Foreclosure Scams and the Foreclosure Consultant Law
Copyright© 2008 CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.).
Legal Department
TABLE OF CONTENTS
I. Introduction
II. Foreclosure-Related Scams (Questions 1 to 11)
III. Foreclosure Consultant Law
A. General Overview of the Foreclosure Consultant Law (Questions 12 to 16)
B. Applicability of the Foreclosure Consultant Law (Questions 17 to 30)
C. Requirements of the Foreclosure Consultant Law (Questions 31 to 47)
IV. Additional Information (Questions 48 to 50)
I. INTRODUCTION
REALTORS® commonly consider the filing of a notice of default as the beginning of the foreclosure process. However, it may also be the start of something sinister. The public recording of a notice of default can act as a beacon to unscrupulous people who, under the guise of offering assistance, seek to take advantage of homeowners in distress. To protect homeowners in foreclosure, California’s foreclosure consultant law strictly regulates the activities of people who perform foreclosure-related services, including real estate agents to a limited extent.
This legal article discusses the issues surrounding foreclosure-related scams, with special attention given to the ways that REALTORS® and their clients can distinguish between legitimate and illegal enterprises. This article also provides REALTORS® with legal and practical guidelines for complying with the foreclosure consultant law.
What if you don’t qualify for loan modification?
The majority of the mortgage modification programs from the larger lenders only are available to homeowners who either already are in default or are at risk of defaulting on their primary residences. However, some homeowners, in particular those who may default on a vacation home or an investment property, have some options available.
MAKING SENSE OF THE STORY FOR CONSUMERS
• Homeowners who are in default or at-risk of defaulting should contact a reputable credit counseling agency to discuss possible options other than foreclosure. When calling a credit counseling agency, the homeowner should have their loan number, most recent mortgage statement, bank statements and a letter demonstrating financial hardship. To find a credit counselor, visit the U.S. Dept. of Housing and Urban Development’s (HUD) Web site at http://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm?webListAction=search&searchstate=CA or the non-profit organization National Foundation for Credit Counseling at http://www.nfcc.org/.
• Homeowners should contact their loan servicer as soon as possible to try to work out potential solutions. According to the Federal Housing Finance Agency (FHFA), some borrowers who do not meet the requirements for an existing mortgage modification program may still be considered for a loan adjustment based on personal circumstances.
• If a mortgage modification is not possible, homeowners may want to consider a short sale — sell the home for less than the amount of the mortgage. Although a short sale enables a homeowner to avoid foreclosure and often causes less damage to the homeowner’s credit score than a foreclosure, the lender must agree to accept the loss and in some cases the homeowner may have to pay taxes on the difference. Also, many lenders are overwhelmed by the large number of short sales being submitted by homeowners, so it could take longer than usual to receive a short-sale acceptance from the lender.
• If a homeowner cannot qualify for a mortgage modification or a short sale, some lenders will consider a deed in lieu of foreclosure, where the homeowner transfers the title to the lender in exchange for debt forgiveness. Properties that have additional debt, such as home equity lines of credit or additional mortgages, may not qualify for a deed in lieu of foreclosure. Homeowners who have additional debt tied to the property must share this information with their lender for consideration when applying for a short sale.
To read the full story, please click here:
http://online.wsj.com/article/SB122643638528218301.html
Be persistent during ordeal of short sale
Approximately one in five homeowners is “underwater” – meaning they owe more on their mortgage than their home is currently worth. For borrowers in default or at risk of defaulting, selling their house for less than is owed, often termed a short sale, may be the only option. However, short sale offers must be accepted by the bank that owns the mortgage, and can take as long as a few months before an offer is accepted.
MAKING SENSE OF THE STORY FOR CONSUMERS
• Some home buyers are submitting unrealistically low offers on bank-owned properties, hoping to purchase a home at a bargain price. Low offers often use valuable time and resources that could be dedicated toward more favorable offers more likely to garner bank approval. It is vital that home buyers work closely with their REALTORS® to submit appropriate offers, especially when dealing with a short sale property.
• Theoretically, short sales should be a win-win for the bank and the homeowner. Although the bank does not receive the full payment on the mortgage, it also does not incur the costs of foreclosure and/or eviction, if necessary. Many homeowners also prefer short sales because it does less damage to their credit score than a foreclosure. However, many real estate experts say that the majority of banks are reluctant to approve short sales, and often let properties go into foreclosure, even when there are reasonable offers on the property. In addition to considering the price, most lenders also take into consideration whether the homeowner can demonstrate financial hardship. If the homeowner is capable of making payments, many lenders will try to work out a loan modification, rather than a short sale.
