loan modification help

New Regulation Helps Consumers with Short Sales and Loan Modifications

Question: We would like do a short sale of our Mesa home. We are both licensed real estate agents in Wisconsin and we would like to list and sell our home ourselves. A real estate agent in our community advertises “experience as short sale negotiators.” We have never done a short sale, and we would like to hire this real estate agent to handle the short sale negotiations. When we contacted her, however, she said that she could only do the short sale negotiations if she gets the listing on our home. Why can’t we hire this real estate agent to do the short sales, and still list our home ourselves?

Answer: The Federal Trade Commission enacted a rule effective January 29, 2011, regulating “mortgage assistance relief services” (“MARS”) such as short sales and loan modifications. There are numerous disclosures and other requirements imposed by MARS. A real estate agent can list and negotiate the short sale of a home, provided that there is compliance with the MARS requirements and the real estate agent receives no additional compensation for negotiating a short sale. In other words, a real estate agent cannot charge the seller a 7% commission and a $2,500 fee for negotiating a short sale. If the real estate agent does not have a listing for the short sale of the home, however, the real estate agent can only receive compensation for short sale negotiations if, in addition to compliance with MARS requirements, the real estate brokerage firm has a loan originator (mortgage broker) license.

Note: A MARS provider cannot receive any advance compensation, and cannot receive any compensation at all unless the seller and seller’s lender agree on the terms of the closing of the short sale. Unfortunately, although this MARS rule is salutary and pro-consumer, this MARS rule illustrates the maxim of “locking the barn door after the horse has bolted.” Several years ago there were numerous firms receiving upfront fees of $2,500-$5,000 based on deceptive advertising, and not doing anything to assist owners of distressed homes. Due to consumer awareness and the threat of criminal prosecution, almost all of these firms are now out of business.

Is a Real Estate License Needed To Negotiate Loan Modifications or Short Sales?

Loan Modifications

A real estate license is not required to negotiate a loan modification agreement for a client because the typical loan modification does not involve the sale of real property. See A.R.S. § 32-2101(47). In addition, a mortgage broker’s license is not required to negotiate a loan modification if the loan is already funded, the parties to and the security for the loan are the same, and no additional funds are advanced. See A.A.C. R20-4-102. However, Arizona did adopt legislation that required loan modification negotiators to be licensed and regulated under the mortgage brokerage statutes by July 2010.

Short Sales

A real estate license is generally required to represent a client in a “transaction calculated or intended to result in the sale . . . of real estate.” See A.R.S. § 32-2101(47). Therefore, any directing or assisting in the negotiations for a short sale on behalf of a seller and for compensation is an activity requiring a real estate license. See also A.R.S. § 32-2122(D).

Combs Law Group (CLG)as a law firm exempt from real estate license requirements is uniquely qualified to represent clients and assist brokers in short sale transactions. There is no program, whether sponsored by the government or a private lender, which fits every client’s circumstance. CLG’s attorneys evaluate each client’s circumstances, educate the client regarding the law, provide the client with all of the options that are available, and work with the lender to close the short sale transaction prior to closing. All short sale clients receive a thorough review of their short sale documents by a CLG attorney to ensure that their best interests are protected and promoted.

Does Arizona Homestead Exemption Protect Homeowner from Foreclosure

Question: We purchased our home in Gilbert with a $240,000 mortgage. After we purchased our home we borrowed $100,000 on a home equity line of credit (“HELOC”). The home is worth less than $200,000 now. Although we are trying to get a loan modification on our first mortgage loan of $240,000, even if we get the loan modification agreement we will probably not be able to stay current at this time with the monthly mortgage payments. In addition, we have not made any payments on our $100,000 HELOC for the last two months. We do not want to lose our home to foreclosure. My husband has just started a new job, and in the next year or so we may be able to get out of this mess. Can the homestead exemption under Arizona law protect us from foreclosure by either the first mortgage lender or by the HELOC lender?

Answer: No. First, the Arizona homestead exemption protects equity up to $150,000 in the principal residence of a homeowner, but this protection only applies to non-consensual judgment liens of creditors, e.g., collection judgments for credit card bills or medical bills. The homestead exemption does not protect a homeowner from consensual liens, e.g., liens on the home consented to by the homeowner at the time that the homeowner borrowed funds for a loan such as a mortgage loan, a HELOC, or a swimming pool loan. A.R.S. §33-1101. Second, even if the homestead exemption did apply, you have no equity to protect. Therefore, you should consult an Arizona bankruptcy lawyer to discuss possible bankruptcy protection to protect your home, including “stripping” of the HELOC as a second lien on your home, especially in light of the potential for improvement of your financial circumstances because your husband is employed again.

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loan modification help

New Regulation Helps Consumers with Short Sales and Loan Modifications

Is a Real Estate License Needed To Negotiate Loan Modifications or Short Sales?

Does Arizona Homestead Exemption Protect Homeowner from Foreclosure