If you are reading this page, you are most likely struggling with your mortgage payment. You may have already received a Notice of Default (aka NOD) or you are at the stage of the foreclosure process where the short sale of your home is inevitable.
I will get right to the point: Your situation is concerning but unlike what many Silicon Valley Realtors will tell you, there are alternatives to short sales and foreclosure as well as public and private organizations in the Bay Area and in California that can help you at no cost to you or your family.
You should also know that over the last decade, lenders in Silicon Valley and in California are more inclined to avoid costs related to the foreclosure of your home.
As an experienced short sales and foreclosure specialist in Silicon Valley, I thought you might be interested in the following tips and alternatives available to prevent the short sales or the foreclosure of your home.
Tip #1: Determine Your True Financial Situation
You need to determine as accurately as possible your true financial situation. Understand that you will have to explain to your lenders and document the reason(s) why you are no longer able to pay your mortgage.
Most lenders and Realtors in Silicon Valley refer to this document as the Hardship (please refer to this blog for the most common short sales terms).
Tip #2: Apply for a Loan Modification
The request to file for a loan modification with the Making Home Affordable Program can be found here.
For the record, the Making Home Affordable
Program is a refinancing program that helps home owners lower their
monthly mortgage payments and obtain loan modifications.
The most notorious loan modification program is the Home Affordable Modification Program (aka HAMP), a federal program of the United States, set up to help eligible home owners with loan modifications on their home mortgage debt.
Tip #3: Understand Alternatives to Foreclosure
Ask your Silicon Valley Short Sales Agent for available alternatives to foreclosure that suit your needs.
Here are some alternatives to foreclosure listed for informative purposes only:
- Bankruptcy, which may help distressed home owners stall the foreclosure process
- Deed Transfer (aka Deed in Lieu de Lien) back to the lender who will repossess the property
- Forbearance or Reinstatement of Mortgage, which will allow you to pay the missed amounts together with late and legal fees, either through a one-time payment or spread installments
- Short Sale of your home, with the agreement of your lender, in order to recover and pay back as much debt owed as possible. You can find here useful information about Short Sales from the California Association of Realtors.
- Short Sale Lease Back (SSLB), a government-sponsored program (known as Home Strong USA) which allows qualified homeowners to short sell their home and
remain as tenants. If your lender(s) agrees, Home Strong USA will buy your home and become your landlord. You will be allowed to stay for
up to three years with an optional 2 year extension. You can find here useful information about eligibility requirements for the SSLB program.
Tip #4: Get Legal Advice
Alternatives to short sales and foreclosure have both legal and tax consequences that you should be aware of before making up your mind. For instance, the foreclosure of your home will damage your credit record for a longer period of time than the short sale of your home.
Take the advice of a lawyer as well as a CPA to understand all implications of all alternatives to foreclosure and short sales.
Tip #5: Work with a Short Sale Specialist
The key to your short sale success is to find a Silicon Valley real estate agent with outstanding negotiations skills and perfect knowledge of the short sale and foreclosure process.
Make sure to ask your Realtor if he or she has already worked with your lenders (first and second lender if applicable) as he or she may already have the right connections which will speed up and facilitate the short sale approval if this option is ultimately retained.
Tip #6: Speak the Short Sales Language
I just wrote a blog which includes the top 10 short sales keywords used by real estate agents, lenders, CPAs and lawyers use when dealing with foreclosure and short sales candidates.
Understanding what short sales and foreclosure professionals talk about will help you better understand and assess your situation.
Tip #7: Follow Short Sales Legislation
You should be aware that new short sales guidelines have been issued by the Federal Housing Administration since 2012.
Key Short Sales Legislation in 2012
Since October 2, 2012, the FHFA guidelines are mandatory. These guidelines specify that short sales, deeds-in-lieu and deeds-for-lease applications will have to be handled by the lenders and/or their servicers who will be subject to the following deadlines:
- Review and respond to requests for short sales within 30 calendar days from receipt of a short sale offer and a complete borrower response package
- Provide weekly status updates to the borrower if the short sale offer is still under review after 30 calendar days
- Make and communicate final decisions to the borrower within 60 calendar days of receipt of the offer and complete borrower response package
Since November 1, 2012, the new guidelines for Fannie Mae and Freddie Mac short sales specify the following:
- Eliminate current Fannie Mae and Freddie Mac short sale programs and creates a single standard short sale process for both entities
- Enable servicers to swiftly and easily qualify certain borrowers who are current on their mortgages for short sales without waiting for approval from Fannie Mae or Freddie Mac
- Offer preferred treatment for Military personnel with Permanent Change of Station (aka PCS) orders
- Standardize and clarify foreclosure suspensions on a property with an approved short sale
- Potentially pay borrowers up to $3,000 in relocation assistance
- Fannie Mae and Freddie Mac will offer up to $6,000 to subordinate lien holders to expedite a short sale.
