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Monday, January 3rd, 2011

Rescission: A Foreclosure-Fighting Tool in Peril

The Federal Reserve has proposed a troubling change that could all but eliminate one tool homeowners have to fight mortgage foreclosure, a recent post from Credit.com's blog highlights. The tool is called rescission. Here’s what it is and what might happen to it.

What Is Rescission?

Rescission is a process that more or less offers homeowners a chance to get out of a mortgage if they can prove it was fraudulently or deceptively originated. Specifically:

  • Deceptive & fraudulent mortgage lending: One phenomenon reported frequently during the subprime housing boom of a few years ago was lenders who allegedly lied about specific terms of mortgage loans (whether that meant concealing balloon payments, misrepresenting the nature of adjustable rate mortgages or something else), or encouraged borrowers to do so (usually by inflating their income level). Unsurprisingly, many borrowers who signed such mortgages ended up unable to make payments at some point.
  • Beginning of the foreclosure process: After a few months of failing to make mortgage payments, most homeowners will receive notice from their lenders of foreclosure proceedings. Naturally, this is not pleasant for anyone and can lead to serious stress and financial trouble for affected families.
  • Limited protections in Chapter 13 bankruptcy: While some homeowners are able to find relief from foreclosure proceedings in bankruptcy court, many others find that bankruptcy only addresses some of their problems – after all, the bankruptcy court cannot modify the terms of a mortgage loan.
  • Rescission’s foreclosure prevention: One of the few options available to many homeowners facing foreclosure, then, has been the process of rescission, which works like this: if a homeowner provides a written statement to his lender that his loan was originated fraudulently and can prove as much in court, the court may rule to cancel the terms of the current mortgage. The borrower can then take on a different loan from a different lender to repay the balance to the original creditor.

Essentially, the process of rescission allows homeowners to trade out fraudulent mortgage loans for more affordable, honestly originated ones.

The Fed’s Proposal to Change Rescission

But, as CreditBloggers reports, the Federal Reserve has proposed a change to the rescission laws that would require mortgage borrowers to repay the entirety of their fraudulent mortgage loans and only then challenge the loan’s legality.

As many consumer advocates have pointed out, this would remove much of the foreclosure-prevention potential the current rescission process offers and would prevent most ordinary homeowners from hanging on to their houses.

To learn more about the proposed rule change and the consumer advocates fighting against it, please visit the article linked to above. To learn more about your potential for relieving your mortgage debt with rescission, contact a lawyer in your area.

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Wednesday, November 24th, 2010

Your Life after Foreclosure

If you, like millions of other Americans, are currently in some stage of the foreclosure process, you’re probably wondering what you can expect from life after foreclosure. The bad news is that losing a home to the bank will almost certainly have a negative impact on your credit – the good news, though, is that the current foreclosure glut means that mortgage foreclosure might not be quite as bad as it used to be.

What to Expect from Credit, Jobs, Cars and More

So which areas of your life might be affected by foreclosure action? According to a recent studies, a lot.

  • Your credit: As with a bankruptcy filing, a mortgage foreclosure will remain on your credit report for seven years – but the overall impact it has on your score and the way creditors view you should decrease with time. Because you likely won’t be able to open any new credit cards in the months and years directly following your foreclosure, it’s a good idea to keep up with payments on whatever cards you have now. Credit cards can play a central role in helping you rebuild your credit and thus qualifying for loans in the future.
  • Your career: Though some states have outlawed pre-hiring credit checks, many states still permit it, and plenty of employers take a peek at applicants’ credit histories as part of the screening process. If you’re looking for work, it’s important to be realistic and understand that your foreclosure might prevent you from getting jobs in economic fields.
  • Future purchases and loans: As mentioned above, a mortgage foreclosure will ding your credit rating in a pretty serious way, so you shouldn’t expect to qualify for a car loan or a new mortgage for a while. But that doesn’t mean you’ll be stranded on an island without any options for moving forward. The WalletPop.com post mentions one option called a “lease purchase,” wherein a person can agree to make regular rental payments to a landlord and decide, at some future point, to put those payments toward the purchase of the house.

On the Bright Side: Greater Understanding

The bright spot in all this foreclosure gloom is that, because so many Americans are currently struggling with foreclosure-related problems, more people are aware of the sorts of extenuating circumstances (like death, divorce, serious illness or injury, job loss, etc.) that can lead otherwise responsible financially individuals into mortgage foreclosure.

