Section 4023 of the Coronavirus Stimulus Bill requires lenders and servicers to provide up to 90 day forbearance to multifamily borrowers with a Federally back mortgage loan.
Section 4023 entitles a multifamily borrower to an initial 30 day loan forbearance with the right to ask for 2 additional 30 day forbearances so long as the multifamily borrower submits a hardship request at least 15 days before the initial 30 day forbearance expires.
A multifamily borrower is an owner of a building with 5 or more residential units.
During the forbearance period a multifamily borrower cannot start nonpayment of rent eviction proceedings against any tenant living in the property. A multifamily borrower cannot give any tenant a notice to vacate during the forbearance and the multifamily borrower must give a minimum 30 day notice to vacate after the expiration of the forbearance. Also, during the forbearance period, a multifamily borrower cannot charge a tenant any late fees or any other charges.
To qualify, the multifamily borrower must submit a forbearance hardship request to the lender or servicer. A multifamily property owner must be current with his or her loan payments at the time of the request. A multifamily borrower can discontinue the forbearance at anytime.
The right to a forbearance ends when the COVID-19 National Emergency officially ends or on December 31, 2020, whichever date come first.
Section 4022 of the Coronavirus Stimulus Bill contains a moratorium against initiating judicial or non-judicial foreclosures on any property owner with a Federally backed mortgage loan.**
The moratorium prevents any foreclosure related action for 60 days beginning on March 18, 2020.
This moratorium applies to first and second mortgages on cooperatives, condominiums and 1 to 4 family properties.
If you need financial assistance...Be Proactive. Contact your mortgage lender or servicer immediately to get more information and make sure you refer to this section of the law when you speak to your mortgage lender or servicer.
**A Federally back mortgage loan is any loan insured by the Federal Housing Ad-ministration; insured under the National Housing Act; insured the Housing and Community Development Act of 1992; guaranteed or insured by the Department of Veterans Affairs; guaranteed, made or insured by the Department of Agriculture; or purchased or securitized by the Federal Home Loan Mortgage Corporation or the Federal National Mortgage Association.
Section 4022 of the Coronavirus Stimulus Bill requires mortgage lenders and servicers to provide homeowners with up to 12 month forbearance on a Federally back mortgage loan**.
Section 4022 entitles a borrower to a 180 day loan forbearance with the right to ask for an additional 180 day forbearance so long as the borrower submits a hardship request stating that he or she is experiencing a financial hardship because of COVID-19.
The forbearance applies to first and second mortgages on cooperatives, condominiums and 1 to 4 family properties.
During a forbearance a borrower’s loan payments are postponed (or reduced) but interest continues to accrue during the period of forbearance. During the forbearance a mortgage lender or servicer cannot charge or collect any fees, penalties or default interest.
It does not require a borrower to submit any documentation to prove financial hardship due to COVID-19. A mortgage lender or servicer must provide a forbearance once a borrower says he or she is experiencing a hardship because of COVID-19.
If you make a request for a forbearance make sure you remind the mortgage lender or servicer that under Section 4022 they must give a forbearance upon request.
**A Federally back mortgage loan is any loan insured by the Federal Housing Ad-ministration; insured under the National Housing Act; insured the Housing and Community Development Act of 1992; guaranteed or insured by the Department of Veterans Affairs; guaranteed, made or insured by the Department of Agriculture; or purchased or securitized by the Federal Home Loan Mortgage Corporation or the Federal National Mortgage Association.
For the past several months, loan modification activity have been evident to be in a decline according to data from sources such as the Hope Now alliance. Moreover, the vast majority of the modifications were made via proprietary programs, while a smaller portion were completed through the Home Affordable Mortgage Program. However, this drop does not necessarily always indicate bad news as depicted from the analysis described below.
