Today’s housing market offers some challenges for both buyers and sellers. There are too many foreclosures and short sales, and they say it’s a buyer’s market. Enter the Assignment of Mortgage Payment System (AMPS)—is this for real or a giant fraud?
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Editor's Note: This article was originally published in August of 2011 and has been placed in our Archive. The content of the article may not reflect current real estate information.
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In 2008, real estate guru Phil Grove of Texas decided the housing market was going nowhere. so he began developing the Assignment of Mortgage Payment System (AMPS)—it is also known as MAPS (mortgage assignment payment system).
In a nutshell, and according to Phil’s website (REI Maverick, link in reference section), he created the AMPS for homes that he calls “unsellable" to stop owner foreclosures and also for homeowners who are stuck in homes and owe more than the houses are worth.
It’s also an attractive way to get buyers who can’t qualify for a conventional loan into the “unsellable" house.
Seems like a great idea right? Let’s take a look.
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Let’s say Bob has a home he owes $100,000 on to ABC Lenders. Since the housing crisis, Bob’s house is now worth only $50,000.
Bob (you can use a realtor or not—but most AMPS programs are done via a realtor and a must-have AMPS attorney) finds Tom who needs a house but with his 580 credit score, he just can’t get any lender to loan him any money for Tom’s house.
With AMPS, Bob assigns his mortgage to Tom for the amount of the total loan $100,000, plus a little extra to pay realtor fees and then there are the attorney fees that are a must in AMPS transactions. So let’s say for example purposes only, that Bob sets a price at $110,000 and all Tom has to do is sign a mortgage assignment, have $10,000 in cash as a down payment and of that $10,000, all the closing costs are paid—including real estate commissions and attorney’s fees.
Tom is a happy camper, AMPS transactions can be completed in a few weeks, Bob moves out and Tom moves in. Simple right?
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Not Your Typical Closing Process
In an AMPS closing, you must involve real estate attorneys experienced in the process—they are rising up everywhere The lawyer does the title search and offers up the title policy. Instead of a general warranty deed, a trust deed is involved—set up by experienced AMPS law firms.
The closing process is still done at a title company. However, it’s not your typical process.
At the closing (using our example), Bob agrees to let Tom assume his mortgage and Tom promises to be a good boy and continue the payments as promised. The monthly payments include all property taxes and homeowner’s insurance.
There are a few other legal documents (most alleviate the law firm from being liable for ANYTHING) but most forms both parties sign are “Hey I’ll assign this to you and you’ll accept it." There are no conventional closing documents such as those used in mortgage loan closing.
Items assigned are the mortgage to ABC Lenders, any homeowner’s association fees, homeowner’s insurance, property taxes and a neat little trust deed placing Tom on the deed—but a trust deed has some caveats.
In an AMPS transaction, Bob, the seller, becomes the beneficiary of the trust, Tom, the buyer, becomes the grantor of the trust and finally, the law firm becomes the trustee (they de doth hold de most power).
The trust deed is recorded but nothing else really changes. ABC Lenders still thinks Bob owns the home and so does the county as far as property taxes go. Bob’s homeowner’s insurance company has no idea he entered into an AMPS transaction with Tom—unless Tom tells them, which would be a bad idea for Tom.
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First off, be warned here! No one—not a real estate agent, the seller or an attorney—can assign a lender’s mortgage. Only the lender can do that, but in an AMPS transaction, they are left quietly behind the scenes. Actually they don’t even know about the assignment.
Sure in the closing documents, Bob signed all sorts of documents offering power of attorney to Tom to discuss his mortgage with ABC Lenders (the keyword is “discuss" here), handle his property taxes and his homeowner’s insurance policy.
Here’s where things get messy. Even though Bob “assigned" all of these items to Tom, ABC Lenders could care less. Any lender has the power to call in a loan balance in full but in the AMPS system, lenders may be wary of the new owners and often call the notes in ASAP. This means if new homeowner Tom can’t come up with the loan balance of $100,000, he’s out of the house, lost his $10,000 cash he used as a down payment, all the mortgage payments he has made and the house resorts back to the trustee—the law firm. This law firm then goes to the original owner Bob and well, Bob can’t afford the home, so the law firm pays off the note and as trustee, they now own the home.
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What AMPS Lawyers Advise
You can visit Phil Grove’s website and see cool pictures of him with some of Donald Trump’s staff—not really impressive since “The Donald" started that whole “I wanna see the Obama birth certificate" protest.
You can also read tons of success stories from real estate agents and investors who bought and sold homes using AMPS; there are even YouTube videos urging realtors to get involved in this program. It’s all very tempting if you look at it from Phil’s point of view. But what could go wrong in our Bob/Tom example?
Bob feels happy! He’s sold his home and he’s out. Tom is happy, he’s gotten into a new home and isn’t stuck in a crappy apartment anymore. But wait!
Tom’s name offers him no real power—even in a trust deed. The loan is still in Bob’s name and so are the property taxes, records, and other elements. All Tom is doing is making the monthly payments on time which cover the loan, taxes and insurance—but paying doesn’t make Tom the only party here. Essentially, all AMPS does is offer another link (or should I say kink) in the title. That kink is actually the buyer, Tom. While the trust deed is recorded, you can pretty much record many documents for just about anything, so recording the trust deed doesn’t offer the new homeowner (Tom) total power here.
