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$: Avoid Foreclosureimages.kw.com/.../1371230174623_Avoid_Foreclosure_A... · Avoid Foreclosure Homeowner Resource Kit Resolution Specialist { An Advocate for You { 90% Success Rate$
Steve Maloney/ Broker 925-683-8100 [email protected]

Avoid Foreclosure Homeowner Resource Kit

Resolution Specialist An Advocate for You 90% Success Rate

Steve Maloney 925-683-8100 [email protected]

Table of Contents Introduction ....................................................................................................................................................................1

What is a Notice of Default? .....................................................................................................................................1

What is a Notice of Trustee’s Sale .........................................................................................................................2

What is a Postponement?..........................................................................................................................................3

Loan Modification Facts .............................................................................................................................................4

What You Can Expect When Seeking a Loan Modification .......................................................................6

The Impact of a Second Loan and Other Liens ...............................................................................................6

The Foreclosure Process: Events & Strategies to Save Your Home ......................................................7

Event 1: Missed Mortgage Payments .............................................................................................................7

Event 2: 120 Days without a Mortgage Payment .....................................................................................8

Event 3: Notice of Trustee Sale .........................................................................................................................8

The House Is Sold Back to the Bank – What Now? ..................................................................................9

The Effect of a Foreclosure vs. Short Sale on Your Credit ...................................................................... 10

Summary ........................................................................................................................................................................ 11

Resources....................................................................................................................................................................... 12

Articles ............................................................................................................................................................................ 12

IRS ........................................................................................................................................................................... 12

California Senate Bill 458 .................................................................................................................................. 17

UPDATE .......................................................................................................................................................................... 18

New Changes in California Law Benefits Distressed Homeowners.............................................. 18

California Homeowner Bill of Rights Becomes Law ........................................................................ 18

Applicability of the Law ................................................................................................................................ 18

About Me ........................................................................................................................................................................ 22

Other Available Resources .................................................................................................................................... 23

Version 2.0- 7-12

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Introduction

The purpose of this document is to provide borrowers in default with information that will help them keep their home. What I have learned in working with these homeowners is that there is a great deal of confusion about what steps a homeowner can take to extricate them from the threat of foreclosure. This resource kit will hopefully help borrowers understand their options and provide direction that can lead to saving their home.

Getting a Notice of Default is a very stressful experience. It marks the lender’s first legal communication with the borrower, putting them on notice they intend to exercise their right under the terms of the loan to transfer title of the property from the borrower to lender.

While this is a serious move on the part of the lender, borrowers have time to take action to avoid being forced into a foreclosure.

Each week throughout Contra Costa County alone, over 300 homeowners have a Notice of Default recorded against their property, week-in and week-out. This is the result of the on-going depression in the real estate market coupled with high unemployment throughout the region.

There is much information available online from many sources to help homeowners understand their options and programs designed to help them out of their situation. The purpose of this document is to pull together the best resources out there and present them in a logical fashion, in one place, for the homeowner to consider.

What is a Notice of Default? The Notice of Default, (NOD), is a legal notice to the borrower, stating that they are in default on the terms of their loan. Usually this is issued after the third month of missed mortgage payments. The NOD starts a 90-day clock that could end with the lender asking the Trustee to issue a Notice of Trustee’s, (NTS), sale. The NTS start a second 21-day clock during which time papers are prepared to facilitate the transfer of title from the homeowner to the lender or a third party investor.

During the NOD timeline the homeowner has several options to consider:

1. Cure the default: This simply means figuring out a way to pay back the amount of the default and bring the loan current. A homeowner can do this several ways, some of which could be:

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a. Liquidate other assets

b. Refinance the loan

c. Get a loan from other sources, (e.g., family, friends, etc.)

2. Apply for a Loan Modification: Through the government’s supported Making Homes Affordable program, incentives have been created to encourage lenders to re-structure loans to make them more affordable, allowing borrowers to stay in their home with a reduced mortgage payment. This program will be covered in length later in this document.

3. Short Sale: The borrower engages a realtor to help them sell the home for less than what is owed on the property. In this approach borrowers walk away from a property that might be “underwater” without owing anything. Generally this alternative is considered when the borrower has more than one loan on the property, or they have been turned down for a loan modification and are facing imminent foreclosure.

4. Strategic Foreclosure: This alternative comes into play when a homeowner doesn’t qualify for either a loan modification or a short sale. In some instances homeowners whose property value has dropped substantially below the loan amount outstanding make the conscious decision to stop making their mortgage payment. People in this situation can afford to continue making the mortgage payment but decide against paying money for an asset with negative value. This is a growing trend and gives rise to a large number of bank owned properties on the market.

What is a Notice of Trustee’s Sale California employs a “non-judicial” process for handling foreclosures. This means that the court system doesn’t become involved in the foreclosure process.

Being a non-judicial state has benefits for the homeowner. Because of this status, first liens made to homeowners in the state are considered non-recourse. A non-recourse loan means lenders can’t seek financial reimbursement for losses on properties that go into default and subsequent foreclosure through any other means than by taking possession of the property itself. In other words, after the bank forecloses on a piece of property, they can’t then come after the homeowner for a “deficiency judgment” to make up any loss they may incur. (This is a general statement. There are potential exclusions to these protections that come into play depending on the type of loan under consideration. As well, second liens generally aren’t offered this protection, again, with some exceptions for Californians which I’ll discuss later).

With this said, the process the lender goes through to transfer title from the borrower to them is called a Trustee’s Sale. The topic of how trust deeds work in real estate in

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California is beyond the scope of this document. Suffice it to say there is a neutral third party, the Trustee that facilitates the foreclosure process once the lender has recorded the NOD and given the homeowner 90 days to cure the default.

Once the NTS has been recorded on the property, a 21 day clock starts. During these 21 days, the Trustee must advertise the pending Trustee Sale in the newspaper for three weeks. This legal notice essentially tells the public the details of the default and the date, time and where the property will be offered to the public to purchase.

On the published date, time and location, (usually on the steps of Superior Court in Martinez, but not always), the property is offered for sale to the highest bidder present. If the property does not sell it reverts to the bank and becomes what’s referred to as Real Estate Owned, (REO).

