This month’s topic is Foreclosure and Bankruptcy.

WHEN:  The first Tuesday of every month.   The next one is July 6, 2010 from 5:00 to 7 :00 only – Arizona local time.

HOW:  Call 602-258-1212 to ask your questions on this month’s topic.

WHO: Open to the public.  The volunteer lawyers are in Arizona and have answers pertaining to Arizona law.

For more information, visit the State Bar of Arizona’s website.

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On September 4, 2009, SB 1271 was repealed with the Governor’s signing of House Bill 2008.  This returns the Arizona anti-deficiency statute to where it was before, and Arizona property owners, including those with second homes and investment properties, who have qualified real estate will continue to receive protection under the anti-deficiency statute.

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The question is: DOES MAKING A PARTIAL PAYMENT ON THE MORTGAGE HURT MY CREDIT SCORE?

The answer is: IT COULD.

Usually a late payment on any account gets reported on the credit report when a monthly payment has been skipped.  This shows up as a 30 day late payment.   NOTE: A payment that is past the due date by a few days or even two weeks is generally NOT reported to the credit bureaus as late.

Sometimes a partial payment is not considered a full payment by the company receiving it and they report it as a late on the credit report.  If two months go by with just a partial payment, not paying the full “amount due” on the statement, it CAN show up as two consecutive late payments and may be reported as two 30 day lates or a 30 and a 60 day late.  It just depends on how the mortgage company decides to report it to the credit bureaus. 

Another thing to consider is that it is very common for loan servicing companies and lenders NOT to accept partial payments.  Because anything less than a full payment amount can be considered as contractually not serving the obligation, the partial payment may be returned to the sender or it may be held as “pending”, waiting for the rest of the payment.   Additionally, when the lender receives a partial payment, they decide what to apply it to.  They may see the insurance and taxes as an important item to preserve their collateral, the house, and decide to put the partial payment into escrow, applying nothing toward the loan balance or interest.   An unaccepted partial payment will result in a late payment on the credit report.

Payment history is the number one factor in credit scores.  One late payment, when the rest of the credit report is unblemished, can cause a dramatic drop in credit scores.  So before you stop payments or send in partial payments, communicate with your lender.  Be sure to look at all options that help your financial situation now, and into the future.

You can read more about Short Sales and their impact on credit scores here.  The Federal Trade Commission also has consumer information available on this topic.

This bill was intended to protect small community banks from consumers buying speculative new homes that now cannot be sold for a profit.  However, it could have an impact on Arizona homeowners facing foreclosure, making them liable for the difference between the amount owed on the mortgage and the amount the lender or bank can sell the property for after they take it back in foreclosure.

Arizona has been an Anti Deficiency state since the mid 1980s.  This means, generally, that a homeowner may not be sued by their lender if the property in question is located on 2.5 acres or less and is a single family residence or duplex.  This statute only applies if the decrease in value is not due to the homeowner’s neglect.

The new law now requires that a homeowner must have "utilized'' the property for six consecutive months and a certificate of occupancy must have been issued. The new requirement is directed at non-resident investors, although it could adversely affect Arizona investors.   Arizona residents who are living in their home as their primary residence and are facing foreclosure will still be protected under the new law.  This article in the Arizona Republic has more information.

Efforts are underway to get the law repealed before the September 30th implementation date.  Arizona homeowners in the foreclosure or short sale process, who have NOT lived in the home for six months, should monitor this news as it continues to come forth through the month of August. 

NOTE: This information is provided for informational purposes only is not intended as legal or financial advice.

This coming Tuesday, July 7th, the topic is Foreclosure and Evictions.

The lawyers answer calls from 4:30 – 6:30 p.m. during the program. The phonel number is 602-258-1212.

NOTE: The phones are off when the program is off.

For more information click here. 

RESIDENTS OF OTHER STATES
Check with your state bar association for information on similar programs in your area.  The American Bar Association provides links for each state.

You can also search the comprehensive Find Law website for legal info.

WHICH IS WORSE: A FORECLOSURE OR A SHORT SALE?
Strictly from a credit rating stand-point, they are about the same.  According to Fair Isaacs Corporation, creator of the FICO scoring formula, any of these items reported for an account on your credit will have a negative impact on your scores:
Foreclosure
Foreclosure Proceedings Started
Deed-In-Lieu Of Foreclosure
Settled
Settlement Accepted On This Account
Paid Not As Agreed
Paid For Less Than Full Amount

Any reporting that is not "Paid As Agreed" or "Current" is going to be a negative mark against the scores.  Additionally, when an account is delinquent to this point, there are usually several late or skipped payments reported, which are already hurting the scores, regardless of which type of foreclosure designation the account is given.  This previous article has more info.

