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You are here: Home » Bank-Owned/REO/Foreclosures » Archive by category "Foreclosure problems/Legal challenges"

WHEN CAN I BUY AGAIN?

So there are a LOT of people who went through a foreclosure, short sale or other negative event the last few years. They are watching prices go up and are wondering when they can get back in and buy a home again. Unfortunately, there is no one simple answer. I’ll try to describe some of the basic waiting periods below, but there are a LOT of variables, so contact me or your favorite lender to research your situation. Also keep in mind that different lenders may have different rules. I know of one lender where you can get a loan RIGHT after many of these events, but rates and fees are higher than normal, and it’s an adjustable rate loan, not fixed. Below I’ll look at the two main types of loans, conventional (20% down) and FHA (3.5% down).

Ch 7 bankruptcy: Conv – 4 years from discharge, FHA 2 years from discharge. Ch 13 bankruptcy: Conv/FHA – 2 years from discharge, 4 years from dismissal.

Foreclosure: Conv – 7 years, FHA – 3 years.

Short sale/Deed-in-lieu – 2 years, FHA – 3 years (although possible to do right away if no late payments and you had to do short sale due to job relocation).

Loan modification: Conv 2 years, FHA – 3 years.

There is also a fairly new FHA program called “Back to Work” where you may be able to get an FHA loan in as short as one year after a bankruptcy, foreclosure, short sale or deed-in-lieu if you had job loss or at least 20% loss of income. Lots of fine print and further qualifications on this one.

1099 Court Case

If you had a short sale, foreclosure, deed-in-lieu or loan modification with principal reduction in the last few years, this may interest you. In each of those situations I noted, you probably “enjoyed” some kind of principal reduction and you are probably wondering if your lender can pursue you for it. There is a wrinkle in regards to the issuance of a 1099 that I’ve been keeping my eye on that just got really interesting…

Let’s say that your lender tells you verbally, or even in writing, that they will allow the short sale, loan mod, whatever, to proceed, but they ARE going to pursue you for the deficiency at some point in the future. But then in the mail you later get a 1099-C from them, which is meant to advise the IRS (and you) that the debt was “cancelled” and that you may have to pay tax on it. Now, let’s put aside the TAX issue for a moment, but let’s look at what just happened. Your lender is telling you and the IRS that they have, wait for it….CANCELLED the debt. On top of that, you may have to pay tax on that CANCELLED debt. I’ve always wondered in that situation if the lender were to pursue you later, couldn’t you bring that 1099-C to court and show that the debt was, in fact, “cancelled?” There was a recent bankruptcy court case in Tennessee that is VERY interesting where the judge decided that the 1099-C “reflects” that the lender did, in fact, cancel the debt and incur a possible tax liability. The judge said that regardless of whether the borrower actually had to pay any tax on the forgiven debt was irrelevant.

Now, this court case doesn’t apply exactly to California, but at least it’s a start! So if you’ve received a 1099-C from your lender and then they are trying to pursue you for that deficiency, be sure to hire a good attorney and mention this court case: William Reed case (Eastern District of Tennessee, Bankruptcy Court, Number 12-30049, decided May 14, 2013).

I AM NOT A LEGAL OR TAX EXPERT. PLEASE CONSULT ONE IN REGARDS TO YOUR SITUATION. If you have questions on any other real estate topic, call me at (925) 240-MOVE (6683). #1 in Brentwood listings sold since 2000. To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty.

Another Foreclosure Moratorium?

Back in 2010, the Federal government ramped up their investigation of many lender’s foreclosure practices due to widespread abuse (you can do a Google search on robosigning, “show me the note defense,” the MERS problem, etc.). This lead to all kinds of foreclosure moratoriums, both official and voluntary. Most lenders stopped foreclosing seemingly overnight while they were being investigated. Then the National Mortgage Settlement came out and lenders started foreclosing again.

