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Law Office of Marilyn Sullivan

HAMP Loan Modification | HAFA Short Sale | HARP Refinance | 2016

For owners who are experiencing financial hardship, the following are viable options:

1.  HAMP Loan Modification.

This is your best option if you want to keep the property. The government-sporsored program,the Home Affordable Modification Program, known as HAMP, is highly advantageous with 2% interest rates, principal reduction and term extension. HAMP and the rest of the Making Home Affordable Program, including the Home Affordable Foreclosure Alternatives (HAFA) and Home Affordable Refinance Propgram (HARP) are coming to an end at the end of this year, 2016. They have taken seven long years to set up and run well, but they are now in place and ready for Borrowers with hardships to qualify for.

In 2012, when the entire government Program was coined a disaster, the government revamped the MHA Program. Now, HAMP has two tiers, one for owner occupied properties; one for investment properties. The formulas are completely different. The principal residence modifications are more favorable than for investment properties. And, a borrower experiencing hardship can get up to six modifications. Back in the olden days (before 2012) we folk who had multiple properties were lucky to get one modification, but since we still had many other properties dragging us down, the one modification did not solve the problem. Now it's different, but you need to move ahead quickly to modify those loans before the program expires.

2.  HARP Refinance.

If your loan is owned by Fannie Mae or Freddie Mac and you meet the other eligibility tests at this page, a refinance may be just the answer for you. Principal reduction is also built into this program if you are considerably upside-down. This program too expires as 2017 rings in.

3. HAFA Short Sale.

If you cannot afford a modified loan payment or the value of your property is less than the loan, a short sale may be your answer. HAFA was also rebuilt in 2012 to also pertain to investment properties. The benefits of HAFA are many: You are released from deficiency liability, you or your renter may be eligible for $10,000 in relocation costs, and the credit damage is less than at foreclosure. To determine if you are elibible for HAFA go to this page. If you are not eligiblefor HAFA, your lender will offer a Traditional Short Sale. In the Traditional Short Sale, make sure you get a release from liability in writing from the lender or make sure there is protection from liability in the State where the property is. Many States now have laws that protect you from deficiency liability following a short sale.

4.  Deed in Lieu of Foreclosure.

If you have only a first lien on your property, by a Deed in Lieu of Foreclosure, you sign over title to the property to your lender, in lieu of foreclosure or short sale. Lenders are usually not willing to accept Deeds in Lieu until the property has been listed for 90 days without an offer. Make sure you obtain a written deficiency release from the lender before signing the property over.

5.  Hardest Hit Funds (HHF).

Eighteen States have Hardest Hit Funds available to borrowers experiencing hardship. These programs most often work in tandem with the above Programs. Go to this page to determine if the State where the property is located has a HHF Program and if so, whether you come within the income limits.

6. Other Interim Plans.

Your lender will aso have repayment and forebearance plans that may help you out on a temporary basis, but these plans rarely present long term solutions.  

About Loan Modifications

What is a loan modification?

Changing the terms of a loan to prevent foreclosure.  Before HAMP of the Making Home Affordable Program (which expires at the end of 2016) we did not have a loan modification template. Now we do. While this template does not fit every loan, lenders have developed formulas that mirror the government-sponsored plan. Go to our Loan Workout Overview page for more specific information.

Who qualifies for a loan modification?

1.  If you obtained a loan secured by a 1 to 4 unit residential property before 1/1/09, you may qualify.

2. If your housing debt (loan [just first] principal and interest, property taxes, insurance and HOA dues) is more than 31% of your gross income, you may qualify. If this is an Investment property, the 31% does not apply.

3.  If the value of your property is less than the loan, you may qualify.

4.  If you experienced a hardship that reduced your income, but you can now afford a reduced payment, you may qualify.

5.  If you are still living in your home and want to continue to do so, you may qualify. If you are renting out a 1-4 unit residential property but income does not equal expenses, you may qualify.
 
6.  If you have a negatively amortizing loan, an adjustable loan or a short term interest only or fixed loan that adjusts up after the initial term, you may qualify. 

7. If you have a loan that has already adjusted up and you cannot afford the new payment, you may qualify.

8.  If you are in default on payments for 90 days, you may qualify for a Streamline Modification.

9. If you were previously denied for a loan modification, you may now qualify because rules have changed.

What types of modifications are available? Does HAMP have the best terms?

This depends on a variety of factors including who your lender is, your current loan terms, whether your home is worth less than the loan, the nature of any financial hardship, your housing debt to income ratio, and how much you can afford.  The possibilities include lowering your interest rate to as low as 2%, re-amortizing your loan over 40 years, fixing your interest rate, forgiving principal, deferring back payments to the back side of the loan.  HAMP modifications have the best terms since the Government funds them. 

