TENANTS LEGAL CENTER
OF SAN DIEGO
Foreclosures
OWNERS
When facing impossible mortgage payments or when the home is worth less than the loan, letting it go to foreclosure seems like a good option, but is it? How do you protect your rights?
INFORMATION AND PROGRAMS
NOTE: Due to the rapidly changing political and legal approach to foreclosures, any Federal or State program and their details may change or be set to expire or be extended. Therefore be sure to check that any program you seek assistance from is still in effect and is applicable to you and your situation.
NEW Keep your Home California
***NATIONAL MORTGAGE SETTLEMENT (2/9/2012)***
UPDATE on the National Mortgage Settlement (3/19/12)
California Resources for Homeowners (in the National Mortgage Settlement)
Avoid Foreclosure
Guide to avoiding foreclosure (HUD)
Home Affordable Refinance Program (HARP)
Financial Stability Plan
San Diego Assistance and Information resources
Housing Opportunities Collaborative (HOC) Home clinics
American Recovery and Reinvestment Act of 2009 ("Recovery Act") (FHA)
Help information for homeowners facing the loss of their home (HUD)
Help information (Freddie Mac)
Avoiding Foreclosure (The money alert)
Avoid, Prevent and Stop Foreclosure (RealtyTrac)
Stopping Foreclosures (About.com)
How to Help People Avoid Reverse Mortgage Missteps (FTC)
New Government backed programs can help save your home and actually reduce what you owe on the mortgage. Get more information from HUD. See further information on AVOIDING FORECLOSURE including the principle reduction programs. Also see MAKING HOME AFFORDABLE (An official program of the Departments of the Treasury & Housing and Urban Development)
FEDERAL PROGRAM OFFERS ASSISTANCE AND POSSIBLE COMPENSATION
Certain Homeowners who were impacted by a foreclosure mat seek an Independent Foreclosure Review by an independent consultant to identify eligible customers who may have been financially injured due to errors, misrepresentations, or other deficiencies in their foreclosure process. If the review finds that financial injury occurred, the customer may receive compensation or other remedy
REFINANCE YOUR LOAN BUT BEWARE OF UNETHICAL LENDING PRACTICES
Beware of unethical or fraudulent lenders. These predatory lenders take advantage of people unfamiliar with loans and those put in crisis by impending foreclosures. They claim to be able to save your home but many times they really are working to take it away from you. Have any deal to save your home reviewed by an attorney or financial professional that you trust before you sign any loan modification or refinancing agreements.
BEWARE OF BUSINESSES PROMISING LOAN MODIFICATION ASSISTANCE
Consumer Tips for Avoiding Mortgage Modification Scams and Foreclosure Rescue Scams
Loan Modification - An Alternative To Avoid Foreclosure
Beware of Foreclosure Rescue Scams - There is free assistance through the Government programs.
Many homeowners have been taken in by such offices promising to help modify the loans facing default,. They target desperate and frightened homeowners with promises to save the home with a new loan. They charge hefty fees of $2,000.00 and much more. The truth is that we have seen many homeowners coming to us for assistance with an eviction who have paid these fees and received nothing. No new loan. No loan modification. Sometimes, no more communication with that office after the money is paid. Be very careful before hiring such an office. Try to work with eth lender yourself. If they are not responsive, have a real estate, loan or legal professional simply call them for you. Many times, that is all that is needed to get the process stated. California has s STOP LOAN MODIFICATION FRAUD program to protect homeowners seeking loan assistance.
BANKRUPTCY
Bankruptcy may assist in limiting liability or debts. For some people, Bankruptcy may be used to buy some time in the effort to save their home from foreclosure. Strict Federal laws on the subject have made saving the home using this procedure more difficult than it used to be. These laws are being reviewed and changes are being proposed and moved through the system which would grant Federal judges the power to assist homeowners in a bankruptcy case. This could include modifying the loan terms to make it possible to make the payments. These laws are complex and subject to changes and modifications at any time, Bankruptcy laws are complex and there are many considerations to review before taking this step. You should absolutely seek the guidance of a competent bankruptcy attorney for advice before planning or taking any such action.
LOSING THE PROPERTY BY FORECLOSURE
IMPACT ON CREDIT
A foreclosure can have a negative impact on your credit for some time to come.
