On December 23rd, I wrote about the new Independent Foreclosure Review Process that had been ordered by Federal Regulators against major residential loan servicers such as BofA, Chase, Wells Fargo and many others. http://stevebeede.com/2011/12/the-independent-foreclosure-review-process/.  That process required the lenders to hire reviewers to contact borrowers who had been foreclosed in 2009-2010 and gather information on how the process was handled.  Theoretically, if an error occurred that caused a borrower to be damaged, there might be compensation available.  Well, it didn’t take long for the scammers to jump in.

Oregon’s Attorney General, John Kroger, has issued an alert that scammers are contacting Oregon consumers and offering to conduct an “independent foreclosure home loan review” or a “securitization review” for a fee. However, there is no costs at all for the real Federal program. “If you receive a letter suggesting that you qualify for compensation or received a grant without having requested an independent review from the federal government, it is a scam,” according to the warning issued by Kroger’s office. The alert bulletin stresses that a government agency will never request personal or financial information through email, and that any claims guaranteeing a mortgage modification or a stop to the foreclosure process should be a red flag.

 How this scam will play out remains to be seen but it certainly will attract those who think they were treated improperly.  Most likely the scammers will take the victim’s “review fee” and then disappear.  Others may act as front men for attorneys that promise they will sue the lenders and “make them pay”. Often, the only payment that will occur is the money transferred from the gullible victim to the predatory scammer.

California and many other states have been cracking down on law firms and others who pray upon those in default or have lost their homes to foreclosure. The California Attorney General’s Mortgage Fraud Strike Force has been created to protect innocent homeowners and bring to justice those who defraud them. http://oag.ca.gov/consumers/loan-modification. They offer “5 Tips to Avoid Being Scammed”:

1)   Don’t pay up-front fees. Foreclosure consultants are prohibited by law from collecting money before services are performed.

2)  Don’t ignore letters from your lender or loan servicer. Responding to those letters is your best bet for saving your house.

3)  Don’t transfer title or sell your house to a “foreclosure rescuer.” Beware! This is a scam to convince homeowners they can stay in the home as renters and buy their home back later. It might also be part of a fraudulent bankruptcy filing. Either way, a scammer can then evict the victim and take the home.

4)  Don’t pay your mortgage payments to anyone other than your lender or loan servicer. Mortgage consultants often keep the money for themselves.

5)  Never sign any documents without reading them first. Many homeowners think that they are signing documents for a loan modification or for a new loan to pay off the mortgage they are behind on. Later, they discover that they actually transferred ownership of their home to someone who is now trying to evict them.

If you are upside down on your California property or have lost your home in foreclosure and need help in determining what to do, we at BPE Law are here to help.  We offer a $200 flat fee one hour attorney consultation program that can help you understand the process, determine what your options are, and select the best strategy for your situation. And we can do this in person, by phone, or even by e-mail. You can reach us by e-mail at sjbeede@bpelaw.com or by phone at 916 966-2260.

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 advice in your State immediately so that you can determine your best options.

On April 13, 2011, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the Office of Thrift Supervision announced enforcement actions against 14 large residential mortgage servicers and two third-party vendors for unsafe and unsound practices related to residential mortgage servicing and foreclosure processing.  As part of those consent orders, federal regulators required servicers to engage independent firms to conduct a multi-faceted review of foreclosure actions in process in 2009 and 2010. Under the orders, independent consultants are charged with evaluating whether borrowers suffered financial injury through errors, misrepresentations, or other deficiencies in foreclosure practices and determining appropriate remediation for those customers. Where a borrower suffered financial injury as a result of such practices, the agencies’ orders require financial remediation to be provided.

To be eligible, the mortgage must have been active in the foreclosure process between January 1, 2009, and December 31, 2010, the property securing the loan must have been the primary residence, and the mortgage must have been serviced by one of the following mortgage servicers:

To be eligible, the mortgage must have been active in the foreclosure process between January 1, 2009, and December 31, 2010, the property securing the loan must have been the primary residence, and the mortgage must have been serviced by one of the following mortgage servicers:

• America’s Servicing Co.
• Aurora Loan Services
• BAC Home Loans Servicing
• Bank of America
• Beneficial
• Chase
• Citibank
• CitiFinancial
• CitiMortgage
• Countrywide
• EMC
• EverBank/EverHome Mortgage Company
• GMAC Mortgage
• HFC
• HSBC
• IndyMac Mortgage Services
• MetLife Bank
• National City Mortgage
• PNC Mortgage
• Sovereign Bank
• SunTrust Mortgage
• U.S. Bank
• Wachovia Mortgage
• Washington Mutual (WaMu)
• Wells Fargo Bank, N.A.
• Wilshire Credit Corporation

As part of that program, the 14 mortgage servicers covered by the enforcement actions will begin mailings November 1, 2011 that will continue through the end of the year. The mailings are intended to provide information to potentially eligible borrowers on how to request a review of their case if they believe they suffered financial injury as a result of errors, misrepresentations, or other deficiencies in foreclosure proceedings related to their primary residence between January 1, 2009 and December 31, 2010. The mailings will include a request for review form. Requests for review must be received by April 30, 2012.

