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Home Bargains Abound but Willing Lenders are Rare Breed

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For information about luxury coastal properties in Southern California and luxury homes in Los Angeles County,  call Bob Cumming of Keystone Group Properties at 310-496-8122.  Keystone Group Properties services buyers and sellers of Southern California real estate.

Home Bargains Abound but Willing Lenders are Rare Breed

Faced with finicky lenders, would-be home buyers are increasingly turning to Dad, Grandma or rich Uncle Barton—even perfect strangers they met online. While these solutions are understandable, given the abundant bargains on the market, they also present significant risks.

This year, one-third of first-time home buyers received a cash gift or a loan for a down payment from family or friends, according to the National Association of Realtors. That is up from a historical average of 27%.

Meanwhile, so-called peer-to-peer lending sites Prosper and Lending Club say demand for home-related financing is on the rise.  And Weemba, a social-networking site, launched a platform in September to connect lenders directly with prospective home buyers and other borrowers.

Driving the demand, say financial advisers, is that despite rock-bottom mortgage rates around 4%, traditional lenders remain reluctant to provide mortgages to anyone with less than stellar credit. And in certain markets lenders are requiring down payments of more than 20% of the home’s purchase price.

Scott Nguyen, a human-resources analyst, was denied a mortgage by several banks before getting a $15,000 loan from his mother and sister to use as a down payment on a home in Costa Mesa, Calif. Mr. Nguyen says he has agreed to pay off the loan on a monthly basis over three years, and will end up paying $3,000 in interest.

“Without my mom and my sister’s help, I don’t think I would have been able to buy the house that I did,” he says.

In so-called intrafamily loans, the borrower often saves on interest since parents are likely to charge less than the banks, says Michael Garry, a fee-only financial planner in Newtown, Pa. And parent lenders can earn a higher return from their child’s interest payments than they would on a certificate of deposit or money-market fund. Under federal law, on a loan of more than nine years, parents in most cases must charge at least roughly 2.8%.

Of course, intra-family loans can upset the family dynamic.

Jonathan Bergman, a certified financial planner at Palisades Hudson Financial Group in Scarsdale, N.Y., recommends that parents be clear about how repayment will work. In some cases, it may even make sense to hold back on future monetary gifts or inheritance if it isn’t repaid. “The power of the parents’ purse is strong,” he says.

Consumers who want to look beyond the family can apply at online sites like Lending Club and Prosper. If approved for a loan after a screening by the companies, applicants may then receive money from investors.

At Miami-based Weemba, some 3,000 registered users have started posting loan proposals during the past couple months. Thirty companies including banks and credit unions—up from just a dozen in September—review the applicants and directly contact those they are interested in.

However, these alternative routes to financing can be expensive for borrowers. Rates at Lending Club run from around 7% to 28%, and at Prosper from roughly 7% to 35%. The companies say these rates, which are fixed, are higher than traditional mortgage rates in part because their loans are unsecured.

Freddie Mac Permits Up To 12 Mos Forbearance to Unemployed Borrowers

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Call Bob Cumming of Keystone Group Properties at 310-496-8122 for information about Southern California luxury homes in Los Angeles County, Orange County and San Diego County.  Keystone Group Properties services coastal Southern California real estate.

Freddie Mac Permits Up To 12 Mos Forbearance to Unemployed Borrowers

Freddie Mac (OTC: FMCC) today announced it is giving mortgage servicers expanded authority to provide six months of forbearance to unemployed borrowers without Freddie Mac’s prior approval and up to an additional six months with prior approval. This means unemployed borrowers may be eligible for up to 12 months of forbearance. Freddie Mac’s forbearance options are being expanded at the direction of the Federal Housing Finance Agency and will take effect on February 1, 2012.

