Friday, April 30, 2010

What is HAFA?

What is HAFA?
HAFA is a government-subsidized Home Affordable Foreclosure Alternatives program for distressed homeowners to sell their homes to avoid foreclosure, even if the sales price is not enough to pay off their existing mortgage loans. Under HAFA, a participating lender will pre-approve the terms of a short sale and give the borrower at least 4 months to market and sell the property using a licensed real estate professional.

Eligibility:

The eligibility requirements for a HAFA short sale include the following:

Property must be borrower's principal residence

Loan must be a first trust deed originated before 2009

Loan must be delinquent or default must be reasonably foreseeable

Current unpaid principal balance must be $729,750 or less for single-family home (or higher amounts for 2 to 4 units) and

Borrower must be eligible for, but unable to complete a loan modification under the Home Affordable Modification Program (HAMP)

Financial Incentives:

The government incentives under HAFA are as follows:

$3000 to borrower for relocation expenses

$1500 to servicer for each successful short sale and $1 to investor for every $2 paid to extinguish junior liens, up to $2000 maximum, not to exceed 6% of unpaid balance.

Effective Dates:

April 5, 2010 to Dec 31, 2012

HAFA Procedures:

The general standardized procedures for HAFA short sales are as follows:

Step 1: Lender evaluates borrower for a loan modification under HAMP

Step2: Lender evaluates borrower unable to complete HAMP modification for short sale.

Step 3: Lender issues Short Sale Agreement (HAFA SSA)

Step 4: Borrower lists the property for sale using a licensed real estate agent.

Step 5: Borrower and agent market and sell the property.

Step 6: Borrower submits to lender a Request for Approval of Short Sale (RASS).

Step 7: Lender approves RASS within 10 business days.

Step 8: Sale closes escrow.

Lender"s Evaluation:

Each participating lender will have its own written policy for approving or rejecting a HAFA short sale, based on factors such as the severity of the loss, market conditions, the borrower's motivation and cooperation, property valuation, ans title review.

Short Sale Agreement (HAFA SSA):

The Short Sale Agreement (HAFA SSA) will include among other things, the following:

Either a list price or net proceeds acceptable to the lender.

An agreement to fully release borrower from all liability for repayment of the loan

An agreement not to complete a foreclosure sale if borrower complies with SSA

Amount of acceptable closing costs and up to 6% real estate commission

Notice that sale must be an arm's length transaction; and

Notice that the buyer must agree not to resell the property within 90 days of closing.

Tax Credit and Other Consequences:

A HAFA short sale may have serious tax, credit, financial, legal and other consequences. A homeowner is strongly encouraged to seek the advice of a qualified professional regarding these consequences.

Participating Lenders:

A listi of lenders participating in the HAMP program is available at http://makinghomeaffordable.gov/contact_servicer.html. Fannie Mae and Freddie Mac have their own HAFA guidelines for their loans.

More Information:

http.//makinghomeaffordable.gov/hafa.html

See also, Supplemental Directive 09-09 dated March 26, 2010 available at

http://www.hmpadmin.com/portal/docs/hafa/sd0909r.pdf.

This chart is one of many legal publications and services offered by CAR to its members.

Copyright 2010 California Association of Realtors C.A.R.

Thursday, June 26, 2008

Understanding the Foreclosure Process

Introduction

This article on the foreclosure process is the second in a series of articles to be presented by the C.A.R. Strategic Defense Counsel and Panel members.AuthorD. W. Duke, Giardinelli & Duke, APCStrategic Defense Panel Member

By now most REALTORS® have experienced the impact of the declining housing market within their own businesses. Of paramount concern for real estate professionals is the need to most effectively represent buyers and sellers in a declining real estate market. An understanding of the principles of foreclosure is important in providing the proper representation to a client who is the owner of a diminishing real property asset. It is also critical in assisting buyers in finding a home. Regardless of whether one is the listing agent, the selling agent or the buying agent, a basic understanding of the mechanisms of real estate foreclosures is important to providing competent real estate services in the present real estate economy.