How this affects the homeowner varies depending on the disposition of the property at auction. If an investor purchases the property, the likelihood that a sheriff will be knocking on the door within a few days is pretty high. Investors don’t want a potentially disgruntled homeowner staying in the house and potentially damaging it.

On the other hand, if the bank takes the property back as REO, they can decide when and how to proceed with the removal of the homeowner. It doesn’t necessarily occur that same day. That said, the homeowner should be prepared to be out of the property shortly after the auction date UNLESS they were able to win a postponement.

What is a Postponement? What I have described up to now is the text book example of the how the foreclosure process works in our State. There are, in fact, many exclusions to this process. Through the years I have seen many properties’ auction dates come and go with the homeowner remaining in the property for many months afterward. In general I believe there are three main explanations for this.

1. Bankruptcy: Filing bankruptcy stops the foreclosure process in its tracks. Once this filing has been accepted by the courts, all assets of the filer come under the jurisdiction of the bankruptcy trustee. That person controls the disposition of all the homeowner’s assets to satisfy their creditors as best as possible. Bankruptcy is a complicated process and has certain benefits as well as downfalls. Anyone contemplating this course of action obviously should take the time to interview bankruptcy attorney’s to see of this option is really for them.

2. Reconsideration of a loan modification: Along the way to foreclosure, often times the lender will come back to the borrower with the option to modify their loan, even if they were turned down earlier. I have seen time and again where a borrower has received a NTS taped to their front door, only to have a Fedex package arrive the same day offering to do a loan modification. This speaks to

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how organized some lenders are. Many times the right hand doesn’t know what the left is doing.

3. Lawsuit: Many homeowners enlist the services of a real estate lawyer and sue their lenders. The grounds of these suits can vary, but every suit has to have its day in court and through that process the homeowner remains in their house.

In the end, unless the default is cured and the mortgage re-instated, the final day of reckoning will arrive. For the homeowner, living under that shadow is unnerving and gives cause to a great deal of stress to say the least.

Let’s now turn our attention to the first thing that most homeowners think of once they head into default – Loan Modification.

Loan Modification Facts The federal government began the Making Homes Affordable program in 2008 in response to the overwhelming number of homeowner’s facing default in the country. Home values had plummeted well below the loan balances and Americans were facing foreclosures at an incredible rate. The Obama administration came up with a plan for homeowners to get relief from the constraints of their mortgages by offering incentives to loan servicers to re-structure the loan allowing the homeowner to stay in their home with a payment they could afford.

To qualify for a loan modification the homeowner had to meet the following requirements:

1. Be the owner-occupant of a one- to four-unit home. 2. Have an unpaid principal balance that is equal to or less than:

a. 1 Unit: $729,750 b. 2 Units: $934,200 c. 3 Units: $1,129,250 d. 4 Units: $1,403,400

3. Have a first lien mortgage that was originated on or before January 1, 2009. 4. Have a monthly mortgage payment (including taxes, insurance and homeowners

association dues) greater than 31% of your monthly gross (pre-tax) income. 5. Have a mortgage payment that is not affordable due to a financial hardship that

can be documented. 6. Borrower is in default or will be in the imminent future

If a homeowner could answer “yes” to all of these questions then they could take the first step toward a loan modification.

To make their case the homeowner is asked to provide, at a minimum, the following information:

1. Two years of signed IRS 1040 forms.

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2. Two months of your most recent bank accounts 3. One month of most recent paystubs 4. Certificate of occupancy 5. Financial statement outlining all your assets, liabilities, monthly income and

expenses. 6. Hardship letter – explain why you haven’t been able to make your payment:

a. Loss of job b. Illness c. Loss of a wage earner’s job d. Decrease in business (if self-employed) e. Increase in monthly expenses, (i.e., rate adjustment on an adjustable loan)

7. Provide signed form 4506T for each borrower (lender’s right to request income tax filings)

(The fact that a home is worth less than the loan will not, by itself, qualify for a hardship and thus a loan modification or a short sale).

Once the bank has this information they will determine, based on their internal criteria whether borrower will be accepted for a “trial modification”. The bank makes several adjustments to the current loan in the following order to determine the suitability and desirability for a loan modification. Their intent is to see how much of a modification it will take in order for the payment to fall within 31% of stated income. (If the borrower isn’t currently earning an income, chances of a loan modification are very small).

Step 1: Reduce the interest rate on the loan to a maximum of 2%

Step 2: Increase the term of the loan up to a maximum of 40 years

Step 3: Reduce the principal amount of the loan (forbearance, this reduced amount gets added onto the loan balance at the end of the loan).

Step 4: Principal balance reduction

The statistics on the rate of successful loan modifications throughout the US aren’t good. The reason for this is that after each step outlined above, the resulting loan becomes increasingly unattractive to the bank and the bank’s investors. Banks are using a little know calculation on loan modification requests to determine the feasibility of modifying any particular loan. This calculation known as the Net Present Value, (NPV), greatly influences their decision on whether a loan modification makes sense to them. In most cases, the NPV value is negative, indicating the resulting loan would have a souring effect on their loan portfolio. Hence banks reject these applications repeatedly.

As it turns out, only those that are most qualified from an income perspective, and whose property has suffered the least in terms of market valuation can expect to receive a trial loan modification from their lender. The government is trying to fix this situation

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but so far has been unsuccessful getting the lenders to improve their modification performance.

What You Can Expect When Seeking a Loan Modification Going through the loan modification process is a daunting task. It requires perseverance, tenaciousness, and orientation to detail. As mentioned above, the lender is going to request a lot of financial information from the borrower. In most cases they will ask for this data repeatedly, claiming they didn’t receive the past submission; it was lost, it’s not in the file, a different person is now working the case and they need to start over…. You get the idea. It’s a maddening and frustrating process – I know, I do this every day for my clients. But for having gone through this many times I have several tips that will increase the odds of success in terms of getting the bank to make a quick decision on the file.

1. Document EVERYTHING. Keep a detailed log of dates and times of conversations. Log the name of the person you spoke to and confirm any commitment they make to you in your notes.

