For the past three years, I’ve been regularly advising upside-down property owners on the challenges, risks, and strategies of dealing with their lenders and upside down loans.  Over 2,000 borrowers and their Realtors have consulted with us to determine what they should do.  As our nation’s economy slowly recovers, some solutions have improved such as lender’s willingness to do short sales while others have gotten worse such as the failure of loan modification programs.  And we’re now defending more and more clients from lender and collection company lawsuits seeking deficiency judgments.

At the request of several clients, we’re providing the following informational links to Outlines that can help owners and Realtors know which questions to ask and learn which way to proceed.

Guide for Upside-Down Property Owners

Outline for Property Owners Seminar

Outline for Realtors Seminar

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.

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.

Across the country, real estate agents are reporting a dramatic increase of lenders rejecting short sales and pushing forward with foreclosures.  This change of practice seems to be most evidence with Bank of America although they certainly are not alone.  In one recent case in Washington reported on KATU.com, the lender (Flagstar) rejected the buyer’s offer as being too low and demanded a higher price. When a new buyer agreed to pay the lender’s price, the lender rejected the deal and foreclosed anyway.  In a similar situation in California, BofA rejected an offer that was substantially higher than comparable sales (realtown.com).  So what is driving this change?  It may be the interaction of several changes. Here’s what may be going on:

1.  Changes at Bank of America - it is no great surprise that BofA’s foreclosure rate would increase. As reported here on Feb. 9, 2011(Changes coming to BofA), this lender has now divided itself in two with one part holding their good loans and banking business, and the other part - called “Legacy Asset Servicing” - holding the bad. And they’ve brought in a veteran forecloser from One West Bank to lead it.  The expectation is that the two year plus lag times which BofA has taken to foreclose will soon disappear as they push to get these bad debts off their books.

2.  Changes at Fannie Mae and Freddie Mac - These government sponsored enterprises (GSE’s) are the actual investors in nearly 90% of all loans being made today.  As the investors, they have the control over whether a short sale offer is accepted or rejected.  Now that the government wants to get out of the lending business (winknews.com), there is a push underway to wind down the enormous amount of bad debt on their books. On February 23rd, Fannie Mae announced what it has called the “STAR” program which will actually rate lender servicers and provide rewards for those who perform timely and fines for those who don’t.  This could mean that lenders that do not foreclose timely will be fined! (see Bob Hertzog blog).

3.  Problems with Broker Price Opinions - The underlying cause of these rejections often is based upon the lender’s unrealistic opinion of the property’s value. When considering a buyer’s short sale offer, the lender has a responsibility to its investor to independently determine the value and for this they generally have their own real estate representative provide a broker price opinion, commonly called a “BPO”. While this should reasonably match up with what a buyer would be offering, it doesn’t always happen.  And sometimes it bears no relationship to reality.  Again and again we hear about lenders rejecting short sales and then opening the foreclosure sale with a bid even less than the short sale buyer would pay.  How can this make sense?  Well, there are some ways:

      (a)  Investor makes more money on a foreclosure - In many cases lenders’ and investors’ risk of loss is less than we might believe: (1)  lenders may have their own mortgage insurance policies in place that pay them only if there is a foreclosure;  (2) lenders may have some access remaining to TARP bailout money to offset bad loan losses; and (3) lenders such as One West who take over failed banks from FDIC may have government guarantees that pay them more if they foreclose (see: One West blog 8/2010).

     (b)  BPO is defective - Just because a bank requests their agent to run a BPO does not assure that it will be accurate.  In today’s marketplace, real estate values vary widely. If the agent does not use comparative properties of the same size, location, and physical condition, the BPO may tell the lender to demand a higher price than a buyer would be willing to pay.  If this happens to you, request a review of the BPO and provide good detail on the subject property and the comps.  A full-blown appraisal would be better but no-one wants to spend the money on this, especially if the lender is not really motivated to short sell.

