EP 310 – Ohio And Michigan Foreclosure Laws with Franco Barile

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NCS 310 | Foreclosure Laws

NCS 310 | Foreclosure Laws

 

Whether it’s a nonperforming first or a contract for deeds, if you are buying assets in the Ohio and Michigan markets, real estate attorney Franco Barile is your go-to person. Having partnered with Tony Sottile, Franco has taken full advantage of the business side of the real estate legal game. Between them, they have four licenses under their belt for Ohio, Michigan, Indiana, and Kentucky doing title and collateral reviews. They have a full creditor’s side bankruptcy department, foreclosure department, collections department, and anything you can think of in the real estate world. Franco talks the Ohio and Michigan foreclosure laws and about the different markets, the markets to avoid, and some things that you probably didn’t know about the real estate business.

Listen to the podcast here:

Ohio And Michigan Foreclosure Laws with Franco Barile

We have a special guest joining us all the way from up in Ohio. We have Real Estate Attorney Franco Barile join us. You have done a tremendous job for not only us, but for a lot of our students buying assets in the Ohio and Michigan markets out there, whether it’s a nonperforming first or a contract for deeds. I hear from everybody, “This guy does a great job.” We love to throw business to people that are doing great jobs. I want you to take a second, talk about you, your firm, the state you got a license in and what you specialize in.

I got a partnership with Tony Sottile. We had a synergy when we got together. We both had pretty decent amount of clients doing well. Like-minded individuals, business-minded individuals, we’ve got together and said, “There’s a business side to this legal work.” We took full advantage of that. Under our belt we have four licenses. We have Ohio, Michigan, Indiana and Kentucky. We opened up a practice in Illinois. We do have a fifth state now. With our experience, we’ve been with large firms. I started as a title insurance defense attorney, that’s where I’ve got my background in doing this title and collateral reviews. I was able to flush out some of these problems quickly for some of these students of yours. With that experience and with Tony’s experience, we have a full creditor’s side bankruptcy department, foreclosure department, collections department, anything you can think of in the real estate world. We joined forces, came together and we haven’t stopped growing since.

NCS 310 | Foreclosure Laws

Foreclosure Laws: There’s a business side to this legal work.

That’s a variety of markets there, those five states. We’ve got a lot of people there buying stuff in different parts of the United States. Ohio, Michigan is a big market for note investors. Illinois, outside of Cook County. You mentioned a state you don’t do a lot of business in because of a lot of legislation. Was it the Bluegrass State, Kentucky?

We haven’t seen much on the investor side and that’s due to the licensing requirements of the state. You need to have $1 million bond. You can have a joint venture with six or seven different people and it equals $1 million worth of net revenue, which is fine, but you have to get together with a lot of people to reach that. Between that and the bond, giving up your financials and doing a criminal check, credit check. You have to pay a yearly required fee. It doesn’t make any sense to do it. I don’t see a return on investment in that state due to the fact of those requirements. We get work from small lenders, from banks. We don’t see much on the investor side due to those regulations. They’re pretty heavy. I can provide you with memorandum that we prepare for our clients stating, “Here’s why Kentucky is not the greatest for some note investors.”

That’s on the nonperforming side and the contract for deed side both there. It’s not the greatest state. You got two great markets but with the license. I knew there was a bond. I know it was $1 million bond. I never liked the state that much for the most part because of the foreclosure markets, wiped out Louisville for a long time. There are many of them that were cheap. They were killing comps for everything. There are plenty of other places to make money. Let’s talk a little about Illinois. That’s the newest market for you guys. It probably the longest foreclosure time frames for the five states.

Yes, they are. You mentioned that one county before, Cook County. They’re tough. You’re dealing with judges there. You’re not dealing much with the actual foreclosure process. You go outside of that county, things move smoothly. We’re trying to position ourselves for that county specific. Illinois has requirements as well for licensing. It’s not as cumbersome. There’s a yearly fee of about $5,000.

It’s less. I’m a licensed debt collector. It’s $700, $750. You want to get that, but it doesn’t impede the foreclosure process or slow it down as long as you have it by the end.

