New Way for Ohio Homeowners to Spell Relief: “D.O.L.L.A.R.”

(as in Ohio Sub. H.B. 303’s  D.O.L.L.A.R. Deed Program)

By: Stephen D. Richman, Esq.-Senior Counsel, Kohrman, Jackson & Krantz PLL

On September 28, 2016, Ohio Sub.H.B. 303 became effective. Governor John R. Kasich signed the bill into law in June of this year, after unanimous passage in the Ohio House and Ohio Senate.  The most frequently asked questions and answers to the same are as follows:

What does Ohio Sub. H.B. 303 do?

The bill enacts new sections 5315.01, 5315.02, 5315.03, 5315.04, and 5315.05 of the Ohio Revised Code, creating the D.O.L.L.A.R. Deed Program.

 

Who introduced the bill and why?

Republican Reps. Jonathan Dever of Cincinnati and Robert McColley of Napoleon jointly introduced the bill last August. According to Rep. Dever, “This legislation is a small step in helping to keep the American dream of homeownership alive for thousands of Ohioans…As our communities struggle to preserve continuity, this legislation will be a tool to keep our neighborhoods together, kids in school, and bolster our economy.”

 

What is the basic premise of the D.O.L.L.A.R. Deed Program?

The program basically provides homeowners and lenders the option of allowing homeowners to remain in their homes as tenants instead of foreclosing on their property. During the tenancy (up to two years) the former homeowner will have the right to repurchase/refinance its property.

 

What do the letters in the D.O.L.L.A.R. acronym stand for?

The program’s acronym means Deed Over, Lender Leaseback, Agreed Refinance.

Who is eligible to apply?

Any mortgagor who is a resident of his/her home, whose debt to income ratios are below the then current ratios set for the program.

How does the program work?

Once an applicant applies, the lender is not required to participate, but must respond to the homeowner within thirty (30) days. If the lender approves the application, the homeowner and lender enter into a deed in lieu of foreclosure whereby the homeowner deeds title back to the lender, and in return, the lender terminates the foreclosure proceeding and enters into a lease for the property with the homeowner, which lease includes a right of the homeowner to repurchase the property with the lender refinancing the original loan. The homeowner must sign an estoppel affidavit acknowledging, among other things that the original mortgage is not extinguished during the lease term and that the homeowner relinquishes its statutory right to redeem the property outside of the program.

What are the terms of the lease?

Responsibilities of the tenant that are established by Ohio’s Landlord Tenant Act apply. However, statutory repair/maintenance obligations of the landlord do not apply to a lender-landlord under this program. The duration of the lease is the shorter of the period of time necessary for the homeowner to be approved for the new financing (or other FHA mortgage assistance) and two years. Rent cannot be less than monthly taxes, insurance and association or condominium dues.

Where can the full text of the “D.O.L.L.A.R. Deed statute “be found?

See Ohio General Assembly website for the full text of the Statutes: http://search-prod.lis.state.oh.us/solarapi/v1/general_assembly_131/bills/hb303/EN/05?format=pdf

U. S. Supreme Court Issues Decision in Favor of Bank of America in Chapter 7 Lien Stripping Case

The U.S. Supreme Court issued its decision today in the consolidated cases of Bank of America, N.A., Petitioner v. David B. Caulkett, and Bank of America, N.A., Petitioner v. Edelmiro Toledo-Cardona, declining 9-0 to void the junior mortgage liens on the respondents’ homes when the senior lienholder’s debt exceeds the property’s value. This decision reverses the judgments of the Eleventh Circuit.

The facts in each of these cases are essentially the same. The debtors, respondents David Caulkett and Edelmiro Toledo-Cardona, each had 2 mortgages on their respective homes. The petitioner, Bank of America, holds the junior mortgage lien on each of the homes. The junior mortgage liens are completely underwater as the amount outstanding on the senior mortgage liens exceeds the current value of the homes. The debtors moved to have the junior mortgage liens voided, i.e., ‘stripped off”, under §506(d) of the Bankruptcy Code.

Section 506(d) states that “[t]o the extent that a lien secures a claim against the debtor that is not an allowed secured claim, such lien is void.” Therefore, the secured claim can be stripped off only if its right to repayment from the debtors is not an allowed secured claim. With minor exceptions that do not apply in these cases, a claim filed by a creditor is deemed “allowed” under Section 502 of the Bankruptcy Code if no interested party objects or, if an interested party objects, the bankruptcy court makes the determination that secured claim should be allowed. The parties in these cases had agreed that Bank of America’s claims were “allowed” claims. Their disagreement was over whether Bank of America’s claims were “secured” claims as defined under §506(d) of the Bankruptcy Code.

A straight reading of §506(d) of the Bankruptcy Code would tend to support the debtors’ construction of a secured claim. However, back in 1992, in Dewsnup v. Timm (502 U.S. 410), the Court came to a different interpretation that defined the term “secured claim” under §506(d) to mean a claim supported by a security interest in property, regardless of whether the value of that property would be sufficient to cover the claim. This interpretation essentially limited §506(d)’s application to voiding only those liens where the claim it secures has not been allowed. 

To remain consistent with its prior decision, the Court reversed the lower court decisions and refused to void Bank of America’s junior mortgage liens. The Court noted that it was not being asked to overrule its decision in Dewsnup and noted to decide as requested by the debtors, it would in the same term having more than one definition and would leave an “odd statutory framework in its place.” One has to wonder what the Court’s decision would have been if it was in fact asked to overrule Dewsnup.

The end result is Bank of America’s junior liens remain in place on the homes.  Bank of America won the battle in protecting its future interest as a junior lien holder. However, if the bankruptcy courts were to grant a motion for the senior lenders to proceed with foreclosure actions, Bank of America’s junior liens could still be stripped if the winning bids at sheriff’s auction are not high enough to cover both the senior and junior liens.
__________________