The third-party consultant will assess whether any errors, misrepresentations, or other deficiencies resulted in financial injury to borrowers. Where a borrower suffered financial injury as a result of such practices, the consent orders require remediation to be provided.  During the review, customers may be contacted by mortgage servicers for additional information at the direction of the independent consultant.

Borrowers may also visit www.IndependentForeclosureReview.com for more information about the review and claim process. Assistance with the form and answers to questions about the process are available at 1-888-952-9105, Monday through Friday from 8 a.m. to 10 p.m. (ET) and Saturday from 8 a.m. to 5 p.m. (ET).

If you believe that you are eligible for the Review Program or need assistance with the process or determining your rights, we at BPE Law are here to help you with both the application and review process as well as any related proces such as making a Qualified Written Request for your loan information. You can reach us by e-mail at sjbeede@bpelaw.com or by phone at 916 966-2260.

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

The most common question we’re asked lately is what can we expect for 2012.  While we don’t have a crystal ball, from what we can sense the simple answer is to expect more of the same.

Loan Modifications - Although many web posting talk about increased numbers of people getting loan modifications, we’re not seeing this in California.  If anything, lender willingness to make changes seems to be worsening perhaps forced by large demand and lowered response capacity.  For those who do get modifications, principal reduction remains rare with private modifications exceeding HAMP nearly 2-1.  Don’t look for any help from Washington.  The Treasury Dept. will not enforce any strong procedures recommended by their own Inspector General.  Treasury says that “participation is voluntary” so there’s nothing they can do.  Even the much advertised HARP2 program which was to take effect on December 1st, is now pushed back to at least March 2012. Real help would take an act of Congress but they’ve shown no real willingness to compel the lenders to be more responsive.  With an election year coming up and the Republicans and Democrats drawing battle lines, helping upside down property owners is not on their agenda.

Short Sales - This remains the safety valve for upside down owners who can’t hang on. Between SB458 in July and the Debt Forgiveness Relief Act which expires at the end of 2012, Short Sales remain the best means that owners have to avoid deficiency judgment liability and resulting taxes.  The real challenge is getting lenders to respond, especially Bank of America. In November, Treasury rules went into effect requiring lenders to designate a “single point of contact”, a person who will act as the relationship manager for everything. This sounds good in theory but only if the designated person really exists.  Already we’re hearing repeated horror stories of the BofA point of contact not responding to e-mails, phone calls, or any other attempt to get the system to work. So short sales die because of lack of response.  And with BofA planning to slash another 30,000 jobs, it is reasonable to worry that this will only get worse. Beyond BofA, the short sale market appears to be finding an understanding of how to respond to SB458 requirements which bar recourse for any deficiencies following a 1-4 unit residential short sale.  Junior lenders will remain in the driver’s seat… at least when they believe there may be post-foreclosure recourse that is collectible.  As always, the key to short sales is having an experienced, skilled, and aggressive Realtor pushing the lenders to get the deal done. Short sales is not a place for the meak.

Foreclosures - With the lack of modifications and confusion in the short sale market, foreclosures are on the rise everywhere. As of August, BofA increased their foreclosure rate 200% and said they want to double that!  In part, the foreclosure increases reflect a year-to-date change from the moratoriums that took effect after the robo-signer scandal in the Fall of 2010. Foreclosure rates are highest in States like California where there is no judicial supervision of the foreclosure process.  Increased foreclosures are scaring buyers who fear further price drops and with good reason.  Prices are down over 30% from their 2006 highs and market watcher, Core Logic, reports continuing prices declines of 1% per month. FNMA reports that 4.5 million homes are now delinquent.  The high levels of foreclosures is also resulting in record numbers of Real Estate Owned (REO) properties which lenders take back, particularly in the inner-city, lower-income areas.  But rather than resell to individual homeowners, lenders have been selling these in large blocks to investors who will then rent the homes out.  As has been observed, this process is quickly unwinding the long history of neighborhood and urban stability brought about through the Community Reinvestment Act of the 1970’s and subsequent efforts to bring home ownership within the reach of blue-collar workers.

