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 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
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 since 2012, lenders in Silicon Valley and in California are more inclined to avoid costs related to the foreclosure of your home. For background information about Foreclosure and Short Sales, watch the short video below on the Housing Market in Silicon Valley (ABC News - KGO TV, May 2011)
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
- HARP II Refinance Program if your mortgage is owned or guaranteed by Fannie Mae or Freddie Mac. The Federal Housing Finance Agency announced that it is extending HARP through Dec. 31, 2018. Useful information about this government sponsored program for distressed homeowners can be found here.
- 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 a 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
You should be aware that new short sales guidelines have been issued by the Federal Housing Administration in 2012 and 2013, with a view to expedite processing of short sales.
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 a 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 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.
This program is planned to sunset on August 1, 2015. Learn more about this program on the Freddie Mac website.
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.
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 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 reduction 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’ve 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) to impose 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.
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 suspends the rule.
The Judicial Council of California voted on August 13, 2020 to end its statewide moratorium on foreclosures and evictions on December 31.
As a local San Jose Realtor and Short Sale and Foreclosure Specialist, certified in California as Distressed Property Expert (CDPE) and Short Sales & Foreclosure Resource (SFR) by the California and National Association of Realtors, I am available 7-days a week to help and discuss your situation and provide you with relevant and up-to-date information about short sales and foreclosure prevention strategies free of charge.
May 29, 2020: The Executive Order N-66-20, extends protections in Executive Order N-28-20 ( see above) through July 28, 2020.
California Assembly Bill 2501, PENDING: The bill would implement a 180-day stay of foreclosures beginning with the end of the Covid-19 emergency period. For borrowers experiencing a hardship during the covered period, servicers must grant a request for an initial forbearance period of 180 days as well as an extended forbearance of an additional 180 days upon the borrower’s request. Servicers must automatically approve borrowers who are sixty days in arrears for forbearance. The Bill requires servicers to maintain escrow accounts during forbearance and allows borrowers specific options for repayment of escrow shortages at the end of forbearance. Servicers may not demand a lump sum payment of forborne arrears at the end of forbearance, but must review borrowers for affordable reinstatement and modification options instead. Servicers and loan owners who claim any sort of exemption from operation of the state law must timely disclosure the claim of exemption and have it approved by a state agency. The law makes misrepresentations and non-disclosures of a servicer’s forbearance and end-of-forbearance loss mitigation options a violation of the state’s unfair and deceptive practices act.
AB 828, PENDING: the bill would create a moratorium on recording notices of default and notices of sale for foreclosure of residential properties while state or local declaration of emergency in effect, and for fifteen days after it ceases. The moratorium applies to property tax sales as well as unlawful detainer proceedings and execution of writs of possession. (Source: National Consumer Law center)
Should you wish to know more about how I can help you prevent foreclosure or assist you with the short sale of your home, do not hesitate to read my blog with up-to-date information, trends and legislation about short sales.You should not hesitate to contact me via
email or telephone (408) 717-2575 for a free consultation at your convenience.