA claim dismissal, the Hazewood court held that RESPA "does not provide a cause of action for excessive fees—that is, charges where a service was performed, but the plaintiff feels she was overcharged by the service provider."
Although the Hazewood plaintiff alleged charging fees in excess of the rates defendant had filed with, and approved by, the state, the 11th Circuit rejected dividing fees into "reasonable" and "unreasonable" portions by ruling that plaintiffs’ conceding "that a service is actually performed in exchange for a settlement fee" may not avoid RESPA claim dismissal "by arguing that the 'excessive' portion of the fee was 'unearned'".
While unremarkable on its face - - RESPA is neither a "price-control statute" nor prohibits overcharges or fees exceeding provider's Filed Rate- - Hazewood is helpful when viewed in light of the Filed Rate defense, i.e., that a plaintiff who is not overcharged for settlement services—as measured by service provider's filed rate—cannot pursue a RESPA claim.
Hazewood extends this approach in holding that, even if defendant charges above the state- regulated Filed Rate, there is no RESPA violation because any claim must be brought under state law.
Relaxation of Title Insurers’ RESPA Exposure
The Arthur v. Ticor Title Ins. Co. of Fla. Court held that a title insurer is not liable under RESPA despite splitting fees and charging fees above its Filed Rate when both the insurer and "split fees recipient" performed settlement services.
Like the Hazewood Court, the 4th Circuit rejected the argument that fees could be divided into a reasonable, legal portion (the Filed Rate amount) and unreasonable, illegal portion (the amount exceeding the Filed Rate) ruling that RESPA "does not authorize a court to divide charges into valid and invalid parts and to decide that the invalid part is not for services performed" or "create liability for improper pricing".
The 4th Circuit also rejected the assertion that fee-splitting constituted a "kickback" in violation of RESPA because the split fees agents "indisputably performed settlement services".
Wednesday, September 30, 2009
Mortgage Loan Industry Licensing and Consumer Protection Law
The recently enacted Mortgage Loan Industry Licensing and Consumer Protection Law, 7 Pa C.S.A. §6101, Et Seq. (“MLILCP”) - - repealing much of the Mortgage Bankers and Brokers and Consumer Equity Protection Act (“MBBA”) and all of the Secondary Mortgage Loan Act (“SMLA”) - - tightens regulation of individuals soliciting mortgage loans, increases education requirements for mortgage professionals, and enhances the Pennsylvania Department of Banking’s (“DOB”) powers.
“Mortgage Originator” Licensing
MLILCP establishes a new licensing category of "mortgage originator" defined as an individual not otherwise licensed soliciting, negotiating or accepting mortgage loan applications having direct contact with consumers.
Mortgage originators are prohibited from engaging in the mortgage loan business unless employed and supervised by a licensed mortgage broker, mortgage lender or mortgage loan correspondent and assigned to a licensed location.
Employer licensees must maintain a list of all current and former originators and, if they suspect illegal activity, provide the DOB with written notification and proposed corrective measures.
Increased Education and Test Requirements
MLILCP substantially expands mortgage licensees’ current education requirements.
To obtain a new license, a mortgage originator license applicant must have successfully completed a minimum of 12 hours of professional education instruction and passed a new testing program regarding first and secondary mortgage loan business and various relevant federal and state laws.
To maintain a license, a mortgage broker, mortgage lender or mortgage loan correspondent must demonstrate that at least one person from each licensed office who is not a mortgage originator and all mortgage originators employed by the licensee have attended at least six hours of continuing education per year.
Licensing Scope Expanded
MLILCP expands the coverage of Pennsylvania's mortgage banking laws including repealing the MBBA’s licensing exemption for persons originating less than three first mortgage loans per year and the SMLA’s licensing exemption for a person originating two or fewer secondary mortgage loans per year.
Mortgage Loan Payoff Procedure
MLILCP requires a mortgage lender upon payment in full to cancel any insurance, stamp any note "paid in full" or "canceled," and return the loan agreement or note to the consumer within 60 days.
Restrictions on First Mortgages
Whereas the MBBA did not restrict fees a licensee could charge, MLILCP now specifies which fees a licensees may charge on first mortgage loans for title examination, credit reports, appraisals, notaries, tax service and other fees actually related to the processing of a mortgage loan application or making a mortgage loan when such fees are actually paid or incurred by the licensee.
Additionally, MLILCP limits application fees to not more than 3% of the original principal and bars charging a non-refundable "application fee" to cover overhead processing costs beyond 3% application fee that can only be charged on closed loans.
MLILCP also limits delinquency charges on second mortgage loans of $20, or 10 percent of each payment, whichever is greater for a payment which is more than 15 days late.
Additionally, beyond requiring that payment and acceptance of a broker's fee comply with the Real Estate Settlement Procedures Act, (“RESPA”), MLILCP requires compliance with laws including RESPA, Truth in Lending Act, and Equal Credit Opportunity Act.
Higher Penalties
MLILCP increases penalties for violations from $2,000 to $10,000 per offense.
“Mortgage Originator” Licensing
MLILCP establishes a new licensing category of "mortgage originator" defined as an individual not otherwise licensed soliciting, negotiating or accepting mortgage loan applications having direct contact with consumers.
Mortgage originators are prohibited from engaging in the mortgage loan business unless employed and supervised by a licensed mortgage broker, mortgage lender or mortgage loan correspondent and assigned to a licensed location.
Employer licensees must maintain a list of all current and former originators and, if they suspect illegal activity, provide the DOB with written notification and proposed corrective measures.
Increased Education and Test Requirements
MLILCP substantially expands mortgage licensees’ current education requirements.
To obtain a new license, a mortgage originator license applicant must have successfully completed a minimum of 12 hours of professional education instruction and passed a new testing program regarding first and secondary mortgage loan business and various relevant federal and state laws.