    (c)  Negotiator Opposition - Even when everything seems right, the Short Sale must still be approved by the lender’s negotiator and this can add an element that has nothing to do with market value.  We recently were involved in a short sale with Chase in which the seller stayed current on their loan to avoid credit damage (he was a banker). The negotiator refused the short sale because, since he was current on the loan he must not have a hardship. She wanted him to pay the entire deficiency even though he had no ability to do so. This short sale eventually succeeded by “appealing upstairs” to a supervisor but it was a battle all the way. 

IN SUMMARY - Overall, there are five generally recognized reasons that Short Sale offers get rejected.  Make sure that the short sale offer you submit satisfies each of these:

      (1)  Price is too low:  Make sure to supply a fully and accurate comparative market analysis or approasal.  Be ready to counter a defective BPO.

      (2)  Short Sale Package Incomplete:  Don’t expect a lender to tale a hit on the deficiency if the Seller has not provided full information required to evaluate a hardship application, including net worth statement.

      (3) Seller does not Qualify:  If the Seller has assets that they can contribute to reduce the deficiency but refuses to do so, the lender may reject the short sale.  Bridging this requires analysis of the impact that a foreclosure could have on the Seller and on the lender.

     (4)  Buyer does not Qualify:  As with any offer, the lender must be reasonably confident that the Buyer will be able to complete the sale so be sure to provide at least a Prequalification Letter with the offer. Also, make sure that this is a third party transaction. If the Buyer is a friend, family member, or business associate of the Seller, it will probably be rejected as being a sham “straw buyer” seeking to stick the lender and then getting the property back to the seller.

      (5)  Bank sold the Loan:  Banks have thousands of loans on their books. Short Sale offers are often submitted to the lender who is receiving the Seller’s loan payments.  But they may only be a servicer if they have sold the loan.  Seek to get confirmation quickly that the lender still owns the loan… they may not know for certain themselves.

Meanwhile, 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.

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.

 In that matter, it turned out that the decision maker was the loan’s investor, FNMA.

Last Fall, controversy erupted nationwide when it was disclosed that lenders were falsifying Declarations legally required to foreclosure on defaulted property owners. The law requires that someone with personal knowledge of the facts declare under oath that the facts were true and that they justified the foreclosure.  In reality, banks were having staff members sign thousands and thousands of these Declarations without even reading them and with no personal knowledge of the facts they were swearing to.

Although the furor quickly died when banks promised to clean-up their acts, the Attorneys General of many States brought legal charges against the lenders. Last week, they unveiled a draft Settlement which contains a great many provisions which, if adopted, would end the abuses and inefficiencies which have plagued the loan modification process and led to the foreclosure of millions of homes.  Most controversial however is the requirement II.M. of the draft Settlement which would require lenders to consider and apply Principal Reductions as part of the loan modification process.  Opposition has been swift.

As reported in DSNews.com, almost as soon as the draft Settlement was released, Bank of America’s CEO, Brian Moynihan, spoke out against the principal reduction requirement saying “it would not be fair to underwater homeowners who have struggled to remain current”.  Senator Richard Shelby of Alabama stated: “This proposed settlement appears to be an attempt to advance the administration’s political agenda, rather than an effort to help homeowners who were harmed by a servicer’s actual conduct”.  And Iowa Attorney General, Tom Miller, acknowledged that “too generous a program might encourage homeowners to walk away from properties…”.  This was followed by the Chairman of the House Financial Services Committee, Spencer Bachus, who called the draft an effort to “transform the mortgage servicing industry and fundamentally change the rules that have historically governed relationships among borrowers, servicers, and investors”. He asked: “Will forcing servicers to fund principal reductions for underwater loans they service affect the incentive of mortgagors to stay current on their loans?”

Obviously the proposed Settlement is just a draft at this point and the final terms may vary greatly from the initial proposal.  But judging from the initial media reports, there is a widespread opposition to intervening in the lender-borrower relationship by compelling principal write-downs.  If the investors who provide their moneys to lenders to make loans cannot rely on their right to enforce the loan terms when there has been a default, those investors may decide to invest elsewhere. If so, the availablity of loans, especially for the riskier borrowers, will become much more difficult to obtain.  No matter what else happens, the political discussion created as a result of the Robo-Signer scam could potentially change the entire financial system for both the better and for the worse.

