Mortgage and Foreclosure Law Blog

This is a question I have been getting a lot of lately. Since a big part of our business right now is Mortgage Modification we have clients that are way behind on their mortgage payments and are wondering when they will come home to a locked door telling them to vacate. Well the answer is one of my favorite answers for any "legal" questions....It Depends. Let me go over the general foreclosure process and hit on some expectations you should have.

Once a Mortgage payment is missed, most banks usually don't do anything for the first 90 to 180 days. This depends on many factors including temporary laws, investor guidelines, how many foreclosures they are undergoing, etc. The first step in most states is for your lender/servicer to file a Notice of Default. This Starts a Time line. I'm going to highlight California; but the process is similar in many states.

Once the Notice of Default is filed, the bank has a waiting period before they can Sell the Home at Auction. In California, this is called the Redemption Period and is 90 days. After that 90 days is up, the bank can schedule a Sale Date. Most States Require a Publication Period. This is a period where the bank has to let the public know about the upcoming auction. In California the publication period is 20 days. Once the publication period is over, they can schedule a sale date at any time.

So, in this example the shortest time line your house could go to sale is 201 days after missing your first payment. What happens after the sale, though? There are specific rules for renters; but let's talk about home owners. After a Sale date it takes a few days before a Notice to Vacate is placed on your door. Depending on your State's specific eviction laws you may still be able to live in your home for some time. Often times an eviction proceeding has to be filed with the court and you can live in your home for another 30 days before the Sheriff comes and forces you out.

So what do you need to do? Always check your mail and don't avoid a process server. You need to be on the lookout for a Notice of Trustee's Sale or similar document that gives you the Sale Date for your property. Call your bank. You will have to deal with collection efforts; but you should be able to get information on how much longer you have in the process. I would suggest not trying to live in your house after the Sale Date. That should be your moving day.

Right now I am seeing Sale Dates that are 8 to 10 months after a missed mortgage payment. Next time I am going to go into a little more detail on how the Sale Date and Foreclosure time line is affected by a Mortgage Modification Request.

Good Day Readers! Sorry for the delay in blogging; new priorities will ensure more frequent updates. So, we were talking about how Bankruptcy can help with foreclosure on your home. We went into Chapter 13 a little, so let's take a look at Chapter 7 Bankruptcy. As we have discussed earlier Chapter 7 discharges all debts, including your mortgage.

Unfortunately many situations may require that you’ll have to give up your home no matter what. In that case, filing for Chapter 7 bankruptcy will at least stall the sale and give you two or three more months to work things out with your lender. See prior post in this series regarding publication timing and bankruptcy. It will also help you save up some money during the process and cancel debt secured by your home. You should be able to save money, since the second you decide you are going to file bankruptcy you should stop paying your bills.

During a Chapter 7 bankruptcy, you can live in your home for free during at least some of the months while your bankruptcy is pending—and perhaps several more after your case is closed. You can then use that money to help secure new shelter. We usually recommend that our clients stay in their home for free until they are required to vacate by law. Imagine how much money you could save with no house payment at all for several months!

Thanks to a new law, you no longer face tax liability for losses your mortgage or home-improvement lender incurs as a result of your default, whether you file for bankruptcy or not. This new law applies through the 2012 tax year and is discussed below. However, the new tax law doesn’t shield you from tax liability for losses the lender incurs after the foreclosure sale if:
1)The loan is not a mortgage or was not used for home improvements (such as a home equity loan used to pay for a car or vacation); or
2) The mortgage or home equity loan is secured by property other than your principal residence (for example, a vacation home or rental property).

This is where Chapter 7 bankruptcy helps. It will exempt you from tax liability on losses the lender incurs if you default on these other loans.

Hi Readers! So last time we were going over Bankruptcy and how it can help with foreclosure. I was going over the Automatic Stay that is put in place upon filing and how that stops collection activity. Of course foreclosure is collection activity. The banks don't just sit there and take it so to speak. They have options too. The most common is the Motion to Lift the Stay, which if granted allows the foreclosure to continue.

Now, what if the bank has already filed a foreclosure notice? Unfortunately, bankruptcy’s automatic stay won’t stop the clock on the advance notice that most states require before a foreclosure sale can be held (or a motion to lift the stay can be filed). For example, before selling a home in California , a lender has to give the owner at least three months’ notice. If you receive a three-month notice of default, and then file for bankruptcy after two months have passed, the three-month period would elapse after you’d been in bankruptcy for only one month. At that time the lender could file a motion to lift the stay and ask the court for permission to schedule the foreclosure sale.

