Washington Real Estate Law Blog : Washington Real Estate Lawyer & Attorney : Dickson Steinacker Law Firm : WA HOA, Building & Zoning Updates

Debtors who have defaulted on their obligations under a real estate security agreement typically face foreclosure, either judicial or non-judicial.  A deed in lieu of foreclosure is another type of procedure to deal with a distressed property.  A deed in lieu is a transfer to a lender of title to real estate that fully or partially satisfies the debt that the property secures. These transactions may have significant benefits for both parties. First, a deed in lieu saves much of the time and cost of a foreclosure and gives the lender more direct and immediate control of the property. A deed in lieu may also be beneficial to the debtor if he or she just wants to convey the property and essentially be done with it. 

While deeds in lieu have these advantages there are some potential pitfalls to this procedure.  First, if there are junior mortgages or liens on the property the deed in lieu does not serve to extinguish those liens.  In the event that there are junior liens, chances are good that unless the senior and junior lienholders negotiate an agreement the junior liens will be advanced against the title in the senior lienholder’s hands.  Second, a deed in lieu may be considered to be an equitable mortgage and not a complete conveyance. Only one Washington case has held found a deed in lieu to be an equitable mortgage, but depending on the nature of the transaction it remains a possibility.  Finally, a deed in lieu may be set aside on the grounds of fraud or overreaching. Washington courts have failed to do so thus far but other jurisdictions have done so, particularly when the value of the land exceeds the indebtedness or when the lender is desperate or suffers a disability. 

With these advantages and possible pitfalls in mind, but before a deed in lieu is actually conveyed, the mortgagor and the lender should enter into an agreement that covers these details.

Photo Credit: Renjith Krishnan/FreeDigitalPhotos.net

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When a party forecloses on residential or commercial property they may have options on how to do so. However, when the property being foreclosed on is being used for agricultural purposes Washington law only permits judicial foreclosure. RCW 61.24.030(1). Real property is considered “used for agricultural purposes” if it is used in a manner that produces crops, livestock or aquatic goods. RCW 61.24.030(2). Despite these fairly strict protections for agricultural land, lenders may have alternatives if they draft a deed of trust.

In a recent but unpublished decision a state appellate court upheld a party waiving the right to a judicial foreclosure based solely on the fact that the land was being used for agricultural purposes. Schroeder v. Haberthur, unpublished 2011 WL 4599661 (Oct. 6, 2011). Additionally the parties to real estate transaction may stipulate in a deed of trust that the land is not and will not be used for agricultural purposes. The grantee of the deed of trust may require the grantor to warrant in the deed of trust that the land will not be used for agricultural purposes without the consent of the grantee. Id. Absent such agreements however, deeds of trust and power of sale foreclosure are unavailable for agricultural land and foreclosure must occur judicially.

Photo Credit: federico stevanin

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Here are some useful links to assist those wanting more information about the Foreclosure Fairness Act:

Department of Commerce, FFA timeline

Washington State Department of Commerce, foreclosure page

Washington State Housing Finance Commission (good resource for home ownership issues)

US Department of Housing and Urban Development (housing counselor search)

Dickson Steinacker, PS (law firm short sale and loan modification expertise...and the sponsor of this great blog, of course.)

Department of Financial Institutions - Home ownership page

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Recently, I've had the privilege to address some professional groups regarding the latest developments on foreclosure law in Washington State.  A lot has changed in the world of foreclosures due to the July 22nd passing of the Foreclosure Fairness Act (FFA).  The Department of Commerce has published a helpful timeline which traces the path of the new foreclosure procedures and homeowner mediation rights created by the law.  Using that as a starting point, I've created my own table which outlines the step-by-step process of a foreclosure under the FFA: 

Picture credit: jscreationzs,

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Housing Wire's website had an interesting little article about some decisions that are coming out of California regarding MERS and its ability to foreclose on properties without having property assignment of the deeds of trust. 

