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Frontispiece

This publication is merely a report by the author on the various foreclosure remedies that are available. Several attorneys, foreclosure authorities and government agencies contributed to the data. The information in this book will go a long way toward helping homeowners in foreclosure, as well as many attorneys, to find and understand the most correct solution for their individual cases. While the book details most of the known foreclosure remedies, be advised that it may not be possible to include every detail or option that is best for your particular situation. In such cases, it is the author's sincerest wish that this material leads you to discover all the information you need to find your best solution. Also, any services and phone numbers mentioned are not product or service endorsements of any kind, are provided only for your convenience and must be used at your own discretion. In any case, since the author and publisher of How To Fight Foreclosure And Win With Honor are not attorneys and are not selling or offering legal advice in any form, do not use this book as a substitute for legal counsel. Foreclosure is a serious problem and, since laws and programs frequently change, an attorney or an other competent professional may be of valuable assistance toward finding or implementing the best remedy for each individual's foreclosure case. Thus, the data within this book is provided for informational purposes only. The author and publisher disclaim any liability and any responsibility for loss or damage caused, or alleged to be caused, directly or indirectly, by the information in this book. See the guarantee on page 20-3 for additional conditions. Published by Jensen Publications 200 Main Street, Suite 104-201 Huntington Beach, California 92648 (714) 843-0321

1994 by Jensen Publications All rights reserved. The text of this publication, or any part thereof, may not be reproduced in any manner whatsoever without written permission from the publisher, except by the purchaser who may reproduce certain specified forms to be used only to fight his or her particular foreclosure.

ISBN 0-9637960-0-3 Printed in the United States

This book is dedicated to all homeowners and to the preservation of the American Dream of home ownership. i

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Acknowledgements

Thanks to God for the idea, the inspiration and the perseverance. Special thanks to all who helped in making this book possible, including: Chris Rodriguez, my sweetheart, for her unconditional love and assistance; Beatrice Roden, my grandmother, for her love and understanding; Francis Jensen, my grandfather, for his example in real estate ethics; Elmer Roden, my grandfather, for his example of real estate investment; Bob and Mary Lou Jensen, my parents, for a lifetime of real estate, investment and accounting experience; Jim Jensen for all the computer and software advice; John Jensen for sharing his expertise in real estate and construction; Jerry Jensen for his guidance regarding accounting and computer software; Jeff Hoff for his prayers, treatments and advice; Graham Ledgerwood for his unconditional love and guidance; Dr. Pat Kubis for her years of writing lessons and advice; Margaret Chamberlain for the cover designs, the frontispiece, the chart and all her kind and helpful guidance along the way; Gordon Burgett, COSMEP and Publisher's Marketing Association for the publishing advice; John and Joyce Beck Seminars for their variety of in-depth real estate seminars; the Law Library of Santa Ana for all the reference material; How To Avoid Foreclosure, by Laurence Adams Malone, for the 5 model lawsuits and courtroom karate; First Tuesday for the state-of-the-art real estate forms; Stephen Stralka for his article on lease-options; Pat Morrel at the Department of Veterans' Affairs for the information; Vicki Cowell from Consumer Credit Counseling Service of Orange County for the budgeting information; Lorraine Donovan and Doug Fowler at Progressive Solutions Institute for the forms and information: "Bev" at the HUD office in Santa Ana for all the HUD information; Gabriele Williams at Cal-Vet for the information; California State University Real Estate and Land Use Institute for the study and report; California Department of Real Estate for the information; U.S. Armed Services for the information; Eileen Lawrence from Dearborn Publishing for all her help and information; The Homeowner's Guide To Foreclosure, by James I. Weidemer, Dearborn Publishing, for the in-depth understanding his book gave me regarding some foreclosure details; Kenneth Harney of The Washington Post Writers' Group for his article regarding errors in loans; The 7 Habits of Highly Effective People, copyright 1989 by Stephen R. Covey, excerpts on pages 13-5 through 13-7 reprinted with permission of Simon and Schuster Inc.; Seven Steps To Inner Power, copyright 1991 by Grandmaster Tae Yun Kim, excerpts on pages 15-3 through 15-4 reprinted with permission of New World Library, San Rafael, CA 94903; Writing The Natural Way, copyright 1983 by Gabriele Lusser Rico, excerpts on pages 15-5 through 15-6 reprinted with permission of The Putnam Publishing Group; What To Say When You Talk To Yourself, copyright 1982 by Shad Helmstetter, published by Pocket Books, for the information on page 15-2 quoted from his inspiring book; Wolcotts, Inc. for permission to reprint forms; Robin, Ken and Tracie Renner for all their help, and the real estate and loan information; Burr White Realty, Newport Beach; Tara Stoutenborough for marketing advice and support; Micheal Hsu and Robert Winterbotham for the interview regarding bankruptcy; Jerome Edelman for his bankruptcy advice; Ed Marsh for his hospitality and sage advice; Sylvia Vega for the loan information; Milt Stone and

Allen Passaquindici for all the real estate information over the years; Juris Solovjous for his accounting information: Rich Cook for his advice; Brenda Shelton from Lincoln Title for her help in finding some real estate forms; proofreaders Robin Quinn, Zee Rodriguez, Mary Lou Jensen, David Hochner, Don Viggiano, Bonnie Gordon, Cathy Lawson and Tom Baker; Cheryl Giacomini for all her help; and all the countless others who helped shape the information in this book.

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TABLE OF CONTENTS
Introduction................................................................................1 The 5-Step Approach: How To Use This Book To Fit Your Needs Quickly.................................................................................................3 The 5-Step Approach At-A-Glance..............................................4

THE ACTION GUIDE SECTION


STEP 1: .......Become Familiar With The Action Guide Summary Of The 8 Options............................................................................................1-1 The 8 Options To Fight Foreclosure And The 3 Suggestions...1-2 The Action Guide Summary...............................................1-3 The Time Line Of Options--Non-Judicial Foreclosure.............1-13 What If Foreclosure Ran Its Course?.....................................1-15

THE 8 OPTIONS SECTION


STEP 2: STEP 3: STEP 4: 2-1 3-1 4-1 ................................Make Time To Work Through The 8 Options . First Read The Options That Seem Most Relevant To Your Case ...............Look For Other Ideas In The Book That May Be Helpful

Option 1: Option Option Option Option Option Option Option

................................How To Win By Reorganizing Your Finances 5-1 2: .................................................How To Win Through Bankruptcy 6-1 3: ..........................How To Win By Changing Your Mortgage Terms 7-1 4: ..................................How To Win By Refinancing Your Property 8-1 5: ......................................How To Win By Using The Legal System 9-1 6: ..........................................How To Win If You Are In The Military 10-1 7: ...........................................How To Win By Selling Your Property 11-1 8: .................................How To Win By Giving Away Your Property 12-1

THE ACTION PLAN SECTION


Suggestion 1:.................................................................................................. How To Act Quickly..................................................................................13-1 Suggestion 2:.................................................................................................. How To Maintain A Clear And Calm Mind................................................14-1 Suggestion 3:.................................................................................................. How To Explore New Possibilities............................................................15-1

STEP 5: .......Complete The Action Plan To Find A Solution That Fits Your Needs............................................................................................16-1 The Action Plan Workbook Table of Contents.......................16-5 The Action Plan Workbook.................................................16-7 Law: Law: Law: Power of Sale........................................................................17-1 Mortgage Foreclosure Consultant's Act................................18-1 Home Equity Sales Contracts Act.........................................19-1 Additional Reading and Services..........................................20-1 Guarantee.............................................................................20-3 Suggestion and Evaluation Response Sheet.........................20-5 Glossary................................................................................21-1 Index.....................................................................................22-1 v

INTRODUCTION
This book can arm you with most of the effective offensive and defensive weapons used to fight foreclosure in California today. The chapter that begins on page 1-15, What If Foreclosure Ran Its Course, explains what would happen if a homeowner chooses not to "fight foreclosure and win with honor." The true meaning of this book's title, Fight Foreclosure and Win With Honor is: stand up for your home and family by knowing and asserting your legal rights as well as the honorable methods that are available to resolve your foreclosure problem. An estimated 99% of California's residential real estate loans utilize a deed of trust which authorizes the trustee's power of sale in a non-judicial foreclosure. So, when homeowners sign for a loan on their property, they also are agreeing, in advance, to the contractual basis for a relatively quick, out-of-court, non-judicial foreclosure. Over the years, the California state legislature has tried to create a system of non-judicial foreclosure which is fair to both the lender and the defaulting homeowner. This system attempts to give the homeowner ample time to cure a default, while at the same time, giving the lender a speedy remedy in the event the homeowner cannot cure the default.

Unfortunately, the lawmakers' efforts toward fairness do not balance the advantage that the well-prepared and well-practiced lender has over the homeowner who is relatively inexperienced in foreclosure proceedings. Thus, this book was designed for the specific purpose of helping offset the homeowner's disadvantage. Initially, it is the homeowner's unforeseen financial misfortune that results in a loan default. Inadvertently, a battle line is drawn. When the lender launches an attack with the powerful weapon of non-judicial foreclosure, the typical homeowner may feel defenseless. And the lender's intimidating battle cry to the homeowner so often seems to be "pay up or get out." Though legally correct and thus presumably fair, non-judicial foreclosure actually can be insensitive to the uncontrollable factors that push homeowners into foreclosure. Feeling powerless and confused, many homeowners in foreclosure spend too much precious time denying their predicament until the last minute when only the most extreme of remedies remain available. Fortunately, the reality of foreclosure is that "pay up" can take several forms that are actually advantageous to the homeowner, and "get out" is not usually as easy to enforce as it sounds. And just as David slew Goliath, a homeowner may be able to turn the foreclosure process into a winning situation. Research published by the California Department of Real Estate concluded that "many of the approximately 40,000 Californians who lost their homes through foreclosure...(in 1 year)...could have avoided that loss had they been informed about the process and the actions available to them."1 How To Fight Foreclosure And Win With Honor was written to do that for you.
1 . The California State University, Real Estate and Land Use Institute, A Homeowner's Guide to Foreclosure in California (Sacramento, California: School of Business, California State University, 1987) p. 1. 2

For those now in the process of foreclosure, this book tries to ease the shock, fear and pain of foreclosure by presenting solutions that are helpful and ethical. For those who are behind in their mortgage payments but who have not yet received a notice of default (NOD) on their loan, this book may prevent a NOD from ever being filed and eliminate the risk of it appearing on your credit record. For all homeowners facing foreclosure, this book is dedicated to teaching an understanding of California's process of non-judicial foreclosure, and in particular, the relief from foreclosure that is available to them. So, get started on The 5-Step Approach and your personal victory over foreclosure now. Discover the options that are available to you and use the system to your fullest advantage. Good luck!

THE 5-STEP APPROACH: How To Use This Book To Fit Your Needs Quickly
Although the recommended procedure in How To Fight Foreclosure And Win With Honor is to follow The 5-Step Approach that is detailed on the next page, some homeowners in foreclosure are anxious for quick answers. For these people, this book was written in three sections which may be read independently of the 5 Steps. Read as little or as much as you need in order to find the best solution for your individual foreclosure situation. ideas that appeal to you, and begin to formulate possible solutions to your individual foreclosure situation. 2. The 8 Options Section is designed to be a comprehensive source of foreclosure data that explains the details of each option. Use this section in either of 2 ways: a. As a reference while working through The Action Guide or The Action Plan, or b. Read it straight through while searching for new and expanded ideas. 3. The Action Plan Section is designed to help you systematically collect and assess the data necessary to discover the

The 3 Sections Of This Book:


1. The Action Guide Section is designed to save you time by focusing your attention on a summary of the 8 options for fighting foreclosure. Within minutes, the Action Guide Summary and 2 charts give you a complete, easy-to-understand overview of The 8 Options Section. Sift through this information for ideas, mark the

best solution(s) for your individual foreclosure situation. It methodically will move you forward to a well-informed decision. Use this section in either of two ways: a. As a logical conclusion to The Action Plan Section and The 8 Options Section, or b. For people who are in a hurry (or who like to construct things without first reading the instructions), try

starting with The Action Plan on page 16-7. Let it steer you through the various parts of this book that it references. In addition, read whatever other parts of the book you feel are necessary to find your solution. However, if this approach proves to be too difficult, then start over at the beginning and follow the 5-Step Approach.

THE 5-STEP APPROACH Homeowners who are facing foreclosure need quick and reliable answers to get their thoughts and emotions on track. Consequently, The 5-Step Approach is designed to focus your attention immediately toward finding the most appropriate remedy for your foreclosure situation. The 5-Step Approach is the road map that will lead you through The Action Guide Section, The 8 Options Section and The Action Plan Section.

The Five Steps At-A-Glance


Step 1: Become familiar with The Action Guide Summary of the 8 options. Step 2: Make time necessary). to work through The 8 Options (if

Step 3: First read the options that seem the most relevant to your situation. Step 4: Look for other ideas in the book that may be helpful (if necessary). Step 5: Complete The Action Plan to find a solution that fits your needs.

THE ACTION GUIDE SECTION

STEP 1:
Become Familiar With The Action Guide Summary Of The 8 Options
The following aids were designed to familiarize you with the 8 options in just a few minutes: 1.The 8 Options To Halt Foreclosure and The 3 Suggestions chart on page 1-2, 2.The Action Guide, which summarizes the main points of The 8 Options Section and begins on page 1-3, 3.The Time Line of Options chart on page 1-13. These aids not only save you time by quickly directing you toward a favorable solution, they also give you a 1-1 basic understanding of the foreclosure remedies that are available.

Getting Started As you read and familiarize yourself with The Action Guide and the 2 charts, take notes and mark the material that seems interesting and/or applicable to your situation. Refer to The Action Guide and the 2 charts as often as necessary while you read through the material in The 8 Options Section and complete the exercises in The Action Plan. You soon will begin to form ideas about possible solutions. As your process of decision-

making progresses, the best solution(s) for your particular situation should become clearer. And, as previously mentioned, if you are the type of person who likes to learn by jumping right in, then after becoming familiar with the options, you may want to skip ahead to the self-propelled exercises in The Action Plan, which begins on page 16-7.

The 8 Options To Fight Foreclosure


1. Reorganize your finances to cut unnecessary spending and consolidate income for essentials like mortgage payments. 2. Reorganize your finances through bankruptcy to stop or avoid foreclosure. 3. Negotiate a workout with the lender and/or loan servicer in which some or all of the terms of your loan are restructured to prevent foreclosure. 4. Refinance your property to convert equity into cash in order to make past and/or future mortgage payments. 5. Consider legal procedures or negotiations if there was fraud or an uncorrected error in the processing of your loan and/or foreclosure which might prevent or stop foreclosure and protect equity in your property. 6. Seek formal protection and a "stay" of the foreclosure proceedings if you qualify as a member of the armed forces.

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7. Sell your property through a real estate broker/agent, by yourself, or both ways simultaneously by using one of several buyer programs. Repurchase or rent a home in a more affordable area. 8. Give your property to the bank, an investor or other interested person if little or no equity exists in the property and no regular buyer can be found.

The 3 Suggestions
1. Act quickly, especially if a notice of default has been filed and the foreclosure process has started. 2. Develop and maintain as clear and calm a mental state as possible. 3. Explore new possibilities with positive "self-talk" and other self-development techniques.

1-3

THE ACTION GUIDE SUMMARY


(summarizes The 8 Options Section)

Option 1: How To Win By Reorganizing Your Finances (Page 5-1) GOAL: Generate cash for your mortgage payments by: 1. slashing your unnecessary expenses, 2. increasing income, and your

Accurately determine your financial situation. Establish your short term, intermediate and long term financial goals. Formulate a plan reaching your goals. for

3. persuading creditors to lower your monthly installment payments. Know The Danger Signals (see page 5-2). If your finances are in trouble, then admit it now and make a vow to reorganize. Immediately stop all unnecessary spending so you can consolidate your income. Read The 4 Steps to Financial Freedom on pages 5-2 through 5-4.

Use the budgeting tips on pages 5-4 - 5-6 to set up a successful budget. Arrange with your creditors a program to lower your monthly payments. Whenever possible, increase your income by renting rooms, garage space, and/or a back lot, by putting family members to work, by taking a second or third job, etc. Contact the Consumer Credit Counseling Service (CCCS), a nonprofit organization that offers free credit, debt and financial restructuring information. (See page 5-9

for a list of CCCS throughout California.)

offices

expenses and increase income.

Ask CCCS to help you develop a budget and Debt Management Plan and to suggest ways to slash Ask CCCS to help persuade creditors to waive interest payments, finance charges and fees. If you can't find a CCCS office near you, or if CCCS is unable to help, check the Yellow Pages for other credit counselors and/or financial planners. Option 2: How To Win Through Bankruptcy (Page 6-1) GOAL: 1. Stop the trustee's foreclosure sale, even at the last minute. 2. Protect your property long enough to bring order to your financial problems. 3. Obtain relief from debts that exceed your income or assets and receive a "fresh start." Decide if you bankruptcy. want to file

If you decide bankruptcy is the best solution to your financial situation, then determine which chapter of the bankruptcy law best fits your situation: either Chapter 11 -- reorganization; Chapter 7 -- liquidation; Chapter 13 -- debt adjustment; or Chapter 20 -a combination of chapters 7 and 13. Consult an attorney who specializes in bankruptcy (Contact your local bar association or Yellow Pages for a list of bankruptcy attorneys.) Record a homestead exemption to protect some or all of the equity in your home from foreclosure and bankruptcy proceedings. Determine whether you have enough protection under the automatic homestead or whether it is better for you to file a declared homestead. To file a declared homestead, fill out the form on page 6-11 or 6-12, have it signed by a notary and record it at the county

Although filing bankruptcy will immediately stop foreclosure, it may make obtaining credit difficult in the future.

recorder's office for a small fee. (check with your county recorders office) Option 3: How To Win By Changing Your Mortgage Terms (Page 7-1) GOAL: Stop your foreclosure by negotiating with your lender for a financially favorable change in the terms of your existing loan(s), which is called a workout. Familiarize yourself with The 9 Types of Workouts on pages 7-1 DataQuick Comparables:page 7-7 Cal-Vet: HUD/FHA: DVA: page 7-16 page 7-18 page 7-24

and 7-2. Try to determine the best type of workout for your particular situation. Familiarize yourself with the 6 kinds of Special Workout Assistance on page 7-3. Determine the best kind of assistance for your particular situation. Call the appropriate Hotline(s) listed in Option chapter 3 for help and/or advice: Loan Workout Assistance: page 7-3 you are "workout" arrearage. eager to your loan your lender and

Fully explain situation to the with honesty sincerity.

Study and follow The 5 Keys To Successful Workouts on page 7-4. Familiarize yourself with the responsibilities of both the borrower and the lender/servicer on page 7-5. Read How To Get Started On A Workout pages 7-5 through 7-7. Be prepared to: Visit or call your lender immediately and let them know

Collect all documents and receipts as proof of your statements. Cooperate lender. with your

Explore all possibilities for catching up on your missed payments and select, with the lender, a realistic "workout" repayment plan.

Seek any necessary advice and assistance. Develop a written version of your final workout agreement. If your loan is insured by FHA/HUD, the Department of Veterans' Affairs, or by a private mortgage insurance company, or if your property was purchased through Cal-Vet, then, first read the corresponding section in the chapter; second, plan your strategy; and, third, contact a representative from the appropriate agency and explain your situation. If your loan is considered a conforming loan, then, first, read the section on conforming loans on page 7-11 ; second, plan your strategy; and, third, contact your lender/servicer or the appropriate agency, explain your situation and ask for workout assistance. Be sure that all agreements with your lender are set in writing. Know your credit history and rating. Understand how lenders rate your credit (see pages 8-11 and 8-12). Know the difference between the five types of loan categories: conventional refinance, equity line of credit and hard money loans, as well as second/third mortgages and loans from friends.

Seek other aid: welfare, food stamps, etc., to get you over the hump, if necessary. Option 4: How To Win By Refinancing (Page 8-1) GOAL: Borrow on the equity in your house in order to stay current on your loan payments. Determine the equity in your property (item 21, page 16-17), and your existing loan-to-value (item 1a, page 16-37). Determine the current state of the local real estate market. If possible, begin the refinancing process before you receive a notice of default. If your credit is good and you have not yet received a notice of default, talk with lenders/mortgage brokers about an equity line of credit or conventional refinance. Ask a friend or relative for a loan. Offer them a rate of interest higher than they

can currently receive from bank certificates. If you don't qualify for an equity line of credit or conventional refinance, consider a hard money loan, but carefully shop around for terms that are the most comfortable for you. Consider using a mortgage broker to shop all the different kinds of loans. Option 5: How To Win By Using The Legal System (Page 9-1) GOAL: File a lawsuit, or negotiate, to stop or dismiss the foreclosure when the lender has committed fraud or refuses to correct an error in your loan or foreclosure documents. Review your loan and foreclosure documents and process for errors or fraud. (See pages 9-2 through 9-10 for specific techniques for finding errors.) If there is any evidence of fraud or errors, then negotiate with the lender to withdraw the foreclosure, or, possibly, file a lawsuit to stop or block the foreclosure action. (See Prelawsuit Negotiations on page 9-2.) Talk to an aggressive lawyer who specializes in foreclosure, who

can meticulously review your loan and NOD paperwork and who can help you determine your rights. If your lender does not cooperate with your workout attempts or if the lender will not stop the trustee sale to accommodate your escrow, you may be able to get a judge to issue an injunction or temporary restraining order. Review your regulation Z "truth in lending" loan document for possible errors in the paperwork, especially the "APR" calculations. Call the CLA (Consumer Loan Advocates) hotline for help in determining if there are mistakes in your loan, particularly if you have an adjustable rate loan. Look for key signs of errors in your loan such as: Your loan was sold to another lender, Your loan was based on an unusual index, Your loan note includes blank spaces,

Your loan is older, or created under other than current loan guidelines, Your loan is complex, or Your lender is confused about your loan. If you have an adjustable rate loan or a home equity loan, check your documents carefully or call CLA for help. Most errors occur in these loans. Find out if yours is one of many loans in a lender's system which may have errors. If it is, consider a class action lawsuit. File a preliminary injunction or temporary restraining order to delay the foreclosure sale. File a lis pendens prospective buyers litigation is pending. to let know

Model #1: Use if you are suing a bank. Model #2: Use if you are suing a mortgage company or a financial institution other than a bank. Model #3: Use if you are filing a lawsuit after a sheriff or Trustee sale. Model #4: Use if you are going to a sheriff or trustee sale to buy in your property with constitutional money. Model #5: If you use a check to pay off an unlawful debt (created by the lender bank by mere bookkeeping entry), and file it in court before a sheriff or Trustee sale can take place. Contact an attorney if problems exist and you feel you can not properly deal with the problems. Use all or part of the language within The 5 Model Lawsuits as examples to help you or your attorney frame any

Create delays, if possible, by requesting various documents and figures from the lender and trustee. If your lender did not fund your loan with cash, consider suing the lender for breach of contract, usury or mail fraud. Review The 5 Model Lawsuits on pages 9-15 through 9-42 for ideas in determining the best legal action for your case:

possible lawsuit of your own against lenders. Option 6: How To Win If You Are In The Military (Page 10-1) GOAL: Find relief from foreclosure if you, or a family member or partner who shares legal title to your house, are in the United States armed forces. This act may cover you if you are: In the armed forces (including reservists on active duty), A Public Health Service Officer on duty with any branch of the military, In training or studying under the supervision of a service preliminary to induction, A veteran who saw active duty during wartime. In some cases, dependents are also covered. SSCRA does not terminate your legal or financial obligations--it only suspends them until after your period of active duty is completed or when your service no longer prevents you from meeting these obligations.

As soon as you receive a threatening notice from your lender, contact the legal office of your branch of the service for advice on your rights under SSCRA (Soldiers' and Sailors' Civil Relief Act).

While SSCRA covers many written contracts or agreements you entered into before or during active duty, it may not protect some deals made after beginning active duty. SSCRA protection began the day you started active duty, and depending on your situation, may continue for 30 to 90 days after you complete your military service. SSCRA does not terminate your legal or financial obligations--it only suspends them until after your period of active duty is completed or when your service no longer prevents you from meeting these obligations. Immediately notify your lender that you are in the service and are seeking relief under SSCRA. Once

informed of this, your lender cannot foreclose without a lengthy process through court. If the lender does go to court, you must also appear in court, or have a military attorney represent you. If, while you are away on military assignment, the lender does not know you are away on military assignment and receives a judgment against you or your property, then you have within 90 days after your discharge to make an application to the court for dismissal of the judgment. SSCRA mandates that interest rates on loans made before you went into the service must be reduced to 6% per annum during your service. Option 7: How To Win By Selling Your Property (Page 11-1) Once you have made the decision to sell your house, you have at least three options: Sell it through a real estate broker only, Sell it yourself, "for sale by owner (FISBO)," only, Sell it "for sale by owner (FISBO)," as well as with the aid of a broker.

GOAL: When your income cannot recover enough to afford your present loan payments, sell your house while seeking the best possible deal. Repurchase in a more affordable area, or just pocket the proceeds, and rent a place. If it is impossible to pay your mortgage, or if keeping your property does not make good economic sense, consider selling before you lose your house...or your equity through an ill-planned refinance.

Regardless of whether a broker sells your property or you sell it, you have a range of potential home purchase contracts available to you. Study and decide which of the following are best for your particular situation: A regular retail buyer, A party to lease-option,

A buyer financing:

aided

by

seller

Seller carryback, An all-inclusive (A.I.T.D.), A sale/lease-back, Partner (equity sharing), An equity purchaser (foreclosure investor), A mortgage insurance-assisted foreclosure presale, Assumption/transfer liability, of loan trust deed

Third, as soon as you find a buyer, open an escrow, Finally, begin looking for a new place to live. Before listing your property for sale with a real estate agent, know the difference between an exclusive right to sell and an exclusive agency. see pages 11-4 through 11-7 for the drawbacks and advantages of these 2 types of listings. When selecting a real estate agent avoid lazy listers, who typically do little or no selling of your house. Check with your local Board of Realtors or ask various real estate brokerage firms for their top performing agent. Discover how to find a good broker/agent (see page 11-7). Determine the fair market price for your property (Action Plan item 9dI, page 16-25). Assert your needs in the listing contract. 1% to 5% above recent comparables in slow or flat markets,

A lender short pay. Since the foreclosure time-table for selling your home is tight, know The Foreclosure Sales Strategy which includes selling "for sale by owner" (FISBO), as well as with an agent: First list your house with a real estate agent under an exclusive agency listing, Second, begin your own sales program designed to attract either a buyer, a partner, an equity purchaser or leaseoption situation, Determine whether you are trying to sell your house in a fast market or during a slump, and set your selling price accordingly:

5% to 15% above recent comparables in fast markets. Know your price. bottom-line sales

as either an assumption, or a transfer of liability. Once you find a buyer, all parties to the deal need to go together to an escrow company and open an escrow. Upon finding a buyer, make sure you give the buyer a completed disclosure statement which is required by law and discloses the condition of the property. See the disclosure form on pages 11-31 through 11-37. Soon after opening an escrow, begin looking for a new place to live. You might buy a new property in one of the many affordable areas within California, or outside the state (see area lists on page 11-29). You may also consider living with a friend/family member for free or at a low cost or doing work in exchange for rent. Option 8: How To Win By Giving Away Your Property (Page 12-1) GOAL: When no equity exists, give the property away while striving to save your credit rating as well as negotiating

Beware of equity investors who try to purchase your property for a large discount. (See the booklet titled The Home Equity Sales Contract Act which protects you from investors who may be trying to take advantage of your foreclosure situation.) When you have a potential buyer, consider a seller carryback or an AITD for a faster sale at a higher rate of interest. If your potential buyer cannot complete a regular sale now, then consider a straight or traditional lease-option. As a way to keep your home, consider either a sale/leaseback or selling a share of your home to an equity partner. If you have private mortgage insurance, or if your loan is guaranteed by the Department of Veterans' Affairs, then they may be able to help you sell your property, especially if the total indebtedness against it is more than the property is worth. A fast way to sell a property may be to have the buyer assume the existing loan(s) on the property in what is referred to

for the best interim deal for yourself. When none of the other remedies suggested in this book seem to work, then consider quitclaiming (giving your property away). mortgage payments and when no regular buyer can be found. Decide whether a straight quitclaim deed or deed-in-lieuof-foreclosure is best. Place an ad in the newspaper to find someone to take over your loan(s) and property. Negotiate with the person or company to whom you may quitclaim/deed-in-lieu for a few months free rent in exchange for the deed. If no one can be found to quitclaim to, then consider a deed-in-lieu-of-foreclosure to the lender, which must be recorded with the county recorder. With a deed-in-lieu of foreclosure, make sure your deed has acceptance. Upon reaching a deal with the lender or private party, write up the appropriate deed, sign it, then record it with the county. If your loan is FHA or DVA backed, then contact the appropriate agency and ask about their specific guidelines

Consider quitclaiming only when little or no equity exists in the property, when your interruption of income cannot recover enough to afford the monthly regarding a deed-in-lieu of foreclosure. THE 3 SUGGESTIONS FOR SUCCESS: Suggestion 1: Quick action is crucial (Page 13-1) Goal: Get started immediately and use your time wisely, according to a plan. Make a list of your priorities each night. Every morning, starting with the highest priority, do each item, 1 by 1, until all items are complete. Don't let yourself get distracted. Some remedies need plenty of time to process. Act fast if the foreclosure clock is already ticking. Procrastination has been cited as the number one reason homeowners facing foreclosure lose their homes.

Denying that you're in foreclosure can cause you to lose your home. Fear is a major stumbling block that keeps us from taking the appropriate action quickly. Self-destruction is another cause of homeowners losing their property. Be persistent, successful. and you'll be

Be organized -valuable time.

it

saves

When talking to lenders, brokers or anyone else regarding your foreclosure, don't take no for an answer if you think or feel a positive solution is possible. Face the truth about your credit report and make the changes you need to make. Expedite things by sending documents Federal Express or picking them up rather than sending them through the mail. Just before talking with your lender, and right after receiving bad news, keep your mind clear by doing one of the three onthe-hoof breath practices: The triple inhale/exhale (page 14-1); The hush breath (page 14-2); The 10-10-10 (page 14-2). breath

Write down your goal and list 10 priorities of things you need to do to achieve this goal. Read and practice The 7 Habits of Highly Effective People, by Stephen R. Covey. Suggestion 2: Maintain A Clear And Calm Mind (Page 14-1) Goal: It is very important to maintain a clear and calm mind. Many people discover that a clear and calm mind helps them make intelligent decisions. Clarity, along with confidence, will develop as you explore your choices in The 8 Options Section. Do the calmness techniques:

Start each day with the deep belly breathing exercise (page 14-2). During each day, use the counting-out breath (page 14-2) and the star (page 14-3) to increase your

energy and calm your mind during this stressful ordeal. Set aside 15-30 minutes to do deep relaxation (page 14-7), stress-reducing stretching exercises (pages 14-2) and the mind clearing contemplation/meditation (page 15-4) Suggestion 3: Explore New Possibilities (Page 15-1) Goal: Exploring new possibilities in your life may lead to a fuller, richer life. Engage in positive self-talk: How can you increase your income and decrease your expenses? Should you keep your house or cash out the equity? What changes might you make to gain financial independence? Create a mental affirmation that reflects your new positive selftalk. Develop a positive visual picture of your life as you would like it to be. Let go of any old negative picture of yourself or your experiences.

Stay focused on your new goal. Find a creative solution with one or more of the following techniques: 1001 uses for a brick, Blue skying, Return to childhood, Contemplation, and Clustering.

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NOTES

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WHAT IF FORECLOSURE RAN ITS COURSE?


What would happen, you might wonder, if a homeowner in foreclosure never fought back, and instead, let the process run its course? That question can be answered by introducing some foreclosure basics, and by explaining the step-by-step details of the 2 different legal processes lenders use to repossess real estate in California: 1. The non-judicial foreclosure (see page 1-16), which accounts for 99% of the foreclosures and is the primary focus of this book, 2. The judicial foreclosure (see page 1-21). WHAT IS FORECLOSURE? First of all, foreclosure is a legal process used to collect an overdue debt which is secured by real estate. The process ends in a foreclosure sale where the real estate collateral is sold off to repay the delinquent debt, plus foreclosure costs. Real estate debts are known as a liens. Liens can be voluntary, such as with loans, or forced, such as with judgment liens, tax default liens and IRS tax liens, etc. The process of foreclosing on a forced lien is much different than the nonjudicial foreclosure procedure. In a nutshell, a judgment lien is created when the winner of a cash settlement in a lawsuit records an 1-20

abstract of judgment against the loser's real estate. Then the debt is collected by foreclosing on the lien in a process which ends in a sheriff's or marshall's sale. In a tax-defaulted sale, if you fail to pay your property taxes, then your property may be sold in 5 - 8 years after the default, depending on the county and agency handling the default. An IRS seized property sale may result if you own a piece of property that has equity and fail to pay your income taxes. In the case of a lien that is created by a real estate loan, a lender may foreclose after the homeowner violates any term of their loan agreement, including failure to pay loan payments, taxes, insurance, judgments or other liens, or to properly protect or maintain the property. A separate foreclosure action is filed for each loan in default on a property. Lender Reluctance To Foreclose Few lenders choose to initiate a foreclosure when the homeowner is only a month or 2 behind in payments. Some commercial lenders have been known to wait until payments are behind 6 months to a year. Generally, studies have shown that commercial lenders (as opposed to seller carryback lenders discussed on pages 11-13 through 11-16) are reluctant to launch an immediate foreclosure. Lenders are reluctant to foreclose for the following reasons: the high cost, the negative public image, their unwillingness to manage repossessed properties, and the adverse effect that too many bad loans can have on the bank regulators. On the last point, since regulators often seize banks with too many bad loans, banks can play down bad loans in their portfolios by filing as few foreclosures as possible. Lender reluctance is frequently higher during recessions, sometimes giving homeowners additional months to catch up on the payments. 1-21

The focus of this book is the nonjudicial foreclosure. For more information on dealing with foreclosures on such forced liens as judgment liens, defaulted tax liens and IRS liens, contact an attorney, a law library and/or a legal services clinic.

Reasons For Foreclosures

Residential

A study by the California State University Real Estate and Land Use Institute (CSU-RELUI) found that the common reasons for foreclosures can be organized into 3 categories: 1. Economic variables such as income, unemployment, and the fluctuations of mortgage interest rates, inflation and home prices. 2. Financial arrangements such as financial overextension caused by balloon loans, adjustable rate and graduated payment mortgages. 3. Personal and Family reasons which include divorce, separation, illness and individual personality characteristics. The study concluded that it was difficult to determine an individual's primary basis for foreclosure. Typically, 2 or more of the above reasons combine to create a sequence of events that leads the homeowner into foreclosure. Also, the actual root cause can be difficult to trace, the report stated: "For example, did a divorce lead to

the nonpayment of the mortgage debt, or did a reduced household income, as a result of one spouse losing a job, actually lead to the divorce?" In addition, the reason may appear to be divorce or unemployment when, in fact, the real cause is alcoholism or drug abuse. Judicial Versus Foreclosure Non-judicial

second year of waiting for the homeowner's redemption rights to expire. On the other hand, lenders prefer the non-judicial foreclosure because it can last as few as 111 days, require no court action, provide no redemption rights and deduct all costs from the homeowner's equity. Do Not Abandon Your Property

Since judicial foreclosures are uncommon in California, the vast majority of foreclosures are non-judicial. The nonjudicial foreclosure, although regulated by the civil code, is actually a private process governed by the contractual agreement within most real estate loans known as a Deed of Trust. Liens may also be collected non-judicially. In contrast, the judicial foreclosure is a lawsuit against the homeowner filed in Superior Court. Judicial foreclosures are unpopular with California lenders because they are expensive and take too much time. For example, court proceedings typically last more than a year and also require a When a lender loans money on real estate that the borrower already owns or is about to purchase, the most reasonable collateral to secure the debt is the property. By using a deed of trust, a.k.a., the trust deed, the lender acquires a legal interest in the collateral property. Under a deed of trust, the borrower actually deeds the title in the property to a neutral third party. This third party holds the deed "in trust" until the loan, which is a separate agreement called a promissory note, is paid off. The official terminology used in a trust deed redefines the borrower as the trustor, the lender as the beneficiary and the neutral third party as the trustee.

If your property appears to be abandoned, your lender may have the right to begin a legal abandonment process, in which they secure it from harm, including boarding up the windows and doors. THE FORECLOSURE NON-JUDICIAL

Ninety-nine percent of the real estate purchased in California is financed by using the deed of trust with the power of sale (See Power of Sale, page 17-1.) What exactly does this mean? Once the loan is repaid, the trustor (borrower) has the right to order the trustee (neutral third party) to reconvey the title in the property back to the trustor. If the trustor fails to repay the loan, then the beneficiary (lender) has the right to order the trustee to sell off the property to repay the loan. This process of selling off the property is known as the non-judicial foreclosure. A deed of trust consists of two legal documents: 1. A Promissory Note, which is used as both a promise to repay the loan as well as evidence of the debt (see page 1-29),

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2. A Deed of Trust, which is security for the debt (see pages 1-26 through 1-28). Thus, lenders developed trust deeds with contractual powers of sale to speed along the process of repossession by keeping foreclosures out of today's slow, expensive court system. Basically, in signing the trust deed the borrower agreed in advance to the non-judicial process of foreclosure in the event the terms of the loan are not completed as originally agreed. The Non-Judicial Time Periods In essence, as The Time Line of Options shows on page 1-13, the nonjudicial foreclosure consists of 2 time periods: the Notice of Default (NOD) phase, which lasts 3 calendar months, and the Notice

of Trustee's Sale (NOTS) phase, which lasts 21 days. On the face of it, some think the 3 month period always equals 90 days and when added to the 21 day period, a nonjudicial foreclosure would take about 111 days. However, such a fixed formula is impossible due to a few factors. First, 3 calendar months can equal 90, 91 or 92 days depending on the month when the NOD is first filed. Second, seldom is the NOTS filed on the last day of the NOD period. In effect, there is an unspecific gap of time between the specific NOD and NOTS time periods. There are 2 main reasons for this gap. First, after the 3 calendar months lapse, the trustee must determine if the beneficiary wants to continue on to the trustee's sale. That can take several days of communications by mail. Second, the advertising lead-in time for placement of the NOTS can take as long as 8 to 10 days. Untimely holidays and weekends can also prolong mailings and ad placement. So, even the most efficient professional trustee service companies typically end up providing a pre-foreclosure period from 115 to 130 days, well above the minimum 111 days set forth by state law. The Non-Judicial Process And Time Line If a homeowner ignored the foreclosure to the end, the following outline explains the details of what might happen during the preforeclosure and foreclosure process. It is based, in part, on "Chapter II:

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The Legal Nature of the California Foreclosure Process" found in Reasons For Today's Foreclosures, a study by the California State University Real Estate and Land Use Institute (CSU-RELUI). Also, see the chart on page ?: Sequence of Events for Non-judicial Foreclosure. As a practical matter, there is a noteworthy procedure that almost all Also, since the trustee was named when you originally bought the property, and since, in the meantime, the trustee may have moved or changed jobs, the lender has the right to substitute a new trustee (see Substitution of Trustee page 1-30). The non-judicial process of foreclosure is as follows (See page

lenders engage in prior to filing a NOD, and it can buy you some extra time. They contact you, usually by both the phone and mail, and issue to you a Notice of Intention to Foreclose. This is not so much a legal obligation as it is a courtesy, or fair warning, and does not always occur in every case. 17-1 for the California Civil Code Section on the power of sale.): 1. The beneficiary orders the trustee to initiate the foreclosure proceedings if the trustor defaults on 1 or more of the following contractual obligations:

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a. To make payments to the beneficiary in accordance with the terms of the debt security contract (loan agreement). b. To keep the property in good condition and repair, not to commit waste on the property, e.g., deliberate/negligent damage to improvements, soil or plants. c. To pay, when due, all claims for labor and material caused by work f.To appear in court and otherwise defend any action or proceeding that may affect the security or the rights of the trustee or beneficiary. Also, to pay all reasonable costs, including attorney's fees, incurred in fulfilling this duty. g. To pay (at least 10 days before delinquency) all taxes and assessments affecting the property, including assessments on appurtenant water stock, all encumbrances, charges and liens (with interest) on the property which appear to be prior or superior to the interests in this trust property. 2. Trustee must record a Notice of Default in the County Recorder's office (see page 1-31). The trustee must mail to the trustor a Notice of Default within 10 days of recording the Notice of Default. The trustee also must mail notices to other parties as required by law, such as junior lien holders. Although not required by law, many times the trustee publishes a Notice of Default in a newspaper of general circulation in the county where the property is located (see page 1-33). This notice must appear once a week for 4 consecutive weeks. 1-25

being ordered done on the premises. d. To comply with all ordinances, statutes, and other laws as to physical condition and utilizations of the premises. e. To provide and pay the premiums for a fire, windstorm and vandalism insurance policy from a financially responsible insurance carrier. 3. Recording the Notice of Default in the County Recorder's office commences the 3 month reinstatement period of the defaulted loan. During this period, and until 5 days before the sale, the trustor can cure the default without having to pay-off the entire balance on the loan. However, the trustor must pay all delinquent payments and late charges, if any, as described in the promissory note, plus a trustee's fee and expenses. 4. After the three calendar months have expired without the trustor or a junior lienholder acting to reinstate the loan, the collateral property can be scheduled for sale. In order to proceed with the foreclosure sale, the following requirements must be met: a. Trustee must complete the formal requirements for conducting the foreclosure sale of the collateral property, which are: (1). The trustee must publish a Notice of Trustee's Sale of the collateral property in a

newspaper of general circulation in the county where the property is located (see page 1-34). This notice must appear once a week for 3 consecutive weeks over a 20 day period (3 publications not more than 7 days apart). (2). At least 20 days before the sale, the Notice of Trustee's Sale must be mailed via registered or certified mail to the trustor and any other persons requesting/receiving Notice of Default (similar to the example on page 1-32). Fourteen days prior to the sale, the Notice of Trustee's Sale must be recorded at the county recorder's office (see page 1-32). (3). The Notice of Trustee's Sale must be posted for at least 20 days at the following locations (see example on page 1-32): 5. The reinstatement period continues through most of the Notice of Trustee's sale period, ending just 5 days before the trustee's sale. Only the amount in default must be paid during the reinstatement period. Afterwards, during the last 5 days before the sale, the entire obligation is due, including all payments in default, the amount of the original loan and all costs and fees. 6. Prior to commencement of the trustee's foreclosure auction sale, the sale may be delayed or terminated by: a. Trustor filing for Federal Court bankruptcy protection (Option 2), b. Trustor obtaining a California Superior Court preliminary restraining order/injunction ordering 1-26

1. In at least 1 public place in the city, judicial district, or county of sale, and 2. In a conspicuous place on the property. If the property is a single family residence, posting is required, if at all possible, on the door of the residence. b. Within 10 days after the end of the original 3 month reinstatement period, and at least 20 days before the date of sale, the trustee's sale notice must be mailed to the trustor at the last known address. This requires a reasonable effort by the trustee to actually notify the trustor of the proceedings affecting the collateral property. trustee to halt the foreclosure sale (Options 5 & 6), c. Trustor persuading the beneficiary to postpone the foreclosure sale (Option 3), d. Trustor requesting in writing that the trustee delay the sale and trustee agreeing (Option 3), e. Trustee on its own volition/discretion postponing the sale (Option 3), and f.Beneficiary requesting foreclosure sale be postponed (Option 3). 7. When the trustee conducts the actual foreclosure sale of the collateral property, the following requirements must be fulfilled in

order to complete a legally effective final sale: a. Foreclosure sale must be conducted at a public auction by the trustee's agent/auctioneer on any legal business day between 9 am and 5 pm in a public place in the county where the collateral property or some part of it is located. b. All bids must be paid in cash or cashier's check from a qualified financial institution as specified in the California Civil Code, or, a "cash equivalent," which has been designated in the notice of sale as acceptable to the trustee. c. The sale at the auction is made to the highest qualified bidder. d. Trustee may reject all bids if the trustee believes they are inadequate.

f.Trustee pays the first trust deed upon completion of the foreclosure, if the auction sale price equals or exceeds the amount of defaulted debt plus costs and expenses of sale. g. Trustee retains any surplus funds from the foreclosure sale that remain after making payments for the cost of conducting the sale and paying off the first trust deed beneficiary. On advice of legal counsel, the trustee will distribute any remaining proceeds of the foreclosure sale to other, usually junior, lien claimants. 8. Until the exact moment the auction-like bidding ends at the trustee's foreclosure sale, the trustor, any junior lienholder or any other party with a legal interest may still redeem the property. They can do this by paying off the defaulted loan in its' full amount, including accrued interest, delinquency charges and the trustee's fees and costs. Trustors can postpone the sale for 24 hours if they can prove they are working on a solution. ing, the foreclosure sale (see the legal chapter starting on page 9-1). This legal action, if successful, would also impede the transfer of the property's title to the successful bidder at the trustee's foreclosure sale.

e. After conclusion of the auction sale to the highest bidder, the trustee executes and delivers a trustee's deed to the buyer and endorses the fact of the foreclosure sale on the trust deed promissory note. 9. If the trustee's sale was conducted, the successful bidder, such as an investor or other private party bidder, receives a Trustee's Deed (see an example on page 1-36), which gives title to the property. The trustor ceases to have any recognized legal or equitable interest in the property. However, if the trustee has not complied with all of the legal requirements for an effective trustee's foreclosure sale, the trustor may file a lawsuit to obtain a court order "setting aside," or void1-27

Voiding The Notices of Default or Trustee's Sale If and when the homeowner in foreclosure cures the default or otherwise redeems the property in foreclosure, the lender, or beneficiary, must file a Notice of Rescission (see page 1-35). Formally known as a Notice of Rescission of Declaration of Default and Demand for Sale and of Notice of Breach and Election to Cause Sale, this document officially gives the world notice that the default has been cured. If the lender does not voluntarily make and record such a document, then the homeowner should do it or ask the lender to do it. After The Trustee's Sale: Who Becomes The New Owner? If the homeowner does not cure the default nor redeems the property, then the new owner of the property becomes either: 1. The successful bidder at the trustee's sale, or 2. In absence of a bidder, the property reverts to the foreclosing lender. The new owner takes the property subject to all loans and liens that are senior to the foreclosed loan. That means that if the foreclosed loan was a second mortgage, then the new owner must begin to make the loan payments on the first mortgage, which is referred to as senior because it is older than the foreclosed loan. If the first mortgage has what is known as a due on sale clause, which most loans have, then the new owner may be required to pay off this loan, or renegotiate it, or requalify for a new loan. Also, if the previous tenant/owner left behind any abandoned 1-28

property, then the new owner must initiate a legal process to return or sell it. THE JUDICIAL FORECLOSURE Even though the main focus of this book is the non-judicial foreclosure process, which accounts for an estimated 99% of California foreclosures, it is important to detail the process of judicial foreclosure as well. The judicial method is mainly used to foreclose on land contracts or other mortgages that do not have a power of sale as does the deed of trust, or to obtain a deficiency judgment. A deficiency judgment is needed when the foreclosure sale does not raise enough money to pay off the debts owed. The deficiency judgment allows the beneficiary to collect the remaining balance by attaching wages or forcing the sale of other property. However, deficiency judgments seldom are allowed on singlefamily, owner-occupied residences where the foreclosure involves a loan that was used to purchase the residence. Some of the instances in which a deficiency judgment may be pursued by the beneficiary through judicial foreclosure include: 1. If the first loan refinanced, or had been

2. If a junior loan had been obtained and was not a part of the purchase, such as equity and home improvement loans, Due to California's "one action rule" a lender cannot obtain a deficiency judgment through judicial foreclose if they have

already foreclosed non-judiciously. However, a if a junior, non-purchase, trust deed is wiped out by a foreclosing senior loan, then the junior may sue for a deficiency judgment through judicial foreclosure. The main obstacle for the lender, at this point, is collections. Many times, after borrowers lose their property in a foreclosure, they have little or no collateral from which junior lenders can Judicial foreclosure occurs through litigation in the California Superior Court after a lawsuit is filed by the lender. The following is also based in part on "Chapter II: The Legal Nature of the California Foreclosure Process", found in Reasons For Today's Foreclosures, a study by the California State University Real Estate and Land Use Institute (CSU-RELUI). In chronological order, the major points of the judicial foreclosure are:

collect the deficiency judgment. Also, the cost of the judicial foreclosure may be more than the value of the junior loan and thus cost prohibitive. Yet, if a check of the public records reveals that the borrower owns more than one property, and if the loan is large enough to warrant a judicial foreclosure, then it may be worth seeking a deficiency judgment. public place for 20 days preceding the sale date. This same notice must be given in a newspaper of general circulation once a week for 20 days. A certified letter containing the notice must be sent to the last known address of the mortgagor. In order to terminate other parties' recorded interests in the property, they should be included in the lawsuit as defendants. 6. At the foreclosure sale, the property must be sold by the auctioneer to the most financially qualified bidder with the highest bid. 7. For 1 year after the foreclosure sale, the property may be redeemed by the homeowner or a junior lienholder, if no other agreement exists to the contrary. The redeemer must pay the entire unpaid delinquent mortgage debt plus all costs created by the default, foreclosure and/or lawsuit (i.e., interest, fees, legal expenses, etc.). 8. Once the 1 year redemption period expires without a party redeeming, the successful bidder at the foreclosure sale receives

1. When the homeowner/borrower defaults on 1 or more terms of the mortgage lien contract, the lender files a judicial foreclosure lawsuit. 2. The lawsuit alleges that the homeowner defaulted on terms of the mortgage contract and requests relief from the court. 3. The lender must prove both the validity of the mortgage as well as the obligation by the mortgagor. 4. If the lender proves the loan default, the court will usually decree a foreclosure sale be held by a courtappointed commissioner or the county sheriff. 5. Notice of the property's description along with the time and place of the foreclosure sale must be given in a 1-29

title to the property, if no other interest or extension has developed. 9. The foreclosure sale typically becomes final 1 year from the date of the foreclosure sale. At that time, all legal and equitable interests of the mortgagor in the collateral property which was sold are terminated. WHAT IF YOU STAY AFTER THE SALE? If, after the trustee's sale is completed, the previous owner decides not to leave the property, then the new owner of the property, who is either the lender who ordered the foreclosure or is another person who came into ownership as a result of the foreclosure, will probably attempt to evict the previous owner from the property. Customarily, the eviction is accomplished in either of 2 ways: 1. The new owner pays the previous owner to leave, or If the previous owner does not cooperate with the new owner, then the previous owner may be forced out through the eviction process. First, the new owner will serve the previous owner with papers requesting the previous owner to vacate the property. A 3-day Notice to Quit is used if the previous owner is still in possession of the property. A 30-day Notice to Quit is used to evict any tenant of the previous owner who is in possession of the property. If the previous owner does not leave the property by the expiration of the time within the Notice to Quit, then the new owner may immediately file with the Clerk of the Municipal Court a Summons and Complaint against the previous owner. The Complaint details the facts of the case, as well as asks for court costs, legal fees and delivery of possession of the property to the new owner. The Summons and Complaint are given to a 1-30

2. The new owner files an unlawful detainer with the court. Getting Paid to Leave Rather than hassle an unlawful detainer, which may cost $300 to $1,000, the new owner may offer to pay the previous owner a sum of money to leave the premises. This is an inducement to leave, and it is usually not paid until the previous owner moves out of the property. Generally, this is either a cash payment equal to the cost of a new place to rent, or the new owner may simply pay the first month's rent in a new location of the previous owner's choice. Getting Evicted: The Unlawful Detainer process server to be served upon the previous owner within 1-4 days. Once it is served, the previous owner has only 5 days to answer the Complaint. If the previous owner does not challenge the Eviction Complaint - If the previous owner does not answer the Complaint, then the new owner wins the trial by default. The new owner submits a Request for Default Judgment to the Municipal Court clerk. After the court reviews the case, it may grant the default judgment, which grants possession of the premises to the new owner. At that time, the new owner submits a Writ of Execution for Possession, first, to the Municipal Court clerk, and then to the marshall, along with a request to evict the previous owner.

Within 2-4 days, the marshal talks to the previous owner as well as posts the eviction notice on the property, after which the previous owner has 5 more days to get out. At the end of those 5 days, if the previous owner has not already vacated the property, the marshal shows up on the sixth day and physically removes the previous owner from the premises along with the previous owner's personal property. Finally, the new owner puts new locks on the doors and the previous owner is barred from returning to retrieve anything. When previous owners refuse to remove any or all of their personal property, then it may be lost through a legal process that deals with abandoned property. If the previous owner challenges the Complaint (also see the legal chapter starting on page 9-1) - If the previous owner has cause to challenge the Complaint, then the previous owner may also be able to remain in the property for an extended period, maybe 20 to 60 days, or longer depending on the speed with which the new owner and/or the court processes the case, and depending on the magnitude of the new owner's wrongdoing against the previous owner, if any. The previous owner challenges the Complaint by filing what is commonly referred to as an Answer to the Complaint. An Answer can be vague, such as a General Denial, or may spell out alleged wrongdoings performed against the previous owner by the new owner, or other parties related to the new owner. Once the Complaint is Answered by the To the astonishment of many, even at this seemingly last moment when the marshal actually arrives to physically throw the previous owner out, the previous owner still may be able to stop the eviction and, eventually, regain ownership of the property. Up until the 1-31

previous owner, the case becomes what is referred to as At Issue. The court will let the new owner know that the previous owner has answered the complaint, usually by serving the answer on the new owner. At this point, and as early as the next day, the new owner may file with the Clerk of the Court a document known as a Memorandum To Set. Next, the court may take up to 20 calendar days to set the case for trial, depending on the time necessary to prepare for the trial. At the end of the trial, a judgment usually follows against either the new owner or the previous owner. Judgment Against The Tenant/Previous Owner -If the court finds that the tenant/previous owner has no rights to be in the property, then the judge renders a judgment granting possession of the premises to the new owner. As early as the same day as this judgment is granted, the new owner may file with the clerk of the court a Writ of Possession. Once the Writ of Possession is obtained, the marshal is sent a copy. The marshal posts a copy for the Writ on the property within 2-4 days giving the tenant/previous owner 5 additional days to get out. At the end of those 5 days, the marshal shows up on the sixth day to physically remove them from the property. exact moment the marshal arrives to evict the previous owner, the previous owner may stop the eviction by serving on the marshal either a Temporary Restraining Order (see page 9-12) resulting from a lawsuit, such as contesting

the foreclosure, or an Automatic Stay (see page 6-3) resulting from the filing of bankruptcy. Actually, at any time before or after the trial the tenant/previous owner may file for bankruptcy. Judgment Against The New Owner - If the court finds the new owner guilty of some wrongdoing against the tenant/previous owner, and, thus, rules against the new owner, then many remedies are possible, from monetary damages to the loss of the property (see the legal chapter starting on page 9-1). TAX CONSEQUENCES FORECLOSURE OF

property is later sold, the basis is compared to the sales price in order to figure the taxable gain or loss. The taxable gain or loss is called the capital gain or the capital loss. After a sale, if a property had appreciated above its basis, the seller may have a taxable capital gain. If it depreciated below its basis, the seller may have a deductible capital loss. Capital losses on personal residences are not deductible. The loss may be deductible if the property was a rental or other income producing property. In such cases, a capital loss only may be deducted against a capital gain. (See more on capital gains on pages 6-6 and 6-9.) To better understand these basics, let's set up a hypothetical model. Assume a property was purchased for $100,000. Then it has a $100,000 basis. If there are $20,000 in capital improvements on a property, then the basis increases to $120,000. If the property value appreciates to $200,000, and if it is refinanced for $160,000, then the basis is still $120,000, but with $160,000 owed against it. Now, if the house is sold for $200,000, but there are selling costs of $20,000, which are deducted from the sales price, then this leaves an adjusted sales price of $180,000. The $120,000 basis is subtracted from the $180,000 adjusted sales price for a taxable capital gain of $60,000. The net proceeds on the sale are $20,000, which is the amount remaining after the $160,000 owed is subtracted from the $180,000 adjusted sales price. Depending on the borrower's

I am not a tax expert nor an accountant. I am only reporting here some of the basics that I have been told. Before making any decision on which solution to implement regarding your current or potential mortgage default, always present the exact details of your situation to a tax preparer or tax account, or other competent tax professional, maybe one who is an enrolled agent with the IRS. This will allow you to consider the tax consequences that are particular to your case before you act. Here are a few basics you may need to know. The tax law treats such property transfers as foreclosures, abandonments and deeds in lieu as a sale. Further distinctions are made between properties that are residential, income producing and vacant land. The tax basis in a property is the price that was paid for it. The basis may be increased by capital improvements, such as anything added to the property other than a repair. Patios, spas and room additions all may be capital improvements, but repairs of patios, spas and room additions are not. When the 1-32

current income tax bracket, much of the $20,000 net proceeds may go toward paying taxes on the gain, unless there is a separate capital loss to deduct from the gain. Let's look at the same property as if it went to a trustee's foreclosure sale Again, looking at the same property, assume that the property values have depreciated to a current market value of $110,000. If the property did not go to a trustee's sale, but sold for $110,000 to a regular buyer with the help of a principal reduction (see A Lender Short pay, page 11-25), the tax liability would still be for the same gain of $40,000. The $120,000 basis would be deducted from the $160,000 that had been owed. If the borrower decided not to sell and the lender agreed to reduce the principal to the $110,000 current market value in a note modification (see Note Modifications, page 7-8), then the $50,000 difference between the $160,000 owed and the new $110,000 reduced principal amount may be consid-

instead. The $160,000 owed becomes the sales price in the trustee's sale. When the $120,000 basis is subtracted from the trustee's foreclosure sales price, there is still a $40,000 taxable gain.

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ered by the IRS to be income in certain cases. If so, the $50,000 would be taxed at the borrower's current income tax bracket. An exception may be if the principal reduction is construed to be a gift from your parents. But, check with your tax preparer or a tax attorney first. The lender may even send a 1099 form to the borrower and the IRS. So, before agreeing to a principal reduction, always ask your accountant or tax preparer if such a reduction is wise in your

particular situation. With income property, some tax consultants feel that in certain situations it may be better to sell and take a capital loss than to keep the property and settle for a potentially taxable principal reduction.

Trust Deed Explanation S.D.

Tax Service, 619752-1968, may be able to advise you

Trust Deed Example

Trust Deed Example 2

Promissory Note

Substitution of Trustee

Notice of Default

Notice of Trustee's Sale

Immediately after filing a NOTICE OF DEFAULT, the trustee, although not required by law, nonetheless, may give public notice by running the following advertising for 4 consecutive weeks in a newspaper of general circulation in the county where the property is located:

Below are two examples of the advertising required by law to run for 3 consecutive weeks prior to a TRUSTEE'S SALE in a newspaper of general circulation in the county where the property is located. Although both ads achieve the same effect, check out the differing formats:

Notice of Rescission

Trustee's Deed

THE 8 OPTIONS SECTION

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STEP 2: Make Time To Work Through The 8 Options


Your initial plan of action to stop the foreclosure will be affected by the number of days that remain before the trustee's foreclosure sale. A count of the remaining days is necessary in order to establish how much time you have left to work out a solution. When little time remains, a limited and severe strategy may be all that is available to you. When a lot of time remains, usually there is enough time to process any of the options in this book (see page 1-2). Ideally, the most advantageous time to get started is before a NOD is filed, when it still can be prevented. As outlined in the Time Line Of Options on page 1-13, the total number of days from the filing of the NOD to the day of the trustee's sale is a minimum of approximately 111 days. However, a period of 130 days, or more, is possible (see page 1-13). If you have not yet received a NOD, then you have at least 111 days before the sale, which is plenty of time to work on the options. Also, you have the possibility of preventing a NOD from ever being filed. Certain options in this book may be used to prevent a NOD, especially negotiating a change in your mortgage terms with the lender. However, if you have received a NOD, and if some time has lapsed, then use the following formula to determine the minimum number of days that remain before the trustees' sale.

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How To Figure The Remaining Time 1. Add up the number of days that have passed between today and the date on the NOD. 2. Subtract that total from 111 days. 3. The remainder is the approximate minimum number of days before the HOW TO CREATE MORE TIME Many of the more beneficial and permanent fore-closure solutions need plenty of process time. So, homeowners with only a little time remaining before their home goes to the auction block initially may need to choose an option that creates the additional time necessary to find a more permanent solution. For instance, the foreclosure process may be vol-untarily suspended by the lender or may be forced to start over due to an error in the procedure or paperwork. More severe delay tactics exist as well, such as filing a lawsuit or for bankruptcy protection. If you must employ a temporary delay tactic, then: 1. Do not damage your credit. (Before using a delay tactic that might critically undermine your future financial opportunities, consider every possible consequence.) 2. Do not jeopardize your permanent solution. (Before using a delay tactic, consider how it may affect your possibilities for a permanent solution.) Options That May Create More Time Read through the following section for a delay tactic which may be the best for your case:

trustee's foreclosure sale (that is if nothing has been done to postpone the sale). In other words, if it has been 30 days since the filing date on the NOD, then 81 days remain before the trustee's sale (111 - 30 = 81). 1. Obtain a postponement from your lender. Talk your lender into postponing the sale. Say you need more time since you are in the early stages of 1 or all of the following processes: reorganizing your finances, refinancing or selling. The "early stages" can be just a preliminary telephone call, but you need to show continued forward progress. (See Option 3, page 7-1.) 2. Create a delay by finding an error in the documents or procedures used in the foreclosure process (see Finding Errors In The Foreclosure Process, page 9-3) or by finding an error in the loan servicing (see Finding Errors In The Loan Servicing, page 9-6). Errors in the foreclosure paperwork, the foreclosure process or the loan servicing may be used to force the lender to start the foreclosure timeline over again, or in to negotiations that may create a delay. For maximum delay, point out the error at the latest date possible. (Uncorrected errors or intentional fraud may be grounds for more serious legal action; see Lawsuits, page 9-11.) 3. Some mortgage foreclosure consultants (see page 18-1) advocate that delays can be

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created by requesting information from the lender or trustee, such as an itemization of payments and charges. If the information is not provided or is incorrect, then the foreclosure may have to be stopped or even required to start all over again. Also, such a request may be time consuming for the lender or trustee. Many lenders and trustees who are used to routines may not be capable of responding to every request. (See Other Laws, page 9-5) 4. Obtain a temporary restraining order against the sale. Not only can this be used to force a postponement if you are refinancing or selling and need more time, but also if you feel you have reason to file a lawsuit, such as when you believe that your loan or foreclosure papers have been illegally drawn and/or executed. (See Option 5, page 9-1.) 5. Obtain an automatic stay by filing bankruptcy (BK). However, a BK can effect your credit for up to 10 years and only should be used if you truly need to file BK. Some people have filed a BK as a last minute desperate attempt to stop the sale, then cancelled it later, but that is not recommended here. (See Option 2, page 6-1.) 6. Obtain a military exemption if either you or a family member is in the U.S. armed services. (See Option 6, page 10-1.) Summary Of Step 2 If you have not yet received a NOD, then you have plenty of time to work out an option and may prevent the NOD altogether. If you only recently received a NOD, then you probably still have enough time to work out an option. However, if a day count reveals too much time has

lapsed since the NOD was filed, then you may need to employ a temporary option to stall the foreclosure sale and create the additional time necessary to work out a more lasting solution.

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STEP 3:
First Read The Options That Seem Most Relevant To Your Case
Since every homeowner is involved in a unique situation, it is impossible to give guidelines that are specific to each case. However, Step 3 does provide a process to help you discover the best solution(s) for your particular case as you currently understand it. Step 3 asks you to select and read the Option chapters that relate most urgently to your situation. This is best accomplished by the following process: 1. Read the material in Step 1, especially The Action Guide. 2. Select ideas that seem to relate most urgently to your situation. 3. Read the details of those selections in the corresponding Option chapters. 4. Make notes of all points pertinent to your case. Reference these notes later when building your Action Plan. In other words, if when reading The Action Guide or charts in Step 1 you realize that you really need to reorganize your finances, then read that Option chapter first. If you feel you must sell your house but want top dollar, then read the Option chapter on selling first. Or if you are in the military, then read that Option chapter first. If you feel you have the basis for a lawsuit, then read that Option chapter first. And so on through all the Option chapters.

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The point is that if only 1, or 2, or even 5 of the options seem to relate to your needs, then read only those Option chapters first. Also, be aware that 2 or more options may join together to create a unified solution for you. For example, you In some cases, you may possibly find the best solution during Step 3. If so, then, due to time limitations you may need to skip Step 4 and advance straight to Step 5 (although a time saver, skipping Step 4 is not advised). Summary Of Step 3 As you read the options within The Action Guide, try to identify the ideas that seem most pertinent to your particular situation. Then, read more about these ideas in the corresponding "Option" chapters in Section 2 and the material in Section 3. Make notes of key points to reference later when building your Action Plan.

may need to reorganize your finances as well as negotiate a change in your mortgage terms in order to effect the best solution.

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Look For Other Ideas In The Book That May Be Helpful


If, after completing Step 3, you still are not sure of the best option to pursue, or if you just want to fish for additional ideas, then Step 4 is designed to help you. The procedure is simple: 1. Read all the remaining unread chapters in The Action Guide Section and The 8 Options Section. 2. Make notes of the relevant points. Use these notes later, along with the notes from Step 3 to construct your Action Plan. One major reason for reading the entire book is to understand and implement every option that is available to you. For instance, in order to cover all your "option" bases, you can set in motion the following options immediately: 4-1 1. Start reorganizing your finances with a debt counselor. (Option 1) 2. Begin negotiations to change the terms of your mortgage terms with the lender(s). (Option 3) 3. Get the refinancing ball rolling. (Option 4) 4. Look for mistakes or signs of fraud on your loan or foreclosure papers. (Option 5) 5. Talk to real estate agents as well as foreclosure investors about the possibilities of selling your home. (Option 7)

STEP 4:

6. Interview a bankruptcy attorney. Discuss all the ramifications of a possible bankruptcy. (Option 2) 8. Finally, if your income base cannot recover quickly enough and if little or no equity exists in your property, then you may want to consider giving the property away while negotiating some extra time to stay free until you find new housing (Option 8)

7. If you or your family are in the military, then consult an attorney from your base. (Option 6) The same holds true for deciding whether to sell your home or to keep it, whether to refinance or change your existing mortgage terms, and whether to file a lawsuit or to quitclaim away the property. The more information you have to consider, the more intelligent your decisions may be. And in the process of researching each option, the very best course of action should become evident to you. Summary Of Step 4 Think of all the options as individual components of an overall strategy designed to win. The more informed you are, the more options you can put into motion to find an appropriate solution. Read all the chapters in the book, make notes of the relevant points, then use the notes to build your Action Plan.

While each Option chapter is presented individually, each option does not necessarily have to stand alone. The degree that the options can be combined to form joint remedies depends on each individual homeowner's unique blend of economic, financial and personal circumstances. It may be helpful to consider all the options as individual components of an overall strategy to win. Only by reading all the material can you discover all the possible components. Also, reading every option may make you aware of the inter-relationship between options. For example, some debt counselors can help you reorganize your finances without filing the credit blemish of bankruptcy. On the other hand, sometimes finances may be so complicated that bankruptcy is the only option available in order to halt foreclosure and create a proper reorganizational plan. The correct answer for you requires reading both Option chapters, then closely examining the facts of your particular situation.

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HOW TO WIN BY REORGANIZING YOUR FINANCES


Reorganizing your finances to fight foreclosure means generating the money for your mortgage payment by slashing expenses, by increasing income opportunities and by persuading creditors to lower your monthly credit payments. The key to financial reorganization is to develop and then abide by a livable budget and debt management plan. Financial reorganization can be accomplished with the help of a credit counselor, or individually with the assistance of a guidebook, or both. Although any of the other options in this book may be used to fight foreclosure and win, "those options would just be a bandaid if the homeowner didn't reorganize, too "says a counselor at Consumer Credit Counseling Service (CCCS). "You can get people out of foreclosure, but if you don't help them solve the real problem, they'll go right back in again. That's why we teach people how to budget wisely and how to manage their money." More about CCCS on pages 5-6 through 5-9.

Getting Started You must start by admitting that your finances are in trouble, and then make a vow to reorganize. In a broad sense, when you reorganize your finances, you are taking control of your life. Especially if you are behind on your mortgage payment, you must begin financial reorganization immediately. Otherwise, you may be forced to reorganize through bankruptcy. As the Option chapter on bankruptcy

explains, bankruptcy can leave a nasty and unnecessary blemish on your credit record. And during the bankruptcy process, you will be required to itemize and assess your finances anyway. So, it I will never forget a woman I knew as a teenager. Looking back now I think she is a great example of the human spirit triumphing over poverty. When she was first married, she and her husband worked as migrant farm workers. Her husband was an alcoholic and had trouble keeping regular work. They lived in one of the poorest parts of town. Despite these overwhelming economic difficulties, she was determined to excel. Now, years later, she is retired and living comfortably in an upper middle class community. How did she do it? Simply, she had an excellent budget and financial plan, and she stuck to it. First of all, everyone who lived in her house and who had a paying job was required to give her their paycheck every week. In return, she gave them a place to sleep, home-cooked meals, laundered clothes, a clean place to live and even some spending money. The adults and children who did not yet have a paying job were required to do the cooking, cleaning, washing, ironing, gardening, etc. Also, she bought food and household supplies in bulk and at a discount. She cut costs everywhere conceivable. While managing this household, she continued to work full-time, eventually as a garment worker. Consequently, she accumulated not only a large pool of funds, but also a sizable cash flow. She used the pool of funds to buy a house, first in the barrio, then parlayed the investment to her present home. She did not stop there. She also successfully invested in various other real estate ventures. A side benefit of her good economics: most of her children learned to do the same as they married and set up their households.

makes good sense to do it now in a voluntary financial reorganization while you may still be able to prevent bankruptcy. THE DANGER SIGNALS According to CCCS of Orange County, it is time to reorganize your finances when: 1. You are borrowing to meet regular expenses, such as food and utility bills. 2. You can barely make the minimum required payment on bills, but continue to charge. 3. You're using 1 form of credit, such as a line of credit or a debt-consolidation loan, to make payments on other debts. 4. You're using 25% or more of your take-home income to pay credit card bills and personal loans (excluding mortgage payments). 5. Your revolving credit cards are charged to the limit. 6. Checks are bouncing. 7. You have no cash reserve. 8. You are so far behind on credit payments that collection agencies are after you. THE 4 STEPS FREEDOM TO FINANCIAL

According to the Financial Counseling Guide from CCCS of Orange County, The 4 Steps to Financial Freedom are:

Step One: Determine where you are financially. Begin with good record keeping and by balancing your checking account, the main building block of your record keeping. More of your money will go through your checking account than any other financial tool. (Use the forms on pages 5-10 and 5-26 to begin reorganizing your finances, or use some other method. Also, see How To Set Up A Successful Budget on pages 5-4 through 5-6) Determine how much you are worth today. You can do this by: 1. Listing all your sources and amounts of income, 7. Identifying problem areas, and taking steps to resolve them.

2. Keeping a record of expenses to determine where your money is going, 3. Developing system, a record keeping their

4. Listing all assets approximate value,

and

5. Evaluating company benefits--life, health, disa- bility insurance, savings/retirement plans, etc., 6. Checking payroll exemptions to ensure you are withholding properly for the IRS, and allow you to start paying off some of your debt now, and (2) it is a good alternative to bankruptcy. Since you are making a responsible effort to pay your debts, you'll find most creditors generally cooperative. Be aware that as you arrange for lower payments, some creditors may indicate on your credit report, "Not paid as agreed," which is a blemish on your credit record. So, when you ask for a lower repayment plan, also ask them not to stamp your credit record with a "Not paid as agreed." However, if this happens, you may want to consult with a credit repair service. Such organizations can show you how to turn bad credit around fairly quickly. Be aware that some of them are expensive, and you may be able to repair your credit yourself. (See Repair Your Credit in the Additional Reading section on page 20-1).