News Facts:

  • Mortgage servicers can now approve unemployed borrowers with Freddie Mac owned- or guaranteed-loans for six months of forbearance without prior approval from Freddie Mac.
  • Servicers can extend the forbearance period up to an additional six months with prior Freddie Mac approval, giving eligible unemployed borrowers with Freddie Mac owned- or guaranteed-mortgages up to one year of forbearance.
  • The expanded forbearance options will take effect on February 1, 2012.
  • Delinquent borrowers in an existing short term forbearance plan can be evaluated for an extended forbearance under the new policy.
  • Previously Freddie Mac allowed servicers to grant up to three months of forbearance with no payment and without prior approval, or six months at a reduced payment with prior approval. Longer forbearance required prior approval and was generally restricted to events such as natural disasters, permanent disability or long-term medical emergencies.
  • According to the latest statistics, nearly 10 percent of delinquencies on Freddie Mac mortgages were tied to unemployment.

Quote:

Attribute to Tracy Mooney, Senior Vice President, Single-Family Servicing and REO, Freddie Mac:

“These expanded forbearance periods will provide families facing prolonged periods of unemployment with a greater measure of security by giving them more time to find new employment and resolve their delinquencies. We believe this will put more families back on track to successful long-term homeownership.”

Freddie Mac was established by Congress in 1970 to provide liquidity, stability and affordability to the nation’s residential mortgage markets.

Freddie Mac supports communities across the nation by providing mortgage capital to lenders. Over the years, Freddie Mac has made home possible for one in six homebuyers and more than five million renters. For more information, visit FreddieMac.com.

California Ranks #1 for Mortgage Fraud

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Call Bob Cumming of Keystone Group Properties at 310-496-8122 for information about Southern California luxury homes in Los Angeles County, Orange County and San Diego County.  Keystone Group Properties services all coastal Southern California real estate.

California Ranks #1 for Mortgage Fraud

Mortgage fraud activity slowed overall in the third quarter, but California ranks first in home loan fraud, with the state seeing as much as $204.2 million in losses on deceptive mortgage activity.

That’s according to a new report from MortgageDaily, which found that lenders victimized by fraud faced inflated appraisals and fraudulent documentation.

California was followed by New York, which experienced $199.6 million in losses from nefarious activities in mortgage finance.

New York was followed by Florida, South Carolina and Minnesota in terms of fraudulent activity.

The total loss value of all mortgage activity in the third quarter hit $1.3 billion.

In the third quarter, the Mortgage Fraud Index maintained by MortgageDaily noted that the index score hit 1,173 in the third quarter.

General Bankruptcy Information for So Cal Homeowners

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For information on properties in Southern California— San Diego County coastal real estate  and Marina Del Rey beach homes , call Bob Cumming of Keystone Group Properties at 310-496-8122.

If you are thinking about filing bankruptcy, this page will provide general information about a Chapter 7, Chapter 11, and Chapter 13 Bankruptcy. It will help you understand what the law allows. We would be happy to refer a bankruptcy attorney to you for further consultation.

WHAT IS CHAPTER 7 BANKRUPTCY?

One of the main purposes of Chapter 7 Bankruptcy is to give a person who is hopelessly burdened with debt a fresh start by wiping out most debts. A Chapter 7 Bankruptcy is a liquidation proceeding. The debtor receives a discharge (elimination) of all dischargeable debts usually within four months. Note that some debts, listed below, are not dischargeable. The debtor turns over all non-exempt property to the bankruptcy trustee who then converts it to cash for distribution to creditors. In the vast majority of cases the debtor’s assets fall within the exemption provisions,  and he has no assets that he would lose, so Chapter 7 will give that person a fairly quick “fresh start.”  To qualify for Chapter 7 Bankruptcy a person must meet the Means Test. He or she must gather information about his/her assets and liabilities, and apply the Means Test formula to them. Please Google “Chapter 7 Bankruptcy Means Test” for more information.

WHAT IS CHAPTER 11 BANKRUPTCY?

Chapter 11 Bankruptcy is known as a reorganization bankruptcy. Through a court approved Plan, a debtor may restructure obligations to creditors and pay them over time, or may liquidate assets to pay creditors. The debtor remains in control and does not turn over assets to the trustee.

WHAT IS CHAPTER 13 BANKRUPTCY?