2. Purchase a web based FAX service. This will be invaluable as they GUARANTEE fax delivery and will log when the fax was successfully delivered. No more of the bank saying they didn’t get the fax! Faxing from your all-in-one printer won’t cut it.

3. Be mindful of deadlines. In a default situation the clock is ticking. The bank will try to use up time asking for documentation over and over. Be pro-active, get them the information they request by fax (see above), quickly.

4. Escalate. If you feel you’re getting the run-around, you probably are. Ask to speak to the negotiator assigned to your file. Don’t take no for an answer.

5. Be cordial! These front line bank employees are low paid hourly workers. Their job is to insure all the paper work for the file has been collected and accurate. They live their day on the phone, day-after-day. It’s not a fun job. Getting angry at them, while sometimes justified, will not help your cause.

The Impact of a Second Loan and Other Liens All of our discussion so far has concerned itself with attempting to modify a single loan – the first lien on the property. The fact is that it is very unusual for a homeowner in default to have just one loan. In the early 2000’s banks were making it very easy for homeowners to take out second liens and Home Equity Lines of Credit, (HELOC) at very attractive rates. In all the cases I’ve worked on with homeowners I haven’t seen a single instance where the homeowner is in default on the first loan, and not the second. In fact, it’s always the opposite. The homeowner has defaulted on both loans, which makes the job of getting a loan modification very difficult.

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In addition to this, the usual state of affairs also includes delinquent HOA payments and property tax payments. Typically when the homeowner defaults on these payments, the HOA and county tax officer will place a lien on the property requiring the lien to be paid prior to allowing any sale or refinance of the property to take place. Often times the HOA will refer the homeowner’s account to collections in an attempt to recover the past due amount.

Also, it’s not unusual to find, through a preliminary title report, that the state Franchise Tax Board or IRS has also placed a lien on the property for unpaid personal income taxes. It is possible to get a lien release from the FTB but the process can take over a month and requires as much, or more documentation than the first lien holder requires when filing a loan modification or short sale request.

In these situations it becomes near impossible to get a loan modification. That said, a short sale can still occur but getting all the parties to agree on what they will accept as pay off through the short sale transaction can be difficult. More often than not, if a property is encumbered with this level of liens, the property owner usually lets the property go into foreclosure. The effect of the primary lien holder, (the first), foreclosing on the property wipes any junior liens on the property, allowing the 1st lien holder to re-sell the property on the open market, free and clear of any other encumbrances as an REO property.

So what becomes of the junior liens that were recorded on the property? It’s not unusual for those lien holders to resort to standard collection techniques to recover their money. That can include collection agencies, garnishment of wages, etc. The borrower is still very much on the hook to repay those obligations unless the debt was expressly waived by the lien holder.

Therein lays the chief benefit of selling your home for less than what you owe through a short sale. In a short sale, all lien holders agree to accept less than they are owed and promise not to attempt to collect the unpaid balance through a deficiency judgment. In fact, under recently enacted California law, debt holders are expressly forbidden to pursue addition collection efforts once they have accepted the conditions of a short sale. This is a huge advantage of the short sale process.

The Foreclosure Process: Events & Strategies to Save Your Home Once a homeowner misses the first mortgage payment, over the ensuing months key “events” will be triggered based on the passage of time. At each milestone, you have several options to consider which may delay the foreclosure. I outline these events and strategies below.

Event 1: Missed Mortgage Payments Generally your lender will hold off recording a Notice of Default through three months of missed mortgage payments. During this time they will be encouraging you to contact

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them to work out a loan modification. You should follow their instructions by providing all the information they are request. (Important: keep good notes of all communications including the date, what was said, and the names of the people you speak with).

It’s through this process that they determine if you are eligible for a loan modification. The criteria they use is complex, but it’s safe to say that if you have lost your job and have no means of making a mortgage payment going forward, the odds aren’t good. If the opposite is true, then you might have a chance of being granted a trial modification.

Strategy:

1. If you can’t make up the back payments by liquidating other assets, do as the bank requests; provide all the documents they ask for. Remember, document everything.

2. Contact an attorney to see if you might be a victim of ROBO signing. They may be able to force the bank to prove they in fact have the legal instruments necessary to allow them to file the Notice. This will buy you time as the bank has to provide evidence to show they can legally do what they’re doing.

Event 2: 120 Days without a Mortgage Payment At this point the bank will record a Notice of Default on your property. This starts the three month cycle that can lead to the property being foreclosed. Now you’re in a race with the clock. While the bank drags their feet evaluating your loan modification request, they are proceeding with the foreclosure. I’ve seen it all too often; the homeowner is expecting good news about their loan mod only to come home and find a Notice of Trustee Sale taped to their front door.

Strategy:

1. Check out http://www.keepyourhomecalifornia.org to see if you qualify for one of their four home retention programs.

2. Meet with a bankruptcy attorney to see if you qualify for chapter 7 or 13 bankruptcy. If you do, this will stop the foreclosure temporarily while the court hears your case. (Depending on how the judge rules, once your case has been discharged, the foreclosure will continue – but you will no longer be responsible for the debt).

3. If avoiding foreclosure is important, (and it should be), consider a short sale – selling your property for less than you owe and walking away. Not all will qualify so go to my website and take the quiz – you’ll know right away.

Event 3: Notice of Trustee Sale As I mentioned, at the end of the 90 day default period the Notice of Trustee Sale is usually served by being taped to the front door of your home. This marks the beginning

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of a three week period where the bank is obligated to place a legal notice in the newspaper once a week advertising the fact that your house is heading for foreclosure.

Once this time period has passed the bank will offer the property for sale through public auction or take title back themselves. Once this transfer it complete, they will contact the sheriff’s department to arrange for the removal of anyone living in the property.

Strategy:

1. By now you’ve been living in the house for at least 7months without making a payment. Executing a short sale at this point could extend this time period by up to three months or more.

2. Abandon the house and allow it to go into foreclosure.

The House Is Sold Back to the Bank – What Now?

At this point in the process the property has been offered for sale at auction on the court house steps. No bidder has emerged willing to pay what the bank is asking for the property, what now?

