Take a moment for “Bits & Bytes” as Deanne Koll explains what you should consider when your foreclosure attorney asks if you want to waive deficiency.
Disclaimer: This video is designed to be educational and informative, but it is not legal advice. Collection law is constantly evolving and subject to change. Each situation is unique, and each case should be addressed to fit the unique situation.
One of the first things your foreclosure attorney is going to ask you when receiving your file is, “Do you want to waive deficiency?” The answer to that question is easy to answer, so long as you know what to analyze in the loan file.
Deficiency is the amount that the lender may come up short on the balance due, after the sale of the collateral. The borrower remains liable to the lender for that amount. That deficiency amount, at the end of the foreclosure, becomes a judgment which the lender then may try to collect from the borrower.
When considering whether to preserve your right to seek a deficiency judgment, a lender should first consider the likelihood of collecting that deficiency, once obtained. Meaning, even if the lender obtains a deficiency judgment, is the borrower collectible? If not, then seeking a deficiency would be pointless.
A second consideration is whether there will be a deficiency. When you look at the loan-to-value ratio, is it likely that your collateral will sell for less than you are due? If not, or you feel like you’re fully collateralized, then seeking a deficiency would be pointless.
A last consideration is whether you’re willing to wait the longer time period to get the property back. When a lender preserves deficiency in a foreclosure, it doubles the redemption period. In an owner-occupied home, the waiting period goes from 6 months to 12 months. A lender should consider the added time in getting back the property in conjunction with the collectability of the loan and the loan-to-value issue.
There are other considerations to determine whether to seek a deficiency in a foreclosure. You should speak with your foreclosure counsel to fully analyze any particular situation.
Bakke Norman is proud to celebrate its 30th anniversary. Gary Bakke, George Norman and Tom Schumacher started Bakke, Norman & Schumacher on July 1, 1985. The firm has changed over the past 30 years. Our 3 attorneys grew to over 30 attorneys and staff. Our small office space in the New Richmond Heritage Center evolved into 2 office buildings in New Richmond and Menomonie. Our name mushroomed to the tongue-twisting Bakke, Norman, Schumacher, Skinner, Walter & Steans, S.C., before being trimmed to the receptionist-friendly Bakke Norman.
What has not changed in 30 years is our commitment to quality legal services and being good citizens to the communities we serve. Bakke Norman continues to offer a full range of legal services to businesses, individuals, farms, financial institutions and municipalities. We look forward to serving our clients, our profession and our communities for the next 30 years.
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A new edition of the Municipal Law Alert is now available online. This month’s articles discuss special charges by a municipality, what they are and how they work, and municipal debt issuance basics.
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What Are They and How Do They Work?
A special charge is a fee that a municipality may impose to collect reimbursement for the cost of services rendered to a property. The authority to use special charges is expressly granted to municipalities by statute: Wis. Stat. § 66.0627.
Examples of such services include: snow and ice removal, weed elimination, garbage and refuse disposal, tree care and dead animal disposal. This list is not exhaustive, but it creates an idea of what is a considered a service for a special charge. The special charge need only be a service to the property, and not necessarily a benefit to the property owner. Rusk v. City of Milwaukee, 2007 WI App 7, 298 Wis. 2d 407, 727 N.W.2d 358. The property owner may not see it as a benefit, or even want or agree to the service in many cases. But as long as it truly is a service to the property, it can be made payable by the property owner.
Special charges should be billed directly to the property owner after the service has been completed. The amount of a special charge must have a reasonable relation to the actual cost borne by the municipality providing the service. A special charge is not a tax, and the purpose of a special charge is not to generate revenue for the municipality; rather, it is an enforcement tool in the municipality’s regulatory power toolbox. Special charges are collection devices and are limited to services rendered.
The procedures for collecting a special charge are relatively simple. Once a property owner is billed for a special charge, if they pay within a reasonable time, that’s it. The deadline is at the discretion of the governing body, although it should be reasonable (30 days is common). If the payment is not received by the deadline, the special charge becomes a lien on the property, and the municipality can include the sum of the charge on the tax roll for collection and settlement. (Special charges are not payable in installments.)
A special charge can help a municipality recover the costs of providing unique services to property owners such as weed removal. This may be a good option for municipalities struggling to maintain a budget for more general municipal services like roads, police and fire protection.
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Does your community need to complete a large road or utility project? Maybe it’s time to construct a new village hall. The large price tags for these projects leave many municipal officials scratching their heads about how their community could ever afford them. While they are certainly major undertakings, a well-crafted approach to issuing municipal debt often provides the feasible financing solution many communities need.
Municipal debt offers several advantages beyond simply providing the cash needed to complete an important project. First, it ensures that the users of a project pay for that project. Property taxes or utility charges of current residents go toward paying the debt rather than using funds saved over time from tax or rate payers who may no longer be in your community. Second, debt can simplify the process of budgeting for capital expenditures by giving you predictable annual debt payments. Finally, most types of debt are exempt from levy limits in Wisconsin. For example, having a $100,000 debt payment next year would allow you to raise your levy by $100,000.
There is a wide variety of debt options available in Wisconsin. The most basic distinction is between general obligation (G.O.) and revenue debt. G.O. debt is backed by the full faith and credit of a municipality and commits it to levy a tax to pay that debt. It is considered the strongest pledge and therefore generally has the lowest interest rates. The amount of G.O. debt outstanding is limited by state statute to five percent of a municipality’s equalized value. Revenue debt is backed by a specific revenue source, which is most commonly the revenue generated from a utility. The amount of revenue debt a municipality can have is not restricted by statute, but is limited by the ability of the revenue source to pay annual debt service.
Communities can turn to a number of programs and sources for financing. Larger transactions may be good candidates for a commercial market bond issue on a G.O. or revenue basis. Large utility projects are often eligible for subsidized revenue loans from the State of Wisconsin, or may qualify for United States Department of Agriculture Rural Development Loans, which can have terms as long as 40 years and often include grants. Local banks are active participants on shorter-term G.O. transactions, and the State Trust Fund Loan Program is a simple State-sponsored program that can offer a long-term fixed rate for G.O. or revenue loans.
It is important to keep in mind when issuing debt that there are many rules and regulations to follow. State statute limits the maximum term of debt based on the type of project and prescribes procedures for authorizing debt that vary depending on whether a municipality is a city, village, town or county. Federal regulations revolve primarily around whether the interest paid on municipal debt is exempt from income tax for bond holders. Tax-exemption results in lower interest rates for you, but is generally restricted to projects that benefit the public at large rather than a specific private party. Taxable debt has far fewer federal restrictions, but higher interest rates. We encourage you to speak with your attorney and independent municipal advisor to craft the best financing plan for your needs and to navigate the complicated legal realm of municipal debt.
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