You may say, “Wouldn’t ABC Lenders be happy they are getting paid with so many others defaulting?" Probably. In fact, AMPS attorney’s will tell you lenders are happy 99 percent of the time. But what about the other one percent?
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Lenders Are Being Scrutinized
Many banks and lenders are now being scrutinized for lender practices, including some of the top banks like Wells Fargo and Bank of America. You can bet the farm, they are working hard to get their loan documents in order to avoid fines and penalties!
So, when Tom (with his handy power of attorney allowing him to “discuss" the loan) calls ABC Lenders and says he is taking over the payments, ABC Lenders will want Tom on the loan, meaning with his 580 credit score, he won’t qualify. So the lender may call the note due and payable in full—immediately.
The same issues with ABC Lenders may occur when Tom calls (power of attorney in hand) to change the homeowner’s insurance policy by placing himself on the policy. Most county tax assessors won’t care who is paying the taxes as long as they are being paid. However, don’t forget the monthly mortgage payments are being paid to ABC Lenders and they disburse the property taxes and homeowner’s insurance premiums via an escrow account. Red flags everywhere folks. Or, in other words, if you don’t want the lender to know things have changed, or if you are worried you might get caught in that one percent group of people where the loan balance will be called in, just keep everything the same and pay monthly payments. On time. Do not default. In other words, in our example, buyer Tom obtains Bob’s mortgage coupon book and keeps making payments.
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What About Bob?
Exactly! What about Bob? If you leave everything in his name and continue to make payments, you aren’t improving your credit score and all you have is that trust deed. The attorneys most likely want you to default so as the trustee, they can eventually own the home.
If you do decide to call the lender, you could be asked a ton of questions such as “who are you" and “what power of attorney" and “Bob is not allowed to assign his mortgage, only we are!"
AMPS attorneys often advise if you do contact the lender, tell them the owner offered the power of attorney for you to manage the property as he or she can no longer do this on their own for some reason or another. This seems pretty dishonest to me.
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Best Options for AMPS
If you are looking to purchase a home, such as Tom in our example, and your credit score isn’t quite where you want it to be, do the following:
After the AMPS transaction is complete, and I highly recommend you record the closing with everyone’s permission as AMPS attorneys will say things such as “we’ll help you if something goes wrong," continue to make the monthly payments and do not default. Don’t try to contact the lender, they may call in the note. If AMPS attorneys do indeed tell you they can “help you out," ask for that in writing with bullet points on how exactly they will help you out.
Find a reputable local mortgage broker who can offer you advice on how to increase your credit score to qualify for a conventional, FHA or even a VA mortgage loan (if eligible). These lenders will scrutinize your credit report and tell you which items you must get up to speed. In the case of Tom, his score is 580. Not so bad, so he may only need around six months to get it up to par. Most lenders aren’t worried about medical expenses not paid, but are concerned with credit cards and other debts and your debt to earnings ratio. Work closely with this broker—he’s free and he wants to get you into a loan so he makes money.
When your credit score is higher, work with the mortgage broker to get you the type of mortgage loan you qualify for as soon as possible. Remember, I’m talking “mortgage broker" here, not a mortgage company or lender.
Next, buy the house via your own mortgage which will pay off Bob’s ABC Lender and transfer all rights to you. You will get a general warranty deed, the most desired type of deed and the trust deed will be released and any links (or kinks) within that trust deed go away. Of course there will be additional legal and recording fees for that as well.
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Should You Purchase a Home Using AMPS?
Honestly, in my humble opinion, an AMPS transaction can work if your credit score is pretty close to where it needs to be to obtain a conventional loan. If you have a poor credit score but those involved in the AMPS transaction feel you have adequate income to make monthly payments and then you fall behind, you’ll lose a lot of money.
All AMPS transaction documents warn you should obtain the advice of an attorney before you sign. In fact, they warn it over and over again within the “closing" or should I say “assigning" of documents. Get an attorney to review them first. They may be able to work with the law firm holding the trust deed if you decide to actually contact the lender or when you obtain your own mortgage.
There are many skeptics about Phil Grove and his AMPS—actually calling them fraudulent transactions, however, all the documents prepared in an AMPS transaction are legal and do reveal the ins and outs of what could happen, much like any other mortgage loan.
Always keep in mind that while 99 percent of the time, if a lender is receiving timely payments, the account most likely won’t be their main concern—but there is that other one percent!
I also do believe that Mr. Grove found a loop-hole to get people into homes at reasonable prices and homeowners who can’t afford payments out of their homes, a sort of win-win but people should read the posts on the Internet about the AMPS being a scam or fraudulent. I’ve listed a link on the cons of AMPS in the reference section below to aid you in making a decision, but most you'll find are blogs on people who defaulted and are, therefore, complaining just to complain.
If you’ve entered into an AMPS transaction to purchase a home, how did it go? I’d love to hear your experience. On the other side of that coin, if you’re considering whether the AMPS route may be right for your needs and you have any questions, pop me a comment, I’ll do my best to find the answer.