Many of you know that consumers generally have two options for Bankruptcy, either a Chapter 13 or a Chapter 7. I say generally because there are other options; but they rarely apply. Just a side note, they are named after the Chapter they reside in, in the Bankruptcy Code. So let's start with how a Chapter 13 works to help.

Many people will do whatever they can to stay in their home for the indefinite future. If that describes you, and you’re behind on your mortgage payments with no feasible way to get current, one way to keep your home is to file a Chapter 13 bankruptcy.

How Chapter 13 works...in general. Chapter 13 bankruptcy lets you pay off the “arrearage” (late, unpaid payments) over the length of a repayment plan you propose—five years in some cases. But you’ll need enough income to at least meet your current mortgage payment at the same time you’re paying off the arrearage. Assuming you make all the required payments up to the end of the repayment plan, you’ll avoid foreclosure and keep your home.

What if you have 2nd and 3rd mortgage payments? Chapter 13 may also help you eliminate the payments on your second or third mortgage. That’s because, if your first mortgage is secured by the entire value of your home (which is possible if the home has dropped in value like so many these days), you may no longer have any equity with which to secure the later mortgages. That allows the Chapter 13 court to “strip off” the second and third mortgages and recategorize them as unsecured debt —which, under Chapter 13, takes last priority and often does not have to be paid back at all. For more information on what happens with a stripped off mortgage see my earlier post. We'll continue with Chapter 7 next time.

Hi Again Dear Internet Readers! Today I'd like to start a multiple part series on Bankruptcy and How you can protect your Mortgage from Foreclosure.

Did you know you can avoid or delay foreclosure of your home by seeking bankruptcy protection? We love to help borrowers like you work out a deal with their lender to modify your mortgage to a payment you can afford. That is our main goal. However, there are people who are in such bad shape financially that the Bank just won't work with them or qualify them. For these people the bank proceeds with foreclosure. If you are facing foreclosure and cannot work out a deal or other alternative with the lender, bankruptcy may help.

The foreclosure process takes several months. You should always pay attention to letters from the bank and especially from their attorneys. You should have plenty of notice before you come home to a locked house with an eviction notice. During these several months you should be working with your bank or an attorney (like me ;-) ) in order to try options to "save your home." However, if you've already tried and failed with these measures, now is a good time to consider bankruptcy as a possibility for avoiding or stalling foreclosure. Here are some ways that filing for bankruptcy can help you:

The Automatic Stay: Delaying Foreclosure

As soon as you file for Bankruptcy the court issues an order commonly referred to as the "automatic stay". This is an order to all your creditors to immediately cease all collection activities against you. Make no mistake, your lender is a creditor of yours. In fact, this procedure is so powerful you can file for bankruptcy and get a sale date stopped in the same day! Please don't ever do this though. The automatic stay will typically last about three to four months.

Your lender can file a motion to lift the stay. If the lender obtains the bankruptcy court’s permission to proceed with the sale (by filing a “motion to lift the stay”), you may not get the full three to four months. But even then, the bankruptcy will typically postpone the sale by at least two months, or even more if the lender is slow in pursuing the motion to lift the automatic stay.

There is much more to this and I'll go over it in my next post....

Good Day Readers! More Good News regarding some much needed tax relief. Recently there have been two new changes to the mortgage tax laws that could save new homeowners and those facing foreclosure thousands in taxes. The new changes affect Private Mortgage Insurance (PMI) for new borrowers and tax "penalties" for those already suffering through foreclosure.

First of all, let me explain what PMI is and when it is needed. PMI is required by most lenders when a homeowner borrows more than 80% of a home's value. In other words, if you put down less than 20% for a down payment the lender will require you to pay PMI. The reason is to protect the lender, not you. It protects the lender in the all too common event that the borrower can't pay his/her mortgage. If you were to put down 20% or more, and then couldn't pay your mortgage, the lender is generally protected from loss as they can foreclose and sell them home using the 20% of equity to protect their loss. Now, the rules of PMI haven't really changed; but now borrowers can deduct PMI payments from their taxes, reducing the after tax cost of buying a home!

