HAFA & Short Sales

Yesterday I attended a few short sale sessions at the California Association of Realtors EXPO and learned a lot about the new HAFA short sale program. I will be taking a course on it but every short seller out there should ask their Realtor if it looks like they are elgible for it. Thus far it looks like it is the most consumer friendly short sale program and that it is the fastest short sale program.

Check back for more information as I learn more!

Orange County Housing Report - The Year in Review

I check in with Steven Thomas's blog from time to time and his latest posting recapping 2009 and his predictions for 2010 are interesting. I agree with Thomas that short sales did and will continue to dominate. I also agree that the higher end homes will continue to decline in value (you have to read to the end to get to that prediction). If you are interested in Orange County real estate, I found his last post of 2009 to be a very worthwhile read.

And by the way - Happy New Year!

Bankruptcy Modification up for Vote in the House

Do you think bankruptcy judges should be able to modify mortgages on peoples homes? Did you know that bankruptcy judges can modify commercial mortgages but have been denied the ability to modify loans on a family's residence?

The House may be voting on mortgage modification in bankruptcy as soon as this afternnon.

If you would like to give lenders some incentive to actually complete some mortgage modifications, please call your representative today:

1. Phone toll free at: 877.354.4958
2. Put in your zip code
3. When you reach the receptionist:State your name and say that you are a constituent.
Ask the Representative to vote FOR the Conyers-Turner-Lofgren amendment (#201) to the Financial Services Reform bill.

This amendment will cost taxpayers NOTHING and will save millions of homes from foreclosure.

FDIC's Foreclosure Prevention Toolkit

If you are facing foreclosure and would like some good advice, check out the FDIC's new foreclosure prevention toolkit.

The FDIC's website is filled with a lot of good information. And I just want to add my own advice about the many foreclosure rescue scams - if it seems too good to be true - it probably is.

Foreclosure, Short Sale or Loan Mod? Watch out for the Tax Man

Generally, when debt is forgiven, that is a taxable event. Right now there are quite a few federal tax exceptions for your primary home. These are good through 2012. The bad news for California homeowner is that if you have a short sale, a foreclosure or a reduction in principal as part of a loan modification, you could have a taxable event. This article, "Those who lose homes may face state tax hit" in the San Francisco Chronicle is a good explanation of this dilemma.

Some other exceptions to the tax are if you are bankrupt or insolvent or if the debt forgiveness is on the loan that you used to purchase your home.

So if you will be the recipient of some kind of tax forgiveness on real estate, I highly suggest that you speak with your accountant. See if you qualify for any of these exclusions or have your accountant calculate your tax liability. Then you can see if walking away from your home or a short sale is worth it.

Where are all of the Obama (or HAMP) Mortgage Modifications?

The recent government report shows how inadequate many lenders response has been to the Obama foreclosure prevention plan. (See Wall Street Journal article.) You really have to wonder what these lenders have been doing all of this time. I have personal knowledge of many, many loan modifications where no progress is made and the lender seems to spend most of their time losing files and asking the borrower to resubmit information. Right now it seems like this loan modification business is an incredibly inefficient operation.

Today, the government promised us monthly reports on each lender's loan modification statistics. Something good may come of all this transparency. Either the lenders will start modifying loans or maybe Congress will be able to pass the Bankruptcy modification legislation. As reported by the Wall Street Journal, talk has begun circulating among the Democrats that it may be time to try for the bankruptcy bill again. At this point the bankruptcy legislation seems unlikely, but I do think that something needs to motivate the lending industry to work with borrowers - maybe fear will motivate them!

Second Lenders Suing for Deficiencies

If you are trying to complete a short sale or your home is in foreclosure - be careful. Second lenders are starting to pursue borrowers for the money the second lienholder lost in the foreclosure or short sale.

How do you avoid this result? See my legal guide that I just published on Avvo.com.

Foreclosures Fueled by Unemployment

It appears that the continued unemployment or underemployment of Americans is major cause of continuing foreclosures with no end in sight. (See Wall Street Journal article.) This comes as little surprise to me, a bankruptcy lawyer and a real estate broker. Most of my clients could easily afford their mortgage but after taking a 25% to 60% cut in income because of a health problem, the birth of a child, lack of overtime or significantly decreased commissions - many of my clients find themselves in trouble.
The current mortgage modification plan was based on subprime borrowers - who constituted the first wave of defaults. Now unemployment is fueling the foreclosure crisis and it is not limited to subprime borrowers. It includes alt-a loans and prime loans too. According to the Wall Street Journal article, the administration realizes that unemployment is now a significant factor and they are looking at their options. Let's hope they get some advice from some experts in California where we seem to be at the forefront of this problem.