Chapter 13 Bankruptcy is also known as a reorganization bankruptcy. Chapter 13 Bankruptcy is filed by individuals who want to pay off their debts over a period of 3 to 5 years. This type of bankruptcy appeals to individuals who have non-exempt property that they want to keep. It is also an option for individuals who have predictable income that  is sufficient to pay reasonable expenses with some amount left over to pay off debts.  To qualify for Chapter 13 Bankruptcy a person must: Reside, have a domicile, a place of business, or property in the United States, or a
municipality;  Have a source of regular income; and on the date the petition is filed owe less than $360,475 in unsecured debts and less than $1,081,400 in secured debts. Note: The amounts are regularly adjusted to keep up with the cost of living. Google “Chapter 13 Bankruptcy Means Test” for current information.  Corporations and partnerships may not file a Chapter 13 Bankruptcy. If you filed a prior Chapter 13 Bankruptcy and the prior proceeding was dismissed within the last 180 days, you may not be able to file a second petition and should check 11 U.S.C. sec. 109(g).

WHAT CHAPTER BANKRUPTCY — 7 or 11 or 13 — IS BEST FOR ME?

Chapter 7, Chapter 11 and Chapter 13 Bankruptcy Qualifications Compared:
Chapter 7 Bankruptcy: For individual debtors. There is an upper limit as to income (see Chapter 7 Bankruptcy Means Test), but no limit as to amount of debt. Chapter 11 Bankruptcy: For individual, corporate and partnership debtors. There is no limit as to income, and no limit as to debt. A debtor may “stretch out” payments to creditors with their consent beyond the 3 to 5 year time limit of a Chapter 13 Bankruptcy. Chapter 13 Bankruptcy: For individual debtors. There is an upper limit as to amount of unsecured and secured debt.  Debtor is required to have a source of regular income, but there is no limit as to income. Debtor must pay creditors under the court approved Plan in 3 to 5 years. Debtors who qualify for both Chapter 11 and 13 may prefer to file under Chapter 13 because a debtor in a Chapter 13 is entitled to various procedural and substantive advantages, including a broader scope of discharge, than in a Chapter 11. Please consult a bankruptcy attorney about your particular situation to determine what is best for you. Keystone Group Properties dba Southern California Home Source would be happy to refer a bankruptcy attorney to you.

BEFORE FILING BANKRUPTCY, A CREDIT COUNSELING COURSE IS REQUIRED.   HOW DO I FIND ONE?

At least five days before filing a Bankruptcy Petition (with exception for emergencies), you are required to take an approved Credit Counseling Course. It can be taken in person or over the phone.  A list of approved credit counseling agencies may be found at the California Bankruptcy Court Central District’s (includes Los Angeles and Orange Counties) website:  www.cacb.uscourts.gov click information, click Self Service Center, click Credit Counseling Courses.  A list of approved credit counseling agencies also may be found at the United States Bankruptcy Court’s website: ww.uscourts.gov/federalcourts/bankruptcy click Bankruptcy Resources, click Approved Credit Counseling Agencies and Debtor Education Providers.

WILL FILING BANKRUPTCY HELP ME KEEP MY HOME?

Filing Chapter 7,11 or 13 Bankruptcy will delay foreclosure but will not stop it.

Chapter 7 Bankruptcy:

Filing a Chapter 7 Bankruptcy Petition will freeze foreclosure proceedings for a short time. The lender usually files for Relief from Automatic Stay and asks the Bankruptcy Judge to be able to proceed with the foreclosure. The Judge usually grants this request. Chapter 11 and Chapter 13 Bankruptcy and Loans on Debtor’s Principal Residence:

In a Chapter 11 and Chapter 13 Bankruptcy, a person obtains court approval of a Plan to pay creditors. The home loan or mortgage creditors on debtor’s principal residence would be a part of that Plan. If a debtor is not able to make payments, then there may be foreclosure, short sale, or deed-in-lieu.

“Lien stripping” in a Chapter 11 or Chapter 13 Bankruptcy:

“Lien stripping” may reduce the over-encumbered value of real property to current market value. It is only available for an individual debtor, not a corporate or partnership debtor. It is not available on a 1st trust deed on debtor’s principal residence. It possibly may be used on a 2nd trust deed, or on real property that is not debtor’s principal residence (2nd homes, investment properties, commercial property). “Lien stripping” described generally: the real property’s over-encumbered value is reduced to current market value; the amount that exceeds current market value is treated in the Plan like unsecured debt and may be reduced; debtor pays the current market value, the secured debt.   In a Chapter 13, a debtor must pay creditors, including the secured debt, in 3 to 5 years. In a Chapter 11 Bankruptcy, a debtor has a longer time to pay creditors. Please consult a bankruptcy attorney for further information.