A number of factors have led to the present crisis in the housing market. One of the initial factors was the overextension of credit. In the last few years prior to the present housing slump 35% of homeowners nationwide had loans in excess of 95% of the value of the home. In California 45% of the homeowners had loans in excess of 95% of the value of the home. Many people purchased homes with adjustable rate mortgages planning to refinance into a fixed rate mortgage before the loan adjusted to the point that it would become unaffordable. The initial low payments made these loans particularly attractive and their popularity began to exceed the popularity of the fixed rate mortgage. However, when the homeowners attempted to refinance they found that the equity in the home had decreased to the extent that lenders would not refinance. As a result many homeowners found themselves in foreclosure. Mortgage fraud has also increased the number of foreclosures through Ponzi schemes and pyramid holdings not unlike those in the securities industry in the 1920’s prior to the Great Depression. Moreover, as a result of the continuing slow down in the housing market buyers have hesitated in purchasing real estate. Thus, buyer caution has exacerbated the housing decline.

According to data from the National Association of REALTORS®, nationwide existing home sales were at 4.89 million in January 2008, compared to 6.38 million in January of 2007. This is a decrease of over 23.4%. The glut of existing homes on the market in the United States in January 2008 reached 4.19 million which is a 10.3 month supply. In contrast, in January of 2007 the existing home inventory was 3.52 million which was a 6.7 month supply. PropertyShark.com reports that foreclosures in Los Angeles in the third quarter of 2007 were up 247% over the third quarter of 2006. There were 5320 foreclosure filings in Los Angeles in the third quarter which was a 40% change over the filings in the second quarter of 2007. Stockton, Riverside/San Bernardino, Sacramento, Bakersfield and Fresno are five of the top 20 foreclosure-filing areas in the nation according to the Department of Housing and Community Development.

Types of Foreclosure

In California there are two types of foreclosure with which a home owner might be faced. These are the “judicial foreclosure” and the “trustee sale” sometimes called the “power of sale” foreclosure. In a judicial foreclosure, where the amount recovered in the sale is less than the amount owed on a loan, the difference is called a “deficiency.” A “deficiency judgment” is a judgment against the borrower for the difference between the unpaid balance on the loan and the amount generated by the foreclosure sale or the fair market value, whichever is greater. Where the foreclosure is accomplished by judicial action, the lender may be able to obtain a deficiency judgment against the borrower. However, the recovery of the deficiency amount is only available in a judicial foreclosure and is not permitted after a “trustee’s sale.” In other words if the lender utilizes the non-judicial method of a trustee sale, a deficiency cannot be collected. Additionally, the recovery of a deficiency is not possible on a “purchase money” loan, including seller-carried financing, on any real property or loans on property consisting of 1 4 family units of owner occupied residential property. Recovery of the deficiency amount is possible, however, on a refinanced property loan (non purchase money) or on 1-4 family non owner occupied residential property loans.

Judicial Foreclosure

Fewer than 5% of residential foreclosures in the state of California are judicial foreclosures. A judicial foreclosure is initiated by the lender filing a lawsuit against the defaulting borrower in Superior Court. Upon sufficient proof at trial, the court enters judgment of foreclosure and orders the sale of the property. After the sale the lender files an application for fair value deficiency after which there is a hearing on the deficiency. Upon approval the court issues a fair value finding on the deficiency and enters a conventional money judgment called a “deficiency judgment.” A judicial foreclosure generally takes much longer than a trustee sale. Subsequent to the issuance of the judgment there is a time period during which the borrower can exercise his right of redemption and repurchase the property by paying the full amount of the defaulted loan. Where the proceeds from the sale are sufficient to pay the debts on the property the redemption period is three months. Where the proceeds are not sufficient to pay the debts on the property the redemption period is twelve months.

