Unfortunately, drawing on these funds early comes with a price.  If an investor withdraws money from an IRA, 401(k), 403(b), or another qualified retirement plan before reaching 59 1/2, the IRS generally imposes an early withdrawal penalty of 10% of the taxable amount withdrawn, in addition to the income tax owed on the withdrawal.  Withdrawing earnings from a Roth IRA less than 5 years old can trigger comparable penalties.

Using funds in a retirement plan should be an absolute last resort should you find yourselves in a financial bind.  This is especially true since your Erisa-qualified retirement plans (*usually all IRA, 401(k) and 403(b) accounts are Erisa-qualified) are 100% protected in a bankruptcy!!  That’s right!  Your retirement plans are protected from the hands of your creditors, unless you withdraw funds from them early.  Then the withdrawn funds are fair game.

If you are struggling with debt and this is the reason why you want to withdraw from your retirement plan early, you should definitely speak with an experienced bankruptcy attorney before withdrawing the funds to see if you can keep that money and wipe out all of your debt too!

To set up your free consultation with the Hernandez Law Group to discuss your qualifications for Bankruptcy, call 916-728-1500 (Sacramento Area) or 510-456-7400 (Bay Area).  We look forward to seeing you and possibly saving your retirement funds soon!

There has been alot of talk lately about the DOJ modifications that are being offered by Bank of America that allow for principal reductions.  There is one crucial qualifying component that cannot be negotiated.  You have to have been at least 60 days late as of January 31, 2012 to qualify.  If you were not 60 days past due on your mortgage on that date you will not qualify now, or ever.  So if you are thinking about going late on your mortgage to qualify for this modification, do not do it!  There will be no strategic defaulting to qualify!

The first thing to consider is the state that you live in.  California is a community property state, so if you file bankruptcy while still legally married (i.e. before a divorce decree is entered by the Court), all of your spouse’s income and assets will play a huge role in your case.  If your spouse does not want to join you in the case either, then we need a Spousal Waiver signed by him/her stating that they know you are filing and are voluntarily waiving their right to be a part of the case.  Since your spouse must be involved, some clients decide to wait until after the divorce is finalized just to avoid speaking to their spouse.  This is a good way to just keep everything as peaceful as possible while going through an already difficult situation.

By waiting to file your case after your divorce is finalized, it may be easier for you to qualify resulting in a much smoother case.  If you are legally divorced at the time you file your case, your income is the only income counted in the case, and only your assets are included.  Your spouse has a very minimal role after your divorce is finalized.  Therefore, if your spouse is the higher income earner between the two of you, you may not qualify for a bankruptcy if you filed while married, but by waiting, you may qualify because you eliminate the requirement of including your spouse’s income!

Regardless of when you file, your bankruptcy will have the same result and discharge all debts owed by you personally, whether incurred before or after the divorce.

As always, it is best to speak with an experienced attorney regarding your unique situation to obtain the best strategy for you.  Call Hernandez Law Group today at 916-728-1500 (Sacramento Area) or 510-456-7400 (Bay Area) to set up your free consultation today!

Wells Fargo is continuing to give our clients great loan modifications.  After working on this client’s loan mod since December 2009, Wells Fargo finally delivered the permanent loan modification documents and they were worth the wait.  The interest rate has been lowered to 2% and a total of $87,305 in principal has been forgiven!  The payment went from $4,222.77 a month down to a very affordable $1,999.53.   Needless to say, we have a very happy client!

Chase has given our client an excellent loan modification by lowering their interest rate to 4% for the remainder of their 23 year term.  The payment went from $3,130 a month to $2,236 a month.  This payment includes principal, interest, taxes and insurance.  Chase also forgave $148,576 in principal!  This client is extremely happy because they will be one of the few Californians who will actually be able to pay off their mortgage!

Wells Fargo has created a special group to deal with 3rd parties such as the Hernandez Law Group, Inc.  We have bi-weekly meetings to go over our files and submit loan modification requests directly to our group.  So far the relationship has proven to be a success.  One of our clients came to us because they had been trying to get Wells Fargo to modify their loan for over 2 years.  We submitted the modification request to our group and had an approval within 2 weeks.  We are looking forward to a long and mutually beneficial relationship with Wells Fargo.

Many clients are interested in knowing about whether their lender will offer them cash if they move out of their home after foreclosure or short sale. The following article is from the DRE website and is an excellent resource for explaning cash for keys programs.

“CASH FOR KEYS” – INFORMATION FOR CONSUMERS AND DRE LICENSEES

The challenge to successfully market REO properties has given rise to a growing practice known as “cash for keys”. The Department of Real Estate (“DRE”) has been receiving questions and complaints from consumers about “cash for keys” solicitations. This article is intended to provide some guidance for consumers and licensees when involved in a “Cash for Keys” program to minimize any misunderstandings or violations of the law.

