Events:

In person networking is vital – online networking often starts the relationship but in-person cements it.  I posted several events in the NY metro area that are not be missed including the NYC Business Networking Event – Luxury Series (7/27) and Queens Real Estate Group Summer Soiree (7/28) among others.  Extend your knowledge by taking a class – Dealing with Banks: REOs and Short Sales or  a webinar such as Understanding Titles & Closings for Real Estate Investors .

Short Sales

Short Sales are now the focus of the real estate loss mitigation community and the banks have finally realized that a short sale is the premier solution as the return, dollar for dollar, is far superior to foreclosure and REO.  Check out the webinar, Understanding Fannie Mae, Freddie Mac HAFA Short Sale Rules to make sure you are abreast of the new rules.  Watch some of the new videos, like Internal Bank Form Gives Insight Into Short Sales vs Foreclosure or Citimortgage Changes Short Sale Policy Again! as the banks are constantly changing how the game is played. Visit the forums as some of our own gurus post their tips and experiences.

Remember, the S&P Real Estate Networking Site is a "members-only" site so apply for membership now (it is free!) for exclusive access.

Enjoy your summer!

Related posts:

1. Landlord/Tenant Law Resources on Scanlon & Pinto, PLLC Networking Site
2. DON’T SAY I DIDN’T WARN YOU! NY Attorney General’s Crackdown on the Loan Modification Industry
3. Short Sales & No-Flip Clauses in the Approval Letter – Removing a Roadblock

The New York Court of Appeal recently opined in NYCTL 1999-1 Trust v. 573 Jackson Avenue Realty Corp., 13.N.Y.3d 573 (December 15, 2009) that the definitive requirement for redeeming real property during foreclosure proceedings  is the “unconditional tender [to the foreclosing party] of the full amount due” before auction.  This general rule in mortgage foreclosure proceedings also applies to the foreclosure of a tax lien.

However, note that the Courts will exercise their broad equitable powers to void judgments and even set aside sales (extending the homeowner's right of redemption), where homeowners are seeking to modify or reinstate their mortgages while the lender continues with the foreclosure action. Jimmy Lathrop, Esq., the Director of Foreclosure Intervention at the Brooklyn Bar Association Volunteer Lawyers Project, recently discussed in his blog post,  three cases where the court found that the homeowner's good faith negotiations mandated an equitable solution and a possible complete bypass of RPAPL §1341 which defines the requirements and time frame of the borrower's right of redemption.

Related posts:

1. DON’T SAY I DIDN’T WARN YOU! NY Attorney General’s Crackdown on the Loan Modification Industry
2. NY Governor Looking to Expand Protections for Defaulting HomeOwners, Tenants
3. Short Sales & No-Flip Clauses in the Approval Letter – Removing a Roadblock

Having recently issued a decision canceling an Indymac mortgage lien in another foreclosure action, Judge Spinner turns his attention to the outrageous actions of Wells Fargo and holds the mortgage behemoth liable for trespass, resulting in $155,092.00 judgment, in Wells Fargo v. Tyson. At the outset, the court pointed out that the Plaintiff sent a per diem attorney to the first  settlement conference who had no knowledge of the case so that any potential progress was thwarted.  It is a common problem and a recurring complaint that usually Plaintiff’s representative, at these settlement conferences, has no authority to negotiate, thus preventing any meaningful settlement and violating the spirit of the law. Having aroused the ire of numerous judges, you would think that these foreclosure mill law firms would figure out that they had better send counsel with authority to enter into some sort of settlement or at least have the ability to get someone on the phone who has it.

Certain facts were not disputed – that Wells Fargo had a representative enter the premises, without notice, not once but twice.  The representative changed the locks despite the fact that the premises were obviously not abandoned by the defendant.  Defendant had previously winterized the home, secured it, maintained the exterior of the premises and did not remove his furniture, clothing, food etc.  Defendant also visited the home at least once a week and had asked a neighbor to keep an eye on the premises.

