Previous law, SB 931, only applied to senior lien holders. Junior lien holders had the choice to approve a short sale only if the borrower would agree to sign a promissory note to pay the full balance.

This new law, however, doesn’t require or force the junior lien holders to approve the short sale. But if they do approve the short sale, then they must accept the short payoff as full payoff and must agree NOT to pursue the deficiency judgment and must NOT go after the homeowner to sign a promissory note for the balance amount after the short sale closes.
Here are the excerpts from the Bill:

“Effective immediately for transactions closing escrow from this day forward, both senior and junior lien holders cannot require a borrower to owe or pay for a deficiency in a short sale. This law also prohibits any deficiency judgment to be requested or rendered for senior or junior liens after a short sale of one-to-four residential units. Any purported waiver of this rule shall be void and against public policy.”

Although lenders are prohibited from pursuing borrowers to pay any additional compensation in exchange for a short sale approval, the law allows the seller to voluntarily offer a monetary contribution as an incentive to the lender for providing short sale approval. A lender is also permitted under this new law to negotiate for a contribution from someone other than the seller, such as other lenders, agents, relatives, the new buyer, etc.

This bill applies to single family homes, duplex, triplex and 4-plex residential, owner occupied or investment properties. This law does NOT apply to lenders seeking damages as a result of fraud. Also, the law does NOT apply to borrowers who are corporations, LLCs, limited partnerships, or political subdivisions of the state, liens secured by bonds, public utility liens, and HOA liens.

This is HUGE for California homeowners and investors!! This law protects you if it’s your own personal primary residence and if it’s an investment property that you own. However this plays out eventually, rest assured that if the junior lenders DO approve the short sale, you are much better off as a homeowner or an investor.

However, BEWARE if you opt for foreclosure instead of a short sale and the protections offered by this law. If you opt for a foreclosure, here’s what generally happens: Usually, the 1st lender is the one foreclosing. Let’s use some actual numbers. Let’s say that the fair market value of the property is $175,000. The 1st lender is owed $325,000. The balance on the 2nd loan is $42,000. The 1st lender will try to sell the property on the court house steps (at auction) for the balance owed ($325,000), but there will be no takers. Why? Because no investor will pay $325,000 for a property only worth $175,000!!! So the property goes back to the 1st lender and becomes an REO asset. What happens to the 2nd loan, you ask? Great question! It gets wiped out!!! This makes the 2nd lender furious! They are owed $42,000, but they get zero, nada, bupkus. Well, it doesn’t stop there. The 2nd lender can and does typically go after the homeowner very aggressively by generally selling this debt to a collection agency of some sort. That collection agency will then pursue the homeowner to the ends of the Earth with phone calls, letters, etc. demanding payment. And that’s not all!! These collection agencies will demand the FULL amount of the debt owed (in this case, $42,000). That is not a fresh start, to have these collection folks harassing you for payment after losing the property!

The HUGE advantage to this law is choosing a short sale protects you. All the junior lienholders and the senior lienholder have to agree to the amounts of the proceeds that they will receive from the short sale (and that’s where negotiation skills and experience are crucial), but once they do agree and the short sale closes , YOU ARE DONE!! Your debt is resolved!! No lender can ask you to bring money to the table. No lender can ask you to sign a promissory note to pay back a portion of this debt in the future. No collection agency will harass you. This is truly a fresh start and an amazing protection for California homeowners! Again, this protection applies to most people (please read exceptions above). So if you have more than one loan, do a short sale and protect yourself. Go forward in the future with a fresh start and a zero balance sheet.

Previously, a government program called HAFA (Home Affordable Foreclosure Alternative) incentivized homeowners by paying them $3000 for relocation assistance at the time of completion of the short sale of their house.

Banks including J.P. Morgan Chase, Wells Fargo and Bank of America have taken a step further by paying huge cash incentives, starting at $5,000 and higher, to the homeowners for doing a short sale.

Why Banks Are Paying Cash Incentives to Homeowners Who Opt For A Short Sale

Foreclosure process is lengthy and very expensive. According to Francis Wissman of Moody’s Investors Service, loss severities on properties liquidated through short sales have averaged approximately 15% lower than those on properties liquidated through REO sales.  This simply means that the bank loses money either way, but they lose a lot less money when they do a short sale vs. a foreclosure.