“Cash for Keys” Programs

When a lender takes a home back as a result of a foreclosure action, it becomes responsible for that property. The longer the lender has to wait to sell the property, and the more money it has to spend to repair damage to and/or to maintain the property, the greater will be its ultimate loss. The consequences of foreclosure and the looming legal eviction action affects the prior resident owner of the foreclosed property and/or the tenant(s) living in the property the same way – they must, unless there is an existing landlord-tenant rental or lease agreement which survives the foreclosure by law, or a written agreement with the new owner/lender to maintain or modify the tenancy, vacate the property in a relatively short period of time.

If the lender can make a deal with a tenant to pay for the tenant’s security and utility deposits, moving expenses, and maybe even temporary living expenses, and perhaps a bonus for a quick moving date, it would be in the lender’s interest to do so to avoid the inevitable minimum 3 to 6 month delay associated with formal legal eviction proceedings. In the many circumstances, the lender would most certainly prefer that the tenant agree to vacate the property within a certain number of days, leave the property in “broom-swept condition”, remove all debris from the interior and the yard, leave all fixtures and landscaping intact, and turn over the keys and garage door openers.

Practical Application of “Cash for Keys”

Generally, the amount offered to tenants vary and is usually negotiable. Anecdotal reports from those who have had experience with “cash for keys” programs report that $500 is generally the minimum and $5,000 the maximum amount offered to tenants for their keys.

The amount an owner is willing to pay for a tenant’s keys depends on several factors, including the value and physical condition of the property, and the plan(s) the lender has for the property. Other factors include the amount of time the tenant needs to move out.

Laws Protecting Tenants’ Rights With Respect to Foreclosed Properties

As recently as early 2008, in the absence of a written lease agreement requiring greater notice, California law required that an owner provide only a 30-day notice to a tenant to vacate the property for any reason (other than the failure to pay rent, which required a 3-day notice). However, recent legislation has changed the rules.

Signed as an urgency measure in 2008, Senate Bill 1137 gives tenants at least 60 days after a foreclosure before they can be asked to vacate the property. The provisions of SB 1137 are due to sunset (be repealed) on January 1, 2013. To review a copy of the bill and get more details, please visit www.leginfo.ca.gov.

Federal legislation was enacted effective May 20, 2009, requiring property owners who have taken a residential property by foreclosure, to give their tenants at least a 90 day notice to vacate the property before beginning the eviction process. That federal law is applicable nationwide, and it is known as “Protecting Tenants At Foreclosure Act”. The law is found at Title 7 US Code section 701 (“the Act”). See http://thomas.loc.gov.

The Act provides that if a tenant is renting under a lease entered into before the notice of foreclosure was communicated to the tenant, the tenant may remain in the property until the lease ends, unless the owner sells the property to a purchaser who will occupy the property as his primary residence. In that case, the owner may properly give the tenant a 90day notice to vacate.

While the Act provides greater protection to tenants than State law, local law may provide even more protection. If a particular property is subject to local “rent control” or “housing assistance” laws, or so-called “just cause for eviction” ordinances, those laws may provide even greater protection than the Act itself. As an example, even the Act itself provides that the owner of a residential property which is subject to a “housing assistance contract”, and who has a lease with a tenant in that property, is subject to any additional protections in the housing assistance contract (this typically applies to “Section 8″ properties).

Finally, there is a bill pending in the California legislature that would require tenants be told of their rights when the property they occupy is foreclosed. Senate Bill 1149 requires that tenants who are living in foreclosed homes be given notice of their rights and responsibilities under these state and federal laws by requiring a cover sheet be attached to any eviction notice that is served within one year of a foreclosure sale. The cover sheet would delineate the laws and rights a tenant may have in cases where the property he or she occupies is foreclosed upon. The bill also seeks to help protect tenants who would otherwise have a negative mark on their rental history by prohibiting the release of court records in a foreclosure-related eviction unless the plaintiff landlord prevails. Whether the bill is signed into law will not be known until October 2010.

What Renters and Resident Owners Can Do to Protect Themselves

Tenants and resident owners of foreclosed properties must take a significant amount of personal responsibility in this matter. They should become acquainted with federal and State law concerning foreclosures and tenant evictions, and also with local laws which apply to their particular situation. For example, in the City of Los Angeles, beginning December 17, 2008, tenants who are current in their rent payments can not be evicted because of a foreclosure. Many cities in California, including Santa Monica, West Hollywood, Beverly Hills, Oakland, and Berkeley, are subject to local “rent control” and/or “just cause for eviction” ordinances, which may provide even greater protections. Without a working knowledge of applicable local law, a tenant is at a distinct disadvantage.

