Your Exceptional Life

Has it been 10 minutes? You guessed it, the market has changed again. And it’s about to change one more time. This time it’s had a little help from the California State Legislature.

This past Monday, the California Foreclosure Prevention Act went into effect. It has the potential to be a help to some folks, and the potential to be nothing at all. Essentially, it directs lenders to attempt a loan modification workout before foreclosing on the property. Once a notice of default has recorded, if the lender does not have an exemption on file, they must allow an additional 90 days for a loan modification to be worked out. That is 90 days in addition to the existing 90 days that are statutorily provided for to allow the borrower to catch the loan back up. There are only certain situations where this legislation is applicable. Here is the text of the law respecting who is eligible:

2923.52. (a) Notwithstanding paragraph (3) of subdivision (a) of
Section 2924, a mortgagee, trustee, or other person authorized to
take sale shall not give notice of sale until at least 90 days after
the lapse of three months as set forth in paragraph (2) of
subdivision (a) of Section 2924, in order to allow the parties to
pursue a loan modification to prevent foreclosure, if all of the
following conditions exist:
(1) The loan was recorded during the period of January 1, 2003, to
January 1, 2008, inclusive, and is secured by residential real
property.
(2) The loan at issue is the first mortgage or deed of trust that
the property secures.
(3) The borrower occupied the property as the borrower’s principal
residence at the time the loan became delinquent.
(4) The notice of default has been recorded on the property.
(b) This section does not apply to loans serviced by a mortgage
loan servicer if that mortgage loan servicer has obtained a temporary
or final order of exemption pursuant to Section 2923.53 that is
current and valid at the time the notice of sale is given.
(c) This section does not apply to loans made, purchased, or
serviced by:
(1) A California state or local public housing agency or
authority, including state or local housing finance agencies
established under Division 31 (commencing with Section 50000) of the
Health and Safety Code and Chapter 6 (commencing with Section 980) of
Division 4 of the Military and Veterans Code.
(2) Loans that are collateral for securities purchased by an
agency or authority described in paragraph (1).
(d) This section shall become operative 14 days after the issuance
of regulations, which shall include the form of the application for
mortgage loan servicers, by the commissioner pursuant to subdivision
(d) of Section 2923.53.
(e) This section shall remain in effect only until January 1,
2011, and as of that date is repealed, unless a later enacted
statute, that is enacted before January 1, 2011, deletes or extends
that date.

For a loan modification to be approved, something fundamentally has to have changed with the borrowers’ financial situation. That is, a loss of job, divorce, substantial decrease in income, jump in interest rate in an ARM since the loan was originally approved or substantial unavoidable increase in expenses. If a borrower has had no change in income and/or expenses and just decides that the house isn’t worth what they paid for it and they don’t want to pay the mortgage any more, that’s not going to be approved and the lender is going to proceed with a foreclosure. That’s not a good reason to ask for a loan modification. If God forbid a child became catastrophically ill that would be reason for a lender to consider a modification. If the borrower can’t afford the house payment and the payment on the luxury automobile they bought six months ago, the lender is not going to look favorably on that situation. It has to be a real hardship. And the borrower has to be able to document it.

As I’ve mentioned before, Wachovia has a great short sale department set up in Northern California. Unfortunately, a lot of other lenders haven’t come around to their evolved way of thinking yet. Wachovia knows that it costs them less to work out the loans with the borrowers. They will try a loan modification first, if that isn’t going to work for the borrower, they move on to a short sale. Foreclosure is the last possible resort for that company. I always give credit where credit is due, and they deserve credit for doing the right thing and doing it well. They will probably apply for and receive an exemption. Another huge bank we’ve all heard of is doing a terrible job. I wrote a short sale contract for a family back in April. Large Unorganized Bank is the lender on the transaction. They have to approve the short sale. Three days ago I got an email that they had uploaded the package, assigned it to someone and that I would get a response on July 17th. Really. July 17th on a contract written in April. I don’t see that bank getting an exemption.

It remains to be seen how long it will take the different entities within the State government who are supposed to regulate this to get up and running, but for now, if you’re in trouble, you can’t afford to hide in your closet all balled up in fetal position sucking your thumb. There are options available to you. Ignoring the problem will only make it worse. If you don’t get help the process will march forward with out you and one morning you’ll wake up to find the Sheriff at your door, evicting you. That’s not what anyone wants. If you are one of the many who is in this position, send me an email or give me a call. I’m here to help. But most of all, don’t pay someone out of your pocket to save your home. Those guys won’t save your home and you’ll be out whatever you paid them.