How do I meet the hardship requirement for a loan modification?

You must prove a hardship that makes it impossible to continue making loan payments, but possible to make reduced payments. A hardship is the result of a circumstance beyond your control that forced you into a position where you can no longer afford loan payments. Some examples of hardship include:

          a. Loss or reduction of a primary income source
          b. Inability to work due to health crisis
          c. Mounting medical expenses
          d. Employment relocation
          e. Business failure
          f.  Bankruptcy
          g. Death of spouse or significant other
          h. Divorce or separation
         

What if I am not experiencing a personal financial hardship? It’s really my loan and the value of my home that creates the hardship.

For some, their loans have adjusted up so rapidly that it doesn’t make sense to pay such high loan payments for a property that has declined so much in value. For some lenders, these factors alone spell sufficient hardship to qualify for a loan modification, especially if you are in default on your loan and if your debt to income ratio is 31% or above if the loan is your principal residence.   

What if I have assets? Can I get a HAMP mod? 

Most programs do not consider your asset-based status. They generally just look at your debt to income ratio and your ability to pay a reduced payment.

Do I have to be in default on my loan?

If you are not two months behind on your loan, you must pass something called 'the imminent default test' which includes nearly 50 more fields than a regular loan modification. In this situation, your chances of being modified are low. For an Investment property loan modification, you must be at least 60 days late.

What is the objective of a loan modification?

To modify the loan to make it a performing asset and thereby avoid foreclosure for the lender and the borrower. It is the only true win-win answer. Never before has the home owner been in such an advantageous bargaining position with their lender -- but you need to know how to fit your financial information into the lender's template. Please let our Loan Workout Products guide you through this.

How are the new home loan terms decided for a HAMP mod?

If you qualify for the HAMP, your interest rate could go down to 2%, your loan could be amortized over 40 years, there may be a principal reduction. It all depends on your housing Debt to Income Ratio compared to your Gross Income and the value of the property compared to the current loan amount.

How are the investment property loan terms decided?

Since 2012 rental and investment property loans are modified under a Tier 2 HAMP program. The formula is complex. The terms are not as good as for owner occupied loans, but do involve interest rate reduction (not as much as for Owner Occupied loan), principal reductions and term extension

What are the chances of getting my loan principal reduced under HAMP?

It is difficult to get a principal reduction unless the value of your property is significantly less than the loan amount.

Can I get a loan modification if my credit is bad?

Loan modifications are not based on your credit like a typical refinance.  Loan modification is a process to cut foreclosure loss to the lender.  While you now have to meet stringent standards to obtain a new loan or refinance, loan modification standards are entirely different. The sole focus is ‘how can we modify this loan so this person can make loan payments, provide income to the bank and save the bank from losing money from foreclosure?”  A bad credit score is actually a plus for loan modification.

What if I am in California or another state that requires lenders to modify loans before commencing foreclosure? 

As of 2008 in California (and in other states that have foreclosure reform laws – Google your state and ‘foreclosure reform law’), if your loan originated before the end of 2007 and is secured by your principal residence, before your lender can record a Notice of Default, they must offer to modify the terms of your loan.  This is an ideal opportunity to modify loan terms into a loan that works for you long term. 

What is a Securitization review?

If you believe your loan is securized into a RMBS (residential mortgage backed security) it may be beneficial to have securitization audit performed. There are settlements with the Attorneys Generals of many states that give consumer relief for securitization of their loans. For example, the 2013 RMBS Settlement with Chase re Chase, WAMU and Bear Sterns originated loans.

When Should I begin the Loan Modification process?

When you understand the need to modify your loan. The current government programs will be phasing out at the end of 2016, so now is the time to take advantage.

How Long Does Loan Modfication Generally Take?

Two to three months depending on your lender. The answer to speeding up the process is to check in with the lender at least weekly and make sure you clearly present your financials to fit into the lender's template.   

Can the process be expedited if I am facing foreclosure or an auction date has been set?

If you are imminently facing foreclosure or even if an auction date has already been set, the process can be expedited.  But, why wait this long and the resulting stress.  Be proactive.  Don’t wait until the last minute. Your should at least apply when you receive the Notice of Default.

About Short Sales

What is a short sale?

A short sale occurs when the property is sold for less than the loan amount(s) with the cooperation of the lender(s). It permits more owner control over the process and less credit consequences than a foreclosure. See our Short Sale page for more information.

What are the qualifications for a short sale?

Both your property and you have to qualify for short sale consideration. 