To maintain a license, a mortgage broker, mortgage lender or mortgage loan correspondent must demonstrate that at least one person from each licensed office who is not a mortgage originator and all mortgage originators employed by the licensee have attended at least six hours of continuing education per year.
Licensing Scope Expanded
MLILCP expands the coverage of Pennsylvania's mortgage banking laws including repealing the MBBA’s licensing exemption for persons originating less than three first mortgage loans per year and the SMLA’s licensing exemption for a person originating two or fewer secondary mortgage loans per year.
Mortgage Loan Payoff Procedure
MLILCP requires a mortgage lender upon payment in full to cancel any insurance, stamp any note "paid in full" or "canceled," and return the loan agreement or note to the consumer within 60 days.
Restrictions on First Mortgages
Whereas the MBBA did not restrict fees a licensee could charge, MLILCP now specifies which fees a licensees may charge on first mortgage loans for title examination, credit reports, appraisals, notaries, tax service and other fees actually related to the processing of a mortgage loan application or making a mortgage loan when such fees are actually paid or incurred by the licensee.
Additionally, MLILCP limits application fees to not more than 3% of the original principal and bars charging a non-refundable "application fee" to cover overhead processing costs beyond 3% application fee that can only be charged on closed loans.
MLILCP also limits delinquency charges on second mortgage loans of $20, or 10 percent of each payment, whichever is greater for a payment which is more than 15 days late.
Additionally, beyond requiring that payment and acceptance of a broker's fee comply with the Real Estate Settlement Procedures Act, (“RESPA”), MLILCP requires compliance with laws including RESPA, Truth in Lending Act, and Equal Credit Opportunity Act.
Higher Penalties
MLILCP increases penalties for violations from $2,000 to $10,000 per offense.
Wednesday, August 19, 2009
Court Invalidates Mortgage Prepayment Provision
A Pennsylvania court recently rejected a foreclosing lender's prepayment premium claim in In re Atrium View, LLC, 2008 WL 5378293 (Bkrtcy.M.D. Pa. 2008).
Nineteen (19) months after the loan’s origination, the mortgage lender sought enforcement of Note’s prepayment provision requiring “six (6) months interest” on any principal balance being repaid within three (3) years of the closing.
After reiterating dual criteria for enforcing prepayment premium demand - - that prepayment must be reasonable under state law and, as required by 11 U.S.C. §506(b), be contained in loan documents and “reasonable” - - the Court determined that Pennsylvania law did not bar prepayment premiums and focused on “reasonability”.
The Court noted that prepayment premium’s purpose is ensuring that a lender “obtains the benefit of the bargain by protecting it against falling interest rates” and the burden of establishing “reasonableness” requires demonstrating how accurately the premium “predicts actual losses that will be incurred” if obligation is paid before the term’s end.
The Court ruled that because its "[i]n the current residential subprime mortgage industry, a typical prepayment premium is six months' interest” argument provided no “prepayment premium approximates reasonably predicted losses” evidence, the lender failed to establish premium’s reasonableness and rejected the prepayment claim.
Unfortunately, the In re Atrium View holding ignores the impact of failing to protect against declining interest rates.
Like insurance companies and investment funds committed to maintaining investors’ returns based on anticipation of long-term cash flow for mortgage investments, lenders often make commitments based on anticipated interest returns.
If high-yielding mortgages are prepaid when interest rates have fallen, lenders may be unable to maintain yield commitments to their investors, including guaranteed annuity payments.
Another inequity the In re Atrium View ruling imposes is that junior lenders might receive funds otherwise used to pay senior lender’s prepayment fee.
Because junior lenders advance money with the awareness of the senior mortgage’s terms, including the prepayment premiums, In re Atrium View places junior lenders in a stronger secured position at the senior lender’s expense, which, in turn, encourages senior lenders to prohibit secondary lending.
Nineteen (19) months after the loan’s origination, the mortgage lender sought enforcement of Note’s prepayment provision requiring “six (6) months interest” on any principal balance being repaid within three (3) years of the closing.
After reiterating dual criteria for enforcing prepayment premium demand - - that prepayment must be reasonable under state law and, as required by 11 U.S.C. §506(b), be contained in loan documents and “reasonable” - - the Court determined that Pennsylvania law did not bar prepayment premiums and focused on “reasonability”.
The Court noted that prepayment premium’s purpose is ensuring that a lender “obtains the benefit of the bargain by protecting it against falling interest rates” and the burden of establishing “reasonableness” requires demonstrating how accurately the premium “predicts actual losses that will be incurred” if obligation is paid before the term’s end.
The Court ruled that because its "[i]n the current residential subprime mortgage industry, a typical prepayment premium is six months' interest” argument provided no “prepayment premium approximates reasonably predicted losses” evidence, the lender failed to establish premium’s reasonableness and rejected the prepayment claim.
Unfortunately, the In re Atrium View holding ignores the impact of failing to protect against declining interest rates.
Like insurance companies and investment funds committed to maintaining investors’ returns based on anticipation of long-term cash flow for mortgage investments, lenders often make commitments based on anticipated interest returns.
If high-yielding mortgages are prepaid when interest rates have fallen, lenders may be unable to maintain yield commitments to their investors, including guaranteed annuity payments.
Another inequity the In re Atrium View ruling imposes is that junior lenders might receive funds otherwise used to pay senior lender’s prepayment fee.
Because junior lenders advance money with the awareness of the senior mortgage’s terms, including the prepayment premiums, In re Atrium View places junior lenders in a stronger secured position at the senior lender’s expense, which, in turn, encourages senior lenders to prohibit secondary lending.
Subscribe to:
Posts (Atom)