Well, all of a sudden foreclosures at certain lenders have drastically slowed down again. This is reported to be in response to some new directives released by several Federal agencies that spell out how lenders are supposed to be foreclosing. Seems like several lenders have decided to stop most of their foreclosures until they review all their policies to make sure they are in compliance. They do NOT want a repeat of the problems they had last time.

It’s too early to tell if this will be another prolonged moratorium like last time, or just a brief pause, and then they’ll resume foreclosing at the same pace as earlier this year. When asked, all the lenders say that they are “confident” that their processes are correct, they just wanted to double-check. BoA is one lender that is NOT slowing down their foreclosures in response to these new directives because they believe they are foreclosing correctly now. Citibank and Wells Fargo are two that have really slowed down. Chase slowed down drastically, but there are reports that they’ve picked up foreclosure activity again just recently.

So if you are trying for a loan mod or short sale but your lender turned you down because they were about to foreclose, give them one more call to request another postponement, even if they’ve turned you down before!

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE (6683). To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

New Rental Law

I’ve heard a lot of heart-breaking stories the last few years as a result of the real estate meltdown. Some of them were just “bad luck” stories of people losing their jobs, divorce, health, issues, etc. But then there is another whole category of stories I hear that were caused by someone’s actions of trying to take advantage of someone else. Some of the worst ones are when someone rents out a property, and the landlord says they’ll discount the rent substantially if the tenant will pay 2-3 months ahead of time. The tenant is ecstatic, until they move in and find out the home gets foreclosed on soon after. There is a new law in California where the landlord has to disclose if foreclosure has begun on the property. So IF the landlord complies with this new law, that will help protect tenants from the situation I describe above. However, if someone was going to lie to you in order to take your money, I don’t hold out a lot of hope that they’ll follow this disclosure law. Best to do your own research on any property you are thinking of renting and find out if the foreclosure process has been started. Another good idea is to ask your potential landlord to see a copy of their mortgage statement. See if the payments are current, and also see if their payment is significantly more than what you will be paying for rent, which would be a big red flag!

Here is the verbiage that is mandated by this new law: “The foreclosure process has begun on this property, and this property may be sold at foreclosure. If you rent this property, and a foreclosure sale occurs, the sale may affect your right to continue to live in this property in the future. Your tenancy may continue after the sale. The new owner must honor the lease unless the new owner will occupy the property as a primary residence, or in other limited circumstances. Also, in some cases and in some cities with a ‘just cause for eviction’ law, you may not have to move at all. In order for the new owner to evict you, the new owner must provide you with at least 90 days’ written eviction notice in most cases.”

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE (6683). To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

How Late Is “Too Late”?

When is it too late to start a short sale? I get this call from people who know they have a short sale in their future, but they want to stay in the house as long as possible before the foreclosure. It’s not always just to live rent-free. Sometimes it’s to keep kids in school, or they haven’t located a rental yet, or whatever.

Over the past few years, lenders were VERY slow to foreclose. Sometimes it would take them 2-3 years before they pulled the trigger on the foreclosure, and even then they would postpone the foreclosure time and time again very easily. But I’m seeing signs that that will NOT be the case going forward. Most of the foreclosure moratoriums have been lifted, there have been a number of national foreclosure settlements, and I’m seeing some lenders start to move to foreclose MUCH quicker nowadays. The wild card is the new Homeowner’s Bill of Rights in California that may slow down foreclosures again, depending on how it’s implemented.

Once the lender does foreclose, it’s impossible to do a short sale then, because you no longer own it. The week before the sale is also quite difficult to start a short sale and have it be successful (although I’ve done it a few times). The month before the foreclosure sale is difficult, but certainly doable. What a lot of my clients do is wait for the Notice of Default to be filed, and then hurry up and do the short sale application at that point, and that usually leaves enough time to get the short sale approved, or at least far enough to where they’ll hold off on the foreclosure. However, I need to warn you that I had several clients in 2012 where we started the process soon after the Notice of Default, and the lender still foreclosed. So even though we had a good, market-value offer on the table, they said it was too late and they foreclosed. So if you really want to avoid the foreclosure, you can’t count on getting automatic foreclosure extensions anymore

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE (6683). To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

Another Foreclosure Moratorium?

