It is not particularly odd to get into financial troubles these days. Given the current economic downturn and the worldwide recession many people are losing their jobs and from there their main source of income. As a result they become unable to pay for the expenses they are incurring. This is generally how the situation preceding a foreclosure can be described. Many people ask themselves what foreclosures mean these days and only the standard definition might not be enough to answer the questions fully. Here is the most essential information that both homeowners and buyers will find useful.

A foreclosure of a property may occur when a homeowner does not make the mortgage payments timely and fully. When the borrower is unable to make the installment payments the lender has the legal right to end the loan contract and gain all the ownership rights on the mortgaged property. What foreclosures mean to homeowners can be describes with one word – eviction form the property. The whole process varies between the different states – in some the lender cannot claim the property without a judicial ruling allowing them to do so. In other states the property can be foreclosed directly by the lender without the borrower being give a chance to defend their case in court. Generally it is worth consulting a real estate lawyer on what foreclosures means in your particular area of residence. It is difficult to estimate in general when the lender might start a foreclosing procedure. Usually the borrower is given some time to improve their financial situation or sometimes even a chance to renegotiate the mortgage conditions in terms of the size of installments in advance. Once the foreclosing procedure starts the homeowner will still be given a certain time period to repay all the sums in order to clear the debt. The eviction does not take place immediately – homeowners might be allowed to stay in their house or apartment for up to a year depending on the type of procedure undertaken by the lender and on how quick the property will be sold to a buyer.

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The “short” in short sale simply means that the amount paid at the sale of a property on behalf of the borrower for an outstanding mortgage is less than the amount owed. But there is nothing “short” about the process. In fact it should be called “long sale” because real estate professionals who specialize in short sale transactions are well aware that – patience, diligent follow up and a long wait – is the name of the game. Due to the increasing numbers of distressed homeowners, there has been an upsurge in the number of potential short sales available to real estate agents. Many of these homeowners need someone to negotiate their short sale once they have decided that it is the best option for them to use to avoid foreclosure. The sheer amount of documents to be prepared as well as the time spent on the phone going back and forth with lenders makes investing in a Virtual Assistant (VA) a strategic decision. Now, “How can hiring a VA ensure that each short sale negotiation is carried out more efficiently and effectively?” To answer this question, let’s go through the entire process and then point out crucial areas where a virtual assistant can complement the agent’s efforts.

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It’s sad to say that during these troubled times more people are watching their homes go into foreclosure. This happens to homeowners for many reasons. Whatever the cause, lenders do not think of homeowners as humans. They are a calculated number, a risk and if you are a negative number to them, your options may be limited. Without knowing their options, a homeowner can be left feeling very helpless.

Once a homeowner falls behind on their mortgage payments, the collection calls start flowing in like floodwaters from a broken dam. This is not only frightening, but also very annoying as it intrudes on both your professional and personal life! After being behind for 90 days the lender sends a public default notice. This means the foreclosure proceedings have officially started and the home has entered the pre-foreclosure stage. The process varies depending on the lender and your state, but the basic process is the same.

Many homeowners see pre-foreclosure as a kind of a grace period, and in essence, it is. In this stage, the homeowner is being informed that they are in default of their mortgage and they need to bring their payments current as soon as soon as possible to avoid losing their home. During this stage the lender is unable to repossess the property. Once the pre-foreclosure stage begins, the homeowner has to face some tough decisions to avoid foreclosure. There are a two ways the homeowner can keep their lender from repossessing their home.

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There is now tax relief for struggling homeowners. If your mortgage debt is partly or entirely forgiven during 2007, 2008 or 2009 you may be able to claim special tax relief by filling out Form 982 and attaching it to your federal income tax return for that year.

Normally, debt forgiveness results in taxable income. But under the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude from tax up to $2 million of debt forgiven on your principal residence. The limit is $1 million for a married person filing a separate return.

Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, may qualify for this relief. The debt must have been used to buy, build or substantially improve your principal residence and must have been secured by that residence. Debt used to refinance qualifying debt is also eligible for the exclusion, but only up to the amount of the old mortgage principal, just before the refinancing.

Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the new tax-relief provision. In some cases, however, other kinds of tax relief, based on insolvency, for example, may be available. See Form 982 for details.

If your debt is reduced or eliminated you will receive a year-end statement (Form 1099-C) from your lender. By law, this form must show the amount of debt forgiven and the fair market value of any property given up through foreclosure.

The IRS urges borrowers to check the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. You should pay particular attention to the amount of debt forgiven (Box 2) and the value listed for your home (Box 7).

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The President’s strategy for economic recovery is a stool with several legs, as he’s said, and one of them is solving the foreclosure crisis.

“We must stem the spread of foreclosures and falling home values for all Americans, and do everything we can to help responsible homeowners stay in their homes,” he said yesterday as he signed the American Recovery and Reinvestment Act into law. 