I speak with a lot of individuals who approach foreclosure from the standpoint that if the foreclosing entity does not have both the note and deed of trust assigned to them, they therefore cannot foreclose.  MERS (Mortgage Electronic Registration System) presented a problem because it dealt with many of these types of arrangements.  We are now starting to see that the court is not buying that argument, and that at a minimum, MERS may act as an agent on behalf of banks to execute their rights under deeds of trust. 

I'm sure there will be more battles forthcoming regarding this issue, but California seems to be laying out at least an initial trend. 

The most telling quote from the short article is the following: 

"MERS' legal standing as mortgagee, or agent of the note holder, gives MERS the authority under California law to take action on behalf of the owner of the note," said Janis Smith, MERS vice president of corporate communications.

(Granted, it's from MERS, so take that into consideration.)

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I am often asked by clients what the tax implications are should they choose to pursue a short sale or their property is the subject of a foreclosure.  Technically, and they’re right.  Debt obligations that are forgiven are usually counted as income to that individual.  For example, if you obtain a home loan for $300,000 but sell the property via the short sale process for $200,000, that $100,000 difference that you are no longer required to pay would be taxable as income under normal circumstances.  In 2007, the federal government passed the “Mortgage Forgiveness and Debt Relief Act.” 

The IRS describes it as follows:

“If you borrow money from a commercial lender and the lender later cancels or forgives the debt, you may have to include the cancelled amount in income for tax purposes, depending on the circumstances. When you borrowed the money you were not required to include the loan proceeds in income because you had an obligation to repay the lender. When that obligation is subsequently forgiven, the amount you received as loan proceeds is normally reportable as income because you no longer have an obligation to repay the lender. The lender is usually required to report the amount of the canceled debt to you and the IRS on a Form 1099-C, Cancellation of Debt.”

Cancellation of Debt is not always taxable, however.  According to the IRS there are some exceptions:

--Qualified principal residence indebtedness: This is the exception created by the Mortgage Debt Relief Act of 2007 and applies to most homeowners.

--Bankruptcy: Debts discharged through bankruptcy are not considered taxable income.

--Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you. You are insolvent when your total debts are more than the fair market value of your total assets.

--Certain farm debts: If you incurred the debt directly in operation of a farm, more than half your income from the prior three years was from farming, and the loan was owed to a person or agency regularly engaged in lending, your cancelled debt is generally not considered taxable income.

--Non-recourse loans: A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral. That is, the lender cannot pursue you personally in case of default. Forgiveness of a non-recourse loan resulting from a foreclosure does not result in cancellation of debt income. However, it may result in other tax consequences

See Publication 4681.

The Mortgage Forgiveness Debt Relief Act of 2007 allows homeowners who have benefited from debt cancellation—usually from a short sale, deed-in-lieu of foreclosure, or foreclosure—to exclude the “income realized” from the forgiveness.  Exclusion of income resulting from a cancellation of debt means that the amount forgiven or waived from the creditor (usually a bank) is not considered income and is excluded from determining your federal income tax basis.

Going back to the example in the first paragraph, the $100,000 debt that was cancelled would be excluded from that individual’s income of that year.  In a normal year (without the Act in place), if that person made $50,000, but was forgiven $100,000 through a short sale, he or she would be required to include that sum as income for that year, making his income $150,000 and subject to the corresponding tax rate.  Because that $100,000 is excluded from his income by virtue of the Mortgage Forgiveness Debt Relief Act, his tax rate is preserved at the $50,000 level.   

The above information can be found at the following link: http://www.irs.gov/individuals/article/0,,id=179414,00.html

I would also refer you to an in-depth review of the law at http://www.homesalessandiego.com/blog/mortgage-debt-forgiveness-law/.

*Lawyers at Dickson Steinacker, PS are NOT tax specialists.  Federal income taxes are a serious matter and should be dealt with through counsel from a qualified accountant or tax attorney.  Because much of our business deals with real estate issues such as short sales, foreclosures and loan modifications, we feel it is important to be cognizant of the broader implications of debt cancellation (hence, the above blog entry).  If you are in need of more detailed/specific guidance for your tax matters, we recommend contacting a tax attorney or qualified accountant.  Do not rely solely on this entry for your tax strategy.    

