Although a lender cannot require a borrower to pay any additional compensation in exchange for a short sale approval, the new law does not prohibit a borrower from voluntarily offering a monetary contribution to a lender in hopes of obtaining a short sale.  A lender is also permitted under the new law to negotiate for a contribution from someone other than the borrower, such as other lenders, agents, relatives, and the like.

Exceptions to the new law include a lender seeking damages for a borrower’s fraud or waste; a borrower that is a corporation, LLC, limited partnership, or political subdivision of the state; a lien secured by a bond as specified; a public utility lien; and additional rules apply if a note is cross-collateralized by more than one property.

This law is fully set forth as Senate Bill 458 (Corbett) at www.leginfo.ca.gov.

FTC WILL NOT ENFORCE MARS AGAINST REALTORS®

As another major victory for REALTORS®, the Federal Trade Commission (FTC) announced today that it will generally not enforce the Mortgage Assistance Relief Services (MARS) Rule against real estate brokers and agents engaged in short sales.  Real estate professionals must nevertheless comply with MARS prohibitions against misrepresentations and other laws prohibiting unfair and deceptive acts.  Also, FTC’s forbearance of enforcement is limited to real estate licensees in good standing and acting in compliance with state laws, who assist consumers in negotiating, obtaining, or arranging short sales in the course of securing the sale of the consumer’s home.

In its announcement today, the FTC acknowledged “it is especially important that the Rule not inadvertently discourage real estate professionals from helping consumers” with short sales.  The FTC will, however, continue to enforce the MARS Rule as to all other providers of mortgage assistance relief services, and also as against real estate professionals doing loan modifications or other types of mortgage assistance relief services.

Next week, on July 21, 2011, the FTC’s rulemaking authority for MARS will be transferred to the new Consumer Financial Protection Bureau (CFPB), but the FTC will continue to enforce the Rule.  The CFPB will have the authority to determine whether to change the MARS Rule as it applies to real estate professionals conducting short sales.

The FTC’s News Release is available at http://www.ftc.gov/opa/2011/07/mars.shtm

DO NOT IGNORE THE LETTERS FROM YOUR LENDER.  If you are having problems making your payments, contact your Lender immediately. Explain your situation.  Be prepared to provide them with financial information, such as your monthly income and expenses.  Without this information, your Lender may not be able to help.  Stay in your home for now.  You may not qualify for assistance if you abandon your property “home”.

Some of your options include the following:

• Special Forbearance
  Your Lender may be able to arrange a repayment plan based on your financial situation. Your Lender may even provide for a temporary reduction or suspension of your payments. You may qualify for this if you have recently lost your job or your source of income or if you had an unexpected increase in living expenses. You must furnish information to your Lender to show that you would be able to meet the requirements of the new payment plan.
• Mortgage Modification
  You may be able to refinance the debt and/or extend the term of your mortgage loan. This may help you catch up by reducing the monthly payments to a more affordable level. You may qualify if you have recovered from a financial problem but your net income is less than it was before the default (failure to pay).
• Partial Claim
  Your Lender may be able to work with you to obtain an interest free loan from HUD to bring your mortgage current. You may qualify if:
  • Your loan is at least 4 months delinquent but no more than 12 months delinquent;
  • Your mortgage is not in foreclosure and
  • You are able to begin making full mortgage payments

When your Lender files a Partial Claim, HUD will pay your Lender the amount necessary to bring your mortgage current. You must execute a Promissory Note, and a Lien will be placed on your property until the Promissory Note is paid in full. The Promissory Note is interest free and will be due if you sell or leave your property, or when your mortgage matures.

• Pre-Foreclosure Sale – SHORT SALE
  This will allow you to sell your property and pay off your mortgage loan to avoid foreclosure and damage to your credit rating. You may qualify if:
  • The “as is” appraised value is at least 70% of the amount you owe and the sales price is 95% of the appraised value
  • The loan is at least 2 months delinquent prior to the pre-foreclosure sale closing date and
  • You are able to sell your house within 3 to 5 months (depending on what your Lender agrees to).

An additional benefit to this option is the assistance you will receive with the Seller Paid closing costs.

• Deed in Lieu of Foreclosure
  As a last resort, you may be able to voluntarily “give back” your property to the Lender. This won’t save your house, but it will help your chances of getting another mortgage loan in the future. You can qualify if:
  • You are in default and don’t qualify for any of the other options
  • Your attempts at selling the house before foreclosure were unsuccessful and
  • You don’t have another mortgage in default.

A housing counseling agency can help you determine which, if any, of these options may meet your needs. You should also discuss the situation with your Lender.

One last thing, beware of scams! Solutions that sound too simple or too good to be true usually are. If you’re selling your home without professional guidance, beware of buyers who try to rush you through the process. Unfortunately, there are people who may try to take advantage of your financial difficulty. Be especially alert to the following:

• Equity Skimming
  In this type of scam, a “buyer” approaches you, offering to get you out of financial trouble by promising to pay off your mortgage or give you a sum of money when the property is sold. The “buyer” may suggest that you move out quickly and deed the property to him or her. The “buyer” then collects rent for a time, does not make any mortgage payments, and allows the Lender to foreclose. Remember that signing over your deed to someone else does not necessarily relieve you of your obligation on your loan.
• Phony Counseling Agencies
  Some groups calling themselves “counseling agencies” may approach you and offer to perform certain services for a fee. These could well be services you could do for yourself, for free, such as negotiating a new payment plan with your Lender or pursuing a pre foreclosure sale “Short Sale”. If you have any doubt about paying for such services call a HUD-approved housing counseling agency. Do this before you pay anyone or sign anything.

Here are several precautions that should help you avoid being “taken” by scam artist:

• Don’t sign any papers you don’t fully understand.

• Make sure you get all “promises” in writing.

• Beware of any loan assumption where you are not formally released from liability for your mortgage debt and contracts of sale.
• Check with a lawyer or your Lender before entering into any deal involving your home.
• If you’re selling the house yourself to avoid foreclosure, check to see if there are any complaints against the prospective buyer. You can contact your state’s Attorney General, the State Real Estate Commission, or the local District Attorney’s Consumer Fraud Unit for this type of information.