There’s quite a bit of volume there and that’s why we wanted to jump into that market. We aligned ourselves with a good attorney in Illinois who’s joining our practice. With that attorney, we know we can turn it into a pretty profitable machine. We’re excited for that state. We’re opening up here next week, so we have everything ready to go. From there on, we’ll include that as one of our states.

When you look at the Page County and a lot of the other ones, there are some pretty big markets there. A city with borrowers that aren’t paying, they’re a little late. There’s plenty of inventory there. Try to avoid Chicago if you can. Let’s talk about Ohio, where your home offices are at.

Ohio’s a pretty smooth state depending on what type of asset you’re picking up. If you’re looking at a note and a mortgage, you’re looking at nine to twelve months turnaround through the foreclosure process which isn’t too bad. Where I’m from, a suburb of Cleveland, Cuyahoga County is the county they normally took two years in the past, three years to get into the process. That’s no longer the issue. There are still some mediation processes that can delay a county or two. They haven’t been like they were in the past. Ohio usually is a pretty good state for us. You’re looking at budgeting between $5,000 and $6,000. That’s what the attorney’s fees and costs. If you’re looking at the CFD route, the rule in Ohio is if it’s over five years old or more than 20% of the purchase price is paid, you have to go through the foreclosure process.

They put 20% down at the time of purchase. If they don’t, they put $1,000 down. No matter if there’s equity three or four years later, it’s still a cancellation of contract at that point?

That’s correct. We normally don’t see the 20% issue come aboard. We normally see the five-year issue. When we see the five-year issue, what we normally do is we go to our case law. We’ve found some pretty decent cases that give us a great area where we tell the client, “Yes, it’s over five years old. If they didn’t pay maybe 2% or 3% of that purchase price, let’s take a chance. Let’s do a forfeiture which runs like an eviction and see what the judge says.” It is a gray area. There is no strict guideline that, “If it’s over five years old, watch out.” We tell the client it could get dismissed at court at a forfeiture case. You’ve spent a lot of money or do you rather do a foreclosure and you’ll be fine that route.

We’ve had some people that said, “Try the forfeiture and see what happens,” so far, so good. It makes sense if the borrower hasn’t put enough money into the purchase price, into the house. The judges are going to overlook the five-year fact. That’s where we’ve been seeing this. Ohio brings our bread and butter is due to that fact. These CFDs go through forfeiture routes. They’re not as time-consuming. If you’ve ever done an eviction in Ohio, they take 30 to 45 days. We recommend sending that demand letter before you do anything with the forfeiture then you do your posting. In Ohio what’s different on a forfeiture route, you have to post a ten-day notice on the door. At the hearing, the person who posts and a representative from the company has to appear at court to testify.

It could be the same person. It could be a property manager. Ohio would be your place to put boots on the ground only because of that fact. You’ve got to have somebody that can go into court and say, “Yes, this defendant defaulted. Here’s the date of last payment.” I’ve seen property managers do it. I’ve seen people hired through different sorts of ways who go to these hearings. As long as the client themselves, the investor themselves is, “This is what’s going on with the file. You’re going to represent me,” and they have some agreement. It’s pretty easy to do it that way, but they need to understand that somebody does need to be there to testify. You don’t want to have an investor in California have to take a trip to Ohio for that type of hearing.

You said $5,000 for a full-blown foreclosure, what’s the cost to do a cancellation of contract?

You’re looking at about $1,000, maybe a little more. Attorney’s fees and costs. It’s a quick process and what we ask is the client to say, “Since it is a pretty cheap process, make sure you have somebody ready to go to this court hearing.” Once the hearing is set, you don’t want to get it continued, you don’t want to get it dismissed. It’s a one and only. The borrowers get served pretty quickly. Be ready before we file.

What’s the timeframe for that? Is it 30 days later?

The complaint will get filed. You’ll get a hearing within three to four weeks, some counties five weeks. At that hearing date, that third, fourth, fifth week, that’s where you get your judgment for possession. If you have your guy come or gal come and testify that, “Those are default. Judge grants the possession.” We had one, judge granted possession and they can go take over the property because it was vacant. It’s strange. You even need to do that for vacant property if it’s a recorded land contract. You’ve got to be careful with some of those issues. We always say, “Go the judicial route. It doesn’t take that long. Probably should be done with it.”

