Category Archives: Foreclosure

Although the foreclosure crisis is no longer at its peak, there is still a backlog of foreclosures in some states. If you are facing foreclosure, it’s helpful to know if the process will be relatively quick, or if it will drag on for years.

(To learn more about the time it takes for a foreclosure to complete, visit our Foreclosure Timelines topic page.)

The Top Five

According to recent data from RealtyTrac, the five states in which foreclosure takes the longest period of time to complete are:

• New York — foreclosures take an average of  1,049 days (just under three years)
• New Jersey — foreclosures take an average of 1,002 days
• Florida — it takes 893 days on average to complete a foreclosure
• Hawaii — the foreclosure process in Hawaii takes on average 824 days
• Illinois —  foreclosures take an average of 720 days to complete

Why the Long Timelines?

In addition to banks wading through a backlog of foreclosures, factors that contribute to a long completion process include:

• the process the state uses (judicial foreclosures take longer than nonjudicial foreclosures)
• whether the state has protections for homeowners (like mandatory mediation) that prolong the process, and
• whether the lender or servicer is subject to heightened mortgage servicing standards (for example, because it’s part of the  national mortgage settlement).

Longer Is Usually Better

For most homeowners, the longer it takes for the foreclosure to finish, the better. It’s often advantageous to have extra time to:

• try to refinance of your mortgage under the government’s Home Affordable Refinance Program (HARP) (the deadline to apply was recently extended to December 31, 2015)
• negotiate an alternative to foreclosure, or
• live in your home without making a payment before the foreclosure is completed. (To learn more, see How Foreclosure Can Save You Money.)

When a Long Timeline Is Not Helpful

If, on the other hand, you have made other living arrangements and are eager to move out, a long foreclosure timeline could have some downsides. You need to keep tabs on the process to make sure the process actually comes to completion, otherwise you could become the victim of a zombie foreclosure.

To learn more about foreclosure timelines, check out Nolo Network Author Amy Loftsgordon‘s article States With Long Foreclosure Timelines.

The Federal Housing Finance Agency recently announced that it will extend it’s Home Affordable Refinance Program (HARP) to December 31, 2015. It was set to expire on December 31, 2013.

(If you are struggling to make your mortgage payment, visit Nolo’s Foreclosure Center.)

What Is HARP?

HARP is part of the federal government’s Making Home Affordable Program. It allows homeowners with Fannie Mae and Freddie Mac mortgages to refinance their underwater home mortgages if they meet certain criteria. Requirements include:

• the mortgage must be owned or guaranteed by Fannie Mae or Freddie Mac on or before May 31, 2009
• the homeowner is current on mortgage payments, and
• the loan-to-value ratio must be greater than 80%.

What Does a HARP Refinance Do?

If you qualify for HARP, you may be able to refinance (even if your home has lost value) and get a mortgage with a lower interest rate, a lower monthly payment, a fixed-rate, or a shorter mortgage term.

To learn more about HARP requirements and how to apply see Nolo’s article The Home Affordable Refinance Program (HARP2).

ASK LEON 

Bankruptcy expert Leon Bayer answers real-life questions.

Dear Leon,

California’s real estate market had good news in January — the rate of foreclosures dropped by a whopping 39.5% (as compared to December).  Although foreclosure rates were down in the nation overall, California’s drop was far greater than that of any other state.

Experts are attributing this drastic change in foreclosure rates to California’s new Homeowner Bill of Rights, which went into effect on January 1, 2013. The new law forbids dual tracking (when a mortgage servicer proceeds with foreclosure while it’s also considering a homeowner’s application for a loan modification) and requires servicers to provide homeowners with a single point of contact, among other things. (To learn more about the new law, see Nolo’s article California Foreclosure Protection: The Homeowner Bill of Rights.)

Just in the nick of time, the United States Congress extended the Mortgage Forgiveness Debt Relief Act through the end of 2013.  It was scheduled to expire on December 31, 2012.

What Is the Mortgage Forgiveness Debt Relief Act? 

If your lender forgives part of your mortgage debt (perhaps because you’ve modified or restructured your loan, gone through a short sale, or lost your home to foreclosure), you would normally be required to pay taxes on the amount forgiven. This is because the IRS considers the forgiven loan to be income.

However, in order to protect homeowners from these huge tax bills, in 2007 Congress passed the Mortgage Forgiveness Debt Relief Act. The Act gives homeowners a break, stating that they don’t have to pay tax on forgiven mortgage debt in certain circumstances. (To learn about those circumstances, see Canceled Mortgage Debt: What Happens at Tax Time?)