Due to this, more and more banks are now inclined towards short sales. We conducted a research on MLS on approximately 200,000 properties in Southern CA to observe short sales and foreclosure trends and found that there has been a significant increase in completed short sales in the past 3 years, while a downward trend has been observed in completed foreclosures.

Short Sales Trend in Southern CA

Foreclosures Trend in Southern CA

Why Short Sale Is A Better Option For Homeowner Vs. A Foreclosure

Effect of short sale on credit is not as negative as the effect of foreclosure or bankruptcy. With a short sale, the credit is negatively affected for 2-3 years. With foreclosure, or bankruptcy, the negative effect stays for 7-10 years.

So Why Should I Do A Short Sale?

Here are a few reasons for you:

• Improved credit score as compared to a foreclosure.
• Reduced stress once payments are gone.
• Leaving the property on your own terms and your own timeframe.
• To take advantage of the cash incentives being offered by the lenders.

Which Banks Are Participating

This is a fairly recent advancement in real estate industry. The terms and conditions are not yet clear. Contact your lender to know if they are offering these cash incentives to homeowners who agree to sell their house in a short sale.

And Why Should I Work with You?

Great question!  You need to choose a broker who knows how to do short sales and who has a proven track record.  You can’t trust your future to just anyone.  My track record is over 95%.  The national average is 15-25%.  That means that I’ve closed over 95% of all short sales that I’ve taken on.  I treat my clients like family members and truly look after their interests.  We are relentless and never, ever, ever give up working tirelessly on your behalf.

I’d be happy to offer you a 100% FREE consultation by answering any questions on your particular situation, or by getting in touch with your bank to find out about the incentives they are offering to their borrowers for opting for a short sale. Contact me at 909-972-0041 or docrealtors45@gmail.com

Did you lose your job? Suddenly, through no fault of your own, you are faced with trying to make your mortgage payment with severely restricted income. This program is designed to help someone exactly like you!

This is a Federal program under the Making Home Affordable programs. There are all kinds of programs that the Federal government is sponsoring. They all have the same goal—to get you to keep your house and get you payment relief.

This program in particular is a forbearance plan, where the lender will reduce the amount of your mortgage payment for a specific time. The lender will either cut the payment or reduce it to zero for 6 months. This extra time will allow you to look for a job and get back on your feet again.

There are rules, of course, like every Government program. Here is a list that sums all these up nicely:
· Must be PRINCIPAL RESIDENCE.
· Does NOT apply to second home, vacation home, or investment property.
· Must prove job loss.
· The mortgage must be owned or guaranteed by Freddie Mac or Fannie Mae.
· This plan does not apply to properties financed with an FHA or VA mortgage.
· Must show that job loss has caused financial hardship and will lead to default.
· Must show limited or no cash reserves to make monthly payments.
· Housing expenses must be more than 31% of gross income, before taxes.
· You don’t have to be current with your mortgage payments to apply.

It’s very important to understand what forbearance is and what it is not. It is NOT a principal reduction plan. For instance, if the property is over-leveraged or under water and you owe more on the property than what it is worth, it’s important to understand that the loan amount is NOT reduced. Also, it’s a “time out” only for a specific time frame. Once the forbearance period is over, you will have to make up all the missed payments in full. Your lender will work with you to develop a payment plan that will specify exactly how much you have to pay each month and how long it will take to repay.

A couple of other things to note are that your lender CANNOT foreclose on the property while the forbearance plan is in existence. As long as you are making your payments as agreed, the foreclosure process stops during the forbearance plan. Also, the lender cannot charge you any late fees while the forbearance plan is in existence, as long as the payments are made as agreed.

The nicest thing about this program is that it allows the servicers a lot of freedom. A “servicer” is the bank or company that your mortgage check goes to each month. The servicer does not have to ask permission of FNMA or FHLMC to grant the forbearance. They can grant it for 6 months w/o getting pre-approval. After 6 months, the servicer must ask FNMA or Freddie Mac for permission to extend the forbearance.

If you are interested in this program and feel that you meet the criteria, the first thing to do is find out whether you have a FNMA or a FHLMC loan.

Check if FNMA owns your loan: www.fanniemae.com/loanlookup or call 1-800-7FANNIE.

