As readers of this Blog are aware government efforts to help upside down homeowners keep their homes have been a failure.  First, lenders are not willing to make the principal cuts needed to bring loan balances to an affordable level; and second, government lacks the political will to force the issue.  But this does not stop them posturing.  Last year it was “Hope For Homeowners” and this year it is the “Home Affordable Modification Program”. Both promised loan balance and payment reductions. Both have been a failure since Congress has been unwilling to force the issue by passing Bankruptcy cram-down authority.  HAMP has been especially frustrating because lenders have been offering “trial modifications” with reduced payments but then refusing to continue that payment level after the “trial” period.  Instead, it appears to be nothing more than a short-term money grab.  So, as government officials fret about lack of lender cooperation, foreclosures continue to rise and the real estate market continues to be flooded with short sales and REO’s.  But there is improvement in short sale processing that will help stabilize the market.

Short Sales offer benefits to all parties:  the upside down seller minimizes their credit damage and can negotiate issues of deficiency liability;  the lender gets money now and reasonably gets more than they would through a foreclosure, the buyer gets a home at current market values, and most importantly, one more property is removed from the market thus moving us closer to a real estate recovery.  The sticking point remains lender unwillingness to give up on recourse against the seller/borrower but that has been changing in recent weeks most notably with Bank of America dropping its insistence on recourse is all short sales.  So, while this will not help owners keep their homes, it does help them and the market get on with life and move to a recovery.

Processing the massive amounts of short sale Hardship applications remains a time-consuming effort for lenders. Help may be on the way through new companies such as Mortgage Resolution Services (MResolution.com) which are developing standardized processing and lender negotiation systems that promise to expedite the approval.  As always, borrowers should get independent advice from a knowledgeable attorney as to what their potential judgment and tax liability is before going into any short-sale or letting their property go in foreclosure.

If you have specific questions about your loans, liability, foreclosure, or any legal issue, feel free to contact me at sjbeede@bpelaw.com or call us at (916) 966-2260 for a phone or personal appointment.  We offer a $200 flat fee attorney consultation to enable you to evaluate your judgment and tax risks and to plan a strategy to minimize or even avoid them.  Need help Coping with an Upside Down Loan? Checkout Steve’s audio-seminar and e-book at: http://www.stevebeede.com/copingwithanupsidedownmortgage/.