If you’ve got to go back, go the full ride, it’s worth $1,000 risk in my book. You can go out and secure the property that’s vacant. Would you agree with that?

I agree. You can preserve it. Get your judgment for possession and do what you have to. If you do see personal property there like couches and TVs, we do tell some investors, “Maybe get the writ. Have the sheriff come out. It’s up to you.” The borrower can always come back and say, “Where’s my personal property?” It’s your comfort level. You’ve got your judgment for possession. Make an informed decision when you get to that property, what the stuff looks like.

NCS 310 | Foreclosure Laws

Foreclosure Laws: Make an informed decision when you get to a property and what the stuff looks like.

Let’s talk about The Wolverine State next door there, Michigan. Let’s talk about their laws to foreclose first before we dive into CFDs.

You get your note mortgage foreclosure, a quick process. With any of these processes, bake in a 30-day demand. It’s common to do it. You don’t want to get stuck behind it. You send it out. After that process is done, we would do a non-judicial foreclosure which gets advertised through the Detroit Legal News. It goes to all the counties in Michigan. A sale is set within 45 days from that notice. If you’re doing it July 1st, you could have a sale date by August 15th. Be prepared to bid that quickly. You’re only given four or five weeks. We recommend bidding the outstanding balance. Unless you want to unload this property and say, “We’ll bid $10,000 if somebody buys it for $11,000.” You can do that too. It’s a quick process, 45 days.

The downfall with Michigan is post-sale. After sale, there’s a six-month redemption period. It gives the borrower six months to stay in the property. That’s one problem. You’re back almost into Ohio, nine to twelve-month process but at least you have the sale done with. You’re waiting for the redemption period. If you find that the property is vacant and you can do that through the electric companies, see if the electrics on. Take a look at the property with visual inspection. We provide the notice that you post on the property. You would reduce the redemption from six months down to 30 days. Vacant property, you’re looking at a quick process. If it’s not vacant, you’ve got your six-month redemption period.

You’ve got to provide proof from the electric company and utilities company that power is off.

We give you an affidavit. In the affidavit, the investment puts on there, “We believe through our knowledge that the property’s vacant.” The investors should have reason to believe it is, call the electric company to find out. See if there’s anything around there if it’s truly vacant. No water. It’s an indication of vacancy. The affidavit will be signed by the investor. If the borrower ever comes back later on and says, “I had my stuff in there,” they have to be prepared to say, “We called the electric company. There was no water to this property. Here are the pictures,” at least they have some backup. There’s only a one-page affidavit that gets recorded, so we don’t require all those other documentations.

That’s one of the things we talked about doing due diligence. They do an extra step on the front end. Pick up the phone, call the utilities. Find out if it’s on. You tell them that you’re the bank and they’ll release the information. Do you ever see this in Michigan? People paying for the borrowers to release the redemption rights and get out sooner than six months.

You can do that. It’s a waiver. It’s cash for keys deals. We see a lot of those types of deals. Those are quick and easy, painless. There was a signed agreement that gets recorded that states the redemption period’s been waived and gives a little bit of money to go out. It wouldn’t be so much as a waiver as it would be here’s the cash for keys agreement. You’ve secured the property, it is now vacant and then you go ahead and file the affidavit of vacancy. That’s how it works.

It probably varies across the board depending on the value of the property. What do you see as far as the amount for the release of redemption rights with the cash for keys after that?

It depends on your comfort level. I’ve seen $500. I’ve seen $2,000, only because some are there in good areas. It’s more on your end of what you think might be proper. If you can turn this property around quickly and you’ve got a motivated a borrower, $500. “Here’s $500, leave the room clean and we’ll take care of the rest.” You don’t have to give this person the $500 until you get into the property and see what it looks like. Our agreements are pretty tight. You find out that there’s more damage than $500, you send a letter to the borrower, “Sorry, you’re not getting your money.” That’s one way to do it.

Let’s talk about contract for deeds in Michigan. What are the laws with evictee cancelling on foreclosing?