• Short sales often are more time intensive than traditional transactions and often require additional paperwork. Due to the large number of short sale offers, many take as long as a few months to receive approval. If information or required forms are missing or incomplete, the bank may set the offer aside, which could delay the process and cause the property to go into foreclosure. To expedite the process, it is important that sellers work closely with their REALTOR® to provide all of the necessary paperwork.
To read the full story, please click here:
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/11/30/BUIQ14C4F5.DTL
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Home Ownership Preservation Loans
The FDIC is proposing that Congress authorize the Treasury Department to make loans to borrowers with unaffordable mortgages to pay down up to 20 percent of their principal. The repayment and financing costs for these Home Ownership Preservation (HOP) loans would be borne by mortgage investors and borrowers. This approach is scaleable, administratively simple, and will avoid unnecessary foreclosures to help stabilize mortgage and housing prices.
This proposal is designed to result in no cost to the government:
- Borrowers must repay their restructured mortgage and the HOP loan.
- To enter the program, mortgage investors pay Treasury’s financing costs and agree to concessions on the underlying mortgage to achieve an affordable payment.
- Treasury would have a super-priority interest — superior to mortgage investors’ interest — to guarantee repayment. If the borrower defaulted, refinanced or sold the property,
- Treasury would have a priority recovery for the amount of its loan from any proceeds.
- The government has no continued obligation and the loans are repaid in full.
Mortgage Restructuring:
- Eligible, unaffordable mortgages would be paid down by up to 20 percent and restructured into fully-amortized, fixed rate loans for the balance of the original loan term at the lower balance. New interest rate capped at Freddie Mac 30-year fixed rate.
- Restructured mortgages cannot exceed a debt-to-income ratio for all housing-related expenses greater than 35 percent of the borrower’s verified current gross income (‘front-end DTI’). Prepayment penalties, deferred interest, or negative amortization are barred.
- Mortgage investors would pay the first five years of interest due to Treasury on the HOP loans when they enter the program. After 5 years, borrowers would begin repaying the HOP loan at fixed Treasury rates.
- Servicers would agree to periodic special audits by a federal banking agency.
Process:
- Mortgage investors would apply to Treasury for funds and would be responsible for complying with the terms for the HOP loans, restructuring mortgages, and subordinating their interest to Treasury.
- Administratively simple. Eligibility is determined by origination documentation and restructuring is based on verified current income and restructured mortgage payments.
Funding:
- A Treasury public debt offering of $50 billion would be sufficient to fund modifications of approximately 1 million loans that were “unsustainable at origination.” Principal and interest costs are fully repaid.
Eligible Mortgages:
Applies only to mortgages for owner-occupied residences that are:
- Unaffordable – defined by front-end DTIs exceeding 40 percent at origination.
- Below the FHA conforming loan limit.
- Originated between January 1, 2003 and June 30, 2007.
- Home Ownership Preservation Loans: Questions and Answers
- Home Ownership Preservation Loans: Examples
- Related Link: Financial Times, April 29, 2008 – Op Ed: How the State can Stabilise Housing Market
- FDIC Chairman Sheila Bair at the Brookings Institution Forum, The Great Credit Squeeze: How it Happened, How to Prevent Another; Washington, DC – May 16, 2008
- FDIC Chairman Sheila Bair at the Brookings Institution Forum, The Great Credit Squeeze: How it Happened, How to Prevent Another; Washington, DC – May 16, 2008 – Video (Courtesy of C-SPAN – www.c-span.org)
Senate passes foreclosure rescue
Did you hear the big news? Your Senate just passed the mortgage rescue bill to give homebuyers a TAX CREDIT of up to $8,000. This tax credit will stimulate home buyers to get off the fence and buy foreclosure resale deals now, which translates into shorter investor hold times, faster resales, and bigger banked profits.
Unlike earlier versions of this bill ($7,500 credits for foreclosure buyers only) this $8,000 tax credit is good for first time home buyers (or anyone who has not owned a home in the last 3 years). And it will be much farther reaching by affecting ALL types of homes.
Jul 11, 2008 5:55 PM (3 days ago) By JULIE HIRSCHFELD DAVIS, AP
WASHINGTON (Map, News) – A mortgage rescue to help hundreds of thousands of struggling homeowners avoid foreclosure and get more affordable, safer loans passed the Senate overwhelmingly Friday, but it faces a bumpy road amid continuing turmoil in the housing market.
The 63-5 vote reflected a keen interest by Democrats and Republicans to send election-year help to distressed homeowners with economic issues topping voters’ concerns.
The plan lets homeowners buckling under mortgage payments they can’t afford keep their homes and get more affordable mortgages backed by the Federal Housing Administration. Banks that agreed to take substantial losses on those distressed loans could avoid costly foreclosures and be assured of recovering at least some money.
