Under the new HAMP Guidelines creating PRA (Supplemental Directive 10-05), servicers are required to evaluate all HAMP-eligible loans where the loan balance is greater than 115% of the property’s fair market value to determine if a principal reduction is beneficial. If so, the servicers are encouraged to offer the principal reduction to the borrower although they are not required to do so. The reduction?is “earned” over a three-year period and is initially treated as a PRA Forbearance. Each year (for three years) that the borrower is in good standing on their loan payments, one-third of the original PRA forbearance amount will be reduced. This reduced amount will be applied to their unpaid principal balance and, at the end of the three year period, the loan would only be 115% of the fair market value at the start.

To participate in PRA, borrowers must still meet HAMP’s basic requirements: 1) personal residence; 2) debt to income ration greater than 31%; 3) loan balance of $729,750 or less; 4) Mortgage originated prior to Jan 1, 2009; and 5) be facing a financial hardship. Further, PRA will not work with all loans. Loans made by Government Sponsored Enterprises (GSEs), ie: Fannie Mae and Freddie Mac, will not qualify.

The question now is whether this new Program will have any real effect or will it just be a lot of hype with little actual help for homeowners.  Amazingly enough, the first lender to announce participation was OneWest, the lender created to purchase the failed IndyMac from FDIC. As readers of this Blog are aware, the sweetheart deal which OneWest received from FDIC in the purchase appears to have provided a greater incentive for OneWest for foreclose instead of modifying or even cooperating with a short sale. However, as reported by Carrie Bay at www.DSNews.com, this adoption may signal a new direction for OneWest.  BofA and Wells Fargo have announced similar programs of their own although we’ve seen few actual principal reductions actually go into effect so far.

If you believe that you would qualify for the HAMP Principal Reduction Alternative, contact your lender right away. With the current uproar over defective foreclosures, lenders may be looking for avenues to increase their public image. The PRA may be just the ticket to benefit both borrowers and lenders. For more information, contact the HAMP Solution Center at support@hmpadmin.com or 1-866-939-4469.

The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are upside-down on your loan(s), and considering a modification, short sale, or letting it go to foreclosure, get competent legal advise in your State immediately so that you can determine your best options.

If you have specific questions about your liability in California or about short sales, foreclosure, or any legal issues, feel free to contact me at sjbeede@bpelaw.com. We offer a $200 flat fee consultation to evaluate your liabilities and strategize a resolution. This can be done in person or by phone. If interested, please call us at 916-966-2260.

by Keith Dunnagan, Attorney, BPE Law Group Inc.

September 30, 2010 was a big day for anyone in California short selling property. On that day, Governor Schwarzenegger signed into law SB 931, will take effect on January 1, 2011 and will be codified in the California Code of Civil Procedure Section 580e, what we commonly refer to as the “anti-deficiency” statutes. This is an important win for upside-down owners.  For the last few years, the question has been: what is the deficiency liability following a short sale. This statute answers it in part.

The new 580e states in part: “No judgment shall be rendered for any deficiency under a note secured by a first deed of trust or first mortgage for a dwelling of not more than four units, in any case in which the trustor or mortgagor sells the dwelling for less than the remaining amount of the indebtedness due at the time of sale with the written consent of the holder of the first deed of trust or first mortgage. Written consent of the holder of the first deed of trust or first mortgage to that sale shall obligate that holder to accept the sale proceeds as full payment and to fully discharge the remaining amount of the indebtedness on the first deed of trust or first mortgage.”

What this new law appears to mean is this: if you complete your short sale on your residential property, there will be no deficiency obligation on the first mortgage. Unlike the existing Section 580b which only protects borrowers with “purchase money loans” on their primary residence, the new 580e catches all first loans on all residential properties regardless of whether they have been refinanced or not. While there are some ambiguities, the statute states that there will be no deficiency for any note secured by a first deed of trust or first mortgage. By writing the statute with such broad language, it reasonably should cover both residential investment property as well as refinanced first loans. Essentially, what the new 580e does is provide the same anti-deficiency protection that Section 580d currently provides following a Trustee Sale.

While this is good news with respect to first mortgages, the statute has no effect on liability regarding junior loans (seconds, thirds, HELOCs, etc). Sellers will still need to work with and negotiate with their lenders on obtaining a release of liability from the juniors. However, this is a step in the right direction. The majority of time, the first loan is the biggest loan and the biggest worry. California has now provided the assistance and tools needed to deal with the deficiency on the first.