Plaintiff relies on certain language in the mortgage itself: “Lender, and others authorized by Lender may enter on and inspect the Property. They will do so in a reasonable manner and at reasonable times. If it has a reasonable purpose, Lender may inspect the inside of the home or other improvements on the Property. Before or at the time an inspection is made, Lender will give me notice stating a reasonable purpose for such interior inspection.” as well as the express provisions in another paragraph regarding abandonment: “If…I have abandoned the Property, then Lender may do and pay for whatever is reasonable and appropriate to protect Lender’s interest in the Property…Lender’s actions may include but are not limited to: (a) protecting and/or assessing the value of the Property; (b) securing and/or repairing the Property;…Lender can also enter the Property to make repairs, change locks…and take any other action to secure the Property.”

In its analysis, the court first noted that mortgage documents and their terms are not negotiable and as such, are contracts of adhesion.  Therefore, they are to be construed strictly against the drafter – the plaintiff herein.  Belt Painting Corp. v. TIG Insurance Company 100 NY2d 377 (2000). “Under the circumstances presented to this Court, it is appropriate and fair that the terms of the instrument be construed in favor of Defendant.”  Using a fair reading of the above language, it is apparent that the Lender’s actions must be reasonable and entry can only be upon adequate notice. Further, abandonment of the property is a condition-predicate to entry and the testimony of the defendant substantiated defendant’s claims that he had not abandoned the property.

Based upon the foregoing facts, Spinner declared that the Plaintiff  engaged in a Trespass on at least two occasions:

Distilled to its very essence, trespass is characterized by one’s intentional entry, with neither permission nor legal justification, upon the real property of another, Woodhull v. Town of Riverhead 46 AD3d 802, 849 NYS2d 79 (2nd Dept. 2007). The injury arising [*4]therefrom afflicts the owner’s right of exclusive possession of the property, Steinfeld v. Morris 258 AD 228, 16 NYS2d 155 (1st Dept. 1939), Kaplan v. Incorporated Village of Lynbrook 12 AD3d 410, 784 NYS2d 586 (2nd Dept. 2004). The elements of a claim for trespass are intent coupled with the entry upon the land that is in possession of another. In order for trespass to lie, general intent is legally insufficient. Instead, there must be a specific intent, either to enter the land or to engage in some act whereby it is substantially certain that such entry onto the land will result therefrom, Phillips v. Sun Oil Co. 307 NY 328, 121 NE2d 249 (1954). The intent need not be illegal or unlawful, MacDonald v. Parama Inc. 15 AD2d 797, 224 NYS2d 854 (2nd Dept. 1962) but even one who enters the land upon the erroneous belief that he has the right to enter thereon will be held liable in trespass, Burger v. Singh 28 AD3d 695, 816 NYS2d 478 (2nd Dept. 2006). Trespass will lie against a party if entry upon the land was perpetrated by a third party, such as an independent contractor or other party, at the direction of the party to be charged, Gracey v. Van Kamp 299 AD2d 837, 750 NYS2d 400 (4th Dept. 2002). Id.

Turning to the issue of damages, the court expressed that a foreclosure action is an action in equity and as such, it may impose punitive damages.  “In a suit in equity, the Court is empowered with jurisdiction to do that which ought to be done.” Id.  Spinner then turned to address the bank’s egregious conduct:

Here, the Court is constrained to find that the conduct of Plaintiff in this matter was both willful and wanton, as evidenced by not one but two unauthorized entries into Defendant’s dwelling, occurring in complete derogation of Defendant’s right of possession. This conduct becomes even more glaring when consideration is given to the fact that Defendant affirmatively notified Plaintiff that he had secured the property and that it was not abandoned and still contained his personal property. Even so, Plaintiff maintains that it has entered the property under a color of right, which turns out to be illusory under the circumstances. In spite of these declarations, Plaintiff willfully took it upon itself to enter the property on more than one occasion, doing so unreasonably and without notice, in direct contravention of the terms of its mortgage promulgated to Defendant by its assignor. This is even more distressing when it is considered that Plaintiff breaches its obligations to Defendant under the mortgage, running roughshod over Defendant’s rights with a specious claim that it is acting to protect its rights and the property. In short, the conduct of Plaintiff was nothing short of oppressive and would best be described as heavy handed and egregious, to say the very least. Certainly, the trespass was willful and calculated and was not accidental in any way and the Court finds that Plaintiff did not act in good faith. Under these circumstances, an award of both actual and exemplary damages is necessary and appropriate in order to properly compensate Defendant for the losses he has sustained by way of Plaintiff’s shockingly wrongful conduct as well as to serve as an appropriate deterrent to any future outrageous, improper and unlawful deeds.  Id.