The second change benefits those who have been unable to keep up with their mortgage payments and have faced losing their home to a foreclosure or short sale. It use to be that, if a lender could not sell the property to satisfy the full debt of the mortgage owed on the property the homeowner in default would be liable for taxes on the unpaid balance. This tax law change now waives any tax penalties from January 2007 until December 2009 on any primary residences that enter into foreclosure or short sale.

Hi Readers! By now I assume that anyone who has made it to this website knows something about the sub-prime mortgage meltdown. There has been constant news coverage, "government action", and of course most people have felt the whole economy downturn in its wake. However, did you know that there is going to be another wave of foreclosures that could rival or even exceed the ones related to the sub-rime meltdown?

The mortgages I am talking about are called option ARM mortgages. They represent over $230 Billion in mortgage dollars and roughly 564,000 in mortgages held. The main attribute of these ARMs is that borrowers can opt to pay less than their monthly balance due and the difference is tacked on to the outstanding loan balance. However, these ARMs have triggers that reset to a new interest rate based on either a set time frame, or when debt exceeds some cap above the loan's value. When rates go up, and they will (see earlier blog "Mortgage Interest Rate to Skyrocket soon.."), these triggers will activate and we are going to see another wave of foreclosures.

The difference here is that these ARMs will be unfolding over a longer period of time compared to the sub-prime ARMs. In other words, these is still time to do something about it! Call for a free consultation to see what options might be best for you. Believe me, we can't help everybody who calls; but we usually can point you in the right direction at least. C U next time!

Buenos Dias Web Surfers! Today I'd like to tell you about some good news from the IRS. I know it sounds like an oxy-moron; but once in a while we taxpayers are "given a break". This is what happened with The Mortgage Forgiveness Debt Relief Act of 2007.

First of all let's talk about something ridiculous the IRS does; Cancellation of Indebtedness Income (COD). What is COD Income? Let's say you owe me $10,000 and I tell you, "you know what, just give me $1,000 and we'll call it even." So I just let you off the hook for $9,000. Guess what? The IRS is going to tell you that you just had $9,000 of income and you need to pay taxes on that $9,000. Sure they have good reasons for this; but I hate it. The problem we were facing as we did mortgage modifications was that people were getting 1099s from their lenders for COD income they "received" when they started paying less for their mortgages or when their delinquencies were forgiven.

Well obviously this was a huge problem. Here we had thousands and thousands of people who were struggling financially and couldn't pay their mortgage, and just when they get help, the IRS was going to swoop in and tax them on money that was never in their hands. Enter The Mortgage Forgiveness Debt Relief Act of 2007.

This act "forgives" taxpaye'rs COD Income where debt is reduced either through a mortgage modification/restructuring or debt forgiven through a foreclosure. The amount allowed is $1 Million for a single filer and $2 Million for Married Couples Filing together. Yea! There is one downside though. The amount forgiven reduces the taxpayer's cost basis in the property.

Quickly I'll explain cost basis. If you buy a house for $100,000, your cost basis is $100,000. If you sell the house for $200,000 the IRS uses your cost basis to determine how much you gained. In this case, you would have gained $100,000 and the IRS would tax you on that $100,000. If you had $50,000 of COD income your cost basis in the example here would be reduced to $50,000. Now if you sold the house for $200,000 you would be taxed on a gain of $150,000. See the IRS always gets you in the end; but at least this way you actually have money in hand to be taxed on. That's it for today!

And, still, the foreclosures keep coming. It's nearly Christmas and while some lenders have put a moratorium on foreclosures till after the holidays, others keep plugging along. I am defending a client whose sale date is December 23, 2008. And, again, I am asking myself what is it going to take to help homeowners? Today I want to give a brief kudos to the government who may have taken a baby step in the right direction.

Fannie Mae provided information and guidelines to its servicers regarding the implementation of a streamlined modification program (SMP). The SMP is designed to be a streamlined process for modifying the loans of a large number of borrowers who are delinquent in their mortgage payment. This will hopefully fend off some foreclosures. It is also hoped that this program will set standards in the mortgage servicing industry for conducting loan modification programs on a large scale as a foreclosure prevention measure.