The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are upside-down on your loan(s), and considering a short sale, get competent legal advise in your State immediately so that you can determine your best options.

If you have specific questions about your liability in California or about short sales, foreclosure, or any legal issues, feel free to contact me at kbdunnagan@bpelaw.com or contact Steve at sjbeede@bpelaw.com. We offer a $200 flat fee consultation to evaluate your liabilities and strategize a resolution. This can be done in person or by phone. If interested, please call us at 916-966-2260.

For many months, we’ve been hearing of Courts throwing out lender lawsuits for judicial foreclosure based upon falsified declarations.  Now many States are jumping in and suspending certain foreclosures.  Here’s the background in what is going on and what to expect in the future.

Each State has its own laws for handling defaulted home loans. For example, California allows both Judicial foreclosures (lawsuit in the courts) and non-judicial foreclosures (non-court Trustee Sale).  Each method has its pros and cons for lenders, but because of the speed and lower cost of Trustee Sales, that is generally used for home foreclosures. However, in California if a lender does do a Trustee Sale, they give up any right to recover a deficiency judgment on the unpaid balance.  It’s different in other States.  23 States only allow Judicial Foreclosure so their foreclosures are always Court supervised. The remaining States allow a choice of either method but only a few bar deficiency judgments after Trustee Sale.  So there are two issues arising in a foreclosure: 1) loss of home; and 2) deficiency judgment risk.

The problem for lenders first arose in the judicial foreclosure States.  As part of their legal filing, the lenders were required to provide a sworn statement as to the truth of the facts claimed in their lawsuit such as that they owned the loan and that the procedures for foreclosure were properly followed.  However, it was discovered that attorneys for the lenders were falsifying the sworn statements and in many cases simply having someone sign the form without any actual knowledge of the facts, so called “robo-signers”.  Presumably the lenders and their attorneys filing thousands of such lawsuits believed that no one would pick up on this and they hoped they could get quick results. They were wrong.  Attorneys for some defendants challenged the lawsuits and the false statements and the Courts have responded by throwing out the lawsuits.

While lawsuits get challenged all the time and typically are corrected, the extent of these falsified Complaints indicated a systemic policy of lenders committing this fraud.  Faced with potentially damning publicity and possible legal sanctions, lenders stated damage control. Last month, GMAC admitted that their employees had falsified foreclosure documents.  Recently, Chase and BofA admitted the same.  Each has stated that they are suspending foreclosures until the problem is fixed. Meanwhile, the States have started to act. on Friday, Connecticut suspended all foreclosures for 60 days.  California’s attorney general has ordered Chase to stop foreclosures or prove the validity of its process.  More are expected to follow as further evidence comes out showing the corruption in the foreclosure process.  However, other lenders such as Wells Fargo have not made any suspension and have recently indicated its intent to increase the pace of foeclosures. This is surprising given indications that Wells Fargo has also filed lawsuits against borrowers without legal merit.

These foreclosure suspensions will give affected upside-down owners some more time but they will not result in loan foregiveness.  The lenders will fix the problem and defaulted loans will eventually be foreclosed unless an alternate resolution is reached.  This means that impacted lenders will likely be much more receptive to a loan modification or short sale without deficiency recourse.  The one step that we do not expect to see is Congress or State legislatures coming to the rescue of homeowners.  They have shown no willingness to date to do anything other than bailout lenders without recourse for the terrible lending practices that drove us into this Recession.

So, if you or your clients are upside down on a loan and facing foreclosure, this is a time to act to seek that modification or complete that short sale.  If you are facing a lender lawsuit, get representation and put up a challenge. The lenders’ hope with these fraudulent lawsuits was that they would win without challenge. I’s up to you to stop them and the Courts may be willing to help.

The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are upside-down on your loan(s), especially if you’re facing a lender lawsuit, get competent legal advise in your State immediately so that you can determine your best options. 

If you have specific questions about your liability in California or about short sales, foreclosure, or any legal issues, feel free to contact us at sjbeede@bpelaw.com.  We offer a $200 flat fee consultation to evaluate your liabilities and strategize a resolution. This can be done in person or by phone. If interested, please call us at 916-966-2260.