Please take the time to review the draft Settlement and let your Attorney General and House and Senate representatives know how you feel on this issue. Watch this Blog and others as the revisions occur.

Meanwhile, 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.

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 youre facing a lender lawsuit, get competent legal advise in your State immediately so that you can determine your best options.

As readers of my Blog are aware, there has been a legal issue in the nation as to whether MERS, the Mortgage Electronic Registration System, can foreclose on a Deed of Trust if they do not own the Promissory Note. First a little background.  A loan is generally made up of two documents: 1) the Promissory Note in which the borrower promises to repay the lender upon terms set forth in the Note; and 2) the Deed of Trust which gives the lender a security interest in the real property.  If the borrower defaults in payment under the terms of the Note, the lender can take the property based upon a foreclosure power contained in the Deed of Trust. Depending upon the State and the method of foreclosure used, the lender may or may not be able to obtain a court judgment against the borrower for any portion of the loan not paid (deficiency judgment).

During the growth of the real estate bubble from 2000-2008, lenders regularly sold the loans to get money to make more loans. This involved assigning the Note and Deed of Trust to the new owner and recording the assignment of the Deed of Trust.  This process was costing lenders millions of dollars in recording fees. Their solution to avoid this was the creation of a separate entity, MERS, which would be assigned the Deed of Trust but note the Note.  Then, if there was a default, whoever then held the Note would tell MERS to foreclose.  The legal question this raised was whether MERS had any real rights to enforce the loan default terms or were they merely an agent of the actual owner of the loan, ie: the holder of the Note.  This is very important because if MERS is only an agent, they have no legal right (”standing”) to take any action… only the holder of the Note can.  In States where foreclosure can only be done through a legal action (such as Ohio, Florida, and others), foreclosure actions by MERS started getting thrown out of Court when they could not prove that they also owned the Note. 

These early successes gave birth to law firms promoting that they would stop foreclosures by finding the disconnect between MERS and the Note holder.  However, it also started legal argument nationwide on whether this ownership of both the Note and Deed of Trust was required.  In May 2010, the US Bankruptcy Court in California ruled that if MERS did not own the Note, they could not foreclose on the debt (Case of Rickie Walker).  However, that did not settle the dispute.  As reported in DSNews.com , Courts around the country have continued to differ. Last week, a New York judge ruled that MERS cannot foreclose unless they own the Note.  But within days, judges in Kansas and Mass. ruled that ownership was not required. Other Courts, particularly the Minnesota Supreme Court, ruled that MERS could foreclose. On February 18, 2011, California Court of Appeals (4th Dist) ruled that MERS could foreclose (Gomes v Countrywide Home Loans). In that case, MERS was actually named in the Deed of Trust signed by the borrower and had authority to foreclose.  Different facts might bring a different result.

Only rulings by a State’s Supreme Court are binding on all lower courts in a State so it is likely that the dispute will continue.  However, consensus appears to be growing in the Courts around the nation that MERS does not need to own the Note to foreclose on the security.  Perhaps, although not stated, this reflects a judicial attitude that since the borrower has actually defaulted in repaying the debt, they should not be able to use the MERS technicality to avoid the consequences. 

Time will tell how this dispute eventually plays out. In the meantine, we advise that you do not get lured in by advertisements promising they’ll stop foreclosures because MERS doesn’t own the Note.

If you have specific questions about your loan and the lender rights or any other 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.

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 youre facing a lender lawsuit, get competent legal advise in your State immediately so that you can determine your best options.

Anyone involved in the real estate industry is aware of the processing problems at Bank of America.  Applicants for loan modification get pushed from trial mod to trial mod before being rejected and borrowers in default are often going two years without paying while no foreclosure is started.  Perhaps that will now be changing.

As reported in DSNews.com, Bank of America announced Friday that it has set up a new operational division to deal with problem loans and resolve investors’ mortgage repurchase claims. The newly formed unit, which the company has labeled Legacy Asset Servicing, will service all defaulted loans and discontinued residential mortgage products. It will be led by Terry Laughlin. Laughlin will oversee the bank’s mortgage modification and foreclosure programs, in addition to his existing duties of resolving residential mortgage representation and warranties repurchase claims.  In addition, Laughlin is charged with leading BofA’s borrower outreach program to include more than 400 housing rescue fairs in 2011, building additional homeowner assistance centers in communities across the country, and expanding partnerships with nonprofits.