The bank will now record ownership of the property into their name and assign the property to one of their REO sales agents. These are real estate agents who work almost exclusively with the bank to ready the property for sale and then market the property to potential buyers.

The REO Agent’s job is to remove anyone who may still be living in the property. If that happens to still be the homeowner, they may offer cash-for-keys as an incentive to get them to move, they may arrange for the Sheriff and a locksmith to visit the property to evict the homeowner from the premises. No matter how it’s done, the house will at some point be vacant upon which time any necessary improvements will be carried out so the property can be sold on the open market.

Generally, these improvements are done by the real estate agent out of their own pocket. In many cases the cost of these repairs will be reimbursed by the bank but the up-front cost to the agent can be expensive.

Summary

In the end, there are just four outcomes that can arise from the foreclosure process:

1. The homeowner brings the loan current and the bank stops the foreclosure. 2. A loan modification is granted and the homeowner remains in the house. 3. The property is sold as a short sale and the homeowner walks away debt free. 4. The property is foreclosed; the homeowner is saddled with a foreclosure which

will have a lingering effect for up to 12 years and can impact employment opportunities and credit scores as well as potentially being liable for any other liens that exist on the property

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The Effect of a Foreclosure vs. Short Sale on Your Credit The following article was written by the FICO Bank Analytics Blog. It shows the effects of several different scenarios when a homeowner goes into default which could result in a short sale / a deed in-lieu or gets foreclosed. It offers “general” insight into what the impact on the credit score each of these events may have. It’s useful to keep in mind that every person’s situation is different and therefore it’s difficult to generalize about these numbers. That said it is a good indicator of what one might expect.

Research looks at how mortgage delinquencies affect scores How much impact does the short sale have on FICO® Scores? How about foreclosure? Since I frequently hear these questions from clients and others, I thought I’d share new FICO research that sheds light on this very subject. The FICO study simulated various types of mortgage delinquencies on three representative credit bureau profiles of consumers scoring 680, 720 and 780 respectively. I say “representative profiles” because we focused on consumers whose credit characteristics (e.g., utilization, delinquency history, age of file) were typical of the three score points considered. All consumers have an active currently-paid-as-agreed mortgage on file. The results are shown below. The first chart shows the impact on the score for each stage of delinquency, and the second show how long it takes the score to fully, “recover” after the fact. Impact to FICO Score Consumer A Consumer B Consumer C Starting FICO Score ~680 ~720 ~780 FICO Score after these events:

30 days late on mortgage 600-620 630-650 670-690 90 days late on mortgage 600-620 610-630 650-670

Short Sale/ Deed-in-lieu (no deficiency balance)

610-630 605-625 655-675

Short Sale/ Deed-in-lieu (with deficiency balance)

575-595 570-590 620-640

Foreclosure 575-595 570-590 620-640 Bankruptcy 530-550 525-545 540-560 Source: FICO banking analytics blog. Fair Isaac Corporation 2011 Estimated Time for FICO Score to Fully Recover Consumer A Consumer B Consumer C Starting FICO Score ~680 ~720 ~780 Time for FICO Score recover after these events

30 days late on mortgage ~9 month ~2.5 years ~3 years 90 days late on mortgage ~9 months ~3 years ~7 years

Short Sale/ Deed-in-lieu (no deficiency balance)

~3 years ~7 years ~7 years

Short Sale/ Deed-in-lieu (with deficiency ~2 years ~2-3 years ~5 years

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balance) Foreclosure ~3 years ~ 7 years ~7 years Bankruptcy ~5 years ~7 – 10 years ~7 – 10-years Source: FICO banking analytics blog. Fair Isaac Corporation 2011 All in all, we saw:

1. The magnitude of the FICO score impact is highly dependent on the starting score. 2. There’s no significant difference in the score impact between the short sale/ deed-in-lieu/

settlement and foreclosure. 3. While a score may begin to improve sooner, it could take up to 7-10 years to fully recover,

assuming all other obligations are paid as agreed. 4. In general the higher the starting score, the longer it takes for that score to fully recover. 5. Even if there’s a minimal difference in the score impact between moderate and severe

delinquencies, there may be significant difference in time required for the score to fully recover.

The study provides good benchmarks of score impact from the mortgage delinquencies. However, it is important to note that research was done only on select consumer credit profiles. Given the wide range of credit profiles that exist, results may vary beyond what’s in the charts above. If you have questions about this research, I encourage you to post them here on the blog. Posted by Joanne Gaskin on 03/24/2011 at 9:56am in Collections, Consumer issues, Credit risk, Credit trends, Economic Trends, Mortgage, Risk Management | permalink

Summary The purpose of this resource kit is to provide the homeowner information about what to expect once a loan(s) have gone into default. The reader might also have gotten insight into the likelihood of being accepted for a loan modification when comparing their unique situation with the criteria presented here.

The sad fact, which was pointed out in a recent USA Today cover story, (“What went wrong with mortgage aid?” December 12, 2011), is that only 883,076 homeowners have been granted a loan modification out of over 4 million applications since the HAMP program started. That said, it’s the first line of defense in trying to save a person’s most important asset – their house.

It’s also true that in order to be considered for Home Affordable Foreclosure Alternative, (HAFA) money, (up to $3,000), one must first be denied a home loan modification from the HAMP program.

The bottom line is this; going into default is a very stressful situation. If a homeowner is denied a loan modification, the hopes of saving one’s home long term dim significantly. The three main courses of action at that point are short sale or deed in lieu (which is treated like a foreclosure), or foreclosure. Of these three, short sale is most likely the best alternative in terms of gaining protection from deficiency judgments and future tax liabilities.

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Resources Important internet links:

Making Home Affordable: http://www.makinghomesaffordable.gov

Keep Your Home California http://www.keepyourhomecalifornia.org

Housing and Urban Development http://portal.hud.gov

HUD approved housing counselor - (800)-569-4287 Homeowner HOPE hotline - (888)-995-HOPE

Articles IRS

The Mortgage Debt Relief Act of 2007 is designed to help homeowners who find themselves either short selling their property for less than what they owe, or who have been granted a loan modification which forgives the outstanding loan balance that would otherwise be considered taxable income. Below is the substance of that act.