Though communities across the country have been affected by the crisis, Arizona has been hit particularly hard — in 2008, only two states had more foreclosures. 

And President Obama is there today, in Phoenix, to unveil his “Homeowner Affordability and Stability Plan,” which will help bring relief to homeowners and bring some order to the housing market.

The President will talk more about his plan a little later today. In the meantime, we’re sure you have a lot of questions, like, Am I eligible for assistance? Might I be able to modify my loan? When do I apply? We’ve put together an example sheet that will show you what options might be available to you, depending on the circumstances of your mortgage, as well as answers to some common questions (below).

Questions and Answers for Borrowers about the
Homeowner Affordability and Stability Plan

Borrowers Who Are Current on Their Mortgage Are Asking:

• What help is available for borrowers who stay current on their mortgage payments but have seen their homes decrease in value?

Under the Homeowner Affordability and Stability Plan, eligible borrowers who stay current on their mortgages but have been unable to refinance to lower their interest rates because their homes have decreased in value, may now have the opportunity to refinance into a 30 or 15 year, fixed rate loan.   Through the program, Fannie Mae and Freddie Mac will allow the refinancing of mortgage loans that they hold in their portfolios or that they placed in mortgage backed securities.

• I owe more than my property is worth, do I still qualify to refinance under theHomeowner Affordability and Stability Plan?

Eligible loans will now include those where the new first mortgage (including any refinancing costs) will not exceed 105% of the current market value of the property.   For example, if your property is worth $200,000 but you owe $210,000 or less you may qualify.  The current value of your property will be determined after you apply to refinance.

• How do I know if I am eligible?

Complete eligibility details will be announced on March 4th when the program starts.  The criteria for eligibility will include having sufficient income to make the new payment and an acceptable mortgage payment history.  The program is limited to loans held or securitized by Fannie Mae or Freddie Mac.

• I have both a first and a second mortgage.  Do I still qualify to refinance under theHomeowner Affordability and Stability Plan?

As long as the amount due on the first mortgage is less than 105% of the value of the property, borrowers with more than one mortgage may be eligible to refinance under the Homeowner Affordability and Stability Plan.  Your eligibility will depend, in part, on agreement by the lender that has your second mortgage to remain in a second position, and on your ability to meet the new payment terms on the first mortgage. 

• Will refinancing lower my payments?

The objective of the Homeowner Affordability and Stability Plan is to provide creditworthy borrowers who have shown a commitment to paying their mortgage with affordable payments that are sustainable for the life of the loan.  Borrowers whose mortgage interest rates are much higher than the current market rate should see an immediate reduction in their payments.  Borrowers who are paying interest only, or who have a low introductory rate that will increase in the future, may not see their current payment go down if they refinance to a fixed rate.  These borrowers, however, could save a great deal over the life of the loan.  When you submit a loan application, your lender will give you a “Good Faith Estimate” that includes your new interest rate, mortgage payment and the amount that you will pay over the life of the loan.  Compare this to your current loan terms.  If it is not an improvement, a refinancing may not be right for you.

• What are the interest rate and other terms of this refinance offer?

The objective of the Homeowner Affordability and Stability Plan is to provide borrowers with a safe loan program with a fixed, affordable payment.  All loans refinanced under the plan will have a 30 or 15 year term with a fixed interest rate.  The rate will be based on market rates in effect at the time of the refinance and any associated points and fees quoted by the lender.  Interest rates may vary across lenders and over time as market rates adjust.  The refinanced loans will have no prepayment penalties or balloon notes.  

• Will refinancing reduce the amount that I owe on my loan?

No.  The objective of the Homeowner Affordability and Stability Plan is to help borrowers refinance into safer, more affordable fixed rate loans.  Refinancing will not reduce the amount you owe to the first mortgage holder or any other debt you owe.  However, by reducing the interest rate, refinancing should save you money by reducing the amount of interest that you repay over the life of the loan.

• How do I know if my loan is owned or has been securitized by Fannie Mae or Freddie Mac?

To determine if your loan is owned or has been securitized by Fannie Mae or Freddie Mac and is eligible to be refinanced, you should contact your mortgage lender after March 4, 2009.

• When can I apply?

Mortgage lenders will begin accepting applications after the details of the program are announced on March 4, 2009.   

• What should I do in the meantime?

You should gather the information that you will need to provide to your lender after March 4, when the refinance program becomes available.  This includes:

•  
  • information about the gross monthly income of all borrowers,  including your most recent pay stubs if you receive them or documentation of income you receive from other sources
  • your most recent income tax return
  • information about any second mortgage on the house
  • payments on each of your credit cards if you are carrying balances from month to month, and
  • payments on other loans such as student loans and car loans.

Borrowers Who Are at Risk of Foreclosure Are Asking:

• What help is available for borrowers who are at risk of foreclosure either because they are behind on their mortgage or are struggling to make the payments?

