Real estate and US economy are caught up in the current foreclosure mess, this effects all of us in one way or another. Times they are a trying, so here’s some basic information about foreclosure as it applies to California law.
Trust Deed: The loan document containing specifics for a loan on a Real Property: house, condo, commercial building etc… This Deed of Trust is usually recorded in county recorder’s office and is part of public records.
Trustee: The is the entity, a company usually, that holds the Deed of Trust for the Beneficiary (the Lender). The Trustee will when informed by the Lender that the loan has Defaulted (payments are not being made) to start foreclosure procedures.
Trustor: The person(s) that acquire for a house, condo, building etc (called owner in this article)
Foreclosure: Action a Trustee takes on behalf of a Lender after loan payments have been missed and the Lender is forced to start actions to get loan paid off or take ownership of the property and sell it to re-coup loan losses. Under CA Trust Deed Law this can be completed in less than 4 months.
County Recorder Office: Government office that records such Deeds of Trust, ownership filings, judgements, etc such recordings become public records.
Notice of Default (NOD): Formal notice that the Trustee files with the County Recorder, when a property owner has missed payments or breached some portion of the Trust Deed. This period in California last 90 days. In that time the property owner can bring the loan current, make arrangements to have loan re-instated, pay the loan off in full, get a new loan, sell the property, etc.
Notice Trustee Sale (NOT): Next step in foreclosure proceedings after 90 days of NOD. NOT is filed with the county recorder office, stating that the property will know go to auction in 21 days and gives specifics of such.The auction must be advertised. The property owner can have the loan re-instate or get a new loan, get a postponement, etc to have this action halted. If not, the property goes to auction as public stated in the NOT. Either the someone successfully bids and purchases the property or the property become Real Estate Owned (REO) of the lender. Thus the property is foreclosed on with the Trustor (property Owner) losing ownership of the property. And the Lender now becoming the owner and still having an unpaid loan.
*Please note that in the event the original sale was postponed, but defaulted loan issues were not resolved, the Trustee does not have to advertise a new sale date and often does not. Hence the property can be sold without the owner knowing of such. If asked about a new sale date the Trustee or their agent has to communicate if such is scheduled, hence better call daily to check on such, after a postponement
Postponing a Trustee Sale can come about because of owner seeks bankruptcy protection, starts a loan modification, short sale, re-finance and other reasons.
Loan Modification: many loan documents (Deeds Of Trust) have this option in the terms of the loan, And Is part of making homes affordable programs HAFA, part of government regulations to ease the foreclosure problem the country is experiencing. Your lender may modify your loan in terms of interest rate and or loan balance. You can go directly to your lender or seek professional advice form an Attorney at Law. CA Dept of Real Estate states Real Estate office/agents can not perform loan modifications.
links www.makinghomesaffordable.gov click on Explore Options
www.freddiemac.com click on Making Homes affordable
Bankruptcy: Is an action an individual/company etc takes to seek financial relief, when one can not meet their obligations. If a property owner is facing foreclosure, it would be in their best interest to seek professional advice. There are many quality Attorneys to choose from. (I am not a lawyer)
Deed in Lieu of Foreclosure:Lender will sometimes agree to have the property signed over to them or what is called Deed in Lieu of (foreclosure). This can be much easier and less stressful versus being foreclosed on. You do lose ownership of the property.
Escrow:In California we use a private company to see the terms of the sale are fulfilled and sale closes, called Escrow and this should be a neutral 3rd party, so there is an equal playing field.
Standard Sale: You are fortunate in your property is value is greater than the loan and you simply sell the property and Trust Deed (loan) get paid off.
Short Sale: under Home Affordable Foreclosure (HAFA) guidelines a lender can decide to allow an in trouble property owner sell the property for less than is owed to the lender. The property owner does not pay Closing Costs of the sale. This is a better option versus simply losing one’s property to foreclosure, in many cases.