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One of the common statements made to me when new clients call to discuss their foreclosure, is the following:  “I don’t care if there is a deficiency when the bank forecloses on my property because Washington is a non-recourse state,” implying that he or she is free of having to pay a deficiency should the house sell for less than what is owed.  The response I always give to that proclamation is “it depends.”

Banks may choose between two options when deciding how to foreclose on property.  The most common (by far) is the non-judicial foreclosure.  This type of foreclosure is straightforward: the bank uses its leverage under their Deed of Trust on the home (think of the Deed of Trust as a very powerful lien...which it is) to compel a sale by the trustee that services the Deed.  This sale is called a trustee sale.  Once the property is sold to an innocent third party purchaser at the trustee sale, the bank is barred from collecting any deficiency on the collateral.  For example, if your home is worth $300,000 and the bank forecloses on the property through the non-judicial foreclosure method and nets only $200,000 in the sale, the balance of the $100,000 cannot be collected from the borrower.  Thus, while the credit standing of the borrower may have taken a big hit, he or she no longer has to worry about satisfying that debt obligation. 

As you might expect, foreclosures are not always that rosy: there lurks another option that banks may use at their discretion: the judicial foreclosure. 

A judicial foreclosure is executed through the courts and is easily identified because it is an actual lawsuit against the homeowner.  How is this possible, you ask?  Why doesn’t the bank just go after the Deed of Trust and sell the property?  A judicial foreclosure goes one step further than regular non-judicial foreclosure: it not only allows the bank to compel a sale of the property, but it provides an avenue by which the bank can obtain a deficiency judgment for whatever balance was lacking in the sale.  Going back to our example above, if that individuals home is sold for the $100,000 deficiency, the bank can move the court to have that sum converted into a judgment against you.  Judgments are nasty because they become automatic liens on all real and personal property.  With a judgment a bank can garnish wages and pursue other avenues against the borrower’s assets. 

It is still a mystery to me why some people are pursued via judicial foreclosure rather than non-judicial foreclosure.  However, if I had to guess why they choose that option, I would have to say it’s because they suspect (right or wrong) that the borrower has money to cover the judgment.   

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Lately I've been fielding calls from individuals that have obtained what are called "forensic audits" of their mortgage documents.  Usually, this is in conjunction with a difficult scenario that they have found themselves in, where they are behind on their payments and are looking for any ammunition to defend against a foreclosure.  In theory, a forensic audit is straightforward: a company will comb through your mortgage documents for "violations" or other signs of misconduct by the lending institutions.  This is usually not too difficult a task given that many of the regulations that control these transactions are extremely technical.  Violating them is easy, in other words. 

The bigger issue is what to do with the violations when they are discovered.  There has not been a tremendous amount of precedent in this regard (at least in Washington, there hasn't been), but I would advise against the notion that faulty mortgage documents equal borrower keeping home.  That is not likely to happen for a few reasons -- first, the bank did loan money out to the individual, which technically, would need to return the funds if the transaction were undone and reset; second, the parties relied and acted upon the loan.  A court could reset the entire mortgage and order that, if possible, the parties be put back to their proverbial starting points.  This obviously present a problem in and of itself, given that the home may be underwater and the borrower may not have the funds to refund the bank for the money issued in the original loan.

So, in short, for those of you leaning on a forensic audit as the resolution to your mortgage predicament, I'd make sure to have a backup plan. 

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According to a recent article, many experts are predicting that the foreclosure crisis will continue through 2011.  Currently, there are about 5 million borrowers at least 2 months behind on their mortgage payments. 

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 According to the LA Times, Bank of America is ending its temporary foreclosure "freeze" in 23 states.

