Mortgage News: Moratorium on Foreclosures

We interrupt this blog to bring you

Moratorium on Foreclosures

First, let’s discuss what a moratorium is and why you should care, even if you do not live in California.

If you live in California and your principal residence is in default, then last week’s news which halts foreclosure on many homes is welcome news for you. The California Mortgage Foreclosure Prevention Act went into effect on June 15, 2010.

A moratorium means that certain actions will be prohibited for a stated period of time. In this particular case we are talking about the Governor of the State of California declaring that a substantial percentage of the mortgages in the state will be exempt from foreclosure action even though the borrower is in default for the next 90 days. This is awesome news, especially if you happen to be one of those borrowers.

There are criteria which apply, but you would expect no less:

a. Must be the borrower’s principal residence

b. Borrower must not have filed bankruptcy

c. Must be a first mortgage or deed of trust

d. Borrower must not be represented by someone who is engaging in foreclosure stall tactics

e. Applies to loans which were made between January 1, 2003 and January 1, 2008

f. Lender must already have filed a notice of default

The intention of the law is to break the momentum of foreclosures and allow ample time for lenders to work with borrowers on trying to utilize some kind of option (such as a modification) which can avert the foreclosure altogether.

Let’s talk about moratoriums in general. A California consumer called me a couple of days ago and was confused because she thought the moratorium had been put in place by the President for the entire United States. I cleared that misconception up by explaining that a moratorium can be issued by any one of several different individuals or organizations:

a. The President—for a specific area or for the United States, if he chose

b. A Governor—for his state or a portion of his state (or certain specified loans as this one does)

c. A Lender or Bank—for any of the loans they hold or for loans from a particular state, region or classification

d. A Guarantor (HUD, Fannie Mae, Freddie Mac)–for any of the loans they hold or for loans from a particular state, region or classification

e. A Mayor—for his city or for a classification within his city

Any person or entity who has the authority to mandate a moratorium also has the authority to set the perimeters which will apply:

1. How long will the moratorium be in place?

2. What is the purpose of the moratorium?

3. What loans are covered—will it be owner-occupied only? Will it include investment property? Loans from what period of time?

4. What other rules apply?

5. Any such rules as they deem appropriate can be set by the party who puts the moratorium in place.

This is good information for you to become familiar with because there is a strong possibility that other governors or mayors will follow suit. Additionally, as I pointed out, a number of other parties may also decide to give consumers a break in order to stop the backlog of foreclosed properties which is devastating not only the homeowners who lost them but the neighborhoods where those vacant homes now sit.

There is now an overwhelming consensus that if there is any possible way to work something out with the current borrower it is in everyone’s best interest to do so.

Have you checked to see what your lender or your city has been up to lately?

“Remember, knowledge can be empowering!”

Mildred