Tuesday, July 21, 2009

Foreclosure Legal Pitfalls

One of the biggest advantages to hiring an attorney to assist a homeowner with foreclosure relief or loan modification is the fact that there are numerous issues people are unaware of that, if not handled properly, could result in making their situation worse.

Remember that your lender is often taking computer notes and usually records calls. Although there are issues regarding the legality of recording phone calls in California and its potential as evidence in a case, it is still something that could come back to haunt homeowners.

Here is just one example: Let's say you purchased your house 3 years ago and told your loan officer or broker that you made a certain amount per month. The broker may have done what is called "stated income" which does not require proof of income, such as paystubs. Some borrowers may have heard or even been told by their broker that they can exaggerate or increase how much they make because it is not verified by the bank, thus allowing them to qualify for a more expensive house. Whether you intentionally increased ("fudged") your income or your broker may have done it for you, if you later tell your lender how much you were really making at the time or accidentally tell them you may have gone a little too high on what you actually make, you may have just given the lender the leverage it needs against you. "I shouldn't have even qualified for the loan because I didn't really make that much." You were likely in a non-recourse loan in California, which means you have no personally liability. The only thing the lender can do is to take back the home, they can't sue you for any missed payments, decrease in value of the home below what you owe, etc. Now suddenly the lender can sue you for fraud in connection with the original loan. Without realizing it, you opened yourself up for personal liability.

This is only one of a number of small legal issues that many homeowners don't understand. Lawyers serve as an intermediary to take the emotion out of the issues and understand the potential legal issues out there.

I am often asked by potential clients what exactly I do for homeowner that they couldn't do for themselves. Many people think it is just a matter of calling the lender and faxing over some bank statements and tax returns. Yes, that is part of the process, but remember that the banks spend millions of dollars per year on law firms and lawyers. They have an army of lawyers working for them to be sure they protect their financial assets. Homeowners should understand that banks see numbers not people and they will use any potential legal edge possible to be sure to maximize their profits.

Sunday, July 19, 2009

CA Foreclosure Activity Remains High Despite Moratorium Efforts

The number of new notices of default recorded in California rose to approximately 46,000 in the month of June up from 42,000 in the month of May. That number is up from approximately 10,000 2 years earlier. It is too early to see what effect the California foreclosure moratorium law will have in California, but due to the numerous loopholes in the law, it is unlikely that it will have any effect.

Although lenders have ramped up efforts and staff to implement loan modifications, they are still moving the foreclosure process forward even while reviewing a borrower for a potential modification. Borrowers must move quickly to pursue all legal options because the lenders will move forward with scheduling the sale of their home despite their claims that they will work with them.

It is likely that the number of notices of default and notices of sale will continue at their existing levels for the rest of this year.


Wednesday, July 1, 2009

Owners of Rental and Investment Properties Must Act To Protect Themselves

There are thousands of owners of rental and investment properties that are facing decrease in rental income or other financial hardships. Although they want to save the property, it may not feel like it is as pressing of an issue as their own home where they live. However, if you have tenants, this raises another potential issue for liability. If the lender forecloses on the property, they may do a trustee sale in which they will not be able to go after the owner for personal liability for any unpaid payments or a difference between the sale price and what was owed. This does not mean that the owner is free to just let the property go. Obviously there are potentially harmful credit impacts, but also the existing tenants have rights. More than likely, they have a written lease agreement with the owner. If they are suddenly served with a notice to move out or be evicted by the new owner after foreclosure, they may decide to bring a lawsuit against the former owner for damages. In fact, if they find that the former owner knew about a pending foreclosure when entering into the lease, they could have a claim for fraud, which will not go away even in bankruptcy.

Even though it is not where you live, owners of rental and income properties must still work to resolve any potential foreclosure of those properties. The federal programs do not include investment or rental properties, but many lenders will still work with you to try to reduce your payment and keep the rental. They will not do this if you don't aggressively pursue any potential option they may have.

Call us today to evaluate your situation.
Law Office of Barsness & Cohen