Unfortunately, it appears that this type of behavior is not unheard of by members of the real estate bar.  One member noted that a similar situation occurred with a foreclosure defendant client of his.  Although he had secured and winterized the premises, the bank’s inspection service alleged the premises were wide open and entered the premises.  They also changed the premises, turned the valves to “turn off the water” which instead resulted with the water being turned on.  The pipes burst and flooded the home.

The court’s actions in Wells Fargo v. Tyson should send a clear and unequivocal message to Lenders and their various contractors that they do not have an absolute right to enter a mortgagor’s property and such behavior will not be tolerated.

Related posts:

1. NY Governor Looking to Expand Protections for Defaulting HomeOwners, Tenants
2. Real Estate Law Update: New York State Decisions of Interest
3. Short Sales & No-Flip Clauses in the Approval Letter – Removing a Roadblock

One of my searches led me to a couple of REO property flips involving a corporation represented by the same attorney.  All the properties are located in Brooklyn. One of the transactions, the spread was over $320,000! Nice profit, isn’t it?  So how did they do it?  Buyer took out a conventional mortgage of $635,000 and closed the beginning of November 2008.  Most, if not all, conventional lenders have seasoning requirements.  Did this corporation buy the property and hold for 90 days?  Nope.  Now I am sure you are wondering – well how does she know?  I know, because all of these transactions are part of the public record and, if you know what to look for, it is fairly easy to discern the methodology.  These particular parties are stupid. But, they also had to be aided by the title company. So what did they do?

Take a look at this snapshot of one of the transfer tax documents – the RP5217 – that I copied straight from the ACRIS system:

Now look at the crossed-out dates (this one is such a particularly poor job, but it closed). I propose that it did, in fact, close on September 10, 2008.  Look at the CRN number on the bottom of the form (circled in red). The CRN number starts with the year, month and day the property is supposed to change hands and is inputted by the drafter. These transfer tax returns are usually prepared within days of closing.  This vast time difference would never occur.  The parties needed to back date the transaction because of the bank’s seasoning requirements. Also, they needed to back date it far enough that they could avoid any additional value requirements for transactions taking place within 180 days of acquisition.

Suffice it to say this is only one of this buyer’s reo transactions and they rest follow the same trend.  It is all laid out there in the public record. This kind of trend would certainly supply law enforcement with enough probable cause to obtain a warrant to secure the documents from both the first and the second closings.  Perhaps there will be a show check, false income documents and other indicia of fraud – who knows?

Now ask yourself, if I can find this blatant evidence of REO fraud, who else could be looking?

Related posts:

1. Short Sales & No-Flip Clauses in the Approval Letter – Removing a Roadblock
2. Seasoning and FHA’s Time Restrictions on Resales – a Legal Analysis
3. Buyer $5,000 Short – How to Close the Gap…from a NY Point of View

On Friday, January 15, 2010, HUD Secretary Shaun Donovan issued a  press release, as part of HUD’s Neighborhood Stabilization initiative, temporarily waiving FHA’s 90 Day Seasoning Rule.  Amazingly, HUD is cognizant that the seasoning guideline is having a negative impact on alleviating the problem of abandoned and blighted homes:

“In today’s market, FHA research finds that acquiring, rehabilitating and the reselling these properties to prospective homeowners often takes less than 90 days. Prohibiting the use of FHA mortgage insurance for a subsequent resale within 90 days of acquisition adversely impacts the willingness of sellers to allow contracts from potential FHA buyers because they must consider holding costs and the risk of vandalism associated with allowing a property to sit vacant over a 90-day period of time.”