WHAT ARE THE MOST COMMON REASONS FOR A CHAPTER 7 BANKRUPTCY?

The most common reasons for a Chapter 7 Bankruptcy are: unemployment; large medical expenses; seriously overextended credit; marital
problems, and other large unexpected expenses.  A Harvard Study reported that half of US bankruptcies were caused by medical bills
(MSNBC). The study was published online in February of 2005 by Health Affairs. The Harvard study concluded that illness and medical bills caused half (50.4 percent) of the 1,458,000 personal bankruptcies in 2001. The study estimates that medical bankruptcies affect about 2 million Americans annually – counting debtors and their dependents, including about 700,000 children.

WHAT DEBTS ARE ERASED BY A BANKRUPTCY?

Most unsecured debt is erased in a Chapter 7 Bankruptcy, or reduced in Chapter 11 and 13 Bankruptcies, except for: Child support and alimony; Debts for personal injury or death caused by debtor’s drunk driving; Government guaranteed student loans; Tax debt and money owed to government agencies.

Note on Private Student Loans: On June 7 2007, a US Senate Bill was introduced to make private student loans dischargeable in bankruptcy, as they were before 2005, so that again they would be fully dischargeable in bankruptcy. Please consult a bankruptcy attorney for the most recent state of the law.

More information about debt that may not be dischargeable and may survive bankruptcy:

The following debts are not erased in both Chapter 7 and Chapter 13. If you file Chapter 7, these will remain when your case is over. If you file Chapter 13, these debts must be paid in full during your Plan. If they are not, the balance will remain at the end of your case.  Debts you forget to list in your bankruptcy papers, unless the creditor learns of your bankruptcy case.

Child support and alimony; debts for personal injury or death caused by your intoxicated driving; student loans from government organizations, unless it would be an undue hardship for you to repay; fines and penalties imposed for violating the law, such as traffic tickets and criminal restitution.Whether recent income tax debts and all other tax debts are dischargeable is a complicated area. Usually they are not dischargeable.

Please consult a bankruptcy attorney for more information. In addition, the following debts may be declared non-dischargeable by a
bankruptcy judge in Chapter 7 if the creditor challenges your request to discharge them. These debts may be discharged in Chapter 13. You can include them in your Plan, and at the end of your case, the balance may be wiped out.

Debts you incurred on the basis of fraud, such as lying on a credit application; credit purchases of $500 or more for luxury goods or services made within 90 days of filing; loans or cash advances of $750 or more taken within 70 days of filing; debts from willful or malicious injury to another person or another person’s property; debts from embezzlement, larceny or breach of trust, and debts owed under a divorce decree or settlement unless after bankruptcy you would still not be able to afford to pay them, or the benefit you’d receive by the discharge outweighs any detriment to your ex-spouse (who would have to pay them if you discharge them in bankruptcy).

WILL MY CREDITORS STOP HARASSING ME?

Yes, they will!  By law, all actions against a debtor must cease once the Petition is filed. Creditors cannot initiate or continue any lawsuits, wage garnishes, or even telephone calls demanding payments. Secured creditors such as banks holding, for example, a lien on a car or a home loan, will get the stay lifted if you cannot make payments, and act to repossess or foreclose.

WILL MY SPOUSE BE AFFECTED?

Your wife or husband will not be affected by your bankruptcy if they are not responsible (did not sign an agreement or contract) for any of your debt. If they have a supplemental credit card, they are probably responsible for that debt. However, in community property states like California, either spouse can contract for a debt without the other spouse’s signature on anything, and still obligate the marital community. There are a few exceptions to that rule, such as the purchase or sale of real estate; those few exceptions do require both spouse’s signatures on contracts. But the day to day debts, such as credit cards, do NOT require both spouses to have signed. Please consult a bankruptcy attorney for more information. The following are community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.

WHO WILL KNOW?

