New Washington Laws effective June 7, 2012 to help homeowners in crisis?

Well, the banks are at it again folks.  Washington has passed new legislation that is designed to further assist homeowners in crisis, but as far as I can tell the investors holding our notes gain more than than the homeowner.

Starting June 7, 2012, all beneficiaries of a note secured by owner-occupied real property in Washington who intend to release a deed of trust (typically in a short sale or via deed-lieu of foreclosure) must state in writing to the borrower whether it reserves or waives the right to collect full payment of the secured debt. They must also state that the letter does not preclude the borrower from negotiating with the beneficiary for a full release of the outstanding debt. In other words, not much of a change from what is currently going on in short sale or deed-in-lieu transaction since most beneficiaries will not waive the right to collect full payment absent negotiations to obtain the waiver.  This is why working with an experienced and skilled short sale negotiator is important when asking a beneficiary of a note to release its deed of trust or mortgage.

Under this new Act, real estate agents will be required to disclose in their Law of Real Estate Agency pamphlet that the decision of a beneficiary to release its secured interest in the property does not automatically relieve the seller of the obligation to pay any debt or costs remaining at closing, including real estate commissions.  While I like the idea that homeowners are further informed that the remaining loan balance could survive closing, I will not be surprised to see more beneficiaries (and maybe some agents) seeking payment from sellers at closing to cover costs and commissions that up until now have for the most part been paid out of the sale proceeds. Having a strong short sale negotiator and not being afraid to let the beneficiary take the home in foreclosure will go a long way towards working out a full settlement of the debt with little or no cost to the struggling homeowner in a short sale.

Another change that I am not too happy about is that the beneficiaries will no longer be required to have an in-person meeting with the homeowner prior to sending out a Notice of Default, even if the homeowner requests the in-person meeting in writing.  Starting June 7, 2012, beneficiaries can attend an in-person meeting either in person, over the telephone or by video conference. Because they are given a choice, I predict that most, if not all, beneficiaries will elect to hold the "in-person" meeting over the telephone. I think the next distressed property legislation should require all beneficiaries to send the homeowner a photograph of their decision-maker so the homeowner can tape the photo to their phone and at least get some semblance of the in-person meeting that is anything but that.

The only real benefit of this new legislation in my opinion is that Washington homeowners will have more time to meet with a certified HUD counselor or attorney to discuss how they can delay or stop foreclosure of their primary residence through mediation.  Previously, a homeowner lost the right to be referred into a Foreclosure Fairness Act mediation once a Notice of Trustee Sale was recorded.  This new Act will give homeowners up to 20 days AFTER a Notice of Trustee Sale is recorded to have a counselor or attorney refer them and the beneficiary of their note into mediation.  While mediation is not a guarantee that a homeowner will be able to keep their home, it is designed to work out an alternative to foreclosure, such as a loan modification, short sale or deed-in-lieu of foreclosure, and it requires the beneficiary to negotiate in good faith.

If you are struggling to make a mortgage payment or want information on how you can improve your loan terms or how to gracefully exit ownership with as little damage as possible, talk to an experience real estate attorney who specializes in distressed properties.  Unless you want to file for bankruptcy, do not meet with a bankruptcy attorney unless they also specialize in other foreclosure alternatives and have done so for at least 5 years or more. If they have never negotiated a loan modification or a short sale or do not work with another attorney who has done so for years, call someone else. I cannot tell you how frustrating it is to meet with homeowners who have received misinformation from bankruptcy attorneys who know very little about loan modification, short sales, deeds-in-lieu of foreclosure or even Washington laws affecting distressed properties, not to mention the credit and tax implications of debt forgiveness outside of bankruptcy.  I would rather see a homeowner talk to an experienced short sale agent than a lawyer who is dabbling in distressed properties just to bring in bankruptcy clients.

Get educated. Get help. Do not let lenders or anyone else take advantage of your situation. 