The online real estate community was buzzing yesterday as news of this waiver spread quickly. The investor “gurus” are, of course, rejoicing and spreading the news far and wide, without a careful read of the Waiver itself.  The intent of this temporary policy change is to allow investors to take title to a property, rehab it and sell it quickly. It is not a panacea for those investors who pick up a property at a discount, seeking to flip it for a profit in a “back to back” or “double” closing.  For those types of transactions, the 90 day seasoning rule is a non-issue if you utilize a land trust correctly.

HUD’s Mortgagee Letter 2006-14 clarified the Rule and Regulations set forth in 24 CFR 203.37a concerning the eligibility of properties for FHA insurance and the rules governing sales of property.  As I have discussed in a previous blog post,  Legal Analysis of FHA’s Seasoning Requirements, the real estate and mortgage industry routinely misunderstands and applies these eligibility rules incorrectly and it appears that the trend is continuing with this new Waiver.

FAQS:

1. Does it have to be a property acquired through a short sale, bank auction or an REO to be eligible under the Waiver?

No. There are no requirements in the Waiver concerning the status of the property itself.  It is not necessary to demonstrate the distressed nature of the property.

2. So I can get a property under contract, execute a contract with a potential FHA buyer and close with my FHA buyer the same day or the day after I purchase the property?

No this transaction would not be eligible for FHA insurance. The waiver is actually of the requirement that the real estate contract be executed on the 91st day after the investor takes title to the property. The requirement that the investor own the property is still in effect and therefore Contract Vendees and Assignments of contract are still prohibited.  Further, an application for an FHA mortgage cannot be submitted to a Lender for consideration without a fully executed Contract.  Therefore, Back to Back Closings will be impossible.

3. So I can close a week after I take title?

Virtually impossible for several reasons. I venture that there are almost no Lenders in this post-bubble market that will take an application for an FHA mortgage and be in a position to close a week later.  I am going to stretch that to probably 30 days.  This is definite if your sale price to your FHA buyer is 20% or more higher than your acquisition price (do the math – its not that hard to hit that number – especially in certain areas of the country where housing prices are below $50,000). If the sale price exceeds the 20% threshhold, the investor will have to document the increase in value with supporting documentation and/or a second appraisal and the Lender will have to obtain a Property Inspection Report (see paragraph 2 of the Waiver).  This report will not be ordered prior to application submittal and as discussed previously, that doesn’t take place until there is a fully executed Contract of Sale.

4. I found this great property that my buddy picked up 2 months ago for $120,000.00.  He rehabbed it and I am in contract to purchase it from him for $220,000.  I want to flip it to an FHA buyer for $250,000.00 can I do it?

You will have to wait until the 91st day after you close title to enter into a Contract of Sale with the FHA buyer. The Waiver will not apply if there is a history of prior flipping activity in the 12 month chain of title (see paragraph 1(c) of the Waiver).

5. In April, the Treasury’s Short Sale Program goes into effect and there should be a lot of distressed properties coming on to the market. The Waiver is going to be a big help in moving those properties!

No, it isn’t.  Apparently, government offices do not communicate with each other before issuing rulings – one of the requirements under the Treasury short sale program is that the Contract include a representation that the Purchaser will hold the property for 90 days post-closing.  Perhaps the Treasury will revise its Directive and remove this offending language (which, as I had discussed previously, is extremely short-sighted).

Conclusion

Investors should rejoice as finally they are receiving the recognition they deserve: properties are moving because of their hard work and without the proper incentive, it wouldn’t happen. Instead of being the black sheep of the real estate community, investors are a major part of the solution.  This Waiver is what investors need to get the properties rehabbed, sold and occupied to ameliorate the problem of abandoned and blighted homes. It is not a license to flip and should you wish to engage in that type of activity, you will not be able to use this Waiver to accomplish your goals.

Related posts:

1. Seasoning and FHA’s Time Restrictions on Resales – a Legal Analysis
2. Short Sales & No-Flip Clauses in the Approval Letter – Removing a Roadblock
3. HUD News Release 08-082 FHA Temporarily Lifts Anti-Flipping Rule (Don’t get all excited yet though!)

