Fannie Mae & Freddie Mac Guidelines:

Foreclosure = 6 years
Short Sale = 3 years
Bankruptcy = 2 to 3 years

Treasury has released amendments to the HAFA program effective February 1, 2011. To review the amendments, click here.

Most interestingly, Front-End Debt-to-Income Ratio analysis is no longer required and new rules for vacant properties are provided.

Now: A property vacant for less than 1 year can be considered, which is a lot more time than the 90 days that was previously allowed. Also, the applicant no longer needs to justify their relocation based upon employment requirements.

This new vacant property rule brings the program close to reality where many distressed homeowners simply leave their home when times get tough. Its a great move by Treasury because now more abandoned homes can be brought back to life with new homeowners.

Fannie Mae has launched a new interactive video website where homeowners can role play scenarios to learn their options when struggling with mortgage payments. As an attorney, I fully endorse this product and hope that every individual in pre-foreclosure will go to this website and check it out. The video translates scary legal terms into plain English and offers a great explanation of a homeowner's choices when facing a financial hardship. Additionally, the video appears to be Fannie Mae's attempt to employ public health behavior change techniques into our country's mortgage epidemic. The key takeaway for me is that homeowners should not be ashamed by their situation and should proactively seek out help in taking control of their mortgage problem.

Click here to try it out.

WARNING - This video dissuades anyone from using any professional instead of a HUD Housing Counselor. While I agree that HUD Housing Counselors do offer a lot of great help, which should be taken advantage of by individuals in pre-foreclosure, if you receive a Summons in the mail you must Answer the Summons and you do require legal advice. Go see a lawyer immediately.

To read a very well written article about different perspectives on facing foreclosure click here. In full disclosure, I am quoted in the article.

In an almost crazy move, California has enacted a new law where lawyers who work on loan modifications cannot receive any money until the work is complete.

Now, don't get me wrong, I have many clients who were previously swindled by a loan modification company who inaccurately made promises of grandeur in their success in getting a modification. Yet, lets look at it another way. Why would an attorney want to trust that their client will eventually pay them when they are in default on their current obligations to make payments before they have even met the lawyer.

To read a NY Times article on the topic, click here.

My opinion is that instead of preventing borrowers from receiving legal help, our society may want to make lawyers more readily available with public funding and public oversight of ethics. Now, that would solve the problem of lawyers making themselves into liars while also providing access to reputable attorneys who can actually help clients save their homes.

Often the people on the front lines for the banks inaccurately address your situation under the MHA guidelines. Click here to escalate your case to get answers and results.

Clients often inquire if they should get a modification or file for bankruptcy. The answer is to do both. Click here to read a great article that will answer many of your questions in what is often a very scary time.

The FTC has banned 8 firms from selling mortgage relief services. To read the article click here. I was very glad to see the government cracking down on what is an ever growing problem in the foreclosure defense profession.

Just today I had a conversation with agents of a real estate company who insisted on using one of these types of services in their short sale negotiations. They told me the only way I could have the deal was if I agreed to using these services. My answer was simple - NO!

Thereafter, I explained that neither my firm nor their real estate office should be deciding who the client uses to negotiate their short sale. I stated that they had it all backwards in making this choice because it was not their choice or my choice to make, but instead the clients choice. Moreover, I stated that my firm will not close on a deal where a third-party, non-attorney, negotiated the settlement because we believe that such practice constitutes the unauthorized practice of law in the State of New York. Furthermore, these companies only care about closing and not properly advising clients on minimizing their exposure to liability. Consequently, my position is that the job of the real estate agent was to inform the client of the need to obtain a competent attorney, nothing more and nothing less, and the attorney's job was to advise the client's options and facilitate their goals, nothing more and nothing less.

That is how we practice at Lieb at Law, P.C.

Apparrently the Federal Housing Finance Agency (FHFA), which oversees Fannie and Freddie, has restricted mortgage lending opportunities for homeowners who live in municipalities that offer home energy retrofit programs. FHFA cited the basis of their decision to be that some retrofit programs present significant safety and soundness concerns. To read the letter from FHFA detailing this restriction, please click here. Yet, if you read the letter, it appears that the main problem is not safety and soundness, but instead lien priority. FHFA does not want Fannie and Freddie to loose their priority position because these programs are funded by local municipalities and may consequently jump the general first in time, first in right rule. The main take away for purchasers and agents is to be careful when seeking a Fannie or Freddie loan where a retrofit program is available.

Many in the news are saying that Home Affordable Modification Program is dying. They point to insufficient income as the cause, I submit its insufficient application skills. My firm has many alive HAMPs. I am lecturing attorneys in Nassau this evening on how to navigate the program as well as the rest of Making Home Affordable. The problem is all of the press that says homeowners can do this themselves and that they don't need help. Yes, homeowners can technically submit their own application, but having a lawyer seems pretty important in all other aspects of citizens legal lives (for instance Miranda Rights), why not here? Lets get some really trained attorneys who can fight for our clients in CPLR 3408 Settlement Conferences and you will see HAMP be reborn!