So, suggests the post mentioned above, don’t underestimate the power of explaining your situation to potential lenders or sellers. And, of course, don’t ever give up on rebuilding and maintaining your credit to demonstrate that you’re a good credit risk.

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Monday, November 22nd, 2010

Protection from Mortgage Relief Scams from the FTC

The Federal Trade Commission announced this week that it has published new rules for companies that advertise themselves as mortgage foreclosure relief outfits. The rules, it seems, are designed to eliminate scammers from taking money from struggling homeowners.

Here’s a look at the details.

FTC: No Advance Fees, More Disclosures

The FTC’s rules include a number of provisions designed to bring more transparency to the world of foreclosure relief companies. These include:

  • A ban on upfront fees: This rule will prevent companies from taking homeowners’ money without actually offering any help. When the new rules take effect on December 13, foreclosure relief firms will be required to present consumers with a written agreement from the lender or servicer indicating that the proposed changes are acceptable and approved, as well as a written document detailing the changes.
  • Increased disclosures: In addition to the ban on advance fees, the new rules will require foreclosure rescuers to disclose more information and in a clearer format. Specifically, firms must explain that they are not affiliated with the government, that a customer’s lender might not agree to the proposed mortgage modification and that if a customer stops making regular mortgage payments it could adversely affect her credit rating and/or cause her to lose her home. Further, these companies have to disclose that customers have the right to stop doing business with the firms whenever they choose and that they have the right to reject an offer made by these firms.
  • Prohibited claims: Besides being required to disclose certain information, foreclosure rescue firms will be forbidden from making any kinds of false or misleading claims, which might include claims about their likelihood of helping a client, government affiliation, a client’s obligation to pay, refund and cancellation policies and how much the company’s services cost.
  • Attorney exemption: It should be noted that the FTC rules provide an exemption for lawyers who are properly licensed and actively practicing law in the state where the client or the client’s home is located.

More Hope for Struggling Homeowners?

The new rules come as welcome news to a nation gripped by a flailing housing market, where millions of citizens are in some phase of the foreclosure process. Hopefully, when the new rules take effect, they’ll decrease the prevalence of foreclosure rescue scams, which would in turn mean that American families would stand a better chance of finding workable solutions to keeping and staying in their homes.

It should be noted that these rules are in a similar vein to those passed earlier this year for the debt settlement industry, which, like the foreclosure rescue industry, has historically been plagued by fraudsters and scammers who wreak financial havoc on cash-strapped customers.

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Saturday, July 31st, 2010

Foreclosure Rescue Scams: What to Watch Out For

A recent press release from the VirginiaAttorney General announces a lawsuit against a “foreclosure rescue” company. The suit alleges that the company charged illegal fees and offered insufficient help to the consumers it was supposed to assist.

So what does that mean for you?

Loan Modification vs. Foreclosure Rescue

The nation is in the midst of a foreclosure crisis, which means that millions of Americans are either struggling to make their mortgage payments, in danger of losing their homes and/or in some phase of the foreclosure process.

As they look for ways to keep their houses, some home owners are turning anywhere for help.

However, not all foreclosure prevention measures are created equal. Here’s a look at three you might have heard of:

  • Mortgage loan modification: This involves a bank or lender sitting down with a borrower and figuring out modified payment terms so that the borrower can continue making mortgage payments and stay in his or her home. The Obama administration’s Home Affordable Modification Program aims to encourage banks around the country to modify mortgages for those struggling to make payments.
  • Chapter 13 bankruptcy: Another legitimate option for people struggling to make mortgage payments is Chapter 13 bankruptcy, which allows filers to reorganize their finances and repay debts over 3-5 years. While the bankruptcy court cannot modify the terms of a mortgage, bankruptcy’s automatic stay prevents all collection action – which includes foreclosure – while a case is pending. Thus Chapter 13 can give filers some breathing room while they resolve their debts.
  • Foreclosure rescue: This is often a scam. Generally, representatives from these less-than-reliable companies learn about foreclosure action by doing local research – foreclosures are a matter of public record. Then they may offer to “rescue” a homeowner from his or her troubles – for a significant fee.

The companies targeted by Virginia’s Attorney General reportedly charged consumers upfront fees as high as $1,200, and then did little or nothing to actually prevent the foreclosure of the home.