The Mortgage Forgiveness Debt Relief Act and Debt Cancellation If you owe a debt to someone else and they cancel or forgive that debt, the canceled amount may be taxable. The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief. This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition. More information, including detailed examples can be found in Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments. Also see IRS news release IR-2008-17. The following are the most commonly asked questions and answers about The Mortgage Forgiveness Debt Relief Act and debt cancellation: What is Cancellation of Debt? If you borrow money from a commercial lender and the lender later cancels or forgives the debt, you may have to include the cancelled amount in income for tax purposes, depending on the circumstances. When you borrowed the money you were not required to include the loan proceeds in income because you had an obligation to repay the lender. When that obligation is subsequently forgiven, the amount you received as loan proceeds is normally reportable as

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income because you no longer have an obligation to repay the lender. The lender is usually required to report the amount of the canceled debt to you and the IRS on a Form 1099-C, Cancellation of Debt. Here’s a very simplified example. You borrow $10,000 and default on the loan after paying back $2,000. If the lender is unable to collect the remaining debt from you, there is a cancellation of debt of $8,000, which generally is taxable income to you. Is Cancellation of Debt income always taxable? Not always. There are some exceptions. The most common situations when cancellation of debt income is not taxable involve:

Qualified principal residence indebtedness: This is the exception created by the Mortgage Debt Relief Act of 2007 and applies to most homeowners.

Bankruptcy: Debts discharged through bankruptcy are not considered taxable income. Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled

debt may not be taxable to you. You are insolvent when your total debts are more than the fair market value of your total assets.

Certain farm debts: If you incurred the debt directly in operation of a farm, more than half your income from the prior three years was from farming, and the loan was owed to a person or agency regularly engaged in lending, your cancelled debt is generally not considered taxable income.

Non-recourse loans: A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral. That is, the lender cannot pursue you personally in case of default. Forgiveness of a non-recourse loan resulting from a foreclosure does not result in cancellation of debt income. However, it may result in other tax consequences.

These exceptions are discussed in detail in Publication 4681. What is the Mortgage Forgiveness Debt Relief Act of 2007? The Mortgage Forgiveness Debt Relief Act of 2007 was enacted on December 20, 2007 (see News Release IR-2008-17). Generally, the Act allows exclusion of income realized as a result of modification of the terms of the mortgage, or foreclosure on your principal residence. What does exclusion of income mean? Normally, debt that is forgiven or cancelled by a lender must be included as income on your tax return and is taxable. But the Mortgage Forgiveness Debt Relief Act allows you to exclude certain cancelled debt on your principal residence from income. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief. Does the Mortgage Forgiveness Debt Relief Act apply to all forgiven or cancelled debts? No. The Act applies only to forgiven or cancelled debt used to buy, build or substantially improve your principal residence, or to refinance debt incurred for those purposes. In addition, the debt must be secured by the home. This is known as qualified principal residence

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indebtedness. The maximum amount you can treat as qualified principal residence indebtedness is $2 million or $1 million if married filing separately. Does the Mortgage Forgiveness Debt Relief Act apply to debt incurred to refinance a home? Debt used to refinance your home qualifies for this exclusion, but only to the extent that the principal balance of the old mortgage, immediately before the refinancing, would have qualified. For more information, including an example, see Publication 4681. How long is this special relief in effect? It applies to qualified principal residence indebtedness forgiven in calendar years 2007 through 2012. Is there a limit on the amount of forgiven qualified principal residence indebtedness that can be excluded from income? The maximum amount you can treat as qualified principal residence indebtedness is $2 million ($1 million if married filing separately for the tax year), at the time the loan was forgiven. If the balance was greater, see the instructions to Form 982 and the detailed example in Publication 4681. If the forgiven debt is excluded from income, do I have to report it on my tax return? Yes. The amount of debt forgiven must be reported on Form 982 and this form must be attached to your tax return. Do I have to complete the entire Form 982? No. Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Adjustment), is used for other purposes in addition to reporting the exclusion of forgiveness of qualified principal residence indebtedness. If you are using the form only to report the exclusion of forgiveness of qualified principal residence indebtedness as the result of foreclosure on your principal residence, you only need to complete lines 1e and 2. If you kept ownership of your home and modification of the terms of your mortgage resulted in the forgiveness of qualified principal residence indebtedness, complete lines 1e, 2, and 10b. Attach the Form 982 to your tax return. Where can I get this form? If you use a computer to fill out your return, check your tax-preparation software. You can also download the form at IRS.gov, or call 1-800-829-3676. If you call to order, please allow 7-10 days for delivery. How do I know or find out how much debt was forgiven? Your lender should send a Form 1099-C, Cancellation of Debt, by February 2, 2009. The amount of debt forgiven or cancelled will be shown in box 2. If this debt is all qualified principal residence indebtedness, the amount shown in box 2 will generally be the amount that you enter on lines 2 and 10b, if applicable, on Form 982. Can I exclude debt forgiven on my second home, credit card or car loans?