Short sale transactions are essential to move properties in furtherance of rebuilding our economy. They directly benefit several parties including:

• the distressed homeowner: unburdened by debt he cannot afford without the same level of credit score damage a foreclosure would cause as well as possible deficiency judgments;
• the real estate agent: earns commissions (provides jobs etc);
• the short sale bank: removes nonperforming assets from its books,  usually at far less of a loss than if the property became an REO; and
• real estate investors: acquiring properties at a discount provides incentive to negotiate as well as to seek out qualified purchasers

Part of the fallout from the real estate market crash is a rash of negativity aimed directly at real estate investors.  They, along with mortgage brokers and other members of the real estate community, are being made the scapegoats for the Housing Bubble.  I’m going to clue you in on a little secret – it really wasn’t them.  Not that there weren’t unscrupulous investors, loan officers etc. – far from it.  Point the finger directly at the Banks and the Government. The Banks needed those deals to package up and sells as mortgage backed securities on Wall Street.  When there was not enough product, they lowered their standards to bring in more loans. They blatantly ignored fraud reports and lended on questionable properties. The banks created exotic loan products and recklessly offered them without regard to ability to pay.  The Government wanted to increase homeownership among minorities – hence ACORN. It created several programs and incentives to push the percentage of homeownership way above the standard amount.  I am also going to point the finger at the American Homeowner who decided to use their home as an ATM, or who lied on their loan applications because they needed to compete with the Joneses.  Lets also add real estate agents to the mix who fought for higher and higher appraised values and selected comparables for their Broker Price Opinions (BPO) to influence the appraiser to come in higher. (RANT finished)

These very parties, who irresponsibly handed money to unqualified buyers on overvalued properties, as part of their attempt to pass the blame to real estate investors, are throwing around the “fraud” label with regard to flipping short sale transactions (for more discussion on Short Sale Fraud please read my prior blog post). In an attempt to curtail the investor’s ability to flip these properties, some banks are including “no-flip” clauses in their short sale approval letters. I have seen this language in Bank of America, GMAC, EMC,Countrywide to name a few.  There are varying forms of this language from purporting to restrict the transfer of the subject property for 30 days post closing to voiding the transfer and reinstating the note and security agreements, post-closing, if the bank determines that there was fraud.

The easiest language to address in the 30 day post-closing restriction on transfer.  Lets review basic contract law and the doctrine of privity.  Basically a contract does not confer rights or impose obligations upon anyone except for the parties to it. The contractual relationship is between the homeowner and the bank. The short sale approval is a settlement of the debt obligation between these parties.  The bank has no contractual relationship with the investor and/or buyer and therefore this language, purporting to impose a restriction on the investor/buyer, is unenforceable against the investor/buyer. With respect to the other no-flip clauses, Bob Massey does an excellent job of explaining how to handle those banks in his video:

I have located an underwriting bulletin from Stewart title which addresses these problematic clauses in short sale approval letters.  It indicates that such language makes the transaction “uninsurable”.  As Massey suggests, request that the clause be removed from the short sale approval letter as title will not insure the transaction and provide a copy of the title bulletin to support your argument. You might have to bypass the negotiator and contact a supervisor but this should be sufficient to persuade them to delete the offending language.

What have you encountered and what has worked for you? Please comment!

Related posts:

1. PropertyShark University – Short Sales Class – Tues June 17, 2008 – Don’t Miss It!!!
2. Seasoning and FHA’s Time Restrictions on Resales – a Legal Analysis
3. Buyer $5,000 Short – How to Close the Gap…from a NY Point of View

No related posts.