Such scams are depressing because they involve preying on people who are in desperate circumstances: Those in danger of losing their homes are often willing to take chances, including giving their money scammers disguised as angels.

Here are some of the signs that the Federal Trade Commission has identified as tip-offs, noting that a company might be fraudulent if it:

  • Charges fees up front, before any services have been provided
  • Guarantees that it can halt foreclosure, regardless of your situation
  • Suggests that you not contact your lender, housing counselor, credit counselor or lawyer
  • Suggests that you lease your home to buy it back over time
  • Accepts payment only through cashier’s check or wire transfer
  • Indicates that you should make mortgage payments to it rather than your lender
  • Encourages you to let one of its representatives fill out paperwork
  • Pushes you to sign paperwork you don’t fully understand or haven’t read in full
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Saturday, July 17th, 2010

Foreclosures Likely to Top One Million This Year

A recent report from NPR notes that mortgage foreclosures are likely to reach the one million mark in 2010. To put this figure in context, consider these statistics, pulled from the real estate tracking site RealtyTrac.com:

  • In a typical year, the United States sees about 100,000 homes enter foreclosure—a mere tenth of the number expected this year.
  • In 2009, considered a big year for foreclosures, 900,000 homes were foreclosed on by banks.
  • In the first five months of 2010 alone, 528,000 homes have entered foreclosure—already more than five times the yearly average.
  • A whopping 1.7 million U.S. homeowners got some kind of foreclosure-related notice between January and June of this year (some of those houses have already gone into foreclosure). This translates to one in 78 homes in the country.

Understanding the Foreclosure Process

So what causes a bank to foreclose on a home? It can take as long as 15 months for a bank to repossess a home once a borrower is 30 days overdue on payments, according to sources. Here’s an idea of what might happen:

  • Missed payments

    • : If a mortgage payment is thirty days or more late, the homeowner is said to be delinquent on payments. At this point, the lending bank may send a notice of foreclosure. This is kind of the first warning of foreclosure a homeowner can get. At this point, it’s a good idea to contact your lender if you’re having financial difficulties. You may also want to consider consulting with a bankruptcy lawyer about whether Chapter 13 bankruptcy is a viable option to stop your home’s foreclosure.

  • Bank notifications: If a borrower continues to miss payments or stops making payments altogether, the bank will likely send notice that foreclosure proceedings have begun. While procedures and laws differ from state to state, homeowners can generally expect various types of notification in the mail and/or via telephone.
  • Eviction: Once the bank has processed various paperwork, it can evict the residents of the house and reclaim the property as its own. Because of the unprecedented number of foreclosure cases currently active in the U.S., banks may (but won’t necessarily) take longer than usual to actually evict tenants.
  • Foreclosure auction or sale: The bank now owns the home and may choose to sell it at a foreclosure auction or via short sale. Often, as sources note, any proceeds the bank makes from such a sale might be used to cover legal costs for the foreclosure process or the unpaid portion of the mortgage.

Clearly, the news of massive foreclosure action isn’t good for individuals and families who are losing their homes, but it’s also a bad sign for the larger economy. As more and more properties glut the real estate market, prices fall and the chances of a swift recovery in that area diminish.

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Friday, July 2nd, 2010

A New Unexpected Cause of Foreclosure Examined

A recent report from NPR describes a shocking and troubling occurrence happening in certain neighborhoods in the United States. Apparently, some homeowners are finding their houses foreclosed on—but not because they fell behind on mortgage payments.

It seems that failure to pay homeowners association (HOA) dues constitutes legal ground for the HOA to foreclose on and resell a property.

A Devastating Oversight

The case detailed in the NPR story involves a deployed Captain serving in Iraq and his wife: they had, according to reports, paid for their home in full but missed two HOA payments—and their house was foreclosed on, sold for the amount of the overdue dues plus legal costs, and sold again for a profit.

Here’s what you need to know in order to protect yourself and your family from facing such an unfortunate fate:

  • In the U.S., 33 states have laws that permit HOAs to place liens on homes for which dues are not paid and collect on those liens (i.e. foreclose on the home) without putting the case before a judge.
  • In some states, processing a foreclosure takes less than a month—meaning that families have little time to take action to protect their property.
  • Because of the tough economy, it seems more families than ever are missing payments and don’t believe it when they’re told they could lose their home for failure to pay a couple hundred dollars’ worth of fees or dues.