Now you should have a clear picture of your finances. If your expenses are greater than your income, then you need to: 1. Immediately cut back all your unnecessary and luxury expenses, such as movies, restaurants, costly clothing, vacations and gifts, to name a few. 2. Increase your income by taking on a second job and/or putting other members of the household to work. 3. Get your creditors monthly payments. to lower your

On this last note, contact your creditors and arrange a revised payment schedule. Not only ask them to lower your monthly payments, but also to waive any finance and interest charges. Point out 2 things about a reduced repayment plan to your creditors: (1) it will

Step Two: Decide where you want to go Many people struggle day-to-day without a plan on how to get ahead. Set three kinds of goals: 1. Short term goals that can be met within the next year, 2. Intermediate goals that can be reached within 5 years, and, 3. Long term goals that may take 10 to 20 years or longer. To decide goals are: what your financial

To reach your goals you must: 1. Become an informed consumer. Shop wisely. 2. Develop a system for paying bills. 3. Develop a medium and long term savings plan to reach special goals. One source: utilize employer-sponsored savings plans if available, especially if they offer tax advantages and/or matching contributions. 4. Save for periodic expenses and emergencies to keep your plan running smoothly. 5. Plan your use of credit wisely. Credit is not an extension of your income. 6. Limit total debt (excluding mortgage) to 20% or less of net income. Rent or mortgage should not exceed 28% of gross income. 7. Revise spending as needed. Remember, you attain financial freedom by learning to control the money you have rather than letting it control you. HOW TO SET UP A SUCCESSFUL BUDGET People from all walks of life encounter financial difficulties. Budgeting is not difficult nor does it have to be overwhelming. Budgeting does, however, require that you set some goals and do some preplanning before you actually, physically start a budget. Below are the basic steps that CCCS of Orange County has found

1. Distinguish between wants and needs. 2. Set realistic financial goals--both short and long term. 3. Prioritize your goals. 4. Review and revise them periodically. Step Three: Formulate a plan reaching your goals. for

8. Evaluate insurance needs. Adjust as family circumstances change. 9. Consult an attorney to draw up a valid will. Step Four: View financial planning as an ongoing process. To remain debt-free you should: 1. Be realistic in your expectations. Developing a plan you can live with will take time and effort. It is a trial and error process. 2. Adjust your plan as goals are reached, and family circumstances and income change.

necessary to set up and operate a successful budget: Step 1: The Planning Stage 1. Use the Fritter Finder sheet on pages 5-22 and 5-23 to become aware of your expenditure patterns. Keep a trial balance for 1 month. a. Jot down daily what you and your family spend your money on each day during the month. (Watch the little things, such as using candy machines, eating out versus brown bagging, compulsively giving gifts, etc.). b. Round off the nearest dollar. amounts to the

b. Determine your Flexible Expenses: utilities, food, entertainment, gas for your car. c. Refer to your checkbook register and past billing statements to help you determine what you think it will cost you to live for the next year. 3. Use the Suggested Budget and Expense Classification sheet on page 5-11 as an example to help you determine the classifications under which your spending falls. Change your spending habits to suit your individual needs. 4. Make up a separate Record of Expenditures sheet (see page 5-18) for each of the above budget and expense classifications necessary for your individual situation. For example, you would make a separate sheet for food, a separate sheet for recreation, a separate sheet for car and gas expenses, etc. Step 3: A Planning Meeting With Your Family 1. Give this meeting a name (i.e.: Family Finances Check-in or Family Money Planning Meeting). 2. During this meeting your family will decide:

c. Lump small daily amounts (i.e.: 75 cents for coffee each morning) together on a weekly basis and round off the total amount. Step 2: The Forecasting Stage 1. Use the Forecasting Income sheet on pages 5-12 and 5-13 to determine your average income for the coming year (or maybe just the next 6 months). a. Refer to your past paycheck stubs as a guide and write down what you think your income will be for the coming year. 2. Use the Forecasting Expenses sheet on pages 5-14 through 5-17 to determine what you think your expenses will be for the next year (or maybe the next 6 months). a. Determine your Fixed Expenses: rent, mortgage, insurance, installment payments. a. What you want to spend your money on,

b. What budget and expense classifications you want to have in your budget, and

c. What goals to set for the future. 3. Use the Forecasting Short-term and Long-term Goals sheet on pages 5-20 and 5-21 to write down your goals in order of importance. Step 4: Now You Are Ready Actually Start Budgeting! To

b. Discuss what you spent your money on last month. Ask: "Was our income enough to meet our expenses last month?" If the answer is no, then you need to start making compromises and priority decisions (i.e.: spend more for the utilities and less on recreation and entertainment). c. Meet as a family unit in order to influence your children and other members of the household. Step 6: Continuing On In The Future Months 1. Don't give in! Budgeting takes patience. Practice until you get the hang of it, and become comfortable with it. 2. Remember to continue to record your expenditures often. 3. Keep record keeping simple. Use a loose-leaf notebook with dividers for your budget records. 4. For a while, you may wish to use a bankbook entry system as seen on page 5-19. 5. To make arithmetic easy and quick, round off recorded expenses to the nearest dollar. 6. Put a check mark in the last column for expenses that are tax deductible. 7. Record credit card and charge card purchases as they are made and not at the end of the month when the statement arrives in the mail.

1. Group your expenses: This makes it is easier to plan expenditures and to budget. For example, the food classification would include all food bought at the grocery store, lunches bought at work or school, pet food, meals eaten out, etc.). 2. Record your expenditures as they are made and as checks are written for bills during the month. Make notations often--daily is best! 3. Have a "Mad Money" category for each family member. Mad Money can be spent on whatever the person wishes and does not have to be accounted for, nor is permission needed on how to spend it. 4. Keep similar expenses in the same category and do not put too many expenses into the miscellaneous category. Step 5: First Report Month's Progress

1. Now that you have been budgeting for a month, give the family a progress report of what has happened. Don't be critical of how money was spent this past month or chastise family members. Just inform! a. Discuss with the family if you are meeting your goals or not.

Step 7: Controlling Operating Budget

Spending And A Successful

2. Remember--don't get upset if money spent that month bears no resemblance to the amount you budgeted. 3. Do not try to account for every dollar. There will always be a small amount of money that will go unaccounted. Step 8: A Look Back 1. After you have been budgeting for 3, 4 or 6 months, look back over what you have done and ask yourself, "Am I getting full satisfaction out of spending my money?" 2. Determine if you need to make any changes in the budget categories, the amounts budgeted to certain areas, or the methods you are using to keep track of income and expenditures. Helpful Hints: 1. Some people feel that budgeting takes the fun out of spending money. Spending too much money takes the fun out of life by creating needless worry. 2. Budgeting does not have to be a straightjacket. 3. Budgeting is not just for people who are in financial trouble, it is for everyone! Emotional Insights Budgeting Attitudes Don't blow a budget by: 1. Spending for status, or spending to look good; Into

1. At the end of the month, you will be able to see how well your budget is working and what areas had problems. 4. Spouses should rotate the bill paying duties on a monthly basis or do them together so that both know how the budget is going.

5. At the end of each month, add all expenditures on your Record of Expenditures sheet on page 5-18 and enter the totals into the Budget Control Sheet on pages 5-24 and 5-25. Enter each total into the actual corresponding column. a. Subtract your actual expenses in each category from the budgeted expenses. Enter the total as a plus or minus figure. You will then be able to see if you have overspent or underspent a certain budget category. b. Determine if a category was overspent. Do you need to allocate more money to the overspent category and allocate less money to underspent categories? c. It is OK to have 1 or 2 categories go "into the red" and have a minus balance. However, do not let too many categories go into the red at the same time or remain in the red month after month. Hold back purchases in the categories that have gone into the red as much as possible until you get your paycheck and can replenish that category again.

2. Using money to control people, things or events; 3. Using money to retaliate or to get even with other people; 4. Trying to outspend a friend or member of the family or household; or 5. Spending to gain friends or social acceptance. CREDIT COUNSELORS A person or family can either reorganize their expenses on their own without assistance, or they can enlist the Consumer Credit Counseling Service - One alternative to the commercial credit counselors is the Consumer Credit Counseling Service (CCCS). CCCS is a non-profit community service organization that provides reliable help with budget and debt counseling at little or no cost. Whether you decide to reorganize on your own or use a counselor, the methods used by CCCS are not only very sound, but also serve as a good example of the credit counseling process. The goal of a CCCS counselor is: 1. To assist you in determining a course of financial action, 2. To develop a voluntary budget and debt management plan, if necessary, and/or 3. To institute needed. a repayment plan, if

help of a credit counselor. For the do-it-yourselfer, many books and programs are available at the bookstore. However, to quickly reorganize your finances and stop foreclosure, you may need to use some expert "hands-on" help. There are many credit counselors, debt services and financial planners listed in the yellow pages or newspapers who can assist you in restructuring your finances. These companies and organizations provide varying levels of service, and some of them are very expensive. CCCS wants to show you how to get out of debt and stay out. CCCS credit counselors help you or-ganize your income and expenses, so you understand where your money is going. A counselor's ultimate goal is to help you develop a budget you can live with and keep you out of bankruptcy court or foreclosure. CCCS counselors work with you to get your financial life under control. How CCCS Works - When you call for an appointment, you'll be sent a questionnaire. This questionnaire asks you to describe in detail all your debts, income, etc. You will bring this in to your appointment along with proof of income and verification of your existing charge accounts. The typical appointment lasts 30 minutes to an hour. You can have as many appointments as you feel you need at little or no charge. At your first appointment, the counselor reviews and reclarifies all your debts, making an outline of the monthly expenses that you consider to be the necessities of life. This is a nitty-gritty list that

In many cases, CCCS can get creditors to waive interest payments, finance charges and fees, accept lower minimum monthly payments and negotiate a workout with the lender.

includes things such as bottled water, pets, bus fair, oil for your car, prescriptions, etc. The counselor helps you think of everything you may use. This is an important step in creating a realistic budget, because your need for these miscellaneous items is often what got you into trouble in the first place. Next, the counselor compares your total expenses to your total income and may help you develop a budget. In many cases, the net income is simply not enough to cover the monthly expenses. Often people don't have anything left over after they pay absolute necessities like their mortgage payments, groceries, utilities or car payments. Others can cover their monthly expenses, but have only a small amount of income left over for spending money. Then there are those who have a high percentage of income left over but not anywhere near what's needed to pay the minimum monthly payments on outstanding credit. Somehow these people have juggled their finances by using their credit cards to supplement their net income--a very common occurrence. Now comes the expense slashing. Actually, the counselors don't just sit back The CCCS Debt Management Plan - If CCCS counselors find that your income falls short of your total living expenses and your unpaid bills are piling up, then they usually suggest a debt management plan. This is similar to the revised payment schedule mentioned in Step 1 of The 4 Steps To Financial Freedom on page 5-2. In a debt management plan, the CCCS counselor looks at how much money is owed and the possibilities of rearranging or reducing the payments these creditors require. Typically, CCCS will negotiate with creditors to drop interest and

and coldly cut expenses. It's more of an interview where they discuss your financial alternatives based on your critical needs. A typical question is, "What changes can we make that you can live with?" For example, phone bills are a major item the counselors will cut, which can be as large as $200 a month. The counselor tries to cut the phone bill down to the basic $15-20 a month. But, obviously, you must cooperate with the cuts. If you compulsively continue to charge expensive calls on the phone, the plan will not succeed. In a similar fashion, the counselor reviews your expenses item-by-item and cuts as much as possible. In addition to reducing expenses, counselors may suggest ways to increase your income such as pulling in a roommate or getting a second or part-time job. If there's anyone in the household over 18, they might suggest putting him/her to work to bring in some income. See the list of CCCS offices throughout the State of California on page 5-9.

finance charges, and to lower monthly payments. They try to figure out a plan where only a percentage of the regular monthly payments are paid without causing negative amortization, which increases the amounts owed. You only can become eligible for the debt management plan if your debts can be reduced enough to be handled by your available income. Living with a debt management plan can be rough. You have to destroy all your credit cards and live on a cash-and-carry basis

within the limits of your new budget that has been outlined with the counselor. CCCS actually takes your money and pays the bills for you. For example, if you need $600 a month to pay creditors, you deposit the money in their office by the 20th of every month and they will credit your account and disperse the money. You are not allowed to make direct payments to the creditor. Payments must be paid to CCCS. Typically you would bring or mail CCCS a money order or cashier's check for the amount predetermined by your individual plan. Since each CCCS office is independently run, check with the office nearest you for the exact rules of a typical CCCS debt management plan. Some Of The Basic Rules - Usually your full payments are due in the CCCS office on a prescribed schedule, such as 5:00 p.m. on or before the 20th of each month. No personal checks or cash can be accepted, only cashier's checks or money orders. If your deposit is received after the 20th, it may not go out until the following month. Remember, this plan is possible only because of the cooperation of your creditors. You must notify your CCCS Account Manager of any changes in your address, phone numbers, employment and/or financial situation, and return all phone calls. Deposits must be made on time each and every month. If you cannot make your deposit, then arrangements can be made to catch up later. Likewise, whenever possible, you should increase the money going to the creditors. The larger your payments, the sooner you will be out of debt. As some creditors are paid off, the extra money is applied to remaining creditors.

Your Credit Rating - Even after being a CCCS client, some of your creditors may still report your accounts as past due, not paid as agreed or even charged-off. The latter is usually due to bad timing, or due to reductions in the monthly payments that are necessary in order to allow all creditors a fair share of your limited funds. CCCS cannot remove negative information from your credit report; and completion of your Debt Management Plan will not remove negative information from your credit report. Only the original creditor can change a rating. Recounseling - If there is a drastic change in your income, such as loss of job, loss of a second income, or a major raise in your basic living expenses (i.e. medical bills), your account can be reevaluated and restructured. Cancellation Of The Program CCCS will terminate your program if you fail to follow the basic rules of the plan including: 1. Nonpayment: If they do not receive a deposit in a 60 day period, your program is cancelled and all creditors are notified. 2. Partial Deposit: If you send irregular deposits on a consistent basis. 3. New Debt: You must not incur any new debt while your program is in effect, with the exception of a bonafide emergency. 4. False Disclosure: Supplying false or misleading information to CCCS regarding your income,

living expenses or debts is grounds 5. Direct Payment: Making deposits directly to your creditors and not through CCCS may jeopardize the entire program. If you should decide to begin payments directly to the creditor on your own, the monthly payment will return to normal amount and the creditor will resume interest and late charges.

for immediate termination from the program. keep the doors open at CCCS is better for creditors in the long run than consistently losing 50% to 100% in the bankruptcy courts. It is a win/win situation all around. Each year CCCS returns millions of dollars to creditors. Consequently, CCCS has a lot of credibility within the credit community and their bargaining on your behalf to lower payments may be a big help. The guidelines described in this chapter can help you create a workable budget, whether you go to CCCS, to another credit counselor or develop a budget and debt management plan on your own. But, developing a debt management program and convincing creditors to lower your monthly payments, drop finance charges, etc., may prove to be too complex. If so, then the drive to a CCCS office may be worth it.

CCCS will not issue a satisfactory program completion letter should you pay off your debts after being cancelled from the program. However, when full disbursement of principal and interest through CCCS has been verified, CCCS will give you a letter attesting to the fact that you have successfully completed the program. After completion, CCCS recommends follow-up counseling to discuss your future finances and to help you avoid the pitfalls of falling into the same trap again. More About CCCS - CCCS makes the bulk of its money from creditor contributions. When CCCS sets a client up to make a smaller monthly payment to a creditor, CCCS asks the creditor for a 15% contribution. Typically, CCCS only gets 10% from creditors, although they ask for 15%. But the client usually receives credit for a full payment. Creditors are willing to pay the contribution because the alternative for the client would be filing bankruptcy. If the CCCS client had to file bankruptcy, then the creditor may receive little or no money at all! So, paying a 10% to 15% contribution to

CCCS operates several offices throughout California. For a branch office near you, call The National Hotline at (800) 388-

5-14

NOTES FOR FINANCIAL REORGANIZATION

5-15

Budget Guidelines

Forecasting Income 1

Forecasting Income 2

Forecasting Expenses 1

Forecasting Expenses 2

Forecasting Expenses 3

Forecasting Expenses 4

Record of Expenditures

Sample Bankbook Entry

Forecasting Short Term Goals 1

Forecasting Short Term Goals 2

The Fritter Finder 1

The Fritter Finder 2

Budget Control Sheet 1

Budget Control Sheet 2

HOW TO WIN THROUGH BANKRUPTCY


I gathered the following material from the law library and various bankruptcy attorneys. I report it here for informational purposes only. Since I am not an attorney, the information in this chapter is not offered a legal advice. It should not be taken as legal advice in any form. Please consult with an attorney before acting on any of this information. Filing bankruptcy will immediately stop your foreclosure. Nonetheless, never file bankruptcy just to halt a foreclosure, nor to avoid an honest debt. Use bankruptcy only as a serious step toward reorganizing your finances and rehabilitating your spending habits. However, if a creditor, such as a mortgage lender, is forcing a sale of property which you would like to keep, or if you seek relief from debts that far exceed your income or assets, then bankruptcy can be a valuable tool to stop the sale long enough to bring order to your finances. 6-1 Bankruptcy is a more severe form of financial reorganization than that which was outlined in the previous chapter since it both invokes government intervention into your financial affairs as well as publicly stamps your credit report with a nasty blemish for several years. (See Repair Your Credit in the Additional Reading section on page 20-1.) This chapter will focus primarily on those aspects of bankruptcy which apply to saving your home while presenting only a partial overview of bankruptcy principles. Getting Started In order to file for bankruptcy, a filing fee must be paid, plus any attorney costs, and an assortment of forms and schedules must be filed with the clerk of the Federal Bankruptcy Court. Both extreme

care and honesty must be exercised while filling out these forms and schedules. Mistakes can result in a dismissal of the To find out more about these forms and all the details of bankruptcy, consult with a bankruptcy attorney. Paralegals, found in the Yellow Pages, may also be of assistance in filing out bankruptcy documents. While many do-it-yourself bankruptcy books are available (see page 20-1), filing bankruptcy without professional help can lead to errors which might jeopardize your case. In many cases, legal assistance is necessary to accurately evaluate your case and determine the chapter of the bankruptcy law which is appropriate for your situation. If you decide to file bankruptcy, then there are some important points you will need to know in order to protect your home. THE PURPOSES OF BANKRUPTCY: 1. To stop creditors from acting against a financially troubled debtor, 2. To discharge certain debts, 3. To give the debtor a fresh financial start, and 4. To give all creditors an equal chance at any possible collections from debtor. 5. To allow debtors to reorganize their finances. TYPES OF BANKRUPTCY RELIEF The types of relief under the bankruptcy laws: 1. Reorganization (Chapter 11, 12 and 13), 2. Liquidation (Chapter 7), and

petition as well as non-discharge of certain debts. 3. "Chapter 20." Chapter 12 is debt adjustment for family farmers with incomes. Chapter 11 is financial reorganization generally used by businesses or individuals with over $100,000 in unsecured debt and $350,000 in secured debt. Bankruptcy relief for the typical individual homeowner is found in either the Chapter 7 Liquidation or the Chapter 13 Debt Adjustment Plan. In addition, "Chapter 20" is an unofficial term for the technique some attorneys use to obtain the benefits of both Chapter 7 and 13 by filing multiple or serial petitions. The upcoming sections on how to protect your home in chapter 7, 13 and 20 bankruptcies contains more detailed information on each of these different types of bankruptcy.

A "Cramdown" is a technique used to rewrite the loan on real estate to reflect current market value after it has decreased far below its original value. For example, let's say a property was purchased 5 years ago for $200,000, with a mortgage of $160,000, and it is now worth only $120,000. In a cramdown, the mortgage is "crammed down" or adjusted by the bankruptcy court to the current market value of $120,000. Unfortunately, a recent Supreme Court decision ruled against cramdowns in both Chapters 7 and 13 bankruptcy. However, cramdowns have not been ruled against in the more

6-2

complex Chapter 11 bankruptcy. (See "Workouts" page 7-1 and 7-2.) Chapter 13: Debt Adjustment Chapter 13 bankruptcy is not much different than the non-bankruptcy financial reorganization discussed in the Option Chapter 1, except for 2 things: 1. The credit blemish, and 2. Bankruptcy's powerful automatic stay (see "Automatic Stay" below), which halts creditor actions such as foreclosure for the duration of the debtadjustment plan. Similar to the reorganization offered by CCCS (mentioned in the prior chapter), Chapter 13 allows financially overextended debtors with regular incomes to repay a reduced portion of their past-due debts over a prolonged time period, usually 3 to 5 years, in what is known as a "debt-adjustment plan." The percentage of discharged/dismissed debt is generally higher in Chapter 13 bankruptcy than with the voluntary reorganization (see page 5-1), but not as high as is found in Chapter 7 bankruptcy, in which, typically, most debts are wiped out. The Chapter 13 "plan" is supervised by the court and protects the debtor as well as helps the creditors recover part or all of what is owed to them. As a crucial part of the plan, the judge sets reduced payments which the debtor can afford. If a debtor fails to maintain his payment plan, except in hardship cases, then the case may be dismissed or converted

6-3

to Chapter 7, both possibly jeopardizing the protection of the home or other property. In Chapter 13, the remaining debts or account balances are not discharged until after the successful completion of the debt adjustment plan, even though the amounts to be discharged are figured up front when the plan is approved. More on Chapter 13 can be found in both "Choosing Between Chapter 7 and 13 Bankruptcy" (page 6-5) and "How Chapter 13 Protects The Home" (page 6-4). Chapter 7: Liquidation - Chapter 7 is considered "straight bankruptcy" in which a court-appointed trustee sells the debtor's "nonexempt" property and distributes any proceeds to the creditors. (See AUTOMATIC STAY STOPS FORECLOSURE, in the next column, which explains how bankruptcy's "automatic stay" can temporarily stop forced sales such as foreclosures.) Since the typical Chapter 7 applicant has many more debts and liabilities than income or assets, the majority of debts are wiped away, or discharged. Only property owned by the debtor at the time of filing the bankruptcy petition will be sold to pay creditors, including such items as both tangible and intangible personal property, the debtor's property in another's possession, real estate and income earned from real estate. Nonetheless, some of this property is legally exempt. The debtor must choose from, and adhere to, 1 of 2 lists of California state exemptions. Since the 2 lists vary slightly, study both before filing to decide which best suits your case. For a complete list of the exempted items and the available choices, consult an attorney or a law library for a current exemption guide. Some of the items

exempted from the sale include alimony, certain bank deposits, certain home improvement building materials, burial plots, homesteads (see page 6-6), certain life insurance policies, some motor vehicles with equity, partnership property, pension funds, and certain wages, etc.

A partial list of the debts not exempted by the bankruptcy laws include most taxes; debts created by fraud, embezzlement or larceny; illegal credit card purchases; debts not listed properly on the petition; debts for alimony, maintenance or support; liability for willful and malicious injury; debts for fines and penalties; debts for educational loans; liability for driving while intoxicated; and debts denied or waived in a previous bankruptcy, etc. In Chapter 7, after the debtor's bankruptcy petition is filed, the debtor may keep just about any new property that is received. This is, in part, to encourage the debtor to begin a new financial life. Exempted from this "new property" is: 1. Property which has been inherited within 180 days after the petition has been filed. 2. Life insurance or death benefits when the bank-rupt dies. 3. Property obtained as the result of a divorce decree or property settlement agreement with the debtor's spouse within 180 days after the petition has been filed.

More on Chapter 7 can be found in both "Choosing Between Chapter 7 and 13 Bankruptcy" (page 6-5) and "How Chapter 7 Protects The Home" (page 6-4).

AUTOMATIC FORECLOSURE

STAY

STOPS

When any bankruptcy petition is filed, the automatic stay of Bankruptcy Code 362 stops most creditor actions. This includes halting a mortgage foreclosure dead in its tracks, even on the last day before the foreclosure sale (see page 6-4, How Chapter 13 Protects The Home). With the automatic stay, no further creditor action against a debtor will be allowed, including the progress of an existing foreclosure or the filing of new and additional foreclosures, until the bankruptcy petition is either denied or discharged,

or until the stay is lifted. Creditors who ignore the stay may be held in contempt of court, fined and even ordered to pay damages to the debtor. The duration of time in which the automatic stay remains in effect varies between Chapter 7 and 13. An automatic stay in Chapter 13 may stay in effect for the entire 3 to 5 years of the plan while in Chapter 7 the stay can range from a few weeks to several months, which is the average time span for Chapter 7 cases to be either denied, dismissed, discharged or for a creditor to receive from the court a "relief from automatic stay." In any bankruptcy poceeding, relief from an automatic stay can be provided only by the Bankruptcy Court. By law, a secured creditor, being the holder of a lien which was "created by an agreement" such as a mortgage lender, may immediately file with the court for relief from automatic stay and, if granted may continue with the foreclosure. To obtain relief from the automatic stay the secured creditor must show either: 1. That the subject property lacks equity and is not necessary for financial reorganization, and/or 2. That the creditor's interest in the property is not adequately protected. Inadequate protection would be, for example, in Chapter 13, if the plan payments are not made as promised or if the creditor could demonstrate that the debtor's income is not enough to simultaneously pay the back payments along with the regular principal and interest payments. Note that secured creditors not included in a Chapter 13 plan are allowed to foreclose.

Saving your home in Chapter 13 is simple since it is designed to protect those kinds of assets. After the automatic stay stops all creditor actions, like a foreclosure, then all the back mortgage payments, plus interest on the delinquent amount, can be put into the debtadjustment plan, which pays the arrearage at a reduced monthly rate. The house remains protected by the automatic stay for the duration of the debt-adjustment plan (typically 3 to 5 years) just as long as the monthly payments of the "plan" are made in addition to the regular monthly mortgage payments. If a debtor fails to maintain his Chapter 13 debtadjustment payment plan, then the automatic stay may be lifted and the case dismissed or even converted to Chapter 7, both of which jeopardize the home or other protected property. Some attorneys recommend waiting to file bankruptcy until the last day before the foreclosure sale. This would allow you to put a maximum amount of debt into the repayment plan and at the same time allow you to stockpile some of that money which otherwise would have gone to general unsecured debts and mortgage payments.

HOW CHAPTER 7 PROTECTS THE HOME


Although Chapter 7 provides only limited protection for your home, the exemption system within Chapter 7 provides the framework for a strategy which, if used effectively, can "shelter" the equity in your home and discourage a court trustee from selling it in order to pay your debts. Proceed with the following

HOW CHAPTER 13 PROTECTS THE HOME

only after the advice and approval of your attorney. The Bankruptcy Court trustee usually will not sell your home if you demonstrate on your petition that there is not enough equity to warrant selling the house to pay creditors. Equity is the current appraised value of your house minus everything owed against the property, including mortgages, back payments, liens, taxes, etc. In many bankruptcy cases, you can reduce the equity in your home, even high equity, by deducting from the equity: 1.The estimated sales costs that might result if the house were to be sold (even though it may not be sold), 2.Your homestead exemption, 3.A newly created "junior" loan to protect the remaining equity not covered by the estimated sales costs or homestead exemption. This must be a bonafide loan and not phony paper designed to hide equity.

CHOOSING BETWEEN CHAPTER 7 AND 13 BANKRUPTCY


Debtors who would like to keep a lot of their nonexempt property, who have a promising future income and who just need some time to catch up on their bills should file under Chapter 13. Chapter 7 is for debtors who have considerately greater debts than assets or income, who want to erase certain debts and who need a fresh financial start.

Some Of The Differences Between Chapter 7 And Chapter 13:


A)Chapter 13 provides a way to save a home. In Chapter 7, a courtappointed trustee might sell the house to pay creditors. (However, a little planning could save the home in Chapter 7; see How Chapter 7 Protects The Home, page 6-4). B)Chapter 7 debtors lose possession of most of their estate to a court-appointed trustee and all nonexempt property in Chapter 7 is subject to sale. Property in Chapter 13 is retained by the debtor as long as the plan payments and other agreements are honored. C)Chapter 7 is limited to the debtor's assets at the time the petition is filed. Chapter 13 includes property and earnings received until the case is closed, dismissed or converted to another chapter (which may be as long as 3 to 5 years). D) Chapter 7 creditors, if paid anything at all, receive payment almost immediately after the petition is filed. Chapter 13 creditors usually receive a percentage of the debt through a court-approved plan over a considerable period of time, sometimes 3 to 5 years. E) In most Chapter 7 cases, release from debts occurs upon filing the petition. In Chapter 13, this does not occur until the debtor successfully completes the terms of the plan, often 3 to 5 years. F) Chapter 13 is limited to an individual with regular income who owes less than $100,000 in unsecured debts, such as charge accounts and credit cards, and owes less than $350,000 in secured debts, such as some cars, jewelry and real estate. Chapter 7 is open not only to individuals but also to corporations and partnerships without any limits on debt. G) Chapter 13 debtors must voluntarily file. However, 3 or more creditors with unsecured claims of $5,000 or more can force a debtor into Chapter 7. H) An automatic stay in Chapter 7 will last until the petition is either denied, dismissed, discharged or until relief from the automatic stay is granted. In Chapter 13, the stay remains in effect throughout the duration

Deducting The Estimated Sales Costs The estimated sales costs that the Bankruptcy Court will allow to be deducted are those costs that might result if the house were to be sold, including: A. Estimated capital gains tax, B. Estimated real commission(s), estate agent's

improvements, fix-up and selling costs. The chart on page 6-9 contrasts equity and capital gains. For illustration purposes (referring to the chart on page 6-9 may be helpful), let's say you originally paid $100,000 for a house which has gone up in value to $250,000. You now have a $150,000 gross capital gain. To calculate your net capital gain, deduct any capital improvements, certain fix-up costs and selling costs. Suppose you put on a room addition, a patio and a fence at a total cost of $40,000. You would then have deductible capital improvements of $40,000. Next, suppose you pay $1,500 for new paint and some flooring during the 90-day period prior to signing a contract to sell your house. You would then have deductible fix-up costs of $1,500 (ask your tax preparer for the specific rules on fix-up costs). Finally, if you have paid a total of $17,500 in selling costs, you would have deductible selling costs of $17,500. As the chart on page 6-9 shows, subtract the $40,000 for capital improvements, the $1,500 in fix-up costs, and the $17,500 selling costs from the $150,000 gross capital gain to get the $91,000 net capital gain ($150,000 - $59,000 = $91,000). NOTE: If you have no capital improvements, no fix-up costs, and no selling costs to deduct, then your gross and net capital gain will be the same. Now figure the capital gains tax that would have to be paid on the net capital gain of $91,000. The tax would be figured according to your current tax bracket. If you do not know your tax bracket, then consult a tax preparer. If your bracket is 28%, then the tax on $91,000

C. Estimated escrow costs and fees. All 3 of the above deductions together generally average a total estimated deduction of at least 10% of the appraised value of your house. This 10% average is generally accepted as a standard deduction by the Bankruptcy Courts. However, this standard deduction does not have to be used if you can prove your costs may be higher than 10%. The percentage of the deduction can be increased depending on the size of your net capital gain. Your net capital gain is the difference between the price you originally paid for your home and its present value, minus all capital improvements, certain fix-up costs and selling costs. Capital improvements are the costs of certain additions made to the property while you have owned it. Fix-up costs are the costs to fix-up the property during the 90-day period just prior to signing a contract to sell it. Selling costs include commissions, advertising, escrow fees and any other direct costs incurred to sell your property. It is important to note that your equity is different that your capital gain. Remember, your equity is the appraised value of your house minus everything owed against it. Your capital gain is the difference between the price you originally paid for your home and its present value or sales price, minus all the capital

would be $25,480 ($91,000 x 28% = 25,480). Deduct this from your equity. Next, deduct from your equity the average real estate commission of 6%. On a house worth $250,000 the commission would be $15,000 ($250,000 x 6% = $15,000). Finally, deduct from your equity the estimated escrow costs, which could be as high as 1%, or $2,500. As you can see, the estimated capital gains tax of $25,480, when added to the $15,000 estimated real estate commission plus the estimated $2,500 escrow costs equals $42,980. $42,980 is Your homestead exemption is granted automatically by bankruptcy law whether you have previously filed one or not. The standard exemptions are $50,000 for a single homeowner, $75,000 for a married couple and $100,000 for disabled persons or persons over the age of 65 (age 55 for low income persons). However, beware: The automatic homestead offers different, possibly inferior, protection than does a declared homestead: 1. The automatic homestead does not protect equity from creditors when a home is sold voluntarily and another is bought within 6 months. The declared homestead does. 2. With the automatic homestead, if a creditor obtains a judgment against you in court and then forces the sale of your house, you will have to prove to the court your right to automatic homestead protection. This inconvenience is a simple matter of red tape and may require help from an attorney. To greatly reduce or even avoid this problem, file a declared homestead exemption just prior to filing bankruptcy. Then, with a recorded homestead declaration, the burden is on the creditor to prove your homestead is invalid.

over 17% of $250,000, much more than the 10% standard accepted by the Bankruptcy Court. So it may be worth your while to calculate costs rather than blindly to accept the court's standard 10%. (Note: These are hypothetical costs for the Bankruptcy Court purposes. Any actual sale of your home might put you into a higher tax bracket and that would be figured into the equation, also). Deducting Exemption Your Homestead

3. Although the dollar amount of the homestead protection is the same with both the automatic and the declared homesteads, the automatic homestead law protects equity in any kind of living space, not just real estate. The declared homestead protects only dwellings that are permanently attached to real estate, such as houses, condominiums and mobile homes. Homesteads: General Information--Although the homestead protection helps reduce the "appearance" of equity in the Chapter 7 bankruptcy court, a declaration of homestead in and of itself cannot stop a foreclosure on delinquent loans that are secured by real estate. However, a homestead can protect a home from being foreclosed to pay a judgment lien that resulted from the failure to pay unsecured debts such as to a department store, doctor, airline, finance company, or that was incurred as a result of an automobile accident, etc. A creditor cannot force the sale of a home to pay a judgment unless the sale would produce enough money to:

1. Pay all existing liens (claims on the property). 2. Pay off mortgages and other loans secured by equity in your house. 3. Pay the costs of selling the home. 4. Allow the homeowner to keep the remaining equity, up to the limits protected by the homestead exemption. As an illustration of homestead protection, a home worth $200,000 with $150,000 owed on two mortgages has $50,000 equity. But if an unmarried homeowner has a declaration of homestead recorded, then the $50,000 is protected because not enough equity exists to allow the holder of a judgment lien to force a sale of the house to pay the judgment. Not enough equity exists to pay the $150,000 mortgages, to provide the homeowner with the $50,000 amount protected by the homestead, to pay the sales costs and to pay the amount of the foreclosing judgment lien. (And, when there is a lot of equity, this amount can be reduced by creating another home equity loan before sale of the house; unfortunately, this may have to be a costly "hard money" loan.) Filing a homestead is as easy as filling out a simple form (see pages 6-11 and 6-12) and recording it with the County Recorder's office for a small filing fee, usually just $5 to $10. Who can record homestead declarations? Only individuals residing on the property being homesteaded qualify. One declaration protects a married couple and family members. However, to be fully protected, unmarried co-owners should each record a separate homestead declaration on their share of the property. This is true

Obviously, such a foreclosure sale would be unlikely unless your property has a large amount of equity, enough to pay for all of the above. Even if a creditor does foreclose on a court judgment, or if a house is sold voluntarily, a recorded homestead declaration continues to protect the homeowner's equity. The homeowner has 6 months to reinvest the equity in another home and to record a new Declaration of Homestead on the new residence. A declared homestead tells creditors the homeowner knows his or her rights and will take advantage of them. A judgment creditor-someone who has sued and won a court judgment--is unlikely to try to force the sale of a home except as a last resort. Forcing the sale of a home is a long, drawn-out process for the creditor, who normally must hire a lawyer and pay a number of other unwanted upfront costs. Most prefer to collect their judgments by taking other property, such as wages, bank accounts or other real estate.

whether title to the property is held as joint tenants or as tenants in common. Owners of businesses that operate as sole proprietorships or partnerships should record homestead declarations. Although a homestead protects only the equity in a home, if an unincorporated business is successfully sued, creditors can go after personal property, not just business assets, to satisfy judgments. If a business is a corporation, it is much harder for creditors to get individually owned

assets. Corporations do not qualify for homestead protection. When is the best time to record a homestead? Record a homestead declaration as soon as possible. To take advantage of the protection of the declared homestead, the declaration must be recorded before a creditor actually obtains a judgment from a court and records it with the County. However, some bankruptcy attorneys file the Declaration of Homestead just prior to filing bankruptcy. In any case, if the declaration is not recorded in time, only the automatic homestead will apply. How do homesteads work in divorce situations? A divorce does not, in and of itself, affect the homestead rights of a formerly married couple who filed a homestead declaration together for property they own jointly. Until 1 spouse legally transfers his or her half interest in the property to the other spouse, they still own the property together, even though they are no longer married. Separate property always belongs to its owner, and the homestead does not give ownership interest to the spouse.

Deducting Equity

The

Remaining

If, after deducting the estimated costs and the homestead exemption, a substantial equity still remains, you may create a new "junior" mortgage before filing for bankruptcy for as much of the remaining equity as possible. Substantial equity would be more than 20% of the current appraised value. Substantial equity might prompt the Bankruptcy Court to sell your property. Use this option only as a last ditch effort to stave off a liquidation sale. Of course, all monies generated by the new mortgage should voluntarily go to pay creditors or be turned over to the bankruptcy trustee, as a token of good faith. Otherwise, your bankruptcy petition may be dismissed as fraudulent if it is construed that you are hiding monies. It is this good faith gesture along with the now low available equity that might protect your home from a court-ordered bankruptcy sale. A word of caution: Most "junior" loans, especially those made in a foreclosure situation, may be "hard-money" loans in which both high interest rates and high loan origination fees are routinely charged. For example, a $25,000 dollar loan may net only $15,000 to $20,000 after such costs. Instead of using a hardmoney lender, try to borrow money from a relative, an equity line of bank credit or pursue other such inexpensive, friendlier sources of funds (see option Chapter 4 - How To Win By Refinancing Your Home, page 8-1).

HOW CHAPTER 20 PROTECTS THE HOME


The process by which a debtor obtains a discharge from general unsecured debt in Chapter 7, and then proceeds to cure the mortgage default under Chapter 13 is commonly known by the unofficial term "Chapter 20" bankruptcy. Some court precedents do not permit this while others do, if done in good faith.

Remember, your equity is different than your capital gain.

How To Compute Equity


Your equity is the value you have in your property. To compute your equity, take the appraised value of your property and then subtract everything owed against the property, including mortgages, back payments, liens, taxes, etc. Current Appraised Value $250,000.00 First Trust Deed Mortgage Second " " " Total of Mortgage Payments in Arrears 15,000.00 Trustee's Foreclosure Costs Lien: Property Taxes in Arrears Lien: I.R.S. Taxes in Arrears 14,000.00 Lien: Unpaid Contractor 2,500.00 Total Equity 65,000.00 - $ 80,000.00 - $ 65,000.00 $ - $ 1,000.00 - $ 7,500.00 $

$ $

How To Compute Gross and Net Capital Gains


Your capital gain is usually computed to figure your actual or projected capital gain tax. Your capital gain is the difference between the price you originally paid for your home and its present value or sales price, minus all the capital improvements. Current Estimated or Appraised Value $250,000.00 Subtract the purchase price from 12 years ago. $100,000.00 Equals the gross capital gain of: $150,000.00 -

Subtract the total capital improvements (major improvements). 40,000.00 Subtract the fixing up costs to sell home (see tax preparer). 1,500.00 Subtract the selling costs (commissions, ads, escrow/legal fees, etc.). 17,500.00 Equals the net capital gain of: 91,000.00 $

$ $

- $

A Test-Case Example Of The 3 Deductions


By deducting the estimated sales costs, the homestead exemption and a new loan, you can effectively reduce your equity to a low percentage that may save your property from a court-ordered bankruptcy sale. The following illustrates this point.

Moderate Equity Example


Total equity (based on the example on page 6-9) 65,000.00 Subtract the estimated capital gains tax (based on 28% bracket). 25,480.00 Subtract the estimated sales commission of 6%. 15,000.00 Subtract the estimated escrow costs. 2,500.00 Subtract your homestead exemption (single person). 50,000.00 Equals the equity available to the Bankruptcy Court trustee. (Note that no equity exists for the Bankruptcy Court trustee.) 27,980.00) $ - $ $ - $ - $

($

High Equity Example


Total equity (based on $250,000 equity and $375,000 capital gain) $250,000.00 Subtract the estimated capital gains tax (based on 28% bracket). $105,000.00 Subtract the estimated sales commission of 6% ($500,000 value). 30,000.00 Subtract the estimated escrow costs (up to 1% of value). 5,000.00 Subtract your homestead exemption (married couple). 75,000.00 Equals the equity available to the Bankruptcy Court trustee. 35,000.00 - $ - $ $ $

Subtract a newly created "junior" mortgage only if necessary*. 35,000.00

* Use this option only if a substantial amount of equity remains available to the Bankruptcy Court trustee to warrant a liquidation sale of your property. Substantial equity would be an amount more than 20% of the current appraised value. In the above examples, no new mortgage would be necessary since the amounts available to the Bankruptcy Court trustee are far below 20% of current value.

Single Person Declaration of Homestead

Married Persons Declaration of Homestead

HOW TO WIN BY CHANGING YOUR MORTGAGE TERMS


When circumstances force a strain on your ability to make your loan payments, some lenders can be persuaded to adjust the terms of your loan agreement to stop the foreclosure and help you through the difficult financial times. These adjustments to your loan, which can be either temporary or permanent, are commonly referred to as "workouts." Starting on a workout is as easy as calling your lender, or servicer (which is a company that services the loan for the lender), and asking for the workout department. If the receptionist does not know, ask for the manager or president. Each lender may have a different procedure and may route your case through some sort of an evaluation department first. Negotiating the details of a workout with a lender or servicer is as simple as plain, old-fashioned bargaining. The lender records a NOD in search of a solution. Many times lenders prefer to negotiate a 7-1 solution instead of going to a trustee's sale. Not only are the unpaid back payments open for renegotiation, but so may be interest rates, principal amounts, back property taxes, overdue association fees, delinquent homeowner's insurance, liens, etc. And the financial strength or weakness of the current real estate market will influence the lender/servicer's motivation. Writing up a workout is as easy as rewriting the models on pages 7-37 through 7-42 by using your own corresponding information, or by using a lender/servicer's form, or by hiring an attorney to write one. Use the workout programs that are defined below individually, or combine key points to custom-build a workout for your situation. Some lender/servicers may refer to their standard workouts by an entirely

different name than described in this book, or the specifics of their workouts may vary in detail. In any event, most lender/servicers are familiar with the concepts behind the following workout programs. TYPES OF WORKOUTS 1. Repayment Plan: Sometimes used as a synonym for workouts, in a repayment plan, all the past-due payments are repaid in a relatively short period of 2. Forbearance Agreement: Also commonly used interchangeably with the term workout, forbearance is defined in Webster's dictionary as "a refraining from the enforcement of something (as a debt, right or obligation) that is due." In practical terms, forbearance is a more prolonged version of the repayment plan. Typically, forbearance is when the lender/servicer allows the borrower in default extra time to come up with the missed monthly mortgage payments, instead of foreclosing. Some lender/servicers may even allow a period of time when a reduced payment or even no mortgage payment is made. However, in return, after the agreed forbearance period, the missed mortgage payments will be combined with the regular payments until arrearage are caught up. The borrower must demonstrate to the lender/servicer an ability to handle the increased debt load due after the forbearance period. Forbearance is used mostly where borrowers have temporary interruptions in their regular incomes. In a forbearance, the borrower and lender/servicer may create an agreement which combines the various parts of any workout listed in this chapter.

time. Usually, this is 3 to 6 months, or the soonest that the loan can be brought current. This program requires higher than the usual payments since the arrearage are combined with the regular payments. Although this is one of the quickest ways to catch up, it works only if an appropriate sum of money is available. Agree to this program only if you can afford it. 3. Temporary Indulgence: As a temporary measure, the lender/servicer may allow the borrower a limited period of no payments in situations where permanent relief is pending but not yet finalized; This might occur during the time a workout is being negotiated, or when the property is in the process of a sale. Usually, the lender will only yield a month's time to the borrower to accomplish the more permanent solution. 4. Partial Payments: In special circumstances, usually in which the borrower has paid consistently on time, the lender/servicer may accept only a portion of the regular payment, provided the remainder is paid within the same month. 5. Cramdown: When the value of a property de-preciates below the loan against it, the Bankruptcy Court may allow the loan to be written down to the current market value. For more on cramdowns see How To Win Through Bankruptcy, page 6-1, and "cramdown," page 6-2.) 6. Pay and Accrue: Pay and accrue means the borrower pays whatever he can afford

7-2

and the unpaid balance becomes an accruing debt that must be repaid at a later agreed upon date, whether next year, 10 years from now or when the house is sold. This program is ideal for 2 income households where 1 income is suddenly, yet temporarily lost. 7. Extended Loan: After a period of reduced or suspended payments, an extension is when the back payments are repaid at the end of the original loan agreement, and/or as a separate loan agreement, in either regular installments, or in a lump sum known as a balloon payment. 8. Asset Collateralization: Asset Collateralization is when missed payments are repaid after the lender/servicer extends a home equity line of credit based on a separate piece of real estate than the property being foreclosed, which is owned by either the borrower, a relative or even a friend. An immediate draw on the line of credit cures the delinquency and even provides a reserve account to help pay the mortgage until the mortgagor's income increases. SPECIAL WORKOUT ASSISTANCE You may be eligible for specialized help if, at the time you obtained your loan, you borrowed with the help of 1 or more of the following loan programs: 1. Conforming Loan Assistance: If at the time your loan was made it conformed to certain government guidelines, then your loan is considered a conforming loan. A sign that you may have a conforming loan is if, at anytime after you received your loan, you are notified that it was sold, usually, to an investor or investment group. To help stimulate the loan market, the federal government has become the largest investor in con7-3

9. Note Modification: Most workouts are usually secondary agreements that temporarily suspend the foreclosure terms of the original, primary loan agreement. However, a note modification, also called a recast or reamortized loan, actually goes in and permanently modifies the terms of the original, promissory note. (See pages 7-8 through 7-11 for an overview of note modifications.) Items commonly modified are: a. Interest rates, b. Principal amounts, c. Balloon payment payoff dates, d. Installment changes, and payment

e. Transfers of liability to another borrower upon resale. forming loans. Conforming loans, which are usually serviced by loan service companies, must adhere to strict standards regarding delinquencies. This may be beneficial to a borrower who is behind in payments. See pages 7-11 through 7-12 for more on conforming loans. 2. Cal-Vet Loan Assistance: By special agreement made at the time of the loan, in the event of a loan delinquency, Cal-Vet can repossess the property by cancelling the veteran/borrower's equity position. Nonetheless, Cal-Vet goes

through a thorough process of trying to work out the delinquency and keep the veteran/borrower in the property. See pages 7-12 through 7-16 for the details of Cal-Vet loan assistance. 3. Private Mortgage Insurance (PMI): If a borrower was required to buy mortgage insurance when the loan was first obtained, then the insurance company may be able to offer limited assistance in the case of a loan delinquency or default. In order to prevent a foreclosure and the expense of a claim, the mortgage insurance company may help the borrower to negotiate a workout with the lender/servicer. In a case where the borrower suffers a temporary income loss, the mortgage insurer may also pay part or all of the delinquent loan payments. See pages 7-16 through 7-17 for more on PMI.

See pages 7-21 through 7-24 for the DVA Preforeclosure Avoidance Program. 6. Other Loan Programs: If you received all or part of your mortgage through any other local, state or federal loan program, then there is a strong possibility that they may have some sort of foreclosure assistance program available. Call the appropriate agency and ask for both written and verbal instructions regarding foreclosure assistance. The odds are they offer one or more of the workouts mentioned in this chapter as well as some form of the special workout assistance referred to on this page.

4. FHA/HUD Mortgage Assignment: This is government mortgage insurance. If the loan on your house is insured by the Federal Housing Authority (FHA), when circumstances beyond your control have caused you to miss 3 or more monthly mortgage payments, and if there is a reasonable prospect that you will be able to resume full mortgage payments in 3 years or less, then you may qualify to have your mortgage assigned to and serviced by HUD. The HUD assignment program is explained on pages 7-17 through 7-20. 5. DVA Preforeclosure Avoidance Program: This is another type of government mortgage insurance. The Department of Veterans' Affairs (DVA), formerly the Veterans' Administration (VA), has a workout procedure for the veteran, or other homeowner with a DVA loan, who is behind on payments for a loan that is insured by DVA or VA. 7-4

HOTLINES:Free Loan Workout Assistance Counseling: open to HUD Housing (supposedly (800) 733everyone): 3238 Ask the HUD operator for the telephone number of the counseling office nearest you. Then call for help/advice in preparing your workout. Home Loan Counseling: (213) 7470807 They may be able to offer workout advice and assistance, and even do some or all the negotiating with your

THE 5 KEYS TO SUCCESSFUL WORKOUTS


1. Act Fast: a. As soon as you know there is a problem with making payments, contact your lender/loan servicer. b. As a general rule: The sooner that you act, the more help that will be available. 2. Be prepared: a. Know your financial status: past, present and future. Complete The Four Steps to Financial Freedom, pages 5-2 through 5-4, and How to Set Up a Successful Budget, pages 5-4 through 5-6; or see a financial counselor. Answer the Common Questions on page 7-5. b. Read and understand the workouts in this book and those offered by the lender/servicer. c. Be ready to present a workout plan that is ideal for you. Draft a few alternatives. 3. Be eagerly willing to cooperate: a. Reassure the lender/servicer that you are sincere about wanting to cure the default in any reasonable way. b. Remain in as constant communication as necessary with the lender/servicer. c. Maintain a friendly and positive attitude with all parties involved at all times. People who are friendly and sincerely seeking help may be harder for the lender/servicer to foreclose on than people who are belligerent and devious. d. Promptly mail (hand delivery is better whenever possible) copies of anything requested by the lender/servicer or other party involved in helping you. e. Follow through on all agreements with the lender/servicer as quickly as possible. 4. Be ready, willing and able to negotiate: a. Be sincere. b. Be creative: Design several suitable scenario options that are realistic to your present and future financial situation and goals. c. Be persistent: Don't take no for an answer. Find solutions around obstacles. Climb the chain of command of the lender or mortgage company all the way to the top, if necessary. d. Be flexible: Accept workable alternatives to your ideal plan. Consider any different ideas. e. Be bold, yet reasonable. f.Be realistic: Don't accept a workout that would be difficult for you to honor. 5. Document the entire process: a. Keep a file or notebook containing every piece of paper sent to you, copies of what you sent out and anything else significant that was generated during the default period.

b. Keep a written journal of all activities, including phone calls: Document every step of the workout process with your lender/servicer, from the initial contact to the various drafts of your negotiations to the final agreement. c. Write letters whenever possible since they document the communication process as well as summarize and confirm on paper the Borrower Responsibilities - As a borrower, you have the responsibility to: 1. Repay the loan as per the loan agreement in regular monthly payments due on specific dates. 2. Fulfill all other aspects of the loan agreement, such as paying all real estate taxes, insurance premiums (which may be included in certain mortgage payments), etc. 3. Keep the subject property in good repair. If you maintain the above responsibilities, your home is protected against a lender foreclosure. Conversely, if you find yourself unable to make your payments on time, you have the additional responsibility of resolving the problem. Lender/Servicer Responsibilities The lender and mortgage servicer must: 1. Facilitate, collect and record regular monthly payments on the loan. 2. Provide payment statements, etc. coupons, annual

promises made during a phone call or visit. Follow-up each phone conversation with a written letter confirming the main points. Use registered mail, or any other method that gives you proof of delivery. d. Put the final workout agreement in writing, even if it was enacted orally, and send a copy to the lender/servicer. 4. Assist in developing a workout program in order to resume regular payments as soon as possible. 5. To foreclose on a property when problems can not be resolved. Remember, the lender/servicer has both the re-sponsibility to try to work out solutions for mortgage problems which appear temporary and the right to foreclose to recapture the money loaned to you. Common Questions From the Lender/Servicer - In order to determine the best remedy for each individual situation, the lender/servicer wants to understand the details, the exact nature of the problem behind the late payments. Expect the lender/servicer to ask a lot of personal questions during their investigation. Borrowers should prepare themselves for the following questions from the lender/servicer (To help prepare, see The Write-It-Out Exercises on pages 16-1 and 16-2, and, again, on pages 16-22 and 16-23. Also, complete The Four Steps to Financial Freedom and How To Set Up A Successful Budget on pages 5-2 through 5-6). 1. Why did you fall behind in your payments?

3. Assist in the borrower's questions and problems, through the mail, on the phone or in person.

2. What are your current and potential resources to meet your expenses? (For example, income from jobs, public assistance, federal benefits, food stamps, other family members' contributions, or any other sources of financial help.) 3. When and how can you make up any missed mortgage payments? Be realistic. 4. How do you plan to make future payments on time? Be realistic. 5. What documentation/proof do you have to support your statements? HOW TO WORKOUT GET STARTED ON A

person interviews (30-90 days), and, finally, a notice of intention to foreclose (60-120 days). Fast action on the part of the borrower almost always can stop or delay a NOD from being filed. Likewise, if a NOD has already been issued, then fast action can still stop or delay the regular progress of preforeclosure. Step 1: Contact your lender/servicer once you are no longer making your loan payments. You need to write, fax, telephone, visit, or otherwise communicate with the lender/servicer. Be prepared to discuss your problem in detail. Be open and honest. Your upfront sincerity will never harm your case and may bring you respect as well as quicker service in remedying the problem. In addition, by contacting the lender/servicer before the lender/servicer con tacts you may be an act of good faith that later plays to your advantage.

After a borrower has stopped making loan payments, but before a NOD is actually filed, most lender/servicers will attempt to make a series of contacts with the borrower. First come the late notices/charges (3-20 days), then, telephone calls (3-90 days), letters (30-90 days), inNote that many commercial lenders and investment groups hire a separate loan servicing company to collect payments from the borrower and to process foreclosures. Most loan servicing companies know about workouts and routinely grant them. However, many times it pays to contact the lender directly. Lenders may be more likely to grant a workout after they get to know their borrower on a personal level. If your loan is serviced by a loan servicer, you may not know who the owner of your loan is. If you would like to contact the loan owner directly, there are a few ways to obtain their name and number. 1. Check your original loan papers for the owner or clues as to who to call for this information.

2. Ask a title company to locate a notice of assignment of your mortgage in the county records at the county recorder's office. 3. Simply ask the loan servicer for the name, address and/or telephone. 4. Since there are no laws against the giving or receiving of this information, pay an attorney to force it from the servicer. 5. Hire a knowledgeable real estate or loan broker or consultant to obtain this information. Not all loans are handled by commercial lenders or loan servicing companies. Many loans

are carried by relatively small-time private-party investors/lenders who either "carried back" the loan to help you buy your property (see page 11-13), or bought the loan later. In the case of the small-time lender, you may have to explain to them the concept of workouts as taught in this book. Make your lender a photocopy of this section if it will help them understand or to convince them to grant you a workout. Also, be watchful of the occasional greedy private lender who may want to set you up in a faulty workout in order to foreclose on you later.

er/servicers appreciate workout suggestions from the borrower. Be prepared, however, to negotiate a compromise. And do not agree to any workout program that you feel you cannot follow. Don't fall into the trap of thinking you don't deserve a workout, or have to accept the first thing offered to you. You have the right to have your account handled properly and with the full cooperation of your lender/servicer, especially if your financial problems appear temporary. If your first request for a workout goes unanswered, then keep asking until you receive satisfaction. Assert that you are eager to workout the arrearage on your loan account. Strongly present your ideal plan, along with the suggestion of possible alternatives. And make the time to write down your workout ideas. Sometimes, in order to get a lender/servicer going on a workout, you may need to persistently request one. You may need to climb the chain of command all the way to the president of the loan servicing company, or to go directly to the owner of the loan. If a loan servicer's representative seems uncooperative, or gives you no satisfaction and unfair treatment, then contact the next person up the chain of command. Your continual persistence--combined with knowledge of the correct things to do and say--should persuade the lender/servicer to grant you a workout program. Special Workout Assistance, page 7-3. Next, compare them to your own realistic needs. If the lender/servicer's range of workout programs is too narrow or inadequate for you, then present an offer

Step 2: Substantiate your claims by collecting for your lender/servicer documents which prove and support your statements. For example, statements from employers, doctors, the Social Security Office, the welfare department, friends and relatives. In addition, get copies of bills and receipts from utility companies and all others to whom you owe money. Recent check stubs may also be of help. Step 3: Cooperate with your lender/servicer. Remember, your payment problems are also the lender/servicer's concern since they also must meet obligations through your payments. You have nothing to lose and much to gain by listening to and cooperating with your lender/servicer. Step 4: Request a workout from your lender/servicer. Choose a workout that best suits you and is also fair to the lender/servicer. Do not automatically expect the lender/servicer to offer a workout, although many will. In fact, many lendOne strategy might be to get a feel for the lender/servicer's knowledge or range of workout programs through a series of questions. Compare their programs to the details of those explained in this book under Types of Workouts, page 7-1, and

containing the details that are important to you. Then be ready to negotiate and renegotiate until a realistic agreement can be met. Remember, qualifying for most workouts depends upon your current and future financial situation. For example, if you are low on funds now due to such temporary things as an illness, a layoff, a recession, a sudden high expense, etc., then you may qualify for a workout. Determining which of the workout programs would work best in your particular case depends on how soon or how long it will take before your financial situation improves. Step 5: Seek advice and assistance from your attorney or local housing counseling agency. Local HUD or DVA offices can provide a list of housing and counseling agencies in your area. Many of these agencies are required to counsel anyone in default, not just FHA and DVA clients. Call the HUD Housing Counseling Service at 1-800-733-3238 or see page 7-18 for a list of counseling locations. Step 6: Develop a written version of your final workout agreement. Even though workout programs may be put into effect with just an oral agreement, it is always better to document it in a letter of confirmation. Either type the agreement as you understand it, or have an attorney, or the mortgage servicer do it. Make sure the 5 elements of a contract are included: time, place, parties, intent and consideration. (Contact an attorney or other appropriate counselor, if necessary). And make sure both you and the lender/servicer sign the agreement before implementing the program. Any failure to make every payment on time as agreed can jeopardize the agreement and reinstate the foreclosure, or cause a new one to be filed.

The Market Affects The Lender's Attitude - Sometimes you may feel resistance from the lender/servicer, especially during strong real estate markets. Likewise, in a weak or flat market, the lender/servicer's overeagerness may be played to your advantage. Be aware that the direction you take in the negotiations with your lender/servicer over late payments and foreclosure depends greatly on the current economic condition of the real estate market. During different stages of real estate cycles, your property value either: 1. Appreciates, going up in value, 2. Depreciates, value, or going down in

3. Remains flat, going neither up nor down in value. While in all 3 of these basic markets you can still negotiate with your lender/servicer from a position of strength, each market does require a different negotiation approach. At points in the cycle where real estate prices are going up a different strategy in the negotiation must be used than when real estate prices are going down, or remaining stagnant. Basically, during good times, remind the lender/servicers that they are protected by the increasing equity due to market appreciation. During bad times, remind lender/servicers that they may not want a foreclosure on their books, especially when you may be able to resume payments soon. Also, if the value of your property has decreased below the value of the

loans on it, then some lender/servicers may be persuaded to lower your principal amount in a note modification. Refer to page 7-10 regarding note modifications. Also, find more about real estate cycles on page 8-4 of Option chapter 4 and on page 11-2 of Option chapter 7. For a homeowner in foreclosure, the main goal of a note modification is to reduce the monthly payments substantially enough to continue the mortgage payments and thus avoid foreclosure. But modifications can also help postpone payoff dates and transfer liability. While most workouts are only secondary agreements that temporarily waive the lender's foreclosure option, a note modification permanently modifies the terms of the original promissory note. As pointed out on page 1-17, the promissory note is used as both a promise to repay the loan as well as evidence of the debt itself. The promissory note details the loan repayment duty of the borrower. In time, as the financial situation of the borrower may change, so may be the necessity to change aspects of the note. The document that is used to make the changes in the original promissory note is called a Note Modification Agreement. Although the modification may be oral, to be effective it should always be put into writing. (See pages 7-34 through 7-37 for an explanation and example of a standard note modification agreement form provided by First Tuesday.) Also, the modification must be agreed upon by the borrower, the lender and any other involved parties, and must be of value to all parties (mutual consideration). An important thing to remember about note modifications is to never modify the note so significantly that it loses its priority in the chain of title. For example, if the note of a senior trust deed were modified to add $20,000 in back payments, then that may so erode the equity cushion in the property as to threaten the security of any junior lienholders.

NOTE MODIFICATIONS Consequently, the holder of such a Find out the comparables in your neighborhood by calling DataQuick at 800-888-4492, extension 152. They charge a fee and accept payment is by credit card. heavily modified senior trust deed may be required to yield its senior priority to the subsequent junior lienholder(s). Also, modifying too many aspects of a note may affect its priority. Since loss of priority equates to a loss of value, take care to suggest a modification the lender will agree to--one that does not threaten priority. When asked, the junior lienholder(s) may approve a heavily modified senior note, especially if they are compensated, or if the property has appreciated in value. Also, the lender may require the borrower to pay the cost of a revised title policy which insures the modified note's priority in the chain of title. Some holders of significantly modified notes have tried to avoid losing their senior position by not informing junior lienholders of the threat to their positions and by not ordering a reissuance of the title insurance. Granted, the note modification is easy to hide since it is only required to be attached to the original promissory note and may not be required to be recorded at the county recorder's office. However, such a maneuver is not very safe. If a problem were ever to develop in which the modification harmed a junior lienholder, then, in a lawsuit, the courts might rule in

the junior's favor, including punitive damages. Nonetheless, many of the modifications used to avoid foreclosure, such as reductions of principal or interest rates, only strengthen the position of a junior lienholder, and, thus, decrease the possibility of a lawsuit. Note modifications consider): 1. Are not new loans, 2. Are contracts which are attached to, and become a part of the original promissory note, 3. Identify the modified provision(s), the promissory note, the parties involved, the trust deed and the property, 4. Modify an existing promissory note only; and never rewrite the note, nor the trust deed, Some lender/servicers may have little or no practical experience with note modifications, while others may have departments already set up to do them. In some cases, lenders who are currently offering refinancing to the general public may be required to give the same benefits to the existing borrower in a note modification. In any event, be ready to explain the process to the lender/servicer. Also, be prepared to climb the chain of command all the way to the top until you find someone who is not only knowledgeable about note modifications, but also willing to listen to you present your case for one. Be prepared to persistently push for a note modification, and, if granted, be prepared to pay a loan fee based on a percentage of your loan balance and/or the current loan fee rates. Prepare your presentation to the lender by determining the best and most appropriate modification for your particu(points to

5. Can modify provision,

more

than

6. Must have valuable consideration for all involved parties as well as mutual consent, 7. May include a lender's fee based on a percentage of the remaining loan balance and charge other current loan fee rates, 8. Can reamortize a new payment schedule according to the years left on the loan being modified, where applicable (for example, if 22 years remain on what was originally a 30-year loan, then the modified loan should be reamortized over the remaining 22 years), 9. Do not have to be recorded at the county. lar situation. Next, calculate the revised figures, amounts and payments, then fill out a copy of the forms on pages 7-36 and 7-37 (order copies from First Tuesday, 800-794-0494). See pages 7-34 and 7-35 for help in filling out these forms. (For additional information similar to note modifications, see A Lender Short pay on page 11-25, and the Hardship Explanation and Remedy Proposal on page 11-57.) Complete as many different contingency plans as possible, just in case the lender wants to negotiate and/or explore various options. Remember, a note modification can modify more than 1 provision at a time. For instance, in order to lower the monthly payments and avoid foreclosure, the total mortgage may be recast over a longer period of time and/or at a lower rate of inter-

est. A 13 percent fixed-rate, 20-year loan, may be recast as a more affordable 9% rate on a 1-year adjustable with a 30year term. The following note provisions may be modified to help fight or avoid foreclosure: 1. Interest rates, 2. Principal amounts, 3. Balloon payment payoff dates, 4. Installment and payment changes,

than the rate on your present mortgage, and if a reduced interest rate would decrease your exposure to foreclosure, then pursuing a note modification may be worth your effort. Simply, the note modification exchanges your older, higher mortgage rate for the newer, lower rate without the many costs or paperwork hassles of reapplying for a brand new loan. The note modification actually becomes a viable alternative to refinancing. As detailed in the chapter on refinancing, the many costs of obtaining a loan add up to a lot of money. But if you only want to lower your interest rate and/or principal amount, then why should you pay all these costs and hassle all the paperwork when no new money is being requested? Besides, not only have you already been approved once before for the same loan on the same property, but also you have long since established a track record which demonstrates your ability to pay. And although you may now be experiencing some temporary financial troubles, a lower interest rate may be just the help you need to alleviate or even eliminate your present payment problems. Since lenders call loans and increase rates whenever possible, they should understand your wishes to lower the rate when the market rates drop.

5. Transferring liability upon resale. Interest Rate Modifications - You may want to change the interest rate on your note if the current market interest rates are lower than the rates you are paying. This usually reduces your loan payments, as well as your odds of avoiding foreclosure. For example, over the months and years, interest rates on mortgages rise and fall according to market pressures. A classic example is the high rates of the early 1980's when mortgages commonly had interest rates of between 15% to 21%, with some percentages even higher. Yet, by the mid 1980's, rates had declined to below 9%. More recently, declining interest spurred another boom in refinancing to the lower rates. Modifying a higher interest rate to a lower rate may help you avoid or fight foreclosure. Many borrowers who felt stuck with the high mortgage rates switched to the lower market rates by using the note modification. The rule of thumb with interest rates is, if the current market rates are lower by 2 percent or more Look in your newspaper's financial section or call around to various lenders to determine the most current average interest rate. If it is at least 2 percent less than the rate on your loan, then refigure your monthly payments using the new rate. If this new payment will

help you avoid foreclosure, then approach your lender for a note modification. Principal Amount Modifications - The 2 options available are either to increase the principal amount,

or to decrease the principal amount of your original promissory note. Increasing The Principal Amount: You may want to increase the principal amount of your note, after a period of delinquent, reduced or suspended payments, to include the total amount of all the missed payments. For example, if you are behind 5 payments of $1,500 on a note of $150,000, then you owe $7,500 in delinquent payments. If, in a note modification, you add the delinquent $7,500 to original note of $150,000, then you will have a modified amount of $157,000. The benefits of this type of modification are: first, it provides a method by which the lender is repaid the delinquent amounts, and second, the borrower can start over without the pressure of back payments and foreclosure. The drawback is that the borrower has to pay a higher monthly payment, unless the interest rate is simultaneously modified downward, or the installment payment changes. Decreasing The Principal Amount: You may want to decrease the principal amount in your note if the value of your property decreases below the loans secured against it. For example, if you originally received a $160,000 loan for a house that was once worth $200,000, but now has a market value of only $140,000, then that is a 30% decrease in its market value. You may want to ask the lender to decrease the principal amount of the loan similarly by 30%, or, in this example, by $48,000, making the new principal amount $112,000 instead of $160,000, which, consequently, lowers your monthly payments, too. This may seem like a bold thing to ask a lender/servicer. But, if you can prove values have decreased in your neighborhood, such as through the records of recent comparable sales, then

you may have a valid case. What would be the lender/servicer's alternative? Typically, it would be to foreclose, then sell the property at the 30% discount, or more if a sales commission is involved. So, it makes sense for the lender to discount to you now and avoid the hassle of foreclosing and reselling. Every time property values decrease, the property tax assessor is swamped with requests to equally devalue various property tax assessments. Many times the tax assessor complies with these requests. Why shouldn't the lender also comply with such a request? Especially after you convince them that it will save them time and money. However, you must plan out your case, present it objectively, substantiate it with facts and then keep pushing until the lender complies. Point out the fact that many lenders have reduced principal amounts in markets of decreased values. It is the lender's easiest way to keep a paying customer in the property. Check around for current sales comparables in your neighborhood by reading the real estate sections in your local papers, watching real estate TV shows, or asking your neighbors, family, business colleagues and real estate experts. Call up a few real estate brokers, or their senior agents who have been in the business for a few decades, and ask point blank what kind of market we are presently in. How long has it been in this market? Where is it headed? Find out the comparables in your neighborhood by calling Dataquick at 800-888-4492, extension 152. A fee will be charged and payment may be by credit card.