The Homeowner Affordability and Stability Plan offers help to borrowers who are already behind on their mortgage payments or who are struggling to keep their loans current.  By providing mortgage lenders with financial incentives to modify existing first mortgages, the Treasury hopes to help as many as 3 to 4 million homeowners avoid foreclosure regardless of who owns or services the mortgage.

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The Obama Administration today announced new U.S. Department of the Treasury guidelines to enable servicers to begin modifications of eligible mortgages under the Administration’s Homeowner Affordability and Stability Plan – announced by President Barack Obama just two weeks ago. The release of detailed requirements for the “Making Home Affordable” program facilitates implementation of the critical provisions that will help bring relief to responsible homeowners struggling to make their mortgage payments, while preventing neighborhoods and communities from suffering the negative spillover effects of foreclosure such as lower housing prices, increased crime and higher taxes.

“Two weeks ago, the President laid out a clear path forward to helping up to nine million families restructure or refinance their mortgages to a payment that is affordable now and into the future. Today, we are providing servicers with the details they need to begin helping eligible borrowers,” said Treasury Secretary Tim Geithner. “It is imperative that we continue to move with speed to help make housing more affordable and help arrest the damaging spiral in our housing markets, just as we work to stabilize our financial system, create jobs and help businesses thrive. Economic recovery requires action on all three fronts.”

“Only two weeks after the President unveiled his plan to help promote homeowner affordability, we are moving forward today with these guidelines to implement that plan,” HUD Secretary Shaun Donovan said. “This step forward represents a tremendous coordinated effort between major government and regulatory agencies to help bring relief to America’s housing market and homeowners. This plan will help make home ownership more affordable for nine million American families and in doing so, help to stop the damaging impact that declining home prices have on all Americans.”

The guidelines will implement financial incentives for mortgage lenders to modify existing first mortgages and set standard industry practice for modifications.

Treasury announced today that the Making Home Affordable program will also include additional incentives for efforts made to extinguish second liens on loans modified under this program. Extinguishing second liens will make mortgages more affordable, improve loan performance, and help prevent foreclosures.

In conjunction with the release of the new guidelines, Treasury, HUD and other members of a broad interagency task force have prepared consumer friendly Q&A and eligibility assessment tools for borrowers available at FinancialStability.gov. To ensure the program can be implemented as quickly as possible, the agencies also have conducted extensive outreach with housing counselors and mortgage servicers, including the development of call center phone scripts, a training plan and detailed guides, to prepare them for incoming inquiries from borrowers in the wake of the guidelines release. 
An expanded online resource will soon be available for borrowers, and agency representatives will fan out across the country in the coming weeks to conduct outreach at homeownership events in communities hardest hit by the housing crisis.

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Learn about recent tax credits and tax deductions for homeowners.

New laws in the past few years have brought several new tax breaks for homeowners, and taken one away. These include:

• tax credits for homes that generate electricity
• a tax break for some defaulting homeowners
• tax credits for first time homebuyers
• a continuation of the mortgage insurance deduction, and
• elimination of a tax loophole for owners of vacation or rental homes.

Tax Credits Generating Electricity or Using Solar Water Heating

The Energy Policy Act of 2005 provided a permanent tax credit (beginning in 2006) for homeowners who install photovoltaic systems to generate electricity. The tax credit is worth 30% of the cost of the system, up to $2,000. The same permanent tax credit is available for a solar water heater, provided the heater is not used to heat a pool or hot tub. Those who install a fuel cell system to generate electricity get a tax credit that amounts to 30% of the cost, up to $1,000 per kilowatt of power generated. Taxpayers can claim the credits on IRSForm 5695 Residential Energy Credits, available from the IRS website at www.irs.gov.

Unfortunately, tax credits for qualifying energy efficient home improvements, HVAC (heating ventilation air conditioning) equipment, roofing, doors, windows, and major appliances, expired in 2007 after a two-year run.

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Contrary to popular belief, most homeowners do not have a right to their view.

Generally, homeowners have no right to a view (or light or air), unless it has been granted in writing by a local ordinance or subdivision rule. The exception to this general rule is that someone may not deliberately and maliciously block another’s view with a structure that has no reasonable use to the owner.

View Ordinances

A few cities that overlook the ocean or other desirable vistas have adopted view ordinances. These laws protect a property owner from having his view obstructed by growing trees. They don’t cover buildings or other structures that block views.

Generally the ordinances allow someone who has lost a view to sue the tree owner for a court order requiring him to restore the view. A neighbor who wants to sue must first approach the tree owner and request that the tree be cut back. The complaining person usually bears the cost of trimming or topping, unless the tree was planted after the law became effective or the owner refuses to cooperate.

Some view ordinances contain extensive limitations that take most of the teeth out of them. Some examples:

• Certain species of trees may be exempt, especially if they grew naturally.
• A neighbor may be allowed to complain only if the tree is within a certain distance from his or her property.
• Trees on city property may be exempt.

See How to Find Local Ordinances to locate your city’s laws and policies.

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