Additionally, FHFA clarified that borrower(s) who experienced a hardship will have to wait at least 2 years before becoming eligible again for a Fannie Mae or Freddie Mac backed loan.
Since November 1, 2012, Fannie Mae and Freddie Mac servicers will be allowed to approve directly short sales and deeds in lieu on behalf of the nine following mortgage insurers without a separate review: CMG Mortgage Insurance Co., Essent Guaranty Inc., Genworth Mortgage Insurance Corp., Mortgage Guaranty Insurance Corp., PMI Mortgage Insurance Co., Radian Guaranty Inc., Republic Mortgage Insurance Co., Triad Guaranty Insurance Corp., and United Guaranty Corp.
Key Short Sales Legislation in 2013
Since January 18, 2013, the following guidelines regarding relocation assistance apply all to Fannie Mae and Freddie Mac short sales.
The borrower may be entitled to an incentive payment of $3,000 (c.f. Key Short Sales Legislation in 2015 below for the updated payment amount) from Fannie Mae or Freddie Mac to assist with relocation expenses following successful completion of a short sale unless:
- the borrower is required to contribute funds or execute a promissory note
- when the borrower as a military personal has Permanent Change of Station (PCS) orders and receives a Dislocation Allowance (DLA) or other government relocation assistance
- the servicer has knowledge that the borrower is receiving relocation assistance from another source other than the servicer.
If the borrower receives relocation assistance from a source other than Fannie Mae or Freddie Mac or the servicer, the difference in the relocation assistance amount up to the $3,000 incentive maximum may be provided. If the borrower will receive relocation assistance from another source or the Servicer and the amount is equal to or greater than $3,000, no relocation incentive will be provided.
Starting March 1, 2013, Fannie Mae will apply new requirements for the Fannie Mae Mortgage Release (AKA as deed-in-lieu of foreclosure. Borrowers completing a Mortgage Release with Fannie Mae will now have three exit options: immediate move, three-month transition with no rent payment required, and twelve-month lease with market rent payment.
Starting April 19, 2013, new operating standards apply for the handling and prioritization of borrower files that are subject to imminent scheduled foreclosure sales, i.e. within 60 days. You can read all about this new standard on the Federal Reserve website.
Effective May 13, 2013, servicers must evaluate any borrower who is at least 90 days delinquent but not more than 720 days delinquent and whose loan is at least one year old, for Freddie Mac's new Streamlined Modification Program.
Servicers may immediately offer eligible borrowers the new Freddie Mac Streamlined Modification. The new program will waive any document requirements for borrowers to receive the modification. The borrowers' modification becomes permanent after he or she makes three on-time payments during a three-month trial period.
Starting May 7, 2013, a new legislation (H.R.1842) extends
foreclosure protections to enlisted persons who bought homes after going on active
duty, in other words even if they purchased residences after activation. In
addition, the new law freezes foreclosure actions for as long as one year for
service members who are medically discharged or those placed on convalescent
This a provision that also applies to surviving spouses of military
personnel who lose their lives in the line of duty. For more information please
refer to this link.
You can always read about the latest short sales guidelines on the websites of Freddie Mac and Fannie Mae.
Key Short Sales Legislation in 2014
Effective November 25, 2014, the Federal Housing Administration (FHFA) announced that qualified buyers would be allowed to purchase Fannie Mae and Freddie Mac REO properties at current market value.
Previously, homeowners who went through foreclosure and wanted to buy their homes back had to pay the entire amount owed on the mortgage. The change also allows a third party to purchase the property on behalf of the previous owner.
Key Short Sales Legislation in 2015
In March 2015, new guidelines for the Home Affordable Modification Program (aka H.A.M.P) increased the homeowners incentives with a new $5,000 principal reduction if they are current on their mortgage six years after their mortgage modification. In addition to the principal balance reduction, HAMP is also reducing interest rates for alternative HAMP modification (Tier 2) borrowers by 50 basis points after the sixth year of the modification.
In March 2015, HUD announced the Home Affordable Foreclosure Alternatives (HAFA) program will increase the amount of relocation assistance it offers under its foreclosure alternatives from $3,000 to $10,000.
Bear in mind that State Legislation (in particular the California Homeowner Bill of Rights) will always impact the foreclosure & short sale process in California. More information about the California Homeowner Bill of Rights can be found on this page.
The landlord owns a maximum of 3 residential properties, each of which contains a maximum of 4 dwelling units.
Key Short Sales Legislation in 2016
In December, President Obama signed into law a package of "tax extenders" that included the extension of the Mortgage Forgiveness Debt Relief Act.