If your property is worth less now than when you purchased it, especially if it is worth less than the total indebtedness against it, then take the following 2 steps. First, determine the percentage of value the property has lost since you The benefits of this type of modification are: first, it provides an inexpensive method by which the lender can keep a paying borrower in a property that has decreased in value and may go to foreclosure; and second, the borrower can start over without the pressure of foreclosure and without paying too much for a property that has gone down in value. Also, the borrower may be able to negotiate away any delinquent payments in the process of adjusting the depreciated market value. Important Note: Check with your tax preparer regarding taxes on reduced principal. (See the Tax Consequences of Foreclosure on page 1-24.) Balloon Payment Modification - If your threat of foreclosure is due to missing a balloon payment, such as a lump sum amount due on a pre-agreed upon date in the promissory note, then contact the lender and ask that the note be modified to make the note due on a later date. Negotiate for a date that will be realistic for you. However, modifying the due date of a note may be better accomplished in a temporary workout, such as forbearance, mentioned earlier in this chapter. This is due to the fact that such modifications may be construed to be a separate new contract and subject to usury laws. Installment Payment Modification Modifications in the rates of payment, such as monthly payments and annual lump sums, may be accomplished with a note modification. But, often, payment modifications are more appropriately dealt with on a temporary basis through the regular workout procedures men-

bought it. Second, contact your lender and propose to modify the principal amount by the same percentage. tioned earlier in this chapter, such as forbearance. This is due to the fact that such modifications may be construed to be a separate new contract and subject to usury laws. This could be a hassle for some lenders. Also, notice that the rates of payment become automatically modified downward when the interest rates and/or principal amounts are modified. Liability Transfer Modifications - This is used when a buyer of your property wants to assume the loan as the responsible party, relieving the seller of all liability. In this agreement, the buyer, seller and lender agree to the buyer's assumption and release the seller of any further liability on the loan. See option chapter 7, page 11-25, for more on selling a property while in foreclosure. CONFORMING LOANS If your loan conformed to certain government guidelines at the time it was made, then your loan may be considered a conforming loan. A sign that you may have a conforming loan is if, at anytime after you received your loan, you are notified that it was sold (usually, to an investor or investment group). Often a loan servicing company will service your loan for the investor/investment group. Many lenders, including, but not limited to, savings and loans and mortgage companies, sell their loans to investors in order to raise the money to make another round of loans to another set of

borrowers. Although the lenders sell the loans at a discount, the lenders make their money by charging loan fees and points each time they make a loan. The federal government, to help stimulate the loan market by insuring a steady stream of loan money for Americans, has become the largest investor in conforming loans through such federallychartered, but privately-owned corporations such as the Federal National Mortgage Association (FNMA, affectionately referred to as Fannie Mae), the Federal Home Loan Mortgage Corporation (FHLMC, affectionately referred to as Freddie Mac), or the Government National Mortgage Association (GNMA, affectionately referred to as Ginnie Mae). Conforming loans, which are usually serviced by loan service companies, must adhere to strict standards regarding delinquencies. This may be beneficial to a borrower who is behind in payments. Borrowers in default must be prepared to present their case to convince a lender to grant them a workout. In order to prepare for this presentation, study the Types of Workouts on pages 7-1 and 7-2, The 5 Keys to Successful Workouts on page 7-4, Common Questions from the Lender/Servicer on page 7-5, and How To Get Started on a Workout on pages 7-5 through 7-7. If the borrower can present a reasonable case, the lender/servicer may agree to any appropriate workout. Be aware that many times loan servicers may have an impersonal "I could care less" attitude about cooperating in a workout. They seem more interested in following the rules of foreclosure than being sympathetic to a borrower's particular situation. In such cases, sometimes, workouts on conforming loans that have been sold to an investor may be best resolved when the borrower goes around the servicer and

The servicer of a delinquent conforming loan usually will: 1. Communicate with the borrower through a progression of notices, phone calls, letters and face-to-face interviews; 2. Determine the cause and severity of the delinquency, as well as all the possibilities of resuming payments; 3. Initiate an appropriate workout (see pages 7-1 and 7-2 for a list of possibilities) if the borrower displays an ability to complete a workout; 4. If the borrower can not continue paying as promised and no workout can be agreed upon, then the servicer will foreclose. makes direct contact with the investor, or new owner of the loan, to personally negotiate a special solution (see If your loan is serviced on page 7-6 for methods in finding lenders). However, if the borrower's loan has been sold to an investment group that uses the loan as collateral for a mortgage-backed security that provides a fixed income, then chances for such a workout may be slim. CAL-VET LOAN ASSISTANCE Cal-Vet offers a program of home ownership to veterans who live in California. A qualified veteran who buys a property with the assistance of Cal-Vet, then falls behind in the mortgage payments, faces a foreclosure process that is very different than any discussed in this book. In fact, Cal-Vet completely bypasses the judicial and non-

judicial foreclosure processes mentioned on pages 1-16 through 1-22 by creating a land contract with the veteran. To better understand the Cal-Vet foreclosure process, it may be important to look at why Cal-Vet uses the land contract. The primary reason for using a land contract, which is contrary to ordinary mortgage transactions, is that Cal-Vet does not loan money to buy the property, nor does Cal-Vet insure the mortgage. Instead, Cal-Vet actually purchases the property for the veteran, then takes title as the owner with the veteran on title as the equitable interest, or owner of any equity that eventually accrues. To raise money for the purchases, Cal-Vet sells bonds, so no public money is used. By becoming the owner, Cal-Vet can control the property in the event the veteran defaults on the payments of the land contract. Even though Cal-Vet is protecting its interest in the property, the veteran still has all the usual freedoms associated with home ownership. Thus, any equity that the veteran builds up in the property belongs to the veteran, along with the right to encumber the property and to borrow against it, etc. When the veteran finishes paying all the payments and obligations as per the contract, then Cal-Vet deeds full title over to the veteran. However, if the veteran does not pay as agreed, then the land contract allows Cal-Vet to go through a relatively quick process of foreclosure by removing the veterans' equitable interest from the title. Afterwards, the veteran loses all interest and rights in the property. The 344. Default and Foreclosure. If a contract holder fails to comply with any of the terms of the Cal-Vet loan contract, the Department may cancel the contract and thereby terminate the interests of the contract holder and any and all junior lienholders. Upon

property, then, either is bought out by another lien holder who is protecting a lien against the property, or is sold on the open market, with other qualified veterans and first-time buyers given first priority to purchase. Cal-Vet is a veterans' service organization and will do everything they can to help the veteran keep the property. Before Cal-Vet forecloses on a veteran, they give the veteran many opportunities to catch up on the payments. In fact, since Cal-Vet owns the property, they can be much more flexible than conventional lender/servicers at working through a default, and/or arranging a workout. Since Cal-Vet services the contract, which is never sold to an outside service company like so many conventional loans, the foreclosure proceeding becomes an in-house function of Cal-Vet. In other words, Cal-Vet wants to, and is set up to, help the veteran cure the default and remain in the property. Cal-Vet and the California Code of Regulations In Title 12 of the California Code of Regulations, the conduct of CalVet is defined in the event of a default and foreclosure by the veteran/borrower, who is referred to in these sections as the contract holder. Those sections are as follows: cancellation, all payments theretofore made by or on behalf of the contract holder shall be deemed to be rental paid for occupancy, and thereafter any occupants of the CalVet loan property under a mortgage or deed of trust, or who holds any other kind of lien or charge of

record against the property, whether with or without the consent of the Department. 344.1. Notice of Intent to Cancel. Before cancelling a contract, the Department will give 30 days' written notice of its intent to cancel the contract holder and to any junior lien holders for whom it has given its written consent to encumber. The notice shall be given by certified or registered mail, return-receipt requested, or by first-class mail, or by personal service, as deemed appropriate by the Department, to or at the last known address of contract file. The contract holder and all junior lienholders are responsible for keeping the Department informed by actual written notice to the Department of the proper address to which notices are to be sent. The notice shall be effective upon mailing, or upon actual service if given by personal service, and the default must be cured within 30 days thereafter to avoid cancellation. 344.2. Notice to Other Lienholders. At the time of the issuance of a notice of intent to cancel a contract, the Department may order from a title insurance company a litigation guarantee or similar title report showing the status of record title to the property which is the subject of the contract in default. If the Department decides to cancel the contract, the Department shall then give notice in writing to all junior lienholders shown in the report that it intends to cancel the contract and that they shall have 30 days in which to begin foreclosure or other action necessary to protect their junior lien or security interest in the property. The notice shall be given by certified or registered mail, return-receipt requested, or by first-class mail, or by personal service, as deemed appropriate by the Department, to or at the addressees shown in the report, and

shall be effective upon mailing, or upon actual service if given by personal service. 344.3. Alternatives of Junior Lienholders. At the sole option of the Department, junior lienholders shall have 1 of 3 alternatives upon issuance of a notice of intent to cancel contract: (a) The junior lienholder may cure the default, bring the contract holder's account current by paying any arrearage (including all costs of the Department associated with the giving of the necessary notices) to the Department, and keep the account current during the foreclosure or other proceeding necessary to protect the junior lienholder's interest. Any and all amounts so paid may be added to the contract holder's secured indebtedness to the junior lienholder. The junior lienholder shall commence and complete such proceeding as quickly as permitted by law, and the holder of the junior interest in the property upon completion of the proceeding shall have 30 days thereafter in which to pay the Department in full. Upon such payment, and upon the Department's verification that the proceeding was regular on its face, the Department will issue its deed to the holder of the junior interest. (b) The Department and the junior lienholder may agree to complete their respective foreclosure or similar proceedings and offer the property for a cash sale jointly. In such event, only the De-

partment may accept an offer, and the junior lienholder may not act on the Department's behalf nor bind the Department in any way to act in any particular manner. Upon a sale for all cash, the proceeds shall be applied in the following order of priority: (1) costs of sale; Any excess proceeds remaining after these disbursements may be divided between the Department and the junior lienholder pursuant to their agreement, but in no event shall the Department agree to receive nor actually receive less than its pro rata share based upon the respective interest of the parties, and in no case less than 50% of the proceeds. (c) The Department may give notice to the junior lienholder that it will complete its own foreclosure or other proceeding and sell the property unilaterally, in which case the Department will pay the junior lienholder its interest in full, including principal, interest, and applicable advances and expenses, within 30 days after the Department's sale of the property or within six (6) months after the date of such notice, whichever is earlier. Upon such payment, the junior lienholder shall deliver its deed of reconveyance or similar lien release to the Department forthwith. The Department shall include in its notice of intent a requirement that a junior lienholder respond in writing within 30 days, or as otherwise instructed by the Department, stating its interest in the property, the amount thereof, and the preferred alternative. Upon receipt of such response, the Department will notify the junior lienholder of the permitted alternative. 344.4. Consequences of Failure to Respond or Otherwise Act.

(2) the Department's including costs;

demand,

(3) the junior lienholder's demand, including its costs, up to the extent of the remaining proceeds. Failure of junior lienholders to respond or otherwise act within any of the periods prescribed by Sections 344.1, 344.2, and 344.3, above, shall result in termination and forfeiture of their interest or interests in the property. 344.5. Reliance by Insurance Companies. Title

Upon the giving of the notices prescribed by Sections 344.1, 344.2, and 344.3, above, and the failure of the contract holder and junior lienholders to respond or otherwise act within the times permitted, the Department may provide a statement to one or more title insurance companies certifying that the notices were duly given as prescribed and that the contract holder and junior lienholders failed to respond. The statement may be provided separately or may be included in a notice of cancellation of contract recorded in the county in which the property is located, and the statement may be relied upon for the purpose of issuing a policy of title insurance free and clear of any claimed interests of the contract holder and non-responding junior lienholders. An Example of Foreclosure Procedure Cal-Vet

As stated above, Cal-Vet is a veterans' service organization and is committed to giving the delin-

quent veteran many opportunities to catch up on the payments before completely foreclosing. The foreclosure procedure for each veteran, although based on the above Title 12 of California Code of Regulations, is actually decided on a case-by-case, district-by-district basis. First Month of Delinquency: Typically, throughout the districts, once the veteran gets behind in the payments, Cal-Vet works closely with the veteran. In the early prevention program, when the veteran is 1 month delinquent, the main Sacramento office contacts the veteran by phone and with a letter. The purpose of this initial contact is to determine the nature of the veterans' financial problem in order to ascertain if the veteran qualifies for a workout or needs other assistance. 2. In a kind of extended loan, Cal-Vet can also administratively adjust the account current. This option is sometimes offered when the veteran is behind due to medical reasons or loss of job and needs just a little help. In this case the payments in arrears are put onto the end of the contract. 3. Cal-Vet can defer payments. 4. When the veteran originally begins a contract with Cal-Vet, the veteran is required to purchase disability insurance. If a veterans' default is due to an injury which prohibits the veteran from working for more than 90 days, then the disability insurance may pay the veterans' mortgage payments directly to Cal-Vet. Second Month of Delinquency: When the veteran falls 2 months behind in payments, Cal-Vet will issue a Notice of Intent to Cancel. This officially puts the veteran on notice that Cal-Vet has the right to cancel the contract as well as the veterans' equitable interest in the

Veterans in default must be prepared to present their case to convince a lender to grant them a workout. In order to prepare for this presentation, study the Types of Workouts on pages 7-1 and 7-2, The 5 Keys to Successful Workouts on page 7-4, Common Questions from the Lender/Servicer on page 7-5, and How To Get Started on a Workout on pages 7-5 through 7-7. If the veteran can present a reasonable case, Cal-vet may agree to any appropriate workout. Some of the workouts Cal-Vet has routinely offered are: 1. A type of repayment plan which allows the vet-eran a six month period to repay the arrearage. property. Also, the notice invites the veteran to get in touch with CalVet to attempt to workout the default. At this point, the office in the district where the veteran lives is notified. A Cal-Vet representative from the district office then contacts the veteran (who is referred to as a contract holder), first by phone, then by a follow-up letter. Third Month of Delinquency: If the delinquency is not yet resolved by the third month of delinquency, then a Cal-Vet representative from the district office goes out to the home of the veteran and attempts to make some sort of personal contact. Among other things, the Cal-Vet representative explains the options to the veteran, as well as tries to determine the persons in occupancy and the condition of the property. If, after the home visitation period, the veteran still does not

cure the default, then the district office sends out the last and final letter. This letter states that if the veteran does not cure the default within 30 days, then the veterans' contract could be subject to cancellation. Fourth Month of Delinquency: If, by the end of a fourth month period, after Cal-Vet has done everything within its means to resolve the delinquency, and after all workout attempts fail, then CalVet begins its cancellation procedure, called the Title 12, which can take anywhere from 45-60 days. The Title 12 Action and the Junior Lienholder Cal-Vet notifies any junior lienholder of their intention to terminate the veterans' equitable interest and allows the junior lienholder the opportunity to step in, cure the delinquency, pay Cal-Vet, and receive title to the property. Cal-Vet refers to this process as their Title 12 action. The Title 12 Action begins when the Cal-Vet district office prepares an inhouse legal action transmittal. This includes the delinquent account worksheet and all the activities, such as the contacts with the veteran by phone, by letter, in person, etc. This report is sent to Sacramento along with a litigation report. The litigation report provided by a If the lienholder(s) fail to respond, then Cal-Vet still proceeds with the Title 12 action. Once the notice of cancellation has been recorded, the title company can remove the veterans' interest in the property, as well as the interest of any lienholder. Then, in order to collect, the lienholder would have to record a lien of record against the veteran instead of the property, which, at that point becomes an unsecured loan without the usual powers of foreclosure. The Title 12 process is primarily to eliminate any lienholder so the property

title company shows who the junior lienholders are. After receiving and processing this information, Sacramento will issue the notice of cancellation of contract. Once the district office receives the notice of cancellation from Sacramento, they send the veteran a precancellation notice/letter advising the veteran that the contract is being cancelled. The veteran still has 30 days from the date of the letter to redeem the property. At the same time, Cal-Vet also notifies any junior lienholders that are listed in the litigation guarantee/report from the title company. This notification puts the Junior lienholder(s) on notice of Cal-Vet's action to cancel the contract, which also allows them to respond. At that point the lienholder can step in, if Cal-Vet approves them to do so, and cure the default by paying the veterans' account current, which may actually include paying Cal-Vet off depending on the junior lienholder's position (see 344.2. through 344.4. of Title 12 of the California Code of Regulations on page 7-13 through 7-14). can be free and clear for remarketing by Cal-Vet. On the other hand, if a lienholder does exercise the right to redeem the property by paying Cal-Vet off, then the lienholder may keep or remarket the property themselves. In any case, whether Cal-Vet or a lienholder ends up with the property, the veteran, at this point, has lost all rights to the property and must vacate the premises. to Sometimes, if the veteran refuses cooperate with Cal-Vet's

foreclosure process, then Cal-Vet has to enter into a Quiet Title Action. A quiet title action is the legal device by which Cal-Vet removes the defaulted veterans' equitable interest from the title to the property. Furthermore, if, after the veterans' equitable interest has been removed from title, the veteran refuses to vacate the premises, then the veteran will be removed through the regular eviction process (see page 1-22 through 1-24 for more on the eviction process). In essence, Cal-Vet only goes through the Title 12 process after exhausting all means of helping the veteran cure the default. Then, after any liens are eliminated through the Title 12 process, CalVet, as owner of the contract, just takes the property back simply by recording a cancellation document which cancels the veterans' equitable interest in the property. Also, regarding help from Cal-Vet when selling a home in foreclosure, see Cal-Vet Presale Assistance on page 11-25 listed under the heading Mortgage Insurance-Assisted Foreclosure Presales. To locate the Cal-Vet district office nearest you, and to find out more about the pre-foreclosure help that is available to you, call 800-952-

income loss, the mortgage insurer may also pay part or all of the delinquent loan payments. Remember, even though you must pay for the mortgage insurance in order to qualify for the loan in the first place, it is the lender who gets the benefit of the insurance. But, if the mortgage insurance company can avoid a claim due to a foreclosure, by assisting certain borrowers in negotiating a workout, or by paying a few delinquent payments, then it makes good business sense for them to do so. In any event, the delinquent borrower must show strong signs of being able to quickly recover from the financial set-back. If you have mortgage insurance as well as the potential to resume normal payments after a short period of time, then contact the mortgage insurer and ask them to pay a few delinquent payments to help you recover financially. You will have the best chance of convincing the insurer to pay your delinquent payments if you can prove that it will cost them less money to help you than it will to pay off a claim to the lender. To aid in preparing your calculations, ask the insurer what percentage is insured. In most cases, it runs between 12% to around 100% of the amount insured. Also, ask what amount is insured. Then, using your particular amounts, do the calculations to determine if the insurer would have to pay more by paying the claim or by paying a few of your delinquent payments.

PRIVATE MORTGAGE INSURANCE If you were required to buy mortgage insurance when the loan was first obtained, then the insurance company may be able to offer very limited assistance in the case of a loan delinquency or default. For example, in order to prevent a foreclosure and the expense of a claim, the mortgage insurance company may help the borrower to negotiate a workout with the lender/servicer. Also, in a case where the borrower suffers a temporary

If an insurer were to pay some of your payments, but then you got into financial trouble again later and lost the property in foreclosure anyway, the insurer would simply deduct any prior delinquent payments they had made for you from the final claim settlement to the lender. Thus, in your negotiations point out that the insurer has little or nothing to lose by helping you out now with a few delinquent payments. See A Mortgage Insurance-Assisted Foreclosure Presale, page 11-23, for more on how private mortgage insurance works. In addition to asking for help on the payments, ask the insurer for help in negotiating a workout, especially the complex note modification. The mortgage insurer has certain clout and can make certain guarantees which may influence the lender to grant you a workout. Choose the workout that best suits your needs. Be prepared to present your case to convince both the insurer and the lender to grant you a workout. In order to prepare for this presentation, study the Types of Workouts on pages 7-1 and 7-2, The 5 Keys to Successful Workouts on page 7-4, Common Questions from the Lender/Servicer on page 7-5, and How To Get Started on a Workout on pages 7-5 through 7-7. If you can present a reasonable case, the lender may agree to a workout. Ideally, the mortgage insurer can help you with both paying a few delinquent payments as well as arranging a workout, even perhaps permanently changing your loan terms with a note modification. Also, see Mortgage Insurance-Assisted Foreclosure Presales on page 11-23 regarding help from the insurer when selling a home in foreclosure. FHA/HUD MORTGAGE ASSIGNMENT

This is a type of mortgage insurance assistance. If you have an FHA-insured mortgage and you have fallen behind in your loan payments, HUD may be able to help you. If you are unsure about whether or not your loan is FHAinsured, ask your mortgage servicer. The following section explains the foreclosure assistance provided by HUD, by the HUD mortgage assignment program and by the HUD-approved counseling agencies. Basically, you may qualify to have your mortgage assigned to HUD: a. If the loan on your house is insured by the Federal Housing Authority (FHA), which is a division of the U.S. Department of Housing and Urban Development (HUD); b. If circumstances beyond your control (such as: illness, death, separation, divorce, strike, emergency home repairs, unemployment or under-employment, etc.) have caused you to miss 3 or more monthly mortgage payments; and c. If there is a reasonable prospect that you will be able to resume full mortgage payments in 3 years or less. When a borrower gets behind in payments on an FHA-insured loan, the lender/servicer or servicer must send you a letter of notification (see example page 7-25) before a notice of default is filed. Typically, HUD may provide a more beneficial type of workout than would the private lender, such as lower payments and a longer period of time to pay. (See example workout forms on pages 7-38 through 7-42.) HUD could also

take over as the owner and servicer of your loan. Be prepared to present your case to convince your lender to grant you a workout, or to convince HUD to accept you into the HUD Assignment Program. In order to prepare for this presentation, study the Types of Workouts on pages 7-1 and 7-2, The 5 Keys to Successful Workouts on page 7-4, Common Questions from the Lender/Servicer on page 7-5, How To Get Started on a Workout on pages 7-5 through 7-7, and The HUD Mortgage Assignment Program on pages 7-18 through 7-20. If you can present a reasonable case, your lender and/or HUD may agree to any appropriate workout. CALIFORNIA HUD OFFICES Call the nearest regional office and ask for a branch or counseling center nearest to you. Phillip Burton Federal Building 450 Golden Gate Ave POB 36003 San Francisco, CA 94102 (415) 556-4752 1630 East Shaw, Suite 138 Fresno, CA 93710 (209) 487-5033 1615 West Olympic Blvd Los Angeles, CA 90015 (213) 251-7412 777 12th Street, Suite 200 Sacramento, CA 95814 (916) 551-1351 2365 Northside Drive, Suite 300 San Diego, CA 92108-2712 (619) 557-5310 3 Hutton Centre Drive, Suite 500 Santa Ana, CA 92707-5764 (714) 957-7362

What is HUD? The Department of Housing and Urban Development (HUD) is a federal agency responsible for a broad range of housing programs. Among those responsibilities are: 1. Housing production and mortgage insurance, 2. Equal opportunity in housing, and 3. Community planning development. and

The Federal Housing Administration (FHA) is the division of HUD which insures mortgage loans for both new and existing homes and for home improvements and repairs. FHA does not lend money, nor does it build homes. As an insurance company, FHA insures the lender against loss if you, as the borrower, fail to make monthly mortgage payments. But, like any insurance company, it would like to keep claims low. If your mortgage is insured by the FHA, you are fortunate. The lender who holds an FHA-insured mortgage must meet special requirements in handling the loan. In addition, HUD has special workout procedures to assist FHA-insured homeowners if they are temporarily having difficulties making their mortgage payments. If you are FHA-insured and meet certain conditions, HUD may help you avoid foreclosure. One form of help from HUD is the Home Mortgage Assignment procedures through which HUD becomes your lender. You make all past due and

future payments to HUD under a workout program which you and HUD put together. The advantage is that as a government agency, HUD is not profit motivated and has greater flexibility than a private lender devising workout programs. However, it too can and will foreclose if you refuse to meet your obligations once you are able. The HUD Mortgage Assignment Program - The HUD Mortgage Assignment Program is designed to prevent FHAinsured borrowers (mortgagors) from losing their home even after the foreclosing lender/servicer has decided it is unable to provide further assistance. However, before foreclosing, the lender/servicer must send the borrower a letter notifying the borrower of the possibility of foreclosure and to mention HUD's services. Among other things, the letter states that before the lender/servicer or loan servicer can initiate a foreclosure, you have 15 days to contact HUD, or a HUD-approved counseling agency. (See list of HUD offices on this page.) HUD accepts an assignment of your troubled mortgage when circumstances Step 1: Contact your local HUD office within 15 calendar days after receiving a letter from your FHA-insured lender/servicer (see example on page 7-25) which states that you are in default and unless you do contact HUD, it will begin foreclosure. Telephone and write HUD to request an acceptance of an assignment of your mortgage. You will be given a case number for your file. Step 2: Carefully think through and write down all the events which led you to fall behind in your mortgage payments. Note what happened and when. Note even minor events which are in any way related to your financial difficulties. Be specific.

beyond your control temporarily prevent you from paying your monthly mortgage payments. You must have a reasonable prospect of resuming full mortgage payments after no more than 3 years. The payments may be temporarily reduced or suspended in accordance with your ability to pay them. There must also be a reasonable prospect that the mortgage will be paid in full by the end of the original term, although the term may be extended, as necessary, by up to 10 years. Acceptance of a mortgage assignment by HUD requires both quick and careful preparation. A HUD-approved housing counselor agency can be very helpful in this process. Throughout the entire process, be especially careful to follow all stated time requirements. Otherwise, unless you have a good reason for sending documents to HUD late, you may lose your right to consideration. The basic steps you must follow are: Step 3: Carefully think through and write down why you believe you will be able to make full mortgage payments within 3 years. What future events will enable you to resume mortgage payments? It is important to understand that HUD will emphasize your future ability to pay, not present income or credit history. This will require a solid, workable budget. For help see The Four Steps to Financial Freedom, pages 5-2 through 5-4, and How to Set Up a Successful Budget, pages 5-4 through 5-6. Step 4: After you contact HUD, you will be sent an application form HUD-92068F (see page 7-27). Fill out the application and return it to

HUD within 15 calendar days, even if you have already prepared one for the lender/servicer. Be careful in itemizing present income, debts and expenses. Be realistic in listing potential sources of future income. Attach copies of any supporting documents which are readily available (for example, pay stubs, income tax returns, etc.) For your safety, send only copies of documents. Keep your originals. You may also want to keep a copy of the completed applications form. Send the form to HUD by certified mail, return receipt requested. Step 5: Gather additional supporting documents. Try to obtain support for all the statements you have made on the application. Letters from employers, doctors, friends and relatives may be used. Copies of bills and receipts are useful to document expenses and debts. Step 6: HUD will then do one of the following: 1. HUD may refer your application back to your mortgage company for further servicing. 2. HUD may accept your applications for assignment. 3. HUD may inform you that it needs more information to determine if you are eligible. If you are told by HUD that it does not believe you to be eligible, don't be discouraged. You have 15 calendar days to appeal this decision. HUD will explain in the letter why the decision was made. Generally, it is because there is not enough information to make a decision. HUD will inform you of exactly which requirements you didn't meet and why. It should also inform you of the type c. Prepare your plan to show your ability to resume full mortgage payments within 3 years.

of information which would change its mind. If you're not clear, ask them in detail and contact your counseling agency for help. Within 15 calendar days, request HUD to review the applications. This is the appeal period. A personal conference with someone from the local HUD office will then be arranged within 25 days after the initial decision letter. The conference can be arranged at a mutually convenient place and time. Where a personal appearance is not possible, HUD will arrange for a telephone conference at its expense. HUD will also accept written submissions. But try very hard to go in person. It is most helpful to work with a housing counselor or other legal representative in preparing for the conference or for written submissions. To prepare your appeal, you are entitled to review and/or obtain a copy of all materials in HUD's file on your case. These include your lender/servicer's records. Remember: a. Be sure to answer fully those points HUD noted as the basis for not agreeing that you are eligible. b. Prepared a detailed, completed budget which shows your present circumstances.

d. Work out a realistic repayment plan, with the housing counselor, showing how you will repay the

missed and/or reduced mortgage payments. Remember, the term of the original mortgage can be extended, if necessary, by up to 10 years. e. Review all your documents and arguments immediately before the conference. Step 7: Attend the conference. Your HUD-approved housing counselor and/or a legal representative should come with you and speak on your behalf at the conference. You should also bring witnesses, who can support your statements. Be sure to bring all supporting documents as well as your original assignment applications. During the conference be polite, firm and as clear as possible. If unexpected questions are raised and you are unable to answer them, ask for additional time to provide the answers. Step 8: HUD will notify you in writing of its final decision (see example page 7-30): 1. If HUD accepts the assignment, you will make all future mortgage payments directly to HUD. You must make them according to the terms of the payment plans which you have worked out with HUD. These payment plans can change in accordance with your ability to pay. 2. If HUD rejects your assignment for the second time but you still feel that you qualify and that HUD's decision was wrong, you can appeal their final agency decision in federal court. To do this, you will need a lawyer. Also, remember, if you have the ability, put as much money as possible aside during the time you are being considered for assignment. This money should be placed in a savings account. Ask your HUD-approved housing counselor for

advice. This savings can help you cure part of the delinquency. Deed-In-Lieu of Foreclosure - In situations where borrowers have no equity and little chance of curing their default, and cannot sell their property nor improve their immediate financial condition, HUD may consider letting them out of their loan obligation by accepting from them a voluntary deed to their property known as a deed-in-lieu of foreclosure. More about the procedure for accepting a deed-in-lieu of foreclosure is found in Option chapter 8, page 12-1. HUD-approved Counseling Agencies Housing

Most HUD assignment programs are handled through HUD-approved housing counseling agencies. These usually are nonprofit, professional organizations whose purpose is to provide advice and assistance to people with housing questions and problems. Services are available to homeowners as well as to people preparing to buy or sell a home. Many of these agencies, such as CCCS, provide not only FHA counseling, but also help the homeowners with both conventional and VA loans. The HUD agencies can: 1. Provide housing counseling to individuals in the community; 2. Act in behalf of individual clients; 3. Assist people in understanding all the rights and responsibilities of home ownership; 4. Assist homeowners who are having problems making their

mortgage payments in their contacts with the lender/servicer and/or HUD; 5. Explain available HUD programs, including applications processes and eligibility requirements and assist people in applying for appropriate programs; Most of the HUD-approved housing counseling agencies receive some money from HUD as well as from community organizations in order to provide these professional services. In addition, HUD provides staff training and other support services on an ongoing basis. Your lender/servicer and the local HUD office can provide you with a list of HUDapproved housing counseling agencies in your area. Call the HUD agency nearest you for an appointment (see list below). Or check your telephone directory under "US Government Agencies" for the HUD office nearest you. DVA PREFORECLOSURE AVOIDANCE The Department of Veterans' Affairs (DVA) Preforeclosure Avoidance Program is a special type of mortgage insurance assistance. Initially, DVA gets involved in the real estate loan business in 1 of 2 ways: 1. Guaranteeing for veterans a portion of their home loan (currently up to $36,000) obtained through a commercial lender/servicer, or 2. Creating loans for buyers of resold DVA foreclosure properties. Generally, the DVA guaranteed loans require veterans to occupy the property as their primary residence, while the resold foreclosures are typically bought by real estate investors who do not intend to live in the property. However, many of the resold foreclosures today are

6. Work with and refer clients to other community agencies and organizations which can offer other assistance and benefits.

being purchased by non-veteran buyers who plan to live in the property. This section focuses on loan defaults by borrowers who live in the property (the DVA deals with investor defaults somewhat differently). The DVA is committed to doing everything in its power to help borrowers in foreclosure keep their houses. The Department of Veterans' Affairs' Loan Servicing Guide for the Los Angeles Region states that "distressed borrowers should not suffer from an inflexible, standardized system. Likewise, collection routines should not allow chronic delinquents to pay at will." In other words, the DVA "foreclosure avoidance" program is designed to do everything possible to help defaulting borrowers keep their houses, but if they discover an uncooperative borrower, then the DVA will rule that it is in the best interest of the DVA to foreclose immediately. When the borrower originated loan, or guaranteed loan gets, their loan payments, recommends that the seek help in the order: of a DVA a DVA behind in the DVA borrower following

1. A Lender Workout - Initially, the DVA wants borrowers to first try working out the loan default with their lenders, or the lender's servicing company (see

pages 7-1 and 7-3 for related material). 2. DVA Supplemental Servicing - If the borrower cannot workout the default problems with the lender, then the borrower can ask the DVA for help known as supplemental servicing. 3. DVA Refunding Program - The DVA may purchase the defaulted loan and take over the servicing when the foreclosing lender/servicer feels a workout is impossible, yet the DVA sees the potential for the borrower to eventually continue regular payments. 4. DVA Compromise Offer Program When the borrower can no longer continue paying, the DVA may help sell the property by loaning the borrower any shortage incurred by the sale. See page 11-23, Mortgage A Lender Workout Once the borrower of a DVA guaranteed loan becomes 61-105 days delinquent, the lender/servicer notifies the DVA before an actual NOD is filed. Immediately, a computer file on the delinquent borrower is set up on the DVA's Loan Claims System (LCS). But before the DVA gets involved, the lender/servicer and borrower are required to try to negotiate what is commonly referred to as a "workout." Basically, as we mentioned earlier, a workout is a process of renegotiating the terms of the loan to fit your current shift in finances. Veterans in default must be prepared to present their case to convince a lender to grant them a workout, or to convince DVA to accept them into the DVA assistance programs listed above. In order to prepare for this presentation, study the Types of Workouts on pages 7-1 and 7-2, The 5 Keys to Successful Workouts on page 7-4, Common Questions from the Lender/Servicer on

Insurance-Assisted Foreclosure Presale, for more on the DVA Compromise Offer Program. 5. Deed-In-Lieu Of Foreclosure In situations where borrowers have no equity, little chance of curing their default, and cannot sell their property nor improve their immediate financial condition, the DVA may consider letting them out of their loan obligation by accepting from them a voluntary deed to their property known as a deed-inlieu of foreclosure. The DVA procedure for accepting a deedin-lieu of foreclosure is found in option chapter 8, page 12-1. The following sections will explain some of the details of each of these programs. page 7-5, and How To Get Started on a Workout on pages 7-5 through 7-7. If the veteran can present a sound case, the lender/DVA may agree to a suitable workout. Supplemental Program Servicing

Supplemental servicing does not actually begin until the lender/servicer notifies the DVA that its initial attempts to negotiate a workout with the borrower have been unsuccessful. The purpose of the DVA supplemental servicing is to analyze the veteran/borrower's situation and to help negotiate a lender workout in order to give the veteran every opportunity to cure the loan default during a period of temporary financial distress.

DVA Computer Letter #1 Supplemental servicing begins with a computer generated letter from the DVA (see example on page 7-32). It urges the borrower to contact the lender/servicer, to explain the lack of payment and to detail when the regular payments will be resumed. If satisfactory arrangements to reinstate the loan are not made with the lender/servicer, then the DVA invites the borrower to contact them. In addition, the letter asks the borrower for extensive financial data and offers 3 kinds of counseling: financial, vocational and educational. Finally, the letter warns that if the borrower fails to repay the loan, then the DVA may have to pay out on it and the borrower may be legally liable to reimburse the government. DVA Loan Service Representative (LSR) - The goal of the LSR is to provide for the borrower as much help as possible and to gather facts about the borrower's present situation. The LSR is required to keep an open mind, to be as friendly and understanding as possible and to not make predetermined decisions about the borrower. The LSR's contact with the borrower, as recommended in The Servicing Guide, includes not only letters, but may also include counseling, telephone calls, and field visits to the borrower at home. Telephone Contact - The telephone is a primary tool for the DVA to communicate with the borrower. Besides saving time and providing an immediate response, phone calls can establish personal The DVA financial counseling requires the full cooperation of the borrower in a face-to-face meeting to discuss the borrower's financial condition in detail. The basic points covered in the counseling are virtually identical to the elements of financial reorganization as characterized in Option Chapter 1 of this

communication and permit discussion of possibilities.

Letter Contact - Letters are used by the DVA not only to request payment or personal contact with the borrower, but also to confirm agreements made between the borrower and the DVA. Field Visits - The DVA "guide" states, "when attempts to reach the borrower by phone and mail have been unsuccessful, a field report should be made." This means an LSR will come to the borrower's house "for a face-to-face interview" and "for an opportunity to determine the condition of the property." So, if you want to avoid such a visit, then respond cooperatively to the DVA letters and phone calls. However, sometimes a field visit may be necessary for other reasons. Counseling - The DVA will provide in-house financial counseling as well as direct the borrower to nonDVA counseling/relief offered through Federal, State, local and private organizations such as welfare, marriage counseling, unemployment, workman's compensation, food stamps, food service programs, employment services, local housing authority, veterans' service organizations, social security benefits, labor unions, churches and other charitable organizations, state veterans' service office and FEMA/disaster assistance. book, The Four Steps to Financial Freedom, pages 5-2 through 5-4, and How to Set Up a Successful Budget, pages 5-4 through 5-6. This point can not be made enough, since nearly every option to fighting foreclosure and winning involves reorganizing your finances, then the

serious fighters must move straight to the Option Chapter 1 beginning on page 5-1 to start reorganizing their finances now. DVA Fact Finding - The Servicing Guide directs the activities of the LSR, stating, "the following information/facts should be obtained and documented: 1. Reason for Nonpayment, 2. Domestic Situation, 3. Employment, 4. Financial Status. Reason for Nonpayment: It is necessary to determine what caused the borrower's payments to be in arrears. An experienced counselor can usually distinguish between an 'excuse' and a legitimate 'reason' for nonpayment. Some acceptable causes are: unemployment, extended illness, an accident which causes curtailment of income, death and natural disaster. The prospects of curing the default should also be determined. Domestic Situation: Tactfully determine the domestic situation. If there are marital problems, find out the couple's status (mutual separation, legal separation, divorce proceeding begun, final divorce). Determine who is to make the loan payments, who has ability to pay, when will payment be made, who occupies the property and the name of each other's attorney. If both parties are obligated in the loan, they both should be contacted. Employment: Determine employer's name and address, length of employment and type of work. Obtain the borrower's work telephone number. Financial Status: Adequate financial information is needed to realistically determine whether a payment proposal is based on ability.

1. INCOME - Source of income and monthly amount received. 2. EXPENSES - Housing expense, groceries and household items, clothing purchases, health and life insurance premiums, entertainment, alimony, child support, installment payments, etc. 3. ASSETS Cash, securities, jewelry, collections, automobile(s), home appliances and furnishings, real estate, boats and recreational vehicles. 4. LIABILITIES - Real estate loans, automobile loans, installment contracts, education loan, etc." Again, it is interesting to note that the DVA will scrutinize the borrower's finances, in effect, in much the same way as the borrower would have to do in the financial reorganization procedures recommended in Option chapter 1 of this book (see page 5-2). Since most of the other options to fight foreclosure require some form of reorganization, obviously, it makes good sense to start reorganizing your finances as soon as possible. Partial Payments - The DVA will accept payments of less than the full amount due, except under the following conditions, when the partial payment may be returned within 10 days of receiving it with a letter explaining 1 of the following reasons: 1. Rental income from the property has not been turned over to the lender/servicer to pay off the default, 2. The payment is less than 1 full monthly payment (unless

otherwise agreed to in a previous payment plan), 3. The payment is less than 50% of the total amount due (unless otherwise 4. The payment is a check and the situation requires cash only, 5. The payment is less than previously agreed to in a repayment plan, 6. After 6 delinquent months have gone by without a written repayment in effect, 7. A Notice of Default has been filed, 8. The payment jeopardizes the lender's lien position. Payment In-Full - The DVA is required to accept any payment in-full up to the moment of the foreclosure sale and must then reinstate the defaulted loan, unless another plan had been previous agreed upon, or, unless reinstatement of the loan would be illegal or would adversely affect the dignity of the lien on the property. Lender's Notice of Intention to Foreclose - If a workout or repayment plan is not agreed upon between the borrower and lender, then the lender/servicer may notify the DVA of its intention to foreclose. In such a case, the DVA's LSC computer may generate a second letter (see page 7-33) notifying the borrower of the lender/servicer's intention to foreclose. The Servicing Guide states, "as a matter of policy, no loan should go to foreclosure without personal contact having been made with the borrower or every reasonable effort to do so is expended. DVA will classify a default 'insoluble' only when all reasonable efforts to effect a cure of the delinquency through adequate servicing have failed, or the circumstances (abandonment,

agreed to in a previous payment plan),

waste or removal of security) do not warrant further indulgence. A conclusion to foreclose must be substantiated by documentation of the servicing efforts." Preforeclosure Analysis - Any DVA decision to allow a foreclosure to take place is not automatic, except maybe when the property has been abandoned or the whereabouts of the borrower is un-

known. A preforeclosure analysis must be conducted to officially retrace and document all of the steps made by the DVA to help the borrower avoid foreclosure. According to The Servicing Guide, "before the foreclosure decision is made, it is imperative that there be a meaningful, detailed interview with the borrower. The purpose of the analysis is to gain a thorough understanding of the nature and reasons for the default, the prospects of curing the default, both short-term and long-term, and to determine what action might avoid foreclosure. The preforeclosure analysis provides an opportunity to look at the borrower's attitude, willingness to cooperate, and motivation. A preforeclosure interview should be carefully documented." DVA Refunding Program - DVA refunding is when the DVA purchases the defaulted loan from the lender/servicer in

order to help the borrower avoid foreclosure. Once the lender/servicer considers it bad business to grant further relief to the borrower, the lender/servicer notifies the DVA of its intention to foreclose. Refunding occurs when the DVA is convinced the default may be cured through various other relief measures. Typically, after a temporary set-back such as illness or unemployment, the borrower proves to the DVA an ability to resume normal monthly payments. But the decision to refund a loan comes only after careful analysis of the borrower's situation and attitude. The decision is based on the judgment of the DVA after weighing both the interests of the borrower as well as the DVA. Once granted, refunding can be a fresh start.

CALIFORNIA REGIONAL DVA OFFICES: Oakland.................1-510-637-1325 Los Angeles............1-310-827-1000 San Diego..............1-619-297-8220 National.................1-800-827-1000

HUD Letter of Notification #1

HUD Letter of Notification # 2

HUD form 92068F 1

HUD form 92068F 2

HUD Letter of Notification #2t

HUD Letter of Notification #3

HUD Letter of Notification #3a

DVA Letter #1

DVA Letter #2 (NOTE: FIND EXHIBIT 7 IN DVA GUIDE)

Preparing the Agreement to Modify A Promissory Note


Before modifying a note, the lender and borrower must first agree to the terms of the modification. First Tuesday's Form 426 (see page 7-37) sets forth all the necessary elements for a note modification including: facts -- identifies the note being modified and all junior and senior liens encumbering the property; terms -- sets forth the changes in the note's terms and the consideration the lender is to receive on modification; and provisions for title insurance subordination of junior liens. Identification: Enter the date and place the note modification agreement is prepared. Note: Check and enter items in provisions with boxes and blanks if the provisions are intended to be included in the agreement. Facts: 1. The note: Enter the date on the note, the name of the Borrower who signed the note, the name of the Lender, and the face amount of the note. 1.1 Enter the terms of the note -- the remaining balance on the note and the date through which the interest has been paid. 1.2 Enter the amount of any late charges which have accrued and remain unpaid. 1.3 Enter the amount of any advances which have been made by the Lender. Note: Advances are made to cure underlying defaults which impair the lender's position, such as delinquent taxes, senior loans, insurance premiums, and assessments. 2. Trust deed description: Enter the date the trust deed was recorded, the recorder's instrument number, and the county of record. Enter the name of the Borrowand er/Trustor and Lender/Beneficiary under the trust deed. 2.1 Enter the legal or common description of the property. Enter the assessor's parcel number. 2.2 Enter the description of any additional property securing the note. 2.3 Enter the balance in any impound account held by the Lender. 3. Existing financing: If the trust deed securing the note is junior to existing senior encumbrances, enter the appropriate information in 3.1 and 3.2 4. Junior encumbrances: If the trust deed securing the note is senior to any junior trust deeds, enter the appropriate information in 4.1 and 4.2 Terms: 5. Note modification: Enter and check the boxes applicable to the note modification. 5.1 Check the box if the interest rate is to be changed. Enter the new interest rate and the date the rate will go into effect. 5.2 Check the box if the amount of the monthly payments is to be changed, enter the new amount of the payment and enter the date the change is to take effect. 5.3 Check the box if the note's due date is to be changed. Enter the new due date. 5.4 Check the box if the Borrower is to begin making impound account payments. Enter the

advance impound payment due on modification. Note: The Lender often collects impounds to pay property taxes and assessments, leasehold payments, hazard insurance premiums, and mortgage insurance premiums. A Lender's ability to require an impound account is restricted. 6. Additional modifications: Check the box if modifications to the note or trust deed are to be made such as adding: 7.1 Check the box if a buyer is to assume the note with the Lender and a modification of the note can be demanded by the Lender for waiving any due-on-sale clause. 7.2 Check the box if the Borrower is to pay the Lender's costs incurred to modify the note. Enter the amount of the Lender's costs. 7.3 Check the box if the Borrower (or buyer) is to pay any bonuses or points to the Lender. Enter the amount the Lender is to collect. Note: The payment of a bonus or points is not part of the principal or costs. It does not apply to the principal and is characterized as prepaid interest. 7.4 Check the box if the Borrower is to make a principal reduction payment. Enter the amount of principal reduction. Note: The Lender might require a reduction in principal if the trust deed or note modification increases the Lender's risk of loss, such as on subordination to a construction loan, or releasing/substituting security. 7.5 Check the appropriate box if the Borrower is to deliver additional security or substitute security for the note. Enter the legal description of the new security. Enter the terms of any senior encumbrance on the new security. 7.6 Check the box if additional consideration is to be given to the Lender, such as:

late charge penalty; or

and

prepayment

a due-on-sale clause in the trust deed 7. Consideration: Check the boxes for the consideration the Lender is to receive on modification of the note.

a buyer signing a release and waiver on dispute with a carryback seller; the Borrower executing a Request for NODq on senior trust deeds; or the Borrower authorizing the Lender to run a credit check. 8. Acceptance period: Enter the number of days the Borrower or Lender has to accept the offer, such as "on presentation," "three days," etc. Note: The offer will automatically expire if it is not accepted (signed and delivered) within the specified time period. 9. Escrow closing agent: Enter the name of the es-crow company which will handle the note modification. Requires escrow to be opened on acceptance. 10. Escrow opening: Enter the number of days anticipated to perform and close escrow. Note: The Borrower is required to pay the escrow fees and charges. 11. Title insurance: Enter the name of the title insurance company insuring the trust deed. 11.1 Check the box identifying the type of title insurance policy desired. 11.2 Check the box if an existing policy will be endorsed to insure the Lender's title

position. Check the box selecting the type of policy. 11.3 Conditions closing on the issuance of title insurance showing title subject to current property taxes, recorded CC&Rs and the existing trust deed(s) identified in 3. 11.4 Requires any junior encumbrances listed in 4 to sign a specific subordination agreement. Note: Title insurance companies will require a specific subordination agreement from junior lienholders before insuring an existing trust deed on the modification of its note. 11.5 Requires the Borrower to pay the title insurance policy premium. 12. Beneficiary statement: Check the box if the Lender is to be provided a beneficiary statement from each of the underlying trust deed holders, confirming the terms and current status of the underlying loans. 13. Costs: Requires the Borrower to pay all costs incurred to modify the note. 14. Brokerage fee: Enter the name of the brokers. Enter the total fee due all brokers to be paid by the Borrower. Signatures: Lender's signature: Enter the date the Lender signs and his name and address. Obtain the lender's signature if he is making or accepting this offer. Borrower's signatures: Enter the date the Borrower signs and his name and address. Obtain Borrower's signature if he is making or accepting this offer. Broker's signature: Obtain the signature or initials of the broker or his authorized agent, and enter the date of approval. Thanks to Jacqueline Fontana and First Tuesday

NOTE MODIFICATION - 1ST TUESDAY FORM 425

AGREEMENT TO MODIFY - 1ST TUESDAY FORM 426

HUD FORBEARANCE FORM 1A

HUD FORBEARANCE FORM 1B

HUD FORBEARANCE FORM 2A

HUD FORBEARANCE FORM 2B

HUD FORBEARANCE FORM 3A

(Duplicate and add to this plan paragraphs 3 through 8 from pages 7-40 and 7-41.)

HOW TO WIN BY REFINANCING YOUR PROPERTY


Refinancing as an option to stop foreclosure means borrowing on the equity in a property in order to have enough cash during tight financial times to remain current on the mortgage payments. This chapter discusses some of the basic refinance techniques using the equity in a property which may be helpful when foreclosure threatens. Fortunately, the marketplace offers a wide variety of loan programs. For homeowners facing foreclosure, depending on their credit rating (see pages 8-11 and 8-12), 5 different categories of loans may be available: 1. An equity line of credit, 2. A conventional first mortgage refinance, 8-1 Although eligibility for all refinance loans is decided on a case-by-case basis, the two most 3. A second or third mortgage, 4. A hard money loan, and 5. Money from relative. a friend or

REMEMBER a key factor about refinancing: almost always your total monthly mortgage payment WILL increase depending on interest rates, loan cost and an increased principal amount. LOAN QUALIFICATION

major questions that lender/servicers will ask are: 1. Is there a large enough ratio of equity in the property to loan on? In a nutshell, some of the basics of how equity and credit interact: 1) in the case of a borrower who has both good credit and a lot of equity, a variety of lenders probably will make the first 3 loans listed above available at a low cost and a low interest rate; 2) on the other hand, if the borrower's credit record is blemished, such as with many late payments, a

2. What is the borrower's history?

credit

8-2

3
NOD, or a bankruptcy, then a hard money loan with high costs and interest rate may be the only loan available, no matter how large the equity. The Equity In Your Property Equity may be defined as the value that an owner has in real estate after deducting all monies that are owed against the property, such as loans, liens, judgments, back taxes, etc. Determine the actual equity in your property by deducting the total debts from its market value (see formula, page 6-9). Me-thods for determining the current market value of a property are explained in detail in Option chapter 7. Please note that if there is very little or even zero equity in your property, then refinancing is not a realistic option since there is no equity for an equity line of credit or for a hard money loan. And it would be pointless to do a complete refinance on zero equity, unless you can figure out some way it will otherwise help ease the foreclosure threat beyond those techniques offered in Option chapter 3, "How To Win By Changing Your Mortgage Terms." Even such typical refinance targets as adjustable rate mortgages (A.R.M.) have a good chance of being renegotiated instead of refinanced. If you do not want to keep a house with zero equity, then you may find relief from foreclosure by selling the property (Option chapter 7), or quit claiming it over to an investor, or even back to the foreclosing lender/servicer (Option chapter 8). On the other hand, if you do have equity in your property, then you may be eligible for 1 or more of the 3 loans mentioned above. But how much

How To Win By Refinancing

of the equity will lenders loan on? Refinance lenders virtually never loan on the full value of the property, nor on the full amount of the equity. They want to leave a percentage of the equity as a financial cushion to offset any potential unforeseen costs, such as with foreclosure or with depreciation in the property's value during a recession. This cushion is determined by the loan-to-value ratio (LTV) which differs from lender to lender as well as month to month depending on the marketplace. The LTV may be defined as the percentage of a property's appraised or market value on which a lender may loan, such as to a homeowner. For instance, if a property is valued at $100,000 and the average lender wants a cushion of at least 20%, then 80% is the LTV. In other words, the lender will loan $80,000 while maintaining a cushion of $20,000. Depending on the lender, LTV's run the gamut from as high as 95% for some government guaranteed loans to as low as 5% for some hard money loans. In recessions or tight money markets some lenders may offer 100% LTV's under certain circumstances, often as a gimmick. Sometimes, the term loan-tovalue may be used to describe an existing loan on a property or the total of several existing loans and liens. For example, if you have $50,000 in loans/liens against a property valued at $100,000, then you have an existing 50% loan-tovalue ratio in your property. With

How To Fight Foreclosure And Win With Honor


lender who uses an 80% loan-tovalue ratio. The difference between the borrower's 50% equity and the lender's 80% loan-to-value equals 30%, or $30,000 in this case, which is the portion of "available" equity in the property that remains after the 20% cushion is deducted. lender's 30 day late payment limit, but also into the category of a bad risk. Nonetheless, every loan is decided on a case-by-case basis. Whether or not you have received a NOD, the lender may be persuaded to loan if the financial circumstances which created the foreclosure situation are only temporary, such as with an illness or job loss. Before talking with the lenders, determine which of your particular circumstances is leading you toward foreclosure. Is your income earning power interrupted temporarily or permanently? Are you truly between jobs or are you suddenly disabled for life? Do not use refinancing as a bandaid treatment for a perpetual or an incurable problem. Statistics prove that eventually you may lose your home anyway. It would be better to sell and pocket the equity now than to give it away to a lender later. However, if you want to use part of the equity in your house as a one-time remedy to bridge an unexpected gap in your income, then refinancing can become an effective tool. But be prepared to demonstrate to the lender your future financial prospects.

50% of the property value tied up as security for a loan or loans, the remaining 50% is all equity. Of course, the lower your existing loan-to-value in a property, then the higher the amount of equity that is available. So, for illustration purposes, assume that a homeowner with 50% equity in a $100,000 property wanted a loan from a The chart on page 16-37 also shows how to tally the outstanding loan and liens against a property and then subtract it from the estimated property value to get the existing loan-to-value ratio against that property. When shopping the different lender loan programs, compare the existing loan-tovalue figure you come up with on your property to the lender's loan-to-value ratios in order to quickly determine the amount of available equity. Or save time by giving your existing loan-to-value ratio to a mortgage broker(s), who may be very useful in interpreting your particular case and then finding an appropriate lender. Of course, securing the loan ultimately depends on the homeowners's credit rating. Your Credit Rating Now that you have determined that you do have some equity available, the lender will want to know whether your credit rating is good or bad (see pages 8-11 and 8-12). If your credit is good and you have not received a notice of default (NOD), then you may be eligible for all 3 of the above loans. However, if you have received a notice of default (NOD), then, generally, you may be disqualified for any loans except a hard money loan. In other words, a NOD usually is issued after the mortgage payments are 3 or more months delinquent which places the homeowner not only far beyond most

5
If your credit rating was blemished prior to receiving a notice of default, or not until you received the NOD, or after you filed bankruptcy, then you may be able to clean up your record by using 1 or more of the methods suggested in the companion primer on credit repair. Best and Worst Case Scenarios To illustrate how the above factors play off each other, contrast a worst case scenario with a best case scenario. In a worst case scenario, you would have received a notice of default, have very little equity, property values are declining in your neighborhood and a disability has left you permanately without income. Chances of obtaining a loan under these circumstances are very slim, but not impossible if you are willing to pay enough (except for the possibility of help from the Consumer Credit Counseling Service or a HUD counseling agency mentioned in Option chapters 1 and 3 respectively). Here's a best case scenario. You are behind in payments, but not yet in foreclosure. You have a high equity. Land values are rising and your income promises to resume or increase soon. Chances would then be excellent that Determine the current market by asking neighbors and real estate agents whether houses in your neighborhood are going up in value, down in value, or have been flat over a period of months or for a year. Read more on calculating market values later in Option chapter 7, page 11-2. Find out the comparables in your neighborhood by calling Dataquick at 800-888-4492, extension 152. A fee will be charged and payment may be by credit card.

How To Win By Refinancing

you would qualify for a premium loan at a reasonable rate. Thus, generally speaking, another key factor about refinancing: the more your particular situation leans toward the worst case scenario, the higher will be your costs to refinance and the lesser will be your selection of willing lenders. Lenders Change With the Real Estate Cycles Have you noticed whether the current real estate market values in your neighborhood are appreciating, depreciating or stagnant? The current real estate trends will affect the lenders attitude toward loaning money. During the 3 main real estate cycles your property's value either: 1. Appreciates, gains equity; 2. Depreciates, loses equity; or, 3. Remains flat, neither gains nor loses equity. Generally, when real estate values are going up the cushion in a property virtually grows, so lenders make loans easier to obtain by cutting loan costs in an effort to compete for business. When property values are going down, or are remaining flat, even though many lenders get tighter, they usually offer some very low loan costs and interest rates in order to attract customers. And since

How To Fight Foreclosure And Win With Honor


circumstances, such as with a cosigner or collateralized by a second piece of real estate. Whether you have received a NOD or foresee the possibility of one soon, the equity line in today's mortgage market offers a seemingly streamlined ride to fast cash in 2 to 4 weeks at comparably low costs and low interest rates. And on lines of up to $100,000, the interest can be written off on your tax return. Most equity lines are offered by the major banks using a LTV of between 70% to 80% minus any existing loans against your property. The difference becomes the amount of your equity that is available to borrow on. The interest rate is variable, and the rate cannot exceed a rate cap of between 5% to 10% as the market rates cyclically rise. You pay interest only on the money you borrow. The fees and the interest rate will be higher for equity lines secured by a property other than the one you occupy. Unlike an adjustable rate mortgage, which also features variable rates, the principal loan balance on the equity line can be paid off without canceling the right to reborrow on the line later. In fact, while some equity lines must be renewed annually, many of the new-breed bank equity lines remain open for 10 to 25 years. If you decide to go for a few years without a balance, then you will only be charged a nominal annual maintenance fee of about $60. There are no prepayment penalties with equity lines.

lenders definitely do not want to repossess a house, especially during a slow market, this may be an opportune time to take control and negotiate a refinance package which could include both extra money for general spending as well as money to cover the back mortgage payments. THE 5 TYPES OF LOANS A Notice Of Default will vastly diminish your borrowing power. So, if you have not yet received a NOD, but: (1) are short of funds to pay the mortgage payments, (2) have not been paying for a month or more, or (3) have actually received a letter or phone call from the lender threatening to foreclose if you do not pay--then this may be a last chance to look into a loan on your equity. First, ask the defaulted lender to holdoff filing at least a month while you look for refinancing, then quickly shop around for the best equity line of credit or a conventional refinance. Generally, once you have received a NOD, hard money may be the only loan available to you. Yet, under certain circumstances, you still might qualify for the conventional or equity loan. Prequalify yourself on all 5 loans with The Prequalification Worksheet on page 8-17.

The Equity Line of Credit Although the equity line of credit is probably the best overall refinance option of the 3 mentioned, many lenders may balk if you have received a Notice of Default. Do not let this be discouraging. Even if you have received a NOD, lenders can be persuaded to lend under certain

7
A line of credit in banking is called an open-ended loan. Credit cards are openended. A closed-end loan is a one-time loan that closes, or ends once it is paid off, like a regular mortgage or auto loan. That means you can no longer borrow against it. Some banks will, if you still have a balance on the line at the end of the specified time period, convert the equity line into a regular year closed-end, amortized--principle and interest-mortgage. The line is reevaluated depending on your repayment sched ule. It could be every year. It could be every 5 years. It could be once every 10 years. Your application can be taken over the phone in less than 15 minutes and is based on income, employment and equity setup. Usually, you receive an answer within 24 to 48 hours. If the bank decides to grant the loan, they order and pay for all the necessary processes such as appraisal and title. Start shopping for an equity line by calling around to the major banks listed in the Yellow Pages and asking for current rates and costs. The long list of costs routinely charged for either the complete refinance or the hard money loan are not currently charged on the equity line by many banks in most cases. Some banks actually charge nothing or just a nominal fee of less than $100. The interest rate is usually calculated by adding a fixed "lender's spread" or gross profit margin of about 3.50% to some publicly advertised variable benchmark rate, such as the interest rate that the bank pays out for a 6-month jumbo certificate of deposit. In other words, if, during 1 month's time, that benchmark rate averages 6.50% which is added to the lender's spread of 3.50%,

How To Win By Refinancing

then 10% equals the total interest charged on your loan for that month (6.50% + 3.50% = 10%). Although the lender's spread will not change, the benchmark rates frequently drop or rise with the loan marketplace. Thus, each month the interest rate charged for the loan may be different. Predictably, interest rates on equity lines dip in low markets and rise in high markets. While this "floating" interest rate may be a blessing to the borrower in low markets, it can be dangerous in high markets such as during 1981-1982 when rates nearly doubled from 11.5% up to as high as 23%. This instability of rates is actually 1 of the more beautiful aspects of an equity line since the borrower's principal loan balance is also allowed to float. It goes upward as funds are needed (to a predetermined time and dollar limit) or downward to a zero balance as payments are made toward both the monthly interest charges and the principal loan balance. In essence, the borrower becomes obligated to 2 types of payments: (1) to repay the money borrowed, and (2) to pay monthly interest on the borrowed money until it is all repaid. When the interest rates do begin to rapidly swell, things can get ugly quickly for the equity line borrower who has a large loan balance and no fast means by which to pay it down. For instance, the borrower who has $10,000 out at 10% pays $83 per month in interest only. When rates suddenly swell to

How To Fight Foreclosure And Win With Honor


priority position. (Equity line loans that become a trust deed in a third position are usually only granted on properties with which the lender also holds the first and second trust deed.) When the bank extends, for example, a line of credit with a limit of $50,000, the bank simultaneously records a trust deed to protect the entire $50,000. If the homeowner only borrows $10,000 from the $50,000 line of credit and later defaults on the payments, then the bank could only initiate foreclosure proceedings on the $10,000 amount borrowed and not the recorded amount of $50,000. prospects, then the banks may be more difficult to convince. Even with a million dollars worth of equity in your home, when the banks see no way income to provide payment on the line, they will be reluctant to lend. The bank doesn't want to take your home in foreclosure, they want to be paid exactly the way you agreed to pay. Prequalify yourself on the equity line of credit loan with the Prequalification Worksheet on page 8-17. Conventional Refinancing Generally, this may be very similar to the loan you received when you originally purchased your property. Conventional refinancing will pay off all of the existing loans against your property by creating a single new loan (also tapping into some of your equity). While the average loan-to-value for refinancing in today's market is about 70%

15%, the monthly payment on the same $10,000 also swells to $125. At a rate of 15%, in order to remain with an $83 monthly interest payment, that borrower would have to pay down the principal loan balance to $6,640 ($6,640 times 15% divided by 12 months equals $83 monthly payment). So, when the media or other source reports rising interest rates, consider paying down the loan balance on the equity line in order to avoid skyrocketing costs. If the payments are not paid as agreed, then the loan may again become subject to foreclosure. The reason for this is that most equity lines, like most real estate loans, are protected by a trust deed. If you already have a first trust deed on your property, the equity line loan will then become a trust deed in a second If your house is in foreclosure when you apply for the equity line, never volunteer that information unless the lender specifically asks, since there is always the chance that the lender's search will not discover the NOD. If the lender does find out, it may be difficult to get an equity line unless you have good reason and can persist in convincing the bank to make the loan. However, equity lines are routinely used to cover a loss of income or for debt consolidation such as in Option chapter 1. If the prospective equity lender discovers your mortgage default, rationalize that it is to be included in the debt consolidation covered by the equity line. If you just received a new job, an inheritance, a gift, an unrecorded personal loan from family or friend, or other such new income, you may be able persuade the bank to issue an equity line in order to pay off the arrearage and get you back on track. However, if you lost your job and don't anticipate getting it back soon, nor have any other income

9
to 80%, some LTV's are as low as 95%. The interest rates are among the lowest offered on the mortgage market, and both the "fixed rate" and the initially very low "variable interest rate" loans are available. Unlike the equity line, conventional refinancing has set amortized payments which pay off at a set rate for a set period of time such as 15 or 30 years, even when adjusted on the variable rate program. Refinancing drawbacks are that your credit must be good, in the A or B category, and the costs to obtain the loan are high. While the primary purpose for refinancing is to pull some cash out of your equity, depending on your situation, many secondary purposes may be just as appealing. Study your own case to determine whether there are any secondary benefits to a refinance. Perhaps the most popular use of refinancing is to buy a partner out of the property and put the loan solely in your name, particularly when the foreclosure is triggered by a split with a financial partner such as during a divorce. Or refinance to reduce your monthly payments by switching to a lower interest rate or a to new type of loan, such as an Adjusted Rate Mortgage (ARM), especially if the negotiation techniques mentioned in Option chapter 3 fail to any bring reduced payments. Otherwise, in general, refinancing might be worthwhile if a combination of any of the following apply: On the other hand, even though you will pay a higher average interest rate by having multiple loans, with the refinance, you will actually end up, in effect, paying twice for the same loan costs. It works like this. When you originally obtained your first and/or second loans you paid certain loan costs. When you refinance,

How To Win By Refinancing

1. You have not yet received a NOD; 2. You have received a NOD, but have a very good excuse to give to a loan officer; or 3. Your credit is otherwise good, if the interest rates on your existing loan are high, and if your existing LTV in the property is low, yet your equity is high. With refinancing, you end up with the simplicity of only 1 loan to service while the equity line or hard money loan methods create an additional loan on top of the already existing loan(s). Thus, the complete refinance avoids the hassle of several different loan amounts to keep track of, including several different interest rates and several payments due on several different dates. Also, the interest charged on a complete refinance is generally less than the combined average interest rate charged on a multiple of loans. This is because lenders generally charge more for loans in a second position than for loans in a first position, and even more for loans in third position than for loans in a second or first position.

you pay-off those existing loans, but then reborrow the same amount, plus whatever you borrow on your equity. Then you are charged new loan costs for the total amount.

10

How To Fight Foreclosure And Win With Honor


payments and/or have high equity. The cold fact of the matter is that if you have already received blemishes on your credit record, then you may only qualify a of "hard money" loan depending on the degree of your financial difficulty. Assuming you were eligible to put a second or third mortgage on your property, the process is similar to conventional financing. Some of the differences would be: 1. You keep your existing first and\or second mortgage and only obtain a loan on a percentage of the remaining equity. This is like an "equity line of credit," but is closed-ended (see The Equity Line of Credit page 8-4). 2. The interest rate would likely be higher for a second or third mortgage than for a conventional mortgage. Other differences may exist. You may want to explore this option further if you qualify for such a loan. Prequalify yourself for these types of loans with The Prequalification Worksheet on page 8-17. Hard Money Loans

So in essence, you pay the loan costs twice: once on the original loan and then again with the refinance. Thus, the lower the existing loan(s) to be refinanced, the lesser the double costs and the better the refinance option. Exception to this would be in cases where the prevailing rates are much higher than the rates on your existing loan(s). The key is to do your math. Figure out if the combined monthly payments of your existing mortgage(s) and a new additional loan would be cheaper than just paying the new loan costs for a complete refinance. Fill out a Do-It-Yourself Refinance Worksheet, found on pages 8-13 through 8-16, for each conventional lender you approach for a loan. Also, check page 20-1 for information about The Mortgage Kit, by Thomas C. Steinmetz, published by Dearborn Financial Publishing, Inc. The Mortgage Kit may prove to be a valuable tool for understanding and obtaining not only a conventional loan, but also other loans as well. Refinancing can take 30 to 60 days to process if no snags exist. Although the prequalification and application phases may take only a day or 2, sometimes paying off the old loans can slow things down two weeks or more. As with most loans, depending on the circumstance, the fees and the interest rate for the loan on the nonowner occupied property will be higher. Second Or Third Mortgages Second or third mortgages are not very feasible in a foreclosure or preforeclosure situation, but not impossible. As in conventional refinancing, your chances of receiving such a loan are better if you have not yet received a notice of default, have not missed too many mortgage

Hard money is the most controversial of all loans. It can be the financial life rope that is thrown quickly to you when no other lender will loan, yet that same rope can become the merciless noose of high payments that ultimately chokes your house away from you. Rather

11
than being seduced by the fast money, the key is to do your arithmetic to figure if you can afford the high costs of a hard money loan. Prequalify yourself for a hard money loan with The Prequalification Worksheet on page 8-17. A large part of the hard money industry has evolved to fill a niche for consumers who have fallen on bad credit or poor economic times, yet still are in need of a loan. Most of the funds used for hard money loans come from private investors who expect a high yield. Since a hardmoney loan is based entirely on the equity in the house, the standard rules that apply to regular loans, such as good credit and income, do not apply to hard money. The borrower usually does not even need to provide tax returns or income verification. Other aspects are different, too, and all are designed to protect the lender. Generally, the hard

How To Win By Refinancing

Remember a general rule regarding the overall costs of a hard money loan: the LOWER your existing loan-to-value, the HIGHER a risk you will be to a lender, and thus the HIGHER will be your loan costs and interest rate.

money loan-to-value, and thus the amount loaned, is much lower than is the case with conventional or equity line loans. An LTV of 60% to 65% LTV is preferred by the hard money lender. Also, the term of the loan is shorter, usually only 1 to 7 years. Some hard money loans can be processed in just a couple of days or weeks. However, beware of some unscrupulous lenders who might string you out to the last minute to force you into unfavorable terms. However, by far, the biggest difference is the costs. The interest rate is normally 5 percentage points or more higher than regular mortgage rates. And the cost of the loan can be as high as 16 percentage "points" of the principal loan amount. For example, if the loan is for $20,000 and the "points" are 14%, then "the cost of the points" would be $2,800 ($20,000 times 14% equals $2,800). This is subtracted from the principal amount of the loan ($20,000 minus $2,800 equals $17,200). Furthermore, subtract from this $17,200 all the regular costs involved with a conventional loan. If those costs equal $2,200 on a $20,000 loan, then that amount is deducted from the $17,200, which leaves $15,000. You only receive $15,000 in cash, but you still owe the full $20,000. Out of the $15,000, some hard money lenders will pay all your back payments, taxes, etc., before finally giving you any remaining money. If you owe $3,000 in back payments and $2,000 in back taxes, then you may only receive $10,000. You suddenly may begin to understand why it is called hard money. (Some people call it "hardly any money!") And, although such a loan may be easy to get if you have the equity, it can become very hard on your already over-burdened finances. And that's not the half of it.

As mentioned before, the term of time is much shorter and the interest rates are much higher with hard money than regular loans. The interest, instead of being amortized, is usually straight interest paid monthly over terms of 1 to beyond 7 years. If 15% is charged on $20,000 for a term of 3 years, then the payment would be $250 per month ($3,000 per year), interest only, which means none of the $20,000 principal payment is whittled down with the monthly payments. At the end of the term, the entire $20,000 must be paid back as agreed, or possibly renegotiated, or foreclosed upon. That would be $9,000 in 3 years, and a total cost of $14,000 for the use of $20,000 for 3 years ($2,800 "points" plus $2,200 costs plus the $9,000 in interest payments equals $14,000). We're talking about HARD money. Add to this some of the horror stories about the questionable lending practices of a few unethical hard money lenders. The worst of these are about innocent borrowers who are anxiously awaiting a hard money loan when just days before their house is to be sold in a foreclosure auction the hard money lender says they cannot qualify for the loan after all. Some borrowers had even been given a written guarantee that the promised rates would not change. However, the borrower also signed a disclaimer form when the loan application was taken which stated the loan was "subject to lender's approval." This gives the lender room to legally change the rates which, as some lenders have demonstrated to be their intention from the beginning. When the borrower is offered an emergency loan with higher

"points" and interest costs, many times the borrower goes for it in a panic or to avoid the frustration of shopping around at the last minute. In order to combat these lenders who make last minute increases in loan costs and interest rates, simply apply for many loans at once. Since many hard money lenders charge no application fee, take all your information over the phone, and give quotes within 48 hours, you can easily develop several loan options within Try to contact 5 to 10 different hard money lenders within a few hours. Basically, they will want to know the property address and how much you want to borrow. They can find out how much is owed on the property, including mortgages, taxes, liens, etc., if you do not know. But, as stated above, they will not loan more than 60 to 65% loan-tovalue, including the amounts already owed against the property. As the quotes come in, ask for a rate lock in writing and do not sign any disclaimer with the words like "subject to lender's approval." Next, do your math. Figure out if you will be able to afford it. Resist the temptation of letting the loan be a band-aid on a problem that will reappear later as another foreclosure. Why waste good equity now if you cannot afford the hard money loan and will lose the house later anyway? Instead you could sell the property quickly at a discount and keep some of that equity for yourself. In any case, even if you change your mind after you have signed the loan papers, by law, you have a 3 day right of recision to cancel the loan. Beware of house hunters in disguise. A few hard money lenders hope that the borrower will default on the loan, allowing the lender to foreclose and take over the property along with its remaining equity. They play a numbers game to see how many times they can

a few hours. Start by calling around to all the lenders found in the Yellow Pages or the newspaper under "Real Estate Loans." Although few or none will call themselves hard money lenders, you can distinguish them from the regular lenders by the language in their ads: "Easy to Borrow," or "Credit and Income Problems OK," or "Quick Money." pick up a property with equity while surviving on the income generated by the loans. Although there is no way to be sure, usually a house hunter is an individual lender or small company whereas the straight lender is characteristically from a larger institution. Let's consider the typical scenario involving a hard money loan. You are married. Both of you have a good steady income and so you buy a house. Then a recession hits and not only does your spouses' commission income get cut in half, but you have an accident and cannot return to work for 6 months. The disability payments are half of what you normally make and are slow coming in. Consequently, you get behind in all your payments in order to make the mortgage, thus your credit becomes blemished. You use some of your savings. When your child has emergency medical treatment, you may quit making the mortgage payments in order to cover the child's doctor and hospital costs. Although your personal doctor bills for your accident were paid by insurance, the doctor says you'll have to stay out from work for an additional 2 months.

You receive a notice of default on your mortgage just as the only good news arrives: your husband's work and income has finally picked up. Since you have a lot of equity, you start looking around for loans, but only at a few banks. Even though you have a good excuse, the banks turn you down. Discouraged and unaware of the diversity of loans available, you don't shop around for other types of loans. Then you see an ad in the newspaper or hear something on the radio about quick cash. Even though the costs, interest rates and monthly payments are extremely high, they promise to give you the money you need to pay-off and consolidate all your debts and still have some spending money. You decide to go for it. Soon you are back to work and your husband's income has actually increased beyond its previous limits. You have successfully saved yourself from Knowing now what you do about loans, you might approach a friend or relative offering a rate of interest higher than they are currently receiving in their bank certificate of deposit. The property can be the collateral even if you have little or no equity. Or maybe a friend or family member will take other collateral or simply trust you. Go to the stationary store and buy a standard form "Promissory Note Secured By A Deed Of Trust." Be sure it is for California legal use. It should be self-explanatory. Write it up. After the loan is made, record it at the county recorder's office. Or your title company or a recording service might save you a trip to the county record's office. Prequalify yourself on these types of loans with The Prequalification Worksheet on page 8-17. MORTGAGE BROKERS A good mortgage broker can get just about any loan for just about anyone. They are very flexible, offering 50 to 60

foreclosure and are back to work, but now you have a large monthly payment on a hard money loan. These "interest only" payments will continue for 1 to 5 years, until the principal amount of the loan becomes due. These payments will suck up a lot of your extra cash. Tragically, the majority of hard money loans go into default and foreclosure before they are due. However, in such cases, there will no longer be enough equity nor much chance of getting another loan. The exception would be in cases where the real estate market has appreciated during the course of the loan. Borrow From Relatives Friends Or

different refinance programs depending on the borrower's credit, debt-to-income ratio, their loan-tovalue ratio, their job stability, income, condition of the property, mortgage payment history, etc. Points and costs are figured on a

case-by-case basis after the applicant supplies all their facts. Some loan packages don't include appraisal fees and some don't include points. The basic rule: the better your credit and income the better your bargaining position; the worst your credit and income the worst your bargaining power.

newspaper classified ads under "Real Estate Loans." Give them the information they ask for and they can shop around to find the best loan for you. Many times they will return to you with several different options that might be best for your particular situation. This method may be the only way you choose to You can find a mortgage broker in the shop loans or it may be one part of Yellow Pages and sometimes in the your loan shopping program. ---------------------------------------------------------------------------------------------------------------------------------THE ROUTE OF THE TYPICAL INSTITUTIONAL REAL ESTATE LOAN

HOW LENDERS RATE HOMEOWNERS Whether you will qualify for an equity line of credit, a complete refinance package or a hard money loan will depend on how you rate on the lender's "paper" scale. Similar to the letter grading system used in most school report cards, "A - paper" is the best rating, B is second best, etc. The following are a typical set of guidelines that lenders may use to rate borrowers. TYPE "A" Perfect credit. No blemishes. TYPE "A-" Credit History: 1. All installment and/or revolving debt must have been paid satisfactory as agreed. Any minor derogatory items (i.e. a 30 day late) must be satisfactorily explained. 2. There can be (1) 30 day late payment on existing mortgage loans. 3. No major derogatory items such as Bankruptcy or Notice of Default, in past 5 years. 4. Public records must be clear. Income: 1. Steady employment for 3 years. TYPE "B+" Credit History: 1. Installment and/or revolving debt is paid as agreed for the most part. Any minor derogatory items are explained with reasonable cause. 2. No more than (2) 30 day "lates" within a 12 month period on all mortgage loans. 3. No major derogatory items, such as Bankruptcy or Notice of Default, in the past 3 years. Income: 1. Steady employment for 2 years.