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Not under this provision. Only cancelled debt used to buy, build or improve your principal residence or refinance debt incurred for those purposes qualifies for this exclusion. See Publication 4681 for further details. If part of the forgiven debt doesn't qualify for exclusion from income under this provision, is it possible that it may qualify for exclusion under a different provision? Yes. The forgiven debt may qualify under the insolvency exclusion. Normally, you are not required to include forgiven debts in income to the extent that you are insolvent. You are insolvent when your total liabilities exceed your total assets. The forgiven debt may also qualify for exclusion if the debt was discharged in a Title 11 bankruptcy proceeding or if the debt is qualified farm indebtedness or qualified real property business indebtedness. If you believe you qualify for any of these exceptions, see the instructions for Form 982. Publication 4681 discusses each of these exceptions and includes examples. I lost money on the foreclosure of my home. Can I claim a loss on my tax return? No. Losses from the sale or foreclosure of personal property are not deductible. If I sold my home at a loss and the remaining loan is forgiven, does this constitute a cancellation of debt? Yes. To the extent that a loan from a lender is not fully satisfied and a lender cancels the unsatisfied debt, you have cancellation of indebtedness income. If the amount forgiven or canceled is $600 or more, the lender must generally issue Form 1099-C, Cancellation of Debt, showing the amount of debt canceled. However, you may be able to exclude part or all of this income if the debt was qualified principal residence indebtedness, you were insolvent immediately before the discharge, or if the debt was canceled in a title 11 bankruptcy case. An exclusion is also available for the cancellation of certain nonbusiness debts of a qualified individual as a result of a disaster in a Midwestern disaster area. See Form 982 for details. If the remaining balance owed on my mortgage loan that I was personally liable for was canceled after my foreclosure, may I still exclude the canceled debt from income under the qualified principal residence exclusion, even though I no longer own my residence? Yes, as long as the canceled debt was qualified principal residence indebtedness. See Example 2 on page 13 of Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments. Will I receive notification of cancellation of debt from my lender? Yes. Lenders are required to send Form 1099-C, Cancellation of Debt, when they cancel any debt of $600 or more. The amount cancelled will be in box 2 of the form. What if I disagree with the amount in box 2? Contact your lender to work out any discrepancies and have the lender issue a corrected Form 1099-C. How do I report the forgiveness of debt that is excluded from gross income? (1) Check the appropriate box under line 1 on Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) to indicate the type of discharge of indebtedness and enter the amount of the discharged debt excluded from gross income on line

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2. Any remaining canceled debt must be included as income on your tax return. (2) File Form 982 with your tax return. My student loan was cancelled; will this result in taxable income? In some cases, yes. Your student loan cancellation will not result in taxable income if you agreed to a loan provision requiring you to work in a certain profession for a specified period of time, and you fulfilled this obligation. Are there other conditions I should know about to exclude the cancellation of student debt? Yes, your student loan must have been made by:

(a) the federal government, or a state or local government or subdivision; (b) a tax-exempt public benefit corporation which has control of a state, county or municipal hospital where the employees are considered public employees; or (c) a school which has a program to encourage students to work in underserved occupations or areas, and has an agreement with one of the above to fund the program, under the direction of a governmental unit or a charitable or educational organization.

Can I exclude cancellation of credit card debt? In some cases, yes. Nonbusiness credit card debt cancellation can be excluded from income if the cancellation occurred in a title 11 bankruptcy case, or to the extent you were insolvent just before the cancellation. See the examples in Publication 4681. How do I know if I was insolvent? You are insolvent when your total debts exceed the total fair market value of all of your assets. Assets include everything you own, e.g., your car, house, condominium, furniture, life insurance policies, stocks, other investments, or your pension and other retirement accounts. How should I report the information and items needed to prove insolvency? Use Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) to exclude canceled debt from income to the extent you were insolvent immediately before the cancellation. You were insolvent to the extent that your liabilities exceeded the fair market value of your assets immediately before the cancellation. To claim this exclusion, you must attach Form 982 to your federal income tax return. Check box 1b on Form 982, and, on line 2, include the smaller of the amount of the debt canceled or the amount by which you were insolvent immediately prior to the cancellation. You must also reduce your tax attributes in Part II of Form 982. My car was repossessed and I received a 1099-C; can I exclude this amount on my tax return? Only if the cancellation happened in a title 11 bankruptcy case, or to the extent you were insolvent just before the cancellation. See Publication 4681 for examples. Are there any publications I can read for more information?

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Yes. (1) Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals) is new and addresses in a single document the tax consequences of cancellation of debt issues. (2) See the IRS news release IR-2008-17 with additional questions and answers on IRS.gov.

California Senate Bill 458 Mid last year the California state Senate passed a bill that was aimed at helping homeowners who were in default on a second lien associated with their property. As the bill was written, it offered protection from a deficiency judgment from the second lien hold if the homeowner pursued a short sale of their property. The bill didn’t address, and it hasn’t been made clear yet, what position the homeowner will be in if they choose to allow the bank to foreclose on the property rather than execute a short sale.

Below is a translation of this bill with a link to the full text of the bill included.

California Senate Bill 458 CA SB 458

Posted on July 18, 2011

July 18, 2011: A new California law will further protect homeowners pursuing short sales by barring first and second lien holders from going after sellers for money owed after the short sales close.

Gov. Jerry Brown signed Senate Bill 458, authored by Senate Majority Leader Ellen Corbett (D-San Leandro,) into law on Friday. Full Text of the Bill here.

A short sale is a transaction in which the homeowner owes more on the loan than the property is worth. To sell the home, the lien holder or lien holders must approve the sale because the amount owed to the lien holder will be “short” of what is currently owed by the borrower.

The new law builds on the protections offered by a previous law, SB 931, which required the first lien holder in a short sale to accept an agreed-upon payment as the full payment for the outstanding loan balance. The previous law did not address junior lien holders. The new law, which became effective immediately, now prohibits secondary lien holders from pursuing deficiencies after a short sale closes.

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The signing of this bill is a victory for California homeowners who have been forced to short sell their home only to find that the lender will pursue them after the short sale closes, and demand an additional payment to subsidize the difference,” said California Association of Realtors President Beth L. Peerce. “SB 458 brings closure and certainty to the short sale process and ensures that once a lender has agreed to accept a short sale payment on a property, all lienholders – those in first position and in junior positions – will consider the outstanding balance as paid in full and the homeowner will not be held responsible for any additional payments on the property.”

UPDATE New Changes in California Law Benefits Distressed Homeowners California Homeowner Bill of Rights Becomes Law All eyes in the nation now turn to California as Governor Jerry Brown signed into law today the Homeowner Bill of Rights to help struggling Californians keep their homes. This law aims to avoid foreclosure where possible to help stabilize California's housing market and prevent the other negative effects of foreclosures on families, communities, and the economy. The new law will generally prohibit lenders from engaging in dual tracking, require a single point of contact for borrowers seeking foreclosure prevention alternatives, provide borrowers with certain safeguards during the foreclosure process, and provide borrowers with the right to sue lenders for material violations of this law.

The full text of this law, also known as Assembly Bill 278 and Senate Bill 900, is available at www.leginfo.ca.gov.

