Fight Foreclosure with the Truth in Lending Act

When you complete your refinancing on your home the lender gives you a “Three-day Right to Cancel” notice. Lenders even provide documentation that clearly identifies the procedure for canceling the loan and the time in which it can be done. What the documentation fails to explain is that if any one of three key aspects of the loan documents are not properly completed, the three day period is extended to three years. If you think you have a case, then ask for a free consultation with an attorney to see if you can legally fight foreclosure.

The Short Sale Counteroffer

Many times, a lender will ask for a counteroffer from a buyer who has submitted a Short Sale offer on a property. When they do, they are looking for an offer that will increase the NET amount that they walk away with.

There are 2 effective ways to increase the lender's NET:
1. Increase the Gross Offer Price
2. Reduce the expenses of the sale

The 3 biggest expenses of a sale are:
1. Back taxes owed. You can't do anything about these.
2. Real Estate Commissions
3. Attorney/Mitigation Fees

By reducing the Real Estate Commissions or Attorney Fees, you can significantly lower the expenses of the sale and increase the NET amount the lender will receive. So, if your buyer is considering walking due to the additional amount of money they will need, consider reducing the expenses to lower the amount the buyer needs to counter.

The NY Foreclosure Process

The NY Foreclosure Process is a legal process. It requires a lender to file a lawsuit in order to take back a property on a defaulted mortgage. The following 3 minute powerpoint presentation shows the steps in the New York foreclosure process.

Click Here to view a larger version on YouTube.



Click Here to view a larger version on YouTube.

A "Summons and Complaint" and a Loan Modification

Have you been served with a Summons and Complaint notice for a NY Foreclosure? If so, you have 20 days to respond to the notice with the Court. RESPOND!!!

The New York foreclosure process is a judicial process. This means your lender must file a foreclosure lawsuit before they can take possession of your house. The NY foreclosure process normally takes anywhere from 8-12 months. Responding to the notice with the court requires your lender to follow additional legal procedures that can add 3-5 months to your Foreclosure Proceeding. These extra few months may mean the difference between solving your foreclosure situation and losing your home to foreclosure.

If you are in the process of applying for a Loan Modification and you receive a summons and complaint notice, you must still respond to the notice! This is because a Loan Modification is an "internal bank" process and a foreclosure is an "external legal" process. The foreclosure (legal process) continues until the lender directs the attorney handling the foreclosure lawsuit to stop. Your lender won't stop the foreclosure process until you successfully complete the loan modification (bank process).


For more information on all of your options, please join us for a FREE informational seminar at http://www.nyshortsaleseminars.com/

What can I do about my Second Mortgage?

We keep hearing about the Administration's "Making Home Affordable" program. In order to qualify, homeowners had to meet several requirements which have been outlined in my earlier posts. Additionally, few lenders were interested in it because many homeowners in trouble have a 2nd Mortgage. The thinking being, "As a 1st Lienholder, why should I willingly reduce the payment I receive? Any help I give the homeowner will go directly to the 2nd mortgage and they will be getting all of the benefits of my helping the homeowner out. How is that fair?"

On, April 28, 2009, the U.S. Treasury announced an Update to the "Making Home Affordable" program (here's the press release). This program is designed to "incentivize" 2nd Mortgage holders to do the following:
1. Reduce the Interest Rate on a 2nd mortgage to 1% which the government will match by 1% for a period of 5 years
2. Extend the term (number of years to repay the loan) to match the "modified" 1st mortgage
3. Proportionally match any principal forbearance by the 1st mortgage
4. After 5 years, the interest rate on the 2nd will increase to the same level as the interest rate on the 1st mortgage

If you have an Interest Only 2nd Mortgage, the terms seem even more generous:
1. Reduce the Interest Rate on the 2nd Mortgage to 2%
2. After 5 years, the interest rate on the 2nd mortgage will match the 1st mortgage
3. Amortization of the 2nd loan will be either
a. the same schedule of the modified 1st loan, or
b. the same schedule as the original 2nd loan (whichever is longer)
Essentially, this means that if you have an Interest Only loan, you may be able to pay Interest Only for another 5 years! Almost Free Money!

Lender participation in the program is voluntary. Servicers will most likely weigh the costs of potential litigation by their investors (for taking reduced payments) with the benefits offered by the government. Alternatively, the government is offering a lump sum payment to the 2nd mortgages which roughly translates into 3% of the unpaid balance. Some 2nd mortgages hold out for more than this in a short sale so it will remain to be seen how much of an incentive this will be.

After all is said and done, what does this mean as a homeowner?
My feeling is that this is a temporary lifeline to homeowners. I don't believe lenders will willingly reduce any principal on the mortgages because it's too risky for them. After all, if the housing market recovers and prices begin to rise, the person who "lent" the money for a homeowner to purchase a home, will, in the end, want to recover as much of their money as possible. Additionally, why would a lender willingly reduce the principal when the government is literally throwing money at them to reduce interest rates for up to a 5 year period?