How does the property have to qualify for a short sale?

Comparable sales must substantiate that your home is worth less than the unpaid balance of your loan(s).

How do I qualify for a short sale?

Qualifying for a Short Sale is similar to qualifying for a loan modification. You complete the same application but indicate that you want to sell. You must prove a hardship that makes it impossible to continue making loan payments. A hardship is the result of a circumstance beyond your control that forced you into a position where you can no longer afford loan payments. The criteria for hardship includes:

          a. Unemployment or loss of a primary income source
          b. Inability to work due to health crisis
          c. Mounting medical expenses
          d. Employment relocation
          e. Business failure
          f.  Bankruptcy
          g. Death of spouse or significant other
          h. Divorce or separation

What if I am not experiencing a personal financial hardship? It’s really my loan and the value of my home that creates the hardship.

For some people these days, their loans have adjusted up so rapidly that it doesn’t makes sense to pay such high loan payments for a property that has declined so much in value. For some lenders, these factors alone spell sufficient hardship to qualify for a short sale, especially if you are in default on your loan.   The bottom line they look at is will we lose less if we short sale than if we foreclose.  

What if I have assets?  

Many lenders do not consider your asset-based status. They generally just look at your debt to income ratio.

Must my loan be in default?

Most often, yes. The lender's confidential test for hardship is whether you have been two months late. They feel that if you have sustained this type of credit damage, you are experiencing hardship.

What is the objective of a short sale?

There are two objective of a short sale.  The first is for a buyer to make an offer to purchase your property for fair market value. This is the job of the real estate agent.  The second is facilitating the short sale to insure it will be approved, presentation of a multi-part package to the lender, forgiveness of the loan amount shorted, and mitigation of the resulting liabilities to you.  This is the job of your short sale facilitator.

The Real Estate Agent Job

Real estate agents are trained in the first aspect of a real estate short sale -- selling the property.   They are not trained in the second phase of a short sale: legal assessment, deficiency liability analysis, evaluating tax consequences, negotiating with lenders, assembling the short sale package and scrupulously following up with your lenders until approval is received.

The Short Sale Facilitator Job

The short sale facilitator performs the following functions:

1. Interviews real estate agents and selects the most qualified person to handle your short sale (if you have not already selected a listing agent).

2. Obtains a detailed Broker Price Opinion letter from the agent who will list the property for sale, and sets a listing price schedule that will have the best chance of gaining your lender's approval.   

3.  Reviews the property’s loan to value ratio to insure that it comforts with short sale requirements. 

4.  Obtains a package of financial documents from you and analyzes them to insure that you pre-qualify for short sale status. 

5.  Monitors the listing to insure that it is proactively handled.

6. Prepares addenda to the Listing Agreement and any offers that will be accepted.  This addenda is required because the transaction is a short sale, and often times the lender requires special language be incorporated in the sale documents.

7.  Clears the short sale with the lender in advance to insure that lender requirements are met. Ensures that your Application has been properly reviewed under the Government's preferred HAFA Program.

8.  Performs a Securitization review of your firt loan on your property. 

9.  Submits the short sale offer to the lender and negotiates for acceptance of the Offer.

10. Works with the lender to release resulting deficiency liability to you.   

When we facilitate your sale we share the job and the commission with your real estate agent. Your agent lists the property for sale while we handle the short sale legal aspect of the transaction.

Do I pay more for you to Perform the Short Sale Facilitation Job?

No. Since we are taking on the job of facilitating the short sale, we share in the real estate commission. Generally, we are paid 1.5%, the listing agent is paid 2% and the selling agent receives 2.5%.

How will a short sale impact my credit?

Following a short sale you should be able to obtain a home loan in two years whereas you would have to wait about seven or more years following a foreclosure.

Will I have liability for the difference between my lender pay off on short sale and the loan amount?

In just about every short sale these days, deficiency rights are released in the lender(s)' approval letter or by law.

Do I still need to understand the nature of my loan and deficiency liability?

Yes, for tax purposes. You will receive a 1099-C for cancellation of debt from your lender. This will be for the difference between what you owe on your loan(s) and the net proceeds the lender received at short sale. 1099-C income (yes, it is considered income because you were relieved of the debt) is considered ordinary income. If your loan is a non-recourse loan, meaning a purchase loan for an owner occupied property, you should not receive a 1099-C, but you probably will anyway. If your loan is a non-recourse loan, there is no cancellation of debt because the lender agreed to accept the security (the house) in full payment of its loan. You need to understand this distinction so you or your accountant may refute the 1099-C you are likely to receive. You will need to consult with your Accountant.

If my loan is non-recourse, will I receive a 1099-C following short sale?

