San Jose Short Sale Agent: Silicon Valley Foreclosure Prevention Specialists

C.A.R. issues consumer alert on refinanced mortgages
C.A.R. issued a consumer alert yesterday warning borrowers of the liability associated with refinanced mortgages.  To help protect consumers, C.A.R. is sponsoring Senate Bill 1178 by State Sen. Ellen Corbett (D-San Leandro) to extend anti-deficiency protections to homeowners who have refinanced “purchase money” loans and now are facing foreclosure. The Senate may vote on the bill as early as next week.

Currently, if a homeowner defaults on a mortgage used to purchase their home, the homeowner’s liability on the mortgage is limited to the property itself.  While this law has helped protect borrowers since its inception in the 1930s, it does not extend the protection for purchase money mortgages to loans that refinance the original purchase debt—even in cases where the loan was refinanced to achieve a lower interest rate.

The above is an alert issued by C.A.R.  (California Association of Realtors)

Most of the clients who come to me to discuss short sales  do a lot of research online and come with the knowledge that California is a Non-Recourse State.  This means the lenders cannot come after the homeowners beyond the property itself (for any deficiency)  if the original intent  the mortgage was to purchase the property, as mentioned above.

What most borrowers  do not realize is that the moment they re-finance to take advantage of lower interest rates, the intent of the money changes to their detriment. Whether the borrower took advantage of a lower interest rate, or cashed out to pay down credit card bills, or to use as down payment on a second property, or to start a business, the nature of the money changes and the protection disappears.   Most loan brokers who were pushing re-finances during the past few years did not inform their clients of the elimination of  this important legal protection.  To be fair, most loan brokers or real estates agents probably were not even aware of such consequences.   But the fact remains,  that for many borrowers, if they were aware of such protection disappearing, perhaps they would not have been so quick to refinance.

SB 1178 is designed to extend that protection once again.   This truly is something that all of us consumers must rally behind, it is simply the right thing to do.   A homeowner should not lose this important legal protection because they want the opportunity at qualifying for lower monthly payments when times are tough.   But guess who is fighting against this measure: the Banks and their lobbyists.

Contact your local State Senator and make sure your voice is heard.   Take back your legal protection.

Sometimes it breaks my heart to hear stories about homeowners who are so mis-informed about this whole foreclosure phenomenon, they simply give up and decide they will let the banks foreclose on them without even exploring the possibility of alternative solutions like a short sale. With all of the discussions of foreclosures and short sales and loan modification, etc….. in the news media, it shocks me that so many homeowners believe that if they were turned down for a loan modification, their only other alternative is a foreclosure.   Not realizing, banks don’t want to foreclose either.

These home owners are so emotionally drained and have beaten themselves up so much about being in their current situation, they almost seem to want to punish themselves.

I had such a meeting with clients yesterday.  This lovely couple was so emotionally drained, they simply resigned themselves to the notion that foreclosure was the only avenue available to them.  They were not even going to explore short sale as an option.  The wife had heard of me through mutual friends and decided to call me just to get some facts to see if there were less invasive methods available to their family.  I explained to them that unemployment  and negative monthly expenditure are viable causes for hardship and the fact their loans were still original purchase money made them ideal candidates for a short sale.   Besides, they had a nice home, which would not be too difficult to sell.

We would try to lessen the impact on their credit and give them a chance to qualify for a Fannie Mae loan in 2 years;   and more importantly, give them a better chance in future employment by not having FORECLOSURE  show up on their credit reports and possibly get them disqualified as candidates for employment since more and more employers are now doing credit checks as a part of  background checks.

After hearing my plan for their home and how to deal with the lenders, I could see the stress leave and smiles appear on their faces.   They thanked me repeatedly for stopping them from falling into the foreclosure trap and giving them a chance at a better method and for returning dignity back to them.

A day like yesterday is a perfect day for me, because I know I am helping people and making a difference in their lives.

Foreclosure is not a viable option. There are better ways both for the borrowers and the lenders.