Bankruptcy filings are public records. However, under normal circumstances, no one will know you went bankrupt. The Credit Bureaus will record your bankruptcy and it will remain on your credit record for 10 years.

WILL I LOSE MY JOB BECAUSE I FILED BANKRUPTCY?

No. U.S.C. Sec. 525, prohibits any employer from discriminating against you because you filed bankruptcy.

WHAT DON’T I KEEP?  HOW MUCH AM I ALLOWED TO KEEP?

In a Chapter 7 Bankruptcy, assets in excess of the allowed exemptions, or non exempt assets such as real estate and boats, will be liquidated by the trustee. Please Google “Chapter 7 Bankruptcy Exemptions” for more information. In a Chapter 7 Bankruptcy, you are allowed to keep certain assets, depending on the state in which you reside. Please Google “Chapter 7 Bankruptcy Exemptions” for more information.

MAY I KEEP ANY CREDIT CARDS?

Whether a debtor keeps credit cards after filing bankruptcy is up to the credit card company. If you are discharging a credit card, they will cancel the card unless you reaffirm the debt. Even if you have a zero balance, the credit card company might cancel the card.

WILL I EVER GET CREDIT AGAIN?

Yes! A number of banks now offer “secured” credit cards where a debtor puts up a certain amount of money (as little as $200) in an account at the bank to guarantee payment. Usually the credit limit is equal to the security given and is increased as the debtor proves his or her ability to pay the debt. Two years after a bankruptcy discharge, debtors are eligible for mortgage loans on terms as good as those of others, with the same financial profile, who have not filed bankruptcy. The size of your down payment and the stability of your income will be much more important than the fact you filed bankruptcy in the past. The fact you filed bankruptcy stays on your credit report for 10 years. It becomes less significant the further in the past the bankruptcy is. The truth is, that you are probably a better credit risk after bankruptcy than before. Please Google “build credit after bankruptcy” for more information.

WHEN WILL I BE DISCHARGED FROM BANKRUPTCY?

One of the major purposes of a Chapter 7 Bankruptcy is to erase debt and to give a person a fresh financial start. The debt is erased when he or she is discharged. This happens 3 – 5 months after the Chapter 7 Bankruptcy is filed. At that time all debts (with some exceptions) are written off.

I FILED CHAPTER 7 BANKRUPTCY BEFORE.  WHEN MAY I FILE AGAIN?

A person may file Chapter 7 Bankruptcy again if it has been more than 8 years since he or she filed the previous Chapter 7 Bankruptcy.

IF I USE A CREDIT COUNSELOR, WON’T I GET A BETTER CREDIT RATING THAN IF I FILE BANKRUPTCY?

No, you will not. It will cost you less money and you will rebuild your credit rating faster if you file Chapter 7 or Chapter 13. Be cautious if you are considering using a credit counselor. Also read about the problems of unscrupulous companies in the credit counseling industry, and the action the IRS has taken against “non-profit” credit counseling groups following widespread abuse.

WHAT DOES IT COST?

It costs about $300 to file a Chapter 7 Bankruptcy. A bankruptcy attorney’s fees vary but should be in the range of $1,000 to $3,000. Many bankruptcy attorneys will give you a free initial consultation. You can keep the fees down by being well organized and well prepared. You may also be able to keep the fees down by not requiring your attorney to attend the Section 341 (a) Meeting of Creditors with you. The fees for a Chapter 11 or 13 Bankruptcy are higher.  Please consult with a bankruptcy attorney about fees.

Financial Assistance for Southern California Homebuyers through Conveyance by Trust

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HOME  BUYERS – BUYER FINANCING ASSISTANCE

Homebuyers in Southern California may benefit by Buying through Seller Assisted Financing.  Through Conveyance by Trust, homebuyers of real estate in Los Angeles County and Orange County as well as of La Jolla CA real estate are able to take over the Seller’s home loan payments.  Click here for more information about buying So CA real estate with Conveyance by Trust Financial Assistance.

For information on coastal and luxury properties from Santa Monica to Beverly Hills homes to San Juan Capistrano and La Jolla real estate, call Bob Cumming of Keystone Group Properties at 310-496-8122.