DEFICIENCY JUDGMENTS
This is where the lender comes after the borrower in court after a foreclosure for the remaining balance owed on a loan. That is called a deficiency judgment. Generally, in California, first money home loans are protected from this in nonjudicial foreclosures. Be advised that you may not be protected with refinancing that first loan, second mortgages and Home Equity Lines of Credit. Also, lenders may try and use a judicial foreclosure to get a judgment but that is pretty rare. The rules in other states vary. The lender may also seek a deficiency balance owed after a short sale unless you get that debt released in writing. You should seek the advice of a real estate professional before making and decisions regarding foreclosure or signing any sale agreements.
TAX CONSEQUENCES
In a nonjudicial foreclosure or a "short sale," (i.e. selling the home for less than the mortgage with the permission of the lender) your property may be sold for less than the mortgage being foreclosed on. That difference is called a forgiven debt or cancellation of debt but the forgiving stops there because the IRS and State Revenue agencies may not forgive you. Welcome to the double whammy. Losing a property and getting a tax bill. Normally, the IRS and State Tax Agencies see a forgiven debt as income which means you may be asked to pay the taxes on that income. For example, your property has a mortgage for $600,000.00. You let it go to foreclosure or do a "short sale" thinking you are walking away from the debt. The property then sells for $500.000.00 yielding a "forgiven debt" of $100,000.00. Tax agencies may see that as income and expect you to pay taxes on that income.
The Mortgage Forgiveness Debt Relief Act and Debt Cancellation of 2007 allowed Federal tax forgiveness on mortgages and some other limited or related debts. This Federal ACT appears to have expired at the end of 2012 but as politics change, so may new rules and expiration dates. States may have their own version of this tax relief so be sure to check with your tax professional on the Federal AND State rules.
Be aware that if a First Mortgage (purchase money loan) is foreclosed on, the second loan or any home equity loan may not be cancelled. In other words, these secondary lenders may pursue you for the money owed even after a foreclosure. If you receive demands from these lenders, seek legal assistance and tax guidance right away!
These rules and/or exceptions may or may not apply in every case and State and Federal rules may differ widely.. The exemptions may not apply based on many reasons besides expiration dates. There are many regulations, conditions and exceptions with these laws. Therefore, think carefully of the tax consequences before choosing foreclosure or even a "short sale" as an option and seek the advice and guidance of a competent tax professional. That means seek the advice of a tax professional for the most updated tax law information. NOTE: We are not tax attorneys. We cannot and do not give tax advice. Any tax law or regulation referenced or examples given may or may not apply to you and that is why we urge you to seek the advice from a tax professional before making any financial tax related decisions or taking any actions which may have tax and/or financial implications.
TRUSTEE SALE
This is where a nonjudicial foreclosure auction sale occurs. If your home makes it to a foreclosure (Trustee) sale, and you could not prevent it, then you should appear to witness what happens. You will see who buys the home and for how much. These are important pieces of information that will come in handy.
FIRST, you will know who to communicate with to try and work out any post foreclosure deal like a rent agreement or a buy back of the home.
SECOND, you will know how much, if any, of the debt was forgiven so you can prepare for any tax consequences of the sale.
THIRD, if there was any fraud committed against you, (i.e. the bank said they would delay the sale but did it anyway) evidence can be gathered that may be used in a lawsuit you may file.
EVICTION
As a former owner, you are now living in the new owner's (i.e. the lender) home and they will not like that. The new owner can begin an eviction with as little as a 3 day notice to vacate. Also, they can ask for a daily rent to be paid (called "daily damages") for the holdover time after the 3 days is up. Once such a notice is received, seek legal guidance right away. The failure to act promptly, could lead to serious and speedy consequences. Protect your rights. Also, we do not recommend that you hire any "office" or "service" that solicits you by mail unless they are an established licensed attorney experienced in these matters. The Tenants Legal Center does not solicit anyone by mail.
See the WARNING..
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California law for San Diego is applied in these pages. Such laws may or may not be applicable in other jurisdictions. The information provided herein is of a general nature and is not intended to be taken as specific legal advice. For legal advice in a particular situation,
promptly consult with an appropriate attorney.