Under the program, borrowers who meet certain eligibility criteria and demonstrate financial hardship may be eligible for a loan modification that reduces their monthly principal and interest payment. The streamlined process sets a new monthly payment during a three-month trial period, and sets forth the modification terms that will take effect after the homeowner has made the three payments during the trial period. However, the program only applies to people who are 90+ days delinquent.

Like I said, it's a baby step. Let's see where it goes from here.

With 1 in 10 homeowners presently behind in their mortgages, it's no wonder that foreclosure rates are expected to double in the new year. But wait....haven't we been reading about the government programs implemented to help homeowners? Sure, Fannie Mae has rolled out some programs, but are they helping? It's safe to say "absolutely not".

One of the most recent programs rolled out in October, Hope for Homeowners, is failing so miserably that HUD is already considering modifying the program. The program was supposed to help 400,000 borrowers get new loans -- as of November 13th, it had helped 42 (yes, JUST 42!!!!) homeowners. Now HUD is saying they only expect 20,000 applications during 2009.

Why? Because lenders are balking at a requirement to lower the principle balance owed on loans so that they qualify for refinancing under the Hope for Homeowners program. There comes a time for someone to point out to the Investors behind these loans, and to the lenders servicing these loans, that they can't have their cake and eat it, too. NOW is that time.

Investors still hope the market will turn around and they'll be able to sell foreclosed properties and still get a return on their investment. That is NOT going to happen. With most properties being upside down right now, and a stigma attached to REO properties, Investors are going to be lucky to resell a home at 80% fair market value. Investors will realize a greater return by lowering the principle balance on an already funded loan, thus allowing the homeowner to qualify for the Hope for Homeowners program and allowing the Investor to keep earning future interest income.

The question becomes "how do we get the investors to realize this?" I'm afraid the phrase "money talks" is absolutely applicable in this scenario, albeit not in the traditional sense. This time it will be the deafening silence from the money which will make the people holding the key to helping homeowners (investors and lenders) realize that they have to give some to get some. Unfortunately, I expect this will take SEVERAL quarters with drastic losses and by that time I'm scared to think how many homes will have been lost.

Hello all,

Welcome to S.J. Mobley & Associates, LLC's blog! This is our first post so I'd like to introduce you to our Firm and primary areas of practice: mortgage law and foreclosure defense. Whether you intentionally found us while searching for foreclosure and mortgage information or you randomly clicked on this link out of boredom, we hope when you sign off you're glad you visited. I'll keep this post short and sweet and hopefully leave you wanting more...in which case, stop by in a few days because we'll be posting several times a week! Be assured, the posts will have more substance than this one does. But for now, I just want you to get a feel for who we are, what we do, and why we do it.

First, about our Firm. We are a group of consumer advocate attorneys who entered the legal profession with the goal to help people and improve society. Yes, I'm sure that's what all attorneys are supposed to say, but we live by these principles; each of our attorneys has a passion for volunteering, working with charities, and helping others (children, elderly, animals...you name it). The legal profession IS about the law, but even moreso it's about you, our client. We develop a personal relationship with each of our clients and put our all in every matter we touch. Nothing makes us happier than to hear a client say how comfortable they are with us. That's the way an attorney-client relationship should be. Enough about us...

So, what is mortgage law? Most of my friends who know I practice mortgage law think I deal with foreclosures day in and day out. Granted, in this economy we have our fair share of clients facing foreclosure, but mortgage law is much more than foreclosure defense. Mortgage law is a fairly complicated field because it deals with many areas of law: contracts, securities, landlord/tenant, collections, and most importantly federal and state consumer protection laws. We even occasionally run into mortgages that require us to look at criminal statutes or wills/trusts. Every day brings a new challenge and an opportunity to help people in need. We examine loan documents and conduct loan document audits, looking for federal and state violations to use in foreclosure defense or leverage in loan modifications. We negotiate with General Counsels for all the major lenders and work out solutions to let our clients stay in their homes. There's a lot of long days but it's all worth it when we see the look on our clients' faces when we tell them their house is no longer in foreclosure or that we just saved them hundreds of dollars on their mortgage payment.

That's just a bit about us. We would love for you to stop by the Firm or drop us an email so we can learn a bit about you. During the next few weeks I'm going to address the mortgage crisis: how we got here, why we aren't getting out, and when we can expect it to go away. We hope to see you back here often!

(Hmm....so much for short and sweet. Hey, I'm an attorney what do you expect?) Have a great day!