TYPE "B" Credit History: 1. Installment and/or revolving debt is paid as agreed for the most part. Any minor derogatory items are explained with reasonable cause. 2. There can be 4 30 day late payments within a 12 month period on all mortgage loans. 3. No major derogatory items, such as Bankruptcy or Notice of Default, in the past 2 years. Income: 1. Steady employment for 2 years. TYPE "C" Credit History: 1. Traditionally slow paying installment and/or revolving debt (i.e.30-60+ days). 2. Mortgage payments are usually slow, 30-60 days. 3. No major derogatory items, such as Bankruptcy or Notice of Default, in the past 12 months. 4. Borrower has not established a satisfactory credit history. Income: 1. Must be able to substantiate income over last 2 years.

This is only a guideline--all loans are considered on a case-by-case basis.

Refinance Worksheet 1 - Appendix H, Dearborn, by permission

Refinance Worksheet 2 - Appendix H, Dearborn, by permission

Refinance Worksheet 3 - Appendix H, Dearborn, by permission

Refinance Worksheet 4 - Appendix H, Dearborn, by permission

The Prequalification Worksheet


For All Loan Types
(make as many copies as necessary to shop all loans)

Lender: Loan Type:

Representative:

Phone:

Lender's Loan-To-Value Ratio For This Loan: $ $ . .

1. Market Value of Property: 2. New Loan Amount: 3. Interest Rate: 4. Term Length of Loan: 5. Loan Costs: a. Points: $ .

multiplied by New Loan Amount $

b. Total of All Loan Fees (List all loan fees on separate sheets.) = $ . c. Other Costs (List all other costs on separate sheets.) =$ . . 6. Notes: I. Total Loan Costs = $

8-23

HOW TO WIN BY USING THE LEGAL SYSTEM


Let me preface this chapter by sharing a related story. An earlier draft of this chapter had been read by an attorney, one who does not specialize in foreclosure. Afterwards, he cautioned me to not to build up too many hopes in the legal system when, in fact, it is an uncommon way to fight foreclosure. Although this may be true, this book would be incomplete without information on the legal system. Certain homeowners in foreclosure not only may need to know what to expect from the legal system, but also when to use it. In certain circumstances, the legal system may be the best route to a fair remedy, or may be a good way to just open up negotiations with a lender. Most of the information in this chapter was obtained from attorneys, law books, legal digests or consumer groups, all with focuses on foreclosure matters. Among other things, this chapter contains important help and research regarding lender fraud or errors from Consumer Loan Advocates (CLA), and, also, 5 model lawsuits - legal defenses against foreclosure - written by lawyer Laurence Adams Malone, LL.B, Ph.D. As mentioned earlier in the disclaimer, I am not an attorney and am not giving legal advice. I am only trying to save you time and money by reporting what I have discovered while researching foreclosure. If this chapter helps someone, then it will be a success. So, read this chapter with an open mind. If something seems to fit

9-1

your situation, contact an appropriate legal service for a professional opinion. Basically, the lender and the foreclosure trustee, as well as other relevant parties, are required to act according to a prescribed set of rules and/or contractual agreements. If they do not, or if they have committed fraud, then the borrower may have the grounds for a lawsuit. The legal system may be used to fight foreclosure when errors or fraud are found in the Even though loans may seem complex, they are really just governed by basic contract principles. When a homeowner stops making loan payments, doesn't the lender use a provision of the trust deed contract to foreclose? Likewise, if the lender commits fraud or refuses to correct an error, then why shouldn't you use the legal system to fight foreclosure? Some loan watchdog groups, such as Consumer Loan Advocates (see pages 9-7 through 9-10), report that many lenders leave lots of room for errors, and even fraud. (See page 9-6, Finding Errors In The Loan Servicing.) Progressive Solutions Institute, which trains real estate agents to help homeowners in foreclosure (see pages 11-8 through 11-9), has said the same about trustees and foreclosure documents. (See page 9-3, Finding Errors In The Foreclosure Process.) In fact, errors and fraud can be created by almost anyone connected with your loan, starting with the originator of your loan and ending with the bidders at the foreclosure sale. It may be possible to use any evidence of the errors or fraud mentioned above to delay or terminate the foreclosure action, or possibly, to obtain a money judgment. But first, it is important to remember two points about errors and fraud: 1. An accidental error is vastly different than intentional fraud,

documentation, the servicing, the procedural steps or the overall administration of: 1. The foreclosing loan(s), 2. The foreclosure process, or 3. The original property purchase transaction. (This is rare, but possible). and usually requires a different remedy. (Generally, errors may be used to negotiate a delay or stop in the foreclosure; fraud or uncorrected errors may need strong legal action, such as a lawsuit.) 2. In either case of error or fraud, always try to negotiate with the lender first. PRELAWSUIT NEGOTIATIONS A rule of thumb: Always negotiate for a solution and to avoid a lawsuit. However, if negotiations fail to bring about a reasonable solution, then a lawsuit may be your only remedy in certain cases. Lenders file a NOD in search of a solution. Many times lenders prefer to negotiate a solution in order to avoid going to a trustee's sale, or becoming involved in a lawsuit. The negotiations will depend largely on the severity of the error or fraud. Once you have found proof of an error or fraud, you may want to consider the following options before proceeding in negotiations with the lender, servicer or trustee:

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1. Request that the foreclosure be stopped and that no new action be taken. 2. Request that the foreclosure be delayed, suspended or restarted from the beginning. 3. Ask an attorney to negotiate your case. This may give the negotiations additional power. (Although this may add an added expense, some lawyers may write letters for a reasonable fee. Also, call your local Bar Association for the telephone number of any free or low cost legal clinics.) 4. Threaten to file a lawsuit, if the grounds exist. (Again, an attorney may be helpful.) 5. File a lawsuit, if the grounds exist. A filed lawsuit may persuade the lender into negotiations. (Again, an attorney may be helpful; if you need to proceed with a lawsuit, see page 9-11 for a very general overview of what to expect from a lawsuit.) book, How To Avoid Foreclosure on Your Home, Farm, or Business. See more on finding a real estate broker on page 11-7. (Progressive Solutions Institute trains realtors to find errors in foreclosure documents and procedures.) Some real estate brokers may have background as an attorney, or vice versa. Or, a real estate broker may be able to recommend an attorney with experience in foreclosure matters. An attorney who specializes in loans or foreclosures may be very helpful in ferreting out errors. If, at some point, you decide to go to court against your lender or trustee, then you may need an attorney familiar with foreclosure, anyway. To find such an attorney in your area, consult the local and regional yellow

FINDING ERRORS AND FRAUD If you are not already aware of any errors or fraud in your documents, then you may want to look for them anyway. Look through all your loan and foreclosure documents, as well as any other related paperwork. If a NOD has been filed and you are racing against the foreclosure clock, may need to accelerate the reading process. An aggressive researcher, whether yourself or someone you hire, who scrutinizes every aspect of the loan and pre-foreclosure process, including the documentation, can be very effective at finding errors. "Have an expert realtor (real estate broker) study your loan documents for errors, typographical errors, errors in spelling names, addresses, anything on which you can challenge the documents," advises attorney Laurence A. Malone in his lawsuit-strong pages under such categories as "Legal Aid," "Legal Clinics," or "Legal Services Plans;" or specializations under "Attorneys," such as foreclosure, or maybe even bankruptcy. You might also call the local or state Bar Association or call the CLA number listed on page 9-10 for a recommendation (CLA specializes in interest errors in loans). Regardless of whether you choose a lawyer, a real estate broker or other appropriate researcher(s) to look for errors or fraud in your documents, take extra care before you hire one to determine: (1) their knowledge of foreclosure legal work, and (2) their fee

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for reading your documents for errors. On this last point, you may get a free reading from a friend in the legal or real estate business, or from someone in a legal clinic. Also, if a case has the strong potential for money damages, then an attorney may take the case on contingency, meaning no up-front money now, but a large percentage of any future money settlement or judgment. Interview as many prospects as possible in order to find a reader who knows foreclosure well. Otherwise, you may end up paying for their time to learn the subject! To screen the prospects, rephrase some of the key points in this chapter, and the book, into questions in order to determine whether they know about foreclosure principles. The main point is to make a wise and informed decision when selecting someone to read your documents for errors. Upon finding and retaining the right person, give him/her copies, not the originals, of all your loan documents and foreclosure papers. Remind them that time is of the essence. Two areas where errors commonly occur: 1. Errors In Process. The Foreclosure

grounds to negotiate favorable changes in the loan terms, to launch a lawsuit or to receive a money settlement. According to California Civil Code Section 2924, certain events must occur at prescribed times during the foreclosure process. In addition, the names, addresses, document numbers, etc., must be spelled correctly on the foreclosure documents. Since the slightest error is common and helpful, read every document and check every procedure generated during the foreclosure period for accuracy: 1. Study the facts that appear on the NOD and the NOTS that you receive, that appears in the advertising and that is posted in a public place. These must be compared, and checked for errors, to the facts which appear on the promissory note and deed of trust that you signed when you secured your loan. 2. The procedure that the foreclosing trustee used must be compared, and checked for errors, to the timelines that are specified by law. Check the accuracy of your documents by using the following checklist as a general guide (see pages 1-27 through 1-29 for examples of the documents you most likely received at the time you first signed for your loan secured by a trust deed; see pages 1-30 through 1-36 for examples of documents that are likely to be prepared during the foreclosure process, some of which are sent to you):

2. Errors In The Loan Servicing. Finding Errors In The Foreclosure Process - The lender or trustee often makes mistakes in some aspect of the foreclosure documents or process ranging from a misspelled name to neglecting to publish, post, or mail the NOD and/or the NOTs. By finding these errors and pointing out them out to the lender/servicer, the homeowner can force a delay or stop of the foreclosure. Many times, pointing the error(s) out at the last minute in the foreclosure timeline can create a maximum delay. Significant errors, or fraud, may be sufficient

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1. Compare for exact accuracy the details on your promissory note and trust deed to the details on every document the trustee mails, advertises and posts during the foreclosure process (see page 1-26 for explanations of each detail): a. Document Number, b. Date of Execution, c. Trustor (borrower), d. Trustee (unless a Substitution of Trustee, page 1-30, has been filed; if so, check it too), e. Beneficiary (lender), f.Legal Description, g. Amount of Indebtedness, h. Venue, i. Look for errors or discrepancies. 2. Check the accuracy of the procedure used by the foreclosing trustee. Compare the following timeline to the dates on every document that the trustee mails, advertises and posts during the foreclosure process (see Power of Sale, page 17-1, for the California Civil Code Section that governs foreclosure procedure): Day 1 - Recording the notice of default: The date that the notice of default (see page 1-31 for an example of a notice of default) is recorded begins the 3 calendar months of the default period. The notice of default must have certain specified information. [See highlighted sections on pages 17-1 and 17-2 within CC2924.]

Within 10 days from recording the notice of default: The trustee must mail a copy of the notice of default to every trustor on record and to anyone who has filed a request for notice of default and request for notice (see more on requests for notice on pages 11-15 and 11-43). [See highlighted sections on page 17-4 within CC2924b(b)(1) and on page 17-6 within CC2924b(e).] Also, the notice of default must be published once a week for at least 4 weeks in a newspaper of general circulation in the county in which the property is situated if certain circumstances exist. (See page 1-33 for an example of a published notice of default.) [See the highlighted section on page 17-5 within CC2924b(d).] Within the first month from recording the notice of default: The trustee must send by certified or registered mail a copy of the notice of default to the borrower, and those listed in A through F on page 17-5. [See highlighted sections on pages 17-4 and 17-5 within CC2924b(c)(1)(2) and page 17-6 within CC2924b(e).] 3 months from recording the notice of default: The trustee must give notice of the trustee's sale, stating time and place, and containing certain specified information. (See page 1-32 for an example of an notice of trustee's sale.)

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[See highlighted sections on page 17-2 within CC2924 and on pages 17-11 and 17-12 within CC2924f(b)] 25 days before the trustee's sale date: The trustee must send a notice of trustee's sale to the IRS whenever the IRS has a lien recorded against the property. 20 days before the trustee's sale date: The trustee must post a notice of trustee's sale in a public place and on the property in foreclosure. [See highlighted section on pages 17-11 and 17-12 within CC2924f(b).] The trustee must send by certified or registered mail a notice of trustee's sale to each person who was sent a notice of default, including any state tax agencies, notifying them of the date, time and place of the trustee's sale. [See highlighted section on page 17-5 within CC2924b(c)(3) and page 17-10 within 2924e.] Within 10 days from the first publication of the notice of trustee's sale: If the property in foreclosure has no common street address or designation, then the notice must list the name of the lender, who, in turn, must provide written directions to the property upon request. [See highlighted section on pages 17-11 and 17-12 within CC2924f(b).] 14 days prior to the date of the trustee's sale: The notice of trustee's recorded with the county the county in which the located. [See highlighted sale must recorder of property is section on

The trustee must publish a notice of trustee's sale once a week for 3 weeks in a newspaper of general circulation in the county in which the property is situated if certain circumstances exist. (See page 1-34 for an example of a published notice of trustee's sale.) [See highlighted section on page 17-11 within CC2924f(b).] pages 17-11 and 17-12 within CC2924f(b).] 7 days prior to the date of the trustee's sale: The trustee sale must wait 7 days after the dismissal, expiration or termination of a court ordered injunction, restraining order or stay. [See highlighted section on page 17-14 within CC2924g(d).] 5 business days prior to the date of the trustee's sale: A loan in default may be reinstated anytime from the filing of the notice of default until 5 business days prior to the trustee's sale. Within the 5 days before the sale, the loan may be reinstated at the lender's discretion. [See highlighted section on page 17-8 within CC2924c(e)] Sale day: Any reason for postponement must be made public at the time and place of the appointed sale, and concurrently, a new date, time and place must set forth.

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[See highlighted section on 17-14 within CC2924g(d).]

page

After 3 different postponements by the lender/trustee, which are independent of any borrowerrequested or court-ordered postponements, a new notice of trustee's sale must be recorded in the manner prescribed by Section 2924f. This starts the complete notice of trustee's sale period over again. [See highlighted section on pages 17-13 and 17-14 within CC2924g(c)(1)(2).] Other Laws: Request the following from the lender. If it fails to comply, you may have the basis for negotiation or other action: 1. According to Section 941 of the Affordable Housing Act (see page 9-9), lenders/servicers have a duty to respond to borrower's inquiries. 2. According to California Civil Code Section 2943, within 2 months after a NOD, and within 21 days of the receipt of a written demand from the borrower, a lender must deliver a beneficiary statement, which includes the unpaid loan balance, any back payments, the amounts of periodic payments, the date(s) the loan is due, Finding Errors In The Loan Servicing - Lenders often charge more interest than their contract specifies, collect too much for the impounds/escrow account or make some other type of mathematical error. By these errors and pointing them out to the lender/servicer, the homeowner can force a delay or stop of the foreclosure. Many times, pointing the error(s) out at the last minute in the foreclosure timeline can create a maximum delay. The more severe errors may even be used to negotiate favorable changes in the loan terms, to receive a money settlement or to launch a lawsuit.

the date(s) the taxes have been paid, amount or insurance, amount of impound accounts, amounts of liens paid by the lender and whether the loan can be transferred to a new borrower. 3. According to California Civil Code Section 2937, if a loan has been transferred to another lender, then the borrower must receive the following notice by mail: The name and address of the person to which the transfer of the servicing of the loan is made, the date the transfer was or will be completed and a statement of the due date of the next payment. 4. According to California Civil Code Section 2934a, if the original trustee named in the trust deed is to be substituted, then a substitution of trustee must be recorded before the notice of default. Additionally, if a notice of default has already been recorded, then the borrower and all others requiring notice, must be notified by mail of the substitution of trustee. Regulation Z may provide a powerful basis for negotiating with the lender regarding errors in the loan documents. Regulation Z, the Truth in Lending Law, was enacted by Congress on July 1, 1969. It provides for certain procedures that must be implemented by anyone who loaned money more than 25 times during the year or more than 5 times a year for transactions secured by dwellings (This includes almost every bank, savings and loan or institutional lender.) The procedures these institutions must follow

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include full disclosure of items such as the interest rate charged, the full amount of the loan, the full amount of the interest, and the annual percentage rate (APR). There is even a specific method of calculating the APR that must be used. Most real estate transactions governed by Regulation Z are termed closed-end credit transactions because they are offered for a specific time period. The amount of the loan, the costs and the schedule for repayment are all agreed to in advance. The lender is obligated to reveal to the borrower the exact amount of the finance charge under Regulation Z. This includes interest on the mortgage, transaction charges, service charges, loan fees, mortgage insurance, premiums for property insurance (if required by the lender) and premiums for health or accident insurance (if required by the lender). The bottom line to all of this is that calculating the APR accurately can be very difficult for the lender. Even when the calculation is made by an experienced member of the lender's team, often there are mistakes. An example of this is the Campbell case, which occurred in southern California. In this case, a borrower was negotiating a $500,000 mortgage for a residence he intended to occupy. The loan was arranged and all of the documents were ready to sign. That is when the borrower had to back out of the deal. A few weeks later, the borrower came back and said that he was now ready to proceed. This happened twice before the borrower finally went through with the deal. So, what was the problem here? The escrow company, faced with having to draw and redraw documents, added an additional fee of a little over $100 for its extra work. This fee was clearly listed in the closing statement the borrower

signed. However, it was never added into the APR. The Regulation Z document the borrower signed did not reflect this fee. A while later, when the property went into foreclosure, the borrower's attorney claimed that the lender had violated the law by not including the extra $100 when calculating the APR. The final disposition of the case was that the lender agreed that the borrower did not have to pay any interest at all. Also, the borrower was required to repay only $400,000 of the original $500,000 debt. Obviously, Regulation Z can be a strong tool in stopping foreclosure. Even a tiny error in the documents may be sufficient grounds for halting a fore-closure. Regulation Z also provides penalties for lenders who make errors, including loss of part or all of the interest due the lender, fines up to 3 times the amount loaned and possible rescission of the transaction. If you choose to try to delay or stop foreclosure by suing your lender for not complying with the Truth in Lending Law, your first step is to locate your Regulation Z documents. If you can't find them, contact your lender and ask for copies. If the lender refuses for any reason, you probably can force him to give you copies by contacting the appropriate agency that regulates your particular lender. Next, examine the documents carefully to look for errors. The APR is so complicated to calculate that your lender, even someone very experienced,

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could easily make a mistake. It could be extremely hard for you to determine if there are errors in your Regulation Z form by yourself. At this point, consulting an attorney is a good idea. Even though the attorney may cost money up front, if errors are found, and if you want to save your house, then it may be worth it. Remember, make sure you consult an attorney who has expertise in real estate loan and foreclosure matters. Even if you are unsure whether anything is wrong with the documents, Regulation Z is a good delaying tactic to slow down a foreclosure. Because of the liability involved, some lenders will abandon the foreclosure or reduce the mortgage amount when faced with a Regulation Z lawsuit. When do you attempt a Regulation Z lawsuit? First, try to negotiate with the lender. If your lender will not be reasonable, then it may be best to consult a lawyer. Consumer Loan Advocates (CLA) CLA is the nation's foremost loan auditing firm. For example, in 1991, CLA audited 9,000 adjustable rate mortgages and found a 47% error rate with an average overcharge of $1,588. Seventy-seven percent of the errors were overcharges by the lender. In a more recent study, close to a 75% rate of error was found in the monthly payment calculations on 110 home equity lines of credit, now the most popular type of consumer borrowing (see page 8-4). Sixty-seven percent of the errors were overcharges by the lender. The following is reprinted from the summer 1992 edition of the CLA newsletter Loan Watch Series: CLA has identified 5 major causes for errors in ARMs, commercial loans and lines of credit:

1. Inadequate Training of Personnel - In surveys of servicing operations, the personnel charged with managing thousands of notes on a daily basis are often the lowest ranked employees in the institution. Moreover, because lenders/servicers view these positions with such little regard and expect "high turnover," they choose not to invest in training programs. 2. Inadequate Number of Personnel - Lenders often "sell the note in the secondary market," and servicers tend to operate under thin margins. Their primary objective is to operate with as small a support staff as possible. 3. Inadequate Data Servicing Systems Many of the servicing systems still in operation today are outgrowths of the "fixed rate mortgage" environment. That is, as notes evolve and change, servicers are attempting to jam them into a system for which they were not designed. 4. Sheer Number and Variety of Notes - In a highly competitive environment lenders are constantly redesigning notes. For example, a newly introduced ARM note now allows the borrower, after the first year, to decide whether to pay interest only for a period of time, or to accelerate principal reduction. Clearly, the dynamics of this flexibility could cause nightmares for servicers. With lines of credit approaching 25% of all consumer debt, new varieties are occurring weekly.

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5. Market Dynamics - During the 1980's lenders were in a 'production' mode. Their primary objective was to increase loan volume, thereby earning fees on 'upfront points' and servicing rights. Since income on servicing was secondary, computer systems and software were not a priority. "As interest rates tumbled during 1991 and 1992, lenders entered into the refinancing frenzy. The market place swelled with homeowners who were willing to pay 'points' up front in return for lower interest rates on their mortgage. Given the rapid pace of these transactions, a high percentage Key Signs of Errors - The following is reprinted from the summer 1992 edition of the CLA newsletter Loan Watch Series: 1. The Loan has been Sold to Another Lender/Servicer. Whenever loan data is being transferred from one lender to another, there is a chance for incompatibility of data service systems. Data processing individuals are faced with having to mesh differing software programs. 2. The Loan is Based on an Unusual Index. "The 1 year treasury bill is a common index. Less common indexes force the lender to perform ongoing research to ensure the correct index is used and is taken from the correct source. 3. The Loan Spaces. Note Includes Blank

of 'pay off' balances were found to be in error. The good news for consumers is that the statute of limitations laws allow them to collect any overcharges on paid off notes. Finally, the RTC's (Resolution Trust Corporation) assumption of billions of variable rate notes into its makeshift servicing system has only served to worsen error problems. Moreover, it is well known that consumers are having difficulty communicating with this agency.

It has been shown that ARMs issued prior to 1985 have a higher error rate due to the inadequate software/hardware utilized during that period. 5. The Loan is Complex. Loans with six month terms and biweekly payments leave more room for error. 6. Lender Confusion. If a borrower cannot receive an adequate explanation from the lender regarding a perceived problem there is a good chance the lender does not understand it. Home Equity Loans are similar to ARMs - The following is reprinted from the summer 1992 edition of the CLA newsletter Loan Watch Series: Since home equity loans are ever changing, highly diverse, utilize inadequate servicing software, and need technical support, they are almost identical to ARMs. Additionally, the profit

Blank spaces left on a note allow room for typists to insert other terms and rates. 4. The Loan is Older.

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pressures on lenders during the recent recessionary period have led to limited investment in staff training and account servicing, causing customer service problems. Listed below is a sampling of errors being made by lenders on home equity loans and commercial lines of credit. 1. Lender is using an incorrect accrual basis for calculating the daily interest amount. Example: The note calls for the following daily interest rate formula. balance x rate transpired no. of days in year (365) x actual days

If the lender's servicing system is correct, 28 days of interest will be charged. However, if the lender's servicing system is on a 30 day month, 30 days of interest will be charged. 3. The lender uses the wrong margin amount. Example: The note contract calls for a margin of Prime plus 3. The lender charges the customer a margin of Prime plus 4. 4. The lender uses the wrong index value during the month. Example: The note calls for the index value to be chosen at the end of the month. The lender uses an index value at the beginning of the month.

If the lender uses 360 days for "no. of days in year" instead of 365, 5 extra days of interest are incorrectly charged to the borrower. 2. The lender calculates the wrong number of days between two interest charge periods. Example: Feb. 1 to Mar. 1 is the interest charge period and the note calls for actual days. 5. The lender uses the wrong effective date for rate changes. Example: The note calls for the interest rate to change on the fifteenth of each month. The lender changes the interest rate at the beginning of each accounting period. (This could be the first of the month, depending upon the billing cycle.) 6. The lender uses an incorrect loan balance when calculating the amount of interest due.

Example: Lender is using a $32,000 instead of a $29,000 balance when calculating interest amount due. 7. The lender uses the wrong index type. Example: The note calls for the Wall Street Prime as the index to be used. However, the lender uses the 11th District Cost of Funds.

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8. The lender uses the correct index type, but the incorrect version. Example: The Lender uses the Wall Street Journal Prime. However, it is the highest announced/published version: Wall Street Journal Prime High. But, the note calls for the lowest announced/published version: Wall Street Journal Low. (The different versions are arrived at through surveys of different lenders in various regions of the country. Depending upon lender attitudes in each region, rates can be different.) 9. The lender uses the incorrect source for the index and other errors. Example: The lender obtains the index from Telrate Systems, a firm which disseminates daily indexes direct from the financial markets. These rates can be more volatile based upon the world events of the day. However, the note calls for the index to be sourced from the Federal Reserve Board Statistical Release, which is issued weekly. The timing of the release can impact the interest rate charged significantly. Lenders Must Respond In A Timely Manner - The CLA newsletter also reports on new legislation that helps consumers collect refunds. The following is reprinted from the summer 1992 edition of the CLA newsletter Loan Watch Series: "Now, for the first time, borrowers can make their lenders accountable. The lender cannot set its own time table in correspondence with a borrower. They

must put in writing why they are servicing the loan correctly. This must be done in a timely manner or they face punitive damages. "According to Section 941 of the Affordable Housing Act, lenders and servicers have a duty to respond to borrower's inquiries. There are 2 key elements for the consumer: 1. The servicer must provide a written response to any borrower inquiry and acknowledge receipt of the correspondence within 20 business days. If the servicer does not respond during this period, the borrower has the right to sue the servicer for up to $1,000, with the servicer paying all attorney's fees. 2. Not later than 60 business days after receipt of the borrower's inquiry, the servicer must make appropriate corrections to the account, or provide the borrower with a written explanation as to why the lender is correctly servicing the account. If the lender does not meet this deadline, the borrower has the right to sue for $1,000, and the borrower can collect all attorney's fees." How CLA May Help You find Errors - CLA is in the business of analyzing loans for errors in interest rates. For a fee which will vary according to your type of loan, CLA will analyze your loan with its sophisticated computer software. CLA audits adjustable rate mortgages (ARM), a home equity lines of credit and fixed-rate loan. Of the 3 types of loans, CLA typically finds

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more errors in ARMs and equity loans than in fixed-rate mortgages. The CLA audit checks for errors in the interest rate adjustments over the life of the loan. Basically, the audit indicates: 1. The nature of the mistake, if any, and 2. An approximate dollar value of any overcharge. The audit actually does an estimated reamortization, and incudes estimates of overcharges, if any. This will reflect what should be charged by the lender, but cannot reflect any overpayments or under payments made by the borrower. In fact, any such variations in the history of the specified loan payments will affect the CLA analysis by a few percentage points. The reason CLA cannot calculate the exact dollar amount of any error is because CLA takes into account compounding. CLA's fee does not include payment application. An audit of payment application is analysis intensive and costs an additional fee, which depends on the number of years being audited. Payment application is defined by CLA as: 1. The correct dollar amount of each monthly payment, 2. The correct date that each payment was received by the lender, 3. The precise amount applied separately to interest and to principal. Since fixed-rate loans usually have the fewest errors, such an audit may not be the best value, unless, of course, an error is found. CLA claims that some problems do exist with fixed-rate loans, primarily, with the way payments are applied. Occasionally, small amounts may be

misapplied. For example, instead of a late charge being accrued, it may be added on to the principal balance, and then interest will be charged to it. When You Order a CLA Audit Analysis Report -When a borrower calls and orders a CLA audit they are sent a manual called ARM Aid. Chapter 1 of ARM Aid outlines which documents are needed from the borrower for the audit and how to get them if you don't have them already. The documents usually include such things as a copy of the promissory note, a rider, if any, and a copy of any notice of interest rate change. Send legible copies of your documents to CLA, but not the originals. In 4-6 weeks, CLA will provide you with a completed audit analysis report. For an additional rush fee, CLA can have the audit report ready in about 2 weeks. ARM Aid explains how CLA analyzes your loan with its software. The book also shows how to go about collecting an overcharge from the lender, or how to have the principal amount reduced (See Decreasing The Principal Amount under Note Modifications on page 7-10 for more on principal reduction.) The book contains helpful form letters, templates and procedures to follow. CLA stands behind their audit 100%. If the lender disagrees with the audit, CLA will explain the audit to the lender. Although most lenders are not aware of errors, when errors are brought to their attention they usually make restitution immediately. However, when a borrower has difficulty collecting,

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CLA may help the borrower on contingency for a split of the recovery amount. CLA might consider helping a homeowner on a contingency basis. Their decision to take the case depends on who the lender is, what the problem is, and if the dollar amount is high enough to make it worthwhile. For homeowners looking for errors in hopes of stalling a foreclosure, a CLA audit may be an approach to consider. On the other hand, if no errors are found, then the fees paid to CLA may be wasted LAWSUITS The purpose of this section is to give the borrower some idea of what to expect from a lawsuit. When lender errors or fraud are found and the lender refuses to correct it, then the borrower may be forced to consider a lawsuit against the lender. A homeowner in foreclosure may want to sue not only to recover damages caused by the error, but also, to stall, stop or reverse the lender's foreclosure action. An attorney knowledgeable in both California's foreclosure laws and the federal truth-inlending laws who is armed with the right error may be able to stall or stop the foreclosure process, and possibly even turn it on the lender to recover a money settlement or judgment. It is difficult to cover in the limited space of a book all the kinds of cases a worthwhile attorney could possibly build for you. The substance of your particular legal action would depend greatly on your particular situation. That is why it is so important to scrutinize your paperwork and the actions of your lender and trustee. As indicated in Option chapter 3, FHA and VA lender must attempt to cooperate with borrowers in a workout, or otherwise attempt to give borrowers some latitude in resolving their foreclosure problems. However, there is some confusion as to

money. However, it may be less than the hundreds of dollars that may be paid to a mortgage foreclosure consultant, an attorney, a real estate broker or other consultant to search for errors.

whether non-FHA and non-VA lenders similarly are required to cooperate. But, if a lender or trustee continues to foreclose without heeding a borrower's attempt to work out the situation, and CLA HOTLINE -(800) 767-2768 (708) 615-0024 if this harms the borrower, then the borrower may have the basis for a lawsuit. For example, let's say a borrower is in the process of selling or refinancing his/her property, but the escrow will not close before the scheduled trustee's sale. If the lender or trustee will not stop the sale to accommodate the escrow, then the borrower may have the basis for a lawsuit. The same may hold true when a lender will not cooperate in a workout with the borrower. This may be especially true in cases where the borrower demonstrates the ability to cure the default at a date after the scheduled trustee's sale, such as with an upcoming lump sum payment from an inheritance or business contract or other verifiable source of funds. In such cases, the lender's action may unnecessarily harm the borrower. To prevent this, the borrower would have to go into

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court and ask the judge to issue a preliminary injunction (PI) or temporary restraining order (TRO) to stop the trustee's sale. Typically, the judge would give the borrower an extra month or so, but would stipulate that if the borrower did not perform as promised, then the trustee's sale would to occur after all. Nevertheless, there are a few legal tactics that homeowners or their attorneys have used to stop or stall foreclosure. When faced with foreclosure, the best legal defense is to take offensive action as soon as possible. Since it is so important to act early in the foreclosure process and since these legal techniques may take time to process, the homeowner also should concurrently pursue any other applicable foreclosure remedy/option mentioned in this book. The following legal techniques may not apply to every foreclosure situation. However, when they do apply, they may have dramatic results. Lawsuits can be filed by an individual, or by an entire group of people in what is known as a class action suit. Lawsuits can be filed on several levels, according to syndicated columnist Kenneth Harney. The following excerpts are from a Harney article regarding mortgages (

1. "The most basic is breach of contract under state law." 2. "If the (borrower's) legal counsel can show that the lender's breach of contract was part of a larger pattern or practice, the borrower can sue for fraud or fraudulent concealment -opening the way to even stiffer monetary damages." 3. "Finally, the borrower can sue for violations of the federal truth-in-lending statue."

1992, Washington Post Writer's Group. Reprinted with permission): Even though loans may seem complex, they are really just basic contract law. Some lenders may scoff at the reasoning behind some claims of errors and say such claims are a twist of the intent of the original loan agreement. But when a borrower is four payments delinquent, doesn't the lender claim that the intent of the note for non-payment calls for foreclosure? So, too, if the lender makes a material breach of the loan agreement, then shouldn't the lender be subject to legal action by the borrower? In cases where the lender refuses to correct an error, the borrower should confront the lender with the error in writing. A letter form your attorney may have more impact. The point is to get the lender to explain, in writing, why its position is in accordance with the original

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contract. For example, if the loan agreement states that the lender is to charge interest according to a certain method, but if the lender actually charged interest according to a different method, then explain this in your letter. The borrower's letter to the lender might include copies of the loan agreement highlighting the specified interest method along with payment receipts highlighting the interest method that was actually used. If and when the lender does respond with a letter, then the borrower now has documentation of the lender's position. This documentation may be used to compare and analyze both the lender's error and the lender's excuse for the error. If the lender's excuse does not reasonably resolve the dispute, then there may be a basis for a lawsuit against the lender. In addition, if the lender does not respond to your letter in a timely manner, then the lender also may be additionally sued for violation of section 941 of the Affordable Housing Act (see page 9-9). Sometimes, lawsuits on a one-on-one basis are costly and, thus, impractical. But, perhaps your attorney will handle the case on contingency. Some loan contract specifies attorneys fees to the prevailing party. Or your case amy be so strong that you feel you will win. Just the threat of a lawsuit may prompt a lender to attempt to negotiate a settlement out of court. But if the lender still refuses to acknowledge or correct an error, then a lawsuit may be inevitable. Class Action Lawsuits - A class action lawsuit may be possible if your loan is one that has systemic errors, i.e., one of many loans in a lender's system of loans which all have the same error. Due to the fact that it may be possible to delay the trustee's sale until such a case is resolved, the lender may be more willing

than usual to negotiate a settlement with terms favorable to you. If your loan is one of the first to be discovered, then you may become a lead plaintiff in a class action suit. Lead plaintiffs usually pay nothing for participation in the lawsuit, and also may be paid an extra bonus. In order to file a class action you must gather a group of borrowers with a similar problem. CLA may be able to help establish up a class (See Consumer Loan Advocates [CLA] on pages 9-7 through 9-10). CLA may be able to analyze its thousands of audits to see if others match a borrower's particular lender with the borrower's particular error. Preliminary Temporary Orders Injunctions and Restraining

Due to the out-of-court nature of the non-judicial foreclosure process, the courts usually get involved only if the borrower or another interested party files a legal action attacking the foreclosure sale. In such a legal action, the relief available to a borrower depends on whether the action is filed before or after the trustee's sale. If the suit is filed before the sale, the borrower may attempt to enjoin or prohibit the sale with a Preliminary Injunction (PI) or Temporary Restraining Order (TRO) until the court can determine the underlying issues (To compare PIs and TROs with the automatic stay in bankruptcy proceedings, see page 6-3.) Preliminary injunctions are not available after the conclusion of a sale. However, if the suit is filed

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after the sale, the borrower may ask the court to set aside a completed sale (see below). Grounds for prohibiting the trustee's foreclosure sale fall into 2 categories: 1. The trustee's right to foreclosure is contested because: a. No actual default exists under the loan agreement, b. The lien against the property is invalid, or c. Fraud existed transaction. in the original

In other words, since the borrower's default is not always looked at by the courts as a breach of contract, the courts may be persuaded to issue a PI or TRO to prohibit the trustee's sale until they can resolve the above issues. 2. The trustee's sale procedure is defective, such as the NOD, the NOTS, or the proposed conduct of the sale. In other words, a PI or TRO may be granted when the foreclosure trustee fails to comply with the statutory regulations which regulate trustee's sales. For instance, if a NOTS is not published, but a sale is scheduled, then the sale may be prohibited due to defective procedure. In such a situation, the borrower's only remedy may be to correct the incorrect procedure before allowing the trustee to proceed with the sale. Nevertheless, the PI or TRO may delay the sale long enough to give the borrower some added advantage, such as time to cure the default by using 1 or more of the other options mentioned in this book.

The California Code of Civil Procedure specifies the difference between a PI and a TRO. A temporary restraining order halts the foreclosure process only long enough for a court to decide whether to grant a preliminary injunction. A preliminary injunction halts the foreclosure process until a final determination is made in the case. Additionally, a permanent injunction may be issued depending on the outcome of the trial. The borrower must decide when to seek a PI or TRO. Basically, if a trustee's sale is scheduled to take place within 15 days, then a TRO should be sought at once since this time period is too short to obtain a PI. Even if a borrower loses a lawsuit to prohibit the sale, the court might allow some period of time after its decision to reinstate the defaulted loan, if the borrower so requests. Bonding Requirements - The court may or may not require a bond to be posted when issuing a PI, depending on the case. In situations where a bond is ordered, the PI does not become effective until the bond is posted. File a Lis Pendens - Another important tool in fighting foreclosure through the legal system is the lis pendens (which means "a lawsuit is pending.") A notice of lis pendens should be recorded against the property immediately after the action is filed to prohibit the trustee's sale. If the property is sold with a notice of lis pendens recorded against it, the purchaser buys it subject to the borrower's legal action. A lis

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pendens may be sufficient to scare off a buyer as well as a title insurance company. Setting Aside the Sale - If a trustee's foreclosure sale has already been completed, then the borrower may want to file a suit to have the sale set aside. The same grounds mentioned above to prohibit a sale also may be used to attempt to set the sale aside. However, it may be impossible to set a sale aside under certain circumstances. In previous cases, grounds for setting aside a sale have included: Credit Is Not Money In his book, How to Avoid Foreclosure on Your Home, Farm or Business, attorney Lawrence Adams Malone, LL.B., Ph.D. (see Additional Reading and Services on page 20-1), cites examples of ultra vires bank contracts. When a corporation executes a contract beyond the scope of its powers, the courts consider the contract void or "ultra vires." One example is the case of Merchant's Bank vs Baird (160 F 642). In this case, the court decided, "A national bank...cannot lend its credit to another by becoming surety, endorser, or guarantor for him, such an act is ultra vires...." Thus, if you did not receive cash from your lender, you may have grounds to sue your lender for breach of contract and fraud, according to Malone. A few foreclosures have been fought and won by homeowners who sued lenders for fraud, usury, mail fraud and racketeering or who challenged the accuracy of the documents they received upon loan approval. In your battle against foreclosure, one of the most important questions you may answer is, "After obtaining a loan, did I actually receive

1. There was no breach of contract, 2. Problems existed with the presale foreclosure process, 3. Improper conduct by the trustee/lender at the sale, and 4. Gross disparity between sale price and value when unfairness and irregularity are also present.

any real money--not just a slip of paper--from my lender? When applying for a loan from a bank or other lending institution, the borrower is negotiating an agreement by which the lender promises to provide a certain amount of money. In exchange, the borrower repays the lender at regular intervals at an agreed upon interest rate. The lender's profit is the finance charge. The potential problem here is that the lender agrees to give "legal tender" to the borrower. Not only does the lender typically provide only a bookkeeping entry or check (a piece of paper symbolizing credit), but the lender usually does not have the money to back up the loan. Even though the lender's check appears to represent money because it can be deposited into your bank account, it is not "real" money. What you received was credit. And credit is not legal tender. While this may seem harmless, when a bank lends its credit, it is unjustly enriching itself and, as a result, it is breaking the law.

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Here's the problem: Banks keep a minimum of 5% of their reserves in their vault. This means that if $5,000 is deposited in the bank, $5,000 can be used to create $100,000 in credit, which the bank, in turn, can lend. Actually, the bank loans liabilities or debts, not cash or assets. The bank's money in its vault are its cash assets. When it lends cash, it lends assets. When the bank lends its credit, it is actually lending its liabilities and lending your liabilities simply is not legal for any person or institution. There is no bank charter that gives a bank permission to lend its debts as money. In article I, section 10, paragraph 1 of the U.S. Constitution, it states that no state shall "coin money, emit bills of credit, make anything but gold and silver coin a tender in payment of debts, pass any bill of attainder, ex post facto law, or law impairing the obligations of contracts." In addition to breach of contract and usury, a homeowner may have grounds to sue a lender for mail fraud and racketeering. The Federal law (18 USCS 1342 & 1962) states that anyone who uses the US mail 2 or more times within Personally, I do not fully understand all the mechanics behind the "credit-is-notmoney" legal approach. I only include it here since it is a foreclosure defense recommended by an attorney. I strongly suggest that if you are considering this type of legal action, then please consult an attorney who is knowledgeable in this area of the law and who can further clarify this legal approach. MODEL LAWSUITS The following model lawsuits are included for 3 reasons. First, they have been written as legal defenses against foreclosure by a licensed attorney.

10 years to collect an unlawful debt is engaged in mail fraud and is guilty of racketeering. Your lender, who may have created an unlawful debt by lending you credit undoubtedly will have sent you 2, 3 or more notices that your payments are late and that legal action will be taken against you. If they have sent 2 or more of these letters within the past 10 years, your lender is breaking federal law. In addition, under 18 USCS 1964 section C, a person injured in his business or property by a violation of section 1962 of that chapter may sue for "3-fold the damages he sustains and the cost of the suit, including reasonable attorney's fees." Mallone's book gives very detailed instructions on how to proceed with this kind of lawsuit. A borrower exploring this type of legal action may want to get a copy of Mallone's book from the local library. (See Additional Reading and Services on page 20-1.) Also, see model lawsuit #5 for more on this type of legal action.

Second, reading through the models may give you a better understanding of foreclosure lawsuits. Third, they may be handy to you or your attorney when preparing a lawsuit. After reviewing these 5 model lawsuits, if you want to proceed with a lawsuit, then consider consulting an attorney with experience in foreclosure matters. The following 5 Model Lawsuits and the subsequent section, Legal Karate in the Courtroom, are reprinted here from the book How to Avoid Foreclosure on Your

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Home, Farm or Business, with permission from the author, attorney Lawrence Adams Malone, LL.B, Ph.D. Malone's book is lawsuit-strong and is billed as having "courtroom karate with model lawsuits for the layman and his attorney." Although Malone's book is currently out of print, a great number are in circulation in many of the city and county library systems throughout the state of California. Despite the fact that Malone's book was last published in 1986, Mr. Malone told me in a telephone conversation that the principles behind the model lawsuits reflect current legal proceedings. Malone's book was written to cater to the entire United States. Since each state has specific laws which apply to foreclosure, these models should be taken as they are labeled: as models only. They do an excellent job of conveying the differences in the types of lawsuits that can be filed as well. Since the particulars of each lawsuit may be different, use part or all of the models to help create a lawsuit which is tailored to your specific needs. The remainder of this chapter includes the 5 model lawsuits reprinted verbatim from Chapter 8 of Malone's book, plus his section on courtroom karate (Please note that throughout Malone's models blanks are provided for information specific to individual case; also, question marks [?] appear before certain paragraphs which may or may no need to be added to your particular lawsuit): MALONE'S FORECLOSURE DEFENSES Foreclosure Impending. When foreclosure is impending, you should act right away to commence suit against your lender, especially in states where foreclosure can occur by a mere When Using Model Lawsuits. When you use a model lawsuit, omit any data

advertisement or some other form of public notice and sale take place under third party Trustee Sale. Model Lawsuits. In the following pages, you will find five model lawsuits, any one of which may be applicable to your particular situation. Model #1: If you are suing a bank use Model lawsuit #l. Model #2: If you are suing a mortgage company or a financial institution other than a bank, use Model Lawsuit #2. Model #3: If you are filing a lawsuit after a sheriff or Trustee sale, use the information given in #4 with either #1, or #2, to make up Model Lawsuit #3. Model #4: If you are going to a sheriff or trustee sale to buy in your property with constitutional money, then use Model Lawsuit #4 and combine it with information given in Model Lawsuit #5. Model #5: If you use a check to pay off an unlawful debt (created by the lender bank by mere bookkeeping entry), then combine the information in Model #3 with either #1 or #2 and file it in court before a sheriff or trustee sale can take place. not pertinent to your case and add

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any material that is new or particularly applicable to your case. FRAMING YOUR LAWSUIT The biggest challenge that anyone will have is to have his attorney frame a good lawsuit. We want a lawsuit that will survive a Motion to Dismiss hearing or Demurrer and finally reach a jury trial. The key parts of a lawsuit are: l. The caption - The first page, usually the top of which lists the plaintiffs and defendants, the court, Case # etc.;

2. Jurisdiction - The first part of the body of the complaint or counterclaim that invokes part of the Constitution and state or federal laws applicable and states whether this is a Complaint at law or in equity; 3. The Parties To The Action - This is the section where you list the names and addresses of the defendants and the plaintiffs; 4. Factual Background - This is the most important section of the lawsuit. Here, you must plead with particularity and state the facts chronologically. Avoid any mention of law here, avoid theory and conclusionary statements. Case law is never cited in a complaint. In framing a lawsuit on the credit issue, you must first list every loan of credit made, from the last one to the first one. Many debts are based on refinancing of existing debts, thus you must go all the way back to the original loan, regardless of how many years were involved. You must then state the lender failed to lend you "legal tender" or "lawful money" as promised for all the loans involved, but that he did deliberately issue a "bad" check and passed it on to you to

circulate as "money" and that he did this deliberately to your detriment and damage. You must also state that you did not become aware of his fraudulent activity until after the date of your last loan, otherwise you are a party to fraud and have waived your claim for relief. If you have a note that has been sold by the original lender to several other lenders, then you must sue the original lender and name all the other parties to whom the note was assigned as defendants. You will have no claim for relief against the assigns (lenders who bought the note), but you can use your lawsuit to challenge jurisdiction of any action they bring against you based on #7 mentioned earlier that there is an existing action pending between the same parties on the same cause of action. In your factual background section, you should add any other issues that are relevant to your case such as "breach of oral promises," any demands made on you regarding financial decisions that were detrimental to you, and any other things done to injure or violate your rights under the law. 5. The Counts - This is a section where you will restate the allegations of your factual background section and then apply the law to the facts and state which laws they violated. Breach of Contract is a violation of the common law as well as Art. 1, Sec. 10, U.S. Constitution. Fraud is a violation of the common law and voids any contract. Usury is a

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violation of the contract based on the amount of lawful money or coins and currency actually risked in the loan. Racketeering is a violation of federal law and some state laws. Fraud can also involve a violation of state securities laws that is when the 6. Relief Requested - Here is where you ask for any relief that was not mentioned in the Counts section. You demand your trial by jury and ask for empanelment of a grand jury so you can present criminal charges against the defendants or ask to be directed to an existing grand jury so you can present testimony concerning violations of various state or federal criminal laws. This is the basic structure of a well written lawsuit. Reread this section before writing your lawsuit. Once you have written your lawsuit, you must make enough copies to serve one on each defendant. All copies must be signed. Then you will need a Summons form. While you can write up your own in many states, copies of a standard Summons form are available from the clerk of courts in your state or federal court or bankruptcy court, if you are filing a lawsuit there. Another form you will need is a Notice of Lis Pendens. This is a notice of a lawsuit pending and must include the legal description of your property. You prepare this form yourself--a sample one is enclosed. This is filed usually in the register of deeds and clouds title to the property while the lawsuit is in progress. It is very important that you use all these forms to protect your interests. After your lawsuit is written and filed, then you will need someone to serve it. You can get the sheriff's department to do this or you can hire a process server. To locate a process server, look up "Process Servers" in your Yellow Pages phone directory. Also, a friend or

lender obtains a note (a security) for a fraudulent or insufficient consideration. Check your State Statutes on Securities. neighbor can serve the Summons and Complaint also. As a party to the action, you cannot serve any Summons and you cannot serve any other pleadings either, except for Motions, which in most areas can be served by mail, along with a Certificate of Service usually signed by someone other than yourself who did the actual mailing of the Motion. Once the defendants have been served, you must have the party serving it fill out an Affidavit of Service, which you must file with the court. DEFAULT JUDGMENTS If a defendant does not Answer your Complaint or does not file a Motion to Dismiss within the time allowed in the Summons, you can then get the clerk of court to enter a Default Judgment for you. You will need 4 separate forms which you can prepare yourself or you can get preprinted forms from the clerk of courts. These forms are usually called: 1. Request to clerk of courts to enter default judgment, 2. Affidavit of no amount due, answer and

3. Affidavit of non military service, or 4. Default judgment. Once the default judgment is entered, a copy is sent to the

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defendant. After their appeal time has run out, you have a judgment that can be collected by requesting the clerk of courts to issue a Writ of Execution to the sheriff. It should be noted here that a default judgment can be removed by a judge based on good cause presented by the defendant such as newly discovered evidence or insufficiency of service and for other reasons. If you were the defendant, you could file a Motion to Set Aside Default Judgment. In this motion, you could ask the court for permission to answer the complaint and/or file a Counterclaim based on newly discovered evidence. ("Newly discovered evidence" must be evidence which the defendant could not, in the exercise of diligence, have discovered prior to judgment.) Support your motion with an affidavit. If the judge does not grant it, then you must file a new lawsuit against the lender. After doing this, you can then file a Motion to Consolidate Cases--that is, to combine their case against you with your case against them. This will stop the clock on their execution of the judgment against you. Other options to stop them from seizing your property are to file a Petition for a Temporary Restraining Order (TRO) or to file a Chapter ll or 5. Always use Affidavits to support your motions and always use Affidavits to oppose their motions that you are opposed to. 6. Use all Discovery aggressively. Use Depositions for your most effective results to trap your adversary. 7. As a plaintiff or defendant, your very first motion should be a "motion for a Court Ruling on Jury Trial Demand." Support your motion by arguments based on the Constitution and case law. The best set of books to find supporting case law are called "Supreme Court Digests" and these can be found in your local law library, usually in the courthouse or at a college.

Chapter 13 bankruptcy plan. An automatic stay of execution goes into effect upon the filing of any bankruptcy plan. IMPORTANT REMEMBER 1. The best offense. PRINCIPLES defense is a TO good

2. By What Authority? Always challenge the authority of the adversary to do what they do when you cannot find their authority for doing something. Challenge the authority of the court when your Constitutional rights are violated. 3. Use arguments based on natural equity and combine them with arguments in law in your pleadings. 4. If possible, go after your adversary criminally as well as civilly.

When using case law, use Supreme Court cases primarily as these override all lower court decisions. Case law is always used in supporting briefs that are supported by affidavits. COURTROOM PROCEDURE In a court room, the party making a motion speaks first and the other party then responds. To present your arguments, make a sketch or outline of the points you will raise. Any surprise arguments you raise will throw your opponent off track. If the opposing attorney baffles you with a lot of legal mumbo jumbo, then ask the court to make him

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explain in plain English just what each of his words means. If you are not confident of yourself, then tell the court that you are standing by your written pleadings as being a person not trained in law, you are not qualified to debate the opposing attorney. ONE VERY IMPORTANT THING TO REMEMBER IS THAT AT A MOTION HEARING, STICK TO THE ISSUES IN THE MOTION AND DO NOT GET INTO A DISCUSSION ON THE MERITS OF THE CASE. Otherwise, you will get thrown off track. To get back on track, if the other attorney or the judge gets off track, you must point out that the new issues raised are not in the motion, but are part of the merits of the case which is not before the court today. By getting them back on point and to the issues before the court in the

motion hearing, you will spare yourself a verbal debate on the merits of the case. Memoranda and briefs are always presented at the pretrial hearing, but may be used to oppose a Motion to Dismiss or a Motion for Summary Judgment. SERVING MOTIONS While the complaint is always served directly on the party you are suing, "motions" written afterwards are served on the attorney for the other party and this constitutes service on the other party. If any paper is served on the other party directly such as interrogatories or a Notice of Deposition, the other party's attorney must always get a copy. A Certificate or Affidavit of Service is then always filed with the court, usually the judge's secretary. While motions may be served by mail, usually certified, return receipt requested, a Notice of Deposition or Subpoena must always be personally served on the party affected. QUESTIONS AND ANSWERS ABOUT TRIAL PREPARATION Q: Where can I get a book on the rules of civil procedure for my state? A:Your State, Court Rules and Procedures can be obtained from West Publishing Co., P.O. Box 64526, St. Paul, MN 551641804. The fastest way to contact them regarding orders is at 612687-7000. Give them the name of your state that you want the court rules and procedures on. If you plan on being in Federal Court, send for a copy of Federal Rules of Civil & Appellate Procedure. Then go to the state

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court or the federal court and ask for a copy of the local court rules. If you are planning on being in bankruptcy court, see the Legal Karate packet for the names of the books you will need there. Q: When can a case be removed to federal court? Q: How do you gather evidence for a case? A:It is vitally important that you have a pocket tape recorder with you at all court proceedings, all interviews with your lenders to record all verbal promises made, and at all sheriff or trustee sales. A tape recorder can provide evidence that will be invaluable to you in going after your adversaries both civilly and criminally. A Polaroid camera may be helpful to photograph the high bidder's check or other monetary instrument. Use a tape recorder when going into a bank to find out if a cashiers or certified check from the lender at a sheriff or trustee sale is any good that is, if the bank has the cash to redeem it. Believe it or not, about half of them don't. See Model Lawsuits #4 and #5. If no check is tendered, then amend Model #4 or #5 accordingly and charge the sheriff with failure to comply with the Constitution and state statutes by not requiring any money from the high bid that he accepted. You can also sue as an assigns to a land patent as this is the best and paramount title at law. These issues can be combined. Also, when you call someone on the phone, have a telephone pickup device which you can obtain from Sears or Radio Shack connected to a cassette recorder to record any advice that you receive from someone on any legal questions you may ask them. A tape recording is

A:Within 30 days after a federal issue is raised. Only defendants can remove a civil case to federal court.

better than most people's memories and can always be played back. Getting A Trial - One of the most important actions goals you can achieve is getting a trial. Most lawyers and many lenders are not knowledgeable in the area of fractional reserve banking. Indeed, many who work for banks don't know exactly how banks create "credit" money; and they definitely do not know on what authority "credit" money is created. Most important is a well pleaded complaint, especially one that is based on the money and credit money issue.You will probably want help in drafting such a complaint and it is of vital importance if you want to win your case and have the help of a "constitutional lawyer" who will know how to get the lender's attorney to answer the complaint. Getting him to answer the complaint virtually guarantees that a case will go to trial. Your next objective is to get a trial by jury. No one likes to see his fellow man put out of his home and you may enlist the sympathy of the jury immediately if you are being foreclosed for reasons not your fault and beyond your control. FIRST, A FEW MORE NOTES ABOUT DEFENSES AND COMMENTS WITH REGARD TO MODEL LAWSUIT #l

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Model Lawsuit #l - This lawsuit is designed for suing banks in Federal Court and includes the option of suing the Federal Reserve Bank(s) and their Board of Examiners (name all of them in your Complaint). For those who prefer to file their lawsuits in a state court, omit the Federal Reserve Bank by dropping the last 2 paragraphs from the "Factual Background" section of the Complaint and by modifying the Counts and Relief Requested sections accordingly. For those who want to sue the Federal Reserve Banks along with their local bank, there is little to do except plug in the names and dates of loans and dollar amounts on the model form given herein. There may be other factors than those cited on the "Model" form to be considered in documenting your lawsuit, which may require the addition of extra parties and the adding of more facts to the "Factual Background" section of your Complaint. Here is a list of those possible additional factors: Holder in Due Course. Who is a holder in due course? Let us say If you live in a state where Bank C is foreclosing on you and they have already filed a suit against you in court, then as Defendant, name Bank A and Bank B as "Third Party Defendants" which will make you both Defendant and Third Party Plaintiff. If you live in a non-judicial state such as Virginia, which permits the lender merely to advertise and sell your property under foreclosure of a deed of trust and Trustee Sale, then you must take the offensive prior to such action, and sue all of the Holders in Due Course, naming all of them as Defendants and yourself as Plaintiff. MODEL LAWSUIT #l .......................................................... [ your name ], Plaintiff, Case #......... vs.

you took out a loan of credit from Bank A and Bank A sold it to Bank B. Bank B in turn sold it to Bank C. Now Bank C is foreclosing you. The question is: Whom do you sue? What you do is name Bank A, Bank B and Bank C as Defendants in your lawsuit. However in the last section of the "Factual Background" section of your complaint add another paragraph and state: Bank B and Bank C are not HOLDERS IN DUE COURSE under the Uniform Commercial Code. Bank B and Bank C purchased the mortgage, the mortgage note, or deed of trust, security agreement etc., which was first obtained by Bank A, under conditions of Fraud and Misrepresentation. The documents which Bank B and Bank C have obtained from Bank A do not provide them with any claim whatsoever for relief, in either a court of law or equity. Com plaint at Law Bank of [ ], and [Bank President or officer] and Federal Reserve Bank President [name] and John and Jane Does ( 1 to 25 ), Defendants. ........................................................ ... Now Comes the plaintiffs, in propria persona, and relying on the decisions in Haines v. Kerner, 404 U.S. 519 and show their Complaint against the defendants as follows: JURISDICTION 1. FOR STATE COURTS/ (Jurisdiction in this action at law is based on the Constitution of the United States and in particular the 7th amendment as this is a suit at

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common law. Jurisdiction is further invoked under the Constitution of the state of [ ] and in particular by the...amendment which preserves the right to trial by jury in an action at law and jurisdiction is further invoked under 18 U.S.C. Sec. 964. FOR FEDERAL COURTS, use the following - (Jurisdiction is invoked under 28 U.S.C. Sec. 1332 and involves diversity of citizenship and more than $10,000 in controversy and jurisdiction is further invoked under 42 U.S.C. 1983 et seq. and 18 U.S.C. Sec. 1964 as well as the Constitution of the United States and in particular the 7th amendment as this is a "suit at common law." This Complaint is filed in propria persona pursuant to Haines vs. Kerner, 404 U.S. 519). PARTIES TO THE ACTION 2. The plaintiffs in this action are citizens of the United States and residents of the state of [ ]. The plaintiffs' names and addresses are as follows:.... The defendants in this Complaint are the [name of bank] whose business address is as follows:...and a bank employee [President or loan officer] whose name is...and who lives at...and John and Jane Does (l through 25) whose names and addresses are unknown at this time. (For Federal Court, add: "and other defendants include the President of the Federal Reserve bank of [your district] whose name is... and whose ad6. After the plaintiffs had signed the [mortgage, deed of trust, note, etc.], the bank and its officer [name] did fail to lend the plaintiffs lawful money of the United States for the full value of the loan. For the actual lawful money which the bank risked for the loan, estimated to be no more than 5% of the loan's face value, the bank did charge an interest rate that was 20 times greater than what was authorized in the contract, and did this deliberately to the detriment and damage of the plaintiffs.

dress is [use address of F. R. Bank here] and all members of the Board of Examiners whose names and addresses are unknown at this time.") FACTUAL BACKGROUND 3. On or about [month, date, year], the [bank of] through its loan officer (or President) did verbally represent to the plaintiffs that it had approved a loan to them for the sum of [X amount of loan] in lawful money of the United States and at annual interest rate of ? %. 4. The [Bank of] and its loan officer [insert name] knew or should have known that the verbal statement that they would lend the plaintiffs "lawful money of the United States" at an annual interest rate of ? % was a false representation that was made recklessly and with deliberate and intentional disregard for the rights of the plaintiffs. 5. Relying on these false representations, the plaintiffs were induced into signing a [mortgage, mortgage note, deed of trust, note, security agreement etc.] on or about [month, date, year]. Since the date of the loan, the plaintiffs have made payments of principal and interest totaling [total $ amount paid]. 7. In carrying out their commitment to lend lawful money of the United States, the bank did write a check for the sum of [$ amount of loan]. The bank in writing this check, did deliberately make a loan beyond its customers' deposits. 8. The check (or checks) which the bank and its officers wrote were not backed by or redeemable in Federal Reserve Notes, coins or

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lawful money of the United States for their full face value. 9. The bank and its officers did use the U.S. Mails more than twice since the date of loan to collect money on this debt. Plaintiff did not become aware of the fraudulent activity of the defendants until on or around [month, date, year]. 10. The only consideration which the bank provided for this loan was a book entry demand deposit which the bank itself created effortlessly and at virtually no cost to itself. The bank in stamping its own check "Paid," did make a false representation as it merely transferred some book entries and never intended to redeem this check in lawful money of the United States. (Note: to sue the Federal Reserve Banks, add the following sections.) 11. The averments of the previously numbered paragraphs are restated by reference herein. The Federal Revenue Bank President, whose name is... and the Board of Examiners for this bank knew or should have known that the [name of bank] made a loan to the plaintiffs by writing a check on or around [date of loan] and that the bank was charging interest on nonexistent funds. The Federal Reserve Bank President and the Board of Examiners for the F. R. Bank are a party to these false representations as they were a party to the transfer of book entries with the full knowledge that the bank did not have in its possession lawful money to redeem its check and they did all this to the detriment and damage of the plaintiffs. Their collective activities in passing this check are part of a planned scheme. 12. In addition to this, the Federal Reserve Bank President [name] and the Board of Examiners along with John and Jane Does, whose names are unknown at this time, are a party to a conspiracy to do all of the following: keep interest rates artificially high for contract credit to create unemployment and depreciating farm prices, and to select

and pressure the bank to foreclose on the plaintiff's property all as part of preplanned conspiracy to eliminate 2.3 million American farmers and to set up 100,000 corporations to own all the farm lands in the nation. All of the illegal activity is being done in violation of Federal Racketeering laws, Federal Antitrust laws, and in violation of the plaintiffs Constitutional rights, particularly the 5th, 7th, 9th and 14th amendments. COUNT ONE 1. BREACH OF CONTRACT. The averments of the previously numbered paragraphs are restated by reference herein. The [Bank of] and its officer [name], failed to lend the plaintiffs lawful money of the United States and instead substituted a check with the intended purpose of circulating it as money. COUNT TWO 1. FRAUD AND RACKETEERING. The averments of the previously numbered paragraphs are referred to by reference herein. The [name of bank and its officer, [name], and the president of the Federal Reserve Bank of [your district], whose name is...and the Board of Examiners are all parties to the writing and processing of a check written by the [name of bank] on or about [date of loan]. All these parties are in collusion in using the U.S. Mails and Wire Services to collect on this unlawful debt in violation of 18 U.S.C. 1341 (mail fraud) and 18 U.S.C (wire fraud) and 18 U.S.C. 1962 in establishing "pattern of racketeering activity." Plaintiffs ask for triple damages for actual and compensatory damage! sustained pursuant to 18 U.S.C.

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1964 from each and every defendant on all counts. 1. USURY AND RACKETEERING. The averments of the previously numbered paragraphs are restated by reference herein. By virtue of the bank's activities in creating an unlawful debt by passing a bad check, the [name of bank] has collected an annual interest rate estimated to be twenty times greater than the amount of interest the plaintiffs agreed to in the note they signed. This violation of *contract law and usury laws is due to the fact that the actual amount of lawful money risked by the bank in making the loan was less than 5% of the loan's face value. RELIEF REQUESTED 1. The plaintiffs ask the court to empanel a Grand Jury to investigate the [name of bank], the Federal Reserve bank of [your district], and its President as well as the Board of Examiners for violations of Federal Antitrust laws and the Federal Racketeering laws including 18 U.S.C. 1341 (mail fraud) and 18 U.S.C. 1343 (wire fraud) and 18 U.S.C. 1962 (pattern of racketeering activity) and 18 U.S.C. Sec. 241 for conspiracy to violate the plaintiffs and other citizens Constitutional rights. 2. Plaintiffs ask for actual damages for the sum of [?$ paid on loan] and compensatory damages to be determined as well as three times this amount in punitive damages against each defendant convicted on any count. 3. Plaintiffs demand a trial by jury to be comprised of 12 members to determine all issues of facts in dispute and to determine and award all damages. 4. Plaintiffs ask for a court order declaring the [mortgage, mortgage note, note, deed of trust, security agreement, etc] to be null and void. 5. An injunction against the [name of bank] and the Federal Reserve Bank to divest themselves of any assets they have unlawfully gained and to return the

COUNT THREE same to the plaintiffs and all other debtors or injured parties. Date [Your Name] Plaintiff--in propria persona.