For thousands of US short-sellers, a big gift 12-26-2014 The Senate’s 11th-hour extension of the Mortgage Forgiveness Debt Relief Act ends on Dec. 31. The federal tax code treats forgiven debt as ordinary income to the borrower, taxable at regular rates. But under an exception that took effect in 2007, qualified home mortgage debt that is canceled by a lender as part of a short sale, loan modification or foreclosure is treated as non-taxable... So how do you know whether your short sale, loan modification or foreclosure is covered by the extension for 2014? The key points you will need to know include: 1. The house securing the mortgage debt must be your principal residence. 2. The maximum amount of debt that qualifies for relief is $2 million ($1 million if you are married filing taxes singly.) 3. Any portion of the mortgage debt forgiven that was used for purposes other than improving or building the house will not qualify for the exclusion and may be taxable. Read More at the Real Deal Future SHOCK for Older Homeowners: You Won’t Get a HELOC, a Second, or Refi based on your Equity 10-15-2014 The reality is that with the private RMBS securitization market still largely frozen, government lending essentially the only game in town, the prevalent and entirely reasonable fear of “buy backs” among bankers, actions by the Consumer Financial Protection Bureau (CFPB), Dodd-Frank’s impact, new QM rules, and whatever else you’d want to throw in under the category of new and increased pressures on lenders… it should not be a surprise that loans are harder to come by than at any time in recent history. Today, your assets don’t matter when applying for a mortgage… only the amount of income you earn is considered when assessing your ability to repay the loan. That means that today, the fact that you own a home free and clear that’s worth $1 million, by itself, is not going to get you approved for a Home Equity Line of Credit (HELOC), second mortgage or refinance... to get approved for a HELOC, or a second home, not only do you need significant equity, but you’ll also need actual income that’s deemed sufficient to repay the loan… and a glimmering FICO score… like we’re talking 760+… that sort of thing. Read More at Mandelman Matters Americans face post-foreclosure hell as wages garnished, assets seized 10-14-2014 Many thousands of Americans who lost their homes in the housing bust, but have since begun to rebuild their finances, are suddenly facing a new foreclosure nightmare: debt collectors are chasing them down for the money they still owe by freezing their bank accounts, garnishing their wages and seizing their assets... Using a legal tool known as a "deficiency judgment," lenders can ensure that borrowers are haunted by these zombie-like debts for years, and sometimes decades, to come. Read More at Reuters Foreclosure Dispute Pits Mortgage Lenders vs. Investors 10-14-2014 Mortgage lenders and housing investors are squaring off in Nevada over a court decision that has allowed thousands of foreclosed homes to be sold for pennies on the dollar, in a case that could have big implications on an already-tight home-loan market across the country. At issue are homeowners associations and the liens they put on properties when a homeowner stops paying dues. Homeowners associations enforce rules in a community and collect dues to maintain common areas and pay for repairs... In a court filing Tuesday, the Mortgage Bankers Association wrote that because of the decision, “mortgage lenders stand to lose millions—perhaps even billions—of dollars in security interests.” Read More at The Wall Street Journal Fair housing group challenges U.S. Bank over foreclosure upkeep 10-8-2014 On Wednesday, the National Fair Housing Alliance accused the Minneapolis-based bank of racial discrimination in its upkeep of foreclosed properties in Minneapolis, renewing a debate over who is responsible for maintaining foreclosed properties — and to what extent. This was the housing group’s fourth announcement of claims against U.S. Bank, and its complaint now covers neighborhoods in 19 metro areas across the country... The group has been aggressively pursuing charges of racial discrimination in foreclosure upkeep for the past few years. It has filed claims with the U.S. Department of Housing and Urban Development against Bank of America and Wells Fargo. Read More at Star Tribune
In our previous Collection Tactics Monitor: October 6, 2010 post, we talked about a debt collection technique employed by a company called Heritage Pacific Financial. Please read the prior post so you can put this post into context. Since that post, we received the following email: "Hello, I am writing you on your article http://www.debtdefense101.com/2010/10/collection-tactics-monitor-october-6.html. I am pretty much in the same case than “Kim” except Heritage Pacific took it a step further and filed suit against me. More or less the same Boiler Plate FRAUD complaint. I’m in process of hiring an attorney to respond to this and ask the court to dismiss this case (plus their Statute of Limitation is expired). I wonder if the hundred of people being victimized by this company http://hpdebtexchange.com/ couldn’t unite and counter-sue or get them close down business…Best, PK" So assuming that PK's email is true then Heritage Pacific believes one or all of the following:
I purchased a home in 2006 for $1,075,000. It is a beautiful lake front home in NC. I have a first for $985,000 and the balance in a second. I invested another $+/-$200,000 in landscaping shoreline, etc...
My income has been impacted due to the economy in the last 2 years. I have tried refinancing with one appraisal coming in at $1,275,000 and one at $985,000. Neither would qualify for 80% equity.
The house has been on the market for 2 years offered for both lease and/or sale with no offers. Real estate professionals say there is a 10 year supply of million dollar homes in my area.
I could take money out of my 401k to keep things going but here is my thought process. If my mortgage is $6,500/month and it may take years to recover or get back to zero, it makes sense from a business perspective to put that money elsewhere.