Conveyance by Trust – Seller Assisted Financing for Southern California Real Estate

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There are many benefits of selling Southern California real estate in Los Angeles and homes in Orange and San Diego counties through Seller Assisted Financing.  Conveyance by Trust offers homebuyers the opportunity to take over the Seller’s loan payments.  Buyers are easier to find and the closing is quick.  Click here for a comprehensive list of the reasons why this method of Seller Assisted Financing may offer the best solution to selling California coastal properties.

Please contact Bob Cumming of Keystone Group Properties at 310-496-8122.  Our area of expertise includes Southern California Properties for sale in the coastal areas and luxury Beverly Hills homes.

Keystone team Los Angeles real estate and Orange County CA home testimonials

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Cindy and Brad T., Pacific Palisades, CA

We wish to thank you and the Keystone team for everything you have done for our family. Our house had been listed for more than eighteen months with three different realtors. Your firm was able to provide a qualified buyer that made a fair offer and enabled us to close on the transaction in approximately sixty days.

Harry and Betty J., New York, New York

We feel you saved us from the potential of financial ruin! As you recall, my husband’s company transferred him from Southern California to the East Coast. We moved to the East Coast and purchased a house with my husband’s company paying the monthly mortgage and costs for our Laguna Beach home while we were trying to sell it.

My husband’s company was sold shortly after we were back each and the acquiring company refused to continue to pay the monthly mortgage and upkeep costs for our house in Southern California. We were desperate. Nothing we tried worked as our  bank account balances diminished during this trying time. We were introduced to you by a friend and your organization was able to complete a transaction in a relatively short time and help get us back on our feet.

Thank you, Thank you, Thank you.

John and Mary T., Calabasas, CA

Our family wants to thank you for being able to consummate a short sale of our property. It minimized the effect on our credit and gave all of us a piece of mind. My husband and I lost both of our good paying jobs due to the economy and were unable to find other jobs immediately. The downturn in real estate at the same time made our home worth a lot less than the mortgage.

We were both successful at finding new jobs but at salary levels that were much less than what we had been making. We could no longer afford the mortgage. Our efforts and those of other professional service firms went nowhere with the financial institutions. We fell behind many months on our loan payments.  Your firm’s professional, no nonsense approach working with the finance institutions allowed us to sell the property as a short sale in a few short months.

Our credit is being repaired and we look forward to having your organization help us buy another property in a few years.

What is Short Sale for Southern California Real Estate?

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For information on short sale real estate in Southern California—in the coastal areas of Orange County (Newport Beach real estate to Laguna Beach), Los Angeles County real estate from Malibu and Marina Del Ray beach homes to Bel Air homes,  and La Jolla real estate in San Diego County, call Bob Cumming of Keystone Group Properties at 310-496-8122.

In a short sale, the bank or mortgage lender agrees to discuss a loan balance because of the an economic or financial hardship on the part of the borrower. The home owner/debtor sells the mortgaged property for less than the outstanding balance of the loan, and turns over the proceeds of the sale to the lender. Neither side is doing the other a favor, a short sale is simply the most economical solution to a problem. Banks will incur a smaller financial loss than foreclosure or continued non-payment would entail. Barrowers are able to mitigate damage to their credit history, and partially control the debt. A short sale is typically faster and less expensive than a foreclosure.  It does not extinguish the remaining balance unless settlement is clearly indicated on the acceptance offer.

Lenders often have loss mitigation departments that evaluate potential short sale transactions. The majority have pre-determined criteria for such transactions, but they may be open to offers, and their willingness varies. A bank will typically determine the amount of equity (or lack thereof), by  deterring the probable selling price from an appraisal or Broker Price Opinion (abbreviated BPO or BOV).

Lenders may accept short sale offers or requests for short sales if a Notice of Default has not been issued or recorded with the locality where the property is located. Given the unprecedented and overwhelming number of losses that the mortgage lender have suffered from the foreclosure crisis, they are now more willing to accept short sales than before. This presents an opportunity for the under-water borrowers who owe more on their mortgage than their property is worth and are having trouble selling to avoid foreclosure.