Note: No statement claiming actual damage to the plaintiff except usury charge, which is questionable. Court will want to know exact nature of the damage suffered. MODEL LAWSUIT #2 (for financial institutions other than banks) ........................................................ .... CAPTION (See Model Lawsuit #l) Case #......... Complaint at Law ........................................................ .... Now Comes the Plaintiffs, in propria persona, and relying on the decisions in Haines v. Kerner, 404 U.S. 519 and show their complaint against the defendants as follows. JURISDICTION 1. ( See Model Lawsuit # 1 ) PARTIES TO THE ACTION 2. (See Model Lawsuit #1) FACTUAL BACKGROUND 3. On or about [month, date, year], the [FLB/ PCA/Mortgage Co., etc.] did verbally represent to the plaintiffs that they had approved a loan to them for the sum of [$ amount of loan] in lawful money of the United States at an annual interest rate of ? %. 4. The [FLB/PCA/Mortgage Co., etc.] and its loan officer, [name], knew or should have known that

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the verbal statement that they would lend the plaintiffs "lawful money of the United States" at an annual interest rate of ? % was a false representation that was made recklessly and with deliberate and intentional disregard for the rights of the plaintiffs. 5. Relying on these false representations, the plaintiffs were induced into signing a [mortgage, mortgage note, note, deed of trust, security agreement, etc.] on or about [month, date, year]. Since the date of the etc.] did write a check for the sum of [$ amount of loan] on or about [date of loan]. The [PCA/FLB/Mortgage Co.] and its loan officer knew or should have known that they were accepting, lending checks which they had received either directly or indirectly from a commercial bank. They knew or should have known that the bank upon which the check for this loan was drawn had insufficient funds to redeem this check in lawful money of the United States. 8. The [PCA/FLB/Mortgage Co. etc .] and its loan officer, [name], did use the U.S. Mails more than twice since the date of the loan to collect money on this debt. The plaintiffs did not become aware of the fraudulent activity alleged in this complaint until on or around [month, date, year]. 9. The check(s) which [PCA/FLB/Mortgage Co. etc.] wrote for the sum of [$ amount of loan] was/were not backed by or redeemable for their full face value in Federal Reserve Notes, coins, or lawful money of the United States. 10. The [PCA/FLB/Mortgage Co.] knew or should have known that the checks they deposited in the bank account to cover the check they wrote for this loan was a bad check. Subsequently, the bank, against whom [PCA/FLB/Mortgage Co.] wrote the check never did redeem this check in lawful money of the United States, nor did the bank have in its possession the cash to redeem that

loan, the plaintiffs have made payments of principal and interest totaling [total amount paid]. 6. After the plaintiffs had signed the [mortgage, mortgage note, note, deed of trust, etc . ], the [PCA/FLB/Mortgage Co., etc.] did fail to lend the plaintiffs lawful money of the United States for the full value of the loan. 7. In carrying out their commitment to lend lawful money of the United States, the [PCA/FLB/ check. The bank merely laundered the bad check by transferring some book entries. ll. The defendants, [PCA/FLB/Mortgage Co. etc.] and their loan officer, [name] knew or should have known that they were a party to a check kiting scheme by laundering bad checks which they had received either directly or indirectly from one or more commercial banks that originated the scheme. 12. The defendants, [PCA/FLB/Mortgage Co. etc.] and their loan officer, [name] knew or should have known that they were violating usury laws by charging interest on non-existent funds. The interest rate charged for the actual lawful money risked for this loan is estimated to be twenty times greater than that agreed to in the note signed by the plaintiffs. The interest rate charged should have been applied only to the lawful money risked in making this loan and instead was applied against the entire check even though this check is estimated to have been backed by only 5% of its face value in lawful money. The bank against whom this check was drawn was a party to this check kiting scheme. (Note: Paragraph 11 and 12 of Model Lawsuit #l can be substituted for paragraph ll and 12 of Model Lawsuit #2. )

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COUNT ONE 1. BREACH OF CONTRACT. The averments of the previously numbered paragraphs are restated by reference herein. The [PCA/FLB/Mortgage Co. etc.] and its officer [name] failed to lend the plaintiffs lawful money of the United States and instead substituted a bad check with the intended purpose of circulating it as money. COUNT TWO 1. FRAUD AND RACKETEERING. The averments of the previously numbered paragraphs are restated by reference herein. The [PCA/FLB etc.] and its officer, and one or more unknown banks are parties to the writing and laundering of a bad check(s) written by [PCA/FLB etc.] on or around [date of loan]. All these parties are in collusion in using the U.S. Mails and Wire Services to collect on this unlawful debt in violation of 18 U.S.C. 1341 (mail fraud) and 18 U.S.C. 1343 (wire fraud) and 18 U.S.C. 1962 in establishing a "pattern of racketeering activity." Plaintiffs ask for triple damages for actual and compensatory damages sustained pursuant to 18 U.S.C. 1964 from each and every defendant. (Note: if you have previously named the Federal Reserve Bank President and RELIEF REQUESTED 1. Plaintiffs ask for actual damages for the sum of [total $ amount paid on loan] and compensatory damages to be determined as well as three times this amount in punitive damages against each defendant on any count. 2 . Plaintiffs demand a trial by jury to be comprised of 12 members to determine all issues of facts in dispute and to determine and award all damages. 3. Plaintiffs ask for a court order declaring the [mortgage, mortgage note, note, deed of trust, security agreement, etc.] to be null and void. Date........ [Your Name]...................

the Board of Examiners as defendants and have used paragraph ll and 12 from the Factual Background of Model Lawsuit #l, then you should use Count Two from Model Lawsuit #l as well. ) COUNT THREE 1. USURY AND RACKETEERING. The averments of the previously numbered paragraphs are restated by reference herein. By virtue of John and Jane Does who were the banks that were writing and passing bad checks to [PCA/FLB etc.] and by virtue of [PCA/FLB etc.] depositing these bad checks and passing them on to borrowers by writing checks against non existent funds, and by virtue of the fact these checks were only backed by 5% or less of their face value in cash, [PCA/FLB etc .] did knowingly charge an interest rate on lawful money actually risked that was about 20 times greater than the interest rate agreed to in the note signed by the plaintiffs. They did this in violation of 18 U.S.C. 1341 (mail fraud) and 18 U.S.C. 1962 by engaging in this pattern of racketeering activity. Plaintiffs--in propria persona. (Note: if you sued the Federal Reserve Bank President and the Board of Examiners, then use the 5 point Relief Requested material from Model Lawsuit #l as a substitute for the Relief Requested section of Model Lawsuit #2.) (To be added to Count 2 of Model Lawsuit #2) FRAUD AND RACKETEERING The plaintiff/defendant (strike one), restates the allegations of Counts 1 through 5. PCA/FLB (strike

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one) created an "unlawful debt" by requiring the Plaintiff/Defendant to purchase "stock" from them in the sum of [dollar value of stock purchased] on [date of loan or stock purchase]. PCA/FLB and its loan officer, , knew or should have known that the stock sold to me, the in this case does not exist. The plaintiff/defendant in this action has never voted at any stockholders meeting and has never been invited to one. Furthermore, we allege that this stock does not exist and never did exist and the amount required for the stock purchase is nothing more that concealed interest rate charge. However, there is a failure of consideration as there is no stock and no actual ownership in PCA/FLB by me or other farmers as they claim. Because the stock does not exist, there is a failure of consideration, a breach of contract and fraud. PCA/FLB has, through these fraudulent actions created an unlawful debt and has more than twice used the U.S. Mails to collect on this debt, all in violation of 18 USCS 1341, and 18 USCS 1961 and 1962. Our actual damages in the payment of principal and interest on this non existent stock has been the total sum of $ which is the total amount we estimated we paid for this non existent stock since the first loan was taken out which was on [date of first loan]. Pursuant to 18 USCS 1964, we therefore are for treble damages or the sum of [insert triple damages here] plus "When First National Bank of Atlanta agreed recently to settle a 3 1/2 year old lawsuit for as much as 12.5 million, other banks took notice.... At issue is a hallowed banking tradition: the prime rate, which for years has been described as the rate banks charge their best corporate customers.... Angry non-prime borrowers, however, say banks have been overcharging them, often for years, because the prime rate their loans were tied to, wasn't the real prime, or best, rate.... The central figure in the

punitive damages in the sum of [3 times the damages just quoted] for a total of [add actual and punitive]. In addition we ask the court for the following relief: a. That the entire debt be declared null and void, and b. That the damages awarded us be applied against all existing delinquent payments and future payments until paid in full and that the foreclosure action against us be dismissed. Feb. 1985: Update insert-Because of a number of lawsuits filed against PCAs and FLBs on this issue, stock certificates starting showing up for the first time in February of 1985 in the state of Washington. The issue of fraud for requiring borrowers to buy nonexistent stock can still be in any area where stock certificates have not been issued as other allegations added to Model Lawsuit #2. THE PRIME RATE CASES and HOW TO ADD RACKETEERING CHARGES TO SUITS AGAINST BANKS AND OTHER LENDERS. APRIL 4, 1984, The Wall Street Journal reports the following: burgeoning litigation is Jackie Kleiner, a 51 yr. old lawyer and business professor who started the Atlanta case in 1980. Since then, he says, he has been involved at one time or another in 38 of the estimated 50 prime rate suits. Currently, he says, suing banks is 'my main occupation'.... In one case, for example, Mr. Kleiner says a client, Milwaukee Cheese Co., settled with a West German and two U.S. banks for about 10.5

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million. He says Milwaukee Cheese paid the banks about $3 million, and the banks forgave about $13.5 million in loans. A banking source confirms that the settlement was for "several million" dollars, but Milwaukee Cheese officials won't discuss the terms.... Meanwhile, the controversy has prompted many banks to redefine the prime rate in lending documents.... Even the new definitions don't bother Mr. Kleiner. He says the banks' new language is 'more deceptive' than before. He wants to challenge it in court." The above statements are excerpts from the article which appeared in The Wall Street Journal on April 4, 1984. The article was titled: CHALLENGES TO PRIME RATE AS BASE FOR LOANS STIR FEARS AMONG BANKS. When the above article came to my attention, having been sent to me by a resident here in Milwaukee, I called the Milwaukee Cheese Co. and they provided me with the Case number. I went to the Federal Courthouse and looked the case up. A copy of this case that was apparently worth $10.5 million to the Milwaukee Cheese Co. is part of this packet, so you as a reader can see for yourself how it was placed together. The issues in the prime rate cases are essentially this: breach of contract for charging an interest above the Prime Rate; fraud for doing it deliberately; and third racketeering for using U.S. Mails to collect on an unlawful debt. My interest in learning about the racketeering charges is because suits against banks on the "credit" issue involve the same fundamental issues which are breach of contract and fraud, for creating and lending "credit" which is not lawful money. Since the banks create an unlawful debt because of their failure to provide a "lawful consideration," and because they use the U.S. Mail to collect on this debt, they are engaging in mail fraud, a violation of 18 USCS 1341, which is incorporated in 18 USCS 1961 which

defines a "pattern of racketeering." 18 USCS 1961 defines a "pattern of racketeering" as "two acts of racketeering activity, one of which occurred after the effective date of this chapter [Oct 15, 1970] and the last of which occurred within ten years after the commission of a prior act of racketeering activity." In other words, if any bank or other lender creates an unlawful debt in whole or in part and they send you statement to collect on this bill two or more times within any 10 year period, they have established a "pattern of racketeering," and under 18 USCS 1962, this is a prohibited activity. Now, Under 18 USCS 1964, section c, it says: "Any person injured in his business or property by reason of a violation of section 1962 of this chapter may sue therefor in any appropriate United States district court and shall recover threefold the damages he sustains and the cost of the suit, including reasonable attorney's fees. THAT'S POWERFUL STUFF! You can sue to collect triple damages against anyone who creates an unlawful debt and uses the U.S. Mails to collect it. What about loans from the Production Credit Association and the Federal Land Bank? Both PCA and the Federal Land Banks (FLBs) require farmers to buy "stock" when they take out an agricultural loan as a condition for the loan. The farmer usually borrows from 5 to 10% more in order to buy the stock, however, every farmer who has subpoenaed the stock from either the PCA of the FLB have never received any. Why? The answer is obvious--the stock doesn't exist! This is a Breach of Contract and because they are doing it deliberately, it is fraud and

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because they are using the U.S. Mails to collect on an unlawful debt, they are engaged in a "pattern of racketeering" and are potentially liable to the borrowers (the farmers) for triple damages. Now, I am told that several years ago, the PCAs and the FLBs paid some interest to the farmers on this stock and then discontinued the practice. Also, that this year, one farmer received a check which amounted to 3 % interest on the stock. Is this the same rate of return the other stockholders of PCA and FLBs receiving? I doubt it. 1. Get copies of all your original loan papers. Look up the original figures. Check your new loans or notes and you may find this amount already included in the loan that is refinanced. If you cannot

Consider that a farmer may have taken out several loans from either PCA or FLB for the last several years, you can sue to recover triple damages on this 5 to 10 % of the loans value from the very first loan you took out. It is possible that much of your mortgage loan or deed of trust could be wiped out or repudiated. Here is how you would calculate the amount of actual damages:

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AN EXAMPLE OF AN AFFIDAVIT AND NOTICE OF HIGH BID IN LAWFUL MONEY THIS IS TO CERTIFY THAT David G. White made the high bid of $21.00 in lawful money of the United States at the foreclosure sale on January 17, 1985 at 10:15 o'clock A.M. at the south door of the Stearns County Courthouse in the City of St. Cloud. David G. White did bid twenty one (21) dollars in silver coins, and each dollar of silver contained 371.25 grains of pure silver and was minted by the United States government prior to 1965. Each dollar is as lawfully defined by the Coinage Act of 1792. The silver coins were bid in compliance with Article I, Section 10 of the United States Constitution which states: "NO STATE SHALL MAKE ANY THING BUT GOLD AND SILVER COIN A TENDER IN PAYMENT OF DEBTS." This foreclosure sale was for property described as follows: S 1/2 NE 1/4, the E. 6 acres of SW 1/4 NW 1/4 and SE 1/4 NW 1/4, except: commencing at the N 1/4 corner of said Sec. 1: thence S. along the North - South 1/4 line of said Sec. 1, a distance of 2017.57 ft. for point of beginning; thence S. along said line 145.20 ft.; thence W. at right angles 300 ft.; thence N. at right angles 145.20 ft.; thence E at right angles 300 ft. to the point of beginning and there terminating, all in Sec. 1; AND EXCEPT that part of the S l/2 NE l/4 of Sec. 1, described as follows: Beginning at a point on the west line of said S l/2 NE l/4 of Sec. 1, distant 33.00 feet southerly of the northwest corner of said S l/2 NE l/4 of Sec. 1, distant 33.00 feet southerly of the northwest corner of said S l/2 NE l/4; thence easterly, parallel with the north line of said S 1/2 NE 1/4 a distance of 470.16 feet; thence southerly, parallel with the west line of said S 1/2 NE 1/4 a distance of 276.19 feet; thence northwesterly a distance of 486.74 feet to a point on the west line of said S 1/2 NE 1/4, distant 150.00 feet southerly of the point of begin ning, thence northerly along said west line a distance of 150.00 feet to the point of beginning, containing 2.30 acres; all in Sec. 1, T 125 N., R 32 W. The NE I/4 SW l/4, except tract desc. as follows: Beginning at the NE corner thereof; thence W 53 rods to the center of the road; thence S. along said road 3 rods; thence E. to the E. line thereof; thence N. 3 rods to the place of beginning, Also Govt. Lots 1 & 2, except parcels: Parcel A: That part of Govt. Lot 1 and Govt. Lot 2 desc. as follows: Commencing at the S 1/4 corner of said Sec. 35; thence N 89 57' W (assumed bearing) along the S. line of said Govt. Lot 2 for 1497.22 ft. to the centerline of a public road; thence along said centerline N 3 21' 27" W for 1160 ft. to the point of beginning of the land to be described; thence continuing along said centerline N 3 21' 27" W for 260 ft.; thence S 86 38' 33" W for 152 ft. more or less to the shore of Freeport Lake; thence SW'ly along said lake shore to its intersection with a line draw S 86 38" E for 462 ft. more or less to the point of beginning. Parcel B: That part of Govt. Lot 2 desc. as follows: Beginning at a point in the S. line thereof 53 rods 3.05 ft. W of the SE corner thereof, said point being the center of the road; thence W 41 rods; thence N 9 rods; thence E 41 rods to the center of said road; thence S 9 rods to the place of beginning and also except that part of said Lot 2 lying W. of County Highway #11, as now constructed and travelled. S l/2 SE l/4, also a part of the NW I/4 SE l/4 desc. as follows: Beginning at the SE corner thereof; thence N 1 rod; thence W parallel to the S line thereof 67 l/3 rods; thence NW'ly to a point on the W line thereof which is 66 l/3 rods S of the NW corner; thence S along said W line to the SW corner; thence E to place of beginning, all in Sec. 35, T 126 N., R 32 W. [signed] David G. White Rt. 2, Box 286 Avon, MN 56310 THIS INSTRUMENT WAS DRAFTED BY David G. White Rt. 2, Box 286 Avon, MN 56310 Subscribed & sworn to me this 18th day of January, 1985 [signed] Jean A. Trunk

locate the papers, then send PCA or FLB a "Notice of Written Interrogatories" and a "Notice to Produce Documents" OR send then a Notice of Deposition and a Subpoena Duces Tecum and ask them to appear before a Court Reporter and to bring the "stocks" with them and all figures of records showing the amount of "stocks" you were required to purchase in dollar values. The following is a list of questions for the interrogatories or for the deposition: a. What was the dollar value of all stock I was required to buy from PCA/FLB for all loans I took out since [date of first loan]? b. What percent of all loans that I took out constituted money which was used to purchase the stocks referred to in the above question? c. What is the dollar amount of all payment (principal and interest) that I made to PCA/ FLB since [date of first loan]? (NOTE: An official of PCA whom I recently talked to indicated that PCA charges 8% of the loan value to stock and that Federal Land Bank charges 5%. There are no stock certificates!) TO PCA or FLB: You are required to bring to the deposition a copy of all stocks sold to [your name] which were a condition for the loan or loans executed on [date of loan]. NOTICE TO PRODUCE DOCUMENTS: TO PCA or FLB: Along with the answers to the interrogatories above, you are further required pursuant to Discovery statutes to send a copy of all "stocks" sold to [your name] which were a condition for the loan or loans executed on [date of loan].

As you can see from the above, you have two methods of obtaining the information and document you need through Discovery procedures. You can use the interrogatories with the notice to produce documents or you can use a deposition along with a subpoena duces tecum. I prefer the latter method myself, as you can grill them and ask them several questions, some of which you will only think of at the time of the deposition. (To set up a deposition, read the instructions in the book Discovery Made Simple, available from PIN.) HOW TO DAMAGES CALCULATE ACTUAL

Once you know what percent of each loan you were required to purchase for the stock and you know the total dollar value of all payment you made to PCA or FLB, it is easy to calculate actual damages. Let's take an example: Let's say that on all your loans from PCA or FLB, you were required to buy 10% of the loan's value as "stock," and let's say that in 5 years on this loan you paid $50,000 in payments for both principal and interest. To calculate the actual damages is simple. All you do is multiply the percent of the loans that went for the stock purchase against the total payments you made to PCA or FLB. Take 10% (amount of stock purchase) times $50,000 (total amount of payments). This equals $5,000 ($50,000 x .10 = $5,000). Now, under the RICO (Racketeering) laws, 18 USCS 1964, you are entitled to triple damages. So three times $5,000 equals $15,000. $15,000 is the amount federal law requires the court to grant to you in damages. On top of this, you

can ask for punitive damages of 3 times $15,000 or $45,000 or a total of $60,000 ($15,000 plus $45,000). Now we are talking about a sum to potentially wipe out the entire loan. Now when you hit PCA or FLB in Federal Court with one of these suits, and you must sue them on this issue in Federal court, then they may call you and want to settle out of court. If you decide to settle out of court, I suggest that you ask for these three things: Since State Courts have jurisdiction to hear all foreclosure actions and because the racketeering laws (RICO) are Federal, so the State Courts have jurisdiction to hear the RICO cases? According to Attorney Carla Struble of Columbus, Ohio, they have used RICO in the state courts and jurisdiction has not been challenged. This is good news. However, if the plaintiff challenge the court's jurisdiction to hear the RICO part of your Counterclaim, then you should file a Petition for Removal to Federal Court. Be sure your Counterclaim mentioned, under Jurisdiction, 28 U.S.C. Sec. 1332 and that the amount in controversy exceeded $10,000. If you live in a state where they foreclose against you without going to court, write up your suit on the credit issue and any and all other issues you can think of that apply to your case and add the racketeering charges and file it in the Federal District Court nearest you. Either way, you will need a book called "Federal Rules of Civil Procedure." You can obtain one from West Publishing Co., P.O. Box 64526, St. Paul, MN 551641804. The fastest way to contact them regarding orders is at 612-687-7000. Send for this book as soon as possible. Q: What do I do if I have already filed a Complaint or a Counterclaim in State Court? A:File an Amended Complaint or an Amended Counterclaim and add the charges. If the time to file an

a. That they drop the foreclosure action against you. b. Refinance the loans you have with them at 6% interest, and not escalator clauses. c. You will dismiss your suit against them. JURISDICTIONAL CONSIDERATIONS Amended Complaint or Counterclaim has expired under State statutes, then write up a whole new lawsuit and file it in Federal Court. After doing this, then file a Petition for Removal to Federal Court of the existing case in the State court, after which you file a Motion to Consolidate Cases in Federal Court. (Instructions on how to remove a case from state court to federal court are available from PIN for $3.00) WRITING A SUIT OR AMENDING ONE Be sure the following information gets in under: (add the following to Model Lawsuit #2) JURISDICTION Jurisdiction in this action is based, in part on 28 U.S.C. Sec. 1332, and involves more than $10,000 in controversy. Jurisdiction is also based on 18 U.S.C. 1964. MODEL LAWSUIT #3 Note: (This model lawsuit contains information that should be added to Model Lawsuit #1 or #2 and should be filed before a sheriff or trustee sale. The purpose of this lawsuit is to stop a sheriff or trustee

sale after an FRC was used to pay off a debt or judgment. For purposes of this suit, it is assumed that you have already sent an affidavit to the sheriff/trustee that the debt/judgment has been paid in full and that you have returned to the lender the full amount of credit you owed him. If you lacked the time to use the information in Model #3 before the sheriff/trustee sale, then go directly to Model #4 and file this after the sheriff/trustee sale as soon as possible. Model lawsuit #5 is designed to be used if you go to a sheriff sale and bid 21 or more dollars in silver and gold coins on another person's property. In all these lawsuits, omit what is not applicable to your situation and add whatever else is applicable. These lawsuits may be filed in either state or federal court.) MODEL LAWSUIT #3 ........................................................... [your name], PARTIES TO THE ACTION 2. See Model Lawsuit #2, and add: (Sheriff [name], who is the sheriff of ? county and whose address is [address of sheriff's department or his home]. FACTUAL BACKGROUND 3 through 12. See Model Lawsuit #1 or #2 and add the following paragraph: 13. (On "day-month-year," the plaintiff sent a check to "bank, FLB, PCA etc." for the sum of $... The plaintiff did pay off the debt/judgment dollar for dollar by returning to [name of lender] the same amount of credit they had loaned us. The plaintiffs have discharged the debt/judgment by returning full payment in like kind of money. On or about "month-dayyear," the plaintiff sent an affidavit to the sheriff attesting to the fact

Plaintiff, Case #........... Complaint at Law Bank of [?/PCA/FLB etc. ], and Federal Reserve Bank President [name] and Sheriff [name] and John and Jane Does (1 to 25), Defendants. ........................................................ .. Now comes the plaintiffs, in propria persona, and relying upon the decisions in Haines v. Kerner, 404 US 519, and show their complaint against the defendants as follows: JURISDICTION 1. See Model Lawsuit #1.

that the debt/judgment had been paid in full and requested that the sheriff sale be cancelled. The sheriff knows or should have known that the contents of the affidavit are true. Yet, I have recently been informed by the sheriff's department that they plan to sell my property on "planned date of sale." The plaintiff's right not to be denied property without due process under the 5th and 14th amendments will be violated if the sheriff sale goes through as planned and the title to the plaintiff's property will be clouded by said sale. Furthermore, the plaintiff is not aware of any counter affidavit signed by the [lender] which says that "the debt has not been discharged in a like kind of

money." In the absence of such an affidavit, the sheriff is bound by all the principles of our legal system to honor the plaintiff's affidavit and cancel said sheriff sale. The plaintiff believes that the sheriff sale will place the sheriff in violation of 42 USC 1983 and with an unknown party may also be in violation of 18 USC 241.

Exhibits: A copy of the Affidavit sent to the sheriff is attached hereto. MODEL LAWSUIT #4 Note: (Model Lawsuit #4 is filed shortly after a sheriff or trustee sale. If you have previously filed Model Lawsuit #3 and if for some reason, it did not stop the sheriff or trustee sale, then you simply file an "Amended Complaint" and add the new material from Model Lawsuit #4. If you did your homework, you should have plenty of exhibits to attach to Model lawsuit #4. If you did not file Model Lawsuit #3, then #4 provides material to be added to Model Lawsuit #1 or #2 that can be found in the instructions that go with the Memorandum of Law on Bank Credit and Voidable Contracts. Although Model #4 can be used in state court, there are several reasons to believe that it will be more effective to file it in federal court. Model #4 is designed on the assumption that you placed a bid of 21 or more dollars in silver coin at the sheriff or trustee sale and that you also challenged the lender bid in credit money as described in the complaint. If these later conditions are not applicable, then omit them or modify the complaint accordingly.) ........................................................ .. Now comes the plaintiffs, in propria persona, and relying upon the decisions in Haines v. Kerner, 404 US 519, and shows their complaint against the defendants as follows: JURISDICTION 1. See Model Lawsuits 1, 2 or 3.

Counts 1 and 2 and 3 (See Model Lawsuits #1 or #2) Relief Requested (See Models #1 or #2) and add the following: #? Plaintiffs restate by reference all the averments of this complaint. Plaintiffs ask the court for a Temporary Restraining Order to stop pending sheriff sale and to suspend it for a minimum of 6 months until the merits of their case has been adjudicated before a jury. This request is made pursuant to their right to trial by jury under the 7th amendment to the Bill of Rights as well as their right not to be denied property without due process of law under the 5th and 14th amendments. Plaintiff also ask the court to order the sheriff to show cause why the plaintiff's affidavit is not being honored in the absence of a counter affidavit from the lender. Date................. X ...............................

.......................................................... IN THE UNITED STATES DISTRICT COURT FOR THE...DISTRICT OF... Caption--See Model Lawsuits #1, #2 or #3. Under the defendants, add: [name of bank against whose account the high bid in credit money was drawn at the sheriff sale]

PARTIES TO THE ACTION 2. See Model Lawsuits 1, 2 or 3 and add the sheriff's name and the name of the bank against whom the check was drawn that the sheriff accepted for the high bid. FACTUAL BACKGROUND 3 through 12. See Model Lawsuits 1, 2 or 3 and add the following: #? Prior to the sheriff/trustee sale and on or about [month/day/year], the plaintiff sent a check to the [lender] for the sum of $...and paid the debt/judgment in full by returning payment in like kind of money. After this, the plaintiff did send to the sheriff whose name is...an affidavit that attested to the fact that the debt/judgment had been paid and discharged. Also, no counter affidavit was filed by the [lender] that stated that "the debt had not been discharged in a like kind of money." The sheriff knew or should have known that the contents of my affidavit were true as there was no counter affidavit provided by the [lender]. In the absence of a counter affidavit, the sheriff violated all the principles of our legal system by selling the plaintiff's property on [month/day/year] to [name of highest bidder in credit money] . The sheriff did cloud and slander the title of the plaintiff's property and did deny him property without due court process which is the plaintiff's inalienable right under the 7th and 14th amendments to the U.S. Constitution. The sheriff sold the plaintiff's property deliberately to the detriment and damage of the plaintiff. The property the sheriff sold is located at.... #? At the sheriff sale which occurred on [month/day/year], the plaintiff, [your name], in order to protect his interest in said property, felt compelled to place a high bid in lawful money of the United States. The plaintiff, [your name] did place a high bid in lawful money as

required by Article 1, Section 10 of the U.S. Constitution. Article 1, Sec. 10 of the U.S. Constitution which says: "No State shall make anything but gold and silver coin a tender in payment of debts." Since the sheriff's department and his position is created under the jurisdiction of the state of....the sheriff is bound by Art. 1, Sec. 10. He is further bound by his oath of office to uphold and defend the Constitution of the United States. The meaning of Art. 1, Sec. 10 is very clear on its face and the sheriff was aware of this prohibition and the sheriff [his name] is aware of its clear and unambiguous meaning. The plaintiff, [your name] did place the high bid in lawful money of the United States by offering the sum of $...dollars in silver coins. This bid was witnessed by the following persons: [insert names of witnesses present]. The sheriff did refuse to accept the high bid in silver coins and instead awarded the sale to [name] for a [Cashiers/Certified Check] which was offered by [name] for the sum of $.... #? The plaintiff having knowledge that many "bad" checks are being submitted by financial institutions at sheriff sales and suspecting that this had happened here, asked the sheriff for a photocopy of the check submitted. This check was drawn on the bank of....The plaintiff, with a tape recorder and with witnesses, went to the bank against whose funds this check was drawn and placed a tape recorder on the counter at the bank and proceeded to show the clerk behind the counter a photocopy of the check. (Note: if the sheriff won't give you a copy of the check, ask him the bank it is drawn against and the name on the corporation listed on the check.)

The plaintiff then asked the clerk at the bank after showing the clerk a photocopy of the check (or verbally telling her the today. The clerk told us that the bank did not have enough cash to cash this check for the sum of $....When asked what her name was she said it was [name of clerk]. (Note: in writing this part of the complaint, describe exactly what happened as it occurred at the bank.) #? Upon learning that the bank has written/certified a bad check, we returned to the sheriff's department and played the tape recording to him. Yet, in spite of what evidence we showed him, the sheriff still insisted he would accept the cashier's/certified check. We also informed the sheriff that the bank had committed a fraud and that this was illegal. We also pointed out that the state statutes under [statute] requires bids at sheriff's sales to be placed in "cash and lawful money of the United States." We also showed the sheriff sale Art. 1, Sec. 10 of the U.S. Constitution and reminded him of his oath of office. The sheriff did accept a bad check written by [name of bidder] and drawn against the bank of....The sheriff also committed perjury by failing to grant the sheriff's deed to the plaintiff, [your name], and instead gave the sheriff a bad check which was not redeemable in Federal Reserve Notes or coins, let alone gold and silver coin. The sheriff did this deliberately to the detriment and damage of the plaintiff(s). Counts 1, 2 and 3 (See Model Lawsuits 1 or 2) and add the following: Count 4 The averments of the previously numbered paragraphs are restated by reference herein. The sheriff violated the plaintiff's Constitutional rights under the 5th and 14th amendments and thus violated 42 USC 1983. The sheriff knew from the affidavit that the plaintiff, [your name] had paid the debt in full, in like

amount of the check) if they have sufficient cash in their vault to cash this check kind of money. Yet, the sheriff did deliberately sell the plaintiff(s) property to the detriment and damage of the plaintiff. The sheriff accepted a bad check from [name of bidder] as lawful money and knew that this was not lawful money and the sheriff [name] did this deliberately to the detriment and damage of the plaintiff. The sheriff violated his oath of office by not accepting the high bid in silver coins as he is required to do by his oath of office and then even violated the legal tender laws of Congress by not requiring actual coins or currency issued by the U.S. Government, but instead accepted a bad check from [high bidder]. Plaintiff asks as damages the costs of this action and a verdict from a jury trial voiding the deed issued at the sheriff sale and awarding the sheriff's deed to the plaintiff as well as reasonable compensatory damages to the plaintiff as determined by the jury. Count 5 The averments of the previously numbered paragraphs are restated by reference herein. For not having cash to redeem the Cashiers check/Certified check, the plaintiff charges the bank and the person who signed or certified the check with Fraud. Plaintiff asks for a jury verdict to determine the fraud charge against the bank and for the costs of this action and for reasonable compensatory damages for the plaintiff as determined by the jury. The person who certified the check/wrote and signed the cashiers check is...(or is unknown at this time).

Relief Requested 1. through 3. (See Model Lawsuits 1 or 2) and add this: 4. Plaintiff ask the court for an Order for the Arrest of the bank official who certified the check/wrote the cashiers check and that he be charged with fraud. Plaintiffs ask the court to issue a Writ of Quo Warranto to execute the same. Plaintiffs further ask the court to empanel a Grand Jury or to direct the plaintiff to an existing Grand Jury so as to allow the plaintiffs to present written and oral testimony to the Grand Jury concerning violations of Federal and State criminal law by one or more defendants named herein. Now comes the plaintiff, [your name] and relying upon the decisions found in Haines v. Kerner, 404 U.S. 519, and shows their complaint against the defendants as follows: JURISDICTION 1. Jurisdiction in this action is based on the 7th amendment to the Bill of Rights as this is a "Suit at Common Law" and the value in controversy exceeds twenty dollars. Jurisdiction is further based on Article 1, Section 10 of the U.S. Constitution which prohibits states from making any thing but gold and silver coin a tender in payment of debts. Jurisdiction is further based on the common law tort of fraud. 2. Article 1, Section 10 of the U.S. Constitution says in part: "No State shall...make any Thing but gold and silver coin a Tender in Payment of Debts" and the 7th amendment to the Bill of Rights says: "In suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved."

Date.............. X................................... MODEL LAWSUIT #5 ........................................................ .... [your name], plaintiff, Case#........... Complaint at Law Sheriff[name] and, [Name of high bidder in unlawful money] and, John and Jane Does, Defendants. ........................................................ .... 3. This suit is filed in a court of record and in an action at common law in contrast to a suit in equity or chancery jurisdiction. The plaintiff has the right to have the issues tried to a jury where the issues of law as well as fact can be determined. In contrast, a jury trial only allows issues of facts in dispute to be determined. In a suit at common law, Motions to Dismiss, Demurs and Motions for Summary Judgment are not allowed as these are equity proceedings and are tried to a judge rather than a jury. If the defendants invoke the court's equity jurisdiction, it will be a violation of the plaintiff's 7th amendment rights as well as his 5th and 14th amendment rights. The plaintiff(s) request that the court act as an impartial referee so as both plaintiff(s) and defendants are afforded "due process" and a fair trial. PARTIES TO THE ACTION 4. The plaintiff(s) in this suit at common law are citizens of the

United States and residents of the State of....The Plaintiff(s) names and addresses are as follows:...and....The defendants in this action are Sheriff [name] who is the sheriff for...county. His address is [either insert home address or the address of the sheriff's department]. The sheriff is an elected/appointed official who has taken an oath to uphold and defend the Constitution of the United States. Sheriff [name] is being sued in his capacity as an individual and not in his official capacity. The other defendant in this action is an employee or agent for [bank or other financial institution]. This person [insert name or declare it to be a John or Jane Doe if you don't know the name] is being sued in their individual and not in their official capacity under the common law. The address of the second defendant is..... FACTUAL BACKGROUND 5. On or about [month/day/year], the plaintiff(s) in this action learned that a sheriff sale for the property located at...would be held by the sheriff's department on [date of sale]. The 8. Then I approached the sheriff and told him I had good cause to believe that the check may not be good and I asked him for a photocopy of it. [If the sheriff won't give you the photocopy, then ask for the name of the bank it is drawn against and the account number and the name of the organization or person issuing it.] The sheriff gave me a photocopy of the check. Count One 9. The averments of the previously numbered paragraphs are restated by reference herein. Plaintiffs charge the [person who signed and certified the check] with fraud and misrepresentation. Since the bank did not have the coins and currency to cash

property located at the above address is legally described as follows: [Insert legal description here] 6. On the morning of [date of sheriff or trustee sale], the plaintiff(s), [your name], did appear at [describe location of sheriff/trustee sale; give address] for the purpose of placing a bid in lawful money of the United States for the property described in the preceding paragraph. At or about [time], defendant Sheriff [name] came to this location for the purpose of conducting a sheriff sale on the above referenced property. Persons known to the plaintiff who were present to witness the sale were [names of witnesses]. 7. In this paragraph, describe what happened exactly as it happened. Have your tape recorder running so you can recall events as they occur. the check, their Cashiers/Certified check was a fraudulent representation. Plaintiffs ask for a jury determination of this fraud charge. Plaintiffs also ask for the cost of this action plus reasonable compensatory and punitive damages against [name of person signing or certifying cashiers/certified check]. Count Two 10. The averments of the previously numbered paragraphs are restated by reference herein. Sheriff [name] has damaged the plaintiff, [your name], deliberately and knowingly by refusing to accept our/my high

bid in lawful money of the United States, which is required by Article 1, Sec. 10 of the U.S. Constitution to be gold or silver coins. The sheriff has also violated his own oath of office to uphold and defend the Constitution of the United States. The plaintiff asks for a jury determination on which of the bidders placed the high bid in lawful money of the United States as required by our Constitution and for a verdict awarding the Sheriff's Deed to the plaintiff, [your name] as the one bid which was the high bid in lawful money. Plaintiff asks for the costs of this action to be assessed against the sheriff in his capacity as an individual. Relief Requested 11. The averments of the previously numbered paragraphs are restated by reference herein. The Plaintiff(s) ask the court for an Order for Arrest of the bank official who signed/certified the cashiers/certified check and that he/she be charged with fraud for misrepresentation of the check. Plaintiffs ask the court to issue a Writ of Quo Warranto to execute the same. Plaintiffs further ask the court to empanel a Grand Jury or to direct the plaintiff to an existing Grand Jury so as to allow the plaintiff(s) to present written and verbal testimony to the Grand Jury concerning violations of Federal and State law including and not limited to 18 USC 241, 18 USC 1001, and 18 USC 1621 and other violations of law against the defendants named herein as well as any other parties that may have conspired with them to violate the above named laws. Cosigning and Mortgage Deed of Trust Assumption. If you assumed a mortgage by cosigning for it, then you must proceed to attack the original loan that was made to the person you cosigned the note with or assumed the note from. Your position is much the

12. Plaintiff(s) demand a trial by jury under the 7th amendment on all issues including the issue of what constitutes "lawful money" for a sheriff department under state jurisdiction. Plaintiff(s) demand all their rights at all times and waive none of their rights at any time including their right to time. LEGAL KARATE: Additional Notes and Comments. Refinancing debts or loans - If you have had occasion to refinance your debt or loan, you must list each and every loan amount from the first one you took out with the lender bank and if possible list the first loan as the original loan. Append this bookkeeping detail to your statement of factual background. If you have not kept track of the exact dates then state "On or around [month, date, year], and if you do not know the exact amount you borrowed, you should indicate the approximate amount. Further, if you don't know the exact amount you paid the lender, then add language to your complaint like "Payments totaling approximately $???,000 were made to the bank from 197? to 199?. Usually, Discovery takes care of resolving such questions. However, it is important to note that Complaints are not written under oath or penalties for perjury, so you are not going to suffer for a minor error. same as that of someone who has co-signed on a bad note. Detail the facts in the statement of "Factual Background" in your Complaint. Try to get the person you assumed the note from to join with you in the suit, as a co-plaintiff. If he doesn't

cooperate, then list him as a Defendant in your suit, serve him with a Subpoena, charge him with knowledge that he was aware of the bank's fraud, and condoned it even at the time you assumed the note. Other issues. There are other issues that can be added to individual lawsuits and they vary from case to case. But among these issues, things the lender should not have done would be: 1. "Backdating the Truth and Lending Forms"; 2. "recision forms executed when the loan was taken out"; 3. "your signature appearing on documents you never signed (such signature made by a duplicating machine)." You can and must learn of their existence through Discovery procedures, depositions and interrogatories; 4. "verbal or written promises that were made to you about refinancing the loan which the lender reneged on unexpectedly or for some hidden reason;" 5. "failure of a corporation to register with the Secretary of State or the State Corporation Commission;" 6. "failure to obtain a Certificate of Authority to do business in the state." This is a particularly useful issue to raise in foreclosure. You find out by writing to your Attorney General's office or to the State Corporation Commission for the foreign corporations status regarding a "Certificate of Authority." Do not overlook any jurisdictional challenge. Stock Fraud Charges. If as a Defendant you file an Answer and Counterclaim to a corporation foreclosure, add stock fraud charges for requiring you to buy nonexistent stock in their associations. If you send them a Notice to Produce Documents, you will find that their stock is nothing more than a book entry and a concealed interest charge. To block sheriff or trustee sale, use silver dollars with an Affidavit and a

Constructive Notice. (See sample instructions in the Models given.) COUNTERCLAIMS. In states where judicial foreclosures are used, file an Answer and a Counterclaim to any Complaint that is filed against you. In using Model Lawsuits #1 and #2, you reverse positions with the lender, i.e., you are the Defen-

dant counterclaiming against the lender who is the plaintiff. You call your pleading a "Counterclaim at Law" instead of a "Complaint at Law." Also, if you are a Defendant suing another defendant you file a Cross Complaint and you are the Cross Plaintiff. If you bring in a bank or other lender that was not originally mentioned in your lawsuit, you can sue them by filing a "Third Party Complaint. " In this, you will be called the Defendant and Third Party Plaintiff and the bank called the Defendant. Defenses. Today, our courts often become collection agencies for the nation's banks and mortgage companies. This is because people do not avail themselves of the Defenses provided by the courts. They permit Foreclosure by Default and the courts have no alternative. The purpose of this work is to teach you how to use courtroom karate techniques (a) to banish your fear and to show you how to use your Constitutional rights, especially to keep possession of your property until your case is decided before an impartial jury. Although these instructions are written mainly for the benefit of the "pro se" or person who proceeds in the proper person or "in propria persona," the information in these instructions will undoubtedly be of interest to the licensed attorney as well. TRIAL BY MOTION versus TRIAL BY JURY. Most court cases today are decided with Motion hearings. The most frequently used Motions are a "Motion to Dismiss" and a "Motion for Summary Judgment." If the judge grants either Motion, your case will never come to trial. There is nothing wrong with lawsuits being decided in this manner so long as both sides agree to this format. These types of suits are called "suits in equity or chancery jurisdiction." However, there is another kind of lawsuit called a "Complaint at Law or Suit at Common Law," and you have a right to have this

It is now recommended that an attorney use all the Constitutional and legal arguments contained in the pleadings which are made a part hereof. While the rights to a trial by jury is always granted in a criminal proceeding, it is frequently denied in civil proceedings, where the only issue in controversy is an amount of money. Legislators, lawyers, judges, sheriffs, have all taken an oath to uphold the Constitution of the United States, yet most of them fail to carefully read the document they are sworn to uphold. While the Constitution is the foundation of law in the United States, many Constitutional rights have since been abridged and denied through legislative and judicial fiat. As a result, there are today many laws and practices in conflict with one another. However, because each and every judge and attorney at law has taken such an oath, act and proceed on the premise that it is and remains the Supreme Law of the Land. Insist on it.

kind of case tried before a jury, under the 7th Amendment to the Bill of Rights, U.S. Constitution, which says: "In suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved." That is a Legal Karate hold. Use it. The main difference between a "suit in equity" and a "Suit at law" is that the former is tried before a judge while the latter is tried before a Jury. Chancery or Equity Jurisdiction - Chancery or Equity

Jurisdiction occurs every time you present any Motion before a judge. It is practical and possible to file a "COMPLAINT AT LAW" and then file a Motion before the court for some reason as long as your Motion does not deny the other parties" right to a trial by jury or deny them "equal protection of the laws" under the 14th Amendment. A Motion for a Continuance or a Motion for Certification of the Question are all proper Motions to present to the court. In a Complaint at Law or Suit at Common Law, a Motion to Dismiss for any reason given, such as lack of jurisdiction or failure to state a claim upon which relief can be granted, must be tried before a jury. INSIST UPON IT. When an attorney files any of these Motions or if you do, it is the right of either party to the lawsuit to have such motions tried before a jury. By using these motions you obtain two jury trials. The first will be to determine if the court has proper jurisdiction or if you have a claim upon which relief can be granted. If the jury decides in your favor, then you proceed to the second jury trial which deals with the merits of the case. The same jury will probably preside in both trials. While the right to a trial by jury is a Constitutional right under the 7th Amendment, practical experience has shown us the courts don't grant jury trials in civil proceedings unless there are MATERIAL FACTS IN DISPUTE. See to it that you bring MATERIAL FACTS INTO DISPUTE. ANOTHER DEFENSE. One facing a Foreclosure must frame a COMPLAINT or COUNTERCLAIM in a lawsuit. Your Complaint is when you as a Plaintiff sue the defendant. In a Counterclaim, the defendant who is being sued counter sues the Plaintiff for "Counterclaims." The basic elements of a lawsuit are: 1. Jurisdiction Establish what authority under the Constitution or

laws you are invoking, so that the court has the authority to act. 2. Parties - The names and addresses of each party to the lawsuit, whether plaintiff or defendant, or third party plaintiff for third party defendant must be spelled out. There are also Cross complaints, where one defendant sues another defendant. 3. The Facts - Be specific and show that the intent of the person you are suing was to defraud you or breach contract or injure you in some way. You must name dates, places and names of persons involved. You need evidence for exhibits, such as letter promising to renew your loan, or offers to lend you money, in writing, or verbally, shortly before the lender reneges and calls in his note. If you are very smart and shrewd you will take a witness with you and go to your lender and make an offer, within your stated means, to settle your debt, refinance it or whatever. Every word of what your lender counter proposes should be noted as well as any threats he may make to foreclose. The event should be recorded in an Affidavit, signed by your witness, notarized, etc. and presented as an exhibit in evidence. 4. Laws Violated. Any laws violated must be cited. You will need the help of an attorney in this area.

5. Money Damages Relief - The relief you are requesting in money damages must be stated in your "COMPLAINT." You will need an attorney to help you in this area. MODEL LAWSUIT #1. Model Lawsuit number one is a basic lawsuit on the "Money and Credit Issue." It is the model lawsuit you will use to sue the lender bank or institutional lender. You are strongly advised to get the help of an attorney to add more to it than what is given in the skeleton framework presented. The more issues of facts in dispute that you can set forth the more you will increase your chances of getting a trial by jury, even in today's "equity courts." Examples of issues of facts in dispute to present in your Complaint. 1. Breach of Contract or Agreement (Such as when the lender in writing or verbally promises to renew your loan and reverses himself.) 2. If the lender presents documents to the court that you do not remember signing, disclaim them. BE SURE TO DENY YOU SIGNED SUCH DOCUMENTS, EVEN IF THE SIGNATURE APPEARS TO BE YOURS. (Many banks and lending institutions have your signature copied by machine and by this means place your signature on documents you never signed.) Note: In practice this usage of your signature amounts to forgery, accomplished by "signature machines." When filing your Counterclaim, deny signing any and all documents that you do not remember signing. Have your attorney send the lender an Interrogatory or have him take a

Deposition in which they are asked if they own a "signature machine," a machine that duplicates a handwritten signature. At a deposition, if they admit to owning such a machine, and most lender banks and institutions have just such a machine, then ask them for what purpose they own such a machine and why was your signature duplicated as if you had signed documents you had never seen? The answer should be most interesting to the court and especially to a jury. 3. Charge the lender with Usury and violating title 15 of the U.S. Code by not accurately figuring the Annual Percentage Rate based on Regulation Z. Note: This is strictly legal karate. Why? It so happens that Regulation Z is so complicated that almost no one can figure out how to use it, including lenders and attorneys. Charge that the Annual Percentage Rate the lender has used is higher than the figure he reported in the Truth in Lending Statement. Then in a written interrogatory or at a Deposition, ask the lender to explain in detail how he arrived at his figures for the Annual Percentage Rate used in the loan further, demand that he show just how this complies with Regulation Z. 4. Add any other issues of facts you can think of including any and all defects in the lenders Complaint, like errors in

names, addresses, figures, etc. Courtroom Karate.

dates,

loan Get your complaint filed before your opponent brings his action to the court. Attack his complaint, which has to be entered as a countersuit (as you have made him the Defendant!). Diplomatically challenge the Judge as to where he stands with regard to the Constitution being the "Supreme Law of the Land." Does he agree? If not, have your attorney politely request that he disqualify himself for prejudice. the Judge upon your Motion to Dismiss may do that very thing.) Your best weapons of defense (as a Plaintiff) are Motions for Discovery of Facts and a demand for written Interrogatories. Such documentation when gathered over the months, possibly years, will serve you well at trial. Get all the documents you can applicable to your case into production, and file a Request for Admission of Documents. Enter a Motion to Terminate Litigation without Trial. Hold a series of pretrial conference. Invoke Court Rules. (The example has been given as well as the instructions for use as use of these FRCs is becoming better known and more and more successful. Use at your own risk! Better to come into court with clean hands. Author's note.) Answering a Complaint. If you use the Fractional Reserve check (which the author does not

WEAPONS IN YOUR ARSENAL DEFENSE (Especially as a PLAINTIFF) Use of Court Rules.

OF

Use of an impartial Constitutional lawyer who will present your case in front of an impartial Constitutional judge (one who conscientiously observes his oath to uphold the Constitution of the United States). If the Judge refuses your request have your attorney enter a Motion for Trial by Jury. If denied, enter counterclaims and cross claims against your opponent. Bring up every issue of money and credit that you and your lawyer can think of. Attack the Trustee's Complaint. Find flaws in every document your opponent presents to the Court. Enter Motion for Discovery. (See sample given on DISCOVERY in the Appendix.) The Judge may have a mortgage of record with your lender bank! Enter as many Motions for Discovery of facts and evidence in preparation for Trial as you can. Enter a Motion to obtain written Interrogatories (Depositions) from every individual connected with the lender in his lending institution who might have performed some act in processing your loan. (At this point, your lender may drop his suit and no longer respond to your Motions. And

recommend using) you may follow model answers in the instructions that go with its use. If you do not use an FRC, an effective way to answer a Complaint that was used by Bob Bennett from Wisconsin is as follows: He denied everything except his name and address. In other words, an Answer to Complaint is a separate paper with that heading. He worded it: "Now comes the defendant, in his own person, and answers the complaint as follows: "1. Defendant admits his is...and that he lives at.... name

have immediately filed a Motion for Summary Judgment, which would have wiped out all chance of the case going to trial. Mr. Bennett's admission of having signed the note would also have wiped out any chance of getting a jury trial. When you answer - When you answer a complaint, file a Counterclaim against the lender, using every issue you can find that is reasonably available. Use every strategy to get a judge to grant you a trial by jury that he would otherwise deny, especially in an equity proceeding. Your Counterclaim moves the case from the "equity" side of the court to the "at law" side under the protection of the 7th Amendment to the Bill of Rights.

"2. Defendant denies each and every allegation of paragraph Two of the Complaint and leaves the burden to prove such allegations to the plaintiff. Note: Paragraph two of the bank's complaint said that Mr. Bennett had signed a mortgage not on April 1st, 1979. By denying he signed the paper (even though he did so), Bennett forced the case to trial and caused a delay in the case. Had he admitted he signed the note, the bank's attorney would LEGAL KARATE IN THE COURTROOM USE OF LEGAL KARATE - WHAT TO DO If you are not experienced in court procedure, you will need all the help you can get. When you find a local attorney, bring this entire section to him and ask him to assist you. Keep a copy for yourself for the inevitable conferences that will take place. I suggest you may want to avoid any attorney who wants a large amount of money down and who will not agree to represent you in court on the Lawful Money and Credit Money Issue.

Of course, time is of the essence and the question of where one starts depends on whether or not your creditors have taken action in court to get a judgment against you or to foreclose on your property. Legal Karate: Your Options Before Judgment. You have two legal karate courses of action. One is to file an original COMPLAINT at LAW, or wait until the lender files a Complaint and Summons against you, at which time you respond with either a MOTION TO DISMISS or an "ANSWER" and "COUNTERCLAIM AND THIRD PARTY COMPLAINT AT LAW."

If you sue first, with a Complaint at Law, suspend payments and save your money in an account at another bank or in a shoebox at home to cover future payments in the event you lose or decide to abandon the lawsuit down the road. If you are the Plaintiff, demand a Trial by jury, and at once proceed to use interrogatories and admissions as are described in DISCOVERY MADE SIMPLE (see Appendices). If you find that the lender(s) refuse to answer your interrogatories, then serve them with a NOTICE OF DEPOSITION, and with a Subpoena and ask them questions in court. (An attorney with good cross examination would come in very handy.) However, you can prepare your list from the admissions and interrogatories that they have refused to answer. Procedure for taking Depositions is explained in the Discovery Book, Appendices. Further, should your lender bank refuse to answer a Request for Admissions, you should then file a MOTION for Summary Judgment, as the law says that any Admissions not answered are deemed "admitted." At this point, however, you have moved from a proceeding "at law" to one in "equity," and the judge should grant your Motion for Summary Judgment as a matter of right under the law. Because of the questionable behavior of some of our judges, you may not be granted your Motion for Summary Judgment. Your next step would be to file a Motion for Leave of Court to Appeal the judge's refusal to grant judgment. If the judge refuses this Motion, immediately You may wait until the lender sends you a Summons and Complaint, which are usually filed in Superior or State Court. You have two options here, in reacting to that action they have taken. One is to file a MOTION TO DISMISS for lack of jurisdiction of the court over the subject matter. The other is to file an ANSWER and COUNTERCLAIM and Third

file a Petition for Writ of Error in Appellate Court. You are the Petitioner and the Judge then becomes the Respondent. You then ask the Appellate Court for an Order reversing the lower court decision of not granting you your Summary Judgment and cite the Discovery rules under Admissions to support your petition. Another option which can be carried out at the same time is to file a Third Party Complaint for violation of your 14th amendment rights of not giving you equal protection under the laws. The debtor is entitled to the same protection as the creditor under the law. Court Room Karate: To support your Complaint, ask your attorney to subpoena to a Deposition adversary and ask him a number of questions which will clarify what the statute says. Then follow this interrogation up with more questions about the particulars of the case. Use your equitable discovery rights, without waiving your trial by jury rights. Since the other party to your suit will not be idle, you must demand your trial by jury rights, especially when he files a Motion for Judgment against you. YOUR OTHER LEGAL KARATE OPTION. Party Complaint at Law. If you are only dealing with a bank lender, you need only to file an ANSWER and COUNTERCLAIM as you can file a THIRD PARTY COMPLAINT against third party holders in due course, if necessary, or if your Constitutional rights are violated. The Answer and Counterclaim and Third Party

Complaint is used as your response against financial institutions other than banks (may be holders in due course). In any case, it is used against Mortgage companies and other like institutions. Name a number of John and Jane Doe respondents as Third Party Defendants. These John and Jane Does are banks or lender officers of such institutions who loaned, or bought your note from the original lender mortgage company, with "checkbook money or check credit money." It is quite safe to assume that they did as it is common practice for these same banks to create money on their books with checkbook or credit money. FAILURE TO TENDER A LAWFUL CONSIDERATION. In this second type lawsuit, charge the lender(s) with "failure to tender a lawful consideration," "illegality," and "Breach of Implied Contract." Even though they state they have acted in good faith, their contract with you is voidable because what they did was illegal. There is no legal authority under the sun that gives them the right to create "credit money" and demand lawful money in return. Congress has declared only coins and currency to be legal tender in payment of debts, not "credit" or "checkbook money," created by a private corporation. Furthermore, you may then charge your lender(s) with "material representation of facts and "fraud." An additional karate option - An additional courtroom karate option is your MOTION TO DISMISS . This Motion should be used as your first option and if your Motion is denied, you must immediately file your Answer and Counterclaim.In any state court, when anyone is foreclosing you your property and has filed a Summons and Complaint, you have the right to challenge the court's jurisdiction to hear the case. A simple defense here is to use Article 1, Section 10 U.S. Constitution which says:

"No state shall coin money, emit bills of credit (credit money, checkbook money, Ed.) or make anything but gold and silver coin a tender in payment of debts." Filing Fees - Every court case requires the payment of filing fees to initiate a case, unless the lender (bank or mortgage company) pleaded they had no lawful money (and many of them have very little), and proceeded "in forma pauperis." The filing fees must be paid in either gold or silver coin (have a roll of Roosevelt silver dimes handy) in order to comply with Art. 1 para. 10. In almost every instance, filing fees will be paid by check, which is not even legal tender by act of Congress. Neither checks nor currency nor copper nickel coins comply with the prohibition in Art. 1 Sec. 10 on the states to make nothing but gold and silver coin a tender in payment of debts. Thus, all filing fees paid to file the lawsuits are in violation of Art. 1 Sec. 10 when they are paid in something other than gold and silver coin! Indeed, this is your basis for challenging jurisdiction. In your Complaint and Motion to Dismiss you must allege that the Defendant/Plaintiff has already violated the law, the U.S. Constitution, which is the Supreme Law of the Land. And immediately thereafter, use a Discovery procedure called a NOTICE OF REQUEST FOR ADMISSIONS. The five questions you must ask the lender to admit are listed in Discovery Made Simple (see Appendices, Discovery Made Simple). When you file your Motion to Dismiss, ask the judge's clerk for a

date AFTER the date the Admissions are due for a Hearing. Get your date set for the Motion to Dismiss hearing. Ask for a date two or three weeks away. If you send in the Request for Admissions the day after you have received a Summons, your Admissions request response will be due BEFORE the date of the hearing. In that way you will put the Plaintiff/Defendant lender in a "Catch 22" situation. By doing so you will have proved he not only is violating the Constitution; he himself is proving to the Motion (have witnesses present) of Demand for Trial by Jury. (Don't let the Judge deny your Right.) If Judge denies your right to trial by jury seek publicity. Serve a Complaint on him. Call in the media. Otherwise, prepare for Trial before a Jury. Voir Dire. Opening Statements to the Court, as to the Constitutional Money Issues and as to the invalidity of your debt contract. Direct Examination of the Plaintiff. Presentation of Exhibits: Copy of the Constitution. Copy of The Bill of Rights. Copy of Sec. 31 U.S.C.A. 392. Copy of The Coinage Act of 1792: Money of Account Exhibits of all laws passed by our United States Congress on The Money Issue in contravention of the Constitution of the United States, federal and state statutes (see example, Memoranda, Appendices). Point out that Congress has enacted no legislation on the Coinage of Money and the regulation of the value thereof

court that you are right under Discovery laws. The law says: Any admissions not answered are "admitted." And in this situation, the lender cannot answer the Admissions without admitting that he violated the Constitution under Article 1 para. 10. USE THE FOLLOWING MOTIONS: Notice of Jurisdictional Defect. Advance Trial Order of The Judge. that isn't in contravention of the Constitution. ENTER: Objections to Plaintiff's Exhibitions (Defendant). Objections to validity of any contract existing between yourself and Plaintiff. Point out need for lawful coins to provide base for lawful consideration to make a contract valid. Cross examination techniques should be skillfully applied by your attorney. Additional Motions for Discovery and Interrogatories. Motion for Direct Judgment of the Court. Motion for Verdict. Closing Arguments. Instructions to the Jury (the Judge should stick to the Constitution). Verdict. If you win, you can go home. If not:

Post Trial Motions. Appeal Procedures explained, again, will be MOTIONS, MOTIONS, i.e., Motion for Judgment notwithstanding the Verdict(non obstento veredicto). Motion for New Trial. Motion to Vacate or Amend Judgment. Motion for Relief from Judgment or Order. Independent Judgment. Appeal. COURT ROOM KARATE WEAPONS SUMMARIZED. 6. Submit Affidavits in Opposition to the lender's Motions for Summary or Default Judgment, by raising issues of fact and law in your Affidavits. State them or have your Attorney state them for you to the Judge. Your case will then have to go to trial. 7. Actual Notice - Use these often and attach each one you use to your lawsuit. 8. Use Affidavits in support of all your Motions. 9. Use Cross Complaints and Third Party Complaints. 10. Use Motions for a New Trial or a Motion for Leave of Court to File Counterclaim, if a judgment has been entered against you. 11. File a Chapter 13, to block entry of Judgment or to stop the Sheriff or Trustee Sale; also file Adversary Suit to Set Aside

1. A well written Complaint or Counterclaim. 2. Request for Substitution of Judge or Motion for Disqualification of the Judge supported by an Affidavit of Prejudice or Conflict of Interest. 3. Affidavits in opposition MOTIONS TO DISMISS. to

4. Raise all kinds of Issues of Facts and law In your MOTION to DISMISS. 5. DEMAND TRIAL BY JURY based on the 7th Amendment to the Bill of Rights, U. S. Constitution. Proceedings in Bankruptcy Court. (See Appendix for forms.) Present a Complaint before a Grand Jury against any adversaries who get together in a way that violates your Constitutional rights, as their actions are in violation of Title 8, Sec. 241, which could subject them to a $10,000 fine and up to ten years in prison. 12. Use Depositions to win your case throughout all of this. THIS IS THE ESSENCE OF LEGAL COURT ROOM KARATE. There is value in using the jurisdictional challenge. First, it is placed in the record and you can always bring it up on appeal. If the issue is not first brought up in trial court it cannot be raised in the future when you appeal. An important strategy in any court pro-

ceeding is to use all the defenses, which are valid, and waive none. This strengthens your overall case. In a recent case, it took a judge six months before he decided he had jurisdiction (in a case brought by Dan Palmer of Olmsted Twp., Ohio). Palmer filed an Answer and Counterclaim on the "credit" issue--that of banks lending their credit as money, when in fact they did NOT have the actual amount of cash involved in their safe deposit vaults to back it up. Another winner on this issue is Walter Moore of Dover, North Carolina. Mr. Moore successfully fought a foreclosure. He had to educate the sheriff, but his position was legally correct and the sheriff refused to carry out the court's order to evict Moore. The Answer and Counterclaim, Third Party Complaint Definitions An Answer to a Complaint is exactly that. You answer the lender's complaint by admitting parts of it and denying other parts. You may admit your name and address and deny all the rest. A Counterclaim, a Complaint at Law, and a Third Party Complaint are all basically the same Motions in the same basic lawsuit used in different situations. In a Complaint, you are the Plaintiff and the original moving party bringing the action. And it is always best if you are. You start the Action. You file the The action on paper would look like this: National Bank, Plaintiff, vs. [your name], Defendant and Third Party Plaintiff, vs. [Name of the Judge who broke his oath not upholding the Constitution], Third Party Defendant.

Summons. After all, you are the injured party, as you have given the lender a mortgage note or a Deed of Trust and note on your property for a mere credit entry on his books, which he created out of thin air. And he has misrepresented to you that he is lending you lawful money of the United States. Pay the filing fees in currency or silver coin, and get a receipt showing you have paid cash. In Counterclaim and Third Party Complaint Actions, you are the Defendant who is countersuing the Plaintiff lender or some other party connected with him in the existing case that was started against you. In the Counterclaim you must write up a Complaint against the Plaintiff. Basic court procedure is that both the Complaint against you and your Counterclaim against the Plaintiff must be tried at the same time. The Third Party Complaint which either the plaintiff or defendant can file literally brings a third party into the case as a Third Party Defendant. The Plaintiff would call himself both Plaintiff and Third Party Plaintiff, whereas if the defendant filed a Third Party Complaint he would call himself "Defendant and Third Party Plaintiff." Even if a judge should dismiss your Complaint or Counterclaim, your Third Party Complaint will effectively drive him off the case, even if you file your action after the judge's dismissal. Also, in support of your MOTION TO DISMISS, you should submit to the court a MEMORANDUM OF LAW ON CONSTITUTIONAL MONEY.

Motion for Summary Judgment. If the lender submits a Motion for Summary Judgment, you submit a Motion to the county called an Answer and Counterclaim. However, determine first if the judge has ruled on whether or not he has jurisdiction to hear the subject matter in your case. During oral arguments, when the judge says he has jurisdiction, then you say: Your honor I anticipated that the court might overrule me on this Motion for equity consideration, and I have brought with me an Answer and Complaint, with a fifty page brief in support, and I would like now to file a copy with the court and with the Plaintiff/Defendant (lender). The important point to remember in all this is that when you file a Motion to Dismiss for lack of Jurisdiction or for any other reason, you must not answer the Complaint until the judge rules he has jurisdiction. Actually, you always have the right to challenge jurisdiction at any point in a trial proceeding, even if you asked for a new trial, or again, at the confirmation of the sheriff or trustee sale. Summary Judgment. of Options Before

plaint and sue adversary party.

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4. If you cannot do any of these things, immediately file under Chapter 13 in Federal Bankruptcy Court or a Chapter 11. This will effectively block all action in your case, even a Trustee Sale. If your secured debts are under $300,000 and your unsecured debts are under $100,000 file a Chapter 13 action. 5. If your debts are over the $300,000, mark file a Chapter 11 Action. 6. File your Demand for Jury Trial under Rule 9015. 7. Challenge the alleged debts you owe as loans having been made as "credit" loans. And file your Memorandum of Law on what is Constitutional money. 8. Complete the Chapter 13 statement carefully, with the help of a specialist attorney familiar with all aspects of current bankruptcy law. 9. File a Complaint at Law with a Summons just like any other lawsuit modeled after Bankruptcy Form 34. It is called an ADVERSARY PROCEEDING NUMBER (Abbr.: ADV. PRO. NO.)

1. File a Motion to Dismiss and challenge jurisdiction of the court based on Article 1 Sec. 10. 2. If denied: File an Answer and Counterclaim and Demand Trial by Jury. 3. Against lender's Motion for Judgment, file a Third Party Complaint. The judge may violate your Constitutional Rights such as total denial of Discovery rights through a "protective order" or if he says you will not get a trial by jury, or if he dismisses your Counterclaim, file your Third Party Com-

10. Proceed with Discovery against the lender (and all other parties connected with your case just as you would in any court. Pay for your Demand for Trial by Jury

papers at the Federal Bankruptcy Clerk of Courts Office. Use cash. Get a receipt for payment showing CASH.

HOW TO WIN IF YOU ARE IN THE MILITARY


The Soldiers' and Sailors' Civil Relief Act If you're in the armed forces and are now in default, don't panic. You can get immediate help and relief under the Soldiers' and Sailors' Civil Relief Act (SSCRA). The main purpose of this act is to ensure that service members are not disadvantaged either legally or financially due to their military service. SSCRA affects leases, loans, mortgages, credit and other financial matters, as well as civil suits, income taxes and life insurance policies. The Act protects members of the U.S. Armed Forces, including reservists, who are on active duty or who are in training prior to induction. SSCRA also protects officers of the Public Health Service who are detailed for duty with any branch of 10-1 the military, any person who is training or studying under the supervision of a service preliminary to induction, veterans who saw active duty during wartime and, in some cases, dependents. Service members who are not on active duty, or who are on unauthorized absence or serving a sentence of confinement, may not be protected. Protection under SSCRA begins the day you begin active duty and, depending on the situation, may continue for 30 to 90 days after termination of military service. SSCRA does not cover written agreements entered into after coming on active duty. As a result, this act has only a limited effect on the obligations of a career military person.

SSCRA does not terminate your legal or financial obligations - it only suspends them until after your period of active duty is completed or when your service no longer prevents you from meeting these obligations. SSCRA says that when a service member's military service "materially impairs" his/her ability to meet legal or financial obligations, those obligations may (under some circumstances) be put on hold until being called to active duty. This is considered material impairment. The most recent example was Operation Desert Storm, when many military reservists and National Guard in the United States were called back into active duty. Many of these people had to serve 6 months to 1 full year. During their duty, they were paid military wages. In many cases, these military wages were less than they had been receiving in their regular civilian jobs. If their finances were barely making ends meet before being called back into active duty, then imagine the strain of trying to stretch a reduced income for several months. Obviously, it is only a matter of time before the rent or mortgage is not paid. Next, the landlord or lender begins eviction or foreclosure proceedings. This is the situation the SSCRA was designed to help. This is when the SSCRA may be put to work. The Act is which relates trust deeds. what SSCRA divided into 7 parts, 1 of entirely to mortgages and This section makes clear may be used to:

the "material impairment" no longer exists. For example, when a soldier has a good income as a civilian and has accumulated debts, he believes that income will be available to pay the bills. Then, as in the case of a reservist, the member may be called to active duty and his or her pay reduced, making it difficult or impossible to meet the financial obligations undertaken before 3. Reduce payments on a loan and reduce interest payments to a maximum of 6% during the affected period. To qualify for this protection, you must have purchased your home and entered into a security agreement, such as a promissory note and trust deed, before beginning active duty, and your military service must have materially affected your ability to pay as originally promised. How To Rights Ensure Your SSCRA

1. Stop foreclosure proceedings, 2. Set aside completed foreclosure proceedings, and

Just knowing SSCRA exists is not enough. If you have received a letter threatening foreclosure, you need to contact counsel. You can find the appropriate attorney by going to the nearest legal services office for your branch of the military. Your commanding officer should be able to direct you to the appropriate counsel. A military attorney will be very knowledgeable about SSCRA and can help you protect your property against foreclosure. Once you've talked with your attorney, contact your lender and tell him you have contacted counsel.

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Your lender cannot foreclose out of court on any kind of mortgage once you inform him you are away from home in the service on assignment and intend to seek relief under SSCRA. See page 10-4 for a suggested letter to a mortgage holder, and page 10-5 for a suggested letter to the holder of an installment note. Since this act suspends all but judicial foreclosure (see page 1-21 for more on the judicial foreclosure process), your lender would have to bring the matter into court. And, most lenders will back off because it is unlikely that any judge who understands that you are on assignment for the Armed Services would allow foreclosure. Unless there are some extenuating circumstances, you will very likely be protected for as long as you are on duty in the service. If the lender does go to court, try to appear yourself or have an attorney represent you. If you can't be in court due to your military service, again, your SSCRA rights will protect you. For example, when an individual does not defend an action in court, the opposing side can obtain a Judgment against an See page 10-6 for an example of an affidavit you can send to the court for protection when a lender is attempting to obtain a default judgment against you. Should your lender say he doesn't know or has not been able to find out whether you are in the military service, he'll need to prove his statement. He'll be required to post a security deposit, which will protect you in the event the judgment is set aside. The security deposit can be used for damages you may have suffered as a result of a judgment incorrectly entered against you. If the lender has falsely sworn that you are not in the military service, knowing that you are, he can be sent to prison or fined, or both. If, while you're away, the lender swears he does not know whether or not you are 10-3

individual by "default." SSCRA provides service members some protection against these type of "default" judgments if their service prevented them from appearing in court. Should a default judgment be entered against you while in the service, you can reopen the judgment if: 1. The judgment was entered while you were in the service. 2. You apply to reopen the case in the court where the judgment was entered while you are in the service or within 90 days. 3. You can show that your service materially affected your ability to defend yourself (such as being deployed, out of the country, not able to get leave, etc.). 4. You can show that you have a defense to all or part of the suit made against you. in military service and receives a judgment, then ask the court to reopen your case. They will comply provided: 1. You make application to the court within 90 days from date of your discharge. 2. You have suffered damages, were harmed, a blemish was put on your credit, or your case is prejudiced because you were away on military duty and could not properly present your side of the case to the court. 3. You have a valid, legal defense you wish to present to the court.

SSCRA Reduces Mortgage Payment Interest In addition to delaying foreclosure, SSCRA also provides a limitation of interest rates for members of the service. For example, the interest rate on a loan made before you went on active duty might be 12%. However, this interest rate must be reduced to 6% per annum during service unless the creditor can show that your ability to pay was not materially effected by being on active duty. If you can show that you make substantially less money while on active duty than you did in your civilian employment, your interest rate must drop to 6%.

Remember: This act was created to protect soldiers and sailors who were called to active duty after making certain financial obligations. If you are about to lose your home and go down to a recruiting station and sign up in the hope of avoiding foreclosure, you will be facing an entirely different situation in court. However, it may be possible for you to convince your lender not to foreclose on the basis that you are going into the Army or Navy and to negotiate a schedule of payment commensurate with your military pay. While we don't recommend this method, some borrowers have successfully avoided foreclosure by transferring a portion of their property into the name of a friend or family member who is going into the service. Then they have this person execute a reconveying deed which they don't record. This protects their property rights in case something happens resulting in their friend's death. The person to whom such a transfer is made must send a registered letter to the lender notifying him/her that he/she now owns a portion of the property and is in the armed services and protected under SSCRA. Because the penalties for foreclosure when SSCRA has been invoked are so strict, in situations where even a portion of the property is owned by a military person, most lenders will either: 1. Negotiate new terms; 2. Begin judicial foreclosure, which takes 3 to 4 times longer than out-of-court foreclosure on a trust deed; or

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3. Agree to the 6% interest rate and a delay while the owner is in the service. If the lender does begin foreclosure, you will have time to get down to the Clerk of the Court and file a complaint. The foreclosure case will then probably be dismissed on your Motion to Dismiss, as both the judge and lender are, or should be, well aware of the severe penalties for pursuing a foreclosure if SSCRA applies.

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SUGGESTED LETTER TO A MORTGAGE HOLDER HOLDING A SECURITY AGREEMENT

SUGGESTED LETTER TO A CREDITOR ON INSTALLMENT NOTE

AFFIDAVIT TO COURT

HOW TO WIN BY SELLING YOUR PROPERTY


The purpose of this chapter is to familiarize you with some general considerations about selling your property, especially points which may be important to a homeowner in foreclosure. Although the decision to sell your home may involve a gut-wrenching process, selling may be your wisest and most practical solution under certain financial circumstances. If it is impossible to pay on your mortgage, or if keeping your property does not make good economic sense, then consider selling before you lose your house, or your equity, through an ill-planned refinance, or other rescue attempt gone sour. Selling now may be the best way to retain most of your equity for future investment and to minimize the damage to your credit. SALES OPTIONS 2. A party to lease-option, Once you have made the decision to sell your house, you have at least three options available: 3. A buyer aided financing: by seller 1. Market it through a real estate broker only, 2. Market it yourself, "for sale by owner," only, or 3. Market it "for sale by owner (FISBO)," as well as with the aid of a broker. TYPICAL HOME PURCHASE CONTRACTS Regardless of whether a broker markets your property or you market it, the range of typical home purchase contracts to consider include: 1. A regular retail buyer,

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a. Seller carryback, b. An all-inclusive (A.I.T.D.), 4. A sale/lease-back, 5. Partner (equity sharing), SOME BASICS OF HOME SELLING Whether you list with a broker, or sell FISBO, and pursue 1 or all of the recommended home pur-chase contracts, this chapter will help explain some of the benefits of these options and programs. Since many books on selling your home are written by real estate brokers, they are biased toward using brokers exclusively. While there are excellent reasons for selling through a broker only, this section tries to present an objective overview of the home selling process, one that may increase your profit during financially trying times when you need the money the most. Remember, before you receive any money from your sale, you must pay everything owed against the property. These costs include the mortgage balance, any back payments, foreclosure costs, and other debts for which the property was used as collateral, such as subsequent loans, liens, judgments, back taxes, assessments, etc. If a real estate agent sells your house, you owe a commission. The escrow company may generate a list of your closing costs and pay them out of your proceeds. (See more on calculating net proceeds on page 11-60, Net Proceeds Estimate, and page 16-57, Item 1.) Economic Cycles Affect Real Estate Prices As mentioned in other chapters, the current state of the real estate market will greatly influence the sale of your 11-2 trust deed

6. An equity purchaser (foreclosure investor), 7. A mortgage insurance assisted foreclosure presale, 8. An assumption/transfer loan liability, or of

9. A lender short pay. house. All real estate prices are subject to cycles. Basically, a cycle starts with flat prices which eventually begin to creep upward until a frenzy of buying quickly drives prices ever higher and ultimately beyond the reach of most buyers. The frenzy suddenly recedes into a market where prices stagnate or gradually decline for a while before the next cycle takes off again. Since World War II, each cycle has lasted a little longer than the previous one. Generally, in California, prices go higher with each cycle, and never dip back to the previous lows. For example, a tract house, built in Costa Mesa, California in 1954, originally sold for $7,500 and subsequently appreciated in value. Even though its value flattened out or dipped with each economic cycle along the way, by 1994, the same house is worth as low as $160,000 (down from a 1990 peak of $220,000). During the frenzied part of the cycle, the houses have been known to sell within hours of being listed for sale, sometimes with several offers which bid up the asking price. On the other hand, in the flat part of the cycle, houses have sat for over a year without an acceptable offer. Obviously, these very different markets call for very different selling strategies. in Determine the market you are by reading the real estate

sections in your local papers, watching real estate TV shows, or talking with your neighbors, family, business colleagues and real estate experts. Call up a few real estate brokers, or their senior agents who have been in the business for a few decades, and ask point blank what kind of market we are presently in. How long have these market conditions existed? Where is it headed? In a fast market, you may be offered more than your asking price and receive several offers. You can save on the commission by not using a broker and doing all the work yourself, such as delivering the purchase agreement (see page 11-54) to the escrow company. However, in a slow market, you may need that broker's help in conjunction with developing your own prospects. You may need to reduce the price to insure a sale before the foreclosure. Or, you may sell to an investor, without a broker's help, and may need to participate in opening the escrow (see page 11-27). An Asking Price Above The Market With this strategy, set your "asking price" at about 1 to 10% higher than the property's fair market value and/or your bottom-line sales price. Tell all potential buyers to make a written offer somewhere near your asking price. Let them know that this would be a starting point in your negotiations. But until a deal is reached and a deposit received, you will be entertaining all offers. This strategy is common in markets where prices are appreciating. It helps you avoid selling your house for too little. However, in slow markets, if you use this strategy you run the risk of overpricing your house and thus losing potential buyers. On the other hand, you may counteract this problem by making it very clear in all your marketing that you will entertain any offer.

The cycle within the average year also influences your strategies to sell. Typically, there is an increase of buyers shopping for homes between March and June, and, sometimes, again at the end of summer. Conversely, studies show the least amount of buyers shop for homes between November and February. Find out the comparables in your neighborhood by calling DataQuick at 800-888-4492, extension 152. They charge a fee and accept payment by credit card. Pricing Strategy Two basic types of pricing strategies are using an asking price that is, 1) above the current market prices or, 2) below the current market prices. Depending on the current economic cycle, one strategy may be wiser than the other. Yet, each may work in any cycle with a suitable marketing plan. An Asking Price Above The Market - With this strategy, set your "asking price" at or below the property's fair market value. This strategy is common in markets where prices are flat or falling. It helps position your house at the head of the pack. One drawback is buyers tend to offer less than the asking price. If the market allows, counteract this by standing firm to your price. In a market with appreciating prices, with this strategy you run the risk of underpricing your house and thus losing potential equity. Another factor in setting your price is the cost to fix-up or repair to make the property more saleable. A house may need to be fixed up to attract a regular retail buyer, while an equity purchaser may prefer to buy it "as is, in its

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current condition" and then fix it up later. It is wise to determine your projected fixup costs (see page 16-65), then figure them into your beginning asking price even before the work is started. This gives you the leeway to discount your price for the purchaser, or to have the proper budget in the event you do the work yourself after all.

