The goal of this bill is to streamline the process of short sales, deeds in lieu of foreclosure and loan modifications. Section 105, Neighborhood Stabilization Program, states “Each State shall be permitted to use the funds to address statewide concerns….” Each State and local government, however, is limited to using a maximum of 10% of such amounts for foreclosure prevention programs and foreclosure mitigation. As a result, Section 105 of the Act will likely do little to help Florida homeowners since the language does not require the State or local government to use the funds in any specific manner and the cap of 10% will not be sufficient to assist the large number of Florida homeowners being foreclosed.
- Section 201 of the bill allows funds to be used for loss mitigation for residential mortgages securing a person’s principal residence. However, the majority of foreclosures in Lee County, Florida involve second homes and investment properties. In 2008, according to Southwest Florida Real Estate Investment Association, 37% of the lis pendens filed in Lee County, Florida were on principal dwellings, with 73% of the filings being on non-homestead property (i.e. not the principal dwelling of the borrower). Thus, the bill would be more helpful to Florida if it provided assistance for second homes and investment properties, as well as principal residences, by providing incentives for lenders to reduce the mortgage loan balance to the present fair market value of the property. This will lower monthly payments, allow borrowers to maintain the lower payments and avoid delinquency and a possible foreclosure, deed in lieu or short sale. The legislation also needs to provide an incentive to subordinate mortgagees to work with borrowers, as many Florida property owners tapped into the property’s equity and have second or even third mortgages against the property. Whether we agree with the borrower’s decision to tap into the property’s equity in this manner, a resolution is needed for Floridians to recover from the current economy and market conditions. Until subordinate mortgages are addressed, they will continue to prevent short sales or deeds in lieu of foreclosure from being accomplished.
- Section 203 of the bill allows FHA approved lenders to modify loans by extending the term of the loan to 40 years from the modification date. In addition, the Secretary may permit incentive payments to the lender for successful modifications, which shall be used to reduce the amount of principal indebtedness. Though these provisions will be helpful, it is unknown at this time the number of property owners that will be able to take advantage of this type of loan modification.
- Section IV of the bill states Congress would like lenders to NOT initiate foreclosures or foreclosure sales on any homeowner until the foreclosure mitigation provisions of this legislation and other legislation (such as the HOPE program) are implemented and operational. This applies only to first mortgages secured by a principal dwelling. This is not feasible, as lenders need to obtain possession of the property as quickly as possible to protect the property from damage due to neglect, vandalism, and mold and to maintain the property. Until this is accomplished, neighborhoods will continue to look like abandoned and forgotten areas and will be an invitation for crime.
- Article VII involves protecting tenants in houses subject to foreclosure. The language provides that if the foreclosure is on a federally-related mortgage loan or any dwelling or residential property after the date of the Act’s enactment, any immediate successor in interest (which could be the lender or successful bidder at the foreclosure sale) shall:
- give a 90 day notice to the tenant to vacate; OR
- If the tenant entered into a lease before the notice of foreclosure was filed, the tenant may occupy the property until the end of the lease term. If the successor in interest intends to occupy the property as his or her primary dwelling, however, then a 90 day notice to the tenant to vacate is required.
- This section of the bill is not reasonable. For the reasons stated above, lenders need to obtain possession of the property as soon as possible. Also, hurricane season is approaching and lenders need to be able to protect the property during hurricane season and repair any damage incurred as a result of a hurricane. In addition, tenants generally stop paying rent once they are notified a foreclosure is pending against the landlord. It is very difficult for lenders to sell property with a tenant residing on the property. Buyers do not want to have to evict the tenant, whether they are required to give a 90 day notice or no notice. Buyers also do not want to be concerned about the condition of the property upon closing date if a tenant remains until that time. Properties are being sold AS IS by lenders so it is unreasonable to expect a buyer to purchase property SUBJECT TO A TENANT, with the possibility of having to evict the tenant, in addition to being responsible for fixing any property damage the previous owner neglected.
- The Senate recently defeated a proposed amendment to S. 896 that would have allowed bankruptcy judges to change the terms of mortgages. Although borrowers likely wish this provision had passed, allowing a bankruptcy court this discretion would have unfathomable consequences to the lending industry, which industry needs more stabilization and less havoc.
In summary, although S. 896 has the potential of improving the foreclosure situation in the country, it does not address key issues to a large portion of Floridians. There simply is no quick fix to the current market conditions!