Given that FHA has altered the waiting period for those who engage in strategic foreclosures (this applies to those who make the strategic decision to "walk away" from their home), seeking a loan modification might be the best option.  According to "HAMP" or the Home Affordable Modification Program: "Borrower eligibility is based on meeting specific criteria including:

1) borrower is delinquent on their mortgage or faces imminent risk of default 
2) property is occupied as borrower's primary residence 
3) mortgage was originated on or before Jan. 1, 2009 and unpaid principal balance must be no greater than $729,750 for one-unit properties.

 

After determining a borrower's eligibility, a servicer will take a series of steps to adjust the monthly mortgage payment to 31% of a borrower's total pretax monthly income:

• First, reduce the interest rate to as low as 2%,
• Next, if necessary, extend the loan term to 40 years,
• Finally, if necessary, forbear (defer) a portion of the principal until the loan is paid off and waive interest on the deferred amount.

Note: Servicers may elect to forgive principal under HAMP on a stand-alone basis or before any modification step in order to achieve the target monthly mortgage payment."

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This blog post from the Seattle Bubble Blog is quite informative about the most recent foreclosure assessment for the Seattle area.  Perhaps we are starting to see the second waive of foreclosures? 

Though I'm sure we will eventually turn this market around, it seems to be clear that we are in it for the long haul.  It does not help with the recent news that Colliers closed its offices in Tacoma, and GVA Kidder Mathews intends to drop its affiliation with GVA (national brand/presence) in the coming months. 

One can't help but wonder whether or not the days of consistent 6–9% annual home appreciation are gone…at least for the foreseeable future. 

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If you’ve ever tried to modify a Loan through a Bank, then you already know one thing:  Banks can often make the process so difficult it doesn’t even seem worth the effort.  This is what separates the accepted applicant from the denied applicant.  In 2010, every creditor / lender / Bank has figured out one thing… some people won’t follow through with their loan modifications if you make the process difficult.  Borrowers will falter, hesitate, miss a deadline and POOF! their opportunity to modify their existing loans has passed.  Don’t be that borrower.  Here are a few tips from the trenches of the Battle for Loan Mods being fought daily:

1)        Never give up.  Be relentless.  The lender is not going to push your case through the system – that is your job.  So eat healthy meals, exercise, and lift weights because getting a loan modification is like participating in an athletic event.  It is tiring, requires personal strength, and certainly demands some serious stamina.

2)       Be well-informed.  Read all of your loan documents.  No matter how boring they may seem, being a smart debtor makes you a valuable debtor.  If you have two mortgages, keep your first mortgage and your second mortgage separate in your mind.  Also, check out the website for your lender.  Visit the Bank’s websites, learn about their departments and practices.

3)       Be well-prepared.  Always keep your loan information spread out, with the most important pages on top, when you’re ready to call the lender.  Have your notes from previous phone calls ready to answer questions.

4)       Take notes.  Keep track of every name, extension, and job title of every person you speak with during a phone call to your Bank.  Remember, employees at the Bank, like anywhere else, can move, be reassigned, forget, or misplace information.  That’s where you step in and lead them in the right direction.

5)       Keep a calendar.  As you learn about important deadlines, write them down on a calendar (or, if you are tech saavy, you can use Exchange or an open source alternative) and keep a reminder note about a week out.  When your reminder hits, call the bank and make sure you are in compliance for that step.  Ask if there is anything else you can do and be prepared to hustle any documents they need out the door that day.

6)       Get your documents in early every time!  Always send in your documents as soon as you can and then call and verify that they were received by the Bank.  Never assume that they received your documents just because you faxed them in.  Lenders rarely complain if you send too many copies, so back up your emails with letters and your faxes with certified mail!

7)       Finally, never give up!  You are a rock, strong and unbending in your determination to modify your loan.  You are an arrow, aimed at your goal of a loan modification and focused on helping your creditor find reasons to approve it!