Can I Get a Principal Reduction on My Mortgage?

I get this question from many of my clients. And the answer, of course, is - it depends. (Remember you are talking to a lawyer here.) It is extremely difficult to get a reduction in the principal balance of your mortgage in a loan modification. Sometimes it happens with a second mortgage but rarely with a first mortgage. In cases where a first mortgage is reduced - it usually involves litigation, a very expensive proposition. One way to eliminate a second (or third) lien on your home or investment property is to strip the lien through a Chapter 13 Bankruptcy. If your home (or investment property) is worth less than the first mortgage, then there is a good chance you can eliminate your second mortgage in bankruptcy. Chapter 13 bankruptcies are more complicated than a Chapter 7 (a complete forgiveness of your unsecured debt). If you think you might be eligible to get rid of your second mortgage, you should call a trustworthy bankruptcy attorney to discuss your particular options.

You Need Patience with Short Sales

Short sales of real estate require a lot of patience and persistence on the part of all parties. Each bank has its own approval processes. NPR just aired an insightful piece on the current state of short sales entitled "Short Sales Bring Hope and Frustration". It does look like the Obama administration is working on standardizing short sales in the next month. At this point, I do not see an end in sight for short sales or foreclosures - especially on the higher end homes in California. Since there are no jumbo loans - the higher priced homes are languishing on the market. The homes that do not require a non-conforming mortgage are moving quickly when they are priced well.

Easier Short Sales from Bank of America and Wells Fargo?

Both Bank of America and Wells Fargo are working on shortening the approval process for short sales. See "Banks Vow Smoother Short Sales". The banks have found that by the time the bank approves a sale the buyer is no longer interested in the property. Most short sales take 45 to 60 days for approval with some taking 90 days for approval if investors are involved. It looks like the banks are finally realizing that a short sale will save them much more money than going through foreclosure. This also appears to be a response to Obama's proposals concerning foreclosures that I wrote about in a previous post.

I promise to keep you all informed about foreclosure alternatives. I hope this will help some homeowners exit their homes gracefully and will preserve their credit so they can buy a home again at a much better price the next time around!

New Foreclosure Alternatives Program

Today, the Obama Administration announced the Foreclosure Alternatives Program to help homeowners avoid foreclosure. This program is for homeowners that do not meet the refinance or mortgage modification programs available on Making Home Affordable Loan Modification Program. Basically it is for homeowners who can no longer afford their homes. This program will not help homeowners stay in their homes but it will allow a homeowner to avoid foreclosure. Why is this important? Because a foreclosure on a homeowner's credit report will make it more difficult to purchase another home in the future.

One of the more important details is that the lender will be required to give the homeowner 90 days (in some cases more time) to market and sell a home. As any Realtor who has done short sales knows, the banks are often the most difficult impediment to accomplishing the short sale. This program gives monetary incentives to servicers, first lenders and second lenders. It also gives the homeowner funds for moving.

The other option in this program is encouraging deeds in lieu of foreclosure if the short sale does not work. I am not sure that this will really affect anything. Lenders do not like deeds in lieu because it does not give them the protection from liens that foreclosures do (at least in California - this may different in other states). Also, I am not sure a deed in lieu looks better on your credit report than a foreclosure. Hopefully there will be more guidance on this in the near future.

Loan Modification Bill Up for Vote in the Senate

I have just learned that the Helping Families Save Their Homes Act will be up for a vote in the Senat later this week. It is estimated that this bill will save 1.7 million homes nationwide. What does this mean for you? If you are a homeowner in trouble this could be just the help you need. If passed, this bill will put pressure on the lenders and the investors to really make meaningful loan modifications. Why? Because in order to qualify for this bankruptcy loan modification relief, a homeowner must have attempted to get a loan modification from their lender. My personal opinion is that bankruptcy filings will not increase as much as you might initially think - I think this legislation will provide a great incentive for loan modifications.

Please email your Senators and the White House today!

Want to know more about the bill? Here is a brief summary of the legislation. And here is a state-by-state breakdown of the 1.7 million homes nationwide that this bill will help save.

Senate Democrats Divided on Mortgage Modification Bill

Check out this article on the status of the mortgage modification in bankruptcy bill in the Senate. I am just wondering when our elected officials will work for the people rather than the lenders.

Call or Email Your Senator Today - Support Mortgage Modifications in Bankruptcy

The mortgage modification bill passed the in the House of Representative (hooray!) and has moved to the Senate. The bank lobbyists are working overtime to water down this bill so that it provides as little relief as possible to American homeowners. Please call and email both of your Senators today and urge them to support S. 61 and that this bill should not be limited to subprime mortgages.

