To qualify for the new federal program, borrowers must request their servicer consider them for UP before three full unpaid mortgage payments are due. They must also be able to document that they are unemployed and will receive unemployment benefits in the month the forbearance period will be effective. Servicers also may require that the borrower has been on unemployment benefits for up to three months before the forbearance period can begin.

Once accepted into UP and upon meeting basic Home Affordable Modification Program requirements, the unemployed borrower is placed into a forbearance plan for a minimum of three months or until the borrower becomes re-employed. At the end of the initial forbearance plan, customers may be able to extend the forbearance plan“ based on circumstances and at their loan servicer’s discretion  in three-month increments for up to a total of 12 months.

The nation faces the worst stretch of long-term joblessness since the Great Depression. According to Labor Department statistics as of the end of June, 14.6 million people are unemployed and nearly 46 percent of them have been for more than six months. The unemployment rate is 9.5 percent, and 1.4 million workers have been unemployed for at least 99 weeks.

This “forebearance” process will help ease the pain for the nation’s unemployed – we are not insensitive to the plight of millions, whose work prospects are decidedly NOT looking “up” yet!  It should help support property values in certain housing markets by forestalling a glut of foreclosures.  However, it may also extend the short sale/foreclosure process, so potential short sale buyers should be aware of potential delays in closing a distressed home they would like to purchase.

Related articles:

• Home Affordable Unemployment Program Begins Today (hsh.com)
• Foreclosure Relief: Good for Banks, Lousy for Borrowers (dailyfinance.com)
• Mortgage Modifications Slip in July as Home Prices Level Off (dailyfinance.com)
• Feds put up $1 billion more for mortgage relief (sfgate.com)
• Homeowners Stranded by Mortgage Mayhem (newsweek.com:80)
• Bank reform brings mortgage aid for the unemployed (marketwatch.com)

Not only does this improve the borrowing capacity of home buyers in communities such as Saratoga, Monte Sereno and Los Gatos, but it also signals important news that Santa Clara County is no longer considered a distressed market by Wells Fargo portfolio managers.

For more information on second trust deed and mortgage financing, please contact John Shapiro of Private Mortgage Advisors, an affiliate of Wells Fargo Bank.

Rick Bonetti | APR Referral Network | 408-857-8800 | DRE #01237009

Related articles:

• Santa Clara County Jumbo Mortgages Now Classified Less Risky

These homeowners face the moral decision of walking away from a contract (an obligation) – most don’t want to do it.  I also talk to other real estate agents who have listings where the seller desperately hope they will find a buyer at their full price to “save face” and save them from the short sale or foreclosure process.

A New York Times article of January 17, 2010 says it is our government’s position to dissuade people against foreclosure.  It further calls walking away from a mortgage antisocial and amoral.  Today Broker Mike Bell blogged about the ethical dilemma of strategic walk-aways.

Is a short sale the answer?  Perhaps not, because you have to prove hardship to the bank – they must be convinced you have not other alternative for them to cooperate and take less than what is owed on the promissory note. Purchase money loans and deeds of trusts may be non-recourse, but most refinanced mortgage loans are recourse loans, meaning the bank can go after other assets to pay the obligation.  This is an important area where people in this situation need to get legal advise – it is clearly beyond the scope of my license as a real estate agent.  The following is a brief overview only and not a substitute for obtaining professional legal and accounting advise.

Sellers facing mortgage difficulties have several options including:

• sale of a home with full loan payoff from personal assets
• a loan modification
• short sale
• foreclosure
• deed in lieu of foreclosure and
• bankruptcy

Each Seller’s situation is different.  The Seller’s decision as to which of these options is chosen may affect the seller’s taxes, credit rating, and/or future options.

A short sale means that there is insufficient equity in a Property for a seller to pay off all of the liens, including deeds of trust, judgments, unpaid taxes and any other debts that have been recorded against the Property and/or closing costs, including real estate commissions.

Therefore the Seller’s Lenders must agree to take less money than they are legally entitled to receive so as to enable the Seller to sell the Property to the Buyer upon the terms agreed to in the Purchase Contract.