When will Recovery Start? - At the beginning of 2011, we thought that we’d work our way through the residential default backlog by this time.  That certainly was not the case.  Based in part of economic stress in Europe, the U.S., and here in California, the unemployment rate remains around 9% nationally and almost 12% in California.  Unless people gain stability in their paychecks, they cannot qualify for the loans needed to buy all the “shadow inventory” of foreclosed homes which is holding back lender capacity to make new loans.  Similarly, loans to new, job-creating businesses have been hard to get. Although recovery will vary by location, both FNMA and the Center for Responsible Lending agree that we’re about halfway through a 10 year process… look to 2016 for price increases to start in.  The most visible evidence of this will come in 2012-13 as all of the interest-only loans made in 2007-08 start to re-set as fully amortized loans, possibly with dramatic interest rate bumps as well.  Less visible but potentially even more serious will be the likely increase in commercial foreclosures as shopping center and office building owners run out of capacity to wait out the recession.  With those foreclosures, a great many small and large employers may get put out of business.

What Should You Do Now? - 10 years from now, people will say “why didn’t I buy in 2012″.  Interest rates are at an all-time low;  home prices are at or near the floor; and rents are not falling with the prices. There is a reason why investors are buying properties in bulk and grabbing whatever they can at foreclosure auctions. According to the Economist Magazine that recently surveyed real property values worldwide, U.S. property is 8% under-valued for the rent it generates and 22% under-valued relative to income. Don’t be surprised if foreign money starts buying up more and more property here… if they can get their money out of their own country.

For Real Estate Agents - If you don’t like the hassle of short sales, get over it.  We have a long way to go and short sales as well as REO’s will continue to define where you must look for business.  For short sales, stay in close contact to your farm areas and go knocking on doors and look for those people who purchased in 2007-08.  They need you.  The strongest agents will also build relationships with investors.  Remember, a reduced commission is not bad when the purchase price is $10 million or more.

BPE Law is here to be a part of your real estate team.  We’re experienced in all parts of transactions from acquisition to short sales to foreclosures and we work directly with you and your Realtor to help upside-down owners and anyone interested in real estate achieve their objectives. To learn more, contact me at sjbeede@bpelaw.com or even better, call us at 916 966-2260 for our $200 Attorney Consult to learn the strategies you need to move forward.

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

As the year winds down, it is time to take a look at the market and get some ideas what to expect going forward.

IT’S NOT A PRETTY PICTURE FOR UPSIDE-DOWN PROPERTY OWNERS

At the start of 2011, I believed that we would get through most of the residential foreclosures by the end of the year and that the market would focus on commercial foreclosures and loan workouts. That turned out to be way too optimistic. Ongoing troubles in financial markets in Europe, the United States, and particularly California coupled with confusion and instability amongst lenders have kept the possible buyers wary of committing. As a result, the “shadow inventory” of distressed home mortgages remains at an all-time high, even though over-all numbers are slowly dropping. Lender Processing Services (www.lps.com) reports that currently there are 6,298,000 mortgages going unpaid in the US. Standard & Poor’s estimates that at current rates, it will take at least 45 months for all of these properties to clear the system either through sales or foreclosure. A deteriorating housing picture, coupled with an increase in expenses and a drop in consumer confidence, led to a sharp decline in consumers’ financial health during the third quarter. The nonprofit credit counseling agency CredAbility puts out a regular quarterly index measuring consumer distress. Between July and September, the gauge recorded its largest drop since the third quarter of 2008. CredAbility’s data show the average consumer has been in distress for 12 straight quarters now.  As reported on my earlier Blog on November 1st, the government’s various programs to help upside-down owners have remained ineffective. Loan Modifications remain as hard to get as ever and short sales are facing resistance from junior lienholders who may find better recourse by forcing a foreclosure.
The bottom line: we cannot expect the market to truly get back on its feet until 2014 or later.

IT’S A GREAT TIME FOR BUYERS AND INVESTORS
While any market turndown means disaster for some, it also means opportunity for others. Given the extreme depth of this economic recession, the result is unprecedented opportunities for those who can act:

1) Property Prices are Down – Prices in California continue to fall. DataQuick (www.dqnews.com) reports that home prices in Sacramento County are down 9.68% from 2010 with California overall down 6.8%. REO’s and short sales make up more than ½ of all sales. Expect further declines in the short run as BofA and other distressed lenders seek to offload the high number of bad loans on their books. Their dramatic increase in foreclosure starts over the summer will skew the numbers further downward but only until they catch up with other lenders who didn’t stall foreclosures after the robo-signer debacle of Fall 2010.