The contract for deed, you’re not going to get any issues that you get in Ohio. It’s going to be standard forfeiture clause. The one difference you’re going to have is if the borrower paid more than 50% of the purchase price, which is rare. If they paid 50%, they get more time to stay in the property post-judgment. The demand letter goes out. We send out in our law firm a fifteen-day notice of forfeiture. Once the fifteen days expires, we go ahead and file the complaint for forfeiture. The hearing will be between three and five weeks away. We go to the hearing. We provide proof that there is default. Normally the judge will grant us a judgment for possession.

Michigan is a tricky one where we’ve seen it go both ways, where you don’t need to testify as an investor and you do need to testify. Be aware, you might have to. If not, we can probably provide you with an affidavit if you can’t make it stating, “Here’s the payment history. There’s a default. We’re going to submit that before court.” We’ve seen Michigan be a little more lenient in regards to testimony. When we get to that route, we’ve had some counties that we can probably tell you, “You’re going to have to show up.” Detroit area sees a lot of that. It’s a fifteen-day notice. It’s a hearing for about four weeks later. You get your judgment for possession. Once you get your judgment, we can file an application writ to move them out.

There’s a period of 90 days that you have to give the borrower time to redeem. The redemption’s based on the reinstatement. It’s not based on the payoff. That’s one thing you’ve got to watch out for. Let’s say they owe you $500, you go through the forfeiture process, you get a judgment, “Here’s $1,000. It’s going to redeem it.” You’re back on square one. You constantly keep refiling until you finally get them out. You can always foreclose, but that takes about a year to year and a half judicially. You don’t want to do that. If you’re going to go through the actual forfeiture process, make sure there are borrowers behind and you know they’re going to stay behind. If you’ve got a $2,000, $3,000 reinstatement and you definitely want them out, then take a look at it at that point and do it. You get your fifteen-day notice, your hearing is four weeks after the complaint files and then you’ve got a 90-day waiting period to wait for that borrower to move out of that house. After 90 days, we can apply for a writ to move them out.

Still a six-month process for the most part?

You’re looking at probably maximum of six months.

The costs for that in Michigan?

The cost across the board without Illinois and Kentucky but Ohio, Michigan and Indiana, you’re looking at the same figures. Budget a little over $1,000, around that range. Those timeframes are probably the same, Michigan with the redemption period. Ohio does not have that nor does Indiana.

I didn’t know the 50% in Michigan or the redemption based off just above past due, not the full payoff amount.

In Michigan, for the 50% rule, it’s six-month redemption. It doesn’t mean you have to take it to foreclosure. It means you’ve got to give them three more months. Not bad at all.

If it’s vacant, it’s faster you said?

The problem is you still got to serve them. We’ve had some issues where we have to find these people to serve them or we do alternate service. All that’s going to do is extend the process to get the judgment. We’ve got one investor is good guys and patient with us, we’re trying to work this file. We got many process servers on it. We finally got a good address and we’re finally getting to the point where we can get them out. That’s one or two cases out of many. You find that problem where it’s vacant. There’s nothing you can do about it until you get this person served. When we do alternate service, that normally will skip the process, but you’re going to take it out maybe a month, month and a half.

NCS 310 | Foreclosure Laws

Foreclosure Laws: When we do alternate service, that normally will skip the process, but you’re going to take it out maybe a month, month and a half.

Ohio and Michigan, two bread and butter states. We buy a lot there. A lot of people buying there because there’s been so much inventory there that has done well over the last couple of years with 10%, 15% appreciation going on. Where do you see both those state’s going? Have you seen an increase in foreclosures from the true first lien like bank-originated side for the most part speed up or those slow down? What are you seeing in those?

I know that there’s been at least a flat line of the major banks and the other lenders filing foreclosures. I’ve seen a little bit of a pickup in Ohio. We’re getting most of our work from Ohio and Indiana. Those are the two big states we’re seeing a lot of work come from the note and mortgage side of the foreclosure side. We’re getting a lot of CFDs in the Michigan side. That’s where I’m seeing these files flow through. I don’t see where the economy’s gotten so good, that the foreclosure stuff slow down.