Applicability of the Law: This law will generally come into effect on January 1, 2013. It only pertains to first trust deeds secured by owner-occupied properties with one-to-four residential units, unless otherwise indicated below. "Owner-occupied" means the property is the principal residence of the borrower and secured by a loan made for personal, family, or household purposes (CC 2924.15). A "borrower" under this law must generally be a natural person and potentially eligible for a foreclosure prevention alternative program offered by the mortgage servicer, but not someone who has filed bankruptcy, surrendered the secured property, or contracted with an organization primarily engaged in the business of advising people how to extend the foreclosure process and avoid their contractual obligations (CC 2920.5(c)). A "foreclosure prevention alternative" is defined as a first lien loan modification or another available loss mitigation option, including short sales (CC 2920.5(b)). Some of the requirements of this law do not apply to "smaller banks" that, during the preceding annual reporting period, foreclosed on 175 or fewer properties with one-to-four residential units (CC 2924.18(b)). No Dual Tracking During Short Sale: A mortgage servicer or lender cannot record a notice of default or notice of sale, or conduct a trustee's sale, if a foreclosure prevention alternative has been approved in writing by all parties (e.g., first lien investor, junior lienholder, and mortgage insurer as applicable), and proof of funds or financing has been provided to the servicer. This requirement expires on January 1, 2018. Effective January 1, 2018, a lender or mortgage servicer cannot record a notice of sale or conduct a trustee's sale if the borrower's complete application for a foreclosure prevention alternative is pending, and until the borrower has been given a written determination by the mortgage servicer. Smaller banks are only covered by the requirements taking effect in 2018. CC 2924.11.

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Cancelling a Pending Trustee's Sale: A mortgage servicer must rescind or cancel any pending trustee's sale if a short sale has been approved by all parties (e.g., first lien investor, junior lienholder, and mortgage insurer as applicable), and proof of funds or financing has been provided to the lender or authorized agent. For other types of foreclosure prevention alternatives, a lender must record a rescission of a notice of default or cancel a pending trustee's sale if a borrower executes a permanent foreclosure prevention alternative. These requirements do not apply to smaller banks, and will sunset on January 1, 2018. CC 2924.11. Providing a Single Point of Contact: For a borrower requesting a foreclosure prevention alternative, the mortgage servicer must, upon the borrower's request, promptly establish and provide a direct means of communication with a single point of contact. The single point of contact must remain assigned to the borrower's account until all loss mitigation options offered by the mortgage servicer are exhausted or the borrower's account becomes current. The single point of contact must be an individual or team responsible for, among other things, coordinating the application for the foreclosure prevention alternative, giving timely and accurate status reports, having access to those with the ability and authority to stop foreclosure proceedings, and referring the borrower to a supervisor if any upon the borrower's request. Each team member must be knowledgeable about a borrower's situation and current status in the foreclosure alternatives process. These requirements do not apply to smaller banks as defined. CC 2923.7. No Dual Tracking During Loan Modification: A mortgage servicer generally cannot record a notice of default, notice of sale, or conduct a trustee's sale for a nonjudicial foreclosure if the borrower’s complete application for a first lien loan modification is pending as specified, or if a borrower is in compliance with the terms of a written trial or permanent loan modification, forbearance, or repayment plan. The borrower will have 30 days to appeal the denial of a loan modification, and the mortgage service cannot proceed with the above foreclosure steps until 31 days after giving the borrower a written denial of a loan modification, or longer if the borrower appeals the denial. To prevent abuse of this provision, however, a mortgage servicer is not obligated to evaluate a first lien loan modification application from a borrower who has previously been evaluated before 2013, or given a fair opportunity to be evaluated, unless the borrower submits a documented material change in the borrower's financial circumstances. These specific requirements expire on January 1, 2018 at which time, as stated above, a lender or mortgage servicer will be prohibited from recording a notice of sale or conducting a trustee’s sale if the borrower’s complete application for a foreclosure prevention alternative is pending, and until the borrower has been given a written determination by the mortgage servicer. Smaller banks are only covered under the requirements commencing in 2018. CC 2923.6 and 2924.11. No Late Fees or Application Fees: A mortgage servicer cannot collect any late fees while a complete first lien loan modification application is under consideration, a denial is being appealed, the borrower is making timely modification payments, or a foreclosure prevention alternative is being evaluated or exercised. A mortgage servicer is also prohibited from charging for any application, processing, or other fee for a first lien loan modification or other foreclosure prevention alternative. These requirements do not apply to smaller banks as defined. These requirements will sunset on January 1, 2018. CC 2924.11. Additional Loan Modification Safeguards: Until January 1, 2018, a mortgage servicer must

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provide written acknowledgment of receipt within five business days of a borrower's submission of a complete first lien modification application or any document in connection with a first lien modification application. The acknowledgement of receipt must provide a description of the loan modification process, including an estimated timeframe for the mortgage servicer to decide, other timeframes, and any deficiencies in the borrower's application. CC 2924.10. Furthermore, effective January 1, 2013 with no expiration date, if a first lien loan modification is denied, a mortgage service must send a written notice to the borrower with the reasons for denial and additional information as specified. On January 1, 2018, the required content of the denial letter will change to comport with other changes that will take effect. Smaller banks need not comply with these requirements until January 1, 2018. CC 2923.6 and 2924.11. Binding if Loan is Transferred: Any written approval for a foreclosure prevention alternative shall be honored by a subsequent mortgage servicer in the event the borrower's loan is transferred or sold. This requirement does not apply to smaller banks. This requirement will expire on January 1, 2018. CC 2924.11. Lender Required to Review Foreclosure Documents: No entity can record a notice of default or otherwise initiate the foreclosure process, except for the holder of the beneficial interest under the deed of trust, an authorized designated agent of the holder of the beneficial interest, or the original or substituted trustee under the deed of trust. Furthermore, a mortgage servicer must ensure that certain foreclosure documents are accurate and complete, and supported by competent and reliable evidence. Those foreclosure documents are the initial contact declaration, notice of default, notice of sale, assignment of deed of trust, substitution of trustee, and declarations and affidavits filed in a judicial foreclosure proceeding. A mortgage servicer must, before recording or filing these documents, review competent and reliable evidence substantiating a borrower’s default and the right to foreclose. The above provisions have no expiration date. However, until January 1, 2018, any mortgage servicer who engages in multiple and repeated uncorrected violations of its obligation to review foreclosure documents shall be liable for a civil penalty up to $7,500 per deed of trust in an action brought by the Attorney General, district attorney, or city attorney, or in an administrative proceeding brought by the DRE, DOC, or DFI against a respective licensee (see below for a borrower's legal remedies). These provisions apply to all trust deeds, regardless of occupancy or number of units. CC 2924(a)(6) and 2924.17. Extending Initial Contact Requirement: Existing law requiring a lender to contact a borrower 30 days before initiating foreclosure has been modified as well as extended with no expiration date. Originally set to expire on January 1, 2013, this provision generally prohibits a mortgage servicer or lender from recording a notice of default until 30 days after the lender or mortgage servicer contacts the borrower in person or by telephone to assess the borrower's financial situation and explore options for avoiding foreclosure. During the initial contact, the mortgage servicer must advise the borrower of the right to request a subsequent meeting within 14 days, and provide a toll-free number to find a HUD-certified housing counseling agency. Any meeting may occur telephonically. Instead of directly contacting the borrower, a mortgage servicer can satisfy due diligence requirements in the manner specified. A notice of default must include a declaration that the mortgage servicer has complied with or is exempt from this initial contact requirement. An existing requirement for a declaration in the notice of sale will be eliminated. Until January 1, 2013, this law generally applies to loans made from 2003 to 2007

