Ask the Real Estate Attorney
By Barry Ross

Dear Barry, My adjustable rate mortgage is going to adjust soon and my mortgage payments will be escalating rapidly, with payments Icannot afford. What are my options?
– P.B.
– Burbank

Dear P.B., Today, there are a number of solutions available to you. If there is equity in the home, i.e., the property’s value is more than what is owed, you may be able to refinance. Be aware, however, that if you fall behind in your payments, delinquencies in mortgage payments get reported to the credit reporting agencies. These delinquencies result in lower FICO scores which make qualifying for a loan more difficult and push the borrower into higher interest rates due to the greater risk of loss to the lender.

If that is not workable, the next step to take is to call your lender and discuss any options they may be offering to see if those options are something you can live with. The lender may offer you a payment restructure while reducing your monthly payments owing on the property. This is called a loan modification where payments are simply readjusted. There is also something called a forbearance agreement. In this situation, the missed loan payments are either added to the end of the loan or paid over a period of time. Generally, up to 12 months of monthly payments may be tacked onto the principal.

If any of these are the right solution for you, you can contact your lender’s “Work-out Department,” who can help. Not all “work outs,” however, are successful. In that case, other alternatives must be sought, such as a short sale, a foreclosure, or a deed in lieu of foreclosure.

A short sale is where the lender is willing to accept payment of less than the amount of the note and forgive the borrower the balance. A foreclosure is a period of at least 111 days during which the lender records a Notice of Default and later a Notice of Trustee Sale that informs the property owner and the public that the property will go to sale by auction if the arrears plus costs are not paid by the sale date.

There is also the option of a Deed in Lieu of Foreclosure which is a deed given by an owner of a property in default, to the lender, which conveys mortgaged property back to the lender. This owner-originated action is an alternative to a foreclosure action by the lender.

No matter what you ultimately decide to do, you should move quickly to seek professional advice to help them decide which option(s) is best while there is a window of opportunity to minimize the damage to their credit and financial well-being.

One thing for sure, there can be very serious legal, tax and credit consequences with any of the foregoing strategies. Therefore, it is always essential to consult an experienced real estate attorney and tax advisor as soon as debt relief situations are contemplated.

Real Estate Primer SM

Deed in Lieu of Foreclosure (Voluntary Deed): A deed given by an owner of a property in default, to the lender, which conveys mortgaged property back to the lender. This owner-originated action is an alternative to a foreclosure action by the lender.

Deed of Trust (Trust Deed): The Deed of Trust (Trust Deed) is the instrument (document) that is recorded with the County Recorder’s Office that makes the property the security for the repayment of the loan.

Default (Delinquency): Failure to make mortgage payments or any, other obligation of a note or deed of trust, on time.

Foreclosure: A period of at least 111 days during which the lender records a Notice of Default and later a Notice of Trustee Sale that informs the property owner and the public that the property will go to sale by auction if the arrears plus costs are not paid by the sale date.

FICO Score: The credit score by which lenders gauge the credit worthiness of borrowers. The higher the score, the more credit worthy the borrower is.

Short Sale: A short sale is where the lender is willing to accept payment of less than the amount of the note and forgive the borrower the balance.

Copyright © 2008 Barry Ross, Esq.,Barry Ross, The Real Estate AttorneySM All Rights Reserved

HOA Homefront™
By Kelly G. Richardson

Q Dear Kelly, I have a question that's been troubling me for about 2 years now - Are HOA's subject to the California Public Records Act? If they are not subject to this act, is there an equivalent one they are subject to? A second question I have is regarding associations providing earthquake insurance coverage. The CCR's make this optional in my association. It has been provided in previous years, but in 2008, an announcement in the January newsletter said earthquake insurance is no longer provided by the Association. Am I worrying over nothing with no association earthquake coverage? Without this association coverage, would we all lose our homes because the association "loss assessment" would be so high the homeowners could not manage it in addition to paying for mortgages and living expenses while rebuilding? Thanks for your input.

- A.R.
- Anaheim Hills


Dear A.R., Common Interest Developments are private entities, and not subject to the Public Records laws. However, there are three statutes in the Common Interest Development Act that provide for documents to be provided to members. Civil Code Section 1365 describes a number of financial documents to be provided to all members each year. Civil Code Section 1368 describes documents that an association must provide to members so they can pass them along to prospective purchasers. Civil Code Section 1365.2 describes the rights of inspection of most (not all) association records. All of these laws can be accessed on line through http://leginfo.ca.gov, the Legislature’s official web site. If you request documents under this latter statute, try to avoid overbroad or excessive requests. Try to make your requests specific - and don’t ask for more than you really need to answer your question. Regarding earthquake insurance coverage, some associations are required by their governing documents to have it. If not so required, the decision is the board’s. Many associations have in recent years decided to forego earthquake insurance, due to its cost. This decision has both pros and cons. Attorneys will usually suggest associations have the insurance, because of the financial calamity that would otherwise occur if the buildings are heavily damaged. After the 1994 Northridge quake, there were loans available to associations from the federal Small Business Administration for repairs, but they were not enough to pay for anything but minor damage. Without the insurance, large repair assessments will be needed if a moderate to major earthquake damages the buildings. The lack of such insurance should be disclosed to the members with the annual financial disclosures. Thanks for your questions.

Kelly G. Richardson is Senior Partner of Richardson & Harman PC, a California law firm known for real estate and community association advice. Direct questions to KRichardson@RH4Law.com. For past columns, visit www.HOAHomefront.com. All rights reserved®.