You said a lot of money going into Columbus. Columbus is a booming market. You’ve got a lot of money going into downtown Detroit. The car companies started to do better. That helps other areas. Fort Wayne is doing well in Indiana, bringing it back. It’ll be interesting to see what happens with the tariffs and all this stuff going in economy. What happens to the workforce up there? Is it still blue collar? Are you a big fan of snow and ice living up north?

It is. It’s not a law, but it’s something you have to deal with. I’m born and raised in Cleveland and got a Cleveland die hard spirit. My partner’s out of Cincinnati. They don’t get cold like we do in Cleveland, but they still get a little bit of cold. I don’t know if I’d trade it. I’ve been other places and I’ve seen other things. Home is where it is. You’re starting to get used it. Does the weather slow down anything? Do the judges ever slow down evictions, proceeds or anything like that in the middle of winter or not? Do you see that happening?

We will see delayed executions on writs. We’ve seen moratoriums in the past. I haven’t seen that recently for a regular foreclosure case. You’ll see that a lot for executions. You’ll see the end of December, beginning of January is going to be your slow period. Judges don’t want to set anything for those weeks. We haven’t seen any reason for them to slow it down, but for the fact that the execution slow down, especially here in Cleveland due to the weather. That’s due to January, February being rough months and some bailiffs saying, “We can’t even go off this day. Push it out two weeks, three weeks. Wait for these storms to pass.” The cold has affected it some, not whole lot.

Somebody is coming to you with a couple of files. Is there a process that helps it streamline for you? Should they have the copy of the collaterals sent at least electronically? Payoff statements, last paid or any letters from their servicer to help out with you guys doing what you need to do to begin with?

It’s two-fold. You’ve got investors that have servicers. You’ve got investors sometimes they send files to us. The ones with servicers, we have a longstanding relationship with a lot of them. They know what to send us and it’s exactly what we need. If it’s for a mortgage case, it’s a note and a mortgage. If it’s for a CFD, we need a copy of CFD. For both of those instances, we need assignments of those documents to the proper party, the investor. We will need an allonge or an endorsement of that note. What I’ve seen a lot in the CFD world, especially in our Midwestern states, there’s almost too many documents that the originator prepared.

All you need is one. It’s the land contract. It’s an all-in-one encompassing. It’s the note, it’s the mortgage, it’s everything. We also see promissory notes and we see allonges in the CFD world. We don’t need those. We just need the assignment of land contract. We’ll need the reinstatement quote, a payoff quote. It’d be nice to see a payment history and the social security number of those borrowers so we can run any bankruptcy and military checks. We want to make sure that they haven’t filed bankruptcy and we don’t have an active military person.

If they have filed bankruptcy, you guys can also help out with that too?

Absolutely, flip it over to Tony and he runs with it. That’s what I like about our firm is we go back and forth. “Debtor filed bankruptcy. Tony, you got this.” “Debtor’s out of bankruptcy, Franco it’s back to yours.” “Debtor filed again. How do we stop the better from doing this? Tony, let’s answer this.” It’s a great back and forth and the speed at which we can do it because we’re constantly talking to each other. We know that as much as this is the legal field, it’s run by businesses. Businesses want fast results. We try to provide as fast result as possible as humanly possible, as legally possible. We can’t break that legal aspect of it. If it means getting a phone call back from me, you’re going to get it right away. From Tony, probably even quicker. It’s good to have a bankruptcy department. Good to have a collection department. Good to have a foreclosure department. Between Tony and me, we’ve got a great system that’s working for us.

He is extremely fast, especially on LinkedIn. Notably phenomenal out there. That’s the great thing about it. What’s the thing that frustrates you the most with investors?

More of the same questions being said. Some of them are so new that it’s almost like a second educational experience. It’s hard because some of them don’t know what deed means. Some of them don’t know what note means or mortgage or land contracts. It’s a lot of those educational things that we would request that they pick up a little bit on that first before they dive in. You guys do a great job of teaching them. Maybe some don’t grasp it as much. We’ll get those questions like, “What do you mean by you need a reinstatement? What does reinstatement mean?”

We get a lot of investors, a lot that come from you. We get a lot of investors from other areas that go to different conferences and they come to us. We’re always asking them, “Where’d you get the information from?” “I went to this conference at a hotel one day.” “Did you sign up for some course to learn a little more?” “No, I’ll ask you the questions.” I said, “It doesn’t work that way.” I don’t mind giving the information, but when it’s down to that level of you don’t know what a deed is, that’s a different issue. I’d say those would be the most frustrating.

