When your home is not worth as much as you owe on it, and you sell it for less than the amount that would pay the mortgage, or mortgages, that is a short sale.

Last month, the Obama Administration announced changes in the making homes affordable program related to short sales.

You are short of the funds needed to pay the liens, or mortgages, on the home.

Title to your real estate can only be transferred, or sold, is if the mortgage companies sign off, or agree.

You cannot force them to take less than you owe them.

But, in this market, sometimes the mortgage company will agree to take less than the balance.  That way, they at least get some money, and avoid the cost of foreclosing, taking the property back, fixing it up, hiring a realtor to sell it, and so on.

The mortgage company may release their lien to allow the sale to close, but may insist on you signing a note to pay the difference.

That is, if you owe $150,000, and sell your home for $100,000 net closing costs to the mortgage company, they may require that you sign a contract to pay them the $50,000 difference.

Consumer attorney David Leibowitz has posted on this situation, in which you may still want to file bankruptcy.

Some times the first mortgage company will take the money and run, and release you from paying the balance.   Be sure you know the tax consequences of a short sale.

Ooops, what if you owe a second mortgage?

Ruth Simon of the Wall Street Journal did a story last month on short sales and second mortgages.

Second mortgage companies have to sign off for a sale to go through, of course, they will not normally do so without getting money.

So, the first mortgage company agrees to give them something out of the sale proceeds so that the sale goes through.

But, that second mortgage company can sign off its lien and still chase you for the balance.

If you are unsure about what happens after a short sale, consult an experienced attorney.

Read the rest

Mortgages in default are taking longer to go to foreclosure.  In yesterday’s Washington Post it was reported that “During the first quarter of this year, the share of all homeowners seriously delinquent on their mortgage but not yet facing foreclosure more than doubled to 3.04 percent, or about $227 billion in loans.”  In 2008 there were “only” $97 billion in seriously delinquent mortgage loans that were not in foreclosure.  The 3.04 percent figure compares to less than 1 percent in the first quarter of 2007.

Some of the backlog is due to a slowdown in the pace of foreclosures.  Fannie Mae and Freddie Mac put a temporary moratorium on foreclosures late last year as did some other lenders. 

Housing prices are in a free fall across the country.  The Post article revealed that existing-home prices fell another 16.8 percent in May compared with a year ago.  Since so many more distressed mortgages are in limbo, it is expected “that foreclosure rates are likely to increase dramatically during the second half of this year and into 2010 as lenders work through the backlog.”  The likely result will be an even further drop in home prices.  

There is so much information out there about mortgage loan modification?  How can you find the truth about mortgage loan modification programs?

American’s consumer law experts, the National Consumer Law Center, have assembled the information about the various programs to help home loan borrowers in financial distress into one website.

The site includes a summary of programs, guidelines, progress reports, fact sheets and participation agreements with lenders.

Be wary - there is lots of bad advice and many mortgage modification scams out there.  NCLC gives you information you can trust.

An additional 90 days has been added, is some cases, to the length of time for a California homeowner to cure a default in mortgage payments.  The California Foreclosure Prevention Act went into effect on June 15, 2009. This bill extends the current 90 day period in California’s non-judicial foreclosure process between notice of default and notice of sale to 180 days.

Unfortunately, the law is limited in its application to a principal residence occupied by the borrower at the time of the default and only if the loan is the first lien against the residence and was recorded between January 1, 2003 and January 1, 2008.

A mortgage loan servicer can apply to the California Real Estate Commissioner for an exemption to this law (reducing the time period for cure back to 90 days) if they have implemented a loan modification program with specified features. Once the Real Estate Commissioner concludes that the program meets the necessary requirements, the mortgage loan servicer will receive a permanent exemption.  Eventually a list of exempt lenders will be published.

Faced with a growing number of foreclosures, the Calfiornia legislature is at least trying to do something.  Unfortunately, like many of the “modification” plans, this bill has an easy “out” for the mortgage companies.  All they need to do is to have in place an appropriate means to modify loans.  Nothing says they have to grant any modifications!

Strange as it may seem, you can end up with a tax bill if you settle a debt for less than the full amount due or if your home, or other property, is foreclosed or sold without full payment of the loans against it.