Options for So CAL Homeowners to Avoid Foreclosure: Modification

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For information on Southern California coastal homes and real estate in Orange County, Los Angeles and San Diego counties, call Bob Cumming of Keystone Group Properties at 310-496-8122.  We are able to assist property owners and buyers in the So Cal communities from Malibu real estate, to Newport Beach homes and south to Redondo Beach, San Juan Capistrano, and La Jolla.

If you fall behind in your mortgage payments, you will receive a lot of mailers offering help. There are people who may wish to take advantage of a homeowner in a difficult situation.  It is important to understand your options.  Keystone Group Properties dba Southern California Home Source would like to explain them to you.  If you have questions, please feel free to contact us.

What is a Foreclosure?

Foreclosure in a non-judicial state like California is initiated by a bank or a lien holder for the purpose of selling the debtor’s real estate to pay the loan or other lien (mechanic’s lien or judgment). There are specific steps the bank or lien holder must take to force the sale of the property. These steps are governed by various State and Federal laws. Generally, they include contacting the homeowner after missed payments to attempt to work it out, a Notice of Default, and Notice of Trustee Sale.  Here is a list of California Civil Codes that are the main statutes governing foreclosures in California:

California Civil Code 890 et seq.    Rent Skimming;
California Civil Code 1695 et seq.    Home Equity Purchasing;
California Civil Code 2924 et seq.    Trustee’s Sale Procedure;
California Civil Code 2945 et seq.    Foreclosure Consultant;

California Civil Code 1367 et seq.    Foreclosures on HOA Assessments, Redemption, etc.

A bank will foreclose on a person’s home if it believes that this is the only way the situation can be resolved.  A bank  wants to keep a loan portfolio full of performing loans – not defaulting loans.  After payments are missed and before a Notice of Default is filed, the loan is on a bank’s books as a “toxic asset,” requiring it to increase  reserves.  After a Notice of Default is filed, the loan is off the books as a  “toxic asset”  and becomes a  “collectible asset.”

If you are unable to make payments, call the bank immediately. Do not ignore their letters. The earlier the contact, the more likely the  bank will try to negotiate a plan to enable  the loan to be performing again.

What are your Options?

Option #1 – Sell Your Home

Depending on the market and the area in which you live, you may consider selling your home if there is enough equity to pay off the existing liens. However, you may not be able to do a regular sale if you owe more than what your home is worth.

Option #2 – Loan Modification:  Renegotiate with the Bank

Note that although banks are required to attempt to work with the homeowner, they have been reluctant to reduce principal balances. Here is a list of issues the bank may discuss with you when negotiating a loan modification:

–   Forbearance –  Forbearance is the postponement for a limited time of a portion or all of the payments on a loan in jeopardy of foreclosure (you fell behind on your payments – i.e. lost your job).  Partial or full payment waivers had their origins in the Great Depression.  A bank expects that during the moratorium period, the borrower can solve the problems by securing a new job, selling the property or finding some other acceptable solution.  You may qualify for this option is you recently lost your job. Contact your bank and inquire if you meet the requirements for forbearance.

–   Forgive the Payment – If you can convince the bank you experienced a temporary setback, and you will not miss a payment again, there is a small chance you may be able to have the delinquency forgiven. They may waive the amount.

–   Interest Rate Freeze/Reduction – If you have an adjustable rate mortgage, the bank may agree to freeze the interest rate or change the interest rate to an amount that is mutually beneficial.

–   Increase Term of the Loan – A bank may increase the term of the loan, for example from 30 years to 40 years, to lower payments by spreading them over a longer period of time.

–  Spread the Delinquent Payment over the Term of the Loan – For example, you may have a normal mortgage payment of $1500 per month. You may be four months behind. The bank may allow you to pay back the $6,000 plus interest over say five years by adding approximately $100 per month to your payment. You will now pay $1600 per month for five years and then $1500 per month until the mortgage is paid.

–   Move the Delinquent Payment to the End of the Loan – If you have some equity in your property, the bank may move the amount owed to the back of the loan. There may be a balloon payment at the end or larger payments for a few months.

–   Make an Additional Loan to You – Some loans that are backed by the government contain provisions to help homeowners who are in trouble. Check different government web sites such as  the Department of Housing and Urban Development (HUD) and the Department of Veteran Affairs (VA) for more information.