Offer/Counter-offer Strategies
Learn to be comfortable with working offers like a ping-pong game: the buyer always starts with a written offer, and you return with a counter offer which demands the terms and conditions you need

to close the sale. Then the buyer may bounce back with a compromise. And you either compromise if you do not have another offer or hold out for a better one. See page 11-56 for an example of a counteroffer form. Or, many times, the buyer's purchase offer form has a section for making counter-offers. See page 11-56 for a form to use to counter a counter-offer. You Must Disclose Property's Condition Your

As required by California state law, the seller of any real property must deliver to the prospective buyer a written disclosure statement detailing the condition of the property. See pages 11-31 through 11-37 for a copy of the form which state law requires the seller to use to make the disclosure. Make photocopies to use in your transaction. If they so wish, prospective buyers are allowed 3 days after receiving the disclosure in person, or 5 days if received by mail, to give the seller a written cancellation of their offer to buy. Sellers are not liable for errors, inaccuracies or omissions of information that they did not personally know of. Disclosure must be made in "good faith," which the law defines as "honesty in fact in the conduct of the transaction." The seller may amend the initial disclosure in writing at any time, which may give prospective buyers another 3 to 5 days to back out of their offer to purchase. Escrow agents (see page 11-27) are not required to deliver the completed disclosure for the seller, unless otherwise instructed to do so. If more than one real estate broker is involved in the

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transaction, then the broker who has obtained the offer from the prospective buyer is required to deliver the disclosure. If the seller does not provide the disclosure to the broker, then the broker must notify prospective buyers in writing of their right to such a disclosure. In addition the broker must maintain a record of the action made to obtain and deliver the disclosure. If the disclosure is never made even though the sales transaction THE FORECLOSURE SALES STRATEGY Since the time-table is tight for the homeowner facing foreclosure, one exciting direction for the very ambitious seller is to pursue both of the selling options, as well as all of the above home purchase contracts, at the same time. The benefit of this plan is you may net the best possible deal at the best possible price and in the shortest period of time. The basic procedure is very simple: 1. List your house with a real estate agent under an Exclusive Agency Listing, which gives you an equal right to sell as well as exposes your property to all agents who subscribe to the local Realtor Multiple Listing Service (MLS). 2. While your agent markets your property through the MLS, begin your own sales program designed to attract buyers. 3. Upon finding or deciding on a buyer, open an escrow. Also, take any backup offers. 4. Begin looking for a new place to live. Decide whether to stay with a friend or family, or to rent, or to buy in a more affordable area. Many of the most important details of both selling FISBO and selling with a broker are explained in the corresponding sections below.

is completed, then the sale is still considered valid, yet the seller is liable for the amount of damages the buyer suffers. On both the sales contract and the disclosure statement, always write: The subject property is being sold in its present "current" condition. USING A REAL ESTATE BROKER A well-chosen real estate agent may be the best way to sell your property. (See How To Find A Good Agent, page 11-7.) The agent you select will want to enter into an agreement to list your property, and thus, becomes known as the listing agent. A listing agent as defined by the Civil Code Section 2373(1) is "a person who has obtained a listing of real property to act as an agent for compensation." Thus, a listing is both an employment contract between the homeowner and a real estate agent as well as evidence of inventory for sale. A commission is paid when the agent's listing or selling efforts sell the property. Of the different types of listing arrangements, including open, net and exclusive listings, exclusive listings are the most commonly used for residential. While exclusives list the property for sale with only one agent, 2 kinds of exclusives are, 1) Exclusive Right To Sell and, 2) Exclusive Agency The primary goal in selecting an agent to list your house is not only to choose an agent who is knowledgeable, motivated and proven to be effective, but, more important, chose an agent who is sympathetic to your foreclosure situation and willing to work

11-5

with you on it. Such an agent must be willing to list your house under an Exclusive Agency Listing rather than the popular Exclusive Right To Sell Listing, or to add provisions to the listing which allow you to cancel it under certain appropriate conditions. (See sample provisions, page 11-6.) Although the listing agent may protest, the importance of the Exclusive Agency to the homeowner who is racing against the foreclosure clock becomes clear when you compare the features and legal ramifications of both types of listings. Exclusive Right To Sell The reason why most real estate brokers usually prefer the Exclusive Right To Sell (see example page 11-38) as the residential standard of the industry is that it guarantees them a commission whether they work to sell your property or not. Under this type of listing, using a hypothetical situation, if a buyer shows up at your doorstep with cash in hand and buys your house from you without A homeowner in foreclosure needs an aggressive real estate agent with a sound marketing plan who wants to focus on finding prospective buyers for his/her specific property. (See How To Find A Good Agent, page 11-7.) Listing with anything less would be cheating yourself. If you got stuck with a lazy lister, read your contract to find out how to cancel it or how to amend it to make the agent perform properly for your foreclosure situation. The Commission Drawback - Whether you realize it or not, a commission can amount to a lot of money. A commission can erode some of your equity. To many homeowners in foreclosure, every dollar saved may be significant to rebuilding their future. Two alternatives to using an agent are, 1) ask the agent to sell at a reduced commission, especially if a dual 11-6

the aid of a real estate agent, you would still owe a commission. In many cases, listing in an Exclusive Right To Sell may be your best option. But, before you sign an Exclusive Right To Sell listing, be aware of a few drawbacks for a homeowner in foreclosure, which are, 1) The Lazy Lister Drawback, 2) The Commission Drawback and, 3) The Equity Purchaser Drawback. The Lazy Lister Drawback Indeed, some agents are merely "listers" who sign up as many listings as possible, but leave most of the selling to other agents. They are content to split the commission with the selling agent. The problem with lazy listers is that they can stall or delay your efforts to find a buyer immediately. Their focus is on how to obtain as many listings as possible without putting much effort into selling those listings themselves. Their hopes rely on other agents doing the selling. agent (see "dual agents" below), or 2) market, sell and process the sales transaction yourself. (See How To Sell "For Sale By Owner" on page 11-9.) However, time, fear, lack of confidence and other limitations may prohibit you from do so. Thoroughly think following questions: through the

1. For my situation, is marketing my property in the FISBO process appealing to me? 2. For my situation, would it be better to have a broker/agent market my property? The Equity Purchaser Drawback - An equity purchaser, commonly called a foreclosure investor, is a

special kind of buyer. (See pages 11-20 through 11-23 for more on Equity Purchasers.) Although not the most preferred kind of buyer in most cases, some equity purchasers may make an offer at the last minute in the foreclosure process when certain sellers may need it the most. The problem is that any serious equity purchaser will not or cannot contact you through a broker/agent. The 2 reason for this are the Home Equity Sales Contract Act and the cost of the broker/agent's commission. Unfortunately, the Home Equity Sales Contract Act, passed hastily to protect homeowners in foreclosure, unwittingly places certain limits on the equity purchaser in an Exclusive Right To Sell Listing. To fully understand the impact of this limitation, you must first understand the role of the dual agent. A dual agent, as defined by the state Civil Code Section 2373, is an agent who acts as an agent for both the seller and the buyer. The code mandates that the agent specify on a written form, before taking the listing, whether the agency will be dual or will exclusively represent the seller. Unintentionally, the Home Equity Sales Contract Act makes it prohibitive for the dual agent to present offers to the seller from equity purchasers, or any buyer who offers substantially less than market value. As per Civil Code Section 1695.17 of the Home Equity Sales Contract Act, any dual agent who represents both buyer and seller in such a transaction must be bonded for "an amount equal to twice the fair market value of the real property." Not only would such a bond add up to 10% on to the agent's commission and thus to Even with this commission reduction, equity purchasers want to cut out all unnecessary costs. An agent's commission might be just the additional cost factor that turns an equity purchaser away from buying your property. So, the mandatory commission is another problem the Exclusive Right To Sell 11-7

your costs, but also such a bond is currently not offered by any bonding company (except possibly for a few real estate agents in a unique arrangement). An additional catch-22: the Statute says that if this bond is not obtained, then any such "equity purchase contract" would be rendered by law to be "void and the equity purchaser (foreclosure investor) shall be liable for all damages proximately caused by the failure to comply." Since the bond is virtually unobtainable, the resulting liability exposure to the investor will probably prevent most preforeclosure equity purchases handled by a dual agent. Nonetheless, the dual agent can still represent regular buyers who want to pay market value and do not realize the house is in foreclosure. Normally, in nonequity purchase transactions, a dual agency is considered advantageous to both the listing agent and the seller. The listing agent who also brings in the buyer does not have to make the usual commission split with another selling agent. So, the alert seller can ask the agent to reduce the commission. Even if the agent reduced the 6% commission to 4%, in effect, the dual agent will still receive 1 percent more than the 3% received in a regular 50/50 commission split. listing agreement presents for the equity purchaser. Limitations of the Home Equity Sales Contract Act on the Exclusive Right To Sell listing seem to apply only to the equity purchasers who are represented by the listing agent

to buy at a sales price substantially below the regular market values. In many cases, agents other than the listing agent may be able to present offers from equity purchasers. And equity purchasers may represent themselves to the homeowners. (See pages 11-20 through 11-23 for more on Equity Purchasers.) Assert Your Needs In The Listing Contract In essence, for the homeowner facing foreclosure, the Exclusive Right To Sell listing creates definite drawbacks in the cases of lazy listers, equity reduction and limits on the equity purchaser. Some real estate agents may claim that the seller has the right to cancel the Exclusive Right To Sell listing at any time. Other agents may promise to lower their commission to help you retain equity. Still other agents may allow you sell to an equity purchaser, or even any other buyer you find without the agent's help. In any case, the promises, or any other of your needs, must be put into writing at the time of the listing. The best place to do that is in the original Exclusive Right To Sell listing contract. Examples of the provisions which might be put in the listing contract: 1. The seller reserves the right to cancel this listing at anytime. 2. The seller reserves the right to pay a 4% commission in the event of a dual agency. 3. The seller reserves the right to solicit and sell to any buyer who is procured solely by the seller and not through any agent. On the other hand, all these limitations notwithstanding, the Exclusive Right To Sell may be the best option for homeowners who do not want to participate in the selling, or who feel 11-8

more secure with an aggressive, well-chosen agent. Exclusive Agency Listing An Exclusive Agency Listing is when you list your property with a real estate brokerage firm while retaining the right to sell your property yourself without owing a commission to the listing agent. By listing under an Exclusive Agency, you may avoid all the limitations of the Exclusive Right to Sell, while attracting the largest number of potential buyers in the shortest period of time. The agent still markets your house through all the regular brokerage channels, including the local Multiple Listing Service. Yet, you gain the freedom and flexibility to advertise for, deal with and sell to your own buyers, partners and equity purchasers. Equity purchasers actually prefer to deal straight with the homeowner in order to freely discuss the fine details of the deal whenever necessary. And the need for that freedom becomes clear when given the limitations imposed on agents by the Home Equity Sales Contract Act. In fact, specify in the original listing agreement: the listing agent agrees to refer any equity purchaser directly to the seller, for which the seller agrees to pay the agent a finder's fee of $200 only if the seller closes a deal with that equity purchaser. Most likely the investor will end up paying this finder's fee. If the agent protests, then quote Civil Code Section 1695.17 from the Home Equity Sales Contract Act (see page 19-1 for a copy of the law), which calls for the agent to be bonded for twice the amount of your property. Since many agents

may not be familiar with the Home Equity Sales Contract Act, do not be surprised if you will need to educate them about it. Some agents might say that under an Exclusive Agency they, or their colleagues, will not be inclined to work as hard to find a buyer since they have to compete with the seller. This just is not true of good, hardworking agents. Any agent who feels this way should not be 1. Both the seller and the agent must keep lists of who they have talked to and then compare it from time to time, which also builds trust. 2. The seller must routinely ask the potential buyers who happen to stop by, if they found your house through your efforts, or an agent's, such as the agent's ad or sign in your yard. If they found it through an agent, then you may give them the agent's fact sheet on your house, or briefly show them around, but ultimately must refer them back to the agent. If they did not find the house through an agent, then you may proceed with your own sales presentation. 3. To further eliminate confusion, ask the agent not to publish your address in any of the brokerage advertising. Mentioning your knowledge of these procedures to the agent at the time of listing will make that agent feel better about you and the Exclusive listing. Besides, with your house in the local Multiple Listing Service, with the agent's sign in your yard and with a listing agreement which legally binds you to separate your buyers from the agent's, the mature agent should feel wellprotected. The listing agent who is sympathetic to your foreclosure situation will not mind using an Exclusive Agency Listing, especially when that agent senses your cooperation and your determination to participate in the selling and 11-9

hired. Still other agents fear that the prospective buyers whom they bring to the seller's house will go behind the agent's back to deal with the seller. But there are 3 simple, accepted methods to protect the agent's buyers:

fully understands the Home Equity Sales Contract Act's limitation on the Exclusive Right To Sell Listing. Ultimately, it comes down to this: despite competition from you, most agents appreciate the opportunity for a potential commission, which, even though less than usual, they acknowledge as a fair trade for including your house in the Multiple Listing Service and agent networking. In any case, the agent can further protect himself by having you sign a One Party Showing naming a specific person each time the agent wants to show the house. A One Party Showing basically protects the agent from the person who is named in the form and who is shown your FISBO (see page 11-9) house from going behind the agent's back to deal with you separately. See an example of a One Party Showing on page 11-40, or amend a standard listing form to limit the agent/broker to one showing with one buyer. While there is a special form entitled Exclusive Agency Listing, many Realtors may not be carrying this around. And it is not needed. Just remember to include the following language under "Other Provisions" in the regular Exclusive Right To Sell listing agreement (see page 11-38):

1. This is an Exclusive Agency Listing which authorizes the agent/broker mentioned within this contract to sell the property, but the seller reserves the right to personally sell the property in which case no commission is owed the aforesaid agent/broker. As a principal, I am reserving the right to sell the property "For Sale By Owner (FISBO)," without another agent, and in which case, I will not be bound to pay a commission. 2. Aforesaid agent agrees to conduct at least one open house per month for four months. 3. And at the time of the listing, make the four open houses a contingency of the contract. 4. This listing to last how long? 5. In fact, specify in the listing agreement that agent must refer any equity purCall the local Board of Realtors for suggestions, or ask various real estate brokerage firms for their top performers in sales, including a brief personal history, average amount of open houses, client satisfaction, etc. Anonymously attend their next open house to see them in action. The agent should appear to enjoy working with buyers. While looking for prospective agents, mark a list of questions to ask. Ultimately, try to find three to five prospective agents to interview. Use the following guidelines to gauge their performance: 1. Ask for a list of the agent's recent sales records, including addresses and phone numbers, then call those sellers for a reference on the agent. 2. Ask the agent for a market analysis of your neighborhood, as well as a suggested asking price and a 11-10

chaser directly to you, for which a finder's fee shall be paid, most likely by the investor and only if you close the deal. How To Find A Good Agent Regardless of whichever listing you decide to go with, you will want to find a good agent. The main idea is to avoid listing your property with a "lazy lister," and instead find a "go getter" agent who, also, is sensitive to your foreclosure situation and has a track record of being knowledgeable, motivated and effective. Recommendations from family, friends and business associates sometimes help locate a real estate agent with a record of success. But, while in this foreclosure predicament, stay away from friends or family agents who are not the best or do not usually work your neighborhood. reasonable selling price. Sometimes this may involve bringing other agents to the house for opinions. 3. Ask to see the data of recently closed sales used in the agent's analysis. This should include a list of properties sold and a list of properties for sale printed in a few minutes from the Multiple Listing Service (MLS) computer in the agent's office. There may be another set of "comparables" straight from the county records which show many "by owner" sales not in the MLS. Also, a property profile from the title company should be included in the agent's presentation, with such things as a neighborhood map including your property and other recent sales as well as general information regarding your property. Go look at the

houses which the agent thinks are comparable. 4. Ask for a marketing plan, which includes a For Sale sign, MLS, open houses, tours of area agents, information flyers, newspaper advertising, mail marketing to neighbors, and a disclosure statement of the property's defects. A marketing plan should include steps identifiable to the seller. The agent should verbally present the listing at the Board of Realtors meeting, distribute flyers to other brokerage firms and provide special preview tours for top producing agents. The agent should conduct all three kinds of open houses: for the public, for the agent's real estate office and for the real estate trade in general. 5. A good agent should give the seller a weekly update by phone or in person, including: interested lookers/callers, showings and results, market changes. 6. Ask for a prioritized list of suggestions for improving the property's curb appeal as well as functionality. Get recommendations for a termite inspection. 7. Ask the agent to specify and explain the terms for sale. A 90 day listing is fair, along with a clause that allows you to cancel at any time.
Agents Trained To Help Homeowners In Foreclosure PSI trains Foreclosure Counselor Realtors in the following areas:

If a homeowner in foreclosure decides to list his/her home with an agent, then it makes sense to consider an agent who has training in foreclosure matters. Progressive Solutions Institute (PSI) not only trains brokers/agents to process foreclosure listings and sales, but also refers homeowners to local brokers/agents who have received PSI training. A PSI trainee receives the title of Foreclosure Counselor Realtor. The training is approved for California Department of Real Estate continuing education credit. The agents/brokers receive a certificate to include in their career book. PSI hopes to eventually have a certified Foreclosure Counselor Realtors in every area of the state. PSI believes no one should have to go through the trauma of foreclosure by themselves and takes pride in being consumer oriented. When a homeowner in foreclosure calls PSI, PSI explains their options and makes appropriate suggestions regarding how to deal with the lender. If, after dealing with the lender, the homeowner decides to sell their property, PSI can refer them to a Foreclosure Counselor Realtor for guidance and help in selling their property.

4. Negotiating with the lender, 5. Understanding bankruptcy other legal aspects, and

1. Listing and marketing a property in foreclosure, and processing a sale, 2. Being sensitive to the emotional state of a homeowner in foreclosure, 3. Knowing the foreclosure process, 11-11

6. Understanding the tax ramifications of foreclosure,

7. Processing a lender short pay sale (see page 11-25). Call Progressive Solutions PSI trained 1. A free referral to a Institute Foreclosure 1-800-633-9075, for: you, (PSI), at Counselor Realtor near and 2. Some free general counseling regarding your foreclosure or the foreclosure process. HOW TO SELL "FOR SALE BY OWNER" Now that you have secured your right to sell, either individually, or contractually with a broker/agent, you may begin your own sales program designed to attract a buyer. Each of the home purchase contracts listed on page 11-1 have unique characteristics (remember, a real estate broker/agent working for you may also bring in a buyer through 1 the same programs). Since the foreclosure timetable is tight, this section will focus on quick ways to find these buyers and how to sell to them "for sale by owner," commonly known as FISBO (pronounced fizz-bow). One good reason to find a buyer as soon as possible is that many lenders will postpone the foreclosure sale (called the trustee sale) to allow you extra time to close your sale's escrow. In order to learn more about the general principles and techniques of selling FISBO, you may want to read one or more of the excellent books on the topic available through a bookstore or library. Such books detail the customary steps in the FISBO process, from the necessary repairs and cosmetic improvements to how to figure the appropriate price, from how to show your house and negotiate the best deal to how to close an escrow and move out. And all the details in between are included, too, such as taxes, financing and pest control. Also, many community colleges, univer11-12

sity extensions and local clubs offer courses in home selling by owner. It is important to note that the term "FISBO" usually refers to a homeowner who is selling a house without the benefit of a real estate agent or brokerage firm. But, as mentioned earlier, homeowners in foreclosure may gain a potential advantage by simultaneously selling FISBO along with the service of a real estate agent under the Exclusive Agency listing. Thus, for the purposes of this book, FISBO shall refer to those homeowners who sell their homes themselves whether or not they also list with a real estate agent. If handled properly, selling FISBO can give you maximum market saturation. Aren't you potentially the most motivated seller of your property? So, in addition to the efforts of the agent, who may be dividing his/her energies over several other properties, you can focus on working all aspects of the entire market. For example, you can: 1. Advertise your property in the newspaper or other periodical, 2. Advertise your property in one of the FISBO publications, 3. Hold your own open whenever the agent conducting one, houses is not

4. Distribute your own sales flyer (see page 11-41 for an example of a sales flyer you can design yourself with a typewriter and a photo of your house, page 11-42 for a form you can fill-in and photocopy for immediate use).

THE REGULAR RETAIL BUYER The Traditional Lease-option The regular retail buyer is who you expect your real estate broker/agent to find: a conventional buyer who will pay fair market value and buy according to the standard purchase procedures. Real estate agents are best set-up to locate this kind of buyer with their Multiple Listing Services, agent-to-agent networking, advertising, open houses and real estate brokerage sign in your front yard. But, do not be surprised if the broker/agent comes up with a more nonconventional buyer, as well. Nonetheless, as a FISBO, you may also shop around for a regular retail buyer. However, be aware that of all your potential buyer categories, marketing to regular retail buyers may generate more competition than your listing agent will want from you. Yet, if before signing the Exclusive Agency listing agreement you make mention to the broker/agent of your desire to run an ad or conduct an open house, then that should be sufficient warning to thwart any conflicts. A PARTY TO LEASE-OPTION A lease-option is used to lease your house to a tenant while giving an option to buy at a later date. The two most common lease-options are: 1. The traditional lease-option, and 2. The straight lease-option. The terms of both are similar, except for 2 very big differences. The traditional lease-option sets the purchase price and credit all or part of the deposit and monthly lease payments toward a down payment at the end of the lease. On the other hand, the straight option accrues no money toward the down payment and sells only an option to buy at the end of the lease or other date. 11-13 The basic terms of the traditional lease-option (see the form on page 11-46) are simple. First, the buyer pays the seller a deposit called the "option money," usually a deposit as low as 1 to 10% of the purchase price. Most traditional lease-options credit a major portion of the option deposit toward the purchase price. The more motivated the seller is to sell the home, the more of this option money deposit the seller may be willing to credit toward the down payment as an enticement to buy, if and when the buyer exercises the option to buy. Second, a portion of the rent or lease payment is set aside to accrue toward the down payment or purchase price. Since the rent payments in a lease-option are higher than the regular market rents, the higher portion of the rent is what actually accumulates toward the purchase. One of the most powerful aspects that a traditional leaseoption has over a straight lease-option is in its marketing capabilities. Newspaper advertisements that promise the buyer can "rent-to-buy" usually bring in many potential home shoppers. But, it is the high sales appeal of the rent and deposit credit toward the purchase price that usually locates a buyer in a relatively short period of time. This method is a popular home selling tool, especially during recessions and other such slow real estate markets. Generally, with a traditional lease-option, a buyer can get into a house with some of the best of

financial terms available. A deposit of $5,000 dollars on a $200,000 house is only 2.5%, which leverages 97.5% of the house and is much better than the 20 to 30% deposits required by most banks and mortgage companies. Since the lease payments will have to cover the seller's mortgage, taxes and insurance, plus the amount above market rents which accrue toward the purchase, the subsequent lease payment may be comparatively high. Also, in leases lasting more than a year, a seller may The straight lease-option uses one agreement (see page 11-46) to lease a property, and a separate agreement to sell an option to buy (see page 11-49). It never sets a price nor credits any money toward the purchase. Instead of being regarded as a deposit, the upfront option money only purchases the option to buy later at the prevailing fair market price, if and when the lessee exercises the option to buy. The lease payments pay only the lease, and no money is ever credited toward the purchase. According to Stephen Stralka in his article published in First Tuesday magazine, "the (straight lease-)option is the landlord's irrevocable offer to sell the real estate to the tenant within a certain period of time--should the tenant decide to buy. The tenant is given the absolute right to buy or not to buy the property, at his discretion. When a tenant with a genuine option to buy exercises the option, it becomes an enforceable bilateral purchase agreement. Until then, the agreement between the parties is a lease for all purposes, and the roles of the parties are narrowly defined in terms of a landlord/tenant relationship." (First Tuesday also publishes real estate forms that specialize in California law) It is worth while to note that the straight lease-option also has some market appeal. Ads in the "Homes For Sale" section of the local newspaper that 11-14

want to set a slightly higher than market price in order to make up for any future price inflation. Nonetheless, the traditional leaseoption makes a house easier to sell since it is affordable to more buyers, especially those who have little down payment money, yet have more than one income in the household. The Straight Lease-option read "$5,000 moves you in" will also bring in many home shoppers. However, the rate of closing such deals may be less than with the traditional lease-option since the straight lease-option does not have the appeal of offering a credit of the deposit or rent toward the purchase. Legal Notes Regarding Leaseoptions - Many conservative sellers have decided to use the straight lease-option due to a few court decisions that reclassified traditional lease-options, when used commercially and not residentially, as a land sales contract. A land sales contract is an agreement in which a seller does not transfer real estate until the buyer, after making installment payments for a year or more, makes the final loan payment. Irregardless of whether a contract says Lease-option at the top of it, some courts have looked beyond such a designation to the actual components of the commercial lease-option contract itself. They have ruled that the contract is either a lease-option, or a sale, but cannot be the same at once, as some commercial lease-options have tried to be. For example, in a contract labeled a lease-option, wherein the price had been set and

payment credit had been allowed to accrue toward the purchase, the court reclassified it as a land sales contract and not a lease-option. Although the above court cases involved commercial leaseoptions, many feel the precedent could just as easily be applied to residential lease-options if a disgruntled buyer ever forced the issue in the courts. To date, no one has challenged residential traditional lease-options. Furthermore, traditional lease-option agreements that mention a sales price or accumulate credit toward the purchase begin to develop problems when the lessee quits making payments and the seller attempts an eviction. Since some courts have ruled that such a leaseoption is really a land sales contract, the so-called lessee is really a buyer with an equity position in the property. Since a seller cannot evict a buyer with an equity position, the seller can only foreclose. And since the usual deed of trust, with its usual powers of non-judicial foreclosure, is not routinely drawn-up as part of a traditional lease-option, the foreclosure must be judicial, which can mean a long, difficult court procedure (see an Even though some feel the straight lease-option may be safer, it is worth noting that the above legal problems seldom occur. A traditional lease-option ends up in court only infrequently and is rarely reclassified as a land sales contract. At the end of either the straight or traditional lease term, the lessee usually either buys the house and stays, or does not buy and peacefully leaves. As stated earlier, the problems with traditional lease-options may only arise after the buyer defaults on the payments and the seller starts an eviction process. But always remember, never underestimate the power of a disgruntled buyer who is pushed into the arms of a knowledgeable attorney. The possibility exists that the traditional lease-option may be reclassified in the courts as a land sales contract, and the seller may even have to 11-15

explanation of judicial foreclosure on page 1-21). Sometimes the seller/landlord may end up in a lawsuit and possibly paying a settlement to the lessee. For this reason it is very important for the seller to include the deed of trust in the contract along with its powers of non-judicial foreclosure. Other items within the contract that the courts will look for in order to reclassify a traditional leaseoption as a land sales contract are if the tenant assumes the property's risk of loss and the responsibility of maintenance, and/or makes repairs with the good faith belief of being an owner and/or pays substantially higher monthly payments which could be construed to be mortgage expenses rather than rent. So in order to lessen your exposure to a lawsuit, a seller may want to draft a straight lease-option and stay away from the terms which make it appear too much like a land sales contract. pay a settlement for wrongful eviction. Note: The lease-option form on page 11-46 was designed by First Tuesday to provide the protection of the non-judicial foreclosure power of sale in either a traditional or a straight lease-option. Important Facts To Know About Lease-options 1. Lease-options are usually made for periods of time between a few months to a few years, according to the prevailing real estate market and whatever best suits the buyer's and seller's needs.

2. A home inspection should be made along with a decision as to who will be responsible for any repairs, as well as any maintenance. 3. Language should be included in contracts which provides for restitution in the cases where lessees causes (or allow others to be caused) serious damage to the property, especially when the option is not exercised. 4. The improvements that will be permitted during the lease must be specified. 5. Assignments or subletting of the lease should not be allowed. 6. Credit and employment checks should be run on the prospective lessee. Be aware that prudent buyers might: 1. Check with the county recorder, or through a title company, for any outstanding liens against the property.

2. Check that both the mortgage and the taxes are being paid. 3. Immediately record the option at the county recorder's office in order to protect their claim in the property and protect it from being sold to someone else. Benefits of Straight Traditional Lease-options and

The main benefits of either leaseoption for the homeowner in foreclosure are: 1. Receiving lease payments which could be 10 to 20%, or more, higher than current market rents, or, hopefully, enough to pay your combined mortgage, insurance and property tax payments. This higher rent is the price the lessee pays for the option to buy later; 2. A possible income. In cases where the lease payments you receive are higher than your combined mortgage, insurance and property tax payments you may use the surplus to rebound financially; 3. Receiving a deposit which could help offset your costs to move. Arrearage on your mortgage could be reworked into your mortgage payments through a forbearance (see chapter 3-How To Win By Changing Your Mortgage Terms); 4. Tenants who care about the property since it someday may be theirs; 5. Tax deductions until the option is exercised;

11-16

6. The possibility for a reprieve, or a chance to get the house back, if the tenant does not exercise the option to buy. This would be good only if you have rebounded financially and want the house back; Benefits option Of The Straight Lease-

7. Affords an excellent selling technique commonly used in a slow real estate market.

1. A seller carryback, 2. An all-inclusive (A.I.T.D.), trust deed

The main benefits that are unique to a straight lease-option for the homeowner in foreclosure are: 1. Receiving a fair market price when the option is exercised; 2. Clearer, thus, possibly a safer legal contract; 3. Marketing with newspaper ads like "$5,000 (the option money) moves you in" should bring many prospective buyers. Benefit Of The Traditional Leaseoption The main benefit unique to a traditional lease-option for the homeowner in foreclosure is: 1. Advertising the property as "rent-tobuy," which is a powerful marketing tool that attracts many potential buyers. Rent-to-buy means a pre-set portion of the monthly rent or lease payments accumulates toward a preset purchase price. A BUYER FINANCING AIDED BY SELLER

3. Additionally, the traditional leaseoptions can be considered a form of seller financing. When the option on the lease is exercised, it may involve a seller carryback or an A.I.T.D. Although this section touches on some of the basics, you are well advised to do further research and/or consult an attorney before attempting seller financing. Several good books are available on the subject. "Real Estate Digest #104," published by First Tuesday, is concise, comprehensive and 1 of the best books on the subject. The Seller Carryback A seller carryback is when the seller carries back, or creates, a loan for the buyer from the equity in the property that is being sold. The carryback loan, also called a "note" or "paper," can be for all the equity, or only for part of it. The seller carryback may become the first and only mortgage on the property, or may be used in conjunction with new or existing loans, or both. The seller carryback is so versatile that it can be used in a variety ways to best suit your particular transaction. Sometimes, it is even used to finance a down payment.

Many times a sale will go through only if the seller helps out by creating some or all of the financing. For the homeowner facing foreclosure, following are 2 of the most useful methods of seller financing:

11-17

Assume a seller has a property with a current market value of $200,000 and an existing loan of $120,000. The seller then has $80,000 in equity. If the buyer assumes (takes over) the existing loan, then the seller can create a loan for the buyer out of all or part of the $80,000 equity, depending on how much cash the seller does or does not want after the sale. Some variations are possible from this point: 1. The buyer can either get a second loan from a mortgage lender, while assuming the first mortgage, or buy a brand new first mortgage. In either case, the result would be an 80% loan-to-value, or $160,000 on a $200,000 property. a. The buyer can then close the deal by putting up the final $40,000 down payment ($40,000 + $160,000 = $200,000). The Promissory Note and Deed of Trust - As is the case with most mortgages in California, the legal power behind a seller carryback is the promissory note (see page 1-29) and deed of trust, or trust deed (see pages 1-26 through 1-28), both of which the California civil code considers 1 contract to be read together. The promissory note is the written evidence of, and promise to pay the loan, or debt. The promissory note can be either a straight note or an installment note depending on the agreed upon mode of payment. While the straight note pays off in 1 lump sum at some predetermined future date (balloon payment), the installment note is paid in periodic payments. Many installment notes are either fully or partially amortized, or pay interest installments only with a single balloon payment at the end of the term. The promissory note documents the terms for repayment of the loan, 11-18

b. If the buyer does not have the $40,000, then the seller can take whatever down payment the buyer does have and carryback the remaining balance. If the buyer only has $5,000 to put down, then the seller may want to loan the remaining $35,000 in the form of a seller carryback. 2. The buyer assumes the existing $120,000 while the seller creates an "incremental" $75,000 note and pockets a $5,000 down payment. An incremental note pays partial balloon payments at designated times during the life of the note, such as in this case $15,000 every year for 5 years. After every partial balloon payment, the amount of the regular monthly interest payments would be adjusted to reflect the decreased principal. including the amount of the note, the interest rate, the payment schedule and the due date. In addition, to be legally sound, the note must mention consideration, contain a promise to pay, identify the lender and specify the debt. Necessary for a note to be enforceable, consideration can be simply an agreement to convey a property in trade for the carryback note and deed of trust. In order for the note to be negotiable, the buyer must sign an unconditional written promise to pay not only the person named as holder of the note, but also the agreed upon payment schedule and the debt, being the exact amount of principal and interest. Most preprinted forms include all this contract language. The deed of trust becomes both a recorded lien on the real estate in question as well as security for the

payment of the debt. Once the seller carryback note is paid off, the seller's rights in the property under the deed of trust are terminated. First Tuesday's "Real Estate Digest #104" shows step-bystep how to fill out a promissory note and deed of trust. Interest Rate and Length of Term Typically, the higher the position of the loan, the more the rate of interest. If a first mortgage currently gets 10%, a second might get 12 to 14% and a third 14 to 15%. Sellers may need to keep the rate low on their carryback loans as a buyer incentive, or they may need to adhere to the usury laws and loan at only 10%. However, if you pay a real estate broker a nominal fee of $50 to $200 to look over your promissory note before executing it, then you can charge the higher interest rates allowed by brokerassisted loans. The law says if a broker assists or participates in a loan, then the higher interest rates may be charged. While most loans from an institutional lender are 15 to 30 years in length, the term of time for a seller carryback loan is usually has a much shorter term, ranging from 1 to 7 years. Late Charges and Grace Periods Within certain guidelines, a lender may charge a late fee for delinquent installments on any loan which helped finance the purchase of a single-family residence. The promissory note must contain provisions for: 1. The exact late charge, with the amount being no more than 6% (10% if a broker set up the loan) of the delinquent installment payment; and If the buyer does not live in the residence, then the charge can be a simple rate, such as 40%, or whatever is considered a reasonable loss which the seller determines at the time of the loan. The seller's "reasonable loss" is tied 11-19

2. A

10-day grace period. If a payment is due on the first of the month, it is not considered delinquent until after the 10-day grace period, or on the eleventh day. However, the buyer must have the payment in the seller's possession within the 10-day grace period.

In order to collect on the late charge, the lender either must have had mentioned the late charge in the prior month's billing statement, or must deliver a written statement of delinquency on or after the first day following the 10-day grace period. The statements must have the precise total of the late charge, or the equation used to figure the charge. For every missed installment that the seller carryback fails to give a delinquency notice, the seller carryback loses the right to collect on those particular installments. And once a seller carryback does fail to give a delinquency notice, the seller carryback must give the buyer advance notice in writing in order to collect any future late charges. Prepayment Penalties A carryback seller may charge a prepayment penalty, which is an extra charge to the buyer for paying off a loan before its due date. The amount of the charge depends on whether the buyer lives in the subject property or not.

directly to the seller's resulting tax consequences which have been triggered by the buyer's early repayment of all or part of the loan. In other words, since the carryback seller may have to pay up to 40%

worth of income tax on the unexpected early repay of the loan, the carryback seller may charge up to 40% for the reasonable loss, provided the exact charge was part of the original negotiations and was specified in the promissory note. If the buyer lives in the subject house, which is either 1-to-4 residential units, the prepayment penalty is limited to 6 months of advanced interest figured on only 80% of the remaining loan balance (a monthly mortgage interest payment of $1,000 divided by 6 months equals $6,000, which, divided by .8, or 80%, equals $4,800). Also, the buyer can prepay, without penalty, up to 20% of the original loan amount per year, or 12 month period, for up to 5 consecutive years. However, if the seller has less than 3 different carryback loans on three different properties, then the seller can bar the buyer's prepayment during the calendar year of the sale. No prepayment penalty can be charged on a buyeroccupied residence after 5 years on the loan. Also, in addition to the tax reasons for charging a prepayment penalty, if the carryback seller sells the carryback note on the market, then a prepayment penalty can make that note more valuable in many trust deed markets. Tax Aspects - In essence, the main tax benefit is deferring the tax on the profit in a real estate sale by turning it into an income-producing note. Beyond that, many different tax advantages pertain to each particular financial situation. To determine the tax advantages in your situation, consult with your accountant or financial planner, and/or read up on the most current tax advantages in a book from the store or library. First Tuesday has an excellent section in the Real Estate Digest 104.

Credit Check - Before making the loan, when a buyer asks a seller to carryback a loan, the seller must obtain reliable credit information about the buyer in order to determine the risk of making a loan. Basically, the seller wants to determine if the buyer has both a good credit history as well as the income to make the payments on all the existing loans, plus the seller carryback loan. (Most institutional lenders use the 26/38 rule: 26% of their income pays 38% of their bills, not including the mortgage payment.) This is accomplished with 2 documents from the buyer: a financial statement and a credit report. Request that the buyer supply you with both a financial statement, which the buyer or the buyer's accountant prepares, and a social security number. The financial statement will give you, among other things, the buyer's net income. Give the social security number to a local credit reporting company (look in the Yellow Pages) and, along with buying a credit report, ask for an interpretation of the buyer's credit-worthiness. To further check up on a buyer, make a surprise visit to inspect the maintenance of their current residence, and/or other properties the buyer may own. Also, contact the buyer's landlord and/or various creditors for a payment history and personal reference. Since the seller's acceptance of the buyer's offer depends on the buyer's creditworthiness, proper reading of the buyer's financial statement and credit report should give the seller adequate information for analysis. A Request For Notice of Default and Notice of Delinquency - If,

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after making a seller carryback loan, a buyer defaults on the payments to a senior or underlying mortgage, then the seller carryback wants to know as soon as possible. If a senior lender were to proceed through to foreclosure, then all junior loans, including the carryback seller would be wiped out. So, a junior loan/lien holder needs to find out about any delinquency on any senior loan as soon as possible before too many past The quickest way for the junior/carryback seller to know about the foreclosure is to file both a Requests for Notice of Default and Notice of Delinquency (see page 11-43). The requests should be filed in the recorder's office in the county where the property is located. These are actually 2 different requests handled two different ways. A Request for Notice of Default form can be completed and recorded at the county recorder's office both at the time of the carryback and whenever the seller changes address. This will cause the carryback seller to be notified within 10 days of the filing of a Notice of Default by a senior loan/lien holder. Without filing the request, the junior would automatically receive a notice within 30 days. So, the request buys the seller 20 extra days. Unfortunately, a buyer could be several months behind before some senior lenders file a Notice of Default. The only sure way to know would be to call the senior lender(s) every month or 2 and ask. If the buyer is behind on a senior, but not the junior, the junior still has a right to foreclose on the senior loan's default. A Request for Notice of Delinquency insures that the senior loan/lien holder(s) will notify the junior after the buyer has been delinquent in payments for 4 months and 15 days. Since some lenders do wait that long or longer to file a NOD, the Notice for Delinquency seems to be sent very late, but at least it is some sort of notice. Unlike the Request for Notice of Default, the Request for Notice of Delin11-21

due payments accrue. The sooner the junior loan/lien holder finds out, the less expense that junior will have in preparing a remedy. The most usual remedy is reinstating the senior loan with personal funds and then exercising the legal right to initiate and control a new foreclosure of your own. quency must be approved by the buyer. The best time for the seller to get the buyer's approval is during the original negotiations for the carryback loan. So, be sure to include the approval for the Notice of Delinquency in the note itself: The buyer hereby approves the issuance of a Notice of Delinquency, in the event one is necessary. Between the 2 requests, as well as infrequent calls to the senior lenders, carryback sellers can stay informed enough to protect their financial interests as soon as a buyer gets behind in payments. Converting A Note To Cash Sometimes, after holding a carryback note for awhile, the seller may want to convert it to cash. Be advised that the face value of a note is not worth the same in cash. Notes are always discounted in order to be converted to cash. The percentage of discount usually depends on the interest on the note. Generally, the higher the interest rate the lower the discount, and visa versa. A $30,000 note with a 10% interest rate might have to be discounted 30% while another $30,000 note with a 15% interest rate might only take a hit of 20%. In any case, be aware of the discount

requirement on the open market before agreeing to take a note so as not to be let down when you attempt to cash out the note before its pay-off date. In other words, a $30,000 note is not equal to $30,000 cash. Consider the fact that the rate of interest on a note is usually double or more than on a savings account in a bank. Since a note yields a much greater return than cash in the bank, do not cash out a note unless you desperately need the cash. Look into borrowing on the note first. If you must cash out, buyers can be found in most newspaper classified sections under "Trust Deeds." Shop around for the lowest discount since all buyers have different criteria. Finally, when you first create the note, if you think you might cash out later, then negotiate for a higher sales price in order to offset the discount. If the buyer balks, then consider charging a loan fee of several percentage points. What are the benefits of seller carryback to the homeowner in foreclosure? An All-Inclusive Deed of Trust An all inclusive trust deed, or A.I.T.D., also known as a wrap around loan, is a flexible purchase-money transaction that not only creates financing for the buyer, but increases buyer demand, sales price and the seller's net yield. Commonly used when financing is tight or unavailable, the A.I.T.D. gets its name from the fact that it includes any existing mortgages on a property, along with any new seller carryback financing, into a single trust deed instrument. For example, a buyer has only $20,000 to put down on a property that is worth $200,000 and has 2 existing underlying mortgages. When the seller creates an A.I.T.D., the remaining $180,000 is financed by combining the existing $100,000 first mortgage, at 9% interest, 11-22

1. A quick sale; 2. A higher sales price since seller financing creates a greater incentive to buy and, thus, pay the higher price; 3. Easy and inexpensive financing for the buyer, especially one who cannot get conventional financing; 4. A way to finance the down payment for a buyer, especially when your foreclosure arrearage have been paid through a lender workout, eliminating your need for cash from the buyer;

5. Creates a wealth-rebuilding income stream for the seller rather than losing part or all of the equity to an equity purchaser, or worse, to foreclosure.

with the $30,000 second mortgage, at 11% interest, and with the new seller carryback $50,000 third mortgage, at 13% interest. All three loans are "wrapped" together into one $180,000 all-inclusive-trustdeed. However, in an A.I.T.D., not only does the seller charge 13% for the new, seller-created mortgage, but also 13% on the existing loans as well. For creating the buyer's financing, the seller gets to keep the difference between the lower existing interest rates of 9% and 11% and the higher "all-inclusive" rate of 13% (see example on page 11-18). As is evident, the A.I.T.D. can generate an income for the seller as well as facilitate a quick sale. In return, the buyer gets into a

property without the fees, or time and credit hassles of going through an institutional mortgage lender. The buyer does not pay directly on the existing loans, but pays 1 lump payment to the seller, who, in turn, pays on the existing loans. The purchase contract must have a provision that the seller promises to pay off the underlying loans as well as provides adequate protection to the buyer in case the seller defaults on the existing loans. The

buyer receives a deed of title as well as a policy of title insurance as in a regular sales transaction. In the event the buyer defaults on an A.I.T.D., the seller can initiate a non-judicial foreclosure as under any trust deed. However, the amount under the foreclosure can only be for the seller's equity and not for the underlying mortgages. And if the property decreases in value, the buyer cannot be held liable for the deficiency because of the purchase-money character of the A.I.T.D. Since A.I.T.D.'s can be used for varying durations of time, such as for payoff of the seller's equity only or for the payoff of all the loans, further study of A.I.T.D.'s is recommended before implementation. Many sellers have tried to use the A.I.T.D. to conceal the sale from the underlying lenders, especially when due-on-sale or other such clauses exist. Before using an A.I.T.D. in such a manner, or in any manner, consult your attorney. Also, there are several informative books in libraries and bookstores with sections discussing the uses of A.I.T.D.'s. See an example of an A.I.T.D. form on page 11-44). How The A.I.T.D. Benefits The Homeowner Who Is In Foreclosure - In addition to all the benefits listed for the seller carryback on page 11-16, the A.I.T.D. also: 1. Pays the seller a higher rate of interest than is on the face of the underlying mortgages, 2. Provides instant delinquency notice since the carryback seller

11-23

collects the payments underlying loans,

on

the

3. Gives the seller tighter control over the payments to the underlying senior loans, 4. Provides the possibility of an income stream when the interest charged is more than the rates on the existing loans.

11-24

Example Of How An A.I.T.D. Increases Income


Without An A.I.T.D. Under The Existing Interest Rates: Existing 1st T.D. of $100,000.00 at 9% annual = $ 750.00 per month Existing 2nd T.D. of $30,000.00 at 11% annual = $ 275.00 per month Brand New 3rd T.D. of $50,000.00 at 13% annual = $ 542.00 per month TOTAL: $180,000.00 at 11% (average) = $ 1,567.00 per month

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With An A.I.T.D. With The Existing Interest Rates Readjusted: Existing 1st T.D. of $100,000.00 at 13% annual = $ 1,084.00 per month Existing 2nd T.D. of $30,000.00 at 13% annual = $ 325.00 per month Brand New 3rd T.D. of $ 50,000.00 at 13% annual = $ 542.00 per month TOTAL: $180,000.00 at 13% annual = $ 1,951.00 per month

SUBTRACT - the total new/existing loan payments listed in the upper equation: - $ 1,567.00 per month Seller's Yield With The A.I.T.D. = $ 384.00 per month x 12 months = $ 4,608.00 annually

Thus, as demonstrated in this example, an A.I.T.D., when its higher interest rate is adjusted upwards across all the existing loans, will earn an additional $4,608 annual income over and beyond the income already being generated by the

new third trust deed (See explanation of A.I.T.D. on page 11-17.)

A SALE-LEASEBACK For some homeowners facing foreclosure, a type of a sale-leaseback may be a desirable remedy. A saleleaseback is when you sell your house to an investor, then lease it back for a period of time. This can delay the trauma of moving for 1 to 3 years, depending on your situation. Generally, the more equity you have to work with the greater your possibilities. Practically any variation of a sale can occur as a sale-leaseback, such as: 1. A cash down payment, 2. A seller carryback, 3. An A.I.T.D., 4. A brand new loan, or 5. Rent in exchange for the down payments. An ideal investor may be 1 who needs to trade into a short-term (1 to 3 years) rental property, and/or is trading a large amount of cash from another sale, such as in a 1031 tax exchange. As a special incentive to get the investor to buy, you may want to discount your equity when you sell. This will give the investor a higher return on the investment when the property is sold at a market price. For a homeowner in foreclosure who still wants to try to keep the property, a variation of the sale-leaseback would provide an option to repurchase later. The investor would buy your house, then lease it back to you for a period, by the end of which you would have to decide whether to repurchase or to decline the option. To find an investor who is currently involved in a 1031 tax trade situation and scouting for properties, check in the Yellow Pages under "Real Estate Exchanges" or ask an escrow company

which specializes in real estate exchanges. A local real estate company, association or board may help. Also, you can advertise in the real estate section of your local newspaper. Or, simply mention it in your sales brochure (see a sample brochure on page 11-41). Use the purchase contract on page 11-54, or the home equity purchase contract on page 11-50 if discounted equity is purchased. Use the lease forms on pages 11-46 through 11-49 for the leaseback of your property. GET A PARTNER (EQUITY SHARING) For many homeowners facing foreclosure, the obligation to pay on a home has become a temporary financial burden. But sharing that financial obligation for a period might suddenly make it less burdensome. Selling some of the equity may bring in just the infusion of new cash necessary to save your property from foreclosure. This type of equity sharing, for a homeowner in foreclosure who still wants to try to keep the property, would be slightly different than traditional equity sharing. Traditional equity sharing arrangements begin when an investor buys a property and then takes on a partner who lives in the house and pays the mortgage payments, along with the maintenance, insurance and property taxes. In some instances, the investorpartner may even contribute toward the monthly payments and expenses. In any case, within a predetermined period of time, the live-in partner can either buy out the investor-partner, based on the current market values, or they both sell the property to a third party and split the profit according to percentages they contributed or agreed on, such as a 50-50 split. For the homeowner facing foreclosure, equity sharing can be as simple as selling a share in your property to an investor, which greatly

depends on the amount of cash the homeowner needs and the amount of equity available. For a relatively low down payment and little or no contribution toward the monthly payments (depending on the individual deal) the investor buys into the possibility of future appreciation for a specified period of time. At the end of that period, the homeowner has a few options: In situations where little equity exists or little chance of early appreciation is evident, as an additional inducement to an investor, the homeowner in foreclosure may sell the equity position in the property at a discount. Lender approval may be necessary. Consult an attorney or a real estate broker for help in locating an investor to share equity and to draw up the appropriate contracts. GET AN EQUITY PURCHASER An equity purchaser is a foreclosure investor who wants to buy the equity in your property at a discount, usually a very high discount. Unfortunately, month after month, many homeowners who ignore the NOD and the foreclosure process, suddenly panic at the last minute and sell off their wealth just before the trustee (foreclosure) sale. Often $50,000 worth of equity is sold to an investor for only $5,000 to $10,000. What the equity purchaser offers in exchange for your equity is some lastchance cash and a quick sale, commonly within a week or 2, or even on the last day before the trustee sale. The tragic thing is that many of these homeowners sell so cheap because they never learned about the help that is available to them. Fortunately, even at these seemingly desperate last moments, a homeowner can show up at the actual trustee sale just seconds before their property is to be sold and legally force a 24 hour postponement during which bankruptcy can be filed. This, in turn, allows enough time to enact

1. Buy out the investor by paying back both the original investment plus a corresponding percentage of any appreciation in value that has occurred during the specified period, 2. Sell the property and split the profits, 3. Make a new or revised agreement to extend the original agreement. a more beneficial solution than selling to an equity purchaser. Thus, selling to an equity purchaser is not recommended, unless the homeowner cannot obtain a buyer, a lender workout, nor any of the other solutions suggested in this book or by an attorney. But if the homeowner must sell to an equity purchaser, then the information in this chapter may help the homeowner act intelligently and be in control of the negotiation and sale process. Equity Purchase: The Players And Process - An entire investor-driven industry has been founded on purchasing the equity of a homeowner in foreclosure. The essence of an equity purchase is that the homeowner sells the property to an investor-buyer and then moves out before receiving any money. But the process is much more complex. First, an investor discovers a Notice of Default has been filed on a property from the public records or a company which specializes in reporting NOD's. Through a variety of real estate information systems, the investor can then determine the value of a property and the amount of equity. In order to confirm this information, as well as initiate a relationship with the homeowner, the investor will use 1 or both of the 2 most common methods: 1. Door knocking, or 2. Marketing through the mail.

These are 2 vastly different approaches. In brief, door-knockers first contact the homeowner in person while mail-marketers try to lure the homeowner through the mail. The doorknockers start by making a list of properties with high equity which are located within the investor's turf, or defined geographical region. Next they will drive to as many as 30 houses per day, knock on the door and try to sell themselves as the best solution to the homeowner's problem. Ideally, the investor wants in to inspect the property and then tie it up in a sales contract. In contrast, the mail-market investor does not leave the office at first. The investor begins by mailing out a series of letters during the NOD and NOTS periods, waiting for an interested homeowner to phone in response. During such a phone call, if the investor determines that The required legal terms to be incorporated in the equity purchase contract are, according to the statute, "every contract shall contain the entire agreement of the parties and shall include the following terms: a. The name, business address and telephone number of the equity purchaser; b. The address of the residence in foreclosure; c. The total consideration to be given by the equity purchaser in connection with or incident to the sale; d. A complete description of the terms of payment or other consideration including, but not limited to, any services of any nature which the equity

enough equity and desire to sell exists in the homeowner's situation, then the investor will drive immediately to the residence for a physical inspection and to tie up the property with a sales contract. From this point on, the doorknocker's and mail-marketeer's strategies are similar, and their contracts must adhere to the Home Equity Sales Contract Act (HESCA). The Home Equity Sales Contract Act - An entire body of preforeclosure law has evolved through the California state legislature to guide the conduct of the equity purchaser as well as to protect against investors taking unconscionable advantage of homeowners in foreclosure. When buying 1 to 4 residential units of real estate in foreclosure, the California Civil code states that an equity purchaser must adhere to the HESCA (see page 19-1 for the actual details required by HESCA). purchaser represents he will perform for the equity seller before or after the sale; e. The time at which possession is to be transferred to the equity purchaser; f. The terms of any rental agreement;

g. A notice of cancellation as provided in subdivision (b) of Section 1695.5; h. The following notice in at least 14point boldface type, if the contract is a printed or in capital letters, if the contract is typed, and completed with the name of the equity purchaser, immediately above the statement required by section 1695.5(a):

--------------------------------------------------------------------------------------------------NOTICE REQUIRED BY CALIFORNIA LAW

Until your right to cancel this contract has ended, (Name) or anyone working for (Name) CANNOT ask you to sign or have you sign any deed or any other document. The contract required by this section shall survive delivery of any instrument of conveyance of the residence in foreclosure, and shall have no effect on persons other than the parties to the contract.

--------------------------------------------------------------------------------------------------The Equity Purchase Contract - Many equity purchasers will have preprinted forms with all of the above legal language included (see page 11-50). The preprinted form follows a selfexplanatory, fill-in-the-blanks process. If the form is preprinted but not entitled "Equity Purchase Agreement," then check the HESCA on page 19-1 to verify all the above points have been covered. If 1 or more of these points are omitted, then the seller may have reasonable cause to 1. Keep your property off the market long enough to do a more thorough analysis, and; 2. Have a legal exit from the contract if the analysis reveals the property is not a wise investment. A tip-off to the existence of a weasel clause is phrases such as "this contract is contingent upon ..." followed by wording like "obtaining appropriate financing," or "approval of the preliminary title report." To weasel out of a contract which has such clauses, the equity purchaser need only disapprove the preliminary title report or deem the financing inappropriate for any lame reason when the actual truth is the equity purchaser's analysis foresees more trouble than profit. Either resist, or use to your cancel later, if necessary, such as if a better deal, or seller's remorse comes along.

The equity purchaser's goal is to tie up the property by talking the seller into signing a contract which has, among other terms, a disguised "weasel clause." The weasel clause will allow the equity purchaser to: advantage, the equity purchaser's tendency toward utilizing weasel clauses. In the event the equity purchaser wants to back out of the deal, the seller can turn the tide on the weasel clause by having included in the original contract either an option fee or a nonrefundable deposit ranging from a minimum of a few hundred dollars to however many thousands of dollars the investor will pay. Also, the seller can require a 72 hour first-right-of-refusal which allows the seller to continue soliciting and entertaining offers from other prospective buyers. If a second buyer makes an offer, then the first buyer has 72 hours to fulfill the contract or lose the deal to the second buyer.

Do not hesitate to negotiate the terms of the deal to your advantage. After all, you are the homeowner in foreclosure with the equity the purchaser wants. Never let on that you are in a vulnerable situation. Always let them know that while you may be willing to sell at a discounted price, you are not only negotiating with other investors for better terms, but also considering other foreclosure remedies. Make them aware that you are merely researching the possible benefits of an equity sale and only want the best deal and protections.

In other words, court the investors just as they court you. Play them off each another to bid up the price and terms to your advantage. And realize that while many equity purchasers are sophisticated professional investors, many are recent graduates of a preforeclosure seminar. Not unlike intoxicated freshman on spring break, they usually have not acquired all the experience and social graces neces-sary to properly court a homeowner in distress. Hopefully, just by knowing this, you may be less offended and/or intimidated by any foot-in-mouth assessments made of your property or life. As part of the sale agreement, any or all of the different sale techniques previously mentioned can be used to help facilitate the best deal for your particular situation. The investor usually specifies that any money is paid out by the escrow company, who is the impartial third party hired to process the transaction. (See Opening An Escrow, pages 11-27 through 11-28.) The requirement to move out is fair since some sellers have suddenly changed their mind about the sale after receiving some money, have remained in the house and then filed bankruptcy. Bankruptcy effectively stops both a foreclosure and an eviction, and could even cause the equity purchaser to altogether lose a stake in the property. Once the contract is signed, as per the HESC Act, a 5 day waiting period must occur before any deeds, purchase money or property can be exchanged. If the seller does not cancel the agreement within the 5 days, then the sale must be completed according to the terms of the equity purchase contract. The following wording must appear in or accompany the contract:

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NOTICE REQUIRED BY CALIFORNIA LAW Until your right to cancel this contract has ended, _________________________________________________________________ ___ (Name of Buyer) or anyone working for_______________________________________________ (Name of Buyer) CANNOT ask you to sign or have you sign any deed or any other document. You may cancel this contract for the sale
of your house without any penalty or obligation at any time before_____________, 199__, at midnight to 8:00 a.m. See attached notice of cancellation form for an explanation of this right. NOTICE OF CANCELLATION ______________________________________________ (Enter date contract signed) You may cancel this contract for the sale of your house, without any penalty or obligation, at any time before ________________________________________ at 12:00 midnight to 8:00 a.m. (Enter date and time of day) To cancel this transaction, personally deliver a signed and dated copy of this cancellation notice, or send a telegram to_________________________________ (Name of purchaser) at__________________________________________________________________ (Street address of purchaser's place of business) NOT LATER THAN________________________at 12:00 midnight to 8:00 a.m. (Enter date and time of day) I hereby cancel this transaction_________________________________________ (Date) ________________________________________ (Seller's signature)

--------------------------------------------------------------------------------------------------A MORTGAGE INSURANCE ASSISTED FORECLOSURE PRESALE If you have some form of mortgage insurance, and, if you must sell your property, but cannot because the total indebtedness against it is more than the property is worth, then you may be able to find help in a mortgage insurance assisted foreclosure presale. Typically, in such a presale the mortgage insurance pays off some of the total indebtedness in order to help you sell your property before it goes to foreclosure. Presales are not required of mortgage insurance companies. They will do this only if it allows them to avoid paying out on a full claim later,

such as if the property were to go to foreclosure afterall. For example, if the total indebtedness against a property is $200,000, but the property has subsequently depreciated to a current market value of only $175,000. In this case, then the property has a $25,000 negative equity. The problem that arises when you try to sell a property with negative equity is that the buyer is only willing to pay $175,000, but the lenders/lienholders will not release the property for the sale unless their portion of the $200,000 is paid. You may not have the extra $25,000 to bridge the gap, yet you would still be legally liable to pay it. On the other hand, if you were to let the same property go during the final trustee's foreclosure sale, then a lienholder would be stuck with a property worth only $175,000. Even though your credit record would be blemished, in the event of a foreclosure, you would not be legally liable for the $25,000 negative equity thanks to California's antideficiency laws. Under these laws, the lender cannot force you to pay the negative equity after a foreclosure sale. Thus, the lienholder loses the $25,000, or more, including any extra costs to foreclose and resell the property. These additional costs usually include any property taxes owed prior to the default date, any hazard insurance premiums, any attorney's fees and court costs that have accumulated and any cost to preserve/restore the property up to a specified amount based upon what the property actually needs. All these costs, when added to the original $200,000, and including the back interest due, can add up to a total indebtedness of $233,334, or more.

not a percentage of the market value of the property. The percentage of coverage may range from 12% to 100%, depending on the specifications of the original insurance contract. If the percentage is 25% on a total indebtedness of $233,334, then the mortgage insurance company would have to pay the lender $58,334 after the lender sold the foreclosed property for $175,000 to recover the total indebtedness of $233,334. Obviously, if the insurer only has to pay $25,000 now in a presale to bridge the negative equity gap between $175,000 and $200,000, that is substantially better for the insurer than paying a $58,334 claim later. Thus, the presale becomes the middle ground between the no-sale stalemate and an out-and-out foreclosure that has no collection recourse due to the California's anti-deficiency laws. The 2 main players in mortgage insurance-assisted foreclosure presales are: 1. Private mortgage insurance companies (PMI), 2. The Department Affairs (DVA). Private Mortgage Company Presales of Veterans'

Insurance

Mortgage insurance insures a percentage of the total indebtedness against a property,

Private Mortgage insurance is usually required to help borrowers qualify for a loan when they may not have been able to qualify otherwise. The private mortgage insurance company guarantees the loan against default, which guarantees that you will make your loan payments, or else they must pay for you up to a certain percentage of the loan amount. So, when you get behind in payments or go into foreclosure, the private mortgage insurance

company must pay up to a limit, usually 15% to 100% of the loan. If they can avoid paying a full claim by helping you sell your house before foreclosure, then they may assist you in what is known as a presale. The way it works is if you currently have a mortgage insurance policy and have found a buyer for your property, but the fair market value of your property has depreciated below the total amount due against the property, then you may be able to persuade the insurer to pay all or part of the negative equity in order to help secure the sale. A presale is not required of the private mortgage insurer, but rather is a method the insurer offers to help you avoid foreclosure, which, in Tell the lender that due to California's anti-deficiency laws on purchase money loans, the best chance of recovering the negative equity is to put pressure on the private mortgage insurance company to cooperate in a presale. The lender's logic is that the insurer would pay down the loan or total indebtedness now to help make the sale in order to avoid a full claim by the lender after a foreclosure. In making your case, point out that the alternative is a trustee's foreclosure sale, in which the negative equity, as well as other costs, will be lost. Department of (DVA) Presales Veterans' Affairs'

turn, helps the insurer avoid paying a full claim to the lender. Thus, as part of your persuasion tactics, you could argue that it makes good economic sense for both the private mortgage insurer to cooperate with you in a foreclosure presale and for the lender to put pressure on the insurer to do so. In convincing the insurer, point out the obvious: the insurer might avoid a full claim by paying the negative equity now to insure a sale. The alternative for the private mortgage insurer would be to pay out on a full, larger claim, later after a foreclosure anyway. then the VA will loan the money to close the deal. The borrower must sign a promissory note for that $10,000. Typical terms may be below market, such as 5 years to pay the loan off at a 4% annual rate of interest. Most of these loans are not secured by another piece of real estate, but must be paid off before the DVA will make a future loan to the veteran/borrower. How To Contact the Insurer If you have been paying for private mortgage insurance, or have a loan through the Department of Veterans' Affairs, if you must sell your property, and if the current market value of your property is worth less than the loan(s) against it, then contact either of these agencies and ask for information regarding mortgage insurance-assisted foreclosure presales. For the address/telephone number of your private mortgage insurance company either check your escrow or property purchase papers, or ask your lender/servicer. For the address/telephone number of the DVA office nearest you see the listings in the following box.

In a DVA presale, known within the department as the Compromise Sale Program, the DVA may ask borrowers to sell their home when the borrower can no longer continue making the loan payments, cannot cure the default and/or has no equity. In a compromise sale, any shortage of funds needed to close the sale may be loaned to the borrower by the DVA. The borrower will be required to pay back the loan at a future date. For example, if the borrower sells the property but cannot close the deal because the escrow is $10,000 short,

Cal-Vet Presale Assistance Although Cal-Vet does not provide the type of mortgage insurance assistance mentioned above, they do cooperate with veterans who are behind in payments while actively trying to sell their property. To a certain extent, Cal-Vet will give the delinquent veteran, who has no chance of resuming payments, a period of time, maybe about 3 to 6 months, in which to sell the property, if the veteran so wishes, before Cal-Vet will cancel the veterans' equitable interest. See page 7-12 for more on Cal-Vet. ASSUMPTION/TRANSFER OF LOAN Sometimes, a helpful way to sell a property is to transfer the current loan(s) on your property to the new buyer. Usually the buyer simply assumes the current loan(s) rather than take out a new one. In this agreement, the buyer, seller and lender agree to the buyer's assumption and release the seller of any further liability on the loan. Sometimes a buyer and seller try to hide this transfer from the lender. In such cases, the seller Short pays are prevalent when market prices dip below the loan(s) on a property. For example, imagine a property with a loan of $250,000 against it. Suddenly, the market value of the property depreciated to $200,000. The homeowner decided to sell the property to avoid foreclosure. So, the lender allowed the buyer to assume, or take over, the loan at the reduced current market value of $200,000. The $50,000 principal reduction, in many instances, may be a loss the lender absorbs and the borrower may not have to pay. However, regarding the possible financial drawbacks of a principal reduction in your particular situation, check with your tax preparer about income taxes and your attorney about deficiency judgments. (See Tax Consequences of Foreclosure, page 1-24, and Deficiency Judgments, page 1-21.)

CALIFORNIA REGIONAL DVA OFFICES: Oakland.................1-510-637-1325 Los Angeles............1-310-827-1000 San Diego..............1-619-297-8220 National.................1-800-827-1000 makes payments to the buyer who, in turn, forwards the payment to the lender. Often an A.I.T.D. is used to do this. However, if the lender ever finds out, the lender may call the loan, which usually causes the buyer to have to get a new loan after all. See Liability Transfer Modifications on page 7-11 for more on liability transfers. A LENDER SHORT PAY A lender short pay is when the lender agrees to reduce the loan amount on a property to its current depreciated market value in order to help it sell. A short pay provides a way to make an overpriced property easier to sell during down cycles in the real estate market. (See page 11-2, Economic Cycles Affect Real Estate Prices.) Why would a lender do this? The alternative would be to complete a foreclosure and then to resell the property at the reduced market price anyway. This process can be expensive. By helping the homeowner make the sale with a short pay, the lender avoids the cost and hassle of foreclosing, maintaining and reselling the property. An additional benefit to the lender is that the homeowner usually helps find the buyer and maintains the property until the buyer moves in. Notice the similarity between a short pay and a note modification. (See Note Modifications on pages 7-8 through 7-11, especially Decreasing The Principal Amount on Page 7-10). The main difference is with the borrowers. In a short pay a new borrower takes over

the reduced loan. In a note modification, the existing borrower keeps the property but makes reduced payments on a reduced principal amount (or interest rate, or other adjustment). If you want to keep the property and can make the new reduced principal payments, then consider a note modification before losing the property in a short pay. You may have to explain the short pay concept to most private party lenders, such as the seller carrybacks mentioned on page 11-13. Photocopy this section, if necessary to convince your private party lender to participate in a short pay. On the otherhand, most commercial lenders not only are aware of short pays, but may even have a specific department for handling them. Not every lender refers to this principal reduction as a short pay. Different lenders use different names, such as loss management, short sale, loan adjustment, compromise sale, loss mitigation, workout or asset management and recovery. Whatever your lender calls a short pay, generally, it is in a separate department than is the foreclosure or bankruptcy departments. When you decide to sell and need the lender to reduce the principal to a depreciated current market price, call your lender and ask for a short pay. If the receptionist does not understand what a short pay is, use some of the synonymous terms mentioned in the previous paragraph. If the receptionist still does not comprehend a short pay, call back and ask for a supervisor or manager. Climb the chain of command all the way to the top, if necessary, to find someone who can give you a short pay. Some lenders may send you a package of forms to fill out, and others may prefer to speak to you in a telephone conversation only. The evaluation process may take from 14-45 days. Some of the things you may be expected to pro-vide before your

lender will consider a short pay include: 1. Hardship Explanation and Remedy Proposal A written explanation of the specific circumstances leading to your financial hardship and the exact terms you seek. (See example, page 11-57; for additional help see the Write-It-Out Exercises on pages 16-1, 16-22 and 16-23.)

2. Financial Disclosure - In order to properly analyze your current financial situation, you will be asked to provide information similar to that requested in the forms in option chapter 1. (See example, page 11-58; for additional help see pages 5-1 through 5-26.). 3. Past 2 Months Statements/Pay Stubs. 4. Past 2 Years Tax Returns. 5. Two Estimates of the Property's Fair Market Value - One may come from the listing agent, but the other must be from a broker not associated with the purchase contract. (See the Broker Appraisal example on page 11-59.) 6. Purchase Contract - This is the offer from the buyer to purchase your property. It may include any of the home purchase contracts mentioned in this chapter and listed on page 11-1. (See an example of a purchase offer on page 11-54.) 7. Buyer's Proof of Ability to Purchase - This usually means a completed loan application, or other financial information, from the buyer. 8. Estimate of the Net Proceeds from the Sale - This calculates the money left over after deducting the costs of the sale from the sales price. Usually, this must show no proceeds being paid to the seller or the seller's costs. (See more on calculating net proceeds on page 11-60, Net Proceeds Estimate, and page 16-57, Item 1.) 9. Seller's Authorization - If a real estate broker, mortgage foreclosure consultant (see page 18-1) or other party negotiates for the seller, then they must have a signed letter of authorization from the seller. (See example, page 11-61.) Bank

10. Processing Fee - Depending on the lender, a fee may be charged to process the short pay. Ask the lender to waive this fee.

OPENING AN ESCROW Upon making a deal with a buyer, the safest way to process it is through an escrow company. The escrow company is licensed by the state of California and acts as an impartial third party who processes the legal ramifications of a real estate transaction. In effect, an escrow officer restates the terms of the purchase agreement in a set of escrow instructions which the escrow company must fulfill before the escrow can close and the property title can change hands. Remember, escrow companies only have the authority to do what you instruct them to do, so instruct them correctly. Fortunately, most escrow companies will ask for the important facts they need to know in order to be properly instructed. However the escrow company cannot give legal advice, nor do they appreciate the buyer and seller negotiating the major details of their deal while opening the escrow. So before meeting with the escrow company, work out the details of the deal and then write up the terms of the deal in a purchase contract. While opening an escrow can be as easy as phoning in the significant terms of the purchase contract to the escrow officer, it is highly recommended that both the buyer and seller, along with any involved real estate agents, be present when escrow is opened in order to correct any mistakes or

misunderstandings before they become part of the original escrow instructions. If necessary, do a teleconference in order to participate in opening the escrow. If real estate agents are involved with the sale, they may want to open the escrow themselves, but insist on participating in the opening as well as in all phases of the escrow. Nearly all mistakes in the escrow instructions can only be corrected through an amendment. And Once an escrow is opened, the buyer and seller usually can rest assured that the transaction will be processed properly and accurately. While escrows can be trusted, take time to double-check the paperwork, especially the numbers. Don't hesitate to question every vague area or incorrect data. Do not sign the set of escrow instructions until you are satisfied that it represents the agreement as you understand it. If you have any doubts, let your attorney and/or accountant recheck the escrow papers, including the instructions, preliminary title report and trial settlement sheet. While checking for errors, keep in mind that an escrow requires teamwork in order to progress smoothly. Always offer the escrow officer your complete cooperation and availability to help. Since the constant processing of numbers and paperwork can be wearing on your escrow officer, your pleasantness, understanding and appreciation will not only be highly regarded, but also may be returned to you in terms of good and speedy work. In addition, it helps to tell the escrow officer that you plan to become a return customer as well as recommend the company to your friends and associates. Generally, once escrow instructions are drawn up, the escrow officer begins completing the instructions whether or not the instructions have been signed. Escrows with signed instructions are difficult to stop. However, escrows without

amendments are hassles which may involve further negotiations or disagreements and/or rushing around at the last minute for additional sets of signatures from both the buyer and seller. Although the need for amendments may naturally occur throughout the duration of any escrow, taking the time to begin an escrow with correct instructions can make the difference between a bearable escrow and a nightmarish escrow. signed instructions usually cannot close, even if all of the instructions have been completed. In fact, some regular real estate investors do not consider a deal binding until all parties have signed the escrow instructions. They refrain from signing escrow instructions as a ploy to tie up a property long enough to finish their research on it. If they discover the property is not profitable enough, then they cancel the escrow and the deal. So, in order to protect against losing precious time to a fickle buyer, make the deal contingent on the buyer signing the escrow instructions within 3 to 5 days, or you have the "option" to cancel the deal. Real estate and escrow people may say that an average escrow takes 60 days to complete. If the closing of your escrow is contingent on the closing of 1 of more other escrows (such as in cases where the buyer needs to sell a property for the funds to buy yours, and/or you need to buy a new house with the proceeds of your sale), then the possibilities for a delay increases. However, in a foreclosure situation, many times the escrow may need to close much quicker. Escrows can take only 10 to 14 days if the buyer, seller and escrow officer endeavor to cooperate and if no irregularities exist.