CAN A FORECLOSURE STAY ON MY CREDIT FOREVER?
No.  It doesn't matter how it is described, an account in foreclosure is subject to the same reporting time limits as any other account.  The late payments stay on no longer than 7 years from the time they occurred. 

The charged-off, settled, or foreclosed account may stay on for  up to 7 1/2 years and if it goes to court for a deficiency judgment, that judgment can stay on credit reports for 7 years from the filing date or until the governing statute of limitations has expired, whichever is longer.  Read more about how long items can stay on your credit here.

IS THERE ANYTHING I CAN DO TO HELP MY CREDIT?
You can try to negotiate for your credit rating while you are negotiating with the lending company on the settlement or short sale details.  Request in writing that the account be listed as "paid as agreed".  The worst that can happen is they say no and it gets reported anyway.  The best that can happen is that they help you out and agree to it.

HOW LONG AFTER FORECLOSURE UNTIL I CAN GET A LOAN?
Previously, most lenders' guidelines were at least two years after a foreclosure before they would consider another loan.  Well, as we are all aware, these are not usual times.  And there are certainly many more people from all walks of life facing mortgage crises.  So it is not easy to say what the lending guidelines will be next month or next year.

The best thing to do is keep on top of your other bills.  If the foreclosure is the only negative item on your credit report, it is much easier to rebuild your credit than if there are several delinquent accounts that end up in collections or judgments.  Remember that even companies such as utilities, cable, and phone that do not normally report to the credit bureaus often DO report when accounts go delinquent.  Try to pay all your bills on time as it is the number one factor in credit scores.

Be sure to check out these mortgage and foreclosure links for more information about available help.

This link lists several other consumer resources regarding mortgages and foreclosure prevention.

Please send us your mortgage related questions or post them in Comments as we are planning to interview mortgage lenders for a future article.  Thank you.

The Consumer Warning Network has expanded the information about this strategy on their website.  This week, their posting titled “What If Your Lender CAN’T Produce The Note?” reiterated the importance of having the company trying to collect, or foreclose, prove that they are the true owners of the debt.

This article gives specific information on Section 3-309 of the “Uniform Commercial Code” or UCC that many states have adopted, regarding the steps that must be taken if the lender cannot produce the original note.  The reason for urgency in getting this information out to consumers is that going through foreclosure without proof of the original note puts the homeowner at risk for the actual note holder to come forward in the future, demanding full payment of the original note.  Even after the property was foreclosed on and the owner know longer lives there.

It is important that all homeowners in the foreclosure process, or who think they may be unable to continue making their mortgage payments, read and understand this legal information.  It just may pertain to you and might make the difference in keeping your home.

When mortgages were bought and sold behind the scenes and on Wall Street during the housing boom, many of the new lending companies did not receive the proper paperwork to show they actually own the notes on the homes.  According to the Consumer Warning Network, this is the key element of this strategy.  If the lenders can’t produce the paperwork showing the right to foreclose on a home, some cases are being stopped or dropped during the legal process.

The primary goal of this strategy is to give homeowners the chance to delay the foreclosure and put pressure on the lender to negotiate so that they can keep their home.  And in some cases, it seems to be working.

It makes sense to confirm the actual owner of any debt, even your mortgage.  Just as you should for a collection agency sending a bill for $50 worth of medical expenses, using your consumer rights to ask for proof of their right to collect protects you now and in the future.   There have been cases where a homeowner lost their house to foreclosure and then received a foreclosure notice from another lending company a few months later on the same house that the person no longer had.  This can have a severe and long-lasting effect on credit scores if it shows up as TWO foreclosures and one of them has a delinquent balance.

NOTE: This information is not legal advice and should not be construed as such.  However, these are not typical times.  Exploring all options to protect your financial future makes sense.  We’d love to hear from you if you’ve tried this or decide to do it.

Lawyers on Call, a public service program sponsored by the State Bar of Arizona and KPNX TV, offers monthly free phone calls to volunteer lawyers for citizens to have their legal questions answered.

The January date features information on Foreclosures and Evictions.

It will be on Tuesday, January 6, 2009 from 4:30 to 6:30 p.m. local Arizona time.

The phone number is 602-258-1212.