So, as a homeowner, what should you do? Here are my thoughts:
1. Try every avenue possible to get your loan modified. If you qualify for a modification, you just bought yourself 5 years before it will be a problem again.
2. Every 6 months determine what your house is worth. Go out to 3-5 open houses every weekend. See every house that closely resembles your house and what the asking price is. Find out what houses are "selling" for and not what they are "listed" for. The "selling" prices are the actually house values.
3. As soon as the housing value are higher than yours, get out of the mortgages you are in by either refinancing or selling. Don't forget, your lifeline expires after 5 years. Any drop in housing prices and you may find yourself back in the same situation.

Obama's "Making Home Affordable" Plan

On March 4, 2009, the Department of the Treasury released new guidelines to banks for the Making Home Affordable program. The full guidelines can be found here. These guidelines are used by many banks to qualify homeowners for a Refinance or a Loan Modifications.

Here is a summary of the eligibility requirements:

1. You have a Fannie Mae or Freddie Mac mortgage
2. You must have solid payment history on your loan (less than 30 days late on any payment)
3. Your loan originated on or before January 1, 2009.
4. Owner Occupied dwelling - status will be verified
5. First Lien Loans - if you have 2 or more mortgages, only the first will be affected

What does this mean for those of us in the lower Hudson Valley in New York?

Not too much. Housing prices here have been higher than what Fannie Mae or Freddie Mac were willing to lend on. As a result, very few if any loans are Fannie Mae or Freddie Mac loans so very few if any will qualify for a Refinance. You may qualify for a Loan Modification, though. Use the self-analysis tool to see if you qualify.

Also, the guidelines seem intended to help people who are current on the mortgages. If you’ve missed a payment, you may not qualify.

The Making Home Affordable program is also trying to have lenders reduce monthly payments so that they are NO MORE than 31% of your GROSS INCOME (click here to check your payment). The lenders will go through scenarios to see what payment plan will get you to a payment that is 31% of your gross income or less. This monthly payment is to include:

• Principal
• Interest
• Taxes
• Insurance
• Flood Insurance
• Homeowner’s Association/Condo Fees

Homeowners should be mindful that the lender is still entitled to a return on their investment. They lent the money and are entitled to a return on that money in the form of interest. If reducing the payment to 31% of your loan does not allow the investor a return on their investment, they will most likely not approve a Loan Modification. When might this happen? Well, property taxes in the NYC area are very high. Take your total taxes and insurance payment for the year and divide by 12. This is your monthly tax/insurance escrow payment. If this escrow payment takes up a large portion of your monthly loan payment, your lender may not be able to make any money on from the mortgage. In this case, they may deny the modification.

My Bank is trying to foreclose on my home. What are my Options?

If your lender is trying to foreclose on you property, you will typically have 7 options available to you. They are:

1. REINSTATE THE LOAN: This option will work for anyone who has come into a large enough sum of money to pay back all of the missed payments, late fees, attorney fees, and any other fees the lender applies.
   
   
2. REFINANCE: This is becoming more difficult and usually requires a substantial amount of equity in the property.
   
   
3. LOAN WORKOUT: Work with your lender to do either a Forebearance or a full Loan Modification. A Forebearance is a temporary reprieve from the foreclosure while you catch up on missed payments. A Loan Modification is when the lender agrees to modify either your interest rate, loan term (months to pay back the loan), reduces the principal owed on the loan, or some combination. Many banks are now working with homeowners to modify interest rates and loan terms to reduce monthly payments so that they fall within 31% to 38% of your gross income.
   
   
4. SELL: If you have lost enough income where you cannot qualify for a Loan Modification because you either cannot afford even the minimum payment or debt-to-income ratio exceeds a certain amount, your lender may ask that you sell the house. In today’s market of falling house prices, selling usually requires a Short Sale – an agreement in which your lender agrees to accept less than the full principal balance owed on the property at closing. By agreeing to this, the seller usually does not need to bring additional funds to the closing to pay off the balance of the mortgage.
   
   
5. DEED IN LIEU OF FORECLOSURE: This is where you hand over the deed of the house to your lender rather than going through the foreclosure process. You must qualify for a Deed in Lieu.
   
   
6. BANKRUPTCY: Filing either Chapter 7 or Chapter 13 will postpone a foreclosure, not prevent it. CONSULT AN ATTORNEY if you are considering Bankruptcy.
   
   
7. DO NOTHING: Let the foreclosure process simply run it’s course until the house goes to auction.

If you are falling behind in your mortgage, the MOST important thing to do is ACT! Either call your lender or a HUD Certified Housing Counselor. The U.S. Department of Housing and Urban Development is a good place to start as they have an overview of an action plan.