The decision to establish a new, separate division to handle the company’s problem loans came out of the North Carolina bank’s very recent, and very public, robo-signing quandary, which prompted reviews of hundreds of thousands of case files and a nationwide suspension of all Bank of America foreclosures and REO sales. The bank said in a statement that the issues that came to light in September and October of last year led the company to initiate a “self-assessment of default servicing.”  While the review of the foreclosure process found that the underlying grounds for foreclosure decisions has been accurate, Bank of America implemented a series of improvements – including staffing, customer impact, and quality controls,” the company said.

Barbara Desoer, Bank of America Home Loans president, will continue to oversee the servicing of the company’s more than 12 million mortgage customers who remain current on their accounts, as well as the mortgage origination side of the business.  “This alignment allows two strong executives and their teams to continue to lead the strongest home loans business in the industry, while providing greater focus on resolving legacy mortgage issues,” said Brian Moynihan, BofA’s president and CEO. “We believe this will best serve customers – both those seeking homeownership and those who face mortgage challenges – as well as our shareholders and the communities we serve.”

Bank of America also said Friday that it is exiting the reverse mortgage origination business, citing “competing demands and priorities that require investments and resources be focused on other key areas of our business.”  Bank of America Home Loans will continue to serve the needs of existing reverse mortgage customers and those with loans in process.

Whether any or all of these changes will bring any certainty or predictability to BofA’s handling of loan modifications, short sales, and foreclosures is unclear at this time.  BofA has reported an increase of permanent modifications from November to December yet during that same period people in trial modifications declined.  Until we see any clear guidelines on what to expect when dealing with BofA, we encourage you to act early, connect with a Realtor, and know your options.

If you have specific questions 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.

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 youre facing a lender lawsuit, get competent legal advise in your State immediately so that you can determine your best options.

As followers of my Blog know, I have long stated that our current market crash was caused by a lending industry taking advantage of a government deregulation intended to make home ownership available to more Americans. In a classic example of the Law of Unintended Consequences, the deregulation allowed lenders to sell virtually any loan they created regardless of whether or not the borrower was qualified for the loan. This house of cards eventually crashed when original teaser rates re-set and millions of borrowers could no longer afford the loans.

In 2008, Congress created a Commission to investigate the cause of the crash and appointed Sacramentan, Phil Angelides, to head it. In a blistering report that followed 18 months of testimony and fact-gathering, Angelides and his Financial Crisis Inquiry Commission blamed a wide cast of characters for the epic meltdown, including executives of insurance giant AIG and Goldman Sachs and government policymakers like Alan Greenspan, Timothy Geithner and Ben Bernanke. The report said human error created the crisis. The Report blamed mortgage lenders for the flood of risky subprime loans that ignored “a borrower’s ability to pay.” Wall Street investment banks recklessly packaged the loans into toxic securities that exposed the entire financial system to melt down, the report concludes.

The panel held four field hearings, all in communities that were among the hardest hit by the real estate crash: Sacramento, Las Vegas, Bakersfield and Miami. In Sacramento, commissioners heard about the Central Valley’s vulnerability to the housing price bubble. One witness testified that appraisers were pressured by lenders to make inflated appraisals so shaky loans would go through. The final report mentions Sacramento numerous times, noting that housing prices more than doubled in a five-year stretch.

All the while, government watchdogs were asleep. For more than 30 years, lawmakers and presidents bought into the free-market ethic backed by the likes of Greenspan, the former Federal Reserve chairman. “The sentries were not at their posts,” the report said. However, following the release of the report, government officials lost no time in getting to finger-pointing. The crisis commission’s findings were caught up in immediate partisan bickering. While the report was endorsed by the six Democrats on the commission, the four Republicans refused to sign off on its conclusions.