Yes, however, if the short sold home qualifies as your principal residence, you may claim an exemption from payment of debt relief income under the Debt Foregiveness Act of 2007 if it is still in effect at the time of the sale. There are other exemptions you may qualify for, such as the insolvency exemption. You may still have to report debt relief on your state return, however, unless your state has parallel exemptions available.

Are there other tax liabilities I need to be aware of?

Yes, you still have to consider the other tax liabilities resulting from your sale of real property, such as capital gains.  Did you buy this property at a low price and sell it at a higher price?  If it is your principal residence, does the gain exceed the amount you are allowed by law?  If so, you will incur capital gains tax.  If it is not your principal residence, you will have a capital gain unless you replace the property in an exchange. 

What are the benefits of a short sale as opposed to a foreclosure?

The primary benefits of a short sale are to limit and control damage in these ways: 

1. The highest possible sale price is important to you since you may have tax liability for the difference between the loan and the short sale proceeds, or in some situations owe this amount back to the lender in the form of a deficiency judgment.  In a short sale, you take proactive steps to receive the highest possible price on the open market.  In a foreclosure, the price will always be significantly less, which increases your liability.

2.  Per Fannie Mae, your ability to obtain a real estate loan will be negatively impacted for three to five years less than a foreclosure. 

3.  To be proactive and in control of your life.  In a short sale, you are in charge.  You hire our facilitator and the agent to list your property for sale.  You decide what the list price should be and you respond to the offers that are received.  You are involved when we negotiate acceptance of the offer by the lender.  We work with you and the lender to minimize any resulting liability to you. You know when the time is right to move on to another home.  You feel far more empowered because you are in control and have taken the best steps to minimize and control your loss.

4. If the sale is approved for HAFA, you or a tenant may qualify for up to $10,000 in relocation costs.

When Should I begin the Short Sale process?

At the latest, in California, when you receive the official Notice of Default (recorded document). This will give us at least 3 1/2 months to sell your house. In other states, allow at least a few months before a foreclosure sale date to sell your property short..

How Long Does a Short Sale Generally Take?

It should not take longer than two to three months to obtain an offer. The approval process should not take longer than six weeks to two months at most from the time we have an accepted offer.

Can the process be expedited if I am facing foreclosure or an auction date has been set?

If the foreclosure sale is imminent, we can usually have the sale date postponed as long as we have a fair market offer to purchase. Don't wait until a sale date is set to list for short sale.

It all sounds so negative.  Where are the positives of a short sale?

Losing your home is high on the list of life challenges.  But, it can represent an opportunity to realize that life is so much more than the temporary loss of a home that has become too expensive or is significantly upside down.  Do you have family by your side?  Are you healthy?  Do you have a faith in something greater than yourself?  Life is full of challenges.  It is all up to you how you respond to them.  You will be most likely be able to have a home again in two years if you sell short, and in the interim, take a break from house payments.  Lease a house, pay a lease price and sit back and count your blessings as you save the down payment.  Then, when you’re ready, scoop up a deal on your next home.  Maybe this time you will be a short sale buyer yourself. 

Why are we different from other short sale facilitators?

When you speak with Marilyn you will know that you have a highly skilled multi-licensed professional to get you through what can be a complicated, lengthy process in the best possible way.  Marilyn is not only a skilled real estate attorney and mediator, but is also a real estate broker and developer. The real estate market is her lifeline. With her in your corner, you will feel empowered instead of disempowered.  You will understand that there is light at the end of a tunnel that is not as long as you thought.  And, since Marilyn does not get paid until the job is done and the commission pays her fee, you will not have to come up with funds at a time when your supply is low.  Marilyn also provides something no one else does, a Short Sale Certification, she believes is essential for credit restoration purposes.

What does your short sale certification consist of, and why is it so important?

When your short sale is over, you join the pool of your average short sale seller.   But, if you’ve done the process with us, you will have saved yourself and your lender significant time and expense.  Those who extend you credit going forward should be aware of this.  Our short sale certification describes your sale results (price and timing) and lists the ways in which you minimized loss to your lender and took steps to preserve your credit standing. This certification is signed under penalty of perjury by Marilyn, the attorney who negotiated your sale, and may be able to help to pave the way to a more positive, creditworthy future.   As a licensed member of the State Bar, future lenders should give our certifications considered weight since we are bound by law to make full and accurate representations.    Let Marilyn's clients answer this for you by reviewing her Testimonials Page. Each testimonial was provided in writing by a client.

The above is for educational and information purposes and does not constitute tax advice.  For information about your individual situation, please consult with a licensed tax professional.