As reported in DSNews.com, government officials have announced changes to the administration’s Home Affordable Modification Program (HAMP) which are expected to extend relief to a larger share of struggling homeowners as well as renters, according to federal officials.  One of the key adjustments to the program centers around principal reductions. HAMP currently includes an option for servicers to provide underwater homeowners who are struggling with their payments with a modification that includes a principal writedown.

As we’ve often seen in the market, Fannie Mae and Freddie Mac remain obstacles to both loan modifications and short sales by refusing principal reduction in loan modifications and restricting short sale contrbutions to junior lenders.  Since these two GSE’s own or guarantee up to 80% of all residential loans, they have a significant effect on market recovery.

To encourage investors to agree to principal reduction modifications, Treasury is tripling the incentives for such restructurings, paying from 18 to 63 cents on the dollar, depending on the degree of change in the loan-to-value (LTV) ratio. The Federal Housing Finance Agency (FHFA) has prohibited Fannie Mae and Freddie Mac from employing HAMP’s principal reducing option for their borrowers. Treasury has notified FHFA that it will pay these same principal reduction incentives to Fannie and Freddie if they allow servicers to forgive principal in conjunction with a HAMP modification. FHFA issued a statement in response noting that it recently released analysis concluding principal forgiveness does not offer any greater benefits than principal forbearance as a loss mitigation tool. But the agency says it will reassess the investor incentives now being offered, taking into consideration the number of eligible loans, operational costs to implement such changes, and the potential effects of incentivizing borrowers to remain current.

Among the other changes announced, borrowers who are struggling because of debt beyond their mortgages, such as second liens and medical bills, will be eligible for an alternative program evaluation with more flexible debt-to-income criteria. In addition, Treasury will expand eligibility to include investor properties that are currently occupied by a tenant as well as vacant properties slated for rental use. Tim Massad, Treasury’s assistant secretary for financial stability says single-family homes serve an important function as affordable rental housing, and foreclosure of investor-owned homes has disproportionate negative effects on low- and moderate-income renters, as well as communities.

The deadline for HAMP will be extended for an additional year through December 31, 2013.

Meanwhile, if you or someone you know is struggling with an upside-down property in California and don’t know what to do, our Consultation Program can offer knowledge of what to expect and form strategies to either keep the property or move on with as little financial risk as possible.  To schedule a Consultation, please contact our office 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.

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.

In November, 2010, the Federal Trade Commission passed a rule that bans providers of mortgage foreclosure rescue and loan modification services from collecting fees until homeowners have a written offer from their lender or servicer that they decide is acceptable (FTC MARS Rule).  Called the Mortgage Assistance Relief Services (MARS) Rule, it is designed to protect distressed homeowners from mortgage relief scams that have sprung up during the mortgage crisis. Bogus operations falsely claim that, for a fee, they will negotiate with the consumer’s mortgage lender or servicer to obtain a loan modification, a short sale, or other relief from foreclosure. Many of these operations pretend to be affiliated with the government and government housing assistance programs.

The MARS Rule has three key components:

1.   Advance fee ban - Under this provision, mortgage relief companies may not collect any fees until they have provided consumers with a written offer from their lender or servicer that the consumer decides is acceptable, and a written document from the lender or servicer describing the key changes to the mortgage that would result if the consumer accepts the offer. The companies also must remind consumers of their right to reject the offer without any charge.

2.   Disclosures - The Rule requires mortgage relief companies to disclose key information to consumers to protect them from being misled and to help them make better informed purchasing decisions. In their advertising and in communications directed at individual consumers (such as telemarketing calls), the companies must disclose that:

    (a)  They are not associated with the government, and their services have not been approved by the government or the consumer’s lender;

   (b)  the lender may not agree to change the consumer’s loan; and

   (c)  if companies tell consumers to stop paying their mortgage, they must also tell them that they could lose their home and damage their credit rating.

Companies also must explain in their communications to consumers that they can stop doing business with the company at any time, can accept or reject any offer the company obtains from the lender or servicer, and, if they reject the offer, they don’t have to pay the company’s fee. The companies also must disclose the amount of the fee.

3.   Prohibited claims - The MARS Rule prohibits mortgage relief companies from making any false or misleading claims about their services, including claims about:

   (a)  the likelihood of consumers getting the results they seek;

   (b)  the company’s affiliation with government or private entities;

   (c)  the consumer’s payment and other mortgage obligations;

   (d)  the company’s refund and cancellation policies;

   (e)  whether the company has performed the services it promised;

   (f)  whether the company will provide legal representation to consumers;

   (g)  the availability or cost of any alternative to for-profit mortgage assistance relief services;

   (h)  the amount of money a consumer will save by using their services; or

   (i)  the cost of the services.