My loan is with one of the big banks and they have denied me any type of modification or other and said they couldn’t consider it unless I was at least 90 days delinquent. To further clarify, the mortgage is in both my name and my fathers name with me as the primary and him as the co-borrower. He is retired but has retirement money in annuity and ira. He also owns a home in GA that has some equity in the amount of maybe $50-100k. My wife however is not on the mortgage as the home was bought 2 years before we got married.
So I am considering all options including just stop paying, deed in lieu, short sale and loan modification. What are the consequences, likely hood of outcomes and advice do you have as I am lost at sea?
GET ANSWERS…
Mr. D.
First of all thanks for writing.
One key point to recognize is that any decision you make regarding your mortgage will expose your father to the same consequences. Furthermore, he will need to sign off on any option you decide to implement.
It seems as if you have a general understanding of your options. However, I still want to go over each one again. After each option, I will point out the risks. I will also underline key points that are a bit more specific to your situation.
A short sale occurs when a lender let’s you sell your property for an amount less than what is owed on the mortgage. Essentially your lender may be willing to accept less than the full amount due on a mortgage. If you owe the lender $400,000 then the lender may agree to let you sell the property for $350,000. Keep in mind that the $50,000 difference will become a deficiency.
A deficiency balance can be forgiven or it can become a judgment. If the deficiency is forgiven then there may be a tax liability. The lender may refuse to forgive the deficiency and instead seek a deficiency judgment. This is a legal judgment obtain by a lender after filing the proper legal paperwork in court. If the lender successfully obtain a deficiency judgment then the lender has the right to seize the cash in your bank accounts, garnish wages, or place a lien on personal property, business assets or real estate. You may not owe a deficiency in certain circumstances. The Federal Mortgage Forgiveness Debt Relief Act and Debt Cancellation provides relief to homeowners from paying taxes on any forgiven debt. Also certain states have anti-deficiency statues. This means that state law prevents a lender from pursing a borrower for any debt deficiency. A state that prevents a lender from pursing a borrower for any debt deficiency is called a non-recourse state. North Carolina has an anti-deficiency statute which seems to apply in certain circumstances. I recommend you speak with an attorney to see if this anti-deficiency may apply in your circumstances. A link to the statute is here: http://www.poynerspruill.com/publications/Pages/NorthCarolina'sNewAnti-DeficiencyStatute.aspx
There is certain debt that cannot be attached by a creditor. Under Federal law, there are strict limits against attaching a 401k loan. Essentially, if money is transferred into a 401k just to prevent a lender from collecting then a lender may be able to attach the money. This is generally hard to prove. It may not be a good idea to deplete your 401k account.
A deed-in-lieu is when you enter into a written agreement to give the property back to the bank. The key is to negotiate a full settlement of your total outstanding mortgage debt including fees and penalties in exchange for the deed to your property.
If you decide to utilize a short sale or a deed-in-lieu the lender normally requires evidence that the property has been listed for sale. Furthermore, a lender may ask to see your financial information as part of any negotiation.
It’s best to work with a real estate broker or attorney who has experience in short sales. It’s a time consuming process involving multiple parties. It requires substantial paperwork. If you do work with a professional make sure you negotiate a “pay for success” agreement. Many states have no upfront fee regulations.
If you let the property go to foreclosure sale then the lender will sell your property at an auction. If the lender takes the property back at the auction sale, then you will not have any deficiency. If the lender sells the property at auction for less than what is owed then there will be a deficiency.
As I pointed out before, if a debt is forgiven then it may be consider a taxable event. Forgiven debt is considered income. You should contact an accountant to determine if you may have any tax exposure to forgiven debt. Especially, if you are in a higher income tax bracket.
The lender for the second mortgage may forgo foreclosure proceedings and sue you and your father personally for the loan. Most second mortgage lenders or HELOC lenders recognize that it will not collect any money from the sale of the property once the loan goes into default. However, these lenders are willing to negotiate a settlement of the outstanding balance. For example, the second mortgage lender may take 15 to 30 cents on the dollar with a monthly payout on the settlement amount. You must negotiate a forgiveness of the difference owed to the lender if they agree to settle.
It’s sad to say that you need to be delinquent before a lender will enter into good faith negotiations to modify your loan. It is currently a fact that a lender has no incentive to modify a loan if they are collecting payments.
Your father’s 401(k) should be safe from any creditor collections efforts if a deficiency arises. However, if a creditor successfully obtains a proper legal judgment then the judgment can be placed as a lien against your father’s property or other assets.
The likelihood of success is based on one rule: You need to fight extremely hard to get what you need from the lender.
The next important issue is to preserve you and your families’ cash, savings, and wealth and to limit your exposure once you have decided to implement a solution.
Please read the following articles and posts. This will help you significantly.