Option #3 – Reinstatement

Prior to a foreclosure sale, borrowers have the right to reinstate a delinquent loan.  The reinstatement option gives homeowners the opportunity to make up back payments plus any incidental charges incurred by the bank such as filing fee, trustee fees and legal expenses.  Paying off the reinstatement amount will cancel the foreclosure and enable the homeowner to continue to live in the home as if no default occurred.  Consult with a real estate attorney or an experienced real estate broker because reinstatement laws vary from state to state.

Option #4 – Refinance Your Home – Redemption

Refinancing your home and paying off the existing loan sounds easy and may be an option that you have already pursued.  In this current real estate climate it has become almost impossible to refinance your home if you have less than 10-20% equity.

Option #5 – Conveyance by Trust

Conveyance by Trust, seller-assisted financing, may be used where the homeowner has a good loan and where the amount owed on the loan is close to what your home is worth.  Please see Easy Conveyance by Trust – Seller and Buyer.  Keystone Group Properties dba California Home Source has experience with conveyance by trust and would like to help you assess whether this may be good for you.

Option #6 – A Short Sale – Not a Typical Sale

If your home is worth less than what you owe on your mortgage, a short sale may be the best option.  In a short sale, the homeowner and bank agree to sell the property for less than the outstanding balance of the loan, and the proceeds go to the bank.  The bank takes the loss and moves on. A short sale is less damaging to a borrower’s credit than a foreclosure, and stays on a credit report for a shorter period of time.

Banks often have loss mitigation departments that evaluate  short sale transactions.  Many have pre-determined criteria for them. Let Keystone Group Properties dba Southern California Home Source provide our expertise to help you.

You need to be aware of  what the tax implications of a short sale may be.  The Mortgage Forgiveness Debt Relief Act of 2007, also known as Section 2 of H.R. 3648 was passed to eliminate the short sale tax consequence of having to pay the additional tax that would be due on the loss to the bank. Basically, any loss to the bank would be treated as ordinary income to you because what was a loss to the bank became a gain to the former home owner.  Keep in mind that this will eliminate the federal tax but you still may owe money to the state.  You may need to consult a tax professional to understand the consequences for your current situation.

Option #7 – Deed in Lieu of Foreclosure

For homeowners who have no opportunity to reinstate, redeem or even sell their property and just want out of it, a deed-in-lieu of foreclosure may be a viable option.  Essentially, a deed-in- lieu of foreclosure is a transfer of title from a borrower to the bank, which the bank accepts as full satisfaction of the mortgage debt. With this option, you as a borrower voluntarily “give back” your property to the mortgage company.  You won’t save the house, but you do avoid the trauma of foreclosure and reduce the negative impact on your credit.

Option #8 – Bankruptcy

Filing bankruptcy does not permanently stop foreclosure, but it can temporarily halt the foreclosure process.  Once a borrower in default files a petition for bankruptcy, foreclosure proceedings stop immediately.  A homeowner, however, usually hires an attorney to file bankruptcy, which can be expensive.  Before considering this option, a homeowner should consult a real estate attorney.

Option #9 – Litigation

Sometimes litigation filed by a homeowner brings the bank “to the table,” and a principal balance reduction is offered.  Hiring an attorney to file litigation may be expensive.  Keystone Group Properties dba Southern California Home Source may offer referrals.

Option #10 – Foreclosure – Let it go

Allowing the foreclosure to proceed to auction is generally the worst choice.  By doing nothing, homeowners will lose the home and any equity they have earned,   and  will damage their credit.  Some states, but not California, allow banks to go after borrowers in court for any deficit between what the house eventually sells for and what the homeowner owes. This is called a deficiency judgment. Unfortunately, many homeowners do nothing and allow foreclosure to proceed.



REOs or Bank Owned Properties in Southern California

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Our Southern California real estate website offers a variety of important information for real estate investors and buyers.  Click here for information about REO vs. Foreclosure of Southern California real estate.

For information on luxury and coastal real estate in Southern California, call Bob Cumming of Keystone Group Properties at 310-496-8122.  Keystone Group Properties specializes in homes along the coast from Malibu to La Jolla real estate and luxury properties in the Beverly Hills area.