Attorneys are often asked by real estate professionals what the “One Action Rule” means in real estate foreclosures. The One Action Rule was designed to limit the number of lawsuits that would be required in order to foreclose on a piece of real estate. In California, the One Action Rule has been codified as CCP§ section 726(a). That section requires a mortgagee (the party who lends money to the property owner [mortgagor] and takes a security interest in the property) to seek all of its relief in one legal proceeding. While most foreclosures in the state of California occur without judicial intervention by way of a trustee sale, the One Action Rule applies in situations where the party utilizes the courts to achieve a judicial foreclosure. Judicial foreclosures are most commonly utilized when the lender is seeking to recover the deficiency between the unpaid balance on the loan and the amount raised at the foreclosure sale or the fair market value of the property, whichever is greater.

At common law, in order for a lender to recover its property and a money judgment on the deficiency, the lender had to file three separate actions. They were (1) a suit in equity to foreclose on the property; (2) an action at law on the debt to obtain a money judgment; and (3) an action for ejectment to remove the borrower from the property. This requirement of filing three separate actions was a significant burden to lenders who desired to foreclose on real estate. In 1851 California adopted a version of a proposed New York law and codified it in Section 246 of the Civil Practice Act. In 1872 it was recast as CCP §726(a), which remains in effect today.

CCP §726(a) is most commonly thought of as debtor protection, because it allows the debtor to avoid a multiplicity of lawsuits. In reality, it was originally intended to protect the lender from the necessity of prosecuting numerous actions to recover different forms of relief under three different forms of action. As mentioned above, the vast majority of foreclosures on residential real property occur by way of trustee sale. However, in situations where the foreclosing lender seeks to recover a deficiency on the sale of real property, the judicial foreclosure process must be utilized and the lender must comply with the One Action Rule.

Foreclosure by Trustee Sale

In contrast to the judicial foreclosure, in a trustee sale there is no court filing. Instead the lender elects to accelerate the loan under the “power of sale” clause contained in the deed of trust and the property is sold at a trustee sale. In actual practice, when the borrower is approximately 45 to 60 days in default, the lender sends a letter advising that the loan is in foreclosure and that the lender is going to exercise the option to accelerate the loan. The borrower is also provided information about how to reinstate the loan. If the borrower does not cure the default, the lender then records a “notice of default” against the property. The soonest the actual foreclosure sale can occur once the notice of default is recorded is three months and twenty one days.

If the property sells at foreclosure for more than the amount due plus costs of foreclosure, the “excess proceeds” are distributed to junior lien holders whose loans or liens were “wiped out” by the foreclosure and any remaining excess is returned to the property owner. Where the junior lien holder’s security is wiped out by the foreclosure of the primary lender, the junior lien holder may choose to sue on the note under a breach of contract claim. While this was rarely done in the past, some lenders are now pursuing this course of action to recover the lost security on their loans.

Options for a Borrower Facing Foreclosure

Workout Plans:

The first option a borrower should consider when attempting to keep a home is a workout. Under a workout scenario the lender will assist the borrower in keeping the property. One of the plans usually offered to the borrower is “forbearance.” Under a forbearance plan the lender will allow the borrower to continue for a certain period of time, such as six months, without making a payment. When the borrower is able to catch up, the borrower resumes making payments plus an additional amount to bring the loan current. Loan modification can also involve rewriting the terms of the loan to make the loan affordable for the borrower. This might consist of changing an adjustable rate mortgage to a fixed rate mortgage, for example. The objective is to work out the default with the borrower to allow the borrower to remain in the home and avoid foreclosure.

Short Sales:

“Short sales” may occur once a home is in foreclosure or prior, but before the property goes to sale. In a short sale, the lender accepts an offer from a third party buyer for less than the outstanding loan on the property and forgives the deficiency owed by the borrower. This arrangement may be appealing to lenders because it saves time and money by stopping the legal foreclosure process and by taking the property off the lender’s books. However, recently it has come to light that some lenders agreeing to short sales are including language in the release which allows them to sue on the note even though they are releasing the security in the property.