The loan modification process is not a sprint, it is a marathon.  You must be prepared, informed, and studiously devoted to your own cause.  If you cannot find the time to devote to this process, hire someone who can.  If there are issues or questions you can’t answer, ask an expert.  Whatever happens, don’t give up!  For more information on loan modifications, follow this link to a fantastic collection of past blog entries devoted to loan modifications.

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According to this article, published on AOL's real estate section, if a homeowner simply "walks away" from a mortgage, Fannie Mae is raising the stakes.  Here is a short quote from the article: 

Here's the breakdown for eligibility depending on how you got out of your last mortgage:

Deed-in-Lieu of Foreclosure> -- reduced from four years to two years if you can put down 20 percent on your house, four years if you can only put down 10 percent.

Preforeclosure Sale -- remains at two years if you can put down 20 percent, four years if you can only put down 10%.

Short Sale -- will be the same as pre-foreclosure sale. Currently there are no set rules for short sale.

Strategic Default (Walk Away) -- seven years.

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A Seattle law firm, Hagens Berman Sobol & Shapiro, has filed a lawsuit against Bank of America over its apparent failure to satisfactorily distribute TARP funds to stem foreclosures. 

According to a press release by Hagens Berman, Bank of America has made an "affirmative decision to slow the loan modification process for reasons that are solely in the bank's financial interests."

It will be interesting to monitor how this suit develops, as it strikes at the core issue of whether the government's injection of capital into the banking market actually resulted in a positive result. 

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After the first attempt by the Obama Administration to stem the foreclosure tide fell flat (only a fraction of eligible home owners facing foreclosure secured permanent modifications), the federal government is proposing a broad new initiative.

The New York Times reports that the government will now try to reduce the principal for home loan modifications.  To do this, it intends to provide a program by which those who are "underwater" (home value less than what is owed) can refinance into a government-backed mortgage.

This is significant because most (if not all) loan modifications up to now consisted of banks largely shifting interest rates and extending payment terms.  Thus, the actual principal of the loan was never really effected, merely the interest.  As a result, the underlying problem which plagued a lot of homeowners was never truly addressed (that they simply had purchased homes which were beyond their budget). 

To fund this new program, the government intends to utilize $50 billion funds previously allotted to the Troubled Asset Relief Program, more commonly known as "TARP."  Though reaction from many non-profit groups is generally positive, it remains to be seen whether banks will cooperate with the new program. 

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Washington law allows lenders to foreclose on properties that are in default by using either a judicial or a nonjudicial foreclosure process. While the judicial foreclosure process involves going through the courts to obtain an order to foreclose, the nonjudicial foreclosure process allows the lender or the trustee under a deed of trust to foreclose by selling the property without court involvement.

Often referred to as a “trustee’s foreclosure” or a “foreclosure by power of sale,” nonjudicial foreclosure can only be used if a deed of trust (or other mortgage instrument) authorizes it. Today, it is widespread practice for a deed of trust to contain such an authorization by including a “power of sale” clause. This “power of sale” clause preauthorizes the sale of the property to pay off the balance of the loan in the event that the borrower defaults. Because a court is not involved in a nonjudicial foreclosure, however, there are very specific provisions, procedures, and formalities that the trustee or the lender must observe during the foreclosure process. In Washington, the statutory requirements governing nonjudicial foreclosures are set forth in Chapter 61.24 of the Revised Code of Washington. The following are the major requirements of the nonjudicial foreclosure process.

1) Notice of Default

At least thirty (30) days before initiating a foreclosure sale, the trustee must send a written notice of default to the borrower. This written notice of default must be sent to the borrower’s last known address and must be sent by both first-class mail and either registered or certified mail, with a return receipt requested. Additionally, the trustee must either personally serve the notice of default on the borrower or post a copy of the notice in a conspicuous place on the premises.  

The RCWs set forth very specific information that must be included in the notice of default. For example, a description of the subject property, a statement declaring the borrower in default, and an itemized account of all amounts in arrears are just some of the items of information that must be included in this notice. In addition, the RCWs set forth specific duties that lenders have and must complete even before a notice of default can be issued.

