The Foreclosure Process, Abridged

So…did anybody miss the political ads on TV or radio? I know that I didn’t, not at all, not one little bit. Now we get to sit back and enjoy all the Christmas ads which have already started before the 2012 presidential ads start this spring.

Luckily, WNRB-LP (93.3 FM), the radio station where the Dr. Rent Radio Show is heard on Thursdays, from 5-6 PM does do advertising. Many of our programs have underwriters, but no actual “commercials”.

And gee whiz, it is Thursday, isn’t it.

This week, we are going to continue our discussion on distressed properties. We started with many common terms that are used and continued last week with the steps in a foreclosure action. Tonight we will continue that discussion with the different places within that foreclosure process a buyer can “jump in” as well as some of the “hidden” costs that can make a sweetheart deal quickly turn into a money-pit.

Before getting to the topic of the day, we cover questions that have come up over the last week or so. I got a question emailed to me about a lease with a “no move out in winter” clause. How do these clauses work? Are they legal? Are they enforceable?

I also got a question about a commercial lease where the parties are trying to come to an agreement about maintenance. The law says the landlord is responsible for things like HVAC, plumbing and electrical, but the lease proposal is trying to make the tenant responsible for these expenses…. Can the landlord do that?

Last week’s show also had two questions. First we talked about application fees, earnest moneys, and credit check fees. First of all, there is no difference between an application fee and an earnest money. Any money the landlord gets before the lease is signed (except for credit check fees) is considered earnest money, and is refundable if the application is denied or the applicant backs out before they are approved. This refund must be issued by the next business day. Earnest money is only forfeited if the applicant is approved then fails to enter into a lease. And even then, the landlord can only withhold for their actual damages incurred.

The only time the money is not refundable is if it is a credit report fee. Wisconsin allows landlords to charge the tenant the ACTUAL COST of running a credit report (a credit report is defined in ATCP 134.02), not to exceed $20.00. In order to do this, the landlord has to disclose this to the tenant up front and the tenant gets a copy of that report. A tenant doesn’t have to pay for the report if they ran their own report and gave it to the landlord (assuming that credit report is less than 30 days old). If the tenant gives the landlord a copy of their credit report, the landlord can still run their own, they just can’t bill the tenant the cost. This law is really not used that often because most of the time, credit bureaus do not allow people who pull credit reports to share those reports with anyone else, including the subject of the report.

We also talked about how to get tenants to pay their last month’s rent. Often, if a tenant is moving, they need money for the security deposit in their new place and will just not pay their last month’s rent at their old place, telling the landlord to “use the deposit.” The problem is, that most landlords charge the same for the deposit as they do for the rent, so what happens if there are some damages or unpaid utilities bills?

There are two ways to solve this problem. One is to collect “last month’s rent” at move in. Have the tenant pay it up front. Essentially, this is collecting a double security deposit because any amounts collected above one month’s pre-paid rents are considered security deposit. However, at least this way, that rent is covered and there is still deposit left in case there are damages or unpaid bills left pending after the tenant is gone.

A 5-Day Notice can also be used. What if there are no damages and all that is left behind is a $25 late fee and a $50 water bill, and the tenant doesn’t pay it. Is it worth it to go to court, spending $100 in filing fees, to collect $75? Well, if a 5-Day is issued, then double rent is allowed according to WI SS 704.27 from the deadline of the 5-Day until they vacate the property. So now, not only can you go to court for the late fee and water bill, you can also add on $200-$400 in doubled rent. Spending $100 in court costs to pursue $475 instead of $75 makes much more sense. This tactic seldom convinces the tenants to pay that last month’s rent, but it does a pretty good job to get them to pay those final balances owed without resorting to a small claims action.

Our main topic last week was talking about the foreclosure process. Again, this is not a detailed how to, but is very very basic information to make you more familiar with the process.

A foreclosure has many steps that are similar to an eviction. The first step is that the borrower’s loan goes into default. This is most commonly caused by not paying the loan, but there are other potential ways of going into default. If the property value goes down that the equity required for the loan is no longer there, that could put the loan into default. Also, if you couldn’t sell the house so you decided to rent it, often this change in type of property can put the loan in default as well.

Just like in an eviction action, once the loan is in default, a case gets filed in court. And, if the lender proves its case, a judgment is awarded. This is where the steps in a foreclosure and an eviction start to take different paths.

When a landlord gets an eviction judgment, they can then get a Writ to have the sheriff remove the occupant. In a foreclosure, the judgment now starts something called a redemption period. Before the lender can start to take the steps to take possession of the property, the borrower has a chance to get that judgment amount paid off. How long the redemption period is depends on if the lender wants to be able to collect amounts owed if the money they receive from selling the property doesn’t cover the amount of the judgment. If the lender wants to be able to have this recourse, the borrower has a longer time to find a way to pay off what is owed.

Once this redemption period ends, the lender is able to try to get their money out of the property by having the sheriff sell the property at an auction, called the sheriff sale. The sheriff will read off the legal notice and then the bidding starts (this is not a quick auction like you see on tv, but taken at a reasonable pace). The opening bid is almost always the lender. The amount the lender bids is almost always the total amount owed, which is often times more than the judgment amount because additional interest and legal fees have been added to the account. With local banks, they will often look at the property and determine what it is reasonably “really” worth and may not bid the full amount owed. After all, the bank really doesn’t want the property, they want the money.

If there are no other bidders, the bank gets the property back. If there are other bidders, bidding continues until a high bid is determined.

The property is not technically sold yet, the bids at the sheriff sale are basically an offer to purchase. The last step in the process is the confirmation. The case goes back before a judge who reviews the file and makes sure all the proper steps were followed, all the proper notices were given, all the I’s were dotted and T’s were crossed, and decides if the amount that was bid for the property is a fair price. If the court feels that the price is not fair and way to low, they can order another sheriff sale to try to get a higher price. Once the court is satisfied that the process was done correctly and the price was fair and reasonable, they will confirm the sale. At that point, the full amount is due (if the lender wasn’t the purchaser) and the sheriff issues a deed to the buyer (the lender or other winning bidder at the auction).

If it was the lender that purchased the property, it will then be considered an REO property (we defined that term last week) and they will now try to sell it. Again, the bank doesn’t want the property, they want the money.

Again, that is a very over-simplified description of the process, but it will help clarify today’s topic of describing at what points in the process you can jump in as a potential buyer of the property.

So… that is a preview of what we will be discussing on tonight’s Dr. Rent Radio Show, and a summary of what we covered last week. So until a little later today, 5 PM on 93.3 FM, HAPPY RENTING!!


About drrent

Wausau, Wisconsin Landlord, past president of the Wisconsin Apartment Association, Host of the Dr Rent Radio Show on WNRB-LP, 93.3 FM, Wausau, WI
This entry was posted in Earnest Money, Foreclosure, Questions, Security Deposit, WNRB and tagged , , , , , . Bookmark the permalink.

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