Until December 21, 2007, if the lender accepted less than the balance owed and cancelled the debt, that amount would be considered debt forgiveness, and tax would be due on the amount forgiven. This forgiven amount was called “phantom income.” According to the IRS it is the same as if you received that amount of income. On December 21, 2007 President Bush signed H.R.3648: Mortgage Forgiveness Debt Relief Act of 2007 which provides relief to homeowners facing foreclosure from the phantom income realized from debt forgiveness or foreclosure. The benefit to the borrower of a short sale is that the credit report will show that the loan settled for less than full value as opposed to a foreclosure. Those who are most interested in the short sale opportunity are those who would like to preserve their credit by avoiding the foreclosure.

Deed in Lieu of Foreclosure:

In a “deed in lieu of foreclosure” plan the borrower returns the deed on the property to the lender in exchange for a release of the security interest and a cancellation of the note. As in the case of foreclosures and short sales, the borrower may be able to claim relief under the Mortgage Forgiveness Debt Relief Act.Caution: A number of lenders have been offering a deed in lieu of foreclosure. However, when the borrower reads the fine print on the release of claims, he discovers that the lender is reserving the right to proceed against the borrower for breach of contract on the loan. REALTORS® are strongly recommended to advise their clients to request an attorney to review the documents received from a lender before entering into a deed in lieu of foreclosure transaction to assure that the documents express the true intent and understanding of the borrower.

Bankruptcy:

Bankruptcy is another option that defaulting borrowers may sometimes consider. Generally, bankruptcy will be attractive where the borrower is in debt with no feasible way of recovering. The most common scenario is where the borrower is in default on a loan where the lender is seeking judicial foreclosure or where the lender is suing on a note where the underlying security has been “wiped out” by a senior creditor. Again, whenever a borrower is facing possible foreclosure it is prudent to refer them to an attorney who is qualified to address all of the available options.

Conclusion

This brief article is intended to provide an overview of some of the more salient issues that might be encountered by REALTORS® in the present economy. The importance of addressing these issues competently cannot be overstated. A client may have many options that are not apparent to one unfamiliar with real estate law. While the foregoing is intended to provide an understanding of some of the basic issues that arise in foreclosure context, in all situations where a client is facing a possible foreclosure, it would be prudent to refer the client to several attorneys familiar with real estate law and the foreclosure process and to document the referral in writing.

References
Bernhardt, California Mortgage and Deed of Trust Practice, CEB Third EditionGreenwald and Asomow, Real Property Transactions, Rutter Group, 2007 Edition

Miller & Star, California Real Estate 3d, Thompson WestJefferson, Jefferson’s California Evidence Benchbook, Third Edition, CEB

Copyright© 2008, CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) Permission is granted to C.A.R. members only to reprint and use this material for non-commercial purposes provided credit is given to the C.A.R. Legal Department. Other reproduction or use is strictly prohibited without the express written permission of the C.A.R. Legal Department. All rights reserved.

Tuesday, April 8, 2008

Staging Your Home For Sale

In Hollywood they are called stylists. They are fashion professionals who help celebrities shine by outfitting them in the right clothes and accessories. In the world of home buying and selling, real estate professionals fill the same role, but in this case the “star” is your home.

Here are five things you can do to stage your home for sale. Staging is an important part of the home sale process.Staging is presenting your home in its best and most appealing light to the majority of buyers. In the end, it may even lead to less time on the market and a better sales price.

1. De-clutter and de-personalize: Remove all clutter and reduce the number of personal pictures and mementos. You do not have to purge everything, but packing away items at a friend’s house or in storage or garage might be a good idea.

2. Go for an updated look: If you have well-worn, wall-to-wall carpet, rip it up and replace it. If your kitchen cabinets are dated, spruce them up with new paint. Making your home look its best may take some money and some elbow grease.

3. Create a warm and cozy environment: You want your home to have a welcoming feel. Rearrange seating to create conversation areas. You want buyers to want to stay and relax.

4. Lighten up: Use table lamps to create a warm glow and mirrors to reflect the light around the room. Open up blinds and shades to let the sunshine in. A fresh coat of paint in an inviting, neutral tone will play up the sense of light and warmth.

5. Use accessories: Accent pillows, throw blankets, fresh cut flowers, bowls of polished fruit and artfully arranged books, can help you complete the sophisticated and inviting scene.

