FANNIE MAE and FREDDIE MAC Announce New Mortgage Modification Program for 2017 as HAMP Expires

          Fannie Mae and Freddie Mac in January, 2017 will begin a program to aid homeowners who are behind on their mortgage payments, the companies announced December 14, 2016.
The Flex Modification loan program replaces a the HAMP foreclosure-prevention policy that's set to expire at the end of this year. HAMP was enacted to help distressed homeowner due to the mortgage crisis that started in 2007-2008. Loan servicers have until October, 2017 to start the program.
The new loan modification guidelines are expected to increase the population of homeowners eligible for lower monthly payments, short sales and other alternatives to foreclosure, according to Fannie Mae.
        "We believe the program is flexible to adjust for regional and even local differences in housing," said Bill Cleary, vice president of Fannie Mae's single-family servicing policy. "It provides the greatest amount of assistance to those areas in need." HAMP, was adopted in 2008 as millions of homeowners fell behind on their payments. Over time, more than 1 million trial mortgage modifications were started . Many ended in new defaults, but eight years after the collapse, nearly 360,000 borrowers are still in the program and continue to make payments on their modified loans, according to the Federal Housing Finance Agency. The statistics show the higher percentage of successful modification involved the ones that decreased monthly mortgage payments the most.

        The goal, with HAMP and its replacement, is to prevent foreclosures and preserve homeownership and limit losses to taxpayers, which stand behind the mortgages guaranteed by Fannie and Freddie. In  general the costs to modify a loan are less than to foreclose one and take possession of  delinquent borrowers homes.

       "By avoiding the high costs associated with foreclosures, the Flex Modification will result in significant savings for the Enterprises and taxpayers," FHFA Deputy Director Sandra Thompson said in a written statement. "And it will provide borrowers who face permanent hardships with a sustainable modification." This is good news for both borrowners, lenders and taxpayers that meaningful mortgage modifications will still be an option after Decemeber 31, 2016.

How Long Can I Stay in My Home After a Foreclosure Starts in Connecticut?

     Connecticut is a judicial foreclosure state so a foreclosures action is commenced with the service of a foreclosure summons and complaint on the borrower(s)/homeowner(s).  This means that although you may have had  many conversations with a mortgage lender's collection and/or loss mitigation department in which you have been told you are in a foreclosure this really means you are in pre-foreclosure status until you are actually served with this foreclosure writ. Therefore, the time frame discussed in this post as to the time you have left to stay in your home starts with the actual commencement of the foreclosure action not bank employee statements you are in foreclosure. The time that you have left in your home depends on what actions you take after the service of the foreclosure writ. In Connecticut the foreclosure writ includes an application for foreclosure mediation with a court mediator which is described in more detail in prior posts to this blog. Generally speaking homeowners who reside in 1 up to 4 family homes who are signatories to the note secured by the mortgage being foreclosed are eligible for court mediation. You can apply for mediation either pro se or with the help of an attorney which I recommend if your goal is to obtain a loan modification. The statute governing mediation  provides you with the right to stay in mediation up to eight months and can be extended if the lender agrees or you can prove to the court you have the right to extend based on the current status of your loan modification negotiations with your lender. Foreclosure mediation is one way to extend your stay in your home and may ultimately result in your keeping your home if you receive an acceptable loan modification. At a minimum based on my experience for most clients I have represented whether they receive an acceptable modification or not the mediation process does take eight months and sometimes longer.
      While you are in mediation the foreclosure action is stayed and cannot proceed further so the bank cannot file default motions creating the need to file defensive pleadings. When mediation is terminated for defendants who do not go forward with  loan modifications there is still an opportunity to buy more time to reside in their homes. This also holds true in situations where a defendant does not pursue mediation at the onset of the foreclosure action. As indicated above foreclosure is a judicial process in Connecticut and a defendant has the right file an answer and special defenses to the foreclosure action. Banks are sloppy and makes mistakes at times which lead to facts which support the filing of these defensive pleadings. These pleadings are not necessarily designed to result in a defendant's verdict's at trial which is extremely difficult to do if the action is based on delinquent payments of a validly executed note and mortgage. What these defensive pleadings do provide is more time in your home and the delay of the foreclosure action. On average at a minimum I  have found that these pleadings provide an additional 9 months to a year before the completion of the foreclosure. In some cases I have seen foreclosures delayed years. Of course one caveat to add here is that during this period the debt due continues to accumulate and if there is a deficiency due than in some cases a Chapter 7 bankruptcy filing may be needed which can further extend time in your home usually by about 2 months, however, the existence of a deficiency does not mandate a Chapter 7 filing by itself and each case is unique. Especially in cases where there is no other debt issues since I have not seen banks be very aggressive in pursuing deficiencies in this state. This could change and like all of what I have been discussing the help of an experienced foreclosure defense and bankruptcy attorney is critical to properly protect your interests.
     In conclusion, whether using foreclosure mediation and/or defensive pleadings Connecticut homeowners can buy significant time in their homes after the start of a foreclosure action. If your goal is to stay in your home as long as you can you should contact an experienced foreclosure defense attorney to help you accomplish this.

