California homeowners can get up to 10 months to make up missed payments or sell

Borrowers unable to make monthly house payments can still stay in their homes for about 321 days.

By Jeff Lazerson

Lori Devault survived and rebuilt her Julian home after it burned down in the 2003 Cedar Fire.

Now she is worried she might not survive her mortgage lender as she is already two months into a maximum six-month mortgage forbearance agreement with Irvine-based Rushmore Loan Management Services.

“Rushmore requires the missed payments to be made up by the end of the forbearance period,” said Devault. “I don’t have the money.”

Her Julian home is worth about $695,000, with a mortgage balance of $329,000 and a total house payment of $2,100. She has about $366,000 in equity.

Substantial equity does not matter when house payments come due.

Devault is unable to work after hitting her head on a fire extinguisher and fracturing her skull. Her ex-husband stopped paying spousal support because he lost his wages due to COVID-19.

She has attempted to get additional relief from Rushmore.

“We’ll help you sell your house or foreclose,” said a Rushmore customer service person.

Ugh!

Rushmore would not confirm or deny Devault is a customer.

“Whenever possible we are putting borrowers into a forbearance plan and then, once the forbearance period ends, we will explore a range of repayment options, including a repayment plan … (or) a loan modification,” said in a written statement.

Generally, mortgage loan servicers do not own your note and deed-of-trust (California’s version of a mortgage). The servicers’ job is to bill you and accept your payment, calculate your new balance, distribute the portion owed to the investor (true owner of your mortgage) along with taxes and insurance, keeping a very small portion for the work it performs.

Mortgage servicers do not have the authority to decide what can be offered to distressed borrowers. Rather, they take their marching orders from the owner of your mortgage.

If you are in trouble, contact your mortgage servicer. Find out who owns your mortgage. Explain your plight. Find out what forbearance, mortgage modification and other workout options are in play. Bypass your servicer and contact your mortgage owner if you can’t negotiate a mutually beneficial compromise.

All you need is one sympathetic person in authority to say yes to your workout plan.

The California Department of Real Estate (DRE) said on April 16 you can access free loan modification counselors through the U.S. Department of Housing and Urban Development.

If you hire an attorney or a licensed real estate agent to assist you in negotiating a forbearance or loan modification, it is illegal for them to ask you for or accept any type of retainer or advance fee, according to the DRE.  The DRE investigated roughly 8,089 entities for alleged loan modification or advance fee violations between 2008 and 2013.

According to real estate attorney Dennis Doss, no matter what your servicer offers, California borrowers have state and federal protections that buys you valuable time:

  1. Gov. Gavin Newsom reached an agreement with community banks requiring them to provide a minimum 90-day payment forbearance.
  2. Federal law under Regulation Z requires a 120-day pre-foreclosure notice
  3. California provides a moratorium of three months plus 21 days on a notice of intent to foreclose.

If you are in over your (financial) head, take these steps consecutively to borrow roughly 321 days to figure out what is next.

Make your plan. Put your plan in motion. Maybe you have plenty of equity. A good move might be to sell before credit report mortgage late payments are reported, late payment penalties and lender foreclosure charges start to eventually ruin your previously good credit and gobble up more of your equity.

What about filing for bankruptcy?

Bankruptcy should be the option of last resort, said bankruptcy attorney Richard Golubow.

“Be proactive in dealing with your lender. It’s better to explain transparently, timely and precisely,” said Golubow. Bankruptcy is leverage of last resort in the event you can’t consensually resolve the financial restructuring.”

Under Chapter 13 of the bankruptcy code, you may be able to keep your home indefinitely, said bankruptcy attorney Michael Nicastro.

But, he added, “Treading water is not swimming. It’s delayed drowning.”

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