2) Loan Costs are Down - On November 1st, the government raised FHA loan limits through 2013 to 125 percent of local area median home prices, up to a maximum of $729,750 in the highest cost markets. The loan limits for Fannie Mae- and Freddie Mac-backed mortgages, however, will remain at 115 percent of local area median home prices, up to $625,500. That means loans as low as 3.5% down payment for a 30 year fixed rate at 4.0% interest rate.

3) Rents are Steady & Rising – a study by www.ApartmentRatings.com indicates that rents in Sacramento have been climbing in 2011. Our experience was that there has never been much decline throughout this recession. The high number of foreclosed homes has meant a large increase in prospective renters, typically people that know how to care for a home and who will work hard to rebuild their credit so they can buy in again two to three years later.
The bottom line: Get your hands on property now – not for quick flipping but as a steady and stable investment in your future at prices and loan costs we have not seen in a great many years.

Having been a real estate investor, manager, broker, and developer for over 30 years, I’ve survived multiple economic crashes… scarred but with more knowledge to move forward. If you’re upside-down or ready to move forward with property acquisition, we can help.  To learn more, contact me at sjbeede@bpelaw.com or call us at 916 966-2260. In addition to handling all legal needs you may have, our attorneys are skilled in real estate purchase and sales, lending, property management, and negotiation.  Let BPE be your resource for real estate and business opportunity.

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

As reported in the Sacramento Bee and various financial news outlets, on Monday, October 24th, President Obama announced the administrations latest effort to help troubled homeowners, a revised Home Affordable Refinance Program, commonly called HARP.  Two big questions loom over the aministration’s latest bid to help troubled homeowners: Will it work? And who would benefit?

By easing eligibility rules, the administration hopes 1 million more homeowners will qualify for its refinancing program and lower their mortgage payments - twice the number who have already. The program has helped only a fraction of the number the administration had envisioned. In part, that’s because many homeowners who would like to refinance can’t because they owe more on their mortgage than their home is worth. But it’s also because banks are under no obligation to refinance a mortgage they hold - a limitation that won’t change under the new plan.

Here are some of the major questions and answers about the administration’s initiative:

Q: What is the program?

A. The Home Affordable Refinance Program, or HARP, was started in 2009. It lets homeowners refinance their mortgages at lower rates. Borrowers can bypass the usual requirement of having at least 20 percent equity in their home. But few people have signed up. Many “underwater” borrowers - those who owe more than their homes are worth - couldn’t qualify under the program. Roughly 22.5 percent of U.S. homeowners, about 11 million, are underwater, according to CoreLogic, a real estate data firm. As of Aug. 31, fewer than 900,000 homeowners, and just 72,000 underwater homeowners, have refinanced through the administration’s program. The administration had estimated that the program would help 4 million to 5 million homeowners.

Q. Why did so few benefit?

A. Mainly because those who’d lost the most in their homes weren’t eligible. Participation was limited to those whose home values were no more than 25 percent below what they owed their lender. That excluded roughly 10 percent of borrowers, CoreLogic says. In some hard-hit areas, borrowers have lost nearly 50 percent of their home’s value. Another problem: Homeowners must pay thousands in closing costs and appraisal fees to refinance. Typically, that adds up to 1 percent of the loan’s value - $2,000 in fees on a $200,000 loan. Sinking home prices also left many fearful that prices had yet to bottom. They didn’t want to throw good money after a depreciating asset. Or their credit scores were too low. Housing Secretary Shaun Donovan acknowledged that the program has “not reached the scale we had hoped.”

Q: What changes is the administration making?

A. Homeowners’ eligibility won’t be affected by how far their home’s value has fallen. And some fees for closing, title insurance and lien processing will be eliminated. So refinancing will be cheaper. The number of homeowners who need an appraisal will be reduced, saving more money. Some fees for those who refinance into a shorter-term mortgage will also be waived. Banks won’t have to buy back the mortgages from Fannie or Freddie, as they previously had to when dealing with some risky loans. That change will free many lenders to offer refinance loans. The program will also be extended 18 months, through 2013.

Q: Who’s eligible?

A. Those whose loans are owned or backed by Fannie Mae or Freddie Mac, which the government took control of three years ago. Fannie and Freddie own or guarantee about half of all U.S. mortgages - nearly 31 million loans. They buy loans from lenders, package them into bonds with a guarantee against default and sell them to investors. To qualify for refinancing, a loan must have been sold to Fannie and Freddie before June 2009. Homeowners can determine whether their mortgage is owned by Fannie or Freddie by going online: Freddie’s loan tool is at freddiemac.com/mymortgage; Fannie’s is at fanniemae.com/loanlookup. Mortgages that were refinanced over the past 2 1/2 years aren’t eligible. Homeowners must also be current on their mortgage. One late payment within six months, or more than one in the past year, would mean disqualification. Perhaps the biggest limitation on the program: It’s voluntary for lenders. A bank remains free to reject a refinancing even if a homeowner meets all requirements.