The truth of the matter, though, is that you can lose your home in many states simply for missing payments to your HOA. If you’re pressed for cash and worried about making such payments, contact your HOA and explain the situation.

The most important thing to do is to attack the problem head on rather than waiting until it’s too late—if you can’t afford the dues now, you definitely can’t afford to make alternate housing arrangements, but that could be the position you’re in if you miss too many checks.

And, while it may be the least appealing thing you can think of if you’re falling behind on various financial obligations, be sure to open mail as soon as you receive it, as it could contain important and time-sensitive information about some of all of your debts. Remember: avoiding debt doesn’t make it go away, and in this economy it’s important to take any and all warning signs of personal economic turmoil seriously.

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Thursday, June 17th, 2010

Facing Foreclosure in Florida? A New Way to Save Your Home

Many people use lottery and contest winnings to buy a new house. But a new contest hosted by Avvo aims to keep the winner in their house.

Avvo.com is hosting the Save My House contest for residents of Florida facing foreclosure. The winner will have Avvo find a local lawyer for them and then cover the legal bills for the foreclosure fight.

To enter, you simply tell your story to Avvo and explain why a lawyer could help you keep your home.

We often talk about all the ways that bankruptcy is designed to save your home from foreclosure. But a local bankruptcy lawyer may be able to help you in other ways, too, particularly if you're facing foreclosure or financial difficulty.

Avvo offers some situations other than bankruptcy where a lawyer may be able to help:

  • Underwater mortgage: If you owe more than your home is worth
  • If you were served foreclosure papers by a company you do not recognize
  • If you had a brief period of financial difficulty but are now back on your feet
  • Lack of communication with mortgage company

If these or other situations apply, it may be worth your time to enter and speak with a local lawyer.

To enter, visit http://foreclosure.avvo.com/save-my-house-contest

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Sunday, June 6th, 2010

Underwater Mortgages in the U.S. by City

For most of us, the story of how the Great Recession started is a familiar tune: the stock market soared because of speculation on the real estate market, which meant real estate prices soared as well. And when the bubble burst, millions of Americans lost serious money and bankruptcy and foreclosure rates climbed steadily.

And the latest news, according to real estate information source Zillow.com, still reflects a seriously distressed housing market in many parts of the country.

Underwater Homes

One of the biggest problems homeowners face today is negative equity: when you owe more on a home loan than the property is currently worth, you’re said to have negative equity, or be “underwater” on your mortgage loan.

According to sources, a whopping 23.3 percent of U.S. homes are currently underwater, slightly more than the 23 percent reported in the last quarter of 2009. Here’s a look at the U.S. cities currently suffering from the highest negative home equity rates:

  • #15: Jacksonville, Florida. Here, 127,807 homes, or 49.1 percent of residences, are currently underwater.
  • #14: Riverside, California. This city has a 51.2 percent underwater rate, with 347,778 individual homes.
  • #13: Tampa, Florida. 286,303 underwater homes give this city a 53.1 percent rate.
  • #12: Vallejo, California. With 41,436 homes underwater, this city has a 54.7 percent rate.
  • #11: El Centro, California. A 54.9 percent rate means 12,103 houses in this city are underwater.
  • #10: Port St. Lucie, Florida. With 54,190 homes underwater, this city has a 56.2 percent rate.
  • #9: Stockton, California. Once the foreclosure capital of the country, this city now has the dubious distinction of a 57.7 percent underwater rate, with 64,614 homes underwater.
  • #8: Fort Meyers, Florida. Here, 58.2 percent of homes (83,533) have negative equity.
  • #7: Lakeland, Florida. With 62,423 homes underwater, this city has a 58.5 percent rate.
  • #6: Merced, California. 24,076 underwater homes, for a rate of 58.8 percent.
  • #5: Modesto, California. A 60.7 percent rate with 54,417 homes underwater.
  • #4: Reno, Nevada. 45,107 homes underwater gives Reno a 64.4 percent rate.
  • #3: Phoenix, Arizona. Here, 64.4 percent of homes (totaling 479,692) have negative equity.
  • #2: Orlando, Florida. With 289,209 homes underwater, Orlando has a 74.8 percent rate.
  • #1: Las Vegas, Nevada. A whopping 80.6 percent of homes (254,880) have negative equity.

