Home values have fallen significantly in Northern California since 2008 so that many people with mortgages owe more than their properties are worth. Many of the properties are heading for foreclosure. If your property is heading for foreclosure, Chapter 7 bankruptcy, Chapter 13 bankruptcy or Chapter 11 bankruptcy may help you keep the property. Property owners have been requesting loan modifications hoping that their loans will be reduced to the value of the property. Property owners with investment properties have faced resistance from lenders to modify their loans.
The Obama administration created the Home Affordable Modification Program (HAMP) to help homeowners modify certain loans that qualify for the program. To qualify for the HAMP, mortgages must meet the following requirements. The mortgage must be a first mortgage encumbering a 1-4 unit residential property that serves as the borrower's current primary residence. The borrower must have had a change in circumstances that causes financial hardship, or be facing a recent or imminent increase in the amount of the borrower's monthly payment that is likely to create a financial hardship. The unpaid principal balance of the mortgage must be no more than $729,750 (this amount increases proportionately for multiple unit properties.) The mortgage can not have been previously modified under the HAMP. The mortgage must have been originated on or before January 1, 2009 (mortgages are eligible to be modified until December 31, 2012).
The original HAMP program did not apply to investment properties. As a result, investors that purchased properties that subsequently lost value have had difficulty refinancing or modifying their loans. The Obama administration has indicated that it will extend mortgage assistance for the first time to investors who bought multiple homes before the market crashed. The HAMP program is being enlarged after less than one million borrowers modified loans through HAMP. The administration's goal in 2009 was to help three to four million homeowners. The program initially focused on owner-occupied houses because the need was high and to help keep homeowners in their homes. In the past, banks have repeatedly rejected property owners for a modification when the properties were not primary residences. The government is now recognizing that vacant properties are a problem no matter how they became vacant and as a result it is extending the HAMP program to owners of investment properties.
Under the new HAMP program, landlords and investors can qualify for up to four federally-subsidized loan modifications starting around May 2012. The program pays banks to reduce monthly payments by cutting interest rates, stretching terms, and forgiving principal. The loans can be modified if the properties are rented or there are plans to rent them. The government has concluded that the need to help to protect neighborhoods from blight and renters from eviction by keeping the current owners in place outweighs concern that taxpayers will end up bailing out real-estate investors. Federal Reserve Chairman Ben S. Bernanke told homebuilders in Florida recently that the U.S. economic recovery has been frustratingly slow, in part because weak housing markets are holding back consumer spending. As a result, investors are central to the federal government's strategy for reviving real estate with home prices significantly down since 2008 and because foreclosures deplete the number of buyers who can qualify for a mortgage.
At the same time the new HAMP program takes effect, a new Fannie Mae program designed to reduce the number of foreclosed homes is encouraging potential buyers, including private-equity firms, to purchase properties in bulk and convert them to rentals. The government announced last month that it would triple incentives to owners of mortgages that reduce home loan debt and expand eligibility to borrowers struggling under the weight of other liabilities, like medical bills. The extension will apply to all loans, including those held by Fannie Mae and Freddie Mac, the government-sponsored mortgage financiers.
While the efforts of the federal government to assist borrowers should help to relieve the crisis, the programs do not apply to everyone and there have been problems with implementation of the programs. As a result, if you are an investor, you may want to consider a Chapter 13 or Chapter 11 bankruptcy that would allow you to strip liens that do not have security because of the reduction in value of the properties or surrender the non-productive properties in a Chapter 7 bankruptcy. You should consult a bankruptcy attorney regarding your options. We provide free legal consultations for bankruptcy in San Francisco County, Sacramento County, Alameda County, Contra Costa County, San Mateo County, Santa Clara County, Stanislaus County, San Joaquin County, Marin County, Solano County and throughout