At the press conference introducing the report, Mr. Angelides made no bones about where he stood on this question: This was an avoidable crisis, he said bluntly. As the report puts it, “The crisis was the result of human action and inaction, not of Mother Nature or computer models gone haywire. If only regulators had been willing to regulate; if only Wall Street had done proper due diligence on the mortgages it was securitizing; if only subprime companies had acted more honorably; if only the credit ratings agencies had said no when asked to slap triple-A ratings on subprime junk. If only, if only, if only”.

Now comes the real test of whether our leaders will put back in place the economic regulations necessary to prevent irresponsible lending while not stopping the economic recovery which is just beginning. We need to have a thriving lending system for our nation to continue to grow and prosper. But that lending system owes a duty to us all to act reasonably and responsibly… a duty sadly lacking in causing this market crash.

If you have specific questions about landlord-tenant law 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.

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 youre facing a lender lawsuit, get competent legal advise in your State immediately so that you can determine your best options.

It’s now January 2011 and borrowers who may have experienced a short sale or foreclosure in 2010 should be receiving 1099 Misc. Income statements from their lenders.  Most people are aware of the risk of lenders coming after them for a deficiency judgment after a foreclosure and they know how this may be avoided.  But few people understand or appreciate the tax liability that also can occur with any unpaid loan and how this too may be avoided.

“Debt Forgiveness” occurs anytime you don’t have to pay back a debt that you owe someone. In today’s world, that most commonly occurs through a foreclosure or a short sale when a lender or lenders are not paid in full. Unless the lender is pursuing a judgment for the deficiency (which is rare), our IRS Code states that the amount not paid, ie: forgiven, is taxable income to the borrower.  The amount of that income is shown on the 1099 form. This gets filed with your next tax return and, unless you have an exemption, you must pay taxes on the forgiven income. Fortunately there are numerous exemptions that apply that can enable you to avoid this tax. The most common are:

1.    2007 Federal Debt Forgiveness Relief Act - The Act (which has also been adopted in California) provides that there will be NO debt forgiveness tax if (1) the forgiven debt is on your personal residence; (2) the loss occurred between January 1, 2007 and December 31, 2012; and (3) any refinance monies went into the property. There are additional limitations on the amount of debt and how “personal residence” is defined. But this exemption may apply to most homeowners.

2.  Capital Loss Offset for Investment Properties - Many people who have lost or sold an investment property suffer debt forgiveness as a result. But, unlike a personal residence, and investor may claim a “capital loss” for the difference between what they have invested in the property (capital basis) and what the sale or foreclosure price was.  To the extent that the capital loss is greater than the debt forgiveness, the loss can be offset against the forgiveness and the tax may be avoided.

3.  Insolvency - If a person lists all of their liabilities, ie: everything they owe everyone else; and under that lists the fair market value of everything they own; if the liabilities exceed the value then that person is deemed to be “insolvent”. Under the tax law, there is NO debt forgiveness tax if a person is insolvent.  In this downturned economy, a great many people may fit this definition.  More importantly, the Insolvency Exclusion applies to any type of property and is not limited to a time period.

5.   Bankruptcy - a person who filed Bankruptcy is deemed to be insolvent and there is NO debt forgiveness tax.  However, for this to apply, the debt forgiveness must occur in the bankruptcy or after the debt has been discharged, not before.

6.  Purchase Money Debt - In order for there to be debt forgiveness, there must have been personal liability in the first place to be forgiven.  Under California law, debt that is incurred to enable a person to buy a 1-4 unit dwelling for their personal residence is non-recourse debt. There is no personal liability. Therefore, there can be no debt forgiveness tax on purchase money debt.

Obviously, when discussing taxation and tax avoidance, everyone’s particular situation can be different.  This Article is meant to be a general and limited updating on the status of debt forgiveness relief laws and is not to be relied upon for your personal situation.  To determine whether these apply to your situation, you must obtain the advice of a competent accountant or CPA.  Additional information on debt forgiveness tax can be obtained from IRS Publication 4681 “Cancelled Debts, Foreclosures, Repossessions, and Abandonment” (2009) which is available for download at: http://www.irs.gov/pub/irs-pdf/p4681.pdf . This appears to be the most current IRS publication on this topic.