The Act was scheduled to expire on December 31, 2012 (it had already been extended once).

Tax Relief for Homeowners Continues Through 2013

As part of the recent legislation to avoid the fiscal cliff, Congress extended the tax relief of the Act through the end of 2013. That means that if you meet the qualifications in the 2007 law, you can get tax relief for mortgage debt forgiven through December 31, 2013.

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On January 1, 2013 the new California Homeowner Bill of Rights went into effect. One part of this new law protects homeowners in foreclosure from dual-tracking. This means that if you request a loan modification within a certain period of time, your lender (or mortgage servicer) must stop temporarily stop foreclosure proceedings while it considers your application.

What Is Dual-Tracking?

In the past, a lender would sometimes continue to foreclose on a homeowner’s home, even while it was simultaneously considering the homeowner’s application for a loan modification. Because of this practice, called dual-tracking, many homeowners who were in the midst of loan modifications were shocked to lose their homes to foreclosure.

What Does the New California Foreclosure Law Do?

Under the new law, lenders and servicers that receive a complete loan modification application must temporarily stop foreclosure proceedings until it makes a decision on the application.

To learn details about the new prohibition on dual-tracking in California, as well as other provisions of the Homeowner Bill of Rights, see Nolo’s article California Foreclosure Protection: The Homeowner Bill of Rights.

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ASK LEON 

Bankruptcy expert Leon Bayer answers real-life questions.

Dear Leon:

I live in California and have a question about foreclosure and property taxes.

My house is in foreclosure. I have just one mortgage, and plan to walk away before the end of this month. I want to be out before the foreclosure sale takes place. The Notice of Default was recorded on September 19, 2012.

By my count, I received via regular mail, 12 copies of the exact same Notice of Default and Election To Sell from my lender. The same day, I received 12 certified copies of the exact same letter. In all, 24 notices mailed separately, and each one is identical. Should I be scared?

I’m also really worried about the several years of property taxes I owed.  On the first page of the Notice of Default is a sentence that indicates I am responsible for the taxes.   I did a Chapter 7 and got a discharge earlier this year.  But I am terribly worried I’ll still have to pay the property taxes after the foreclosure sale.

Celia

Dear Celia:

I’ll take each part of your question separately. Here we go.

The Property Tax Issue

If you plan to leave the house, and don’t want to reinstate the loan, you don’t have to pay the property taxes.  Here’s why.

Under California law, a foreclosure sale can be held as soon as 111 days after the date that the Notice of Default (NOD) was recorded. The NOD tells you that you have 90 days to get current  on your mortgage. If you don’t, the lender may cause a Notice of Trustee’s Sale, (NOS) to be recorded after the NOD has expired. The NOS may set a  foreclosure sale date no sooner than 20 days after publication of the NOS. Hence, it all adds up to a minimum of 111 days. (You can learn more about foreclosure timelines here.)

If you are completely out by the end of this month, you will be fine.

You Must Pay Property Taxes If You Want to Reinstate the Loan

Even though the NOD may have expired, you still have a legal right to reinstate your loan. The law gives you additional time to reinstate your loan by paying all sums due, up until the fifth business day prior to any foreclosure sale date.

Reinstatement, as defined in the NOD, includes everything you owed up to the date the NOD was prepared, plus everything that has come due afterwards. Here is where the property tax issue enters the picture.

Your mortgage requires you to pay the property taxes. Failure to pay the taxes is a loan default, because you were required to pay them as a condition of holding ownership to the property. A property tax default justifies commencement of a foreclosure even if your normal monthly payments are current. Here’s why that is.

Under California law, property taxes constitute a priority lien on real property. If they are not paid, the state gets an automatic tax lien against your property for the amount due. That tax lien jumps over the heads of all mortgages, and takes priority.

The thing confusing you is the statement on the NOD saying that you have to pay the taxes. That is true, but only if  you are going to reinstate the loan. If you are not reinstating, don’t pay the taxes.

Your lender would love to have you pay the taxes, but you don’t have to. If you don’t pay, they have to pay the taxes after the foreclosure sale, and they can’t collect it from you.

The 24 Notices of Default 

You received a total of 24 separate foreclosure notices. This is nothing to be frightened of. One copy would have sufficed, but multiple copies are good. The Post Office needs the revenue.

-Leon

Leon Bayer is a Los Angeles bankruptcy attorney.  He is a partner at Bayer, Wishman & Leotta, a California law firm specializing in bankruptcy.  The opinions and advice in this blog post are from Mr. Bayer alone, and should not be attributed to Nolo.  By answering a question on this blog, Mr. Bayer does not become your lawyer.