2) Notice of Sale

At least ninety (90) days before the foreclosure sale, the trustee must record a notice of sale in the office of the auditor in each county where the property is located. The trustee must then send a copy of the notice of sale to the borrower (and any other interested parties as set forth in the RCWs) by both first-class mail and either certified or registered mail, with a return receipt requested.

In addition to the notice of sale, the trustee must include a statement to the borrower that sets forth the steps required to cure the default and avoid foreclosure. This statement allows the borrower to stop the foreclosure process by paying past due payments, plus additional expenses. The ability to cure the default, however, ends eleven (11) days prior to the foreclosure sale.

In addition to mailing copies of the notice of sale and the statement regarding how the default can be cured, the trustee must also either personally serve the notice of sale upon any occupant of the property, or must post a copy of the notice of sale in a conspicuous place on the property. The trustee must also publish the notice of sale consecutively for four (4) weeks in a “legal” newspaper in the county where the property is located.

3) The Foreclosure Sale

The foreclosure sale itself also has rigid guidelines. The foreclosure sale must take place at a designated public place and must be on a Friday, or if the Friday is a legal holiday, on the following Monday. Additionally, the foreclosure sale must take place between 9:00 a.m. and 4:00 p.m., and it must take place at least 190 days from after the date of the first default.

4) Notice to Occupants or Tenants

If the property subject to the foreclosure proceeding is occupied by a tenant or other occupant, the trustee must, in addition to the requirements set out above, mail a specific notice in an envelope addressed to the “Resident of property subject to foreclosure sale.” Like many of the other notices, the specific language of this notice is set forth in the RCWs.   

After the foreclosure sale is completed, the purchaser of the property is entitled to possession of the property on the twentieth day following the trustee’s sale, as against the borrower and anyone having an interest junior to the deed of trust, including occupants who are not tenants. When the occupants of the property are tenants, however, the purchaser cannot merely enter the property on the twentieth day following the sale. In this situation, the purchaser has two options: 1) The purchaser can negotiate a new purchase or rental agreement with the tenant or subtenant; or 2) The purchaser can elect to terminate the rental agreement. If the purchaser elects to terminate the rental agreement, the purchaser must give the tenant or subtenant sixty (60) days written notice to vacate. It is not until this sixty days notice has lapsed that the purchaser can lawfully remove the tenant or subtenant from the property.

 

Understanding these major requirements of Washington’s nonjudicial foreclosure process is important. Whether you are a homeowner who is facing foreclosure, a lender who is considering beginning the foreclosure process, or a tenant living in a property that is being auctioned at a foreclosure sale, understanding these requirements can help you to know your rights and your duties. The process of nonjudicial foreclosure can be a time-consuming and complex process, requiring strict adherence to the applicable RCWs and their substantive forms and language. Always keep in mind that because each situation involving nonjudicial foreclosure presents unique issues, seeking professional legal assistance to guide you through this complicated time may ultimately be that best decision you make in protecting your interests.

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             For people experiencing severe financial difficulties and who are overwhelmed with debt, bankruptcy may be an important option. Whether difficult times are brought on by job loss, medical problems, family breakups, or even financial irresponsibility, bankruptcy can grant you much desired relief. Understanding some basic principles of consumer bankruptcy, however, is imperative in knowing which form of bankruptcy is appropriate.

Within bankruptcy law, there are several different “chapters.” Each “chapter” is specifically designed to help either individuals or businesses in eliminating, resolving, and/or repaying their debts. Selecting which bankruptcy chapter to proceed under, depends on the individual’s or business’s specific circumstances. For individuals (“consumers”) who are seeking relief through the bankruptcy process, two chapters are available: Chapter 7 and Chapter 13. These two bankruptcy chapters differ significantly and offer different results.