Q: Will it work?

A. For those who can qualify, the savings could be significant. If, for example, a homeowner with a $200,000 mortgage at 6 percent can refinance down to 4.5 percent, the savings would be $3,000 a year. But the benefit to the economy will likely be limited. Even homeowners who are eligible and who choose to refinance through the government program could opt to sock away their savings or pay down debt rather than spend it.

Q: How many homeowners will be eligible or will choose to participate?

A: Not entirely clear. The government estimates that up to 1 million more people could qualify. Moody’s Analytics says the figure could be as high as 1.6 million. Both figures are a fraction of the 11 million or more homeowners who are underwater, according to CoreLogic, a real estate data research firm.

Q: Who will benefit most?

A: Underwater homeowners in the hard-hit states of Arizona, California, Florida and Nevada could be greatly helped. Many are stuck with high mortgage rates after they were approved for mortgages with little or no money as a down payment and few requirements. The average annual savings for a U.S. household would be $2,500, officials say.

Q: When will it start?

A: Fannie and Freddie will issue the full details of the plan lenders and servicers on Nov. 15, officials say. The revamped program could be in place for some lenders as early as Dec. 1.

Bottom-line:  Will it help or is it just more political hype? - Market watcher DSNews.com notes that since HARP was rolled out in early 2009, approximately 1 million homeowners have refinanced their mortgage loans through the program. FHFA estimates that with the revised guidelines, another 1 million will be able to take advantage of the program.  If you are part of that additional 1 million, the revised HARP may enable you to save your home.  However, a big restriction will be the requirement that borrowers be current on their loans. For many, they’ve been told that to prove a “hardship” they must stop paying, ie: how can you really have a hardship if you’re still current on the loan? Since lenders are not at all compelled to participate in HARP, why would they want to take on additional risk for a borrower that is current on their payments?  So, looking at this from a purely business-decision view, HARP is not likely to benefit those who need it most. 

In all of these “solutions” to the debt crisis, what has remained absent and sadly will most likely continue to be absent is any significant push to compel lenders to reduce principal balances to enable borrowers to keep their homes. Common sense would suggest that if a lender is going to recover only 50% of the principal through a short sale or a foreclosure, they would be better off cutting the principal balance by 25% and keeping the borrower in their home. Unfortunately, common sense has never prevailed. HARP will effectively shift the refinanced liability to the taxpayer.  Similarly, many States are using stimilus money, ie: taxpayer money, to help homeowners pay their loans.  Nothing forces the lenders to actually bear the cost of a home-saving solution. 

While the revised program seeks to lower mortgage payments for underwater homeowners, the program does nothing to address the core problem — owing more than the home is worth. Though borrowers may save hundreds of dollars a month in lower payments by refinancing, they routinely owe tens of thousands of dollars more than their homes are worth, even after receiving aid. “In most cases people would probably be better off walking,” said economist Dean Baker, co-director of the Center for Economic Policy and Research.

If you are a California property owner, consider our $200 Attorney Consult program that will help you determine all of your options and choose the best strategy to enable you to move forward as intact as possible.  To learn more, contact me at sjbeede@bpelaw.com or call us at 916 966-2260. 

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

As you should know from reading my Blog postings, the passage of Califonia’s SB458 on July 15th changed the game plan for doing short sales.  Its most important aspect was barring junior lenders from having recourse against the borrower/seller or even asking them for monetary contribution. Although the feared crash of short sales has never occurred as severely as expected, real estate agents have been struggling to get junior lender cooperation. What has evolved is a number of “work-arounds” to get the junior lenders satisfied and get the short sale completed.

A workaround is simply a method, sometimes used temporarily, for achieving a task or goal when the usual or planned method isn’t working.  In the case of short sales, junior lenders who aren’t satisfied with what they may get from the first lender’s sale proceeds and barred by SB458 from getting anything from the borrower may refuse to do the short sale and hope they can do better if they sue the borrower after the first lender forecloses. Here are a few of the ways that creative and successful real estate agents are working around the SB458 restrictions and saving their clients from foreclosure:

1. Get Money from Someone Else - SB458 simply says that no lender can request a contribution from the Seller/borrower as part of a short sale.  It does not say that a lender cannot get contribution from others.  First Lender:  Typically the only money offered to junior lenders comes from the First Lender that gets almost all of the sale proceeds. Generally, first lenders make more money from a short sale than they could from a foreclosure but they regularly refuse to give the juniors any more than $6,000.  But if a foreclosure would bring much less to the first lender, they could be convinced to share more with the junior in order to net more for themselves through the short sale.  Buyer:  It is the Buyer who is bringing the money to the table.  If the Buyer really wants the property, they may be willing to contribute money to the junior lender to make the deal happen. This might be workable into the Buyer’s loan.  Real Estate Agents: Although agents hate this, it is not unusual for lenders to look to the agents to cut their commissions and let the difference go to the junior lender.  This is a “something is better than nothing” approach that unfortunately penalizes the parties that have put the deal together.