Tenants and resident owners should make sure that any “cash for keys” offer is coming from the new owner of the property, which is often a lender or a government sponsored mortgage investor, such as Fannie Mae or Freddie Mac. Tenants and resident owners should insist on verifying the identification and authority of the person making the “cash for keys” offer. They must insist on receiving a written “cash for keys” agreement, and carefully read and understand that agreement. They should have a trusted and competent attorney, real estate licensee, family member or friend review the agreement and provide counsel concerning its duties and obligations.

Before signing the agreement, a resident owner should call his or her lender directly to confirm the authority of the person making the “cash for keys” offer. A tenant must be especially careful. The tenant should call his or her landlord and ask about the foreclosure and the identity and contact information for the new owner. It would not be unusual for the landlord to tell the tenant to continue to make rent payments directly to the landlord. That should not be done if the landlord is no longer the owner of the property. And finally, a tenant or resident owner should never hand the keys over unless the money is delivered. Cash is best. If paid by check, the tenant or resident owner should make certain the check is good and/or clears. If the keys are handed over, and the owner fails to pay the money, or if the owner’s check bounces, the written agreement should be sufficient to allow the tenant to prevail in a small claims action against the owner. But obtaining a judgment is far easier than collecting it. Without a written agreement, the chances of obtaining a judgment are substantially reduced.

Is A Real Estate License Required to Solicit “Cash For Keys”?

There is no way to generalize and declare that a real estate license is, or is not, required to solicit “cash for keys”. The particular facts of each transaction will determine the answer to that question.

Responsibility of Real Estate Licensees Who Engage in “Cash For Keys” Transactions

A licensee who solicits a “cash for keys” deal should identify him or herself to the resident owner or tenant when requested to, and provide his or her DRE license number. A consumer may look on the DRE website (www.dre.ca.gov) and, on the “Home” tab, under the heading “Consumers”, click on “License Status Check” to verify that person’s license status. Under that same heading, there is also a link to “How to File a Complaint”. One who has been solicited by a DRE licensee is encouraged to file a complaint with DRE if the solicitor has not acted fairly and honestly in the “cash for keys” transaction, or if the solicitor has engaged in any other unlawful conduct.

It should go without saying that California real estate brokers or salespersons who engage in “cash for keys” negotiations with tenants must be aware of the federal, State and local laws relating to foreclosed properties, and the tenants’ rights with respect to their tenancies or leasehold interests. The old saying “ignorance of the law is no excuse” really does apply in this context.

It should also go without saying that DRE licensees who solicit a resident owner or tenant to accept a “cash for keys” proposal must act fairly and honestly with respect to the transaction. Dishonest behavior, misrepresentations, harassment, failures to disclose material information to a resident owner or tenant, including failing to advise the resident owner or tenant of his or her rights with respect to eviction (that the licensee has knowledge of) as a result of foreclosure, or negligence, could possibly lead to license disciplinary action. A licensee who hires unlicensed persons to solicit cash for keys deals can also be liable for the dishonesty, misrepresentations, harassment and/or negligence of his or her unlicensed agent.

Conclusion

A fair and equitable cash for keys agreement will mutually benefit both the new owner of the property and the resident former owner or tenant residing in the property.

For tenants, resident owners, and Department of Real Estate licensees, knowledge of the law concerning this subject is power – power to avoid problems that are just looking for place to happen.

For resident owners and tenants in foreclosed properties, your only real safety lies in your taking the responsibility to protect yourself. Get the agreement and all other communications in writing. Have someone you trust look the written documents over. Make sure the solicitor is authorized to act for the real owner of the property. And do not give up the keys before you get the cash.

Additional Resources

: The office of the California Attorney General issued a News Release on June 28, 2010, entitled “Brown Investigates Whether Tenants’ Rights Are Violated in Foreclosures”. You may wish to consult that Release for more information. If you are a tenant or resident owner and believe your rights have been violated, you can contact the California Attorney General at www.ag.ca.gov, and/or the California Department of Real Estate at www.dre.ca.gov.

However, data on home prices changed little from the previous month – marking a fifth month of seasonal lows.

The March Housing Scorecard features key data on the health of the housing market and the impact of the Administration’s foreclosure prevention programs, including:

• Mortgage delinquency rates continued a downward trend and are substantially below year ago levels. In addition, foreclosure completions ticked downward last month, although increased activity is expected in the coming months as firms lift processing delays following the landmark mortgage servicing settlement reached with the five largest banks in early February.

• More than 5.8 million modification arrangements were started between April 2009 and the end of February 2012.

• As of February, more than 970,000 homeowners received a permanent HAMP modification, saving more than $530 on their mortgage payments each month.

CAR – Newsline