As part of the short sale approval process, Lenders will issue a letter or other document detailing the terms and conditions upon which the will agree to a short sale (Term Sheet). The Term Sheet must be adhered to by all parties.  A Seller is only entitled to the Lender-approved short sale if ALL of the terms and conditions required by the Lender(s) are fully met.

There is potential liability for any party who tries to circumvent or work around those terms and conditions either through escrow or outside of escrow. All payments to be made by any party to anyone as part of the Buyer’s acquisition of the Property must be fully disclosed to all Lenders and approved by all Lenders.

There may be significant legal and/or tax ramifications to the Seller as the result of a short sale.  For example, the Term Sheet may:

1. Require that the Seller sign a new note, and possibly even record a Deed of Trust against other property owned by Seller;
2. State that the Seller remains liable for any amount forgiven by Lenders as a result of the short sale;
3. State that the Lender reserves its right to hold the Seller liable for that amount in the future; or
4. Be silent as to future Seller liability for that amount.

As such, Sellers should not even consider approving the Lender’s Term Sheet and/or proceeding with a short sale without first reviewing his/her legal and financial status with appropriate professionals including attorneys who specialize in bankruptcy issues and financial advisers who understand the tax implications of reducing the Seller’s debt as part of a short sale.

In a short sale, Seller’s Lender is not obligated to approve the short sale and is not obligated to provide any type of response regarding the short sale during any set period of time.

If the Seller has ceased making mortgage payments, Lenders may file a Notice of Default and proceed with a foreclosure action notwithstanding the fact that there are ongoing short sale negotiations.  Negotiating a short sale does not stop the foreclosure process!  Agents cannot and do not guarantee that a short sale can be obtained from Lenders and/or that the foreclosure process can or will be stopped. If a Notice of Default has been filed, Seller should immediately consult with a real estate and/or bankruptcy attorney.

Buyers and Sellers should also note that:

1. A sale may not close unless all of the lienholders agree to take the amount that is offered to them (as specified by the Term Sheet) which may be considerably less than the amount that is owed to them;
2. Escrow could be delayed for a substantial period of time as a result of resolving the various issues involved in a short sale;
3. Agent cannot guarantee that escrow will actually close or when it will close;
4. Buyers and Sellers have a duty to exercise reasonable care to protect their own interests by conducting their own investigation and verification of all information that has been or will be provided to them regarding the short sale process and/or the Property;
5. Agents cannot and will not provide any tax or legal advice regarding the legal or practical effect of a short sale transaction or a possible foreclosure; and
6. It is Sellers’ responsibility to consult with their own legal and tax professional regarding the effects of the short sale.

Realtors are not licensed to provide tax, credit and/or legal advice regarding these possible options, or how any of these issues may affect any sale of the Property. Because of these important issues, prior to proceeding with a short sale, Sellers are strongly urged to consult with a Certified Public Accountant, credit consultant, and/or an attorney specializing in real property, taxation and bankruptcy issues.

Life is not just about economics.  I respect and support the courage of those who want to do the right thing; at the same time I do not sit in judgment of those who find no other way out.  If a short sale is a possible answer, I am here to help.

Rick Bonetti | Alain Pinel Realtors | 408-857-8800 | DRE #01237009

Last week there was very light trading in the bond markets and mortgage rates didn’t move much although we did see a little improvement last Friday.

Current rates for 30 year fixed rate, fully amortized mortgage loans according to John Shapiro of Private Mortgage Advisors are as follows:

Conforming loans ($417K and under):  5.125%
High Balance conforming  ($417K to $729,750): 5.25%
Non-conforming jumbo loans (greater than $729,750):  5.70%

Interest rates are now quite low and home prices in many west valley neighborhoods such as Saratoga, Los Gatos and Monte Sereno are expected to be relatively flat in the near future, so I believe now is a good time to be either a homebuyer and home seller.

Rick Bonetti | APR Referral Network | 408-857-8800 | DRE #01237009