Connecticut Homeowners Don't Be Scammed By Bogus Mortgage Modification Companies!

         I have blogged before about the victimization of clients who have retained me after being ripped off by out state mortgage companies. I believe it is a good time to revisit this topic. These companies collect high fees like $5,000 which they sometimes don't even fully explain to their victims that these are fees to them not  funds to be applied to the mortgage debt due, In almost all cases they are unlicensed and operating illegally in Connecticut. More importantly they fail to advise their victims who are defendants in a foreclosure action of the existence of the Superior Court's foreclosure mediation program. This foreclosure mediation program stays the subject foreclosure action to provide the homeowner time to negotiate on their own or with the help of an attorney a mortgage modification with the mortgage lender. This means the foreclosure process does not go forward during mediation and no foreclosure signs or auctions for the homeowner to worry about. The victims of scam artist mortgage modification companies are denied this opportunity since these companies advise their victims not to participate in foreclosure mediation or simply are ignorant it exists. Unfortunately homeowners rely on them and many times lose their homes due to this fact since these companies are really only interested in the fee paid them and not obtaining a mortgage modification for their victims. If you are the victim of a mortgage modification company and still in a foreclosure action it may not be too late to participate in Connecticut's foreclosure mediation  program. You should contact a Connecticut attorney well versed in foreclosure defense and the foreclosure mediation program to file a motion for re -inclusion in this program. With the right argument made on your behalf by your attorney these motions are looked on favorably by Connecticut foreclosure judges and in most cases will be granted. If you are a victim of these bogus mortgage modification companies don't let your home slip a way if there is a chance to save it.

Connecticut Adopts Optional Method of Foreclosure Known as Foreclosure by Market Sale

         Effective October 1, 2014 Connecticut General Statutes Section 49-24 was amended to allow mortgage lenders holding first mortgages on residential properties by agreement with mortgagors aka borrower occupants to enter into a foreclosure by private market sale. Presumably the main impetus for this optional method of foreclosure is the recognition that foreclosure auctions do not attract the highest and best sales prices for foreclosed properties. I applaud the Connecticut legislature's attempt to solve this problem, but in reading how the process will work under the statute I find it convoluted and unattractive to mortgagors, prospective purchasers and their real estate agents. Foreclosures by sale via auction are usually ordered in cases where there is equity in the property for the mortgagor and/or subsequent lienholders on the property. It appears to me that this foreclosure by market sale is supposed to be attractive to mortgagors in this position, but not underwater mortgagors since unlike a short sale it does not provide for any debt forgiveness. If this amendment was pushed through by lenders as an alternative to short sales it clearly is not and hopefully mortgagors who could benefit from a short sale will not choose this option instead.