Negative equity is no small matter for affected homeowners, considering that mortgage modifications have been difficult to process and foreclosure is generally a trying process.

For some people facing foreclosure of their homes, a Chapter 13 bankruptcy filing may help, but it may not help the problem of owing more on a house than it's worth.

If you have negative equity in your home, consider speaking with a personal bankruptcy lawyer about your options.

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Thursday, May 20th, 2010

Mortgage Application Guidelines Tough for Self-Employed

During the real estate boom that caused the housing bubble that eventually sent the country into a serious recession, it was common practice for borrowers to apply for a mortgage by using "stated income," which meant indicating their income without offering proof.

But mortgage lenders have learned their lesson and now, according to the New York Times, qualifying for a mortgage loan is harder than ever for those working for themselves.

Providing Proof of Income

In order to convince a bank to lend you the money to buy a home, you have to prove that you can afford to repay it. Generally, that entails showing official records of your earnings and current credit situation. People who work for themselves or own a small business, though, may not have regular paychecks to present, which may mean:

  • Higher interest rates: According to the Times, the few banks that still extend stated-income loans charge significantly higher interest rates than they do for standard loans. From an economic perspective, this makes sense: when there’s a greater risk involved, there must be a greater potential gain. But it can mean a much more expensive loan for borrowers.
  • Careful bookkeeping: Some banks will apparently initiate loans with two years' tax receipts, but this might also present a problem for some self-employed borrowers. It seems that, in order to offset losses in the rough economy, many people have been taking liberal tax deductions, thus lowering their overall reported income. This, naturally, could hinder their ability to qualify for a large loan.
  • Solid finances required: One expert quoted suggested that self-employed borrowers with considerable cash reserves and credit scores of at least 700 should be able to get traditional loans, but those who have lost income (or filed bankruptcy) during the recession may have difficulties.

But, according to the piece, self-employed Americans shouldn’t despair. It seems that as many as 30 to 40 percent of those who work for themselves qualify for mortgage loans they apply for. If you aren’t sure how your finances currently look, consider starting the mortgage application process by viewing your credit report (for free) at www.annualcreditreport.com.

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Monday, April 5th, 2010

New Mortgage Help Announced

Americans struggling against underwater mortgages and those who have lost their jobs may have new government-sponsored ways to stay in their homes and keep up with mortgage payments. Here’s an outline of two new programs, and what they may mean for you:

Help With Underwater Mortgages

If you owe more on a mortgage than the home’s current market value, you’re “underwater.” It can be a scary place, but there may be a way out.

  • If you’re current on payments: Assuming you haven’t missed any mortgage payments, you may qualify for a mortgage loan backed by the Federal Housing Administration (FHA) which may help you reduce your monthly payments and the amount you owe. In order to do this, you need to meet regular guidelines for FHA loans, and you need to owe more than 115 percent of your home’s current market value. If you qualify, your debt can be written down so that you owe no more than 115 percent of the home’s worth and your payments do not exceed 31 percent of your income.
  • If you’re behind on payments: Borrowers who are 60 days or more late on their mortgages may benefit from a new provision of the Home Affordable Modification Program that allows lenders to reduce a loan’s principal. So, if your lender is participating in HAMP, your loan may qualify to be decreased and/or have its interest rate lowered.

Mortgage Help for the Unemployed

If you’ve lost your job recently and are beginning to worry about making payments on your house, you may qualify to have your payments temporarily lowered or eliminated. Here’s how:

  • If you receive unemployment: In order to get this benefit, you must be receiving unemployment pay from the government and be able to prove that you are.
  • And if you meet the criteria for HAMP loans: In order to take advantage of this program, you must live in the house as a primary residence, owe mortgage payments that exceed 31 percent of your paycheck, owe less than $729,750 on your mortgage, and demonstrate financial hardship, such as being job loss.
  • You get a temporary reduction: If you qualify, you will have a three-month period in which you are only required to pay 31 percent of your income toward your mortgage. After that period, you can initiate a review to extend the program for another three months.

The benefit for homeowners is clear, but lenders may benefit from the program as well. It seems that borrowers who owe more than 115 percent of their home’s value are the ones most likely to walk away from their mortgages or file bankruptcy, leaving the banks with nothing.

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