2.  Voluntary Seller Contribution - SB458 states that a lender cannot “require” the seller/debtor to make any contribution. But nothing says that the seller cannot “volunteer” a contribution. While in reality, no-one generally voluntarily decides to give money when they are not asked for it, the drafters of SB458 allowed that a seller may do just that if they have the funds and they want to get the deal done.  Typically this will be in response to a junior lender responding to a short sale offer with a requirement that they receive $X more.  While this does not state who must pay this, the language of the request is that any other party in the short sale can do so, including the seller.

3.   Re-write the Buyer’s Offer - If the junior lender can’t be satisfied, then the deal could die.  If so, then some agents have gone back to the buyer and written a new short sale offer for a lower purchase price than the original deal… lower by the additional amount the junior lender wants to receive.  The new offer is submitted and, if the first lender accepts the offer terms, the junior lender counters at the original offer price with the increased money going only to the junior lender. This has been working.

4.  Discount the Junior Loan outside of escrow - If the first lender refuses to allow money to be paid by the seller to the junior lender, then the sale might die and the seller would face foreclosure. Instead, it is possible to put the escrow on hold and, outside of escrow, the seller could negotiate with the junior lender to accept a discounted payoff of their loan.  For example, the seller pays money to the junior lender and the junior lender accepts this as satisfaction of the debt and releases their lien.  Then the escrow is re-opened, only the first lender is left in the deal, and the short sale closes.  We typically are successful negotiating discounted loan payoffs for 10-20% of the current balance.

5.   Discounted payoff before short sale - For some sellers who are upside-down on a property but have substantial other assets, there is a danger in doing a short sale in that the Hardship Application process requires that they disclose their personal assets.  This can cause a junior lender to reject a short sale because they believe they can collect from the seller in a post-foreclosure lawsuit.  In such cases, it can be better to negotiate a discounted payoff with the junior lender before you ever start the short sale.  Now it is simply a business transaction: how much will the junior lender accept in exchange for a lien release?  Again, 10-20% is common but generally no financial statements are required. If this works and the junior loan is eliminated, then the seller may be able to proceed with the short sale knowing that first lenders will almost always accept the short sale terms.

All of the foregoing concepts are foreclosure-avoidance, short sale success strategies that real estate agents and their clients are actually using in today’s California real estate market. If you are having success with other creative approaches, please let us know. Remember: all agreements in a short sale must be disclosed to everyone and must appear on the Closing Statement (HUD1). No secret side deals are allowed. Secret side deals are mortgage fraud and could subject participants to severe legal consequences. 

If you are a California property owner, consider our $200 Attorney Consult program that will help you determine all of your options and choose the best strategy to enable you to move forward as intact as possible.  To learn more, contact me at sjbeede@bpelaw.com or call us at 916 966-2260.  If you are interested in discounted loan negotiations, please contact my Associate Attorney, Alex Munn, at awmunn@bpelaw.com or call him at the office.

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

It’s hard to believe but it has been one year since news of the “robo-signer” scandal broke.  In their rush to foreclose defaulted loans, lenders were filing false foreclosure notices and fraudulent legal actions.  In the immediate aftermath, some lenders stopped foreclosing but the pace soon picked up when lenders realized that Washington wasn’t going to do anything about it.  Since then, the only sanction has been lawsuits by the Attorney Generals of several States against the lenders. Settlement negotiations have been going on for six months with no resolution in sight since lenders are demanding immunity from future prosecution.

Throughout all of this, despite all the hype, there remains no effective help for upside down homeowners who are frustrated and angry at unfulfilled promises such as the HAMP Program which remains mostly ineffective at reducing loan costs to overwhelmed debtors.  Instead, lenders seem to prefer foreclosure even if that results in less of a money recovery for their investors. As reported on foreclosureradar.com, Notice of Default filings in California are up 69.5%. In Sacramento, August NOD’s were up 85% over July.  Much of this increase is Bank of America. Market watcher Dataquick.com reported that BofA foreclosure filings in California increased 200% between July and August!