     My first comment in looking at the process established by this amendment is that a distressed mortgagor with equity in his property seeking to sell his property would be better served selling it himself with the help of a real estate agent. If a foreclosure is started and additional time to sell is needed the mortgagor should first file for foreclosure mediation. If more time is needed beyond mediation than he can file an answer and special defenses to the foreclosure with the assistance of an experienced foreclosure defense attorney. The process starts out with a preforeclosure notice to mortgagors of the availability of a private market sale foreclosure. The process requires the mortgagor to contact a real estate agent to assess the feasibility of listing the property for sale, but the listing cannot take place until lender does an interior appraisal and agrees to listing of property for private mortgage sale. The mortgagor will be required to sign as part of the private market sale agreement that they forgo their right to participate in foreclosure mediation which to me is a red flag that this is a lender friendly drafted amendment to the statute with the ulterior motive of keeping files out of mediation which the legislators who approved it were probably not even aware of. The foreclosure action will be commenced after receipt of a mutually acceptable contract and the statute attempts to fast track the foreclosure judgment which includes the approval of the contract as well as the fees and expenses of the sale including buyers anticipated expenses. Based on my experience with short sales the required participation of lenders in this process will delay the closing considerably beyond what the drafters of this amendment planned. The court requirements for buyers will require them to incur more attorney fees than a normal sale. I see the reality of this process adding more time than the average buyer will want to wait for the closing to take place with additional fees that they will not want to incur. I also forsee major problems with any buyer trying to finance their purchase under this process. Which of course means the pool of buyers will be reduced to mostly cash buyers looking for bargains which defeats the purpose of a private sale over an auction in the first place. In fact I do not see this new option bringing any new pool of buyers offering higher prices for foreclosed properties. The amendment also gives subordinate lienholders with right of refusal law days in inverse right of priority. This adds an additional uncertainty to process for buyers that they may lose property to subsequent lienholder so all their time and effort will be wasted despite mechanism for eventually getting back their approved anticipated costs, but possibly not actual costs. The problems outlined above will also make this option not attractive for agents who will likely advise both sellers and buyers against it. This is magnified by the fact that once sale is approved by court a "person" presumably not the borrower is appointed to make the sale and transfer title. Consequently, the seller the client of the agent is out of the picture and the agent will be dealing with possibly a court appointed attorney similar to a Committee for a foreclosure auction. Something most real estate agents would prefer to avoid and adds additional complexity for a purchaser's lender in the unlikely event there is one if they have to process and review for underwriting. I have only highlighted some of the drawbacks of this new foreclosure option and my overall opinion is that it is not a good option for a distressed mortgagor trying to sell their home due to many practical problems with process established in the statute and lack of true benefits to the mortgagor. As stated in bold above there is a much better and simpler way for  a mortgagor to buy the time necessary to sell their property them self which will attract a larger pool of interested buyers and consequently a higher purchase price.

Tax Exemption for Mortgage Debt Relief is Extended for 2017

   2017 Update-

"On February 9, 2018 the President signed into law a one-year extension of the exclusion. The retroactive extension was buried in the 652 page Bipartisan Budget Act of 2018, Public Law No. 115-123 § 40201....The Act revives the exclusion from taxable income for qualifying principal residence indebtedness discharged before January 1, 2018 and to written discharge agreements executed before January 1, 2018. This will enable individual taxpayers to claim the exclusion for returns they file for their 2017 calendar year income. Given that Congress has rejected prior attempts to make the exclusion permanent, the likelihood of future extensions is doubtful." see full article @ https://library.nclc.org/last-minute-relief-foreclosed-and-struggling-homeowners-now-filing-their-taxes 

  Update for 2014-As of January 1, 2014 the tax relief act was not extended. There is a bill sponsored by two CT congressman to extend pending, but with our gridlocked Congress no guarantee that any extension is forthcoming. There is still a way for many sellers with pending short sales or in need of short sales to avoid negative tax consequences in 2014. If the seller is insolvent at time of sale the forgiven debt will not be considered as income if their liabilities exceed their assets in an amount equal to or in excess of the forgiven amount. IRS Publication 4681 provides examples of the application of this exception and a worksheet to calculate personal assets and liabilities to use for individuals tax returns. Although unusual some bankrupt homeowners seek to short sell after receiving a bankruptcy discharge. In these situations the mortgage debt  discharged by the bankruptcy does not constitute taxable income and there is no debt cancelled by the bank's acceptance of a short sale just the release of the mortgage securing the home.