Earlier this year, a new law was proposed in California aimed at unfair foreclosure practices. Below is a snippet from a press release from the California Department of Justice.“Attorney General Kamala D. Harris announced that the Homeowner Bill of Rights, which will protect homeowners and borrowers during the mortgage and foreclosure process, was signed into law today by Governor Edmund G. Brown Jr. The Homeowner Bill of Rights prohibits a series of inherently unfair bank practices that have needlessly forced thousands of Californians into foreclosure. The law restricts dual-track foreclosures, where a lender forecloses on a borrower despite being in discussions over a loan modification to save the home. It also guarantees struggling homeowners a single point of contact at their lender with knowledge of their loan and direct access to decision makers, and imposes civil penalties on fraudulently signed mortgage documents. In addition, homeowners may require loan servicers to document their right to foreclose. The laws will go into effect on January 1, 2013, and borrowers can access courts to enforce their rights under this legislation.”

From what I read of this new law, it does NOT appear to be a new foreclosure moratorium. What it’s trying to do is prevent lenders from foreclosing while they are reviewing your loan modification application. The big question is whether this new law will actually help more people get loan mods, or will it just cause banks to turn more loan mods down so they don’t run afoul of this new law? It also remains to be seen how the provisions of this new law will be enforced. The law is supposed to “guarantee” you get a single point of contact at your lender. Well, if you don’t, what then? File a complaint with the CA Department of Justice? Fill out a form, wait months, go to court, etc.? We’ll have to wait and see if this law really has teeth, or is it another one of those great-sounding programs that fizzle out because it is too hard to enforce.

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE (6683). To search theMLSfor free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

Foreclosure Help Being Ignored

If it sounds too good to be true, it probably is, right? And we all know there are a lot of scams out there to be careful of. We’ve seen the ads or the mailers that scream out their incredible, unbelievable headlines – “Government homes for $1!” or “Wronged by your lender? We’ll get your mortgage wiped off!”

It’s to the point that we’re all skeptical. Well, apparently we are now TOO skeptical! Even when there is legitimate help, they aren’t taking advantage of it! There are two main programs out there right now where you may be eligible for help, even if you already lost your home to foreclosure. There is the independent foreclosure review, that will do a free review of your foreclosure to determine if it was done improperly and see if you are due any money, and then the national mortgage settlement that may help with either a loan mod, principal reduction or also if you already lost your home to foreclosure. Over 4 million homeowners qualify for one of these programs, but only 5% have applied!

I don’t have the space to get into all the details of each program, so I’ll just give you the websites that you can check out and then apply if you think you may qualify. Each of these programs are FREE. It wouldn’t hurt to look and apply!

www.IndependentForeclosureReview.com/

www.NationalMortgageSettlement.com

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE (6683). To search theMLSfor free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

MERS IS LEGIT?

If you haven’t heard of MERS before, I don’t have room to fully explain it here (do an Internet search for more info). The short version is that many lenders used MERS to save time and money to record and sell mortgages via an electronic database rather than record the physical documents with the local county recorder’s offices. I’ve heard reports that MERS has recorded more than HALF of all mortgages in the US since 1997.

There have been big questions about the legality of how MERS records mortgages and whether lenders can foreclose because of these questions. There have been many lawsuits on this issue, and as of yet, many of the cases were dismissed on technicalities, or the decisions didn’t provide a clear legal precedent on the matter. However, there was a recent case that may be the one that finally does it. I’ll spare you the details of the case, but it definitely puts some wind in the sales of the lenders that are foreclosing on properties where MERS was involved by saying that MERS is legitimate and isn’t a reason to stop or reverse a foreclosure. If this case holds, it may reduce one arrow from the quiver of the attorneys that are trying to either fight or reverse foreclosures on behalf of their client.