Always bargain for a shorter escrow period than you anticipate since escrows usually take longer than expected. If you need it to close in 1 month, set it at 2 weeks, to close in 45 days, set it at a month, and so on. Then, let the escrow officer know from the onset that you want to keep up on the progress of the escrow. Frequent, friendly calls for an update may help keep your escrow moving steadily along as the squeaky wheel often gets the oil in escrows. And as your original closing date approaches or passes, the escrow officer should do everything possible to speed up the closing date. The recommended escrow process for the seller in foreclosure is: 1. After writing up a purchase contract, all parties meet with the escrow officer to draw up escrow instructions. 2. Escrow instructions are sent to the buyers and sellers for signatures (this step may take place later in some 6. Review the loan documents. If a new loan is involved, then the escrow officer must order the loan documents to coincide with the closing of escrow. 7. The settlement statement is the final accounting of the charges owed by both the buyer and the seller. Ask for a copy and review it for errors. See page 11-62 for an example of an escrow settlement statement. 8. The closing escrow documents are signed by the buyer and seller. Buyer's might need to sign: escrow instructions (if not yet signed), addendums, the lender's note and deed of trust, preliminary title report, termite report, settlement sheet, saleleaseback agreement, etc. The seller might need to sign many of the items signed by the buyer, plus a grant deed and a IRS tax form, etc.

regions of California). Make immediate signing of escrow instructions a contingency of the deal. 3. The deposit money is held by the escrow company and can be placed in an interest bearing account if the buyer so requests and the seller does not object. Receipts and copies of checks should be issued to both buyer and seller. 4. A preliminary title report should be distributed to the buyer and seller within 5 days of opening escrow for approval. This report outlines the condition of title, including any encumbrances, as well as the terms under which the title company will issue title insurance. 5. Review the various components as necessary: Addendums, vesting, payoff demands, beneficiary statements, homeowner's insurance, termite report, etc. The seller will need to instruct the escrow officer where to send the proceeds. FINDING A NEW PLACE TO LIVE Unless you have arranged to remain living in the house after the close of escrow, you will need to begin making arrangements for a new place to live as soon as escrow looks like it is going to close. Some of the possibilities are: 1. Buy a less expensive house with any proceeds. (Research areas with affordable housing and list them on pages 11-29 and 11-30.) 2. Move in with a friend or family member. 3. Rent a room or an apartment.

Consult with a local real estate agent to determine more affordable areas in which to buy a less expensive home. Living with a friend or family member may help you consolidate and rebuild your finances. Renting a room or trading rent for work is another possibility. Finding a work-for-rent trade can be as easy as placing an ad in the newspaper classifieds such as, "Handyman seeks room, will work in exchange for rent."

LIST OF AFFORDABLE AREAS INSIDE CALIFORNIA

LIST OF AFFORDABLE AREAS OUTSIDE CALIFORNIA

Disclosure Statement Form The following disclosures are required by law when transferring residential real estate, and, the following disclosure form, shall be made a part of the transaction (exempted transfers include deeds-in-lieu-offoreclosure and other court/government ordered foreclosure sales): REAL ESTATE TRANSFER DISCLOSURE STATEMENT THIS DISCLOSURE STATEMENT CONCERNS THE REAL PROPERTY SITUATED IN THE CITY OF , COUNTY OF , STATE OF CALIFORNIA, DESCRIBED AS . THIS STATEMENT IS A DISCLOSURE OF THE CONDITION OF THE ABOVE DESCRIBED PROPERTY IN COMPLIANCE WITH SECTION 1102 OF THE CIVIL CODE AS OF , 19 . IT IS NOT A WARRANTY OF ANY KIND BY THE SELLER(S) OR ANY AGENT(S) REPRESENTING ANY PRINCIPAL(S) IN THIS TRANSACTION, AND IS NOT A SUBSTITUTE FOR ANY INSPECTIONS OR WARRANTIES THE PRINCIPAL(S) MAY WISH TO OBTAIN. I COORDINATION WITH OTHER DISCLOSURE FORMS This Real Estate Transfer Disclosure Statement is made pursuant to Section 1102 of the Civil Code. Other statutes require disclosures, depending upon the details of the particular real estate transaction (for example: special study zone and purchase-money liens on residential property). Substituted Disclosures: The following disclosures have or will be made in connection with this real estate transfer, and are intended to satisfy the disclosure obligations on this form, where the subject matter is the same: (list all substituted disclosure forms to be used in connection with this transaction) II SELLERS INFORMATION The Seller discloses the following information with the knowledge that even though this is not a warranty, prospective Buyers may rely on this information in deciding whether and on what terms to purchase the subject property. Seller hereby authorizes any agent(s) representing any principal(s) in this transaction to provide a copy of this statement to any person or entity in connection with any actual or anticipated sale of the property. THE FOLLOWING ARE REPRESENTATIONS MADE BY THE SELLER(S) AND ARE NOT THE REPRESENTATIONS OF THE AGENT(S), IF ANY. THIS INFORMATION IS A DISCLOSURE AND IS NOT INTENDED TO BE PART OF ANY CONTRACT BETWEEN THE BUYER AND SELLER.

Seller _ is _ is not occupying the property. A. The subject property has the items checked below (read across):
_ Range _ Dishwasher Disposal _ Washer/Dryer Hookups _ Burglar Alarms Fire Alarm _ T.V. Antenna _ Central Heating Evaporator Cooler(s) _ Wall/Window System Air Cndtng. _ Septic Tank Softener _ Patio/Decking _ Sauna Hot Tub _ Security Gate(s) Number Remote Garage: _ Attached Pool/Spa Heater: _ Gas Water Heater: _ Gas Utility or Water Supply: _ City Gas Supply: _ Utility Exhaust Fan(s) in Gas Starter Age: (approx.) Other: _ Oven _ Trash Compactor _ Window Screens _ Smoke Detector(s) _ Satellite Dish _ Central Air Cndtng. _ Sprinklers _ Sump Pump _ Built-in Barbecue _ Pool _ Garage Door Opener(s) _ Not Attached _ Solar _ Microwave _ Garbage _ Rain Gutters _ _ Intercom _ _ Public Sewer _ Water

_ Gazebo _ Spa_ _

Controls _ Carport _ Electric _ Private Other

_ Well _ Bottled 220 Volt Wiring in Roof(s): Type:

Fireplace(s) in

Are there, to the best of your (Seller's) knowledge, any of the above that are not in operating condition? _ Yes _ No. If yes, then describe. (Attach additional sheets if necessary.): . B. Are you (Seller) aware of any significant defects/malfunctions in any of the following? _ Yes _ No. If yes, check appropriate space(s) below. _ _ _ _ Interior Walls _ Ceilings Insulation _ Roof(s) Slab(s) _ Driveways Electrical Systems _ Floors _ Exterior Walls _ Windows _ Doors _ Foundation _ Sidewalks _ Walls/Fences _ Plumbing/Sewers/Septics _ Other

Structural Components (Describe:

If any of the above is checked, explain. (Attach additional sheets if necessary):

C. Are you (Seller) aware of any of the following: 1. Substances, materials, or products which may be an environmental hazard such as, but not limited to, asbestos, formaldehyde, radon gas, lead-based paint, fuel or chemical storage tanks, and contaminated soil or water on the subject property ....

_ Yes _ No

2.

Features of the property shared in common with adjoining landowners, such as walls, fences, and driveways, whose use or responsibility for maintenance may have an effect on the subject property _ Yes _ No

3. Any encroachments, easements or similar matters that may affect your interest in the subject property........................................... _ Yes _ No 4. Room additions, structural modifications, or other alterations or repairs made without necessary permits ............................................ _ Yes _ No

5. Room additions, structural modifications, or other alterations or repairs not in compliance with building codes ..................................... _ Yes _ No 6. Landfill (compacted or otherwise) on the property or any portion thereof ............................. _ Yes _ No

7. Any settling from any cause, or slippage, sliding, or other soil problems ............................ _ Yes _ No 8. 9. Flooding, drainage or grading problems .......... Major damage to the property or any of the structures from fire, earthquake, floods, or landslides ...................................... _ Yes _ No

_ Yes _ No _ Yes _ No _ Yes

10. Any zoning violations, nonconforming uses, violattion of "setback" requirements ................... 11. Neighborhood noise problems or other nuisances No

12. CC&R's or other deed restrictions or obligations No 13. Homeowners' Association which has any authority over the subject property ...................... 14. Any "common area" (facilities such as pools, tennis courts, walkways, or other areas co-owned in undivided interest with others) .................

Yes

_ Yes _ No

_ Yes _ No

15. Any notices of abatement or citations against the property ............................................ _ Yes _ No 16. Any lawsuits against the seller threatening to or affecting this real property ........................ _ Yes _ No

If the answer to any of these is yes explain. (Attach additional sheets if necessary.): Seller certifies that the information herein is true and correct to the best of the Seller's knowledge as of the date signed by the Seller. Seller Seller Date Date

III AGENTS INSPECTION DISCLOSURE (To be completed only if the seller is represented by an agent in this transaction.) THE UNDERSIGNED, BASED ON THE ABOVE INQUIRY OF THE SELLER(S) AS TO THE CONDITION OF THE PROPERTY AND BASED ON A REASONABLY COMPETENT AND DILIGENT VISUAL INSPECTION OF THE ACCESSIBLE AREAS OF THE PROPERTY IN CONJUNCTION WITH THAT INQUIRY, STATES THE FOLLOWING: Agent (Broker Representing Seller)
(Please Print) or Broker-Signature)

By
(Associate Licensee

Date

IV AGENTS INSPECTION DISCLOSURE (To be completed only if the agent who has obtained the offer is other than the agent above.)

THE UNDERSIGNED, BASED ON A REASONABLY COMPETENT AND DILIGENT VISUAL INSPECTION OF THE ACCESSIBLE AREAS OF THE PROPERTY, STATES THE FOLLOWING: Agent (Broker obtaining the Offer)
(Please Print) or Broker-Signature)

By
(Associate Licensee

Date

V BUYER(S) AND SELLER(S) MAY WISH TO OBTAIN PROFESSIONAL ADVICE AND/OR INSPECTIONS OF THE PROPERTY AND TO PROVIDE FOR APPROPRIATE PROVISIONS IN A CONTRACT BETWEEN BUYER AND SELLER(S) WITH RESPECT TO ANY ADVICE/INSPECTIONS/DEFECTS. I/WE ACKNOWLEDGE RECEIPT OF A COPY OF THIS STATEMENT. Seller Seller Agent (Broker Representing Seller) Agent (Broker obtaining the Offer)
(Associate Licensee or Broker-Signature)

Date Date

Buyer Buyer By

Date Date Date

(Associate Licensee or Broker-Signature)

By

Date

A REAL ESTATE BROKER IS QUALIFIED TO ADVISE ON REAL ESTATE IF YOU DESIRE LEGAL ADVICE, CONSULT YOUR ATTORNEY.

LOCAL OPTION REAL ESTATE TRANSFER DISCLOSURE STATEMENT THIS DISCLOSURE STATEMENT CONCERNS THE REAL PROPERTY SITUATED IN THE CITY OF , COUNTY OF , STATE OF CALIFORNIA, DESCRIBED AS

. THIS STATEMENT IS A DISCLOSURE OF THE CONDITION OF THE ABOVE DESCRIBED PROPERTY INCOMPLIANCE WITH ORDINANCE NO. OF THE CITY OR COUNTY CODE AS OF , 19 . IT IS NOT A WARRANTY OF ANY KIND BY THE SELLER(S) OR ANY AGENT(S) REPRESENTING ANY PRINCIPAL(S) IN THIS TRANSACTION, AND IS NOT A SUBSTITUTE FOR ANY INSPECTIONS OR WARRANTIES THE PRINCIPAL(S) MAY WISH TO OBTAIN. I SELLERS INFORMATION The Seller discloses the following information with the knowledge that even though this is not a warranty, prospective Buyers may rely on this information in deciding whether and on what terms to purchase the subject property. Seller hereby authorizes any agent(s) representing any principal(s) in this transaction to provide a copy of this statement to any person or entity in connection with any actual or anticipated sale of the property. THE FOLLOWING ARE REPRESENTATIONS MADE BY THE SELLER(S) AS REQUIRED BY THE CITY OR COUNTY OF . AND ARE NOT THE REPRESENTATIONS OF THE AGENT(S), IF ANY, THIS INFORMATION IS A DISCLOSURE AND IS NOT INTENDED TO BE PART OF ANY CONTRACT BETWEEN THE BUYER AND SELLER. 1. 2. (Example: Adjacent land is zoned for timber production which may be subject to harvest.) Seller certifies that the information herein is true and correct to the best of the Seller's knowledge as of the date signed by the Seller. Seller Seller Date Date

II BUYER(S) AND SELLER(S) MAY WISH TO OBTAIN PROFESSIONAL ADVICE AND/OR INSPECTIONS OF THE PROPERTY AND TO PROVIDE FOR APPROPRIATE PROVISIONS IN A CONTRACT BETWEEN BUYER AND SELLER(S) WITH RESPECT TO ANY ADVICE/INSPECTIONS/DEFECTS. I/WE ACKNOWLEDGE RECEIPT OF A COPY OF THIS STATEMENT. Seller Date Buyer Date

Seller Agent (Broker Representing Seller) Agent (Broker Obtaining the Offer)

Date

Buyer By

Date Date

(Associate Licensee or Broker-Signature)

By
(Associate Licensee or Broker-Signature)

Date

A REAL ESTATE BROKER IS QUALIFIED TO ADVISE ON REAL ESTATE IF YOU DESIRE LEGAL ADVICE, CONSULT YOUR ATTORNEY. (c) This section does not preclude the use of addenda to the form specified in subdivision (b) to facilitate the required disclosures. This section does not preclude a city or county from using the disclosure form specified in subdivision (b) for a purpose other than that specified in this section.

EXCLUSIVE RIGHT TO SELL LISTING - F.T. form 102

RESIDENTIAL LEASE AGREEMENT - F.T. form 550

One Party Showing


On this I/we, as the owner of , in the city of in the state of , California, hereby real property , in the county of enters into an agreement located at: , with day of , in the year of ,

, hereafter referred to

who is a California licensed real estate agent/broker doing business under the following name/address: , in the city of in the state , in the county of ,

of California, to show the above mentioned property to the prospective buyer(s) by the name(s) of: . The sole purpose of this agreement is to acknowledge, encourage and protect the efforts of the agent/brokers mentioned above when showing the property solely to the prospective buyer(s) mentioned above. This agreement is limited only to the prospective buyer(s) and agent/broker mentioned above, and, in no way shall supersede, interrupt, or otherwise interfere with any other prospective buyer(s), or efforts to sell the property by the owner or other authorized agents. If, as a result of the agent/broker's efforts in showing this property, the above prospective buyer makes a bona fide offer to the owner to purchase

11-54

the property, and if the owner accepts the offer, and if the agent/broker actively participates in the successful completion of a lawful sale transaction and legal transfer of title to the buyer mentioned above, only then shall the owner compensate the agent/broker for services rendered with a sales commission of: % ( transferred. AGREED Agent/Broker AGREED Agent/Broker DATE: DATE: AGREED Owner percent), payable after title to the property is AGREED Owner

11-55

(Using your own facts and details, design a flyer similar to this one on a typewriter or computer at home or at a full-service copy/print shop. Make photocopies to give to prospective buyers.)

OVER THIS BOX, AFFIX A FRONT VIEW PHOTO OF YOUR HOUSE.

Priced For A Quick Sale!


1234 Any Street, Anytown, California 3 Bedrooms 1.5 Bathrooms New interior paint
11-56

Covered Patio Quiet street New roof New plumbing Priced under market! Seller motivated/will consider every offer!!

ONLY: $214,000
CALL ANYTIME AT: 714-000-1234

At this price it won't last long Submit Your Offer Now!

11-57

(For immediate use, either type or write in your own facts and details in the blanks below. Make photocopies to give to prospective buyers.)

OVER THIS BOX, AFFIX A FRONT VIEW PHOTO OF YOUR HOUSE.

Priced For A Quick Sale!


Address: Bedrooms Bathrooms

11-58

Priced under market! Seller motivated/will consider every offer!!

ONLY: $
CALL ANYTIME AT:

At this price it won't last long Submit Your Offer Now!

11-59

60

How To Fight Foreclosure And Win With Honor


REQUEST FOR N.O.D AND N.O.DELINQUENCY - F.T. form 412

How To Win By Selling Your Property


A.I.T.D. - F.T. form 421

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How To Fight Foreclosure And Win With Honor


A.I.T.D Addendum - Full Payoff - F.T. form 443

How To Win By Selling Your Property


TRADITIONAL LEASE-OPTION (contract for Deed), F.T. form 163

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How To Fight Foreclosure And Win With Honor


TRADITIONAL LEASE-OPTION (contract for Deed), F.T. form 163, page 2

How To Win By Selling Your Property

65

LEASE-OPTION FINANCIAL DISCLOSURE STATEMENT, F.T. form 309

66

How To Fight Foreclosure And Win With Honor


STANDARD OPTION TO PURCHASE - F.T. form 161

How To Win By Selling Your Property


EQUITY PURCHASE AGREEMENT, page 1 - F.T. form 156

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How To Fight Foreclosure And Win With Honor


EQUITY PURCHASE AGREEMENT, page 2 - F.T. form 156

How To Win By Selling Your Property


EQUITY SHARING ADDENDUM - F.T. form 265

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How To Fight Foreclosure And Win With Honor


SELLER CARRYBACK DISCLOSURE - F.T. form 300

How To Win By Selling Your Property


PURCHASE OFFER - F.T. form 150

71

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How To Fight Foreclosure And Win With Honor


PURCHASE OFFER, Page 2 - F.T. form 150

How To Win By Selling Your Property


COUNTER OFFER - F.T. form 180

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How To Fight Foreclosure And Win With Honor


HARDSHIP EXPLANATION AND REMEDY PROPOSAL

DATE

Foreclosure/Workout Department Attention: Mr./Mrs. (WHOEVER YOU SPOKE TO ON THE TELEPHONE) (ADDRESS AND NAME OF LENDING INSTITUTION) Regarding Loan # Dear Mr./Mrs. :

This is in regards to the property located at (ADDRESS, TOWN, STATE, ZIP AND LOAN NUMBER) on which I/we have received a notice of default. The purpose of this letter is to explain the nature of our hardship and the remedy I/we seek. The nature of my/our hardship is as follows (EXPLAIN THE DETAILS OF THE EVENTS WHICH LED TO YOUR DEFAULT). The remedy I/we seek is as follows (ASK FOR A SHORT PAY, A NOTE MODIFICATION OR OTHER REMEDY). A reduction of principal from to A reduction of the interest rate from to . Other modifications include: This solution may be the best for you as well. It seems that your alternative would be to complete the foreclosure only to end up with the costly burden of reselling the property. My/our proposal eliminates that cost of time and money for you. My/our interest and commitment to the property had been demonstrated prior to our hardship. With your help and understanding, I/we hope to keep the property as My/our home. Thank you very much for your time and consideration. Sincerely, Mr./Mrs. Homeowner

FINANCIAL DISCLOSURE
The information you provide below will remain confidential. You must give us complete information to evaluate your request. Loan # Property Address Employer Name Employer Address Number of Children and Ages NET MONTHLY INCOME Base Income: Overtime: Bonuses: Commissions: Rental: Other: TOTAL INCOME: MONTHLY EXPENSES First Mortgage: Second Mortgage: Mortgagee Name: Third Mortgage: Mortgagee Name: Homeowners Dues: Food: Utilities: ASSETS Checking Accts: Saving Accts: Real Estate: Automobiles: Personal Property: Automobiles: Homeowner's Insurance: Automobile Insurance: Credit Cards: Bank Loans: Total Other Expenses: PAYMENT BALANCE Name Telephone #

Life Ins. Cash Value: Total Other Assets: TOTAL ASSETS:

TOTAL EXPENSES: LISTING AGENT: LISTING PRICE:

Borrower Signature Signature Date

Date

Lender

Representative

BROKER APPRAISAL (Broker Price Opinion)

ESTIMATE OF THE NET PROCEEDS (To be completed by the seller or the listing agent) Borrower/Seller: Sales Price (see Purchase Agreement): 1st Loan Balance: 2nd Loan Balance: 3rd Loan Balance: Real Estate Commission: Foreclosure Fees and Costs: Property Taxes: Homeowner's Association Dues: Termites/Repairs/Improvements (see itemized list): Home Protection Plan: Appraisal Fee: Document Preparation Fee: Demand and Reconveyance Fees Title Policy: IRS 1099 Preparation: Cal-F.I.R.P.T.A. Deduction: Escrow Fee: Documentary Transfer Tax: Recording Fee: Prorations: Other Costs: TOTAL COSTS (Subtracted from the Sales Price): NET PROCEEDS TO THE LENDER: Agent Signature Real Estate Broker/Agent Company $ $ $ $ Date Address -$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Property Address: $

Seller's Authorization To Negotiate

DATE

Foreclosure/Workout Department Attention: Mr./Mrs. (WHOEVER YOU SPOKE TO ON THE TELEPHONE) (ADDRESS AND NAME OF LENDING INSTITUTION) Regarding Loan # Dear Mr./Mrs. :

Pursuant to my conversation with (LENDER REPRESENTATIVE) , I/we (BOR ROWER'S NAME[S]) , hereby authorize (BORROWER'S REPRESENTATIVE) , to discuss the status of my loan and to negotiate on my behalf. Thank you very much for your time and consideration. Please call me at if you have any questions.

Sincerely,

Mr./Mrs. Homebuyer

ESCROW CLOSING STATEMENT

HOW TO WIN BY GIVING AWAY YOUR PROPERTY


When your property has no equity, and when you no longer want it but can't find a buyer, you may still be able to keep the foreclosure off your record by giving your property away. Two possible recipients may be your lender, or a private party who is willing to take over the loan and back expenses. The giveaway is usually accomplished by giving the private party a quitclaim deed, or by giving the lender either a quitclaim deed, or a deed-in-lieu of foreclosure. Actually, a deed-in-lieu of foreclosure can be a quitclaim deed with the words "deed-in-lieu of foreclosure" written across it. For that matter, a grant deed, or any other valid deed that transfers a fee title, with the words "deedin-lieu of foreclosure" or "quitclaim deed" written across it will also do the job. Any 1 of the 3 will work. 12-1 A quitclaim deed, as well as a deed-in-lieu of foreclosure, conveys the homeowner's title, interest or any claim in a property. The deed does not have to guarantee or warranty that the title is valid. However, the deed does have to be officially accepted by the party who is receiving it. And the new

owner must take over all the existing obligations that have been recorded against the property, unless otherwise arranged. So with a quitclaim deed, or deedin-lieu of foreclosure, the foreclosure pressure can come to an end in 1 quick move. Typically, the owner simply hands over the house keys and title (in the form of a quitclaim deed or deed-in-lieu of foreclosure), packs up and moves out on some preagreed-upon schedule. If none of the other remedies suggested in this book seem to work, then giving away the property may make the most sense, especially in cases where: 1. Little or no equity exists in the property, 2. The homeowner's interruption of income cannot recover enough to afford the monthly mortgage payments, and 3. No regular buyer can be found. The Advantages of the Quitclaim or Deed-in-lieu: 1. Minimize damage to your credit by keeping the foreclosure off your record. (If a NOD or NOTS has been filed, then, even though these may not show up on your credit report, you may be asked on a future credit application whether you have been in foreclosure. If so, then try explaining that you resolved the default before the property went to the foreclosure sale). 2. Eliminate further foreclosure costs for both the lender and borrower. 12-2

3. Avoid further foreclosure hassles. QUITCLAIM/DEED-IN-LIEU ADVANTAGES While a deed-in-lieu-of-foreclosure only deeds the property back to the foreclosing lender, a straight quitclaim deed could go to any qualified individual, including to a lender instead of using the deed-in-lieu-of-foreclosure form. A Straight Quitclaim Deed In a straight quitclaim deed situation you would try to choose someone who will work with you for the best overall effect on your financial and credit situation. For example, advertise or look around for someone who would take over the existing mortgage payments (see Assumption/Transfer of Loan on page 11-25, and Liability Transfer Modifications on page 7-11 for more on taking over existing mortgages) and other obligations on the property. A sample ad in the real estate section might include: Must sell ASAP. Make just a small down payment and take over payments. First come; first served. This approach could bring out the whole gambit, from savvy investors to novice buyers. Your main concern must be to negotiate to get the most benefits for you and your family, even though you may not have a lot of equity bargaining power. For example, you might want to use any down payment you may receive to pay your back payments and your moving expenses. Or you may try to negotiate a workout with

the lender (as suggested in Option chapter 3) in which all your back payments and foreclosure costs are woven back into your monthly payments. Then pass this onto the new owner. So, in effect, the new owner pays off the foreclosure costs and the down payment can pay your moving costs, plus be a reserve to pay some living expenses. On the other hand, your property may not have enough equity to warrant any down payment. A Deed-In-Lieu of Foreclosure A Deed-In-Lieu of Foreclosure is a variation on a quitclaim deed. The deed One benefit is that the deed-in-lieu of foreclosure arrangements leaves the borrowers' credit ratings intact. And both you and the lender will avoid the costs and legal hassles of a full-blown foreclosure. Nonetheless, begin negotiating for additional benefits such as the right to stay in the property for a while after the transaction, if that suits your needs. However, in cases where you have no equity and have contested the foreclosure with a lawsuit against the lender (see Option chapter 5), offer a deed-in-lieu of foreclosure as a compromise between the lender's foreclosure and your lawsuit. Dismiss the lawsuit if the lender agrees to let you remain in the property for a time equal to your equity divided by the fair market rent. Promise to keep the property in good condition, to leave as promised and to cooperate with any new owners to whom the property may be sold. Deeds Must Have Acceptance Since investors and other buyers who approach you or who answer your ad are interested in your property, they may be automatically open to accepting a quitclaim deed situation. However, the lender 12-3

goes directly to the foreclosing lender, and/or the county recorder. It will not save your house, but instead deeds the property back to the lender. In exchange, you should be relieved of all financial responsibility under the mortgage, including the back payments and foreclosure costs. Use this option only as a last resort when no other alternatives are available, when there is no equity in your property, no buyer to be found, and no other candidate for the quitclaim deed.

may not be. Not always do the lenders want a quitclaim deed, or a deed-in-lieu of foreclosure. Some prefer the non-judicial foreclosure since it clears away all junior liens. Other reasons for not accepting such a deed would be if the property has substantial problems, like toxic waste, extreme hillside, erosion/flood problems, etc. Nonetheless, in cases of lender unacceptance, you still can try recording the deed over to the lender at the County Recorder's Office anyway. Do this on the premise that since you can no longer make the payments as promised, then you are officially forfeiting the collateral as agreed in the purchase and trust deed contracts. But, the lender has the right to reject it. A forced deed may cloud the official title until acceptance or rejection occurs. Typically the lender will accept it unless the property has enormous problems. Also, the lender may retaliate with a negative report to your credit records. So, a negotiation for acceptance is clearly your safest procedure. The less the number of problems or juniors liens

on the property, the more the likelihood of acceptance. Whenever possible, before giving a deed in lieu always get from the lender in writing a promise not to, 1) report anything negative to your credit record and, 2) try to collect any deficiency from you. Consult a real estate attorney before executing a deed in lieu. An Example Of A Deed-In-Lieu Recently, a friend called. His story is a classic example of a preforeclosure situation that leads homeowners to quitclaim away their property. He bought a condo in a Los Angeles suburb in 1990 when condo prices in the area were at a peak. He put $10,000 down on a sales price of $100,000 and got a loan for $90,000 with payments of about $1,000 per month. Everything went well for about the first year. But, in the second year his financial troubles began. First, with the deepening of the recession, he lost his job and could not find another. Second, the prices of condos in his area slipped off the former peak prices by as much as 10%. Thus, his property was not worth the loan on it. He had no job prospects and used his unemployment income to eat and survive. After 4 months of making no payments, and with no job, he was faced After negotiating the terms of the deed with either the lender or the potential new owner, type up the appropriate deed with the correct information and sign it. A standard quitclaim deed form may be purchased from most stationary stores; however, a deed-in-lieu of foreclosure may not be readily available. Nonetheless, a standard quitclaim deed can be used as a deed-in-lieu-of-foreclosure, especially if you either print or type, "Deed-in-Lieu-of-Foreclosure" across the top of the quitclaim deed. Or, you may want to type up your own form by using 12-4

threatened foreclosure. With no job in sight, and no visible chance for the prices to appreciate within the next several years, he decided to let the house go. That is when he called me. Originally, he was just willing to ignore the entire problem until the property was foreclosed out from underneath him. At the point of foreclosure, he would be forced to move and his credit would be scarred. He rationalized that by that time he would have regained the $10,000 down-payment he originally paid in the form of several months of free rent. I suggested he save his credit while negotiating for the free rent by using either the quitclaim deed or deed-in-lieu. He went to work on a solution. Eventually, he gave his lender a deed-in-lieu of foreclosure. The lender let him stay until they had a chance to resell the property, which lasted nearly six months. The lender preferred to let him stay in the house to guard against vandalism. Also, an occupied house sells easier than an empty one. HOW TO FILE the information on page 12-5 and 12-6 as guidelines. In addition, your lender may be able to writeup or supply you with the appropriate form with some preferred language. After filling out the form, make a copy for your records and deliver the original to the lender or new owner. Next, either you, or a service you hire, should record the deed at the recorder's office in the county where the property is located. Although it is entirely okay

to just deliver the deed without recording it, recordation will make the transfer of title official and give constructive notice to the world that you have given up all rights as well as responsibilities to the property. HUD and DVA Deed-In-Lieu Programs Workout programs provided by HUD and DVA are expanded in Option Chapter 3, (see page 7-3). HUD and DVA may also be open to accepting a deed-in-lieu of foreclosure under certain circumstances. The HUD handbook (#4330.2 REV-1), Chapter 7, page 8, instructs the HUD foreclosure agent who intends to accept a deed-in-lieu to wait "the required 20 days before preparing and recording the deed. As part of its foreclosure processing, the foreclosure agent determines whether any other outstanding liens exist." As with all deeds in-lieu, no lender wants to accept a property that has other outstanding debts owed against it. The DVA, in its Loan Servicing Guide, gives specific guidelines for accepting a deed-in-lieu of foreclosure: "The DVA will consider a deed-in-lieu of foreclosure under the following circumstances: 1. The borrower's financial condition has deteriorated to a point where he/she is no longer able to make the loan payments and there is little likelihood that the borrower's financial condition will improve; 2. The borrower has been unable to sell the property after reasonable exposure to the market; 3. Title is acceptable - no intervening secondary liens."

If the above conditions exist, then the DVA may even suggest a deedin-lieu of foreclosure to the borrower. In any event, the acceptance of a voluntary deed-inlieu of foreclosure must have the prior approval of the DVA. They usually give their approval when there is a saving in time and money, and debt collection appears doubtful. Additionally, the DVA may

12-5

require from the borrower a signed financial statement and a letter requesting acceptance of a deed-in-lieu. The DVA should notify the borrower in writing that the deed is not considered accepted until the borrower surrenders the property, releases the DVA from further liability and the deed-in-lieu is recorded.

12-6

A STRAIGHT QUITCLAIM DEED

A DEED-IN-LIEU OF FORECLOSURE

THE ACTION PLAN SECTION

SUGGESTION 1: HOW TO ACT QUICKLY


Goal: Get started immediately and use your time wisely, according to a plan. "Many of the approximately 40,000 Californians who lost their homes through foreclosure...(in 1 year)...could have avoided that loss had they been informed about the process and the actions available to them," according to research commissioned by the California Department of Real Estate and prepared by The Real Estate and Land Use Institute of The California State University. I completely agree. Knowing your options is critical to saving your home. That is why I wrote this book. But, unfortunately, knowing your options may not be enough. There is 1 other thing that is crucial, if you want to save your home--You must act quickly! Who wants to admit they are in foreclosure? But avoiding action and delaying that phone call to the lender will only make your situation worse. You can not afford to wait. If you have not checked the foreclosure timeline (see page 18) and found out where you are, do it right now. If your foreclosure clock is ticking, you have no time to delay. You can not wait until the last minute. You must act quickly. This chapter will show some of the main reasons people do not act quickly enough and/or do not act quickly at all and

13-1

will give you some examples of how you can move more quickly. REASONS PEOPLE DO NOT ACT QUICKLY Denial. Few people want to be in foreclosure, and most don't want anyone to know they're having financing trouble. you to lose your home. Just like when you are riding a motorcycle and lean into the curve, by leaning into the situation rather than denying that it exists, you are putting momentum into saving your home. Procrastination is a sign of being in a state of denial. For example, you may have decided on option 3, working out a deal with your lender, but you put off calling. Try just picking up the phone and dialing instead of rationalizing and making good reasons for putting off that phone call. Fear is another major stumbling block that keeps us from taking the appropriate action quickly. Maybe you have heard that lenders are more willing to do workouts right now because they do not want to have to manage the property. What stops you from calling? Possibly you are afraid of rejection, afraid the lender will say no. Or maybe you feel the lender will think you are a fool, or somehow think badly of you. So you become paralyzed and do nothing. Perhaps you choose the bankruptcy option, but you do not call the bankruptcy lawyer. You just keep thinking about it. The problem could be you are afraid of failing. But there is no better way to fail than to do nothing. When fear is crippling you, try asking yourself, "What is the worse thing that could happen to me as a result of this action?" Write down your answers. And then ask yourself, "Is this real? Will this really happen. And if it does, what will 13-2

Unfortunately, one of the mechanisms many of us learn as children to cope with painful situations is to simply pretend these things are not happening to us. Sometimes this works for us without any serious consequences. But when it comes to foreclosure, denying the facts can cause happen to me as a result." Most likely, your fears are not real, only perceived. Now ask yourself, "What is the truth here? What good could really happen?" This kind of logical approach to an emotional situation can take the punch out of the fear and get you moving forward toward saving your home. Self-destruction is unfortunately another cause of people losing their homes. Problems such as divorce or alcoholism can put people into selfdestructive modes. For example, there was 1 couple that was in the process of getting a divorce. One of the spouses pretended they were paying the mortgage, but they were actually not paying at all. All of a sudden the other spouse discovered they were in foreclosure.

The first spouse just did not care. It was his way of getting back at his wife. He was angry and irrational. This may seem far-fetched. Unfortunately, it is also very common, especially during emotionally trying times such as a divorce. TIPS FOR MOVING QUICKLY Being in foreclosure is difficult for anyone. Do not sit around and beat yourself up for what you did or did not do to get into this situation. Be kind to yourself. Keep telling yourself you are worthy of owning a home and make a goal of putting constructive energy into saving your home. Take some action right now. If you see some of these blockages to acting quickly in yourself, do not despair. These blockages are very common, and there are some simple solutions. If the foreclosure clock is ticking for you, then write these 2 lines down and put them up on your bathroom mirror or in your wallet, or on your desk, or somewhere that will help you remember them all day long: This will help you develop a sense of urgency. 3. When dealing with others and/or agencies, you can expedite things by using Federal Express or picking up papers yourself. Do not wait for regular mail if your foreclosure clock is ticking. 4. Since being organized saves so much time, set up a folder for your important papers now. Each night make a list of everything you need to do, and, as soon as you get up in the morning start doing each item on your list. Do not let yourself get distracted. "Do It Now"

"Be Persistent" This will help you keep going and not give up. General Tips for Through the Options Working

1. Write down your goal. Then, make a list of the things you need to do to achieve this goal. Do each item in the order of greatest priority until all the items are completed. Make sure that your priorities are all leading to the same goal. If any are distracting or will waste time, eliminate them. 2. Many people aren't very organized. But organization can save you time. You can set up a simple organizational system simply by having a labeled folder into which you put all important papers and phone numbers relating to the foreclosure fighting option you have chosen. Next, you will find typical possibilities for moving quickly for each of the 8 options. While each option below explains a different tip for acting quickly, keep in mind that every tip may or may not be relevant to every option (depending on your situation). So be sure to read all the information in the following examples. Option 1:How to Win By Reorganizing Your Finances

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If you have decided this is the best option for you, then right now as you are reading this, pick up the phone and either call the CCCS office nearest your home or call a local bookstore and find out if they have a guidebook that will help you prepare a budget and debt management plan. If it is a weekend and CCCS is not open today, make a note and call first thing Monday morning. When you get hold of the CCCS counselor, tell them you are in foreclosure and need to see them immediately. If this counselor is really busy, ask for another counselor or ask for the supervisor. Just the fact that you are being so persistent may get you an earlier appointment. Option 2:How to Bankruptcy Win With

than a day to make a choice. Then no matter how hard it is, pick up the phone and make an appointment with that attorney. Once you get the momentum going, it gets easier and easier to overcome procrastination. Option 3:How to Win By Changing Your Mortgage Terms This is the option that is often most easy to put off. You are not sure what to say. Maybe you have been taught to believe that lenders do not make deals or that they will not consider changing the terms of your mortgage. Most of us are intimidated by official documents such as loan agreements. The best way to overcome this fear is to pick up the phone and call right now. Every time you procrastinate or run away from making this phone call, your self-esteem gets a knock and it is harder to call. Now 1 problem you may run into with this option is that the first person you talk to may not be helpful and, it is possible they may not know anything about how to negotiate a workout with you. So you have to be persistent. If you do not get anywhere with the first person you talk to ask for someone else--preferably someone higher up in the chain of command. who told us a different story. She explained all the appeals options and also told me that acceptance depends upon the individual evaluator. I talked with this counselor at length, maintained a good attitude and never mentioned the first counselor's opinion. And 2 weeks later,

If you have decided bankruptcy is the best choice for your situation, you probably need a bankruptcy attorney. Right now, turn to page 9-3 of this book for help finding an attorney. At this point, you may have a tendency to procrastinate. It takes a lot of guts to declare bankruptcy because it is so hard on our sense of self-esteem. But remember, the action you take now may save your home. Do not spend days thinking about which attorney to call. Pick up the phone and call 1 or 2 or 3. Talk with them long enough to determine which 1 you will be most comfortable with and/or which one seems most knowledgeable in areas particular to your situation. Once you have talked to 2 or 3 attorneys, depending upon where you are on the foreclosure timeline, you may have no more Here's an example. When my daughter was applying to a state college which had certain entrance requirements, we called the registration office to determine her eligibility. I was told by the person who answered that she did not qualify. My daughter was distraught, angry and frustrated. So I called another counselor 13-4

my daughter received an acceptance from this college. So, remember this analogy, make that call now and do not take no for an answer--BE PERSISTENT. And know rules can be bent depending on your attitude and the person with whom you talk. Option 4:How to Win By Refinancing Your Property If you have chosen option 4, then sit down right now and determine how much equity you have in your home by deducting the total amount of debt from the market value. The tricky thing here is to be realistic about the current market value. Unfortunately, during down cycles many people facing foreclosure would like to sell their house for what it might have been worth during up cycles. You can get a quick reading on the market value by calling a local real estate office and asking for "comps" of homes in your neighborhood that have recently been sold. When you call the real estate office, they can probably give you a good idea of what your house is worth. But it is best to check the comps for yourself. Again, you must stress to the agent that you need this information quickly and will come down and pick it up this afternoon or tomorrow morning. Do not take no for an answer. If this real estate office can not help you, call another. You have probably found several flyers from real estate agents on your door. Call 1 of them; they know your area. Next, call a credit bureau such as TRW, CBI or TU to get your credit report. This is where denial may creep in and cause you to procrastinate. If your credit is not good, do not pretend it is and try to get the wrong kind of loan. By facing the truth about your credit report, you can move forward much quicker, make the changes you need to make and 13-5

determine what kind of loan for which you are really qualified. Call right now, even before you read any further. Option 5:How to Win By Using the Legal System This option is the least likely to conjure up fear and denial because it does not involve a mistake that you have made, but 1 made by your lender. If you have chosen this option, your major stumbling block or reason to procrastinate is probably intimidation by legal documents. Consumers Loan Association reviews loan documents every day and has found that 47% of the Adjustable Rate Mortgage loans had errors. In addition, CLA claims 1 of the biggest problems they have in helping people discover these mistakes is convincing them that their bank documents are incorrect. Remember, although these documents could have been prepared by experienced people, they can still contain mistakes. You must overcome any intimidation you have of these loan documents, particularly if you have an adjustable rate mortgage. If your foreclosure clock is ticking, call CLA, an aggressive broker or an attorney who specializes in finding errors. You have little to lose. Keep in mind that statistics show that about 47% of the adjustable rate mortgage loans having mistakes. That gives you nearly a 50/50 chance that you have a case. Option 6:How to Win If You Are in the Military

If you are in the military, there are probably 3 reasons why you have not called your branch of the military's legal service office: 1) you didn't know about SSCRA, 2) you do not want others to know you are having financial problems, or 3) you may have a self-destructive impulse that is saying, "you do not deserve to own a home." The best way to Military service is known for having a lot of red tape which sometimes makes it difficult to find the office or information you need. Resist the impulse to drop the ball. (This is a self-destructive urge or just plain fear.) Tell the person who answers the phone that you want to stay on the line while they get the right number or until they can make an appointment for you. Do not wait for them to call you back. If they can not steer you in the right direction immediately or make an appointment for the next day or 2, tell them you will call them back at noon today or by 4 pm today. Let them know you mean it. And keep repeating the above affirmation. It will help you overcome the tendency to stop or procrastinate. Option 7:How to Win By Selling Your Property If you have chosen this option, you need to do some planning. Do not get so caught up in the planning and research you waste time. If there is a down real estate cycle, it may take time to sell your home without losing your equity. So, pick up the phone, call a real estate broker and make an appointment for tomorrow. Meanwhile, go through the action plan and the action guide and do your planning. Even if you are not through with your planning by the time of the appointment, at least you have got the ball rolling. I know a manager who uses planning as a way to delay doing jobs he does not 13-6

shift gears is to create a simple mental affirmation (see page 15-2 through 15-3) that says, "I deserve to own a home, and I am going to keep my home." Keep repeating this as you pick up the phone and find out where the nearest legal services office is. really want to do. For example, there was an employee who had some serious problems that needed to be dealt with. But this manager spent months planning and analyzing data rather than confronting the person. I am not saying you should not plan. It is important, particularly if you have decided to sell your home. But do not use planning as an excuse for inaction. Set a deadline for your planning and stick to it. Expedite things by sending documents Federal Express. Make a list of all the things you need to do in the evening. Then as soon as you get up in the morning, starting doing them. Do not let yourself get distracted. Option 8:How to Win By Giving Away Your Property This option is a tough choice to make, but it may be your best choice if none of the other options work for you. If you have decided to give your property away to minimize damage to your credit, then you will be coming face-to-face with denial and fear. No one wants to admit they have to give their home away to save their credit rating. But if you do

not face this reality, you may lose both your home and your credit rating. Start out right now by making a list of people to whom you might give your home. Then go pick up either a quitclaim deed or a deed-in-lieu of foreclosure. What's important is that you do this now. Have the paperwork sent to you Federal Express or go pick it up. Once you get the paperwork, you will again be facing the desire to procrastinate and to not face reality. Overcome this by calling the person or institution that you are giving your home to and make an appointment for today or tomorrow. Get that deed signed and recorded tomorrow.
7 HABITS PEOPLE1 OF HIGHLY SUCCESSFUL

Habit 1:Be proactive Being proactive does not mean merely taking initiative. It means that as human beings, we are responsible for our own lives. Our behavior is a function of our decisions, not our conditions. We can subordinate feelings to values. We have to take the initiative and the responsibility to make things happen. Covey says, "When people are 'reactive' rather than proactive, they simply respond. For example, if the weather is good, they feel good. If it is not, it affects their attitude and their performance. Proactive people, on the other hand, can carry their own weather with them. Whether it rains or shines makes no difference to them. They are value driven." As Eleanor Roosevelt observed, "No one can hurt you without your consent."

Successful people do not always start out that way. Sometimes they have experienced difficulties and even tragedies. Stephen Covey, author of The 7 Habits of Highly Effective People, studied people who've made an impact, as well as people who have been personally successful. Covey describes the habits he observed. _____________ 1 7 Habits of Highly Effective People, COPYRIGHT 1989 by Stephen R, Covey. Reprinted by permission of Simon & Schuster, Inc.. Habit 2:Begin with the End in Mind important, and that each day of your life contributes in a meaningful Covey explains habit #2 this way, way to the vision you have of your "Begin today with the image, picture or life as a whole." paradigm of the end of your life as your frame of reference or the criterion by To begin with the end in mind which everything else is examined. Each means to start with a clear part of your life--today's behavior, understanding of your destination. tomorrow's behavior, next week's It means to know where you are behavior, next month's behavior--can be going so that you better understand examined in the context of the whole, of where you are now and so that the what really matters most to you. By steps you take are always in the keeping that end clearly in mind, you can right direction. make certain that whatever you do on any particular day does not violate the Covey recommends visualizing criteria you have defined as supremely your own funeral. Standing there 13-7

watching and listening to what loved ones, a friend, a co-worker says about you. He says, "If you carefully consider what you wanted to be said of you in the funeral experience, you will find your definition of success. It may be very different from the definition you thought you had in mind. Perhaps fame, achievement, money or some of the other things we strive for are not even part of the right wall." Habit 3:Put First Things First Habit 3, putting first things first, is the physical creation. According to Covey, "It is the fulfillment, the actualization, the natural emergence of Habits 1 and 2. The first habit, being proactive, says, "You are the creator. You are in charge." It empowers you to make changes. The second habit, keeping your real goals in mind, is the mental creation. It is based on the ability to envision, to see the potential, to create with your mind what you cannot see with your eyes. Habit 3 makes it possible to carry out the program we created with the other habits. Covey writes, "In addition to selfawareness, imagination and conscience, it is the fourth human endowment-independent will--that really makes effective self-management possible. It is the ability to make decisions and choices and to act in accordance with them. It is the ability to act rather than be to be acted upon, to proactively carry out the program we have developed through the other 3 endowments." Habit 4:Think Win/Win Covey explains win/win this way: "Win/Win is a frame of mind and heart that constantly seeks mutual benefit in all human interactions. Win/Win means

that agreements or solutions are mutually beneficial, mutually satisfying. With a Win/Win solution, all parties feel good about the decision and feel committed to the action plan. Win/Win sees life as a cooperative, not a competitive arena.... Win/Win is based on the paradigm that there is plenty for everybody, that one person's success is not achieved at the expense or exclusion of the success of others. Win/Win is a belief in the Third Alternative. It is not your way or my way; it is a better way, a higher way." Habit 5:Seek First to Understand, Then to Be Understood Most people, when dealing with someone else's problems, have a tendency to rush in, to fix things up with good advice. But, unfortunately, all too often we fail to take the time to really understand or to diagnose the problem first. Covey says, "If I were to summarize in 1 sentence the single most important principle I have learned in the field of interpersonal relations, it would be this: Seek first to understand, then to be understood. This principle is the key to effective interpersonal communications." Habit 6:Synergize Covey says that synergy is the highest activity in all life--the true test and manifestation of all of the other habits put together.

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"What is synergy? Simply defined, it means that the whole is greater than the sum of its parts. ...Family life provides many opportunities to observe synergy. "The very way that a man and a woman bring a child into the world is synergistic. The essence of synergy is to value differences--to respect them, to build on strengths, to compensate for weaknesses." Covey says that when communication is synergistic, you are opening your mind and heart and expressions to new possibilities, new alternatives and new options. Habit 7:Sharpen the Saw This habit makes all other 6 possible. According to Covey, sharpening the saw, "is preserving and enhancing the greatest asset you have--you. It is renewing the four dimensions of your nature-- physical, spiritual, mental and social/emotional... Sharpen the saw basically means expressing all four motivations. It means exercising all 4 dimensions of our nature, regularly and consistently in wise and balanced ways." If we are to sharpen our saws, we must first be proactive. On a physical level, Covey recommends that we take care of our physical body. This means eating the right kinds of foods, getting sufficient rest and relaxation and exercising regularly. By renewing our spiritual dimension, according to Covey, we are providing leadership in our lives. He says, "The spiritual dimension is your core, your center, your commitment to your value systems.

It is a very private area of life and a supremely important 1. It draws upon the sources that inspire and uplift and tie you to the timeless truths of all humanity. And people do it very, very differently." Some do it through prayer, some through meditation, others through reading scriptures. For many people, unfortunately, most of their mental development and study comes through their formal education. According to Covey, "As soon as we leave the external discipline of school, many of us let our minds atrophy." It is important to continue our education, to be continually honing and expanding our minds. This could involve a classroom or systematic study program, but it may not. Reading good literature expands our minds. Writing in a journal is another. Covey says proactive people find many ways to expand their minds. Can you think of a few now? Renewing our social/emotional dimension may not take extra time as does exercise, but it does take practice. We must learn to listen empathetically to others, to hear what they are trying to say. We must also be able to clearly communicate our own thoughts and feelings. And, it is important we be committed to having a deep understanding of the other person's point of view and to searching for a solution that will make both people feel good. Covey says, "This may involve working together to produce third alternative solutions to our differences that we both recognize are better than the ones originally proposed by either person."

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Relating in this way takes work and practice, but it is worth it.

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SUGGESTION 2: HOW TO MAINTAIN A CLEAR AND CALM MIND


GOAL: It is very important to maintain a clear and calm mind. When threatened with the possible loss of your home, it is hard to stay calm and think clearly. Yet one of your best assets during this process is a calm, clear mind. This chapter outlines several easy-to-do techniques that can help you stay calm and clear when you need to the most. A decision about your home deserves clear thinking. BREATHING EXERCISES You have probably heard the old adage that advises: "When you are upset, take a deep breath." There is a lot of truth to this statement. Deep breathing does calm the mind. Breathing exercises can change 14-1 your life. As many people have discovered, taking a few minutes to do a breath practice can make the difference between anxiety and peace of mind--between a good decision and a bad one. The "breath" practices included here take just a few minutes and can be done any time during the day. If panic or stress is about to dominate you, try 1 or more of these yoga breathing practices. The following group of techniques can be very effective as you walk into the lender's office to negotiate or just as you receive a difficult letter or phone call.

When you do these practices, it is important you do not strain. Straining does not relieve stress. It actually adds more tension. These breathing techniques could be a major factor in helping you stay calm and healthy during foreclosure. However, before trying any of the breathing exercisInhale 3 short breaths through the nose and then exhale 3 short breaths through the nose. Do this at a rhythm that is comfortable for you, with each triple inhale and exhale taking approximately 1 to 2 seconds. You can do this triple inhale/exhale 1 to 3 times. It does not take much repetition for this practice to work. Be careful to not overdo breathing exercises. Any breath practice done to excess will exhaust you rather than calm you down. Hush Breath Inhale gently and slowly through your nose for a comfortable count (anywhere from 4 to 15 counts). Then exhale through your mouth, opening your mouth wide and making a "hahhhh" sound. Your exhale should be slow, gentle and twice as long as your inhalation. (If your inhalation count was 5, then your exhalation count would be 10.) Sit quietly with your eyes closed for a moment after doing the exercise. If you are having trouble making the exhalation twice as long, then shorten your inhalation, so the ratio comes out right. Begin by doing this breath 2 or 3 times. Then, after a week, if you are comfortable, you do 3 to 5 repetitions. Do not do more than 5 repetitions. The 10-10-10 Breath Inhale for a count of 10 (or any number from 5 to 10 that is comfortable), then hold your breath for the same count. Finally, exhale for the same count. This practice can be done once, twice or 3 times. (Doing this practice more than 3 14-2

es, show your doctor the book and get the doctor's permission first (particularly if you have health problems). The Triple Inhale/Exhale times can be a strain.) To get a good idea of how effective this technique is, try sitting quietly, close your eyes and check out what's going on in your mind for a minute or so. Then do the 10-10-10 breath 3 times. Then, sit quietly for another minute and see what's going on in your mind now. Is your mind more peaceful, calm, and clear? Belly Breathing The following yoga breathing practices were recommended in Prevention, a leading health magazine. They can be done at home in the morning to start your day off more calmly, in the evening to settle down after a hard day, or before you have to go out to an anxiety-filled appointment. They will help you to be generally more calm and clear thinking all day long. Learn to breathe from your diaphragm by lying on the floor with a book on your stomach. As you slowly and gently inhale, relax your chest, allowing the breath to fill the lowest portion of the lungs. The book will raise up, if you are doing it right. When you exhale, the book will be lower. Because most of us are taught to hold in our chest and suck in our stomachs when we inhale, this may feel awkward at first. However, it will become much more comfortable and natural with a little practice. (Do this practice 3 to 5 times.)

Counting Out - Once you have mastered this "belly breathing," sit upright in a chair and count your breaths. Mentally count "1" as you inhale, and mentally say "relax" as you exhale. Count "2" with your next breath, again saying "relax" as you breathe out. Continue this way up to a count of 10, then return back to 1 and begin again. You can do this practice 10 minutes a day, twice a day for a week. After practicing this exercise for at least a week and/or until you are completely comfortable with it, in the When we get stressed, we store tension in our bodies. And this tension prevents us from having peace of mind, being able to relax and--most important to someone facing foreclosure-- to think clearly. Some simple yoga stretching techniques can help you to quickly and easily release tension and shift into a more calm state of mind. These exercises can either be done at home when you have 10 or so minutes to yourself, or, if you are feeling stressed during the day, slip off into another room (even if it is the rest room) and take a minute to stretch away that tension. Try 1 now, and see if you feel any different! (Caution: Before trying any of the yoga postures or breathing exercises mentioned in this book, show your doctor the book and get permission first.) Whenever you do a posture, you are releasing tension. Just as you did not strain with the breath practices, you never strain doing postures because straining puts more tension into the body. You move slowly and consciously into the position until you feel a tense area. Then you just relax and hang there, allowing yourself to let go of tension rather than hold onto it. Hold the pose only as long as you are comfortable (30 to 60 seconds.) As you practice, you will probably feel tension release from your body. 14-3

second phase of this breathing exercise, mentally say "one" before the breath, and "relax" before the exhalation. After a week or more of practicing phase 2, start practicing at work, shopping and during those especially stressful situations during the day. (Be careful not to do breath or relaxation practices while driving a car or working power equipment, etc.) GENTLY STRETCH TENSION AWAY YOUR

Revitalizing Star Pose When life's stresses are intense, most of us feel "down" and are low on energy. If we can get our energy level up, as we did with the previously mentioned breath practices, we feel happier, healthier, calmer and are more able to think clearly under pressure. The star pose is an excellent way to bring your energy up, while calming your mind down. To do the star, stand in a spot where there is 3 to 4 feet of clear space around you in all directions. Stand with your legs apart 2 to 3 feet apart. Then extend your arms out at each side and slowly raise

them to shoulder level, with your palms facing up (as shown below). Relax and breath normally (but slowly) for 1 to 5 minutes. (If your arms are uncomfortable, lower them briefly and then raise them again.) Next, slowly and carefully lower your arms. After your arms are lowered, slowly bring your feet together. Make only 1 movement at a time. Stand there with arms at your sides and feet together with your eyes closed for a moment and enjoy the peace. The first time you do the "star," it is best to start with holding the position 1 to 3 minutes. Within the next week or 2, try to work your way up to 5 minutes. But again, remember to extend the time only if you are comfortable. If you feel any discomfort during or after this pose, stop immediately.

There is an alternate pose, called the "lying down star" that is also helpful in both calming the mind and energizing the body. To do the lying down star, start out lying on the floor with feet together and arms at your sides. Then slowly spread your legs until they are 2 to 3 feet apart. After that, raise your arms to shoulder height. Your hands are on the floor with the palms facing up. Lie there for 1 to 3 minutes in this position. Then, as with the upright star, first lower your arms slowly and gently. Finally, bring your feet back to a comfortable distance apart (6 to 18 inches) and rest with your eyes closed for a moment.

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Half Moon Posture This posture is affectionately called the "anti stress" pose by many who practice it regularly because it quickly releases tension in your body and helps to revitalize your adrenal glands. (The glands that get overworked when you are under pressure.) To do the half moon: Begin by standing with arms at your sides and feet together. Then move your feet a few inches apart. Now slowly raise your arms from the side, bringing them up above your head until your palms meet. Raise up on your Figure 1

toes, carefully stretch your spine, and then return your heels to the floor (Figure 1). Next, keeping your legs and hips straight, gently lean to your left, tilting from the waist only as far as comfortable (Figure 2). Pause in this position for about 30 to 45 seconds, relaxing and letting go of tension. Come back to an upright position. Release your hands and slowly lower your arms back to your sides. Close your eyes, stand as still as you can and pause briefly. Repeat this posture, this time bending to the right (Figure 2). You do not need to do this posture (or any of the postures described in this chapter) more than once a day. Figure 2

Triangle Posture Begin with feet together, arms at your sides. Move your legs apart so they are approximately 2 to 4 feet apart. Then bring your arms straight up at your sides similar to the star pose on page 14-3 except with your palms facing forward. Now, slowly and carefully arch back just a little and only for a moment (Figure 3). Next, bend forward from the hips gently twisting your body, allowing your left hand to touch your left foot without bending your knees. (If you can not reach your foot--and most people can not until they have been doing postures for a while and have released considerable amounts of tension--touch your knee or calf.) The opposite arm is stretched upward straight, above Figure 3

your head with your palm facing forward (Figure 4). At this point you may want to look down and see if your head is midway between your feet. If it is not, adjust yourself so you are centered. Then turn your head so you are gazing at the fingertips of the hand that is up in the air. Pause in this position for 30 to 60 seconds, breathing as needed. Remember, do not strain, and if you feel any discomfort, come out of the position. Next, slowly untwist, coming back to the upright position shown in Figure 3 below. Again gently arch backward and come forward. Bring your feet back together first and then consciously and slowly lower your arms to your sides. Close your eyes and pause. Repeat the posture, this time twisting to the right.

Figure 4

Head to the Knee Posture Begin this posture by sitting on the floor in a comfortable cross-legged position. Next, bring your left leg in so the heel of your foot is near the groin area while your right leg is extended (Figure 5). Place your hands on your thighs with your back straight. Begin to move forward, bringing your abdomen towards your thigh. Then slowly slide your hands down your legs until you can easily grasp your foot (Figure 6). If you are not able to reach your foot, just rest your hands at any point along your leg. Then, slowly drop your head towards your knee. Pause in this position for 30 to

60 seconds. Next, slowly slide your hands back up your leg coming back to an upright position. Pause briefly with your leg extended. Then bring your legs back into a crosslegged position and pause with eyes closed. Repeat the posture on the other side. The head to the knee is an excellent way to release all the tension that gets stored in our legs and spine when our "fight or flight" syndrome gets triggered. If you are doing these postures at home and you have the time, sit quietly for a few minutes after doing the postures and check out your mind. Very likely its more calm and clear than it has been for a long time.

Figure 5

Figure 6

THE DEEP RELAXATION TECHNIQUE Have a friend read the following paragraphs slowly, sweetly and softly, or tape record them for playback later. The comments in parentheses are timing directions and should not be read aloud. This practice should take 10 minutes. When you are ready to do the practice, turn the lights down or off and lie on your back on the floor, bed or couch with your spine and head straight. Your legs should be a comfortable distance apart, but no wider than 12 to 18 inches (Figure 7). Rub the palms of your hands together briskly until they get warm. Then place your hands over your eyes for approximately 30 to 45 seconds. Finally, let your arms rest comfortably at your sides with palms facing up. Keep your eyes closed throughout the practice. You are now ready to begin deep relaxation. Ask a friend to read the following deep relaxation sequence to you, or read it into a tape recorder yourself, then play it back: Let's begin by feeling, seeing or imagining a beautiful white light. This light is soft like a mist. Very slowly it surrounds and supports your body. You feel light and free as if floating on a cloud (Pause for about 5 seconds). This beautiful soft mist now begins to fill the toes of your left foot, one by one (Pause briefly as the mist fills each toe). The mist moves into the arch (Mention each body part slowly, giving yourself enough time to imagine or sense the mist moving through that body part.), heel, calf, knee, thigh and hip. Your left leg is now

completely relaxed. This soft, loving mist now moves into the toes of your right foot, one by one. (Pause for about 5 seconds.) Gently the mist fills your arch, heel, calf, knee, thigh and hip. Both legs are completely relaxed. This loving mist now gently moves into the abdomen, filling all the internal organs. (Pause for a second or 2 as the mist fills all these organs) The mist gently brings peace and calmness to the heart, lungs and chest. (Remember to go slowly through each body part, allowing enough time to sense or imagine the mist filling that body part.) This soothing mist now moves around to enter the back at the hips, filling the lower back, the middle back and the upper back. This beautiful mist now moves into the fingers of your left hand, 1 by 1. Very gently, the mist fills the hand, forearm, elbow, upper arm, shoulder and neck. (Remember to go slowly through each body part.) The mist now fills the fingers of the right hand, 1 by 1. Slowly this soothing mist fills the hand, forearm, elbow, upper arm, shoulder and neck. This loving mist begins to fill your face. It moves into the jaw, the teeth, tongue and lips. Very gently the mist fills the left cheek, the right cheek, the left eye--filling all parts of the eye, the right eye --filling all parts of the eye, the forehead. This peaceful mist moves around to fill the left ear and the right ear. Very gently, the mist enters the brain at the base, filling and relaxing each and every brain cell. This soothing mist fills and relaxes your every thought and every feeling. And now this beautiful mist moves out to touch every hair on your head.

Figure 7

Your entire body is now completely relaxed. This leaves your consciousness free to expand. It expands first to fill the room, touching everyone and everything with your deep, deep peace. (Pause briefly.) It now expands out to the community. It moves across the state, (pause for a second or 2), throughout the country. It expands across the continent, to all the continents. It expands beyond the mountains and the trees and encircles the globe. It expands to the galaxies. It expands beyond galaxies...beyond galaxies...beyond...until the entire universe is but a speck of light in 1 tiny corner of your deep, deep peace. Enjoy this expansion. (Pause now for about 1 to 2 minutes). (Speak gently as you begin.) Time now to return your consciousness. Allow it to return first behind

the eyes. Your entire face, neck and throat are now filled with renewed consciousness, renewed vitality. (Begin speaking in a slightly more upbeat tone.) This consciousness moves down your left arm to the fingertips, down the right arm and down the back to the hips. It moves into the heart, lungs, chest, and abdomen. It moves down the left leg into the toes, the right leg into the toes. Gently wiggle your fingers and toes for a minute. Stretch once or twice, and then gently roll over to one side and get up or, if you are in bed, roll over and go to sleep. Since yoga techniques can be helpful in learning to reduce stress, relax and think more clearly, you may want to visit a local yoga center to develop a complete stress reduction practice.

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SUGGESTION 3: HOW TO EXPLORE NEW POSSIBILITIES


GOAL: Exploring new possibilities in your life may lead to a fuller, richer life. Permanately fighting foreclosure and rebuilding wealth involves looking for new possibilities, finding more effective ways of handling your finances and rethinking your patterns of behavior. This chapter shows you how to change your financial condition by changing your picture of life as well as your attitude about life. The following 3 techniques have been used successfully by thousands of people, helping them to enjoy greater prosperity, success, fulfillment and a generally happier life: 1. Rephrasing your self talk, 2. Affirmations, and

3. Visualizations. Later in this chapter, 5 methods are outlined that help you think more creatively, find a new means of increasing your cash flow, and discover a new career that suits your heart. These practices include: 1001 uses for a brick, blue skying, a return to childhood dreams, contemplation and clustering. Finally, a practice that has transformed millions worldwide, called here, attunement with the Creator. 1. Rephrasing Your Self Talk: The Essential Attitude

Adjustment Why do people end up in foreclosure? Usually it has something to do with old habits and an old view of themselves and life. For example, some people believe that money is evil. Because of this belief, they unfortunately build up habits that keep prosperity at bay. Not everyone in foreclosure has this same problem, but most do have an inner tape that keeps playing similar negative statements: "I do not want a house...or I do not need a house...or I can not afford a house...or I do not deserve a house." An essential first step toward changing your old habits is to recognize them. Try to identify how you really feel about money and owning a home. Once you recognize the problem, consciously acknowledge that your old habit does not work and is not what you want. (If that is true.) By deciding to let go of this old habit, you are well on your way to change. But to change old habits, which you have probably had for many years, you have to substitute something new--You need to substitute a habit of thought that you would rather have. There are a few ways to make this shift to the positive, to the ideal you'd rather have. One way is to take a look at your "self talk." The chatter that is going on inside your head all the time. In Shad Helmstetter, Ph.D.'s book on selftalk (What To Say When You Talk To Your Self), he says, "You will become what you think about most; your success or failure in anything, large or small, will depend on your programming--what you accept from others, and what you say when you talk to yourself....The brain simply believes what you tell it most. And

what you tell it about you, it will create. It has no choice." A good way to start creating new habits is to recreate your self talk. Instead of waking up in the morning and telling yourself you are broke without prospects of success or change, start some new self talk that says, "Today I have the opportunity to make a lot of money. I am successful in all I do. It is a great day to be alive." Helmstetter cautions that, "When you begin rephrasing your self-talk from the old to the new, your old programming will try to talk you out of it. When you get started, start first with the decision to not listen to the earlier negative program which tries to tell you that it will not work. Remember, too, that your old self-talk is a habit. It feels natural and it feels comfortable even if it is negative. By knowing what to expect, you will be ready to meet that old self talk head on, override it, and begin building a new habit." To change your financial condition, you need a new attitude about life as well as a new picture of life. If you are like most people who are facing foreclosure, you spend most of your time thinking about your immediate cash flow problems. Unfortunately, this continual focus on your problems, tends to make the situation worse. Here's an analogy: While riding a bicycle down a dirt path, a child is terrified he's going to hit a rock and fall down. This

child gets onto his bike, all the time focused on rocks in his path. He's so worried about the rocks, he never sees the turnoff into a smooth, green field. And eventually, he does hit a rock and falls down. It is the same with us. We're so busy picturing ourselves as a person in foreclosure, we do not make room for an easier path -- for a more positive cash flow and greater peace of mind. However, many people have found by using a few simple techniques that help them change their attitude and refocus their mind, they get out of the cycle of debt...and they stay out. 2. Affirmations: Affirming Prosperity Your

A "Mental affirmation" is a kind of self talk. It is a practice done by many people throughout the world to improve their prosperity and have a better life. To create an affirmation, you choose a phrase that best states your new picture of yourself. You phrase this statement in a way that "affirms" that your new picture has already happened. For example, right now the mental phrase you are repeating to yourself is probably, "I might lose my house. I am in debt." Instead, try creating a positive affirmation such as, "I am making more than enough money to pay my bills. I have more money than I need." 3. Visualizations: Visualizing a new way to live. Visualizations are based on the proven fact that our picture of life creates our life's experiences. So we must see ourselves in positive and/or constantly improving situations. Just as we talk to ourselves all the time, we all have a picture of life and ourselves. We all visualize. The problem is that most people do it unconsciously. You see, we all have a picture of life and of ourselves. At this moment, because of your financial problems, you may be picturing yourself as someone in debt, without much hope of getting ahead. This picture you are projecting is setting up certain expectations. I think it is fair to assume you want a change. You do not want your life to continue moving in the same direc-

Notice that the affirmation puts the weight on the other foot. Instead of focusing on a negative situation, it focuses on a positive solution. And, affirmations do not contain negative words like "not," and do not use future tense words like will. Affirmations always use present tense words like "I am," regardless of how ridiculous you may think it is. Saying to yourself, "I am not in foreclosure," or, "I will be fine soon," simply will not work. Instead, you should affirm, "My house payments are made on time every month. I am safe and secure." Repeat your affirmation many times during the day--especially any time you catch yourself doing negative self talk. Also, it is very helpful to spend 15 minutes a day repeating your affirmation. (You may want to repeat your affirmation as you do the visualization practice described below.)

tion. So, why picture?

not

create a new

Here's how you practice creative visualization. First, think about a picture you'd rather have. Maybe in your new picture your bills are all paid on time every month, you have thousands of dollars in the bank, you are relaxed and happy, and enjoy your career and your life. To create this new picture, you must be clear and specific. Try picturing the following: Your checkbook balance is high. Your mortgage payments and other bills are all paid. In fact, you have already paid next month's bills. You appreciate the fact that people trusted you enough to extend credit to you. You are happy to pay them. You see your friends and family congratulating you on your successful money management and prosperity. To be successful at creating a new picture of life, you must be patient and clear. It is probably best to do this practice for 15 minutes a day. And, as you do the visualization, try to see everything in as much detail as possible. As you stand in the bank, you are delighted at the balance in your checkbook. Sense your good feelings and allow yourself to feel these emotions deeply. Once you have clearly and deeply changed your picture of life, Once your new picture is clearly created and your new attitude starts to come through, take a good look at your daily activities. Which ones lead toward your new goal and which ones are based on old habits that are taking you in the wrong direction? Tae Yun Kim gives an excellent example, "You may set a goal of winning a marathon race.

your attitude about life changes. There are some excellent books on creative visualization that describe how to create visualizations and that document hundreds of success stories. (See page 20-1 for additional reading.) Stay Focused on Your Goal When you begin the adventure of changing your attitude and your life, you need to keep your new goal in mind. As Tae Yun Kim says in her book, Seven Steps To Inner Power, if you keep your old ideas and actions going while trying to create new visualizations and affirmations, it is like digging a hole and filling it up at the same time. Once you decide on what your new picture of yourself and your life is, it will take much focus, determination and concentration on your part to keep your new picture in mind. Remember, you have been holding that old picture for a long time. Just as changing old habits takes much intensity and repetition, creating a new picture of life may take much repetition of the new visualization and/or affirmation. And it also means letting go of the old picture. Your mind says, 'This is an important priority. I want to win. I want to use all my spare time building up my speed and endurance by practicing every day.' Nevertheless, if you insist on partying often to late hours, eating improperly, skipping workouts 'just this one time', accepting frivolous invitations

instead of turning them down....How like are you to succeed under these circumstances?" So write down your new goal, your new picture of your life. Then take a few minutes to list all the activities you are currently doing that will lead toward that goal and the ones that are taking you in a different direction. Make a commitment to yourself to stop the old habits that are taking you away from what you want. As you practice visualizing and affirming, more new activities will take the place of the old ones. FINDING A CREATIVE SOLUTION The following techniques are designed to help you think more creatively so you can find new ways to increase your prosperity and enjoy your life more. One of the biggest blocks to solving problems is not allowing yourself to expand your thinking. Have you ever seen a creativity test where people are asked to connect dots without removing the pencil from the paper? A lot of people go around and around in the same pattern thinking there is no solution. But, the creative person takes the pencil and extends the lines way out past what seem to be borders and succeeds in connecting all the lines without moving the pencil from the paper. The techniques described below give you that kind of creative expansion. It allows you to tap into your own inner creative potential. Mind stretchers that can help you think more creatively and find a new way of living: 1. 1001 uses for a brick,

2. Return to childhood, 3. Blue skying, 4. Contemplation, and 5. Clustering. Use the first 3 techniques, 1001 uses for a brick, return to childhood and blue skying, as a warm-up, if necessary, to the last 2 techniques of contemplation and clustering. Or just skip the first 3 altogether if no warm-up is necessary. 1001 Uses For A Brick - A practice that helps develop creative thinking that you may want to do as preparation for the "blue sky" is to list as many uses for a brick as you can. Include conventional answers such as "building a house" and unusual ideas such as a "cuff link for a giant." This practice will help you stretch beyond the everyday borders of your mind and tap into your inner creativity to find new solutions. Return To Childhood Another technique for getting out of financial binds is to find a profession or career that you really love. When you really love what you are doing, the work is easy, and you tend to be more successful and make more money. Try thinking about what you liked doing when you were a small child. There are usually some important clues in the childhood goals that were uninhibited by the picture stamped on us by our parents, society or just random circumstances. Look back, find out what your dreams were and

make some changes. You can start by putting energy into your new career part-time, or maybe you need to take a class at school. Spending a few minutes a day finding your dreams could change your whole life. "Blue skying" is a fun and simple way to stretch your mind and discover creative new solutions to life's problems. Lay down in some comfortable place, preferably This process helps break down limiting barriers to thinking creatively. Eventually most people come up with a unique solution that works. Once you have "blue skyed" as many ideas as you can think of and written these ideas down, take a break. Then come back to your list a little later and note the ideas that work best for you. Very likely you already have got some good, workable solutions to your financial problems. Contemplation - This technique, when practiced with patience, can provide you with new and unique ideas for changing your financial situation. The idea behind contemplation is simple--you focus your attention as best you can on a particular idea or object and let your mind drift to only thoughts about that idea or object. Unfortunately, the thing that may make contemplation difficult to practice, especially at first, is that our minds are not used to being focused on 1 idea or object, but tend to wander all over the place. For example, let's say you are listening to a friend talk. All of a sudden, you realize a few minutes have gone by and you haven't heard a word your friend has said. Have you ever noticed this? It happens to

outside and start thinking of any possible financial solutions: new careers, winning the lottery, inheriting money, forming a partnership, making a movie, etc. Let your mind go to outrageous and outlandish ideas. Do not judge your ideas as impossible or too far out. Just let your mind stretch and flow. Write down all the ideas. everyone. Our minds tend to drift around from 1 random thought to another and take us to thoughts or feelings that are completely unrelated to what we started out thinking or talking about. A good way to understand how your mind wanders is to simply sit down and try to think about 1 idea such as, "increasing my finances." Just sit there for 3 or 4 minutes. Let your mind free associate and watch where it goes. Just watch your mind as if you were watching a movie. Do not get involved in the drift, do not editorialize or judge and do not get angry that your mind is drifting. Note where it ends up. To shift from this normal wandering mind mode to the practice of contemplation, begin again with your key idea, "increasing my finances," and again watch your mind. Then, when a new thought comes up that is unrelated to increasing your finances--a thought such as, "I would really like an ice cream cone now,"--bring your attention back to the key idea. Do not force your mind back, but bring it back gently. If a

related idea comes up such as, "have a garage sale," allow your mind to continue its drift. Whenever the thoughts shift away from your key idea, again gently bring your mind back to the thoughts you were having just before your mind drifted to the unrelated thought. Eventually you will run out of thoughts. Now, this is the exciting part. After you run out of information about your key idea or object, there will be a moment or 2 of quiet. Then your creative, intuitive faculties will very likely be triggered and you will receive some new insights. You may get an insight about a new career." How you can get started on a new business or income opportunity.