      In 2007 to avoid hitting distressed homeowners with the double whammy of foreclosure and tax debt from uncollected foreclosure deficiencies The Mortgage Forgiveness Debt Relief Act was enacted. This Act is set to expire on December 31, 2012 and based on the current political climate in Congress things do not look good for the extension of this Act. This Act applies not only to foreclosure deficiencies forgiven, but to short sales, deeds in lieu of foreclosure and mortgage modifications with principal forgiveness.  It has allowed underwater financially strapped homeowners to take advantage of government and lender mortgage relief efforts without the consequence of receiving a 1099 with phantom income and related high tax liability. Short sales have become an attractive option for many homeowners and lenders since the homeowner is relieved of the underwater property and mortgage debt and the lender receives an acceptable payment from the sale without having to incur the costs and delays involved with the foreclosure, maintenance and sale of the property. Short sales have also been fueled by the National Mortgage Settlement stemming from the litigation brought by the State Attorney Generals against mortgage lenders. This Settlement has also spawned mortgage modifications with actual principal forgiveness which I have personally seen increase this year. Before this settlement act my clients that received debt forgiveness were in contested foreclosure cases that I had filed special defenses and counterclaims. The impact of the loss of the tax forgiveness in 2012 will take the teeth out of this settlement leaving distressed homeowners without the relief it was intended to provide them. They will not benefit from a short sale or mortgage modification with forgiven debt if they are faced with a large tax liability.  Unfortunately these tax liabilities will be large since many of these mortgages have been in default for years combined with properties that are significantly underwater so phantom income in excess of $100,000.00 or more will not be an unusual consequence. Also since the IRS is provided with such extraordinary collection powers and income tax debt is treated as a priority debt in bankruptcy there is no debt more frightening to any U.S. citizen than delinquent income tax debt.

What the loss of this tax relief will mean is that more distressed homeowners who cannot afford their underwater homes will simply walk away from them. Homeowners who would have originally viewed a mortgage modification with principal forgiveness as a godsend will not accept these offers due to the accompanying tax burden. These facts will in turn lead to more foreclosures and more borrowers may have to file bankruptcy to discharge foreclosure deficiencies that could have been avoided with the Act in place with a short sale or mortgage modification. Another sad consequence is that for distressed homeowners who really want to hold onto there homes they may be forced to accept a mortgage modification with no debt forgiveness despite being eligible for it just to avoid the negative tax consequences. This would negate the intended benefit of the attorney general’s settlement act and provide an unintended benefit to lenders. There is little more than a month for Congress to act and there are even larger issues being debated in Washington that overshadow the need to extend this mortgage debt relief act. One can only hope that as the year closes the vital need for the extension of this act is recognized for the sake of not only distressed homeowners, but for the entire housing market since the negative effects of increased foreclosures will continue to drag the U.S. economy down into 2013 and beyond.
UPDATE: THIS TAX EXEMPTION WAS EXTENDED TILL JANUARY 1, 2015 WHICH IS PROJECTED TO BE THE LAST EXTENSION DUE TO POLITICAL REASONS.

Why Go Out of State When The Mortgage Modification Expertise You Need Is Here In Connecticut?

