There’s been a lot of activity recently promoting loan modifications while challenging those business that assist owners in obtaining modifications. Here’s the latest.

Mortgage Foreclosure Rescue Scams - While lenders are deciding how to respond to Pres. Obama’s real estate rescue proposals and the Senate procrastinates on Ch 13 BK “cram-down” authority, Fed and state regulators have gone on the attack against loan modification companies that prey on troubled owners by taking money up front but then deliver no results. While certainly there are good and effective modification counsellors out there, separating the real from the scams is extremely difficult. Watch out for these signs: 1) Big Money Up Front - the promises may be only to get your money. Look for pay upon success programs and check references; 2) Bailouts - don’t sign your title over to anyone that promises they’ll cure your default and then sell the property back to you. If it sounds too good to be true, it likely is;  3) Stop Foreclosure ads - many ads promise they’ll stop foreclosure by finding defects in your loan documents.  While an imminent foreclosure may be stopped, it may really be nothing more than a costly delay. Get a second legal opinion if these ads tempt you.   For more information, check out: http://www.fraudguides.com/mortgage-foreclosure-rescue-scam.asp

California Foreclosure Law Changes - As reported by Morrison & Foerster, The California Foreclosure Prevention Act (the “Act”) was enacted by the state Legislature, and signed by Governor Arnold Schwarzenegger on February 20, 2009. The Act, which amends the California Civil Code as it relates to residential mortgage loans, uses a “carrot and stick” approach to advance its stated goal of allowing “additional time for borrowers to work out loan modifications while providing an exemption for mortgage loan servicers that have implemented a “comprehensive loan modification” program. The “stick” is a mandatory 90-day moratorium on home foreclosures applicable to certain first lien mortgages.  New Civil Code Section 2923.52 will add 90 days to the existing 3-month statutory waiting period between the recording of the notice of default and the giving of the notice of sale.  Loans that are covered by the new legislation must meet four conditions: (1) the loan must have been recorded during the January 1, 2003–January 1, 2008 (inclusive) period, and must be secured by residential real property; (2) the loan must be a first mortgage or deed of trust; (3) the borrower must have occupied the property as his/her principal residence at the time the loan became delinquent; and (4) a notice of default must have been recorded against the property.  The “carrot” is an applied-for exception to the 90-day moratorium at new Civil Code Section 2923.53.  To qualify for the exemption as having a “comprehensive loan modification” program”, the program must have four key features.  First, it must be intended to keep borrowers in their homes when the anticipated recovery under the loan modification “exceeds” the anticipated recovery through foreclosure on a “net present value basis.”  Second, the program “targets” a housing-related debt-to-gross-income ratio of 38% or less on an aggregate basis (i.e., based on all of the servicer’s loans under the program; this ratio need not be achieved for each individual loan).  Third, the program includes “some combination” of the following:  (a) reducing the interest rate for at least five years; (b) extending the amortization period up to 40 years from the original date; (c) deferral of some unpaid principal until loan maturity; (d) reducing the principal; (e) compliance with a federally mandated loan modification program (note – the federal program must be mandated, not optional); and (f) “other factors” that the commissioner determines are appropriate.  Fourth, the program seeks to achieve “long-term sustainability” (which is not a defined term) for the borrower.  For the target 38% ratio, the borrower’s housing-related debts include loan principal, interest, property taxes, certain housing-related insurance, and homeowner association fees.  For more information, check out: http://www.mofo.com/news/updates/files/15309.html.

NEED INFORMATION NOW? Download Steve’s audio-seminar and e-book on Coping With Upside Down Loans: http://www.stevebeede.com/copingwithanupsidedownmortgage/ 

NEED LEGAL HELP NOW? If you have questions or concerns about your legal rights and obligations concerning upside down loans or any other real estate or small business questions, feel free to contact Steve Beede at sjbeede@bpelaw.com.