In addition, the rule bars mortgage relief companies from telling consumers to stop communicating with their lenders or servicers. Companies also must have reliable evidence to back up any claims they make about the benefits, performance, or effectiveness of the services they provide.

All provisions of the rule except the advance-fee ban become effective December 29, 2010. The advance-fee ban provisions became effective January 31, 2011.

Most people in the real estate and lending community applaud this effort to protect already upside-down homeowners from predators promising help but who in reality are only out to take their money. However, passing a Rule is one thing, understanding and implementing it is another. In my next Article I’ll discuss the challenges being faced by the Real Estate industry to comply.

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), or if you are being tempted by companies promising to get you a loan modification and enable you avoid foreclosure, get competent legal advice in your State immediately before giving them any money up front.

If you have specific questions about your 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.

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.

One of the most common complaints we hear from upside-down owners is that lenders are non-responsive to their requests for loan modification or short sale. Documents are getting lost, or the lender says they have not been received, or the negotiator has changed, or many other excuses.  All of this has led many frustrated upside-down borrowers to believe that lenders have no intention of helping them despite all of the hype about government programs such as HAMP (Modifications) and HAFA (Short Sales and Deeds in Lieu). While I believe that most lenders are trying but are overwhelmed, there is a very real question of whether OneWest Bank is pushing for foreclosures.  The evidence suggests that it is.

First a little history.  A great many banks are insured by the FDIC, the national program designed to protect depositors’ assets. During the height of the real estate bubble, lenders were giving out loans without really any care for whether the borrower really could pay them back.  When the market crashed starting in 2006, foreclosures skyrocketed, banks lost their source of income and capacity to operate, ie: they “failed”. When a bank fails, FDIC steps in and takes control. This is what happened in 2008 with the collapse of Indymac. But FDIC does not want to run the bank. First they took control then found a buyer: OneWest Bank.  OneWest was created by a handful of very wealthy investors solely to take over Indymac from the FDIC.  What made this an attractive investment was the unique “Shared Loss Agreement” between Indymac and OneWest wherein OneWest purchased Indymac’s loans for between 58-70% of the balance owed but if there was a foreclosure, FDIC would pay 80-95% of the losses on the original balance. It is not rocket science to figure out that under this deal, OneWest could make far more money from a foreclosure than they could from a modification or short sale.  To learn more about this history, read Patrick Pulatie’s blog: http://iamfacingforeclosure.com/blog/2009/12/01/anatomy-of-a-government-abetteded-fraud-why-indymaconewest-always-forecloses/

So what does this all mean to you, the upside-down property owner: If you’re dealing with OneWest Bank or Indymac, don’t expect help because it may not be there.  Note also that FDIC has entered these Shared Loss Agreements with over 50 different lenders and servicers, although apparently none are as uncooperative as OneWest. Is there anything you can do to force them?  Possibly. First - write your Congressman for help. It is certainly unlikely that our legislature intended this perverse result when they approved the FDIC operations. This may put on pressure.  Second - use the Courts to get relief. Many States, such as California, require that a lender negotiate in good faith to attempt a resolution before commencing a foreclosure. Paragraph 2.1(a) of the FDIC-OneWest Shared Loss Agreement requires OneWest to “undertake, reasonable and customary loss mitigation efforts”.  A judge or jury can decide if OneWest has met their responsibilities. Remember, the squeaky wheel gets the grease. Faced with a legal challenge or Congressional pressure or both, OneWest may fix your problem to make you go away even if they are unwilling to change their policies.

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 having problems communicating with OneWest or Indymac, 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.

On March 5th, the House of Representatives gave a thumbs up to upsidedown homeownes by approving the Bankruptcy reform provision of President Obama’s Real Estate Recovery.  The provision would allow Chapter 13 Bankruptcy judges to “cram-down” loans to affordbale levels by lengthening terms, cutting interest rates and reducing mortgage balances of bankrupt homeowners. It also would permanently increase the FDIC’s coverage of bank deposits to $250,000. The measure passed the House 234-191 and now goes to the Senate.

Needless to say, the bankruptcy provision is opposed by the banking industry and most Republicans, who said it would further destabilize home prices. This makes passage by the Senate more uncertain. Everyone seems to agree that the bill is not perfect although there is a general concensus that something must be done to stem the wave of foreclosures.  Senate consideration will start next week and there is likely to be lots of pressure for revisions.  The bill passed the House narrowly and along party lines. Passage in the Senate will be more difficult.  Not mentioned in the many articles circulating will be just how the Bankruptcy Courts would handle the infux of potentially millions of new Bankruptcy filings. Certainly more staff would be needed and maybe even some expedited screeing process. Right now we’re at the big picture stage but, as with everything, “the devil is in the details”.