To check if Freddie Mac owns your loan: www.freddiemac.com/mymortgage or call 1-800-FREDDIE.

You can also ask your servicer. Talk to your servicer about your job loss as early as possible. The earlier you get assistance, the more options you have. Have your financial information in front of you when you talk to your bank. Before the bank offers you any option, they will want to know: how much is coming in (salary); how much is going out (mortgage & other housing expenses); other bills and debts (credit cards, car payments, child care, alimony, child support, food, student loans, etc.) , whether you are current or behind on all these bills.

For more information about these programs, go to www.efanniemae.com or www.freddiemac.com. For more housing options offered by the Federal Government, go to www.makinghomeaffordable.gov or call 888-995-HOPE (4673). This is a toll-free number that reaches HUD-approved housing counselors. This service is completely free to you.

Or, you are most welcome to contact me. My phone number is 909-972-0041 and my email address is docrealtor45@gmail.com. I’d be happy to help you in all the ways I can.

Have you been feeling like the Federal assistance programs have nothing to offer you?

Well, think again! The HARP Refinance Program may just fill the bill for a lot of homeowners who are current, but find themselves boxed in on all sides. They are current on all their payments and may be struggling to pay the mortgage, yet they are unable to refinance into a lower cost loan because their property values have fallen. Sounds like you? Well, read on.

The HARP (Home Affordable Refinance Program) is a Federal government program that is designed to help homeowners refinance their current mortgages into a more stable fixed-rate loan product. The mortgage must be owned by FNMA or FHLMC (Freddie Mac). It is important to understand that HARP IS NOT a plan that gives you principal reduction. In other words, you will still owe the same amount of money on the property. You will just be getting a more stable loan with a lower interest rate and more affordable payments.

This is a very new program and most lenders and mortgage brokers won’t be actually doing any HARP refinances until March 2012. But it may be advantageous to get your application in early, so apply now! Don’t be discouraged if your lender doesn’t have any information yet. For more information, visit www.makinghomeaffordable.gov or call 888-995-HOPE (4673).

Or contact me via phone (909-972-0041) or email (docrealtor45@gmail.com). I’d be delighted to put you in contact with mortgage brokers I know who will be doing HARP refinances.

HARP is a limited-time program and will end on December 31, 2013.

Below are the most frequently asked questions about HARP. If you have any further questions, please feel free to ask.

FAQs
How would I know if my mortgage is owned by FNMA or FHLMC?
If you are not sure if FNMA or FHLMC owns your loan, here is a place to start:

Check if FNMA owns your loan:
www.fanniemae.com/loanlookup
Phone: 1-800-7FANNIE

Check if Freddie Mac owns your loan:
www.freddiemac.com/mymortgage
Phone: 1-800-FREDDIE

What are the eligibility criteria to qualify for HARP?
~ You must be current on your mortgage. You cannot qualify if you are in default.
~ The property must be a residential property that is 1 to 4- family, so a single-family home, duplex, triplex, and 4-plex would all qualify.
~ The mortgage must be owned or guaranteed by FNMA (Fannie Mae) or FHLMC (Freddie Mac). The mortgage must have been sold to FNMA or FHLMC on or before May 31, 2009.
~ The mortgage cannot have been already refinanced under HARP previously.
~ The loan which is being refinanced cannot have any prepayment penalties or balloon payments.
~ The loan which is being refinanced cannot exceed the conforming loan limits of the area where the property is located. (See the next question to find conforming loan limits of your area.)

Please understand that eligibility doesn’t mean that you are automatically approved. You have to go through the application process and have the loan go through underwriting, just like every loan and every refinance does. The homeowner has to qualify with respect to income and other debts and credit score, and the property has to qualify as well, with respect to value and condition.

How can I find if my loan is within the confirming loan limits of the area where my property is located?
In most counties in the U.S., that limit is $417,000 for a SFR (single family residence). It’s higher ($625,500) for very high cost areas. To check out your county, go to: http://themortgagereports.com/loan-limits Choose “conforming loan limits” from the drop-down menu.

I am current on my mortgage payments but I had some late payments in the past year. Would I qualify?
You cannot have any late payments at all in the previous 6 months, and you cannot have more than 1 late payment in the past 12 months.

Can I qualify if my house has no equity?
Yes! The property may or may not have equity.
(Equity = Fair market value – Mortgage Balance).