This means that if you meet the IRS requirements, the cancellation of debt will not be included as income to you. The Act excludes from income cancellation of mortgage debt on a principal residence of up to $2 million ($1 million for a married taxpayer filing a separate return) through 2016.
The Act also modifies the exclusion to apply to qualified principal residence indebtedness discharged in 2017 if the discharge is made under a binding written agreement entered into in 2016.
On April 14, 2016, the Federal Housing Finance Agency (FHFA) announced that Fannie Mae and Freddie Mac will offer principal reductions to certain seriously delinquent, underwater borrowers to help them avoid foreclosure and stay in their homes.
The new Principal Reduction Modification program is a one-time offering for borrowers whose loans are owned or guaranteed by Fannie Mae or Freddie Mac and who meet specific eligibility criteria. The modification will be available to owner-occupant borrowers who are 90 days or more delinquent as of March 1, 2016, whose mortgages have an outstanding unpaid principal balance of $250,000 or less, and whose mark-to-market loan-to-value (MTMLTV) ratios exceed 115 percent. For other eligibility criteria please refer to this link.
Key Short Sales Legislation in 2017
Effective January 1, 2017, the Loans Homeowner Bill of Right extends provisions of the Homeowner’s bill of rights to a successor in interest after the borrower has died. This law is in effect only until January 1, 2020.
The new law also prohibits a mortgage servicer, upon notification that a borrower has died, from recording a notice of default until the mortgage servicer requests reasonable documentation of the death of the borrower from a claimant, among other things. A claimant is a person claiming to be a successor in interest, who is not a party to the loan or promissory note.
The law provides a reasonable period of time for the claimant to present the requested documentation. A mortgage servicer is required, within 10 days of a claimant being deemed a successor in interest, to provide the successor in interest with information about the loan and to allow a successor in interest to assume the deceased borrower’s loan or to apply for foreclosure prevention alternatives on an assumable loan. Such a successor in interest who assumes an assumable loan and wishes to apply for a foreclosure prevention alternative has the same rights and remedies as a borrower under specified provisions of the California Homeowner Bill of Rights.
Key Short Sales Legislation in 2018
For 2018, Congress and Senate have introduced a bill that amends the Internal Revenue Code to extend through the end of the year the exclusion from gross income of income attributable to the discharge of indebtedness on a principal residence.
Key Short Sales Legislation in 2019
December 2019:The Further Consolidated Appropriations Act, extends the exclusion of discharge of mortgage debt. Homeowners who have undergone foreclosure, a short sale, or a loan modification, or otherwise had mortgage debt forgiven, can exclude up to $2 million of the debt from their gross income ($1 million for married individuals filing separately). The debt generally must have resulted from the acquisition, construction or substantial improvement of their principal residence. The law also modifies the exclusion to make it apply to debt discharged under a binding written agreement entered into before January 1, 2021. The IRS also recently extended the exclusion until the end of 2021.
Key Short Sales Legislation in 2020
March 16, 2020: California Governor Gavin Newsom issued Executive Order N-28-20. The order contains two foreclosure-specific provisions. First, Consumer Services and Housing Agency and then engage financial institutions to identify available tools to provide California residents relief from the threat of foreclosure. Second, financial institutions that hold home mortgages are requested to impose an immediate foreclosure moratorium when the foreclosures relate to substantial loss in household or substantial out-of-pocket medical expenses caused by the COVID-19 outbreak or any resulting governmental response.
March 18, 2020, : The U.S. Department of Housing and the Urban Development Secretary authorized the Federal Housing Administration (FHA) imposed an immediate foreclosure moratorium for the next 60 days for single-family homeowners whose mortgages are FHA insured. The guidance applies to homeowners with FHA-insured Title II Single Family forward and Home Equity Conversion (reverse) mortgages. Mortgage servicers have been directed to cease all new foreclosure actions and suspend those foreclosure actions currently in process. With a near-identical policy, the Federal Housing Finance Agency announced that it directed Fannie Mae and Freddie Mac to suspend foreclosures for at least 60 days. The moratorium applies to homeowners with either Fannie Mae- or Freddie Mac-backed single-family mortgages.
March 27, 2020: Congress passed the CARES Act which offers mortgage
forbearance to homeowners with mortgages backed or insured by the federal
government, including FHA, VA, USDA, Fannie Mae, and Freddie Mac
loans. Mortgages not covered by the CARES Act may also provide similar
forbearance options. Under the CARES Act, homeowners can ask for forbearance from their mortgage
servicer and suspend payments for up to 12 months.