FHA:Federal Housing Authority a government agency that provides mortgage insurance on FHA lender approved loans. This agency has assisted many American in purchasing their home with easier loan qualifying and low down payment (3/5% of the sales price) and have been around for many years. http://www.hud.gov/buying/loans.cfm
Sitting and Doing Nothing, a Poor Option
Life is not always fair and things don’t go always the way they should. If you are under threat of being foreclosed on or unable to make the loan payment on your property, DOING NOTHING ISN’T A GOOD OPTION. Such will likely lead to more stress and perhaps poor health. Taking the so-called easy way out of doing nothing isn’t what most would call FUN, but probably its boring or even depressing, such an attitude is unhealthy.
Explore your options, you may find a resolution to situation and life may just become brighter and happier.
Short Sale, HAFA
Unable to make the loan payment, your lender under HAFA guidelines, might allow you to sell your property for less than the loan balances and the lender takes the financial loss. You the Property Owner DO NOT pay to CLOSE the SALE. You are the actual Seller of the property with the Lender agreeing to the sale terms.
You and the property must qualify for the short sale The Lender will likely require much in the form or paper work. In California at least, Lenders prefer the property be professionally marketed by an experienced real estate agent versed in conducting short sales. The reasoning for this is simple, the lender has a better chance of the property selling and of obtaining a market value. And on getting a completed short sale package. The best part of this to You is that the Lender pays the commission and other closing fees.
You can stay in the house until the sale closes
You are still the owner until the property sale closes
You are relieved of making payments once the short sale is approved
Are relieved of the debt loss (loan to the lender once the sale closes)
Under HAFA guideline, you might qualify for move out assistance
In 2012 IRS might forgive taxes of debt relief
The Stress and Anxiety for many are greatly reduced after completing a short sale
Can start at rebuilding your life, in 2 years you can become eligible to purchase a home under FHA guidelines
The time period to complete a short sale is usually much longer than a standard property sale. Short sale approval takes weeks or more, usually. Escrow period in short sales usually take longer from my experience. As there is another condition of the sale, the Lender agreement and this is added paper work and some time.
The lender will want to see proof of hardship: reason why owner is unable to make payments, loan application, current pay stubs, unless unemployed, 2 years tax returns, bank account balances, stocks etc… HAFA program paper work, that your agent can help you with. Part of this is move out assistance money when the sale closes. Currently that amount under HAFA is $3,000 and this only goes to owner occupied property owners and after the sale closes. The lender has to agree to this and often does in my experience as this is part of short sale approval. An experienced agent can help you walk thru all this and makes this much easier.
What Lender Does NOT Want
Owner can make the loan payments
Property value is more than the loan balance
Fake sale, where the property is not really sold (as in to a family member)
Property is not really marketed
Property is grossly UNDER SOLD
Hidden profits made by owner
Hidden profits made by real estate offices
Steps of Short Sale
1. You the owner are unable to make loan payments
2. Consult with a professional, that’s Me: go over financial situation, property condition and value, marketing strategy, short procedures, time periods, real estate law, paper work brief and answer questions
3 You employ a real estate agent to market your property under terms of short sale, start the paperwork needed.
4 Short Package is forwarded to lender
5 Property is marketed or sale
6 Offers come in and You & I go over them
7 offer is submitted to lender and we wait for approval
8 lender does a Broker Price Opinion (BPO) to determine property value.
9 Lender approves short sale, counters the offer or does not approve this sale
we will say the Lender says YES
10 Lender requires additionally paper work in most cases, the escrow now moves forward, buyer obtains loan etc.
11 Sale Closes Escrow, you move out the house and in may have qualified for HAFA money to move out.
In many cases the stress and anxiety associated with losing one’s property dissipates after a successfully closing a short sale. In fact under FHA guidelines in as little as 2 year you can qualify to purchase a home again. FHA guidelines tend to be easier for borrowers and the down payment is only 3.5%. The American Dream is not lost, because you were in caught up in a horrible real estate market.
The IRS has regulations that when debt is forgiven, it can become taxable. Thru the end of 2012 said taxation of debt relief may be forgiven, hence home owners that lose their home from 2007-2012 might not be taxed for debt relief. http://www.irs.gov/individuals/article/0,,id=179414,00.html
If you or someone you know is facing foreclosure, contact me. I will gladly provide my knowledge and years of experience.
Michael J Daily #00927153
Gold Star Realty