However, before I could even get this blog out, MERS was hit with another lawsuit in Texas on 9/21. This one takes a different tact than the other suits that question the legitimacy of MERS. This one is filed on behalf of the local counties that were denied the revenue from the recording of documents because of MERS. With MERS, the lenders didn’t have to record new documents each time the loan was sold. When you add up all the loans, and how many times they were sold, the damages could be over $1 Billion, just for the Dallas lawsuit. If they win, you can bet other counties across the US will pile on and the losses could be huge. If this happens, it won’t be so much a victory for homeowners, because it doesn’t change whether lenders can foreclose. It will be good news for cash-strapped counties, but it could also be a huge financial hit to many banks that are already struggling to stay solvent.

WHERE ARE THE REOS, PART II

Last week I wrote about the lack of REO (Real Estate Owned by banks) properties in the marketplace. Sure, there are REOs out there, but not as many as there “should” be based on the amount of delinquency, upside-down homeowners, etc. I listed several reasons, but told you I’d share with you this week what I think the #1 reason is. Here it is: Accounting Rules.

That’s right. Boring old accounting. Specifically where banks have to value their assets at what the market says they are worth, or what their “model” says they are worth. These are commonly known as “Mark to Market” vs. “Mark to Model” rules. Let’s say a bank makes a loan of $400K on a home worth $500K. Then let’s say the value of the home drops to $250K. Under Mark to Market rules, the bank would have to write down that loan to $250K (or less, considering foreclosure costs) and take a loss of $150K+. However, under Mark to Model they can hold it on the books at $400K. No loss. They can do this because their “model” (a complex formula) can say that they are going to hold that loan until the market comes back, or the borrower pays it off, hence they don’t have to book the loss now.

Whether they are using one or the other of these rules has a HUGE impact on banks’ financials, especially when the real estate market crashed. They were using the Mark to Market rules, but then switched to Market to Model in late 2008. Ever since then, banks have a BIG accounting incentive NOT to foreclosure, because they have to actually “realize” the loss if they were to foreclose. Banks are already in a precarious financial position. If they foreclosed on all the homes they SHOULD foreclose on, they’d have to book Gatrillions (yes, I made that up…) in losses. Many banks wouldn’t survive that process. So, that’s why the solution they keep going back to is some version of “extend and pretend.” Anything to stretch this out another quarter, or another year, hoping things magically “get better.”

WHY WE DON’T SEE MORE REOS

It’s coming…It’s coming… We keep waiting for the next big “wave” of REOs to come, but it hasn’t. (REO stands for “real estate owned” — when a bank forecloses on a home and becomes the owner.). When the market first collapsed in 2006-2007, we did see a very large number of REOs hit the market. Then it slowed down quite a bit after that. The explanation given was that the banks were overwhelmed at the first wave and had to staff up and get their processes ready to handle the next wave. They promised that the next wave of REOs would be much larger than the first one. But since then we’ve seen only a moderate amount of REOs on the market.

There are many reasons given for this, all of them have some validity. The most common reason given is that the banks don’t want to tank the market even further, which would most certainly happen if they released a flood of REOs on the market. Another reason is that the banks are having to be more cautious now to make sure that their legal processes are done correctly because of all the lawsuits by individuals and government agencies. The list of problems is long: Robo-signing, can’t find the note, can’t prove who owns the note, MERS scandal, etc. I know first-hand of one large bank that has completely called off any foreclosures until they have their legal team review every single file to make sure it will stand up in court. Another reason is that the banks are trying to work out loan modifications and/or short sales with homeowners.

I think all of the above are partial explanations for why banks have been slow to foreclose, but there is one more big reason that most people don’t talk about. This other reason is, in my opinion, the main reason we aren’t seeing many REOs right now, and won’t for a little while. It takes a bit to explain, so I’ll do that next week.

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