The D.O.L.L.A.R. Deed Program for Ohio (the “Program”) was created following the passage of Substitute House Bill 303, and went into effect on September 28, 2016 in order to provide an additional loss mitigation option for homeowners in default of their residential mortgage obligations. The acronym “D.O.L.L.A.R.” stands for Deed Over, Lender Leaseback, Agreed Finance. Substitute House Bill 303 was unanimously passed by the Ohio legislature as a cost effective and efficient way for borrowers to avoid incurring the expense of defending a foreclosure action while trying to refinance their property and stay in their homes. As an alternative to the judicial foreclosure process, the law is meant to combat neighborhood blight and preserve home ownership by keeping borrowers in their homes while they try to refinance their defaulted mortgage obligations. If the refinance is unsuccessful, the property can be transferred to the lender. This affords Borrower with the opportunity to maintain and reclaim rights and possession of their real property while they try to address their outstanding mortgage obligations.
In order to qualify for the Program, a borrower does not have to be eligible for alternative mortgage loss mitigation, but his or her front-end and back-end debt-to-income ratios must fall below the current ratios set under the Home Affordable Modification Program (“HAMP”) at the time of the application to the lender. Further, the borrower must occupy the residence. There is no requirement for a lender to participate in the Program, but the lender must provide a written decision to the borrower within thirty days of receiving a complete application.
If a lender approves the borrower’s application for the Program, the parties would execute a deed-in-lieu of foreclosure, a notarized estoppel affidavit, and a lease with an option to purchase agreement. The Ohio Housing Finance Agency has enacted Ohio Administrative Code Rule 175-11-01, which created the model forms to be utilized by lenders wishing to utilize the Program. All of these forms are available on the Ohio Housing Finance Agency’s website. The estoppel affidavit prevents any legal action outside of the agreement made between the lender and the borrower. The deed-in-lieu of foreclosure and the lease with an option to purchase agreement would be filed with the county recorder. The deed would provide as follows: (i) that the lender’s mortgage and deed to the real property have not merged, (ii) that the lender retains its mortgage lien position on the property, (iii) that the transfer of the deed-in-lieu of foreclosure is an absolute conveyance of title to the real property, free and clear of any rights or claims of redemption, and (iv) that the transfer is the free act and will of the homeowner and is not made under duress or coercion.
The lease with an option to purchase agreement provides the consideration given by the borrower for the lender obtaining the deed-in-lieu of foreclosure. Then, the lender leases the property to the borrower that is the subject of the mortgage in default. The term of the lease is the earlier of the period of time necessary for the borrower to be approved for financing or other mortgage assistance by the Federal Housing Administration or two years from the date that the parties enter into the lease with an option to purchase agreement. The monthly rent charged under the lease by the lender is one-twelfth of an amount not less than the combination of all real property taxes, homeowner’s insurance premiums, and any homeowner’s association or condominium dues. Lastly, the purchase option must specify the purchase price available to the borrower for the property until the expiration of the lease term.
The lender approving the borrower’s application must provide to the borrower the documents for his or her review at least ten business days before they need to be signed by the lender and the borrower. If the 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 terminates. Further, if the borrower, as a tenant, fails to comply with the payment terms in the lease with an option to purchase agreement, he or she forfeits their right to purchase the property and can be evicted from the property in accordance with Ohio residential eviction law. Further, the law shifts the traditional liabilities that would normally be vested with a residential landlord to the borrower, who is now considered the tenant at the property. The borrower is solely responsible for many traditional landlord duties at the property such as: complying with building housing and safety codes; maintaining the safety of common areas on the property; keeping the property in a fit and habitable condition; maintaining a supply of hot running water on the property; maintaining all utility fixtures appliance and elevators; and providing for trash removal in a multi-dwelling units of at least four units.
Lenders, who are faced with the prospect of deteriorating residential collateral while the property sits vacant and abandoned by the borrower during a lengthy foreclosure process, may now have a mechanism to obtain title to the property while keeping the borrower as a tenant at the property while he or she attempts to refinance the obligation. A lender must still conduct its due diligence and determine whether there are any liens, such as unpaid real estate taxes and assessments and junior mortgage liens, that encumber the property. These liens would need to be satisfied, either through a deed-in-lieu of foreclosure or foreclosure action, to ensure that the lender can obtain clear title to the property if the borrower’s refinancing efforts are ultimately unsuccessful.