Chapter 7 Bankruptcy

             Chapter 7 is commonly referred to as “liquidation bankruptcy.” When an individual proceeds under Chapter 7, a trustee is appointed by the bankruptcy court. The trustee then gathers all of the individual’s property (except any property that is exempt), sells (“liquidates”) it, and distributes the proceeds of the sale to the individual’s creditors. At the end of this process, any outstanding debts are discharged (eliminated). The creditors then chalk-up their losses and move on, while the individual must start anew with very little assets leftover. The Chapter 7 process generally takes about four to six months.

             Not everyone is allowed to proceed under Chapter 7, however. To be eligible under Chapter 7, an individual must pass the “means test” (a mechanical formula that is used to determine who can and cannot repay some debt.) If it is determined by the court that the individual’s “current monthly income” is above a certain amount and the individual has the ability to repay some debt, the individual may be denied Chapter 7 relief and may be forced to proceed under Chapter 13. Most people who meet the eligibility requirements proceed under Chapter 7 because, unlike Chapter 13, Chapter 7 takes less time to complete and does not require the individual to pay back any portion of his or her debts.

Chapter 13 Bankruptcy

             Chapter 13 differs significantly from Chapter 7’s liquidation method. Commonly referred to as an “Adjustment of Debt” or “Wage Earner’s Plan,” Chapter 13 focuses on using the individual’s future earnings, rather than liquidated property, to pay creditors. When an individual files under Chapter 13, a court-approved plan allows the individual to keep all of his or her property, but the individual must pay a portion of all future income to the creditors. This payout plan lasts for three to five years, depending on the circumstances and the court-approved plan. When the individual has completed the agreed payout plan, any remaining obligations are discharged.

             Naturally, eligibility to proceed under Chapter 13 requires that an individual must prove that he or she is capable of paying a portion of his or her future monthly income to creditors for a period of three to five years. If the individual’s income is not regular or is too low, Chapter 13 may be denied. Likewise, if the individual’s total amount of debt is too high, the court may deny Chapter 13. Unlike Chapter 7, Chapter 13 takes much more time to complete. However, the major benefit of Chapter 13 is that the individual is allowed to keep his or her property.

             Understanding the main differences between Chapter 7 and Chapter 13 can assist you in knowing which form of bankruptcy will most likely work best for you. Keep in mind, however, that because the bankruptcy process is complex and oftentimes requires professional knowledge to be successful, seeking professional help is your best bet.

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One of my favorite websites I visit to keep a pulse on the Puget Sound residential real estate market is the Seattlebubbleblog. Its founder and editor is Seattle resident named Timothy Ellis who goes by the blog name “The Tim.” http://seattlebubble.com/blog/ 

The blog has daily posts which include some great graphs, charts and analysis of the Puget Sound real estate market.  What makes the posters on the Seattle Bubble Blog unique is their credibility.  They were one of a few vocal media sources in Washington State that consistently and loudly predicted the current real estate crash before it happened.  In addition to good posts and analysis by “The Tim,” the comment section provides a lively discussion about Puget Sound real estate issues.  *Be aware homeowner: many of the comments made are from bloggers who predict continued steep declines in the Puget Sound real estate - so the blog isn’t for the faint of heart. 

The effect of local and federal laws as they relate to the residential real estate market in the Puget Sound area are also frequently discussed by the blog posters and authors with links to news articles and additional resources.

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In a recent case, the issue arose as to what options a party has when their home has already been foreclosed upon, and sold in a trustee's sale.  Washington's Deed of Trust Act provides direction for this issue in RCW 61.24.130.  

As interpreted in In re Marriage of Kaseburg,126 Wash.App. 546, 108 P.3d 1278 (2005), a party waives the right to post-foreclosure-sale remedies under the Deed of Trust Act where the party:

1. received notice of the right to enjoin the sale; 
2. had actual or constructive knowledge of a defense to foreclosure prior to the sale; AND
3. failed to bring an action to obtain a court order enjoining the sale

This Act provides a the only manner in which ANY party may prevent or restrain a trustee's sale on any proper ground, once the foreclosure has begun with a "receipt of the notice of sale and foreclosure."  Id. at 236.

