D.O.L.L.A.R. Deed Program Presents New Alternative to Ohio ForeclosuresSeptember 21, 2016 | David W. Cliffe, Esq.
Starting this fall, a new foreclosure law will help Ohio borrowers in default on their residential mortgages by allowing them to rent the property for a period of time with a purchase option after they present a deed for the property to the lender. The foreclosure alternative is called the D.O.L.L.A.R. Deed Program, and was created following the passage of House Bill 303. The program goes into effect September 28, 2016 and is meant to combat neighborhood blight and preserve home ownership.1
The program's acronym, D.O.L.L.A.R., stands for: Deed Over, Lender Leaseback, Agreed Refinance; which is the program's completion procedure in basic terms. The law will cover transactions involving borrowers whom, "after default on a loan secured by a mortgage of real property, convey to the lender by deed that satisfies the minimum requirements of the state code, titled to the real property pledged as security for the related note of indebtedness."2 Under the new law, a lender will lease the property back to the former borrower for a specified time. The lease will also contain a purchase option during the term of the lease.
The program will operate following rules and form documents the Ohio Housing Finance Agency will create.3 The law further requires the applying borrower to complete forms for the lender's consideration including an application form, a model deed, and a model of the lease with option to purchase agreement consistent with the modification form developed under the Home Affordable Modification Program. Also known as HAMP, this is a program designed to help homeowners avoid financial hardship by reducing their monthly mortgage payment.4
Although a qualified borrower does not need be eligible for alternative mortgage loss mitigation, his or her front-end and back-end debt-to-income ratios, at the time of application to the lender, need to fall below the current ratios set under the HAMP program at the time of application to the lender.5 Finally, "the applicant must occupy the residence."6 Although a lender is not required to participate in the D.O.L.L.A.R. program, the lender is required to provide a written decision to the applicant no later than 30 days after the date the lender receives the complete application.7
If the lender approves the borrower's application for the program, both the lender and the borrower would complete a deed in lieu of foreclosure, a notarized estoppel affidavit and a lease with option to purchase agreement.8 An estoppel affidavit is a legal document that prevents any legal action outside of the agreement previously made between the lender and the borrower. Both a deed in lieu of foreclosure, and the lease with option to purchase agreement, would be filed with the county recorder.9
In regard to the lease-to-purchase option, the lease term would be the shorter of either the time necessary for the borrower to be approved for financing by the Federal Housing Administration, or two years from the date of the lease with option to purchase.10 The monthly rent charged under the lease with option to purchase is one-twelfth of an amount not less than the combination of the annualized real property taxes, homeowner's insurance premiums and any homeowner's association or condominium dues.11 Lastly, the purchase option must specify the purchase price available to the former borrower for the property until the expiration of the lease term.12
The lender approving the borrower's application must provide the borrower the documents for their review at least ten business days before they need to be signed by the lender and the borrower.13 If the former borrower fails to purchase the property within the time period specified in the lease, in the absence of a mutual written extension, the borrower's right to purchase expires.14 The law contains protection for the cooperating lenders' mortgage, so it would not be extinguished and would not merge upon the conveyance by the borrower of his interest in the property.15
Under this program, if a borrower, now a tenant, fails to comply with the payment terms of the lease with option to purchase agreement, he or she forfeits their right to purchase and can be evicted from the property.16 In addition, the liabilities traditionally vested with a landlord shift to the former borrower/now tenant. The borrower/tenant is responsible for many traditional landlord duties including:
- Complying with building housing and safety codes;
- Keeping the property in a fit and habitable condition;
- Maintaining the safety of common areas of the premises;
- Maintaining all utility fixtures appliances and elevators;
- Providing for trash removal in multi-dwelling units of at least four units; and
- Maintaining a supply of hot running water to the premises.17
By enacting this program, lawmakers are providing incentives to lenders not available in the traditional deed in lieu of foreclosure consideration process. A lender participating in the program can avoid the traditional landlord and real estate owned pitfalls that often arise in the regular deed in lieu of foreclosure situation. The resolution to a classic leasing conundrum, such as who is to pay to repair the toilet, is now the responsibility of the borrower/tenant.
Lenders that previously felt obligated to evict a foreclosed borrower can now give them an option to purchase. This is appealing to the lender because an occupied property would likely retain its value better than an abandoned one, even if the borrower cannot complete the option to purchase. While lenders will continue to face traditional deed in lieu concerns such as unpaid property taxes and other liens, if a borrower/tenant defaults under the lease/option to purchase, the lender will be able to proceed with eviction.
Lenders with questions about how HB 303 could impact their residential line of business should contact an attorney with experience in foreclosure and eviction matters for further information.
For more information on this topic, contact David W. Cliffe, Esq. Mr. Cliffe practices in real estate default for Weltman, Weinberg & Reis Co., LPA with a focus on foreclosure and eviction services, based in the Cincinnati office. He can be reached at 513.333.4054 or by email at email@example.com.
1 See Arnold, Keith, "Bill Proposing Buy-Back Program for Foreclosed Properties Progresses." Akron Legal News, June 7, 2016.
12 Section 5315.04(A)(3)(c).
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