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ASK LEON 

Bankruptcy expert Leon Bayer answers real-life questions.

Dear Leon:

I own a home and am current on my mortgage. I recently fell behind on my property taxes. My lender paid the taxes and is now billing me for them. Why would the bank pay my taxes?  And what happens if I don’t reimburse the lender for the tax payments?

Dear Stan:

If you don’t pay your property taxes, the bank will advance money to pay the property taxes, then turn around and bill you for that cost. If you don’t reimburse the bank for the taxes you owe, your lender can foreclose on your home.

Here’s why this happens.

The Lender Wants to Protect Its Interest in the Property

If you have a mortgage on your home or other real estate, the lender has a security interest in your home. If you default on the mortgage, the lender can take the home back to get reimbursed for the mortgage payments you owe. This is called foreclosure. Not surprisingly, the lender wants to protect its interest in your property, and make sure nothing happens that will hurt its ability to foreclose or to get reimbursed for mortgage payments.

For this reason, your lender will require you to maintain fire insurance and other types of homeowner’s insurance. In addition to keeping the property insured, the lender will also require that you stay current on the property taxes (this will be part of your mortgage contract). Here’s why the lender cares about your property taxes being current.

Why Does the Lender Care About Property Taxes?

Under the California State Constitution, property taxes become a priority lien on the property as soon as the county tax assessor issues an assessment notice for the tax. The “priority part” means that the property tax lien jumps ahead of the mortgage.

If the taxes remain unpaid for a long enough time (usually five years), then the county has a tax sale of the property. The tax sale of the property is not subject to the other liens against the property. This means the buyer at the tax sale takes title free and clear of any other encumbrance, not even the mortgage! Hence, banks are scared to death of letting property be sold at a tax sale because it wipes out their mortgage.

A mortgage lender is in for a horrible loss if they let that happen. Somebody might walk away with the property as the successful bidder at a tax sale, paying far less than market value, and the mortgage lender might get absolute nothing!

How the Lender Protects Itself

Lenders can protect themselves from losing their collateral at a tax sale by monitoring the tax delinquency status on every parcel they have loaned against. If the borrower fails to pay the property tax, the lender will advance the money to pay the taxes. That removes any danger of a potential tax sale, and then the lender can bill the owner for the taxes that the lender has paid.

Paying the taxes also allows a lender to take their sweet time in foreclosing on the borrower. For example, a bank won’t rush through a foreclosure if it already has too many repossessed condos in their inventory.

If you have delinquent taxes, you can work with the IRS to structure a payment plan. Learn more in our Back Taxes & Tax Debt area.

Guest blogger Leon Bayer practices bankruptcy law in Los Angeles, California.  He is a partner at Bayer, Wishman & Leotta.  The opinions and advice in this blog post are from Mr. Bayer alone, and should not be attributed to Nolo.  By answering a question on this blog, Mr. Bayer does not become your lawyer.

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The month of September marked the lowest number of foreclosures nationwide since 2007, according to a recent report by RealtyTrac.  The number of foreclosures was down 7% from August 2012, and was 16% lower than in September 2011.

The news was not all good, however. Some states that use the judicial foreclosure process (where foreclosures go through court) actually saw an increase in foreclosures in September. Because  judicial foreclosures take longer than nonjudicial foreclosures, experts say the higher numbers are probably due to a backlog of cases finally foreclosing.  Of the nonjudicial foreclosure states, only four had a rise in foreclosure numbers.

The numbers for foreclosure starts (when a foreclosure is initiated) were lower too – September foreclosure starts were 12% lower than in August. Experts warn that this might mean an increase in short sales. Short sales are bad news for housing prices (although not as bad as foreclosures), but are often preferable to homeowners than going through foreclosure.  (Learn about the pros and cons of short sales, and how they work, in Nolo’s Short Sales topic area.)

Finding information on the federal government’s Making Home Affordable program, including the ever popular Home Affordable Modification Program (HAMP), that is both trustworthy and easy to understand can be difficult enough if you’re a native English speaker. Now imagine how difficult it must be for non-English speakers. Yet studies show that Latino families have been significantly affected by the foreclosure crisis in the United States. And non-English speakers have been and continue to be the most at risk of falling prey to foreclosure rescue scams. To address the needs of these homeowners, the Treasury Department and HUD have introduced a Spanish version of the Making Home Affordable website. You can find the site at www.makinghomeaffordable.gov/spanish.