I hear that a lot. It’s one of the things when people come in, “I want to buy notes.” “Have you’ve gone to anybody’s education.” “I’m on fix and flip. I’ve got years of experience. I don’t need a class.” The note game is different than the fix and flip game. The legal aspect of it is totally different. Are you guys investors yourselves too? Do some of that stuff on the side?

No, I did a little bit in the past. Since our firm has been growing and we’ve gotten different fires in the pot. We’re sticking to what we’re good at. I got rid of my properties. I said, “I’m out. I don’t need to deal with it.” Maybe in the future we may take a look at it, especially with the knowledge that we have. For now, we’re sticking to the legal game.

What’s the best way for people to get ahold of you?

We’ve got a website, SottileAndBarile.com. You can get us by email. We have different types of ways to send us emails, whether you’re referring something or giving it to me or Tony. We have Collections@SottileAndBarile.com, we’ve got Foreclosures@SottileAndBarile.com and we’ve got our individual emails. By phone, we’ll respond as soon as possible. Email’s probably the best route. Scott, you’ve got my information same with Tony. What we can do is we can decipher those emails and say, “This definitely got to call back right away,” or some can maybe wait a couple of hours. By email would be the best route. We make phone calls at 8:00 PM, 9:00 PM. We have no problem with that. If there are things that need to get done.

If you guys are reading this, if you don’t have a file, don’t call and bother them. If you’ve got a file and you can send him some business, that’s great. If you don’t know what the heck you’re doing, wondering what you can do. Franco, I want to thank you for taking time out of your busy schedule and your caseload to help us out with this beyond the show. We love sending you business. I’m going to be heading up to Detroit and looking at a bunch of property. We should be sending over some new files here in the next couple of weeks besides get you some more stuff on the stuff that you were going to prepare for me too. Thank you so much.

I appreciate you bringing me on board. I know Tony appreciates it as well. We appreciate all the business you provided us. You want us to do any other type of podcast? I know Tony’s interested in doing some Bankruptcy 101. We love to continue doing this.

Big shout out to Adam Adams from AJA Investments as it was one of the first clients that brought you, working with you and he does a great job. He did a good job with the Cincinnati and Ohio tour taking it on allonge. Big shout out to Adam Adams, who wants to be the laziest note investor in the world as he likes.

He’s got a brain. We called him. You talk to him, for me it’s like talking to an attorney. He has his stuff together well. He’s not looking to cut any corners. He said, “You do what you have to do,” or setting up terms for settlements here and there. He’s been an absolute pleasure to work with. I’ve become good friends with them. He’s a good guy.

We’re proud of what Adam and Jennifer are doing.

Franco, thanks again. Have a great day. We’ll see you around.

I appreciate it, Scott. Take care.

Once again, if you’ve got stuff in Ohio and Michigan, these are the guys that you want to be using. They will definitely help you out. It’s just not me talking. I’m talking about tons of our mastermind group and other students have used them and nothing but good things to say about it. When you have people talking nice things about attorneys, that’s a good thing. Once again, great information on this show, talking about the different markets, markets to avoid and things that you probably didn’t know. If you enjoyed this, give us a five-star rating in iTunes. Have a great day. Go out and do something and we’ll see you all at the top.

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About Franco Barile

NCS 310 | Foreclosure Laws

Franco was licensed as an attorney in 2006 after graduating from Thomas M. Cooley Law School with a Juris Doctorate and from John Carroll University with a Bachelor of Arts in Political Science.  Upon graduating and passing the Ohio Bar, Franco began working for a large firm in the Northeast Ohio area.  Franco honed his skills as an attorney handling a variety of real estate foreclosure issues, collection matters, title issues and transactional work during the years since he was first licensed and eventually opened Sottile & Barile, Attorneys at Law in 2015.

Franco maintains state bar licenses in Ohio and Michigan and federal licenses in the Northern District of Ohio and the Eastern and Western Districts of Michigan.  Franco is a member of both the Ohio and Michigan State Bar Associations.

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