On March 26, 2010, the Administration announced enhancements to the Making Home Affordable Program (MHA) and the Federal Housing Administration (FHA) refinance program to give a greater number of responsible borrowers an opportunity to remain in their homes and reduce costly foreclosures. The changes are two-fold: Provide temporary assistance to unemployed homeowners while they search for re-employment; and give lenders greater flexibility to reduce mortgage balances.
And Bank of America announced a program, initially aimed at up to 45,000 Countrywide borrowers, that will reduce principal balances up to 30% of the loan amount, to help keep people in their homes and avoid foreclosure.
Combined, these policy changes address the huge dilema being faced by Americans who are struggling with the decision whether to continue to invest in homes whose loans now exceed their market value, or simply walk away.
The Federal Programs
The Emergency Economic Stabilization Act of 2008 creating the TARP (Troubled Asset Relief) Program. A Web site developed by the U.S. Treasury Department at http://www.financialstability.gov describes the program and helps homeowners find the help they need to refinance their homes and avoid foreclosure. Click the “Housing” link for more information on the U.S. Government’s Making Home Affordable and Home Affordable Modification Programs. Information about the Treasury’s Hardest Hit Fund® (HHF), which helps those states hardest hit by home price declines and high unemployment to develop locally-tailored foreclosure prevention solutions, is also there.
These programs have varying requirements. Visit the official Web sites to determine which program (Refinance, Modification, principal reduction) is right for you. Original programs required that to refinance, the home must be your primary residence and your mortgage must be owned by Freddie Mac or Fannie Mae. For modification, the home must be your primary residence and you must be having trouble paying your mortgage because the payment went up, you lost your job or you experienced a hardship such as medical. Since these programs were first created in 2008-2009, additional programs have been introduced which expand homeowners’ options.
Scam Artists Are Out There; Don’t Be Taken
You can trust the government Web sites to provide reliable information. Be cautious about using mortgage renegotiation services, however. They aren’t attorneys. They can’t give you legal advice. They are salespeople, and many are taking advantage of families who are desperate to save their homes. We know of one case where a lady paid $3,500.00 to a non-attorney debt-relief agency. After receiving her money, the company told her they’d have an update for her in 6 months. That same $3,500.00 would have made several mortgage payments.
The problem has become so widespread that the State Bar of California published an ethics alert to its members, who are being approached with joint-marketing and other “business” proposals by those wanting to profit from the demand for loan modifications, who are not themselves licensed or regulated. Attorneys cannot share fees with non-licensed persons. Additionally, the State of California has posted Consumer Home Mortgage Information, providing reliable information for families to protect their homes. Similar resource Web sites for other states can be found using Legal.com’s Legal Research tool. Try typing mortgage foreclosure and the name of your state, e.g. mortgage foreclosure massachusetts, and look for links to reputable sources such as official state sites, law libraries, recognized non-profit associations, and the like.
Consult With an Attorney
A consumer attorney trained and experienced in real estate lending can review your situation and give you real advice – for a lot less than the fee many of the non-attorney services are charging.
A Bankruptcy attorney can eliminate your unsecured debts, like credit cards and medical bills. Additionally, missed mortgage payments can be “refinanced” over 3-5 years in Chapter 13 Bankruptcy. And, when a second mortgage is wholly unsecured, the debt can be wiped out entirely through a process called lien stripping.
Congress considered legislation to allow Bankruptcy judges to modify first mortgages. However, this legislation was opposed by Republicans and failed to become law. So homeowners can use Bankruptcy to eliminate many forms of debt, including their 2nd mortgages (HELOCs), but cannot restucture their first mortgages through Chapter 13 Plans.
As Legal.com reported in 2009, “Senate Republicans, on April 30, 2009, defeated a Bill which would have given Bankruptcy judges powers to adjust first mortgages. Banking groups argued that the Bill would destabilize housing markets. Although disappointing for homeowners facing foreclosure, many Bankruptcy courts hold that under Section 506 of the Bankruptcy Code (11 U.S.C. § 506), a second mortgage or deed of trust is wholly unsecured when the first mortgage or deed of trust exceeds the value of the property. This interpretation provides help to homeowners whose home value has fallen to less than the amount of the first mortgage or deed of trust – basically, when the home is ‘upside down’ at the first mortgage (forgetting the second). By allowing homeowners to strip off the second mortgage or deed of trust in a Chapter 11 or Chapter 13 reorganization, existing Bankruptcy laws and case interpretations are helping homeowners, even though the proposed legislation didn’t pass. The process is referred to as ‘lien stripping,’ and generally requires the assistance of a bankruptcy attorney since a motion must be filed, and expert testimony from an appraiser may be necessary at a hearing before a judge.
Whether you turn to state real estate laws, or federal Bankruptcy law, protect yourself by talking to a lawyer knowledgable in the area of law. You can use Legal.com’s Google-powered Attorney Locator search engine to get a list of bankruptcy and/or real estate (for consumer law or forcelosure defense) attorneys nearby.
Stopping the Foreclosure Scams
In 2009 Treasury Secretary Timothy Geithner declared war on the con artists operating mortgage foreclosure scams. The scammers identify many of their victims from public record filings of defaults and similar notices. The purported “rescue” scams take many forms, but a common warning sign is the charging of a large upfront fee – usually one mortgage payment, or as much as $3,500.00. Another warning sign is a policy against credit card payments. These charges can be reversed once the victim realizes he’s been taken. Most often, the victim simply loses his money but some scammers cause additional damage to the victim’s credit rating, by filing bogus papers and possibly engaging in identity theft.
“American homeowners have been through enough in the past few years,” Geithner said, adding that the last thing they need is to get scammed as they struggle to keep their homes. “These predatory scams callously rob Americans of their savings and potentially their homes,” he said. “We will shut down fraudulent companies more quickly than before. We will target companies that otherwise would have gone unnoticed under the radar.”
What can you do if you discover that you’ve become the victim of a scam? File a complaint with your state’s Attorney General. If a mortgage company, mortgage or real estate broker was involved, additionally contact the state agency or department that regulates that company or individual (issues their license). You may also wish to contact the district attorney’s office in your county, especially if you find that the individual who did business with you has no license.
New Rights for Tenants
A new law signed by President Obama requires that tenants who pay their rent on time can remain in their home until the end of their lease, unless the bank sells the property to someone who intends to make it their residence. Even without a lease, renters must be allowed to stay for 90 days after foreclosure. For a better understanding of your rights in foreclosure and eviction, download this free handbook, Without Just Cause: A 50-State Review of the (Lack of) Rights of Tenants in Foreclosure.