April 6, 2020, : The rule No. 2 of the Emergency Rules of California Rules of Court suspends judicial foreclosures. Stays all judicial proceedings to foreclose on a mortgage or deed of trust, including an action for a deficiency. The periods for electing or exercising the right to redeem after foreclosure are tolled, as well as any period to petition a court regarding redemption rights. Statutes of limitations on foreclosure actions are tolled. The emergency rule remains in effect until 90 days after the pandemic state of emergency is lifted or the judicial authorities otherwise suspend the rule.
The Judicial Council of California voted on August 13, 2020, to end its statewide moratorium on foreclosures and evictions on September 1, 2020. The vote does not impact City and County moratoriums, which remain in effect in numerous jurisdictions.
September 21, 2020: The State legislature approved AB 3088 AKA the COVID-19 Small Landlord and Homeowner Relief Act of 2020. It implements procedural protections to homeowners before a foreclosure sale by requiring mortgage servicers to contact borrowers to discuss foreclosure prevention alternatives and pause foreclosure proceedings if a loan modification is under review. The Homeowner Act provides an extension of the Homeowners Bill of Rights (HBOR) to small landlords owning a fully tenant-occupied property with one to four units if the following conditions are met:
The property for which the landlord is seeking protection is occupied by at least 1 tenant who has been unable to pay rent due to COVID-19 financial hardship.
The property for which the landlord is seeking protection is occupied by at least 1 tenant who entered into a market-rate lease that was in effect on March 4, 2020.
The protections expanded to small landlords will only be in effect until January 1, 2023.
AB 3088 also requires a mortgage servicer to provide a written explanation outlining the basis for denying any forbearance request by a borrower if the following conditions are met:
The borrower was current on payment as of February 1, 2020;
Due to COVID-19, the borrower is experiencing a financial hardship that prevents the borrower from making timely payments on the mortgage obligation due.
If the written notice by the mortgage servicer cites any defect in the borrower’s request, that is curable, the mortgage servicer shall:
Specifically identify any curable defect in the written notice;
Provide 21 days from the mailing date of the written notice for the borrower to cure any identified defect;
Accept receipt of the borrower’s revised request for forbearance before the aforementioned 21-day period lapses; and
Respond to the borrower’s revised request within 5 business days of receipt of the revised request.
September 28, 2020: Gov. Newsom signed into law SB 1079:” Homes for Homeowners, Not Corporations”. SB 1079 is designed to prevent the scenario California experienced during the Great Recession when large corporations bulk-purchased foreclosed homes, causing owner-occupied homeownership to drop to the lowest level in decades. SB 1079 goes into effect Jan. 1, 2021.
Bankruptcy, which may help
SB 1079 modifies the foreclosure auction process to reduce the advantage big corporations had that allowed them to bulk-purchase many homes at a single auction. The new law gives owner-occupants, tenants, local governments, and housing nonprofits a level playing field to purchase such homes, helping retain owner-occupied homeownership.
SB 1079 also authorizes higher fines that a local government can levy on corporations or other property owners that leave homes vacant or blighted, to incentivize refurbishing and renting or selling such homes.
Under SB 1079, during a foreclosure auction, sellers would be prohibited from bundling homes together and selling them to a single buyer. Foreclosed homes would have to be sold individually to give people who actually want to live in a home a fair chance at buying it. Then, after the initial bids at a foreclosure auction are received, tenants, families, local governments, affordable housing nonprofits, and community land trusts have a 45-day window to exceed the highest auction bid in order to buy the property. These provisions of SB 1079 apply to all residential properties with one to four housing units and will sunset on January 1, 2026.
October 10,2020: The Department of Housing and Urban Development in October announced that the FHA was extending the date for consumers to ask for mortgage forbearance to December 31, 2020.
December 2, 2020:The FHFA extended its foreclosure moratorium for
borrowers with mortgages backed by Fannie
Mae and Freddie
Mac – though for just a one-month grace period to Jan. 31.
The FHFA has not announced whether it will continue to buy loans in forbearance
past the current expiration date of
Dec. 31, 2020
December 21, 2020: the Department of Housing and Urban Development announced that the Federal Housing Administration is providing a two-month extension of its foreclosure and eviction moratorium, and initial forbearance requests through Feb. 28, 2021. The FHA is also extending through February 28, 2021, the deadline for single family borrowers with FHA-insured mortgages to request an initial COVID-19 forbearance from their mortgage servicer to defer or reduce their mortgage payments for up to six months, which can be extended for an additional six months.
Key Short Sales Legislation in 2021
On February 16, 2021, the Biden Administration has extended the foreclosure and eviction moratorium for homeowners who have a home loan through the Federal Housing Administration, the U.S. Department of Agriculture or the U.S. Department of Veterans Affairs until the end of June 2021. These homeowners have until the end of June to request mortgage payment forbearance if they haven’t already done so.