The new program would let the FHA insure as much as $300 billion in new mortgages, helping an estimated 400,000 homeowners. Full Story
FORECLOSURE RELIEF BILL BECOMES LAW
Friday, July 11, 2008
Brought to you by the CALIFORNIA ASSOCIATION OF REALTORS®
This week, the State Legislature enacted foreclosure reform law to address the adverse effects of high foreclosure rates in California. The new law requires lenders to contact homeowners to explore options for avoiding foreclosure at least 30 days before filing a notice of default. It also requires owners acquiring property through foreclosure to maintain the exterior of vacant residential properties. The new law also extends from 30 to 60 days the time for residential tenants to move out of properties that have been foreclosed upon, unless other laws apply. These requirements will remain in effect until January 1, 2013. The full text of Senate Bill 1137 (Perata) is available at www.leginfo.ca.gov.
Highlights of the new law are as follows:
Contact Between Lender and Borrower
Effective on or about September 8, 2008, a lender, trustee, or authorized agent may not file a notice of default until 30 days after contacting a borrower to assess the borrower’s financial situation and explore options for avoiding foreclosure. A lender must generally contact the borrower in person or by telephone, or satisfy due diligence requirements for contacting a borrower. During the initial contact, the lender must inform the borrower of the right to request a meeting with the lender within 14 days. The lender must also give the borrower the toll-free number for finding a HUD-certified housing counseling agency. A subsequent notice of default must include the lender’s declaration that it has contacted the borrower, tried with due diligence to contact the borrower, or the borrower has surrendered the property. A lender who had already filed a notice of default before the enactment of this law must include a similar declaration in the notice of sale. This requirement to contact borrowers applies to loans secured by owner-occupied residences made from 2003 to 2007. Certain exemptions apply if the borrower has filed for bankruptcy, surrendered the property, or contracted with a person or entity whose primary business is advising people, who have decided to leave their homes, on how to extend the foreclosure process and avoid their contractual obligations.
Maintenance of Vacant Properties
Effective July 8, 2008, anyone who acquires property through foreclosure must maintain the exterior of vacant residential property. Violations of this law include permitting excessive foliage growth that diminishes the value of surrounding properties, failing to take action against trespassers or squatters, failing to take action to prevent mosquitoes from breeding in standing water, or other public nuisances. This law authorizes a governmental entity to impose a civil fine up to $1,000 per day for any violation, as long as the owner has been given notice and an opportunity to remedy the violation. A violator must be given at least 14 days to begin, and 30 days to complete, such remediation before a fine can be assessed.
60-Day Notice to Terminate Tenants
Effective July 8, 2008, a tenant or subtenant in possession of a rental housing unit that has been sold through foreclosure is generally entitled to a 60-day written notice to quit, not just 30 days. However, a borrower who remains on the property after foreclosure may be served a three-day notice to terminate. This law does not affect, among other things, rent-controlled properties with just-cause evictions. Effective on or about September 8, 2008, the lender, trustee, or authorized agent posting a notice of sale must also post and mail a specified notice of a tenant’s right to a 60-day eviction notice from the new owner, unless other laws apply. This requirement to notify tenants of their rights applies to loans secured by residential real property where the borrower has a different billing address than the property address.
New report had optimistic prospects
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A new report from Harvard just came out “The State of the Nations Housing 2008″ that I found very interesting. Let me share the highlights with you here. Starting with the good news — drastic production cuts and deep price discounts in 2005-2007 helped shrink the inventory of unsold new homes from a mid-2006 peak of more than 570,000 to less than 500,000 in early 2008. But the number of homes entering foreclosure nearly doubled to 1.3 million last year, and vacant homes for sale rose 46 percent over two years, to 2.12 million.
This report is more optimistic about medium- to long-term prospects. It estimates that unless there’s a serious, prolonged economic decline or a marked cutback in immigration, the nation will gain 14.4 million new households between 2010 and 2020, compared with 12.6 million between 1995 and 2005.
“Until the number of vacant for-sale units on the market falls enough to bring vacancy rates back down, house prices will remain under pressure,” the report says. “Working off the oversupply will require some combination of the following: housing starts fall even further; prices decline enough to bring out new bargain-seeking buyers; interest rates drop enough to improve affordability; job growth improves; consumer confidence returns; and mortgage credit again becomes more widely available.”
“At some point demand will bounce back,” Retsinas said in a press release announcing the release of the report. “Historically, housing markets recover only after the economy has entered a recession and a combination of falling mortgage interest rates and house prices have improved housing affordability.”
If the economy slips into a severe recession, the prolonged contraction could drive down the sustainable level of housing demand by slowing the loss of older units, forcing more households to double up, and reducing sales of second homes, the report said. But in the case of a mild downturn, which most economists expect, the fundamentals of demand are likely to drive a strong rebound in housing once prices bottom out and the economy begins to recover.