It would seem that the safeguards required before a trustee's sale can go through, influenced what that legislature allows in post-foreclosure-sale remedies.  In other words, even if there is a valid reason to undue a trustee's sale, you must take those steps prior to the sale.  IF, of course, you did not receive proper notice and were not aware of the sale, you are NOT barred from bringing an action to stop the sale.

To be safe, if one is facing a foreclosure and his/her home has a scheduled trustee's sale date, the best thing is to hire an attorney to initiate the legal process.  At a minimum, therefore, the home owner is not guilty of waiving his or her rights to post-foreclosure-sale remedies and can forestall the process before it is too late.  

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The US News and World Report online provides a dynamic breakdown of the basic components of the federally-backed loan modification program. 

According to the article, here are “Seven things you need to know” about a loan modification:

1. The plan focuses on payments made to lenders rather than the price of the loan.  Experts believe that even if the value of the home possesses little or no equity, if the modified loan payment is affordable, the homeowner will continue making payments.

2.  The plan would seek to reduce the mortgage payment to 31 percent of the borrower’s gross monthly income.  “To that end, the administration's plan requires participating loan servicers to reduce monthly payments to no more than 38 percent of the borrower's gross monthly income. The government would then chip in to bring payments down further, to no more than 31 percent of the borrower's monthly income. In lowering the payment, the servicer would first reduce the interest rate to as low as 2 percent. If that's not enough to hit the 31 percent threshold, they would then extend the terms of the loan to up to 40 years. If that's still not enough, the servicer would forebear loan principal at no interest.” 

3.  The plan would then encourage loan servicer participation by providing cash incentives:  “To encourage participation, servicers will be paid $1,000 for each modification and will get an additional $1,000 payout each year for as many as three years, as long as the borrower continues making payments. Borrowers, meanwhile, can get up to $1,000 knocked off the principal of their loan each year for as many as five years if they make their payments on time. Neither party can receive the cash incentives until the modified loan payments have been made for at least three months.”

4.  The plan would only apply to those under financial hardship.  Only owner-occupied residences with an outstanding balance of $729,750 or lower would be eligible.  (Sorry, no speculators.)

5.  The plan will require the loan modification to meet the net present value test.  What this means is that the lenders would compare the expected cash flow of the proposed modified loan with the expected cash flow of the loan unmodified.  If the modified loan would create more cash flow, then the loan will be modified and or restructured. 

6.  The plan will offer loan servicers with incentives to extinguish second liens like home equity lines of credit. 

7.  The plan may or may not work.  (Not the most satisfying conclusion, I know).  

Please refer to the full US News and World Report  article by Luke Mullins here. 

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 If you can find the funds to pay your arrears, but just need more time, then a forbearance is the way to go.  Working with your lender’s loss mitigation or foreclosure department to request a six-month forbearance can lower your monthly payments temporarily, allowing you more time to find the funds to bring your loan current. 

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The Homeowner Affordability and Stability Plan is a mortgage modification plan that is currently helping some homeowners lower their monthly mortgage payments.  Although eligibility is determined by your mortgage lender based on your financial situation and other guidelines, below are some of the plan’s features:   

The program is intended to help those who are current on their mortgage payments, but are unable to refinance because they owe more than their home’s current value.

• The program allows homeowners to modify their current loan into a 15 or 30 year fixed rate loan.
• The new first mortgage may not exceed 105% of the current market value of the home.
• The second mortgage holder must agree to remain in second position.
•  You must occupy the home as your primary residence.

 The biggest downside to this program is that you must have a Fannie Mae or Freddie Mac loan to qualify.    

In most cases you will need the following to apply:

• An application packet from your lender.
• Last two paycheck stubs.
• Last two years' tax returns
• Proof of financial hardship

 This program started on March 4, 2009.  There is no telling how long funds will last, so borrowers are encouraged to apply early.  

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