Highlights of the HAFA program are as follows:

• Servicers have 10 days to approve or disapprove a request for short sale.
• Uses borrower financials and other documents already submitted for a loan modification.
• Allows borrowers to receive pre-approved short sales terms before listing the property (including the minimum acceptable net proceeds).
• Prohibits servicers from requiring a reduction in the real estate commission agreed upon in the listing agreement (up to 6 percent).
• Requires borrowers to be fully released from future liability for the first mortgage debt (no cash contribution, promissory note, or deficiency judgment is allowed).
• Uses standard processes, documents, and timeframes/deadlines.
• Provides financial incentives: $1,500 for borrower relocation assistance; $1,000 for servicers to cover administrative and processing costs; and up to $1,000 for investors (note holders).
• Caps proceeds to second lien holders at $3,000.00. (interesting but I wonder at how those lien holders in the second position feel about this)

Requirements:

• Loan must be HAMP eligible – Services must evaluate a buyer for a HAMP modification first before giving any consideration for a HAFA short sale or Deed in Lieu (DIL);
• Property is borrower’s principal residence;
• the mortgage is a first lien and was originated before January 1, 2009;
• the loan must be delinquent or default reasonably foreseeable;
• loan amount limit is 729,750 (on 1 family units);
• borrower’s total monthly payment exceeds 31 percent of the home owner’s income and attested to by affidavit;
• Sale must be an arm’s length agreement and the buyer must agree not to sell the property for 90 days (problematic and I believe will diminish the potential of this program);
• Requires property to be listed with a real estate broker (I wonder who lobbied for this…so this has to be added on to the  servicer’s Minimum Net Proceeds and thus increases the cost to Purchaser)

While I admire the government’s attempt at allieviating the short sale log jam, as usual, they overstep their bounds. The American people are being asked to yet again foot the bill for the banks’ irresponsible lending practices to the tune of $3,000 per closing.  Further, mandating that properties be listed with a real estate broker across the board is excessive and will, in effect, add to the purchase price paid by the prospective buyer.  The arm’s length rule eliminates family attempting to save the home and the 90 day prohibition against resale will chill real estate investor participation which plays a major role in moving houses (I find this restraint on alienation to be disturbing as well and question its enforceability). Lastly, I question how many second lienholders are going to participate with their payments limited to $3,000.00.  Without their participation, it will be an exercise in futility as many of these homeowners have 2 loans.

Related posts:

1. Treasury Department’s “Making Home Affordable” Program Attempts to Tackle 2nd Lien Dilemna
2. PropertyShark University – Short Sales Class – Tues June 17, 2008 – Don’t Miss It!!!

Inman columnist Bernice Ross posted an excellent article, in response to a Seller’s question, on what to do if your buyer is $5,000 short for the deal.   As a New York real estate lawyer, I wanted to add my two cents as to a rather innovative way to close that gap.

New York is one of the only states that imposes a mortgage tax upon a purchaser.  Depending on the county and the size of the mortgage, this tax can range anywhere from .8% to 2.8% of the purchase price.  This tax can be fairly substantial and severely impact a purchaser’s buying ability.  However, there is an exception to the implication of this mortgage tax and that is for continuing liens.  Most real estate industry professionals are aware of this exception and refer to it by the document name, CEMA or MECA, which is a necessary part of the process.  Also, they are often under the mistaken impression that it is only available in a refinance.  Not so…you can effect a CEMA transaction on a purchase.  The procedure is as follows: the Seller’s current Lender assigns the Note to the Purchaser’s new Lender and the remaining principal balance (“old money”) is combined with the “new” money, advanced by the Buyer’s Lender, to form a new mortgage in favor of the Purchaser’s Lender.  There is no mortgage tax due on the “old money”.  So, for example:

Buyer needs a mortgage of $400,000.00 to purchase a home in New York City for $450,000.00.  Seller’s remaining principal balance is $300,000.00.

With CEMA Without CEMA

$100,000 x 1.8%=                               $400,000.00 x 1.8% =

$1,800 mortgage tax                          $7,200 mortgage tax                 Savings of $5,400.00!

Also, not only is a Purchaser exempt from paying mortgage tax on the continuing lien, the Seller is exempt from paying transfer tax on that amount as well for a net savings of $4,200.00 to Seller based on the example above.

Total monies saved in our example – a whopping $9,600.00!!! Now, the caveats: not every mortgage lender will assign the note, many charge a fee and there is a fee to prepare the CEMA documents and record them.  However, these fees are often miniscule compared to the amount of potential savings.  Also, it can take some time to get the assignment documents from the Seller’s Lender so this option needs to be investigated at the outset.