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.

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.

As we enter this New Year, our economy remains in serious condition and millions remain in default and uncertain about their housing futures.  Yet in the midst of this mess, there is both Good News and Bad News.

First the Good News - 2011 should see some improvement in the general economy as the damage from the real estate and financial market collapse begins to resolve.  We’re already witnessing climbing values in the stock market and record prices for commodities such as gold and silver.  This may not mean confidence but at least people with money to invest aren’t keeping their money under their pillow.  Interest rates are edging up but are still historically low. Retailers have reported strong sales during the Christmas season and, in general, despite all of the political battles between Republicans and Democrats, consumers are feeling somewhat upbeat.  They’re still in pain but most can feel the healing taking place.

Now the Bad News -  This recession will not be over in 2011, particularly as it affects real estate.  While the economy may be slowly improving, businesses are being slow to expand and so unemployment remains very high.  Without greater certainty of stable employment, people are hesitant about making major purchases such as homes.  This uncertainty is causing economists to predict that California could be looking at another 10-11% drop in housing prices during this year fueled both by high unemployment and enormous State budget deficits. Millions of homeowners still face possible foreclosure as loan modifications remain unavailable to most. Further, the impact of the real estate bubble collapse is expanding:

1) Subprime Loan Borrowers - This was the first phase of damage from the recession. Although most of these sub-prime loans have by now been foreclosed or short-sold, 2011 will see another wave of defaults on those 2006-7 loans with 5 year adjustments.  As these move from interest-only to fully amortized, borrowers could see their loan payments double removing any capacity to pay;

2) Economy Impacted Borrowers - This is the second phase of the recession and it’s where we are today and will likely be for at least another year.  The tough part about a collapsing bubble is that it also causes “collateral damage” to those with good loans.  Millions have lost their jobs, or had cut backs or government furloughs that leave them unable to pay their loans. And with California’s record budget deficits, no-one has any confidence that State spending will improve.  Significantly, many economy-impacted borrowers may have other assets that they could spend to cover their loan deficiencies, but with no end in sight and further value losses predicted, many are finding it wise to “strategically default” rather than disclose their other assets to their lenders as part of a loan modification or short sale application.  For these borrowers, letting a foreclosure occur may make more financial sense.

3) Commercial Borrowers - This is the third phase and the one with the largest economic consequences.  One doesn’t have to look far to see empty store fronts of businesses that have closed terminating their jobs in the process.  Each of these also means a loss of income for the owner of the property and, added together, can cause the property owner to default resulting in a possible loss of all businesses. 2010 saw foreclosures nationwide of shopping centers and office complexes and large manufacturing companies.  Unlike home foreclosures, the failure of commercial loans often involves tens of millions of dollars in debt, loss of hundred or even thousands of jobs, and the loss of tax dollars for communities.  These problems together could bankrupt the lenders and even the communities where the businesses are located.  As a result, we’re now seeing commercial loan workout programs coming together with owners, lenders, accountants, community leaders, and others seeking to find a way to prevent the wide-spread losses that failure would bring.  We’ll likely be working on this area through 2014 and this will be the key in finally turning the corner from recession to real recovery in the real estate market.

Meanwhile, lenders are picking up the pace of foreclosures and filing lawsuits to recover loan deficiencies. In response, borrowers and governments are fighting back.  I’ll cover this in more depth in my next posting along with how you can protect yourself.

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.

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.

As we approach 2011, we look back on three years of economic disaster following the collapse of the real estate bubble. Clearly this bubble was the result of lenders making loans to unqualified borrowers. This increased competition among home buyers drove prices up… until buyers couldn’t afford the payments and the house of cards collapsed.  By 2008, programs such as Hope for Homeowners were calling on lenders to cut principal balances owed on upside-down loans to enable people to keep their homes. But the lenders wouldn’t cut, even after newly elected President Obama offered government help to pay for the cuts. So today we have a woefully unsuccessful loan modification program and foreclosures continue.