The boom-bust housing cycle has been reflected in the home-ownership rate. From 1994 to 2004, the home-ownership rate surged by five percentage points, peaking at 69 percent. Since then, home-ownership rates have fallen back for most groups, including a nearly two-point drop among black households and a 1.4-point drop among young households. The number of renter households increased by more than 2 million from 2004 to 2007, lowering the national home-ownership rate to 68.1 percent.
Once the oversupply of housing is worked off and home prices start to recover, the use of automated underwriting tools, a return to more traditional mortgage products, and the strength of underlying demand should put the number of homeowners back on the rise, the report said.
Although the short-term prospects for a recovery remain uncertain, in the long run the downturn is unlikely to slow down the creation of new households. The report projected that minority household growth among 35- to 64-year-olds should remain strong in 2010-2020, while the number of white middle-aged households will begin to decline after 2010 as baby boomers reach retirement age. People living alone are expected to account for 36 percent of household growth between 2010 and 2020, and 75 percent of the 5.3 million projected increase in single-person households will be among those 65 and older.
This is all really very helpful information — if you know how to use it to buy low and sell for profits in today market. That is why I spend time on this and more economic and housing data every month in my FREE Webinar and Conference Call for new foreclosure buyers “Make Honest and Ethical Foreclosure Profits NOW” on July 16th at 6pm Pacific. Register Early as we always fill up quickly! MORE HERE.
Short sale & consequences
Investors in second or multiple homes stand to be among the biggest losers from the housing downturn. That’s because proposed mortgage bailout programs don’t address second homes and investment properties. Many owners of multiple properties don’t realize that investments they thought would help them build long-term wealth may in fact leave them in bankruptcy and facing a sizeable tax debt.
MAKING SENSE OF THE STORY FOR CONSUMERS
- Homeowners who borrowed against the value of their second home, or who financed the purchase of their second home and subsequent homes by pledging their primary home or other properties as security, may be liable for taxes on the difference in value should they sell any of their properties for a price less than the value owed on the mortgage.
- Under the Mortgage Forgiveness Debt Relief Act, a homeowner doesn’t have to pay taxes on forgiven debt if the collateral behind the mortgage is owner-occupied. That provision doesn’t apply to a growing number of homeowners renting out their second home or investment property. Of some 7.5 million vacation homes, only about 10 percent are considered owner-occupied, according to the NATIONAL ASSOCIATION of REALTORS® (NAR). Many of these homeowners borrowed against the ever-increasing (or so it seemed) value of these properties to finance improvements or to buy other properties.
- There may be a way out for some, one bankruptcy lawyer counsels: Get a lender to agree that foreclosure “fully satisfies all obligations under the loan.” That might protect the seller from having to pay taxes on the forgiven debt – although one attorney said, “I sure don’t want to be the one litigating it” in court.
To read the full story, please click here:http://www.nytimes.com/2008/05/30/business/30tax.html?th&emc=th
To get your short sale handled by professional team of real estate consultants and foreclosure therapists call Best Hollywood Homes Team at 310-499-1305. We provide free & no obligation consultation based on your specific situation.
Legislation to help homeowners avoid foreclosure
The U.S. Senate said it has agreed on legislation to help homeowners avoid foreclosure by creating an affordable housing fund that will enable Fannie Mae and Freddie Mac to offer about $500 billion in foreclosure rescue funding in the program’s first year. Observers expressed optimism that the Bush administration will support the effort because it does not involve direct funding by taxpayers. The Senate proposal would tighten regulation of Fannie Mae and Freddie Mac and create a new regulator, the Federal Housing Finance Agency, which would be empowered to take action in the event the two quasi-government companies experience future liquidity problems.
MAKING SENSE OF THE STORY FOR CONSUMERS
Earlier this month, the House approved a similar bill. Under both plans, lenders would be allowed to limit their foreclosure losses by reducing the principal balance of loans to homeowners at risk of default and foreclosure. The primary beneficiaries would be homeowners with certain kinds of high-cost adjustable rate mortgages, who would be allowed to refinance to a more stable fixed-rate mortgage insured by the Federal Housing Administration.
Under the House bill, it is estimated that as many as 500,000 mortgages may be refinanced over the next five years at a cost to taxpayers of $2.7 billion. The Senate version, which would help the same number of borrowers, shortens the plan to three years and reduces the cost to about $500 million, with costs to come from a new Affordable Housing Fund that would collect about half a cent on every dollar in mortgages purchased in the secondary market by Fannie Mae and Freddie Mac.
The bill also would set a new Fannie Mae/Freddie Mac conforming loan limit of approximately $550,000 in high-cost markets, up from the current $417,000 limit. The limit has been temporarily increased to $729,250 in the most expensive markets as part of February’s economic stimulus package.
To read the full story, please click here:
http://www.nytimes.com/2008/05/20/business/20housing.html?_r=1&th&emc=th&oref=slogin
