Dec 30, 2008

Important Updates to The Foreclosure Survival Guide

[This blog posting contains important updates to The Foreclosure Survival Guide. The updates are presented chapter by chapter. Please email me at selias2 (at) aol (dot) com if you know of any other parts of the book that have fallen behind in this rapidly changing world of housing and finance. -- Steve Elias]
Chapter 1: Foreclosure: The Big Picture. The Hope for Homeowners Act: Effective October 1, 2008, the Hope for Homeowners Act implemented a new program designed to help people convert their current loans into FHA-insured, 30-year fixed-interest-rate loans. As of December 15th, this program has not yet gotten off the ground. According to a report by the National Association of Consumer Bankruptcy Attorneys, not even one mortgage has been modified under this program and only several hundred modification applications have been submitted. For more details on the program, see the article on this subject in the Nolopedia, Mortgage Refinancing to Avoid Foreclosure.

Chapter 1: Foreclosure: The Big Picture. The bailout bill: On October 2, the Emergency Stabilization Act of 2008 (the bailout bill) became law. This law allocated over $800 billion to the Secretary of the Treasury to deal with the economy and the housing crisis. Under the Act, the federal government will be pressuring banks and mortgage lenders to participate in the Home for Homeowner's Act by agreeing to replace current high-cost mortgages with FHA-insured 30-year fixed-interest-rate mortgages. To assist in this effort, the new Act modifies the Hope for Homeowners Act by eliminating that Act's requirement that the new FHA-insured mortgages be for no more than 90% of the current appraised value. Now, the current lender can be offered any percentage of the current appraised value that the federal government decides is appropriate (even if it is more than the appraised value).

Chapter 3: Can You Keep Your House? Should You? Options under the Hope for Homeowners Act: Under this new law (effective October 1, 2008), you may qualify to have your current mortgage replaced with a new FHA-insured, 30-year fixed-rate mortgage for the current appraised value of your home (a little more or less depending on federal policies still in development). See Mortgage Refinancing to Avoid Foreclosure in the Nolopedia for details.
If you are way upside down on your mortgage, this would mean a dramatically lower payment. However, there is a catch: Your ability to take out a second mortgage on the house will be greatly restricted. Also, if you acquire some equity in your home later on and want to refinance or sell the house, the federal government will be entitled to a share of the proceeds. If you sell the house within a year after issuance of the mortgage, the federal government will get 100% of the proceeds. This federal share will decrease to 50% over a five-year period and will remain at 50% after that. If your main goal in keeping your house is to build equity, this might not be such a good deal since you'll have the federal government as an equal "partner" (at best). On the other hand, if you are not concerned about building equity but rather want to keep the house as a good place to live for you and your family, the Hope for Homeowner's Act can help you realize that goal.
Chapter 4: Negotiating a Workout. Special Protections for Service Members on Active Duty -- Extension of Interest Rate Protection: Section 2203 of HR 3221, The Housing and Economic Recovery Act of 2008, signed into law on July 30, 2008, continues the 6% interest rate cap protection on mortgage obligations incurred prior to deployment for one year after the period of military service ends.
Chapter 7: Fighting Foreclosure in Court.
Effective August 8, 2008, a New York law establishes a mandatory settlement conference for foreclosure proceedings involving homeowners with certain sub-prime loans and, in certain cases, allows the court to appoint attorneys to represent people who can't afford one. In all foreclosure proceedings brought in court, the plaintiff must make an affirmative allegation that it has adequate standing (ownership interest in the mortgage) to bring the action. 
Chapter 7: Fighting Foreclosure in Court. Period of Postponement of Foreclosure Proceedings for Service Members on Active Duty: Under an amendment to the Service Members Civil Relief Act contained in the Housing and Economic Recovery Act of 2008, service members on active duty may now postpone foreclosure proceedings for 9 months. The old period was 90 days.
Chapter 8: If You Decide to Leave Your House. Mortgage Debt Forgiveness: Section 303 of the Emergency Stabilization Act of 2008 (the bailout bill) has extended the effective date of the Mortgage Debt Forgiveness Act from the end of 2009 until the end of 2012. This extension applies to discharges of mortgage debt occurring on or after January 1, 2010. 
Appendix: California: Errata. The required notice to quit to evict a homeowner after a foreclosure sale is 3 days, not 30 days.
Appendix: Massachusetts: New 90-Day Notice Requirement. Effective May 1, 2008, homeowners who have defaulted on their mortgage payments are entitled to a one-time 90-day notice (every five years) of their right to reinstate their mortgage before the mortgage holder can accelerate the mortgage and begin foreclosure proceedings (Ch. 244, Section 35A). The notice must be served by first class mail and must include a description of the default, the amount needed to cure, the actual date by which the homeowner must cure (90 days after the service of the notice), and the consequences if the homeowner fails to reinstate (acceleration). The notice must also contain a statement that the homeowner may be eligible for assistance from MassHousing and the DOB (Division of Banks), and the toll-free or local phone numbers of those agencies. 
Appendix: New York: 90-Day Notice Requirement. Effective August 8, 2008, a new law requires lenders to send a pre-foreclosure notice to homeowners at least 90 days before foreclosure proceedings may be initiated. The notice must list government-approved housing counselors serving the homeowner's area.