Would my investment property qualify for HARP?
Yes! You can use the program for your primary residence, a residential investment property, or a second or vacation home. HARP is not designed for any commercial properties.

Would I qualify if I have junior liens?
Yes, you can. However, the junior lien holders (2nd, 3rd mortgage or HELOC, etc.) must agree to remain in a junior lien position.

Do all lenders participate in HARP?
No. Lenders are not required to participate in this program. You will have to ask your lender if they participate in HARP.

My lender doesn’t participate in HARP. What should I do?
You can choose any participating bank to refinance under HARP. You don’t have to work with your current lender.

Are there any fees involved?
As with all refinances, there are fees and closing costs involved that will vary from lender to lender. In order to incentivize homeowners to pay off their house debt sooner, there will be much lower closing costs and lower interest rates if you refinance into a 15- or a 20-year loan instead of a 30-year loan.

What would my new interest rate be under a HARP refinance?
The interest rate will be based on the market rates at the time of the refinance, and will vary from lender to lender and over time. It’s a good idea to make a spread sheet and keep track of different programs and rates and costs offered by different lenders, so that you can choose the best program for you with the lowest costs.

What is LTV and how does it affect HARP? Are there any limits?
LTV means “Loan to Value.” If your house is worth $300,000 and you have a mortgage that is $150,000, then you have 50% LTV. Loan/FMV x 100= LTV.

If you refinance into a fixed-rate loan with a lower interest rate and lower payment, there are now no longer any limits on LTV.

If you are refinancing into an adjustable rate mortgage, you cannot exceed 105% LTV. For instance, if your house is worth $100,000, the maximum loan amount is $105,000 if you are refinancing into an adjustable rate mortgage. It is important to keep in mind that even though the HARP guidelines have no LTV, many banks will have their own guidelines that may differ from HARP.

Junior Lenders Cannot Pursue Borrower to Make Up for the Deficiency in a Short Sale

Recently passed in July 15, 2011, SB 458 protects homeowners in California who elect to do a short sale. According to this bill, senior and junior lien holders cannot pursue the borrower to sign a promissory note for the balance once they approve the short sale.

Previous law, SB 931, only applied to senior lien holders. Junior lien holders had the choice to approve a short sale only if the borrower would agree to sign a promissory note to pay the full balance.

This new law, however, doesn’t require or force the junior lien holders to approve the short sale. But if they do approve the short sale, then they must accept the short payoff as full payoff and must agree NOT to pursue the deficiency judgment and must NOT go after the homeowner to sign a promissory note for the balance amount after the short sale closes.

Here are the excerpts from the Bill:

“Effective immediately for transactions closing escrow from this day forward, both senior and junior lien holders cannot require a borrower to owe or pay for a deficiency in a short sale. This law also prohibits any deficiency judgment to be requested or rendered for senior or junior liens after a short sale of one-to-four residential units. Any purported waiver of this rule shall be void and against public policy.“

Although lenders are prohibited from pursuing borrowers to pay any additional compensation in exchange for a short sale approval, the law allows the seller to voluntarily offer a monetary contribution as an incentive to the lender for providing short sale approval. A lender is also permitted under this new law to negotiate for a contribution from someone other than the seller, such as other lenders, agents, relatives, the new buyer, etc.

This bill applies to single family homes, duplex, triplex and 4-plex residential, owner occupied or investment properties. This law does NOT apply to lenders seeking damages as a result of fraud. Also, the law does NOT apply to borrowers who are corporations, LLCs, limited partnerships, or political subdivisions of the state, liens secured by bonds, public utility liens, and HOA liens.

While SB 458 is a huge relief to distressed homeowners who opt to do short sales, yet it introduces new challenges to the realtors who negotiate short sales with the lien holders on behalf of their clients. Reaction has been mixed to this law. Some feel that it will make it harder for short sales to be approved, as it takes options away from the junior lenders. Some feel that it will lead to far easier short sale approvals. Since this is such a new law, there are no precedents or case law yet. At this early stage, it is difficult to say how this bill would impact real estate market as it might make it harder to get short sale approval from junior lien holders and may result in more foreclosures.

However this plays out eventually, rest assured that if the junior lenders DO approve the short sale, you are much better off as a homeowner.