    It disappoints me to still hear from prospective foreclosure and mortgage modification clients who have paid out of state mortgage modification companies or so called "national law firms" that have failed to obtain mortgage modifications for them. These companies are usually not properly licensed with the Connecticut Department of Banking and these law firms are not authorized to practice law in this state and woefully uninformed as to foreclosure law in Connecticut. Most are also unaware of the existence and benefit of the court's foreclosure mediation program. I have to admit I was initially skeptical about the foreclosure mediation program; however I now see it as a very effective tool to negotiate with lenders and their foreclosure counsel for acceptable resolutions of my clients' foreclosure cases including mortgage modifications, short sales and deeds in lieu of foreclosure. These companies and law firms blanket the internet with their advertisements and promises of great results for homeowners desperately seeking to save their homes. They take advantage of these homeowners' desperation with promises of unrealistic modifications to obtain payment of their fees before even seeing all of their clients' financials. In these situations the phrase " If it sounds too good to be true than it is not true" comes to mind when it comes to these advertisements and promises. These modification companies and national law firms are ripping people off and using their ill gotten profits to lure in more victims with their misleading and false advertising tactics. If you need help in Connecticut with a foreclosure or a mortgage modification contact an experienced Connecticut attorney to help you. A Connecticut attorney can represent you throughout the whole process including filing an appearance for you in a foreclosure action or file bankruptcy as needed which these out of state companies and law firms cannot do. Don't waste your money with any of these out of state charlatans and compound your problems by having to contact our Attorney General and Department of Banking in an attempt to get back the fees you wasted by hiring them.

What's The Next Step When Served With a Foreclosure Writ in Connecticut?

       

In Connecticut foreclosure writs are served by State Marshalls who despite the common belief to the contrary do not have to serve a homeowner in hand rather they can make abode service which means rubber banding to a front door constitutes valid service. If the wind has not blown your writ away (I wish this was only a joke, but it happens on occasion) and you find this on your door what is your next step. The first thing you'll see in front of the actual summons is the notice of foreclosure mediation. It sometimes confusing placement aside this well intentioned program was enacted by the Connecticut legislature to provide homeowners with the opportunity to enlist the help of a mediator to negotiate a modification of their mortgage loan and place the foreclosure process on hold during mediation.  Based on my experience prior to deciding on proceeding with mediation homeowners should consult with an attorney especially one with both bankruptcy and foreclosure defense/workout expertise. In my case I offer a free initial consultation to review all of the homeowner's options and recommend the best option to suit the facts of their case.

 I do recommend foreclosure mediation in most cases. Foreclosure mediators are judicial department employees who work at the courthouses where the mediation sessions are held. They are borrower friendly since their goal and reason for existence is to achieve an acceptable settlement of the parties. This does not always mean a modification, however, this can also mean a short sale, a deed in lieu of foreclosure or an agreed upon judgment date. In order to qualify for foreclosure mediation:

You must be the owner-occupant of a 1, 2, 3 or 4 family residential property;

you must be the borrower; the signatory to the mortgage note;

the property being foreclosed must be your primary residence;

the mortgage on your owner-occupied residential property must be in foreclosure; and the property must be located in Connecticut. See Form JD-CV-108.

Based on my experience I have seen more loans modified in foreclosure mediation than by borrowers on their own. This is an unfortunate reality of the current way most banks handle modification requests and that it takes the actual commencement of the foreclosure to lead to an acceptable modification. Again this is not to say all cases in mediation are modified, however, it does allow homeowners the opportunity to plan and negotiate other resolutions as well like short sales. Finally, no matter what the ultimate result mediation stops the foreclosure process and provides additional time to homeowners to stay in their homes while negotiating with their mortgage lenders.

Intro to My New Blog

        The time has come for me to start blogging as a way to reach out to people  in the State of Connecticut who are looking for answers to their financial problems including creditor harrassment, bank and wage executions, foreclosure and related distressed real estate matters. I have seen alot in my 26 years in practice the majority of which has been focussed on one side or the other of debtor creditor law. I represented credtiors and foreclosing lenders in the late 80's thru the mid 90's and saw how the cyclical nature of economic downturns effected homeowners and what worked and didn't work to resolve these problems.  I have represented primarily debtors since the mid 90's and unfortunately right now we are in a mess of downturn which seems to continue to go down without a true upswing in sight for distressed homeowners and the chronically unemployed.  The message I plan to convey through this blog is one of hope and that there are options available to help debtors to climb out of their financial holes. I will try to keep it as simple as possible while discussing what at times can be a very technical area of law.