If you received a Notice of Default (NOD), and are a California resident, it’s time to start considering your foreclosure defense options, if you have not done so already.
While mortgage modification is usually the most attractive option, it is not always the best one. The plus side of a mortgage modification is that if granted, you may get to maintain ownership of your property on affordable terms. However, even with major banks like Wells Fargo, Chase, and Bank of America, the modification process is well known to be extremely unpredictable, even if you are qualified under the HAMP regulations. Many borrowers end up being denied and still facing foreclosure after sometimes dozens of attempts at modification (see: In Re Bank of America Home Affordable Modification Program (HAMP) Contract Litigation, a recent Massachusetts federal case where a senior loss collector admitted in an affidavit that mass denials of qualified modification applications were ordered – and rewarded with bonuses – simply because the bank was so far behind on modification applications.) Moreover, court decisions followed in Alameda County, amongst others, have stated that there is no third party beneficiary standing to sue under HAMP or the National Mortgage Settlement.
On the other hand, short sale is a viable option for homeowners who can’t get the terms they want from their bank, or cannot get their loan modified at all. Especially in Northern California Counties of Alameda County, Contra Costa County, Santa Clara County, San Mateo County and Napa County, their proximity to San Francisco makes them great counties for short sales because unlike San Francisco Proper, the home values remain depressed despite consistent market demand for housing.
Even better still, if you can find the right investment program, some buyers will even arrange a lease with an option to buy from another property in their portfolio that puts you back in a position toward ownership at today’s values as long as you continue to perform under the agreement. (Essentially, a de facto mortgage modification that Wells Fargo or others would not consider).
Short selling allows you to move out on your own schedule and terms (rather than being removed by the County Sherriff), and if you complete the short sale before January 1, 2014, you may be protected by the Mortgage Debt Relief Act of 2007, which provides that you will not face taxation on the difference between your loan and the short sale amount. Moreover, California Code of Civil Procedure section 580e(a) forbids the bank charging you a deficiency on a short sale of a 1-4 unit residential property.
While Plan A should always be to apply for loan modification, your best Plan B is often short sale, which ensures that 1) no foreclosure sale goes on your record, 2) you move on your terms, 3) you may qualify to lease with option to buy another property in the investor’s portfolio, 4) you may qualify for tax relief on the debt forgiveness, and 5) you will have closure on what is assuredly a stressful and unpleasant situation.