A cram-down is a strategy that is available in a short sale to eliminate the second mortgage from the equation through a Chapter 7 Bankruptcy. Essentially, a Cram-Down permits the debtor to avoid the lien of a wholly undersecured, consensual mortgage lien holder who was probably giving the most resistance to permitting he short sale(holding the whole process up). To illustrate, where a house has a fair market value of $450K and a first mortgage of $450K and a second mortgage of $50K, the second mortgage is wholly undersecured, and the lien can be removed and the debt discharged in bankruptcy. Therefore, the second mortgage has no say if the sale goes through. Sounds great, right? It also works well for mortgage modifications.

Yet, there is confusion if a Cram-Down is available in a Chapter 7 Bankruptcy. Specifically, there are 3 Center Islip Bankruptcy Judges, but only Judge Dorothy T. Eisenberg has permitted the use of a Cram-Down. Further, the other 2 Judges, Judge Robert E. Grossman and Judge Alan S. Trust, both expressly reject the availability of a Cram-Down.

Therefore, until a higher court rules on the issue or the legislature enacts a new bankruptcy law, there is ambiguity if this strategy will work. As of today, a debtor in bankruptcy has a 1/3 chance of this working depending on their luck of being assigned to the right Judge. That's a lot of risk for an expensive legal procedure. It makes it very difficult to advise a Cram-Down as the best strategy. If you desire to try the Cram-Down, I wish you good luck. Lets hope for clarity soon.

Approximately half of my law firm's loan modification clients had used a loan modification company before finding my firm. The stories we have heard make you want to cry. Taking money and doing nothing. Never calling the client back. Getting a modification for more money in monthly payments than what previously was required. Oh, it goes on and on. Non-attorneys should not be doing modifications. Why? For starters, they lack the necessary tools to get the job done. Like it or not, only an attorney can represent someone in Court. Guess what? Part of a foreclosure proceeding includes a Foreclosure Settlement Conference where a modification can be pushed by a Judge. Also, part of a Bankruptcy proceeding has a similar availability. Moreover, attorneys know about RESPA and the availability of a Qualified Written Request to compel the Bank to produce documents under threat of penalty. In all, attorneys can use the legal system to benefit their clients. Modification companies can just beg for lower payments. This simply does not work. Yes, its important to utilize a Cost-Benefit Analysis, to which a finance degree proves useful, but the finance professional should consult with the law firm, not take the client.

Lets take this a step further. Have you ever heard of a sale and buy-back? That is where someone promises to pay all of the mortgage payments if you just do the small insignificant thing of putting the Deed to the house in their name. That is crazy. In fact, there is legislation that regulates this practice called the Home Equity Theft Prevention Act.

So what should you do if you feel that you are a victim of a scam in the mortgage modification world?

Go to this great website and learn the answers - http://www.loanscamalert.org/

We were just told by an undercover friend at a local bank that trial modifications are taking between 9 and 12 months to be approved internally. Moreover, her bank will not approve a modification for someone who is not in default. So while a modification may be appropriate for you, it should not be your only option and should be a strategic treatment within a larger foreclosure defense strategy.

So does this sound like a typical situation. You have a short sale offer on a property that has a first mortgage of $300K and a second mortgage of $100K, but an offer of only $250K. Your issue in getting the short sale approved is with the second mortgage who refuses to release their Notice of Pendency and let the deal close.

So what do you do?

Some beg the second to approve the sale. Some try and get concessions from the lawyer, real estate agents, and first mortgage to appease the second. Yet, this is all begging. I am not into begging.

Here is a situation that works better. Use the Bankruptcy Courts and do what is called a Cram-down or strip-off. This is when the bankruptcy Court removes the secured status that accompanies a mortgage because the property's fair market value does not support the security. Traditionally, in a Chapter 7 Bankruptcy, the Court removes any unsecured debt, but keeps the security interest and permits a debtor to either reinstate the debt and keep the property or allows the creditor to take the property through their security interest. Here, there is no value to secure, so the Bankruptcy Court removes both the debt and the security interest. This is great. Now you can have your short sale approved and thumb your nose at the second mortgage. Maybe if you explain this to the second mortgage (showing your knowledge) and the Bankruptcy Court fees that they will incur in loosing this battle about their mortgage, they will just permit the sale. Just saying.

Be ware - Cram-downs don't work on first mortgages. Moreover, they used to only work in Chapter 13 Bankruptcies. Well there was a case just last year entitled, Lavelle, where a decision permitted Chapter 7 debtors to cram-down their second mortgage just like in a Chapter 13.

Here is to your next short sale approval.