As reported in DSNews, foreclosures by Fannie Mae and Freddie Mac are exceeding modifications by more than 2 to 1 and by now we all know about lenders’ rush through foreclosure processing by using “robo-signers”.  Now, some help may be on the way.  The New York Times reported that in October, the Attorneys General from all 50 States signed onto an agreement for an investigation of lender practices. The AGs say that there is an opportunity to fundamentally change the way banks deal with defaulting borrowers so that more people can stay in their homes by modifying their mortgages, and that they will take the time needed. “The large banks say they are doing everything they can to avoid foreclosure, but that is not the reality on the ground,” said Patrick Madigan, an assistant attorney general in Iowa who is a lead figure in the investigation. “The question is, Why?”  

Meanwhile, this month a group of top economists, academic leaders, and influential investors sent a letter to Treasury Secretary Timothy Geithner and the heads of five federal regulatory agencies urging them to take the lead in setting national standards for mortgage loan servicers.  “Widely reported servicer fraud, whether in the foreclosure process or in the systematic assessment of illegal fees against homeowners, is…a serious problem,” the group said in the letter. To protect borrowers and investors alike, the group’s proposed standards would require servicers to provide loan modifications, including principal reductions, to address “reasonably foreseeable default” as long as the homeowner “can make a reasonable payment.” They also argue servicers should be held accountable for lost paperwork on loan modifications and for failing to suspend foreclosure when a homeowner is actively engaged in the loan modification process.

Will all of this activity be productive?  Only time will tell.  Historically, the government has been unwilling to interfere with contracts between lenders and borrowers.  But this “hands-off” approach brought us a real estate crash and a foreclosure mess that has disrupted the lives of millions of Americans with no real effort to solve the problem.  While no doubt any such National Foreclosure Reform will be promoted as helping homeowners, the underlying drive will be to restore security, transparency, and reliability to the financial system so that investors - those persons that put up the money so loans can be made - will regain confidence in the banking system enough to put their money at risk. 

Whether it be to help homeowners or help investors, either way we will all benefit from reforming the  current broken foreclosure system.  Watch here for further updates as this matter progresses. If you are impacted by this foreclosure problem, take the time to write your representatives in Congress and urge them to get behind this push for reform.

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.

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.

It has now been nearly three years since the real estate market began unravelling.  Millions still struggle with over-encumbered properties and loss of income from the recession. Most economist predict that home prices may fall another 11% in 2011, as rising defaults crash with difficult to get purchase financing. Yet there is some good news for the diligent:

1.  Housing prices are really undervalued. Today’s pricing is based on distressed sales. No-one would sell if they had a choice. This means that in reality, housing prices are higher than the sales would indicate. DSNews reports that the analysts at Capitol Economics have concluded that house prices are now 14% to 17% undervalued relative to disposable income per capita.  This is a 30 year high in affordability!

2.  Mortgage Rates remain low.  Although there has been some upward movement, mortgage rates remain between 4.25% and 5%.  My own office manager just refinanced her home for 3.5%!  Incredible financing opportunities.  Qualifying may still remain a challenge. Hopefully the lenders have learned their lesson and will actually require that the borrower have the ability to pay.

3.  Foreclosures are slowing.  Due in part to the Robosigner scam, foreclosure starts have been slowing even though delinquencies remain high. November Notice of Default filings were down 9.3% in California and 31.7% in Washington.  Lenders may be starting to realize that they can recover more for their investors by negotiating than they would get from a foreclosure. 

4.  Junior lenders are more willing to take hits.  The problem in most short sales has not been first lenders; it has been junior lenders (2nds and 3rds) who would have a personal judgment claim against the borrower after a foreclosure. Of course, having a claim and collecting upon it are two very different things. In the past week, our attorneys at BPE law have successfully negotiated a $200,000 release for $17,000; complete releases for $0; $150,000 for $5,000; and we’re completing a $2.2 million commercial loan payoff for no more than $100,000.

So what should this mean to you?  If you’re in default, keep negotiating with your lenders. They may be more accepting of a loan modification or a short sale without recourse or contribution.  And get help from real estate professionals in your community. They speak the language of the lenders.

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.

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.