Mortgage and Foreclosure Law Blog

HAMP is the Home Affordable Modification Program. It is also known as the Making Home Affordable Program MHA and/or the Obama Modification Program. This is the treasury program designed for Fannie Mae, Freddie Mac, and many other loans, which is supposed to stabilize home prices, keep foreclosures down, and save 7 -9 million homes. This is way off from happening. Servicers of Freddie Mac loans, Fannie Mae loans, and investors/servicers who have voluntarily adopted this program are supposed to follow specific implementation guidelines from the Treasury Department. If these were all followed correctly aspirin makers would lose a ton of money, because the reality is poor implementation by these servicers are causing headaches all over the country.

In simplified terms the process is supposed to work like this:
1) Request help either verbally or by sending in documentation.
2) Servicer evaluates you for eligibility.
3) If Eligible you start a trial modification of three months.
4) Start permanent modification on the fourth month if trial payments made.

I can't tell you how many people tell me they think their bank is just screwing with them. So let's talk about a few things I'm seeing from servicers of which they are supposed do to ; but are not. I'll break it down into the four steps above and you will be able to see why so many people have trouble getting this modification on their own.

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....

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.