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secured by owner-occupied residential properties with one-to-four units, whereas starting January 1, 2013, this law will generally apply to first trust deeds secured by owner-occupied residential properties with one-to-four units. CC 2923.5 and 2923.55. Notifying Borrower Before NOD: A mortgage servicer cannot record a notice of default for a nonjudicial foreclosure until the mortgage servicer informs the borrower of the borrower’s right to: (1) request copies of the promissory note, deed of trust, payment history, and assignment of loan if any to demonstrate the mortgage servicer's right to foreclose; and (2) certain protections under the Servicemembers Civil Relief Act if the borrower is a service member or dependent. This requirement does not pertain to smaller banks as defined. This requirement expires on January 1, 2018. CC 2923.55. Notifying Borrower After NOD: Within 5 business days after recording a notice of default, a mortgage servicer must generally send a written notice to the borrower on how to apply for the mortgage servicer’s foreclosure prevention alternatives if any. This notice is not required if the borrower has previously exhausted the first lien loan modification process offered by the mortgage servicer as specified. This requirement does not apply to smaller banks as defined. This requirement shall sunset on January 1, 2018. CC 2924.9. Postponing a Trustee's Sale: Whenever a trustee’s sale is postponed for at least 10 business days, the lender or authorized agent must provide written notice of the new sale date and time to the borrower within five business days after the postponement. However, any failure to comply with this requirement will not invalidate any trustee's sale that would otherwise be valid. This requirement applies to all trust deeds, regardless of occupancy or number of units. This requirement shall sunset on January 1, 2018. CC 2924(a)(5). Legal Remedies for Borrowers: A borrower may generally bring a private right of action to enjoin or stop a trustee's sale until the mortgage servicer has corrected certain material violations of this law. If a trustee’s deed has already been recorded, the borrower may recover actual monetary damages for certain material violations. For intentional and reckless violations by the mortgage servicer, the borrower may recover treble actual damages or $50,000, whichever is greater. A prevailing borrower who is awarded relief under this provision can also recover reasonable attorneys’ fees and costs. Certain violations by a person licensed by the DRE, DOC, or DFI are deemed violations of that person's licensing laws. These provisions do not apply to smaller banks until 2018. CC 2924.12. C.A.R. opposed this provision because of our concern for bad faith claims, but the Legislature was not convinced. Lender's Standard of Care to Investors: The Legislature intends for a mortgage servicer to offer the borrower a loan modification or workout plan in accordance with the mortgage servicer's contractual or other authority. Any duty a mortgage servicer has to maximize net present value under a pooling and servicing agreement is owed to all investors, not any particular investor. A mortgage servicer will be deemed as acting in the best interest of all investor if it implements a loan modification or workout plan in accordance with certain specified parameters. CC 2923.6.

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About Me I was born in San Francisco and have been a lifelong resident of Contra Costa County. Throughout my life I have lived in several of the communities I now represent in my real estate practice. That includes the cities of Concord, Walnut Creek and Alamo.

I hold a BA degree in Business Administration and a MA degree in Economics. Much of my professional career was spent in high tech sales which prepared me for the challenges of selling real estate in this turbulent economic time. My strong sales acumen along with negotiation strengths have served me well in dealing with the housing market that we find ourselves in today.

I focus 100% of my business on short sales; primarily helping homeowners avoid foreclosure. Short Sales are probably the most difficult real estate transaction that an agent can engage in. The skills necessary to successfully execute a short sale include:

o Patience

o EXTREME attention to detail

o Strong interpersonal skills

o Strong negotiating skills

o Flexibility

o Creativeness

In many ways, most agents possess these skills. The challenge is finding someone what is willing to put them to use in managing a short sale transaction. This sort of transaction is unique in that there is nothing short about them. They can take months and involve many parties, not just the buyer, seller and the bank.

You can reach me at: [email protected] 925-683-8100 http://www.themaloneyteam.com DRE: 01483571

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Other Available Resources

Fighting Foreclosure: Your resource of great information that you can use to fend off your lender. This book in combination with the information contained in this resource kit will give you all the knowledge and strategies available for you to keep your home. This book is FREE to you by simply going to my website and getting it. You can find it at: http://www.themaloneyteam.com. Get your copy now. It’s 65 pages full of information you’ll need to know to better deal with your lender. While there, watch the video stories of homeowners loan modifications.

In this book you’ll learn all there is to know about:

o Judicial Foreclosure – what it means to us who live in California o Notice of Default o Notice of Trustee Sale o Deed in lieu o Deficiency Judgments o The impact of a junior lien o The impact of Home Owner Association Liens o Loan Modification Process o HAMP o HAFA o Strategies to keep your home