As I have written before, I have concern with BofA’s survivability as they continue to deal with the incredible losses from their Countrywide purchase. In July BofA reported an $8 billion 2nd quarter loss and there’s billions more of losses yet to go.  A BofA spokesman stated that even this increase may not be enough. BofA appears committed to forcing as much bad debt off their books as they can as quickly as they can.  Meanwhile, lawsuits continue to mount.  Insurance giant, AIG, filed a $10 billion lawsuit against BofA in early September; and FNMA is reportedly about to file a $20 billion plus lawsuita against BofA and others.

What all of this means is that we’re in for more troubling financial times as lenders try to rebound from the deep recession caused by the collapse of the real estate bubble. Added to this is continued economic instability in California, nationally, and in fact world-wide all of which is causing buyers and investors to question whether now is the time to buy.  California Association of Realtors (CAR) is predicting that sales will remain flat through 2011 and that property prices will fall 4%. They further project a small, less than 2%, price growth in 2012.  CAR’s chief economist, Leslie Appleton-Young, stated: “the best decription of what can be expected next year is the market will be bouncing along the bottom.” … “One of the biggest uncertainties in today’s market is what are the negative equity homeowners going to do going forward and how big a percentage will end up in the foreclosure process”.

So the bottom line is insecurity on the economy and continued efforts by lenders to clear defaulted loans off their books.  This means more short sales, more foreclosures and more REO properties.  For some, this will spell an opportunity to acquire good properties at a low price with cheap loans.  For others, it will be wait and see how low the markets go.  None of this is good news for upside down owners hoping to save their homes.  Looking forward to a 2012 Presidential election years, it is not at all likely that any further relief for homeowners can be expected befor2 2013.

If you are an upside down homeowner struggling to hang on, don’t give up all hope.  Keep trying for that Loan Modification. Although most will not get one, many loans are getting modified. Just keep pushing.  If you can’t hold on, then get good legal, finance, and real estate advice on your options.  If you are a California property owner, consider our $200 Attorney Consult program that will help you determine all of your options and choose the best strategy to enable you to move forward as intact as possible.  To learn more, contact me at sjbeede@bpelaw.com or call us at 916 966-2260.

As most of you know who follow my Blogs already know, last January the California Legislature passed SB931 which barred first lenders that consent to short sales from having any deficiency recourse against the borrowers. However, they quickly learned that it is junior lenders (seconds, HELOCS, etc.) that control the success of short sales. So on July 15th, the Legislature passed SB458 imposing the same recourse bar on junior lenders plus they barred any lender from requiring a money contribution from the sellers. These law changes created and then amended California Code of Civil Procedure Section 580e.

Reaction to SB458 was immediate. Proponents claimed it a victory for upside down homeowners while we and many Realtors thought it would be a disaster and kill further short sales. Indeed many short sales quickly died and pressure started mounting to undo the damage. But there wasn’t much data to go on as to its actual overall effects. So last week I sent out a Survey amongst our clients and contacts asking for input on what they were actually experiencing in their short sale deals. The responses were clarifying. Of those whose short sales were impacted, just over 50% said it hurt while just under 50% said it helped. Most responders were unclear on what the impact would be. I contacted representatives of the California Association of Realtors and learned that they had been polling hotline calls from their Members statewide. CAR found the numbers more positive than negative but again, like us, too little actual numbers to give a clear picture.

The conclusion at this point is that there is still a lot of uncertainty in the market, particularly amongst lenders trying to understand and respond to SB458. However, here are the main benefits we see emerging:

1. SB458 forces junior lenders to evaluate right now whether or not they could collect from a borrower if they waited for the first lender to foreclose and then sued as a sold-out junior lienholder. Prior to SB458, the junior lender could get some money in the short sale while holding out for recourse on the balance. They could then wait this out for several years and hope the borrower gets solvent. Not any more. Clearly this makes the borrower’s hardship application and particularly their net worth statement even more important in the decision making process;

2. SB458 appears to have brought an additional liability protection for borrowers who agreed to a prior short sale with deficiency recourse. The first Paragraph of the new short sale law begins: “No deficiency shall be owed or collected, and no deficiency judgment shall be requested or rendered…..” Nothing in SB458 states that it only applies to short sales after July 15th.

No doubt there will be a lot more debate and analysis and litigation concerning SB458 and its impacts. As with any law, it will be subject to judicial review in the courts and further change, expansion, and clarification by the Legislature. But for now, CCP580e is the law of the State of California.

The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you have specific questions about dealing with upside down loans or real estate, be sure to contact a real estate attorney in your State. We provide advice worldwide concerning California property.