A CEMA is an excellent way to reduce substantial closing costs on both sides and make a deal happen, without other parties taking a cut in their hard-earned fees and commissions.  It just takes a little knowhow and some time.

Related posts:

1. Jack of All Trades and Master of None: Attorneys Wearing Multiple Hats in a Transaction
2. Seasoning and FHA’s Time Restrictions on Resales – a Legal Analysis
3. Short Sales & No-Flip Clauses in the Approval Letter – Removing a Roadblock

Evidently the government is serious about getting these delinquent mortgages modified – here is another positive change to HAMP:

Press Release from HUD:

WASHINGTON – U.S. Department of Housing and Urban Development Secretary
Shaun Donovan today announced the Federal Housing Administration (FHA)
has implemented changes to its loan modification program to ensure
consistency with the Obama Administration's Home Affordable Modification Program. By August 15th,
FHA borrowers will be able to significantly reduce their monthly
mortgage payments by seeking a loan modification through their current
mortgage company or loan servicer under the new FHA-Home Affordable
Modification Program (FHA-HAMP).

"Today, we're bringing another important tool to the table to help
struggling families who are desperate to keep their homes," said
Donovan. "Tens of thousands of FHA borrowers will now be able to modify
their mortgages in the same manner as so many others who are taking
advantage of the Administration''s Making Home Affordable program. This
is just the latest tool we are providing to help homeowners prevent
foreclosures through the Making Home Affordable program. Earlier this
month we announced an expansion of the Home Affordable Refinance
Program to borrowers who are up to 125 percent underwater. Together,
these actions will significantly increase the help available to
homeowners.

"The Helping Families Save Their Homes Act of 2009, signed into law on
May 20, allows FHA to give qualified FHA-insured borrowers the
opportunity to reduce their monthly mortgage payment by modifying the
mortgage through FHA-HAMP. FHA released the program's implementation
guidelines today. FHA expects all servicers to implement the changes by
August 15. The program permanently reduces a family's monthly mortgage
payment through the use of a partial claim, which defers the repayment
of mortgage principal through an interest-free subordinate mortgage
that is not due until the first mortgage is paid off.

FHA has used the partial claim option in the past, which allows a
lender to advance funds on behalf of a borrower, to reinstate a
delinquent loan that was up to 12 months delinquent. Now, this program
will allow HUD to bring the borrower's payment down to an affordable
level. This will be accomplished by bringing the mortgage current,
buying down the loan by up to 30 percent of the unpaid principal
balance and deferring these amounts in a partial claim.

FHA will pay an incentive to loan servicers for each FHA loan modified
under this program. A Mortgagee Letter, along with detailed
requirements for the FHA-Home Affordable Modification Program, was
distributed to all FHA lenders today. The implementation of this
program will further the Obama Administration's efforts to stabilize
the housing market by helping homeowners to stay current on their
mortgages and stay in their homes, therefore preventing the destructive
impact of foreclosures on families and communities.

Making Home Affordable, a comprehensive plan to stabilize the U.S.
housing market, was first announced by the Obama Administration on
February 18. More than 200,000 trial loan modifications are already
underway, tens of thousands of refinancings have closed, and
informational mailings about the program have been sent to more than
one million borrowers who may be eligible.

FHA borrowers who are experiencing difficulty making their mortgage
payments should contact their loan servicer or HUD's National Servicing
Center at (888) 297-8685 to determine if they qualify for the FHA-Home
Affordable Modification Program. The Mortgagee Letter, with detailed
information about the program, is available on the HUD website. Non-FHA
borrowers can find information about the Obama Administration's Making
Home Affordable program at www.makinghomeaffordable.gov.

HUD News Release 09-137

Related posts:

1. Treasury Department’s “Making Home Affordable” Program Attempts to Tackle 2nd Lien Dilemna
2. DON’T SAY I DIDN’T WARN YOU! NY Attorney General’s Crackdown on the Loan Modification Industry
3. FHA Unveils New Plan to Let Home Buyers Use $8,000 Tax Credit Upfront as a Downpayment