Federal tax law provides for tax on debt that is canceled or forgiven without full payment.  Unless you fit within one of the exceptions allowed by the IRS, the loss of your home could result in tax due.

Tax on canceled debt is not new.  However, it has not been much of a problem for consumers in the past.  I have written articles about debt cancellation tax and some of the ways it can be avoided.  My colleagues have answered the question “What is debt cancellation tax” in others.

Several factors have combined to make this ironic problem a consumer issue.  The run up of home values in recent years and the aggressive marketing of home loans, often to people who can not afford to pay them have combined with new computer technology used by the IRS to pinpoint transactions when debt is canceled.  The result has been the issuance of tax due notices to increasing numbers of financially distressed consumers. Read the rest

A homeowner threatened with foreclosure should talk to a lawyer, and do it right away. Talking to a experienced foreclosure defense lawyer immediately after receiving the first notice may pay large dividends.

Despite a default in payment homeowners often have defenses under state or federal law.  There are a number of lawyers in Mortgage Law Network who can quickly evaluate your situation and recommend a strategy for dealing with the lender.

If you file for bankruptcy protection, your property will be covered in the bankruptcy case and the foreclosure will automatically be stayed.  However, the stay is only temporary in many cases.  For this reason, it is important to either choose a lawyer with foreclosure defense experience or consult with a consumer home loan specialist before looking to bankruptcy alone as a solution.

While the bankruptcy case is open - up to five years in a Chapter 13 bankruptcy - the bankruptcy automatic stay will stop the foreclosure and can prevent the lender or loan servicer from foreclosing on the property based on past due payments from the time before the bankruptcy is filed. Read the rest

Effective July 1, 2009 and continuing at least until June 30, 2010, all new foreclosure actions filed in the State of Connecticut must pass through the foreclosure mediation program.  Initially established last year by the General Assembly, the mediation process was voluntary and slowly gained success as the program matured.  Until July 1st, homeowners must still file a written request for mediation within 15 days of the foreclosure filing or potentially lose the opportunity to resolve the payment problems.  Only about a third of homeowners were applying for the program and of those, a smaller number successfully worked out an arrangment with their lenders.

The mediator has no powers to force the lenders to make any offers to modify mortgages in default, but the  case cannot proceed to a final judgment of foreclosure without a report filed by the mediator.  There are also cases where a modification or reinstatement has been worked out through mediation, but the lender later disavows any knowledge or agreement to a deal.  Connecticut Superior Court Rules do allow a Judge to send the case back to mediation to resolve any differences that could arise.

The purpose of the mediation program is to facilitate communication between the homeowner and the lender or servicer when rpevious communication seened impossible.

The Home Affordable Mortgage Modification Program called HAMP, and the companion home refinance program (HARP) applicable to loans held or securitized through Fannie Mae and Freddie Mac, are touted by the Obama Administration as having the potential to help up to nine million homeowners.

On paper at least, both programs seem to have features providing real relief from abusive mortgage terms and unaffordable payments.  As an alternative to bankruptcy or as part of a Chapter 13 plan, HAMP could provide the homeowner with protections roughly comparable to those under the proposed Helping Families Save their Homes in Bankruptcy Act under some sets of circumstances, but not under others.  The primary difference between judicial modification in bankruptcy and the Obama plan is the requirement of voluntary lender participation.

The HARP program is limited in scope. It releases Federal funds to refinance existing mortgages that are current in repayment and do not exceed the market value of the house. Read the rest

Connecticut’s Attorney General, Richard Blumenthal, is continuing to press his investigation of three law firms who appear to file more than 90% of all the foreclosures in the state.  Together, the law firms file more than 2,000 foreclosures per month in Connecticut. Last year, the Hartford Courant reported that one state marhsall who served papers for the firms grossed nearly 3 million dollars in fees last year just from their foreclosure cases.

Mr. Blumenthal issued written requests to Freddie Mac, Fannie Mac and Lender Processing Services looking for information on the criteria and terms under which the law firms were chosen to represent over 1000 lenders in foreclosure cases.  The Attorney General is also looking for an itemized accounting of all fees earned by the firms and copies of all retinaer agreements specifying fee schedules.

Two of the law firms, Hunt, Liebert and Bendett & McHugh are the only Connecticut members of the U.S. Foreclosure Network, a national association of firms specializing in foreclosures.