If you would like more information on House Bill 2614 and to read the full text, go to:
http://apps.leg.wa.gov/documents/billdocs/2011-12/Pdf/Bills/House Passed Legislature/2614-S.PL.pdf

Changes to HAFA Program Starting March 9, 2012

The Making Home Affordable Program has been extended and expanded, including major changes to the HAFA short sale program beginning March 9, 2012.  The HAFA short sale program now provides the following:

1. There are no occupancy requirements;
2. A servicer is now allowed to accept a full payment if the borrower wants to stay current even though the payment exceeds 31% of the borrower's gross income;
3. A servicer may authorize an $8,500 payment to a subordinate mortgage holder instead of the prior cap of $6,000 in exchange for a lien release and full release of borrower liability on the debt. Investors will continue to be reimbursed one dollar for every three dollars of short sale proceeds paid to a subordinate mortgage holder up to $2,000;
4. Borrower relocation incentives will be limited to HAFA short sales or Deed-in-Lieu transactions where the property is occupied by a borrower or a tenant at the time the Short Sale Agreement or DIL Agreement is executed and who will be required to vacate the property as a result of the sale or DIL. The HUD-1 statement must reflect payment to the borrower or tenant, when appropriate.
5. Credit bureau reporting of HAFA transactions where the deficiency balance is forgiven are to be reported as: "Account Status Code = 13 (Paid or closed account/zero balance) or 65 (Account paid in full/a foreclosure was started), as applicable.
6. A borrower has until December 31, 2013 to submit a Short Sale Agreement or a written request for a consideration for a Short Sale Agreement to be eligible for HAFA.

In California, mortgage holders cannot collect a deficiency debt following a short sale or condition a short sale approval on additional contributions from the seller.  At the moment, Washington does not have such a law, so sellers are still vulnerable to subordinate mortgage holders strong-arming them into signing another note or contributing funds at closing despite the clear government mandate that the HAFA program is designed to relieve the seller of any further obligation on their mortgage debts.

Bank of America Changes Short Sale Procedures

Bank of America recently changed their short sale initiation requirements in order to streamline and expedite the process.  Starting on April 13, 2012, Bank of America will require the following documents when initiating a Bank of America short sale: 

1. Bank of America Third-Party Authorization Form;
2. A signed Purchase and Sale Agreement with Buyers Acknowledgement and Disclosure;
3. IRS Form 4506-T  Request for Transcript of Tax Return;
4. 60-day Estimated HUD-1 (or HUD-1 if closing date is shorter than 60 days);
5. Bank of America Short Sale Purchase Contract Addendum.

For an existing short sale file, all of the above documents will need to be uploaded in Equator before April 13th using  “Upload Supporting Documents.”

Failure to upload all the required documents may result in a full re-submission of all documents or the file/offer being rejected.

Warning to those of you with BECU or Mutual of Omaha Mortgages!

BECU is suing borrowers for non-payment on a 2nd loan even though a short sale is in process and the 1st has not yet initiated foreclosure.  They are simply treating their loans as unsecured debt (which basically is true when dealing with underwater property) and suing their customers for breach of contract (default on the note).  This approach makes a short sale even more difficult, and will make filing for bankruptcy the only real out for many BECU customers.

As for Mutual of Omaha, they are now doing judicial foreclosures in Washington State on their residential mortgages.  This means they are not waiving the right to collect the balance owed on the mortgage in a short sale, and they are not giving up the right to collect the full balance owed by using the non-judicial method of foreclosure.  So, unless you have the money to pay the balance on the note or a chunk of change to try and negotiate down the amount they want at closing or are willing to make monthly payments on a home you will no longer own, then bankruptcy attorneys in Washington will be seeing more of these types of borrowers in the near future as well.  It will be interesting to see what MOO does when it has to sit on some of these properties during Washington's one-year redemption period (applies to principal residences only) while they collect small sums each month from a wage garnishment.  Clearly the eggheads that run MOO think one bird in the hand is NOT worth two in the bush and would rather scoop up bird droppings than let a destitute borrower get out of a bad loan in a bad market.