To email your Senators (24/7):

www.nacba.org/TellCongress

To phone your Senators (9am - 6pm EST) (you will need to phone twice to reach both of your Senators):

TOLL FREE: 877.354.4958

The Government, the Banks, Lobbyists and Mortgage Modification

Well, it looks like the U.S. Government is finally putting some muscle behind mortgage modification. For factual details about the plan go to the new website www.financialstability.gov.

I hope that this program will fare better than Hope for Homeowners, a refinancing programs unveiled this fall with much fanfare. According to Business Week in "How Banks are Worsening the Foreclosure Crisis" by Brian Grow, Keith Epstein and Robert Berner, only 25 loans have been refinanced through Hope for Homeowners. You may ask - Why? Well, the Business Week article explains, "One reason foreclosures are so rampant is that banks and their advocates in Washington have delayed, diluted, and obstructed attempts to address the problem. Industry lobbyists are still at it today, working overtime to whittle down legislation backed by President Obama that would give bankruptcy courts the authority to shrink mortgage debt. Lobbyists say they will fight to restrict the types of loans the bankruptcy proposal covers and new powers granted to judges." Essentially, it sounds like the banks via their lobbyists have successfully watered down Congress's efforts to help stem the tide of foreclosures. The final affect is that the previous proposals have become useless.

As a bankruptcy lawyer and real estate broker in California, I see the trouble responsible, hard-working people are in with their mortgages on properties that they can no longer sell. Unfortunately, many of these people have pinned their hopes on modifying their mortgages to no avail. In fact mortgage modification (and short sales for that matter) had been gaining momentum until the banks received all of the stimulus money with very few strings attached. This fall, it seemed like the banks lost any motivation for working with borrowers.

I am hopeful that our government has learned from its mistakes and that we can do what is best for the American people rather than kowtowing to some handsomely paid lobbyists!

Free Credit Monitoring with AAA Membership

If you are a member of AAA (at least in Southern California), you can now get credit monitoring as part of your member benefits. This is a great perk as it allows you to receive free email alerts when key changes occur on your Experian credit report. This will allow you to catch any problems earlier. We already have a AAA membership because of other benefits (emergency services and other discounts) but this makes our membership even more worthwhile.

Since lenders are primarily lending to borrowers with outstanding credit scores, it is more important than ever to keep an eye on your credit report.

Mortgage Modification for Investment Property

Did you know that a Bankruptcy Judge can modify a mortgage on investment property? This does not apply to Chapter 7 cases but does apply to Chapter 13 cases. Currently, judges cannot modify mortgages solely secured by your personal residence. (There are a few exceptions but this is the general rule.) This is what the new bankruptcy legislation is attempting to fix.

It also appears that the mortgage modification bankruptcy legislation will not be part of the economic stimulus package. However this legislation still has the support of President Obama and the Democratic legislature.

What Is A Short Sale?

Many of my clients ask me, "What is a short sale?" The answer is pretty simple - it is the sale of a home where the seller's loan is more than the sales price of the home. When a homeowner gets in a short sale situation, they are often behind on their mortgage payments and have received or will soon receive a notice of default from the lender. In a short sale, a seller agrees to the terms of the sales contract and then the sales contract is submitted to the lender for approval. Right now, lenders are overwelmed with short sales and it can take a long time to review the sale documents. However, lenders are now approving short sales at a much greater rate because lenders have too many foreclosed homes on their books. A short sale is a way for homeowners to avoid foreclosure. Unfortunately, a short sale does have a negative impact on a homeowner's credit report similar to a foreclosure. (My source of this is the www.myfico.com site - if you do a search on foreclosures and short sales you will find the same information.) Generallly, short sales are priced below market so they can be sold quickly.

Loan Modification Help

Having problems making your mortgage payment now? Worried about paying your monthly mortgage payment in the future?

Please be careful of the new loan modification scams cropping up. Unfortunately many of these companies are the same companies that sold people these tricky loans. If you are going to pay for help, you should make sure an attorney is involved in the negotiations.

As you will see if you start a loan modification, many lenders will not respond and/or your paperwork will be lost. When a financial package is prepared by an attorney - the banks pay more attention to your file. Don't let me mislead you - lender's are overwhelmed right now - this will take time. Also, because of the amount of time this will take, you should start this process sooner rather than later.

What happens in a loan modification? A number of changes can be made to your home loan in a loan modification. First, lenders are much more likely to modify loans on your home - not investment property. Second, the modifications will depend on your particular situation. Some of the modifications that we are seeing are maintaining your current interest rate (before your rate resets), reducing your interest rate, allowing you to not make payments for a few months (aka forbearance), forgiving late fees or other costs and/or reducing the principal amount of your mortgage.

Good luck!