"Is Short-Selling My California Home Right For Me?

April 6, 2012

iStock_000020073288XSmall.jpgDue to the recession and its consequential adverse effects on mortgaged properties, many state laws and federal programs have been enacted and created to provide much-needed relief to homeowners with distressed mortgages. The problem, however, is that it is difficult for any one person to keep up with the changes in laws and government-sponsored programs--as they seem to be changing almost monthly! Even attorneys are finding it challenging these days to keep current on the quickly-changing and constantly-evolving laws and programs relating to distressed mortgages. For example, does a California homeowner need assistance from the federal government to short-sale their home? And, asking the bigger question, does a California homeowner need to short-sale their home to begin with?

Starting in 2006, at the Law Office of Linda C. Garrett, an online virtual law office, providing full-scope and limited-scope legal services in the practice areas of consumer law, mortgage (HAMP) law, bankruptcy law and family law (to include unbundled legal services), I started receiving many calls from homeowners regarding their distressed mortgaged property--because they were concerned and fearful about losing their home, and also, because the homeowner did not know where to turn and/or what to do. At the time, George Bush (Jr.) was president and he had done little to identify, let alone, address the concerns of the worried homeowners. To make matters more difficult, the laws in effect at the time were outdated, and the programs in existence, close to non-existent. For example, before 2011, if a homeowner short-saled his home (instead of had the lender foreclose upon his house), the borrower was responsible for the "deficiency". A deficiency is the amount of money a borrower owes the lender after the home is sold. For example, let's say the homeowner owes his lender $200,000, and the home sells for $150,000. Prior to 2011, the borrower was legally responsible for the "deficiency", vis-à-vis, the remaining $50,000.

To learn the basics of short-sales and the related laws, go to "The California Short-Sale--A Better Alternative to Foreclosure or a Percolating Nightmare!

As I stated in my prior blog, "The California Short-Sale--A Better Alternative to Foreclosure or a Percolating Nightmare!", I discussed the fall-out of how two California laws, designed to help California homeowners and their distressed mortgages, ended up hurting California homeowners. So does the Making Home Affordable (MHA)--Home Affordable Foreclosure Alternatives Program (HAFA) provide a better solution for burdens homeowners and their distressed properties? It depends--on the facts of your case.

In California--MHA HAFA Short-Sales assistance is not technically needed because California has its own (new) laws to protect Californians from deficiency judgments--against all types of loans--not just purchase-money loans. In states where there are no such laws, the need for HAFA is greater.

As outlined by the HAFA program, the debt forgiven is as to the first lienholder only (the first mortgage)--not junior lienholders (e.g. HELOC lenders). While the HAFA program allows the homeowner to aggregate up to $8,500 (maximum) to junior lienholders, the language of the HAFA program makes clear that the junior liens are the legal responsibility of the homeowner and that the homeowner is responsible for "clearing title" before the short-sale will proceed to its conclusion. Furthermore, the HAFA program sets forth many conditions for allowing of the home to be sold through the HAFA program.

On the flip side, the benefits of a HAFA short-sale is that it provides financial incentives for the lender to proceed with a HAFA short-sale and also provides relocation assistance, if requested, for the homeowner of the current tenant (renter).

Just as there is no "one size fits all," so, too, is there no one solution to the problem. Whether a California short-sale is preferred to a HAFA short-sale depends on the unique facts of your situation--and in certain situations, both options can be utilized jointly to achieve the best short-sale outcome. Factors to consider:

1. Is short-sale the only solution for your intended goals?
2. Is there more than one loan on the property?
3. Is there a renter on the property?
4. Do you (or your renter) need assistance with moving out?
5. Have you considered the pro and cons of all your options before concluding that a short-sale is right for you? (Other options include: loan modification, foreclosure, deed-in-lieu of foreclosure, loan forebearance.)
6. Do you have a clear understanding of the requirements of the HAFA short-sale--to include the pros and cons of a HAFA short-sale?
7. Do you live in area where homes are selling quickly--or in an area where homes are selling slowly or are not selling at all?

The goal of this post is to help you ask important questions before making a decision to short-sale your home. I cannot over-emphasize enough the importance of making an informed decision. An informed decision includes understanding, not only the benefits of your options, but equally importantly, the consequences of your options--both short-term and long-term.

On a final note, beware of Scammers!!! If someone approaches you assist with your short-sale (or any other mortgage-related service) (phone, correspondence, in person), do your homework. Undertake a Google search on the individual and/or the company they represent--even if it's an attorney! These days, it's hard to know who to trust.

Need Help?

I am a consumer, bankruptcy, HAMP mortgage and family-law attorney who is also a candidate Certified Financial Planner. Based on my cross-over legal and financial experience, I am uniquely qualified to holistically assess the homeowner in a "big picture" context--taking into account their age, their finances, the short and long-term goals, and make a careful analysis--after taking into account all factors (income, assets, debt and expenses). For example, I can explain why an individual was denied for a loan modification (lender error and/or homeowner error) and determine whether it is feasible for them to resubmit a loan modification--under the newly-designated HAMP Tier 1 or HAMP Tier 2 program.

Helpful Links

Contact the Law Office of Linda C. Garrett--to set up a 30-minute free consultation or paid consultation

Services--to learn the types of services the Law Office of Linda C. Garrett provides

Practice Areas--to determine the other areas of law the Law Office of Linda C. Garrett can provide consumers.

Attorney Profile--to learn more about Ms. Garrett, Ms. Garrett's goals, Ms. Garrett's philosophy and how she "Gives Back".

California Family Law and Divorce Blog

Other HAMP and Mortgage Related Posts:

What Does the $25 Billion Mortgage Settlement Mean To Me?

Denied a MHA HAMP Loan Because of the NPV Test? The "Fat Lady" Hasn't Finished Singing!

At Risk or Facing Foreclosure?