Stay tuned for further information. If you have specific questions about your liability, foreclosure, or any legal issue, feel free to contact me at sjbeede@bpelaw.com

As you know from my past Articles, a key component of the Obama Real Estate Recovery Plan is getting Congress to approve allowing Bankruptcy Chapter 13 Judges to “cram down” principal amounts on over-encumbered homes to current market values. Congress is debating this as they have been for many months. But there may be some interim help while we wait.

Yesterday while I was in Court assisting a client in a Bankruptcy matter, a lawyer came in on another case and sought to oppose a lender’s request for Relief from Automatic Stay. When someone files Bankruptcy, the filing automatically stops any adverse legal action against the debtor without the BK court’s permission. This lender was seeking that permission so they could complete their foreclosure of the debtor’s home. This is routinely granted since the borrower has no equity.  This time however, the result was different.  The attorney did not have any legally valid reason to oppose the lender’s request. Instead, he asked the Judge to delay ruling on the Lender’s request until the impact of the Obama Plan can be known. The Lender’s attorney did not vigorously object and the Judge actually agreed to delay ruling for 6 weeks. That gives that borrower another month ans a half to stay in their home and provides added incentive for the Lender to agree to a modification. Plus, it is not guaranteed that the stay will be lifted in 6 weeks. The attorneys must come back to court at that point and make any further arguement as to why the Relief from Stay should or should not be granted.

If you are one of the millions out there facing foreclosure, this result in this Bankruptcy court may provide an extra margin of help if other judges are willing to rule the same way.  While I am not at all a fan of Bankruptcy, in certain cases it is a necessary and valuable tool to enable an upside down borrower to get back on their feet.  If you have any other real estate or legal questions, please feel free to contact me at sjbeede@bpelaw.com or through our website at www.bpelaw.com .

Last Wednesday, President Obama unveiled his long-awaited plan to stimulate a recovery in real estate and assist homeowners facing foreclosure. Technically called the “Homeowner Affordability and Stability Plan“, the Plan is part of the President’s broad, comprehensive strategy to get the economy back on track.

The plan will help up to 7 to 9 million families restructure or refinance their mortgages to avoid foreclosure. In doing so, the plan not only helps responsible homeowners on the verge of defaulting, but prevents neighborhoods and communities from being pulled over the edge too, as defaults and foreclosures contribute to falling home values, failing local businesses, and lost jobs.

The key components of the Homeowner Affordability and Stability Plan are:

1. Refinancing for Up to 4 to 5 Million Responsible Homeowners to Make Their Mortgages More Affordable

2. A $75 Billion Homeowner Stability Initiative to Reach Up to 3 to 4 Million At-Risk Homeowners

3. Supporting Low Mortgage Rates By Strengthening Confidence in Fannie Mae and Freddie Mac

For complete details, go to the Treasury Dept’s Executive Summary at http://www.treas.gov/initiatives/eesa/homeowner-affordability-plan/ExecutiveSummary.pdf

So… how will this affect you if you are now upside down on your home loan?

First, In anticipation of the Plan, several financial institutions  have said that they will stop foreclosures on owner-occupied properties while they review and discuss the Plan’s contents. These include Fannie Mae and Freddie Mac plus Bank of America, J.P. Morgan, Chase, and Citigroup. This hold should last at least until mid-March and in many cases continues a hold started last September.

This gives some breathing room and hope to many on the edge of a foreclosure sale but… it only applies to owner-occupied properties, not rentals oe abandoned property.

Second, this measure (combined with other State measure such as California’s mandatory efforts to modify before starting foreclosure) should stimulate a more reasonable and pro-active approach to loan modification.

So far, banks have been very unresponsive and inconsistent in dealing with modification. This Plan will require lenders to modify loans if they want any more government assistance.

Third, the Plan calls for Congress to pass the pending Chapter 13 Bankruptcy “cram down” laws which would allow Federal Judges to reduce principal balances and payment rates to affordable levels. Right now, Judges have that power over consumer debts but not home loans.

Many fear passage of this will create a huge increase in Bankruptcy filings. However, whether done voluntarily by Lenders or through the courts, the end result is an owner-occupied home with an affordable loan at today’s market price. This is the same result a Lender would end up with after going through the trauma and expense of foreclosure.

Look to us for updates.  If you have specific questions about the economy impacts on your real estate of business, feel free to e-mail me at sjbeede@bpelaw.com or go to our website at www.bpelaw.com