Remember, you want buyers to imagine themselves living in this setting. Your real estate professional is your greatest resource when it comes to preparing your home for sale. As your real estate professional, I can work with you to create the home of your buyer’s dreams.

Thursday, March 27, 2008

How to Hold a Successful Garage Sale

Spring is here! It is that time of the year again to get rid of all that clutter.

Garage sales can be a great way to get rid of clutter — and earn a little extra cash — before you sell your home. But make sure the timing is right. Garage sales can take on a life of their own, and it might not be the best use of your energy right before putting your home on the market. Follow these tips for a successful sale.

1. Don’t wait until the last minute. You don’t want to be scrambling to hold a garage sale the week before an open house. Depending on how long you’ve lived in the home and how much stuff you have to sell, planning a garage sale can demand a lot of time and energy.

2. Get a permit. Most municipalities will require you to obtain a special permit or license in order to hold a garage sale. The permits are often free or very inexpensive, but still require you to register with the city.

3. See if neighbors want to join in. You can turn your garage sale into a block-wide event and lure more shoppers if you team up with neighbors. However, a permit may be necessary for each home owner, even if it’s a group event.

4. Schedule the sale. Sales on Saturdays and Sundays will generate the most traffic, especially if the weather cooperates. Start the sale early, 8 a.m. or 9 a.m. is best, and be prepared for early birds.

5. Advertise. Place an ad in free classified papers and Web sites, and in your local newspapers. Include the dates, time, and address. Let the public know if certain types of items will be sold, such as baby clothes, furniture, or weightlifting equipment. On the day of the sale, balloons and signs with prominent arrows will help to grab the attention of passersby.

6. Price your goods. Lay out everything that you plan to sell, and attach prices with removable stickers. Remember, garage sales are supposed to be bargains, so try to be objective as you set prices. Assign simple prices to your goods: 50 cents, 3 for $1, $5, $10, etc.

7. If it’s really junk, don’t sell it. Decide what’s worth selling and what’s not. If it’s really garbage, then throw it away. Broken appliances, for example, should be tossed. (Know where a nearby electrical outlet is, in case a customer wants to make sure something works.)

8. Check for mistakes. Make sure that items you want to keep don’t accidentally end up in the garage sale pile.

9. Create an organized display. Lay out your items by category, and display neatly so customers don’t have to dig through boxes.

10. Stock up on bags and newspapers. People who buy many small items will appreciate a bag to carry their goods. Newspapers are handy for wrapping fragile items.

11. Manage your money. Make a trip to the bank to get ample change for your cashbox. Throughout the sale, keep a close eye on your cash; never leave the cashbox unattended. It’s smart to have one person who manages the money throughout the day, keeping a tally of what was purchased and for how much. Keep a calculator nearby.

12. Prepare for your home sale. Donate the remaining stuff or sell it to a resale shop. Now that all of your clutter is cleared out, it’s time to focus on preparing your house for a successful sale!

Reprinted from Realtor Magazine. Copyright 2008 All rights reserved.

Tuesday, March 4, 2008

Identity Theft, How to Safeguard Your Information

Identity theft is when your pesonal information is stolen and used without your permission and knowledge to commit fraud or other crimes. Identity theft can cost time and money, can destory your credit and ruin your good name. Identity theft is a serious crime.

How to safeguard your information:
  • Shred financial documents and paperwork with personal information before discarding them.
  • Protect your Social Security number. Do not carry your Social Security card in your wallet or write your Social Security number on a check. Give out your Social Security number only if absolutely necessary or ask to use another form of identification.
  • Do not give out personal information on the phone, through mail or over the internet unless you know who are dealing with or a internet secured site.
  • Never click on internet links in unsolicited emails; it is best to type in the web address. Use firewalls, anti-spyware and anti-virus software to protect your personal computer.
  • Do not use an obvious password like your birthdate, mother's maiden name, or the last four digits of your Social Security number.
  • Keep your personal information in a secure place at home and not readily available to others.