If you have further questions about SB458, need assistance convincing junior lenders to consent to a short sale, or are facing collection actions by any lender, please feel free to contact us for knowledgeable advice and experienced guidance. You can reach us by calling our office at (916) 966-2260 or you can e-mail me directly at sjbeede@bpelaw.com.

by Steve Beede, Robert Enos, Alexander Munn, and Keith Dunnagan

As readers of this Blog are aware, California recently enacted SB458 dramatically changing the rights of lenders who participate in a short sale. Although as we expected, this new law has made short sales much more difficult, recent experience has shown us an unexpected benefit, a ray of hope for all borrowers who previously completed a short sale and may have junior lender deficiency risk. 

Background on Deficiency Liability: California Code of Civil Procedure Section 580 contains the law governing rights of plaintiffs to obtain a judgment against a defendant. It’s principal Sections, 580a, b, c, and d, govern the rights of lenders to obtain a deficiency judgment against a borrower following a real estate foreclosure. For example, CCP 580b prohibits deficiency judgment for purchase money loans on 1-4 unit owner-occupied property. Until 2011 however there was no clear law defining liability in “short sales”. That changed last January with the passage of SB951 which added Section 580e, commonly called the Short Sale Anti-Deficiency Statute, which bars first lenders who consent to a short sale from getting any deficiency judgment against the borrower. While this was helpful, the change left unclear the rights of junior lenders who would regularly demand recourse and/or money in order to get their consent to do the short sale. This has now changed. 

Passage of SB 458 - On July 15, 2011, California enacted SB 458 which revised Section 580e and drastically changes how short sales are handled in California. The revised CCP580e now provides that:

     1) all lenders are prohibited from seeking or obtaining a deficiency judgment following a voluntary short sale (including junior lenders);  and

     2) no lender can require that the borrower make any monetary contribution to the sale proceeds.

The impact of these two provisions are tremendous for bad or good and since it’s passage we’re seeing both.

First the Bad: As we wrote immediately following the law’s passage (see Will New Law Help or Hurt Short Sales), our fear was that junior lenders would simply kill short sales and seek a better result through post-foreclosure deficiency lawsuits. That certainly has happened and currently short sale participants are scrambling to save sales through first lender, buyer, and agent contributions to junior lenders. There’s even instances of sellers supposedly “volunteering” contributions to junior lenders since under the new law such lenders cannot require them to do so. In other cases, sellers that have access to some cash are negotiating “discounted pay-offs” of junior loans removing them entirely from the short sale. But without question. SB458 made short sales much harder to complete and foreclosures are climbing.

Now the Good: Over the past four years, hundreds of thousands of short sales have been completed in California and in a great many cases sellers agreed to junior lender demands that they remain liable for any deficiency. While we are certain that SB458 bars all attempts at collection of deficiencies for short sales which close on or after July 15, 2011, the legal question is whether the new law will apply retroactively to protect sellers in already closed short sales. We have been arguing that it does and gaining great results from our clients who had been facing lender lawsuits. Here’s a sample of what we’re experiencing since the law was revised:

     (1)   A major credit union in our area unilaterally dismissed a lawsuit against a borrower who had signed a short sale approval letter in 2010 which contained a deficiency clause requiring her to pay nearly $100,000. The credit union dismissed the case because it had yet to obtain a judgment against the borrower, and believed that because the revised statute prohibits any judgment for any deficiency, it’s case no longer was valid;

     (2)    In another instance, a national lender well known for its aggressive deficiency collections settled a borrowers pre-SB458 deficiency for only 10 cents on the dollar due to the uncertainty surrounding the revised CCP580e. What is uncertain is whether the revised statute prohibits collection of pre-July 15, 2011 deficiencies. As with the nationally-known lender, the ambiguities in the statute forced the lender to accept a mere 10 cents on the dollar. Our expectation is that this will compel many lenders may make the same type of settlements.

Most importantly, if the lender has not as yet sued the borrower on a pre-SB458 deficiency, or has sued the borrower and has yet to obtain a judgment, CCP580e can be read as creating an absolute bar to any such actions. In summary, while the revised CCP580e will likely kill many short sales that would have, under the old statute, been approved, it is a ray of hope to those borrowers saddled with a deficiency obligation.

So, if you completed a short sale before July 15, 2011, or know of a past client who did so, and it contained a deficiency clause, contact one of our attorneys immediately to discuss possible defenses under the new statute.  If you’re in the middle of a short sale and having difficulty with junior lender demands, we can possibly help convince the junior lender that doing the short sale is their best option.

The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are a real estate professional involved with short sales or in anyway providing communication or advice to upside-down owners, be sure to get competent legal advice in your State immediately before giving any advice.

If you have specific questions about dealing with upside down loans or real estate, feel free to contact us at sjbeede@bpelaw.com. We offer a $200 flat fee attorney consultation to review your situation and help you evaluate and choose the best opportunities. This can be done in person or by phone. If interested, please call us at 916-966-2260.