But the time and effort you put into practicing contemplation is well worth it. You can have some life-changing breakthroughs. And, contemplation is a skill you can use for the rest of your life to solve problems and/or find new ideas or opportunities. Clustering - Too often people believe the creative process is only for artists and writers. If we are going to be successful, then we need to look at things differently and let go of the limitations we've set for ourselves. Clustering is a powerful tool that can locate and unlock helpful ideas from within your mind. Clustering is the crucial first step for bypassing our logical, orderly mind and tapping into our creative intelligence. It has been used by many writers to break through writer's block. It may help you discover the best solution for your foreclosure situation. Here's how clustering works.

When you contemplate, try to be as relaxed as possible and sit in a comfortable position. And, remember to be patient with yourself. Your mind has been wondering wherever it has wanted for a long time, and, in times of stress, it may be even more turbulent. Begin by writing down an issue you want to explore, such as: How to fight foreclosure, or how to increase income, or how to rebuild wealth. The phrase you choose becomes your nucleus. Write it in the middle of a blank page, then draw a circle around the phrase (drawing circles stimulates the right side of the brain, the area believed to be the seat of creativity). All around the outside of the circle jot down any related idea or word that comes into your mind and put a circle around it. Connect all the outside circles to the central circle with lines.

In Writing the Natural Way, Gabriele Lusser Rico describes clustering this way, "Clustering always unfolds from a center, like ripples generated by a rock thrown into a pond. That center can be a nucleus word or phrase, or it can be a dominant impression...To create a cluster, you begin with a nucleus word, circled, on a fresh page. Now you simply let go and begin to flow with any current of connections that come into your head. Write these down rapidly, each in its own circle,

radiating outward from the center in any direction they want to go. Connect each new word or phrase with a line to the preceding circle." When something new and different strikes you, let this new word or idea become the nucleus of a new cluster. And, do not "nix" any words or ideas. That will only stop the flow of new ideas. Here is an example: If your center circle says "how to fight foreclosure," you might have a line going out to a circle that says, "negotiate with the lender." Another line might go from the center circle to a circle that says, "File a lawsuit." Another line going out from the center might say, "Contact CLA." (see the example diagram below.) Keep going, no matter how ridiculous your ideas may seem. This kind of practice often leads to a host of new ideas that can help you, which is the point of the practice. As you cluster, you may feel foolish, as if this process is not leading anywhere. But trust your natural process. Rico says, "We all cluster mentally throughout our lives without knowing it; we have simply never made these clusterings visible on paper." Since you are not responsible for putting the ideas in a logical order or sequence, any natural anxiety you feel at first will soon disappear. In its place will be a certain playfulness. "Continue to cluster, drawing lines and even arrows to associations that you see to go together, but do not dwell on what goes where. Let each association find its own place. If you momentarily run out of associations, doodle a

bit by filling in arrows or making lines darker. This relaxed receptivity to ideas usually generates another spurt of associations until at some point you experience a sudden sense of what you are going to do," Rico explains. In other words, at some point during the clustering, a dramatic shift occurs and a detailed answer to your question becomes very apparent.

Why not try your own cluster now? Very likely it will help you discover new ideas for fighting foreclosure, for increasing your income and for improving your mental/emotional well being. Use the next 4 pages for your different clusters. Use extra paper, if necessary, to cluster other thoughts. _______________________________________________________________________________________ CLUSTERING EXAMPLE

CLUSTERING WORKSHEET Possible Focus: How To Fight Foreclosure

CLUSTERING WORKSHEET Possible Focus: How to Increase Income

CLUSTERING WORKSHEET Possible Focus: How to Improve Mental/Emotional Well-Being

CLUSTERING WORKSHEET Focus: Miscellaneous

STEP 5:
Complete The Action Plan To Find A Solution That Fits Your Needs
The Action Plan was designed to help you to discover the best option, or combination of options, for your specific foreclosure situation. Since each foreclosure is unique, The Action Plan can only give general exercises and not exact procedures for every case. However, the exercises in The Action Plan should help you: 1. Make a clear evaluation of your situation, and The Talk-It-Out Exercise 2. Find your best solution. As you read The Action Plan, notice how the exercises help you reach your own conclusion(s). The easy question and answer format allows you to pick and choose from the various options and ideas in this book 16-1 While completing The Action Plan, try to get a clear picture of your options and solutions. Try discussing them with a spouse, family member(s), friend(s), counselor, therapist, or anyone who can help you in order to weave together your own individual action plan. So relax, be flexible and use the following exercises as a structure over which you can fit the fabric of your foreclosure situation. In other words, first study and collect data regarding your foreclosure situation, then construct and implement a well-planned solution.

understand and digest these ideas (or just talk it out into a tape recorder). In fact, allow them to read through these materials, too. Brainstorm ideas, alternatives and dreams. Play devil's advocate by listing the pros and cons of each the ideas. Encourage and expect this from all participants. Play the game of "if I were to do such and such an action, then The Write-It-Out Exercises First, it is very useful to sit down and write out the chain of events you feel led you into your current financial difficulties. As you write, do not

there will likely be such and such a reaction. This kind of freedom of thought may help unlock not only the best solution for you, but also any mental or emotional barrier that blocks discovering your best solution.

16-2

The Action Plan Workbook


worry about creating a perfect document. The important thing is to just let the story unfold as it naturally wants to unfold. Go into detail. Backtrack, if necessary. Do everything necessary to get the whole story out (see "clustering" on page 15-5). Use the space on page 16-22, item 2a to jot down your thoughts, or use your own private journal.

approach is immediately obvious to you, then dream up a probable, or a desirable solution (see visualization, page 15-3). Describe the job you would like to have as well as the income and savings. Make a list of ideas, solutions, alternatives and dreams. Again, use the space on page 16-23, item 2b to jot down your Second, list all the possible ways thoughts, or use your own you think you can get out of this private journal. Draw from financial pinch. If no realistic these lists, these pools of ideas, as you progress through The Action Plan exercises. -----------------------------------------------------------------------------------------------------------------------------

4 Important Basic Questions


At this point, you have read and become familiarized with The Action Guide summary, and, possibly, all or part of the 8 option chapters. Now is the time to apply that information in The Action Plan Workbook. But, first, ask yourself: 1. At this time, are you sure (or pretty sure) of a solution and are in the process of applying it? Yes No If your answer is yes, then explain the solution in as much detail as possible on the following page (attach additional pages, if necessary): 2. Or, are you unsure of a solution now and need to systematically work through option chapters until the best remedy emerges? Yes No If, after reading the option chapters, you are sure of a solution, continue to pursue it. For example, if your lender has defrauded you, then contact an appropriate attorney. On the other hand, if you are not so sure of the best solution, then you may need to work through The Action Plan exercises until the best solution is found for your particular case. 3. Does your financial trouble seem (circle 1): b) permanent? a) temporary?

How To Fight Foreclosure And Win With Honor

Your current financial standing and your future financial prospects will influence and may indicate your direction of action. Fill out, then analyze the forms on pages 5-11 through 25. 4. Do you want to keep this property or not? No Yes

If you decide you cannot keep or do not want to keep your house, then go directly to page 16-57 for exercises on selling your house. As the chapter on selling points out, selling your house when it is in foreclosure can be a very good move. As long as you are well-informed and make intelligent decisions regarding the sale. The benefits include curing your default, protecting equity, minimizing credit damage and purchasing another house in a more affordable neighborhood. Even so, before you resort to selling your house, do the following exercises in The Action Plan while looking for alternatives. If you have not decided to sell your house, but do not know yet the best solution, then do the following exercises in The Action Plan while thinking through each option.

The Action Plan Workbook

On this page (attach additional pages, if necessary) list the solution(s) you think may be the best for your particular situation. Also, explain any important details of the solution in as much detail as possible.

How To Fight Foreclosure And Win With Honor

How To Move want maximum exposure to all the solutions, Through The Action Plan 1. If you need or Quickly then systematically pursue every step in The Action Plan one step at
a time. 2. When you read The Action Guide and the option chapters, you were asked to make notes of ideas which interested you and/or seemed to offer help to your particular situation. Refer to these notes and to The Action Guide as much as required while doing the Action Plan exercises. 3. If you like to construct things without reading the instructions, then try beginning with The Action Plan and let it lead you through the references to the book until you find a solution. 4. You may want to skip sections of The Action Plan that do not apply to you, such as, if you are not serving in the military. In other words, do only those sections you think will benefit your case and speed up a solution. 5. If, in the course of doing The Action Plan exercises, you find a solution, then feel free to stop at that point. For example, if you do a workout with your lender which solves your problem, then there is no reason to continue with this book (unless you just want the informaNOTES

(systematically moves you toward a well-informed decision).

THE ACTION PLAN WORKBOOK

Table Of Contents
How To Win By Reorganizing Your Finances.....16-7 How To Win With Bankruptcy..........................16-11 How To Win By Changing Your Mortgage Terms16-21 How To Win By Refinancing.............................16-37 How To Win By Using The Legal System...........16-41 How To Win If You Are In The Military..............16-55 How To Win By Selling Your Property...............16-57 How To Win By Giving Away Your Property.......16-71

16-7

NOTES

16-8

The Action Plan Workbook

OPTION 1: HOW TO WIN BY REORGANIZING YOUR FINANCES THE GOAL OF THIS OPTION: Generate cash for your mortgage payments by: expenses, A. B. C. GETTING STARTED 1. With special possible: focus on slashing your expenses wherever Slashing your unnecessary

Increasing your income, and Persuading creditors to lower your monthly installment payments.

a. Complete The 4 Steps To Financial Freedom on pages 5-2 through 5-4. List these notes on separate sheets of paper as well as in the income and budget forms on page 5-11 through 25, where applicable. b. Start a budget immediately. A credit counselor may be of assistance, (look in the Yellow Pages) or consult with Consumer Credit Counselor Services (see page 5-9 for their telephone numbers for their California offices). I. Fill out the income and budget forms on pages 5-11 through 5-25, where applicable. See How To Set Up A Successful Budget on page 5-4 through 5-6. 2. Using the above data, answer the following questions: a. What is your current average monthly income? $ . b. Divide the annual amount paid on all your loans against the property by 12 months, and then list and subtract the results here. $ . c. This is your monthly income that remains after paying your mortgage(s).$ .

10

How To Fight Foreclosure And Win With Honor

d. Divide your annual property tax and insurance by 12 months and then list and subtract the result here (if tax and insurance are not included in 1 of your loan payments). $ . e. Divide all your other annual living expenses by 12 months and then list and subtract the result here. $ . f. This is your remaining monthly income. (Is this enough to live on?) $ . Enter the total from item "f" above. $ .

3. List the possibilities of increasing future monthly income. a. Rent from roommate(s). b. Rent from the garage/backyard as storage. c. Income from other family/household members. d. Extra income from sidejobs/bonuses/raises. e. Other. f. Other. g. Other. . I. Add the total future income. $ $ $ $ $ $ $ $ . . . . > +$ . . . .

4. The total possible monthly income. $ . 5. List the possibilities of decreasing your mortgage payment. a. A workout (see page 7-1) or refinance (see page 8-1). Determine your newer, lower mortgage payment from these sources, or from the exercises on pages 8-13

The Action Plan Workbook through 8-16. List the lowest possible revised payment. $ . b. Sell a partnership (see page 11-19). Usually this can cut your mortgage payment exactly in half. List your deal. $ . . . . c. Other. d. Other. e. Other. I. Equals your total possible deductions of: $ . . II. Your current mortgage payment. $

11

$ $ $

1. Subtract your total possible deductions (from 5dI). $ . 2. Equals your possible new lower monthly payment of: . $

6. Begin to contact credit counselors for help in persuading creditors to lower your monthly payments, as well as all other financial planning matters such as slashing your unnecessary expenses and increasing your income. (Or you can try negotiating with your creditors by yourself, even though this is not nearly as successful as with a third party professional credit counselor. Nonetheless, if you do attempt your own negotiations, keep track of your work on page 16-6 or in your private journal.) a. Contact at least 3 credit counselors, if possible. Look in your local Yellow Pages or newspapers. Interview as many credit counselors, debt services or financial planners as possible until you find someone you feel comfortable with. List the agencies you contacted below.

12 I. number Response: II. number Response: III. number Response:

How To Fight Foreclosure And Win With Honor

agency

representative

phone

agency

representative

phone

agency

representative

phone

b. List the name and phone number of the agency you decided to work with and the name of the counselor you contacted. agency counselor phone

number Comments:

c. Contact the Consumer Credit Counseling Service (CCCS) in your area for reliable help with budget and debt counseling at little or no cost (see page 5-9). List the name and phone number of the agency you decided to work with and the name of the counselor you contacted. number Comments: agency counselor phone

d. If your income falls short of your total living expenses and your bills are piling up, then get started on a Debt Management Plan, which usually includes persuading your creditors to lower your monthly installment payments. If you do begin a Debt Management Plan with CCCS, or elsewhere, then fill in the following blanks. start date phone number I. projected end date counselor

The Action Plan Workbook 7. Judging from the preceding information: a. Have you slashed your unnecessary expenses? No Yes b. Have you increased your income? No Yes

13

c. Have you persuaded your creditors to lower your monthly payments?No Yes d. Can you afford to keep your house? Yes No

I. If no, then you may want to proceed to page 16-57 of the Action Plan which begins Option 7: How To Win By Selling Your Property. II. If yes, then continue on in the order of the guideline exercises. Your ultimate goal is to weave together a solution by sorting through the ideas in the Exercises.

OPTION 2: HOW TO WIN THROUGH BANKRUPTCY THE GOAL OF THIS OPTION: 1. To protect your property long enough to bring order to your financial chaos, and To bring relief from debts that far exceed your income or assets.

2.

GETTING STARTED 1. Based on the numbers you provided in the forms found in Option chapter 1 Forecasting Income (pages 5-12 and 5-13), the Fritter Finder (pages 5-22 and 5-23) and the Record of Expenditures (page 5-18), do you have more debts than income? No Yes If no, then probably bankruptcy is not an option for you, and you may want to proceed to Option 3 of these exercises. 2. If your answer to the above question is yes, then contact an attorney who specializes in bankruptcy. In order to help determine which chapter of the bankruptcy code to file under, be prepared to answer the following questions: a. Do you need to permanately erase some debts in order to get a fresh financial start? No Yes If yes, then perhaps your attorney would advise you to file Chapter 7 bankruptcy as the best solution for you. However, be advised that Chapter 7 stamps your credit file with the worst blemish of the 2 bankruptcies since some future creditors may look unfavorably on the fact that you did not pay some debts. b. Do you only need some temporary relief from your debts, a little extra time to catch up on your bills? No Yes If yes, then perhaps your attorney would advise you to file Chapter 13 bankruptcy as the best solution for you. Some future creditors may overlook a Chapter 13 bankruptcy if you

eventually paid off your debts in a bankruptcy court-approved debt adjustment plan. c. Do you need both, to permanately erase some debts, as well as, to get temporary relief from other debts? Yes No

If yes, then ask your attorney whether he or she would advise you to liquidate some debts under Chapter 7 before reorganizing other debts under Chapter 13.

3. If you decide to file Chapter 7 bankruptcy, then you may want to demonstrate on your petition that there is not enough equity in your house to cause the court trustee to sell it to pay off creditors. To minimize the appearance of equity, you may legally deduct: a. The estimated sales costs (that might result if the house were to be sold), b. A homestead exemption, and c. A new junior loan. Note: Pages 16- 12 through 16- 18 study the figures that are needed to process the above deductions, including formulas that determine your capital gains and equity, which are important factors for analyzing your situation, as well as for other sections of The Action Plan. 4. The estimated cost of sales includes: a. The estimated capital gains tax, b. The estimated sales commission(s), and c. The estimated escrow costs. I. The bankruptcy court routinely accepts 10% of your property's fair market value as the estimated cost of sales. To figure this, list the fair market value (see page 16-25, item 9dI, and page 11-2). $ . A. Multiply 4cI by the bankruptcy court's standard of 10%. x 10% $ B. Equals the bankruptcy court's standard deduction of: .

5. However, you may increase the estimated cost of sales deduction beyond the standard 10% if your estimated net capital gains are above average. To figure your net capital gains:

a. Again, enter your property's fair market value (see item 4cI, above). $ . b. Subtract the price you paid for your house. $ . c. This equals your gross capital gain. $ . d. Subtract all the capital improvements made to your property since you purchased it. (Consult with your tax preparer, and see pages 6-6 through 6-9 for more information.). $ . . e. This equals your net capital gain of: $

6. First, in order to figure your own estimated cost of sales: a. Enter your net capital gain (item 5e above). . I. Multiply 6a by your income tax bracket. (Consult your tax preparer.) x % $ . $

II. Equals your estimated capital gains tax of: > -$ . b. List the estimated fair market price for your house (see item 4cI, above). I. Multiply by a sales commission of 6%.

$ x $ 6%

II. Equals your estimated sales commission of: > -$ . c. List the estimated fair market price for your house (see item 4cI, above). I.

$ x

. 1% .

Multiply 6c by the average escrow of up to 1%. $

II. Equals your estimated escrow costs. > -$ . d. This equals your own estimated cost of sales of: $ .

Is this amount larger than the standard deduction figure you listed in item 4cIB above? Yes No II. Enter the larger of the 2 amounts in the blank in item 16aII, page 16-17. 7. Second, using the following guideline, figure your homestead exemption according to your present status. Enter the appropriate amount in the blank in item 22c, page 16-18. a. The single homeowner standard deduction (When more than 1 single homeowner appears on the property's title, each individual may file a separate $50,000 exemption.) 50,000

I.

b. The married couple standard deduction 75,000 c. The standard deduction for homeowners who are disabled, over age 65, or over 55 (if low income) $100,000

8. List the trust deeds you have against your property and person/company holding it: a. 1st trust deed amount $ Total amount of delinquent payments/late charges $ $ . $ . .

Total foreclosure costs (check with trustee) Total owed on 1st trust deed >$ .

Holder of 1st: name address phone b. 2nd trust deed amount $ Total amount of delinquent payments/late charges $ $ $

. .

Total foreclosure costs (check with trustee) Total owed on 2nd trust deed >$ .

Holder of 2nd: name address phone c. 3rd trust deed amount $ Total amount of delinquent payments/late charges $ $ $

. .

Total foreclosure costs (check with trustee) Total owed on 3rd trust deed >$ .

Holder of 3rd: name address phone d. 4th trust deed amount $ Total amount of delinquent payments/late charges $ $ $

. .

Total foreclosure costs (check with trustee) Total owed on 4th trust deed >$ .

Holder of 4th: name address phone e. 5th trust deed amount $ Total amount of delinquent payments/late charges $ $ $

. .

Total foreclosure costs (check with trustee) Total owed on 5th trust deed >$ .

Holder of 5th: name 9.

address

phone

Property tax due, including past, current, fines and penalties. $ .

10. Page total: $ .

11. List all liens and judgments against your property and the person/company holding it. a. . $ (description of lien/judgment) name address phone $ (description of lien/judgment) name address phone $ (description of lien/judgment) name address phone $ (description of lien/judgment) name address phone $ (description of lien/judgment) name address phone $ (description of lien/judgment) name address phone

Holder: b.

Holder: c.

Holder: d.

Holder: e.

Holder: f.

Holder:

12. Page total .

13. List all other expenses/encumbrances charged against your property. a. . $ (description of lien/judgment) name address phone $ (description of lien/judgment) name address phone $ (description of lien/judgment) name address phone $ (description of lien/judgment) name address phone $ (description of lien/judgment) name address phone

Holder: b.

Holder: c.

Holder: d.

Holder: e.

Holder:

14. List the totals of all the encumbrances charged against your property. . a. Total this page $

. .

b. Total page 16-14, item 10 c. Total page 16-15, item 12

$ $

15. The total encumbrances against your property $ .

16. List the total costs of selling your house. a. List only 1 of the following (either I or II): I. The selling costs in item 4cIB, page 16-12, or II. The selling costs in item 6d, page 16-13. $ $ $ . . .

b. Add all the estimated or actual costs necessary to fix-up your property (see item 20d, page 16-69). $

c. Equals your total selling costs of: >$ .

17. Add the total amount of liens (from item 15, previous page). $ . 18. Equals the total charges owed against your property's equity. $ . 19. Your property's appraised/fair market value (see item 9dI, page 16-25). $ 20. Subtract the total charges (from item 18). 21. The equity in your house . $ $ .

. .

22. To make the legal deductions from your equity in order to minimize the appearance of equity in your property in Chapter 7 bankruptcy: a. Enter your total equity (from item 21, previous page. $ . b. Subtract the estimated cost of sales which ever is greater of the following 3: -$ . I. item 16aI, on page 16-17; . - $

II. item 16aII, on page 16-17;

III. item 16c, page 16-17 (Note that this figure contains the costs to fix up your property for sale, which may not be part of the formula allowed by the bankruptcy court. Before using it, ask your tax preparer or bankruptcy attorney for advice on including it due to the fact that it will be a real cost of sales); -$ . c. Subtract your homestead exemption according to your status (see item 7, page 16-13); - $ d. Equals the reduced equity that is available to the chapter 7 bankruptcy court trustee; I. If this remaining amount is greater than $10,000 or 10% of your property's fair market value, then you may want to get an additional loan on your property. The new loan will further reduce the equity available to the court. The lower the reportable equity, the less chance the Chapter 7 bankruptcy court will sell your property. However, the proceeds from the loan should be turned over to the court to pay expenses. e. Enter the amount of any new junior loan designed to reduce equity for the Chapter 7 bankruptcy court. (See Option Chapter 4 of The Action Plan beginning

on page 16-37, and page 6-8, Deducting The Remaining Equity.) -$ . f. Equals the final total of equity to report to the Chapter 7 bankruptcy court trustee. $

23. Interview at least 3 attorneys who specialize in bankruptcy, if possible. Look in your local Yellow Pages or newspapers. Interview as many attorneys as possible until you find someone you feel comfortable with. Be open and honest with the details of your affairs. Give them your financial data as per the forms you filled out in Option chapter 1, or according to your credit counselor or financial planner. List the attorneys you contacted below. Circle the letter of the attorney you decide to hire. attorney number Results Promised: Attorney's Fee(s) Quoted: Additional Costs Quoted: b. attorney phone a. phone

number Results Promised:

Attorney's Fee(s) Quoted: Additional Costs Quoted: c. attorney phone

number Results Promised:

Attorney's Fee(s) Quoted: Additional Costs Quoted: 24. With each attorney you interview, and especially with the attorney you hire, brainstorm ideas with which you may avoid filing bankruptcy. Use the following space to record those ideas, if any exist. Then, list any results from those actions. IDEAS RESULTS

OPTION 3: HOW TO WIN BY CHANGING YOUR MORTGAGE TERMS THE GOAL OF THIS OPTION: Stop your foreclosure by negotiating a financially favorable change in the terms of your existing loan(s). GETTING STARTED 1. List the loan(s) on your property with which you are delinquent on the payments. a. 1st loan: lender phone

loan #

address $ . as

I. Total in arrears including late charges of: b. 2nd loan: lender phone loan #

address $ . as

I. Total in arrears including late charges of: c. 3rd loan: lender phone loan #

address $ . as

I. Total in arrears including late charges of: d. 4th loan: lender phone loan #

address $ . as

I. Total in arrears including late charges of: e. 5th loan: lender phone loan #

address

I. Total in arrears including late charges of: f. 6th loan: lender phone loan #

as

address $ . as

I. Total in arrears including late charges of: A. Total of all loan payments in arrears of: 2. The Write-It-Out Exercises:

as

a. In the following space (attach as many additional pages as necessary), write out the chain of events you feel led you into your current financial difficulties. As you write, do not worry about creating a perfect document. The important thing is to just let the story unfold as it naturally wants to unfold. Honestly and sincerely explain the events and circumstances which led you to fall behind in your loan payments, such as sudden illness or job lay-off, etc., that involves every income producing member of your household. Go into detail. Backtrack. Do everything necessary to get the whole story out (see "clustering" on page 15-5). To help prepare, see The Write-It-Out Exercises on pages 16-1 and 16-2, and, complete The Four Steps to Financial Freedom and How To Set Up A Successful Budget on pages 5-2 through 5-6.

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33

b. In the following space (attach as many additional pages as necessary), list all the possible ways you can think of to get out of this financial pinch, including your prospects for new, increased income. If no realistic approach is immediately obvious to you, then dream up a probable, or a desirable solution (see visualization, page 15-3). Describe the job you would like to have as well as the income and savings. Make a list of ideas, solutions, alternatives and dreams. To help prepare, see The Write-It-Out Exercises on pages 16-1 and 16-2, and, complete The Four Steps to Financial Freedom and How To Set Up A Successful Budget on pages 5-2 through 5-6.

34

How To Fight Foreclosure And Win With Honor

3. Does any loan against your property that is in foreclosure qualify you for any of the special workout assistance listed on page 7-3? Yes No a. If yes, then list the item in the following space: I. Describe why you think it qualifies. 4. List the 3 most appealing/appropriate workouts for your situation from the Types of Workouts on pages 7-1 and 7-2, and describe why (attach additional pages, if necessary). a. Workout #1: b. Workout #2: c. Workout #3: . Describe why: . Describe why: . Describe why:

5. Have you read and followed The 5 Keys To Successful Workouts on page 7-4? YesNo 6. Are you aware of the responsibilities of both the borrower and the lender/servicer as outlined on page 7-5? Yes No 7. Have you read and completed the 6 steps on How To Get Started On A Workout on pages 7-5 through 7-7? Yes No 8. To find the current cycle of the real estate market (which will help clarify the position to take in your negotiations with your lender), have you consulted with: a. Long-time/local neighborhood? real estate Yes No agents who sell in your

I. What facts did you discover? Attach your research to this page. Label it page 16-25a. b. Neighbors? YesNo

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35

I. What facts did you discover? Attach your research to this page. Label it page 16-25b. c. Professional real estate appraisers? Yes No I. What facts did you discover? Attach your research to this page. Label it page 16-25c. d. Services that provide real estate comparables (see box on page 7-7)? Yes No I. What facts did you discover? Attach your research to this page. Label it page 16-25d. e. County records analysis? Yes No I. What facts did you discover? Attach your research to this page. Label it page 16-25e. 9. Based on the above inquiry, is the property value trend in your neighborhood currently (circle 1): a. Going up? b. Going down? c. Remaining flat? d. Other/additional: (NOTE: Please read page 8-3 for information on negotiating with lenders
during the different real estate cycles.)

I. Upon concluding your market survey, list the estimated current fair market value of your property. $ . 10. Does your loan conform with government guidelines such as those required by FNMA, GNMA AND FHLMC? (If unsure, then ask your lender/servicer; also, see 7-11 and 7-12 for more on conforming loans). Yes No

36

How To Fight Foreclosure And Win With Honor

a. If yes, then call the loan servicer and ask for workout assistance. In the following space, describe the workout programs that the loan servicer offered to you. b. If the loan servicer is of little to no help, then ask for the lender's name, address and phone number. Write and call the lender directly to explain your situation and to ask for workout assistance. In the following space, list the lender's name, address and phone number. I. lender's name address phone number A. In the following space, describe the workout programs that the lender offered to you. 11. Is your first loan from Cal-Vet? (If unsure, then ask your lender/servicer. Also, see pages 7-12 through 7-16 for more on Cal-Vet loans.) Yes No a. If yes, are you behind on the Cal-Vet loan payments? YesNo b. If you are 1 month behind on your payments: I. Have you received a letter from the Cal-Vet office in Sacramento? Yes No A. If yes, attach a copy of the letter to this page. II. Have you received a phone call from a representative of Cal-Vet's main Sacramento office? YesNo III. Have you received a phone representative? Yes No call from a Cal-Vet

A. If yes, then describe the nature of the phone call and\or the details of any possible workout that was discussed. (1) List the name, address and telephone number of the CalVet agent you spoke with:

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37

agent

address

IV. If you have not been contacted by letter or phone, then contact Cal-Vet yourself by calling 800-952-5626. Also, ask for the address and follow up the phone call with a letter. In both the phone call and the letter formally request workout assistance. A. Have you made the above phone call and sent the letter? Yes No (1) If yes, then attach a copy to this page. c. If you are 2 months, or more, behind in payments: I. Have you received a Notice of Intent to Cancel from Cal-Vet? YesNo A. If yes, then attach a copy to this page. II. Have you received a phone call and follow-up letter regarding the Notice of Intent to Cancel from a representative of Cal-Vet's local district office? YesNo A. If yes, then describe the nature of the phone call and\or the details of any possible workout that was discussed. (1) List the name, address and telephone number of the CalVet agent you spoke with: (a) phone agent address

d. If you are 3 months, or more, behind in your payments: I. Has a representative from Cal-Vet's local district visited your home? YesNo A. If yes, then did the representative explain your options? Yes No

38

How To Fight Foreclosure And Win With Honor

(1) If yes, then describe those options in the following space. (2) List the name, address and telephone number of the CalVet agent you spoke with: (a) phone agent address

e. If you are 4 months, or more, behind in your payments, and if Cal-Vet has made all the above efforts, yet were unsuccessful in helping you workout your delinquency, then have you received a final cancellation notice from Cal-Vet? Yes No I. If yes, then describe below any final workout agreement with Cal-Vet that allowed you to save your property from foreclosure. 12. Was your loan covered by any form of private mortgage insurance (PMI)? (If unsure, ask your lender/servicer, or check your itemized payment records from the lender. See pages 7-16 and 7-17 for more on PMI.)Yes No a. If yes, then do your finances show strong signs of recovery? Yes No I. If yes, then contact the private mortgage insurer and ask them to participate in a workout with your lender and to consider paying some or all of your delinquent payments. Below describe below who you spoke with and explain your agreement. A. List the name, address and telephone number of the private mortgage insurance agent to whom you spoke. (1) phone agent address

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39

(a) What are the terms of the workout, if any? (Get all agreements in writing.) 13. Is your first loan FHA insured? (If unsure, then ask your lender/servicer. Also, see pages 7-17 through 7-21 for more on FHA insured loans.) Yes No a. If yes, are you behind on the FHA-insured loan payments? Yes No b. If yes, have you received HUD letter #1 along with form HUD92068F, Request for Financial Information as seen on pages 7-25 and 7-27? Yes No I. If yes, then fill out the forms (attaching a copy to this page) and return them to the appropriate return address. Call HUD for help in filling out the forms (see page 7-3 for the HUD phone numbers). Local HUD phone number: II. If no, then notify HUD and ask your lender to send you the above letter and form. c. Will the lender grant you a workout without HUD assistance? Yes No d. Have you received HUD letter #2 requesting loan assignment to HUD? YesNo I. If yes, then attach a copy to this page and list below who contacted you from HUD. A. phone agent date

II. What are the terms of the workout, if any? (Get all agreements in writing.) e. Have you received HUD letter #3 against loan assignment to HUD? Yes No

40 I.

How To Fight Foreclosure And Win With Honor If yes, then attach a copy to this page and apply directly to HUD for the assignment. name

II. Who did you contact at HUD? datephone

III. What are the terms of the workout, if any? (Get all agreements in writing.) 14. Is your first loan DVA insured? (If unsure, then ask your lender/servicer. Also, see pages 7-21 through 7-24 for more on DVA-insured loans.) Yes No a. If yes, are you more than 2 months behind on the DVA insured loan payments? YesNo b. If yes, have you or your lender/servicer attempted to negotiate a workout? YesNo I. If yes, then who were you in contact with from the DVA? A. phone name date

B. What are the terms of the workout, if any. (Get all agreements in writing.) II. If there have been no attempts toward a workout, then contact the lender/servicer by phone and by letter, and request to begin negotiations on a workout immediately. Below, list which representative of your lender/servicer you were in contact with regarding a workout. lender/servicer name date phone A. agent

B. What are the terms of the workout, if any? (Get all agreements in writing.)

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41

III. Have you received a standard, computer-generated letter from the DVA urging you to negotiate a workout with your lender? Yes No A. If yes, then attach a copy to this page. c. If you and your lender/servicer were unable to arrive at a workable workout, then have you contacted the DVA to request DVA's supplemental servicing? YesNo I. If no, then have you contacted the DVA immediately by phone and by letter? (Either ask the lender/servicer for the address and telephone of the DVA, or call the DVA directly at any of the telephone numbers listed on page 1125.)Yes No A. List below who you were in contact with at the DVA. (1) phone agent address date

(a) Briefly describe the details of the phone call and\or the meeting with the DVA representative. (Attach any letters from the DVA and copies of your letter to this page.) II. Has a DVA letter or representative offered you financial, vocational and/or educational counseling? YesNo A. If no, then have you contacted the DVA in a letter or through 1 of the above telephone numbers and requested any counseling you feel is necessary for your situation? YesNo (1) If yes, then list below who you were in contact with at the DVA:

42

How To Fight Foreclosure And Win With Honor

(a) phone

representative

address

date

(I) Briefly describe the details of the phone call and\or the meeting with the DVA representative. (Attach any letters from the DVA and copies of your letter to this page.) (II) If the DVA did offer you counseling, did you accept it? Yes No (A) If yes, then attach a copy of the DVA offer to this page. d. Has a DVA loan service representative conducted a face-toface interview with you at the property in foreclosure? Yes No I. If yes, then list below who you were in contact with at the DVA. A. phone representative address date

(1) Briefly describe the details of the phone call and\or the meeting with the DVA representative. (Attach any copies of your letters or letters from the DVA to this page.) e. Did the DVA representative ask you for, and did you provide: I. The reason for your non-payment? Yes No

II. The pertinent details of your domestic situation? YesNo III. The details of your employment situation? Yes No IV. Your overall financial status? Yes No

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43

f. Did the DVA representative accept a partial payment from you? YesNo I. If no, then describe below their reason for denial (or attach their letter of denial). g. Have you received a letter from the DVA notifying you of the lender's intention to foreclose on you? YesNo I. If yes, then attach a copy to this page. h. If the lender/servicer decides that they cannot, under any circumstance, grant you a workout, and thus must foreclose on you, then has DVA explained their refunding program to you? Yes No I. If no, then have you asked the DVA to consider you for their refunding program? YesNo A. If no, then ask the DVA for details on the refunding. II. Did the DVA accept you for their refunding program? YesNo A. If no, list the representative who you spoke to: (1) phone representative address date

(2) Please describe the reasons the DVA gave for refusing you into their refunding program. (Attach any pertinent letters to this page.) B. If the DVA did accept you into the refunding program, then list the representative who gave you the acceptance. (1) phone representative address date

44

How To Fight Foreclosure And Win With Honor (2) Please describe the details of the particular program the DVA gave in accepting you into their refunding program. (Attach any pertinent letters to this page.)

15. If your loan does not conform to government guidelines, and if the loan was not obtained through Cal-Vet, FHA or DVA, and if you do not have private mortgage insurance, yet you want to get started on a workout, then contact the lender(s) with whom you are behind in the payments and ask them to grant you a workout. (Caution: you may need to explain workouts to most private party lenders as well as some lower level employees at many lending institutions. With lending institutions, use letters and\or phone calls to climb the chain of command, such as from clerk to manager to president, until you find someone willing to grant you a satisfactory workout program.) a. List the name and address of the person who granted you a workout, or who said it was not possible. (See page 16-14 for delinquencies amounts.) 1st loan: number Yes 2nd loan: number Yes 3rd loan: number Yes 4th loan: number Yes 5th loan: number Yes No No No No No name name name name name workout you phone phone phone phone phone received. (Get all

b. List the terms of the agreements in writing?) 1st loan:

The Action Plan Workbook 2nd loan:

45

3rd loan:

4th loan:

5th loan:

16. List the total monthly payment of your current loans before any workout. $ . a. Add the additional monthly payment created by the workout. $ . . I. Equals the new monthly payment of: $

b. If the workout increased the principal amount you owe, then: I. List the original principal amount here (to be paid off by ), and $ . II. Add the new additional principal amount (to be paid off by ). $ . III. Equals your new total principal amount of: $ . __________________________________________________________________________ NOTES

NOTES

16-46

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47

OPTION 4: HOW TO WIN BY REFINANCING THE GOAL OF THIS OPTION: Borrow on the equity in your house in order to stay current on your loan payments. GETTING STARTED 1. To determine if you can borrow against your property, divide the total owed against your property (see page 16-16, item 15) by the appraised/estimated fair market value (see page 16-25, item 9dI), then multiply the answer by 100 to determine your loan-to-value %. a. Total owed $ . divided by property value $ multiplied by 100, equals % loan-to value (LTV). .

I. If your LTV is less than 90%, then chances do exist of receiving some sort of loan. 2. To determine if you may be able to qualify for refinancing, complete the worksheet on pages 16-38 through 16-39 for each of the different loan types. a. According to the results of this worksheet can you qualify for: I. An equity line of credit No Yes Yes Yes Yes Yes No

II. A conventional first mortgage refinance No III. A second or third mortgage No IV. A hard money loan V. A loan from a friend or relative No

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How To Fight Foreclosure And Win With Honor

3. What is your credit rating? a. Determine your credit rating from your credit report by contacting a credit bureau. I. What is your credit rating (either A, B, C or D)? Consult your credit report and page 8-11: Credit Date b. Have you received a NOD? No c. Have you ever filed bankruptcy? No Rating Yes Yes

4. Contact up to 3 lenders in each of the following loan categories. Most lenders will ask you the questions necessary to prequalify you over the phone. Be open, honest and sincere. Make notes of the differences in each lender's requirements. List the terms and prices of the best of each 3, and list whether you can qualify. (Attach additional pages, if necessary.) a. Equity line of credit: Yes No lender number II. Price and terms: I. representative Qualify?

phone

b. Conventional first mortgage refinance: YesNo I. lender representative

Qualify?

number II. Price and terms:

phone

c. A second or third mortgage: YesNo I. lender representative

Qualify?

number II. Price and terms:

phone

d. A hard money loan: YesNo I. lender representative

Qualify?

number II. Price and terms:

phone

e. A loan from a friend or relative: YesNo I. lender representative

Qualify?

number II. Price and terms:

phone

5. Contact up to 3 mortgage brokers who will use your basic information to shop all categories of loans for the best loan for you. List below the brokers you contacted: a. broker I. Prices and terms: phone

b.

broker I. Prices and terms: broker I. Prices and terms: broker I. Prices and terms:

phone

c.

phone

d.

phone

6. List the total monthly payment of your current loan(s). $ . a. Add any new loan monthly payment(s). . I. Equals the new monthly payment of: b. List the total of the original principal amount. $ . I. Add the new additional principal amount created by any new loan(s). $ . $ (A) Equals the new total principal amount of: . $ $ .

OPTION 5: HOW TO WIN BY USING THE LEGAL SYSTEM THE GOAL OF THIS OPTION: File a lawsuit, or negotiate, to delay, stop or dismiss the foreclosure when the lender has committed fraud or refuses to correct an error in your loan or foreclosure documents or procedures. GETTING STARTED 1. Error Checklist. Review the following key documents, as well as the servicing of those documents, for errors or fraud. a. The original contract to purchase the property: I. Are there any signs of error, fraud or other irregularity? Yes No II. If yes, then describe below. b. The escrow papers and procedures to purchase the property: I. Are there any signs of error, fraud or other irregularity? Yes No II. If yes, then describe below.

c. The original loan documents: I. Were the amounts of the following items fully disclosed to you on your loan documents? Yes Yes Yes No

A. Interest rate B. Full principal amount of the loan No C. Total interest to be paid No

D.Finance charges No E. Service charges No F. Loan fees No G.Mortgage insurance H.Property insurance I. No J. No Health or accident insurance The annual percentage rate (APR) Yes Yes

Yes Yes Yes No No Yes Yes

1. Was the APR calculated properly (pages 9-8 and 9-9)? Yes No a. Did the lender use the correct accrual basis for calculating the daily interest amount? Yes No b. Did the lender calculate the correct number of days between two interest charge periods? Yes No c. Did the lender use the correct margin amount? Yes No Yes

No

d. Did the lender use the correct index value during the month? e. Did the lender use the correct effective date for any rate changes? f. Did the lender use the correct loan balance when calculating the amount of interest due?

No

Yes

Yes No

g. Did the lender use the correct index type? Yes No h. If so, did the lender use the correct version? Yes No j. Did the lender use the correct source for the index? Yes No

d. Your Promissory Note and Deed of Trust (see examples on pages 1-26 through 1-29): I. Did you compare for exact accuracy the details on your promissory note and trust deed to the details on every document the trustee mailed, advertised and posted during the foreclosure process? (See page 1-26 for explanations of each detail.): A. Document Number B. Date of Execution C. Trustor (borrower) D.Trustee (unless a Substitution of Trustee, page 1-30, has been filed; if so, check it too) Yes No E. Beneficiary (lender) No F. Legal Description G.Amount of Indebtedness H.Venue I. Look for other errors or discrepancies Yes No Yes Yes Yes Yes No No No Yes Yes Yes No No No

e. Your Notice of Default (see an example on page 1-31, and item 2 on page 1-19): I. Did the trustee record the Notice of Default in the

office of the county recorder? Yes No Did the trustee mail a Notice of Default within 10 days of recordation to the homeowner/borrower? Yes No f. Your Notice of Trustee's Sale (see an example on page 1-32, and item 3 on page 1-19): Did the trustee wait until after 3 calendar months expired before proceeding with the trustee's sale? Yes No Did the trustee publish a Notice of Trustee's Sale once a week for 3 consecutive weeks over the 20 day period prior to the sale in a publication of general circulation in the county where the property is located? Yes No III. Did the trustee mail a registered/certified Notice of Trustee's Sale to the homeowner/borrower at least 20 days before the sale? Yes No IV. Did the trustee post the Notice of Trustee's Sale for at least 20 days: II. I. II.

A. In at least 1 public place in the city, judicial district or county of sale? Yes No B. On the door or other conspicuous place on the property in foreclosure? No Yes

g. If your foreclosing loan is through Cal-Vet, FHA or DVA, did the agency follow the correct foreclosure procedures as outlined in the corresponding sections in the option chapter 3? Yes No I. If no, then describe the incorrect procedures which caused you harm.(Attach additional pages, if necessary.) h. The conduct of the trustee at the sale (see page 1-20, item 7):

I.

Did the trustee conduct a public auction on a legal business day between 9 am and 5 pm at a public place in the county where the property is located? Yes No Was the property sold to the highest qualified bidder? Yes No Was the high bid paid in cash or cashier's check from a qualified lender as specified in the California Civil Code, or, a "cash equivalent," which has been designated in the notice of sale as acceptable to the trustee? Yes No Did the trustee reject all inadequate bids? Yes No After conclusion of the sale, did the trustee execute and deliver a Trustee's Deed to the buyer and endorse the fact of the foreclosure sale on the trust deed promissory note? Yes No Until the exact moment that the sale ends, did the trustee allow the property to be redeemed, or postponed 1 time only for 24 hours, by the trustor, any junior lienholder, or any other party with a legal interest may still redeem the property? Yes No

II. III.

IV. V.

VI.

After the sale, did the trustee pay off the first trust deed upon completion of the foreclosure (if the sale price equals or exceeds the amount of defaulted debt plus costs and expenses of sale)? Yes No A.If so, did the trustee distribute any remaining proceeds to other lien claimants? Yes No VIII. After the sale, did the trustee give the successful bidder a Trustee's Deed? Yes No i. Did you review the time sequences within item 2 on

VII.

pages 9-4 and 9-5 for additional error possibilities? Yes No j. Are there signs of error, fraud or irregularity with any other aspect of the property? Yes No I. If yes, then describe below. (Attach additional pages, if necessary.) 2. List the names of who read and reviewed the documents and procedures listed above for your case? a. A real estate broker (see page 9-2 for more on finding a broker)? Yes No attorney phone number Response: I. address

b. An attorney (see page 9-3 for more on finding an attorney)? Yes No attorney phone number Response: I. address

c. Consumer Loan Advocates (see page 9-9 for more on CLA)? Yes No attorney phone number Response: d. Yourself? Yes No attorney phone number Response: I. address I. address

e. A friend? No attorney phone number Response: f. Other? attorney phone number Response: g. Other? attorney phone number Response: I. address I. address I. address

Yes

Yes

No

Yes

No

3. Did you present any errors/fraud to the parties responsible for the errors/fraud? No a. If yes, did you write a letter? Yes No I. If yes, then attach a copy to this page. b. Did you make contact in a telephone conversation? Yes No

Yes

I. If yes, then summarize the main points of the conversation below. c. Did you make contact in person? No Yes

I. If yes, then summarize the main points of the visit below. d. Did the parties responsible for the errors/fraud

No

respond with a letter?

Yes

I. If yes, attach a copy to this page. e. Did they respond in a telephone call? No Yes

I. If yes, then summarize the main points of the conversation below. f. Did they respond during a visit you made to them? I. If yes, then summarize the main points of the conversation below. 4. At any point, were the parties responsible for the errors/fraud willing to negotiate with you in order to avoid a lawsuit? Yes No a. If yes, were they willing to officially stop the foreclosure while negotiations took place? Yes No I. If yes, then list below the actions they took. 5. Were the parties responsible for the errors willing to cooperate in negotiating with you to stop the foreclosure? Yes No a. If no, then you may be able to obtain a preliminary injunction or temporary restraining order to stop the sale or to set aside an already completed sale. List below the main points concerning their lack of cooperation. b. Were there any extraordinary violations of your rights? Yes No I. If yes, then you may be able to obtain a preliminary injunction or temporary restraining order to stop the sale or

to set aside an already completed sale. Explain the details of the violation(s) below. c. If you are trying to sell your property and have a strong prospective buyer, or a buyer in an escrow that is scheduled to close after the date of the trustee's sale, then did your lender, upon notification of the buyer, agree to postpone the trustee's sale in order to allow the escrow to close? Yes No I. If no, then you may be able to obtain a preliminary injunction or temporary restraining order to stop the sale. If the sale has already occurred, then you may be able to have it set aside in order to complete the sale. If the trustee's sale caused a bonafide buyer to buy elsewhere and thus caused you harm, then you may be able to sue for damages. d. Has your lender been cooperative in your attempts to workout the default? Yes No I. If no, then you may be able to obtain a preliminary injunction or temporary restraining order to stop the sale, especially if your loan is FHA or DVA guaranteed. Describe the details of your lender's lack of cooperation. 6. Did you attempt to avoid a lawsuit and negotiate an alternative with the lender? Yes No a. Did you request that the foreclosure be stopped and that no new action be taken? Yes No b. Did you request that the foreclosure be delayed, suspended or restarted from the beginning? Yes No c. Did you ask an attorney to negotiate your case? Yes No I. If yes, list the attorney's name and telephone number below.

Telephone

Name

d. Did you threaten to file a lawsuit? Yes No e. Did you actually file a lawsuit? No 7. Do you have the basis for a lawsuit, preliminary injunction or temporary restraining order? Yes No a. If yes, then do you plan to proceed with the lawsuit by yourself? Yes No I. Do you plan to hire an attorney? Yes No b. Do you have the basis for starting or joining a class action lawsuit? No Yes Yes

c. Which model lawsuit(s) seems most applicable to your case (see page 9-15)? 1 3 4 5 d. Did you file a motion for a preliminary injunction? Yes No I. If yes, then attach a copy of the motion to this page. II. Did you have to post a bond? No A. If yes, then attach a copy to this page. e. Did you file a motion for a temporary restraining order? Yes No I. If yes, then attach a copy of the motion to this page. II. Did you have to post a bond? No A. If yes, then attach a copy to this page. Yes Yes

f. Did you file a lis pendens to give the world and any prospective buyer notice that legal action is pending on your property? Yes No I. If yes, then attach a copy of the motion to this page.

g. If your property has already been sold in a trustee's sale, do you have the basis to have the sale voided, or set aside by the courts? No I.

Yes

If yes, then did you file a motion to set aside the sale? Yes No

II. If yes, then attach a copy of the motion to this page. III. Did you have to post a bond? No A. If yes, then attach a copy to this page. 8. Contact at least 3 attorneys, if possible. Look in your local Yellow Pages or newspapers (see page 9-3 for more on finding an attorney). Interview as many attorneys as possible until you find someone you feel comfortable with. List the attorneys you contacted below and what they promised you. (Circle the one you decided to hire.) a. attorney phone number Response: b. attorney phone number Response: c. attorney phone number Response: address Yes

address

address

-----------------------------------------------------------------------------------------

NOTES

OPTION 6: HOW TO WIN IF YOU ARE IN THE MILITARY THE GOAL OF THIS OPTION: Find relief from foreclosure if you, or a family member who has a legal share in your house, are in the United States armed forces. GETTING STARTED 1. Were you, or a co-owner of a property in foreclosure, in the American military service when you received a Notice of Default? Yes No a. Did you, or a co-owner of a property in foreclosure, fall behind on your loan payments as a result of serving in the American military service? Yes No I. Did you or a co-owner of a property in foreclosure, fall behind on your loan payments as a result of being called to active duty? Yes No b. Was your property sold at a foreclosure trustee's sale while you were away on active duty? YesNo 2. If you answered yes to any of the questions above, then immediately report to the appropriate attorney or legal counsel for your base or post and ask about your rights under SSCRA. Ask your commanding officer about the base's legal services, if necessary. a. Who was the base legal counsel or attorney you spoke to regarding your case? attorney/legal counsel phone number I. address

A. What was the suggested legal action? B. What was the legal action taken?

3. If you had to use an attorney outside the base legal services, then list the attorney(s) you consulted, the advice given and the action taken? a. attorney/legal counsel phone number address

I. What was the legal action suggested? II. What was the legal action taken? 4. Have you sent the letters and affidavit on pages 10-4 through 10-6? YesNo a. If no, then send them out immediately, but only if they are important to your case as determined by legal counsel.

OPTION 7: HOW TO WIN BY SELLING YOUR PROPERTY THE GOAL OF THIS OPTION: When your income cannot recover enough to afford your present loan payments, sell your house while seeking the best possible deal. Repurchase in a more affordable area, or just pocket the proceeds and rent. GETTING STARTED 1. How much equity do you have to work with (see page 16-17, item 21)? (Note: The actual sales commission figure can be substantially reduced from the projected commissions in 4cIB, page 16-12, by negotiating a lower broker's sales commission, and brought even lower by selling your property yourself.) $ . a. Subtract any additional sales costs, including any costs to fix-up the property listed on page 16-69. -$ .

I. Equals your maximum equity potential of: $ . II. Compare this to your minimum equity potential, item 3aIA, page 16-58. -$ . $ A. Equals your margin of equity potential of: .

b. Does this leave enough equity to purchase another property? Yes No I. If no, is there enough money remaining to make selling worthwhile? Yes No A. If no, then consider another option, such as Option 3, How To Win By Changing Your Mortgage Terms, if your financial problem is temporary, or Option 8, How To Win By Giving Away Your Property, if no other option is feasible. II. If yes to question b, then what are the new locations you would consider possible? A. Locally, in a down-sized and\or more affordable property? Yes No B. In a more affordable area inside California (see list, page 11-29)? Yes No C. In a more affordable area outside California (see list, page 11-30)? YesNo (1). If yes to any of the preceding 3 questions, then contact real estate agents in each area of interest. (Check your local library for Yellow Pages elsewhere; look under "real estate.") List the properties of interest and compare the benefits on page 16-68. 2. To determine your property's potential "asking price," list your property's appraised/fair market value (see item 9dI, page 16-25). $ . a. In a flat or depreciating market, multiply the amount above in item 2 by 95% to 99%. List the answer below in item 2aII. x %

I. In an active or appreciating market, multiply the amount above in item 2 by 101% to 110%. List the answer below in item 2aII. x % II. Answer to item 2a or 2aI which equals your suggested "asking price" and base for beginning negotiations: $ . 3. Establish the lowest price and the least desirable terms you would be willing to accept from a buyer before you would consider selling not worth while. (This information is for your use only. Do not give these figures to anyone else, except possibly your real estate broker/agent, at your own discretion.) a. List the lowest price you would be willing to accept from a buyer. $ . I. Subtract the total charges against your equity from page 16-17, item 18. A. Equals your minimum equity potential of: (Compare this to item 1aI, page 16-57). - $

b. List the least desirable terms you would be willing to accept from a buyer (includes down payment size, terms of any seller carrybacks or AITDs, or any concessions.) Add additional pages, if necessary.

4. Once you have made the decision to sell your house, you have at least 3 options available. (Check the item by which you feel most comfortable selling now; circle the item you ended up using to sell your property.) a. List your house with a real estate broker/agent under an Exclusive Right To Sell Listing, only (which guarantees a broker/agent commission under most circumstances). b. Sell it yourself "for sale by owner (FISBO)," only.

c. List your house with a real estate broker/agent under an Exclusive Agency Listing (which allows you to sell FISBO, as well as with the aid of a broker/agent). 5. Did you write any special provisions into the listing contract? Yes No 6. Whether you sell your property or a broker does, the following list is your basic range of potential home purchase contracts. (Check the item[s] you tried in negotiations with various potential buyers. Circle the item which ended up selling your property). Are you familiar with the details and benefits of the following home purchase contracts (see pages 11-10 through 11-23)? a. A regular retail buyer. No b. A party to lease-option. No I. Traditional lease-option. No II. Straight lease-option. No c. A buyer aided by seller financing. Yes No I. Seller carryback. No II. An all-inclusive trust deed (A.I.T.D.). No d. A sale/lease-back. No e. Partner (equity sharing) No f. An equity purchaser (foreclosure investor). Yes No g. A mortgage insurance-assisted foreclosure presale. Yes No Yes Yes Yes Yes Yes Yes Yes Yes

h. An assumption/transfer of liability. Yes No i. A lender short pay. No Yes

6. If you decide to sell FISBO, then make your own sales flyer (see pages 11-9 and 11-41). 7. If you have been approached by any equity purchasers, did they comply with the appropriate HESCA contractual and/or other requirements (see pages 11-20 through 11-23, and the HESCA section on page 19-1)? Yes No 8. Do you have mortgage insurance through: a. A private mortgage insurance company? Yes No b. The DVA? Yes No I. If yes, then have you contacted them by phone and by letter to request presale assistance (see Mortgage Insurance Assisted Foreclosure Presale, pages 11-23 through 11-25)? YesNo II. If yes, then list the agent you contacted. A. phone agent date

(1) Attach a copy of your letter to this page as well as their response letter, and describe below any additional information that was discussed on the phone or elsewhere: 9. Did you fill out a copy of the disclosure forms on pages 11-31 through 11-37? YesNo

a. If no, then fill them out now. b. Did you give a copy of the disclosure forms to every prospective buyer who either asked for them, or who made a written offer to purchase your property? YesNo I. If no, then be sure to give a copy to anyone who asks for the disclosure, or to anyone who makes a formal written offer to purchase your property. List the prospective buyers to whom you gave a copy of the disclosure. 10. If you decide to use a real estate broker/agent, then contact at least 3 broker/agents who specialize in your neighborhood. Look for real estate signs around your neighborhood. Look in your local Yellow Pages or newspapers. In fact, interview as many agent/brokers as necessary to find someone you feel comfortable with. List the agencies you contacted. Circle the item letter of the agent you decided to work with. (See How To Find A Good Agent, page 11-7.) a. agent address

phone Response: b.

agent phone Response: c. phone Response: agent

address

address

11. Once you begin to receive offers to buy your house, keep track of each offer by listing the price and terms, along with the potential buyer's name and address. (Terms include down payment size, terms of any seller carrybacks or AITDs, and any concessions.) Compare each offer on an apples for apples basis. Also, compare each offer to your bottom line figures in item 3a and 3b, page 16-58. Designate the type of home purchase contract (see item 5, page 16-59) with each offer, if you want. Make photocopies if more pages are necessary.

a. Price: $

Terms:

I. Your counter-offer, if any: Price:

Terms:

b. Price: $

Terms:

I. Your counter-offer, if any: Price:

Terms:

c. Price: $

Terms:

I. Your counter-offer, if any: Price:

Terms:

d. Price: $

Terms:

I. Your counter-offer, if any: Price:

Terms:

e. Price: $

Terms:

I. Your counter-offer, if any: Price:

Terms:

12. Does your buyer want to assume your existing loan in such a way as to release you from all liability on the loan? YesNo a. If yes, then did the buyer qualify with the existing lender? YesNo 13. List the price and terms of the offer you accepted and put into escrow. a. Price: $ . Terms:

14. If other offers are presented to you after you have accepted an offer and opened an escrow on a previous offer, then (make sure they are worded as back-up offers) list them below. a. Price: $ . Terms:

Comments: b. Price: $ . Terms:

Comments:

c. Price: $

Terms:

Comments: 15. If you are asked to carry back financing (see pages 11-13 through 11-16) to help make the sale, then the following checklist should help remind you of the important points to consider. a. Did you draw up and define the agreement in a promissory note and deed of trust? YesNo I. If yes: . A. What is the total principal amount? B. What is the interest rate? % C. What is the term of the loan (months/years)? D.How much is due at the end of the term? $ $

E. What are the payments, if any (per month/year/one-time)? $ . (1) The payments are interest only. YesNo (2) The payments are principal only. YesNo (3) The payments are both principal and interest. Yes No (4) The payment is a single lump sum at the end of the term. YesNo

II. Did you include: 1. Provisions for late charges? Yes No A.If yes, what are the terms? 2. Provisions for a grace period? YesNo A.If yes, what are the terms? 3. Prepayment penalties? Yes No A.If yes, what are the terms? b. Have you thought through the tax aspects of carrying a note? Yes No I. If yes, what are the considerations? c. Have you run a credit check on the applicant borrower's social security number? YesNo I. If yes, is the credit (circle 1): Good (1) What are the considerations, if any? d. Have you filed with the county recorder: I. a Request for Notice of Default? YesNo II. a Request for Notice of Delinquency? Yes No e. Notes: 16. Upon finding a buyer, open an escrow. Ideally, all parties to the deal should meet at the escrow office. List the name and phone number of the escrow company you decided to work Poor Average

with. (Attach a copy of the original escrow instructions and final settlement statement.) escrow company phone Comments: a. How many days did you set for the escrow to close? days b. How many days did it actually take for the escrow to close? days c. Did all parties to the deal meet together to open the escrow? Yes No address

d. Did you make immediate signing of the escrow instructions a contingency of the deal? YesNo e. Did the escrow officer distribute a preliminary title report within 5 days? Yes No f. Did you review for errors the various components of the deal? I. Addendums? Yes No

II. Vesting? YesNo III. Loan payoff demands? YesNo IV. Beneficiary statements? YesNo V. The preliminary settlement statement? YesNo g. Notes: 17. Begin looking for a new place to live. a. Did you buy a property in a more affordable area

(see page 16-57, item 1bII, and page 16-68)? YesNo I. If yes, then list the price and total new monthly payment. $ . $ .

A. Price. B. Total new monthly payment.

C. What is the address of the property you bought in a more affordable area? address town

state

II. If no, then do you want to rent for a while? YesNo A. If yes, what is the address of the house/apartment/room you rented? address town

state

(1) Can you work off the rent instead of paying cash? Yes No (2) If no, list your total monthly rent? $ .

III. Can you live with a friend or family member for a while rent free? Yes No A. If yes, what is the friend/family member's name and address? (1) relationship (2) state name address town

(a) Do you have to do any work in-lieu-of the rent? YesNo

Notes:

19. Use this page to evaluate each property by comparing the price to the lot size and the square footage of living space (attach additional photocopies, if necessary.) Or ask the real estate broker/agent in each area to send, mail or fax to you any Fact Sheets or Property Profiles detailing each of the properties that interest you. LOT SIZE LIVING SPACE PRICE

AREA/ADDRESS AGENT/PHONE a. Notes: b. Notes: c. Notes: d. Notes: e. Notes: f. Notes: g. Notes: h. Notes: i. Notes:

20. List all the estimated or actual costs necessary to fix-up the property for sale. a. Curb appeal I. Street side landscape A. Lawn B. Shrubs C. Flowers D.Trees E. Accents F. Miscellaneous II. Street side face of house A. Paint III. Miscellaneous b. Cosmetic repairs I. Interior of house A. Paint where necessary B. Flooring (1) Shampoo carpets (2) Mop and polish floors (3) Miscellaneous C. Window covering (1) Remove any shabby, stained or aged window coverings which do not make a room look good. (2) Miscellaneous D.Miscellaneous II. Remaining exterior face of house A. Paint where necessary . B. Miscellaneous III. Remaining landscape A. Driveway cleaning B. Miscellaneous IV. Miscellaneous c. Major repairs $ $ $ $ $ $ $ . . . . $ .

$ $ $ $ $ $

. . . . . .

. . . .

$ $ $ $

. .

. . . . .

I. II. III. IV.

Roof Plumbing Electrical Flooring replacement

$ $ $ $

V. Driveway replacement VI. Fumigation/termite damage repair $

$ . $

VII.Miscellaneous d. Total of all the estimated or actual fix-up costs

NOTES

16-80

The Action Plan Workbook

81

OPTION 8: HOW TO WIN BY GIVING AWAY YOUR PROPERTY THE GOAL OF THIS OPTION: When no equity exists, give the property away while striving to save your credit rating and negotiating for the best interim deal for yourself. GETTING STARTED 1. To determine if there is no equity, or not enough equity, in your property, complete item 1a and 1b on page 16-57. 2. If your answer is "no" to item 1b and 1bI on page 16-57, then: a. Is your loan insured or guaranteed by FHA? b. Is your loan insured or guaranteed by DVA? Yes No I. If yes to either (a) or (b) above, then contact the corresponding agency with both a letter and phone call(s) and express your interest in negotiating a deed-in-lieu of foreclosure. Attach a copy of your letter to this page, as well as the agency's response letter. A. Date letter was sent: B. Address letter was sent to: C. List the phone call(s) and representative(s) to whom you spoke, and the date. Yes No

c. Contact your lender and negotiate as many free months rent as possible in trade for a deed-in-lieu of foreclosure: I. phone lender

82

How To Fight Foreclosure And Win With Honor

II. Terms being negotiated: d. Place an ad in your local newspaper looking for someone to take over the existing loans and obligations on your property, including all back payments and foreclosure costs. See page 12-2 for an example of such an ad. List the newspaper and date your ad ran: I. date newspaper

II. Write or paste your ad below.

3. If you found someone willing to take over the existing loans and obligations on your property, including all back payments and foreclosure costs, then list (or attach copies of) the terms of the 3 best offers you received. a. phone I. b. phone name

Terms of the offer: name

II. Terms of the offer: c. phone I. name

Terms of the offer:

4. After analyzing and comparing the lender's terms in item 2cII page 16-72 alongside the various buyer's terms in items 3a, b & c above, list the terms you accepted. a.

The Action Plan Workbook name

83

phone I.

Terms of the agreement:

5. If no favorable terms are available from the lender, and if no one is found to take over the existing loans and obligations on your property, including all back payments and foreclosure costs, then forfeit the property (the lender's collateral for the loan) by filing a Deed-in-Lieu of Foreclosure in the lender's name (consult your attorney first). File this Deed-in-Lieu with the recorder's office in the county where the property is located. File it yourself or hire a service to file for you. (Look in the Yellow Pages under "legal aid services.") If you file a Deedin-Lieu, list the lender's name on the deed, the county recorder's office where filed, any legal aid service used and the filing date. lender county service

date

POWER OF SALE

The following California law is fairly self-explanatory. Basically, a lender who exercises non-judicial foreclosures power of sale is subject to the following Civil Code Section. Section
2924 Transfer as security deemed mortgage or pledge; Exercise of power of sale 2924.3 Notice by agent collecting payments from obligor 2924.5 Recitation of acceleration clause in instruments encumbering small residential properties 2924.6 Limitations on acceleration 2924.7 Enforcement of acceleration of maturity date of principal and interest or disbursement of proceeds of property insurance by beneficiary, trustee, mortgagee, or agent 2924a Conduct of sale by attorney for trustee 2924b Request for notice of default and sale 2924cCuring default; Notice of default; Limitation on costs and expenses; Attorney fees 2924d Right to reimbursement for costs and expenses of enforcement; Trustee's or attorney's fees; Prohibition against kickbacks 2924e Junior mortgagee's request to senior lienor for notice of delinquencies; Liability for failure to give notice 2924f Notice of sale; Posting, publication, and recording; Contents; Place of sale; Bids prior to sale 2924g Time and place of sale; Postponement; Conduct of sale 2924h Bidding; Penalties 2924i Notice regarding final payment on balloon payment loan 2924j Trustee's notice of conflicting claims to proceeds of sale under power of sale; Declaration of unresolved claims; Deposit in court 2924k Priority of order of distribution of proceeds; Trustee's costs and expenses 29241/2 [Section repealed]

2924. Transfer as security deemed mortgage or pledge; Exercise of power of sale Every transfer of an interest in property, other than in trust, made only as a security for the performance of another act, is to be deemed a mortgage, except when in the case of personal property it is accompanied by actual change of possession, in which case it is to be deemed a pledge. Where, by a mortgage created after July 27, 1917, of any estate in real property, other than an estate at will or for years, less than two, or in any transfer in trust made after July 27, 1917, of a like estate to secure the performance of an obligation,

17-1

a power of sale is conferred upon the mortgagee, trustee, or any other person, to be exercised after a breach of the obligation for which that mortgage or transfer is a security, the power shall not be exercised except where the mortgage or transfer is made pursuant to an order, judgment, or decree of a court of record, or to secure the payment of bonds or other evidences of indebtedness authorized or permitted to be issued by the Commissioner of Corporations, or is made by a public utility subject to the provisions of the Public Utilities Act, until (a) the trustee, mortgagee, or beneficiary, shall first file for record, in the office of the recorder of each county wherein the mortgaged or trust property or some part or parcel thereof is situated, a notice of default, identifying the mortgage or deed of trust by stating the name or names of the trustor or trustors and giving the book and page where the same is recorded or a description of the mortgaged or trust property and containing a statement that a breach of the obligation for which the mortgage or transfer in trust is security has occurred, and setting forth the nature of each breach actually known to the beneficiary and of his or her election to sell or cause to be sold the property to satisfy that obligation and any other obligation secured by the deed of trust or mortgage which is in default, and where the default is curable pursuant to Section 2924c, containing the statement specified in paragraph (1) of subdivision (b) of Section 2924c; (b) not less than three months shall thereafter elapse; and (c) after the lapse of the three months the mortgagee, trustee or other person authorized to take the sale shall give notice of sale, stating the time and place thereof, in the manner and for a time not less than that set forth in Section 2924f. A recital in the deed executed pursuant to the power of sale of compliance with all requirements of law regarding the mailing of copies of notices or the publication of a copy of the notice of default or the personal delivery of the copy of the notice of default or the posting of copies of the notice of sale or the publication of a copy thereof shall constitute prima facie evidence of compliance with these requirements and conclusive evidence thereof in favor of bona fide purchasers and encumbrancers for value and without notice. There is a rebuttable presumption that the beneficiary actually knew of all unpaid loan payments on the obligation owed to the beneficiary and secured by the deed of trust or mortgage subject to the notice of default. However, the failure to include an actually known default shall not invalidate the notice of sale and the beneficiary shall not be precluded from asserting a claim to this omitted default or defaults in a separate notice of default. 2924.3. Notice by agent collecting payments from obligor (a) Except as provided in subdivisions (b) and (c), a person who has undertaken as an agent of a mortgagee, beneficiary, or owner of a promissory note secured directly or collaterally by a mortgage or deed of trust on real property or an estate for years therein, to make collections of payments from an obligor under the note, shall mail the following notices, postage prepaid, to each mortgagee, beneficiary or owner for whom the agent has agreed to make collections from the obligor under the note: (1) A copy of the notice of default filed in the office of the county recorder pursuant to Section 2924 on account of a breach of obligation under the promissory note on which the agent has agreed to make collections of payments, within 15 days after recordation. (2) Notice that a notice of default has been recorded pursuant to Section 2924 on account of a breach of an obligation secured by a mortgage or deed of trust against the same property or estate for years therein having priority

17-2

over the mortgage or deed of trust securing the obligation described in paragraph (1), within 15 days after recordation or within three business days after the agent receives the information, whichever is later. (3) Notice of the time and place scheduled for the sale of the real property or estate for years therein pursuant to Section 2924f under a power of sale in a mortgage or deed of trust securing an obligation described in paragraphs (1) or (2), not less than 15 days before the scheduled date of the sale or not later than the next business day after the agent receives the information, whichever is later. (b) An agent who has undertaken to make collections on behalf of mortgagees, beneficiaries or owners of promissory notes secured by mortgages or deeds of trust on real property or an estate for years therein shall not be required to comply with the provisions of subdivision (a) with respect to a mortgagee, beneficiary or owner who is entitled to receive notice pursuant to subdivision (3) of Section 2924b or for whom a request for notice has been recorded pursuant to subdivision (2) of Section 2924b if the agent reasonably believes that the address of the mortgagee, beneficiary, or owner described in Section 2924b is the current business or residence address of that person. (c) An agent who has undertaken to make collections on behalf of mortgagees, beneficiaries or owners of promissory notes secured by mortgages or deeds of trust on real property or an estate for years therein shall not be required to comply with the provisions of paragraph (1) or (2) of subdivision (a) if the agent knows or reasonably believes that the default has already been cured by or on behalf of the obligor. (d) Any failure to comply with the provisions of this section shall not affect the validity of a sale in favor of a bona fide purchaser or the rights of an encumbrancer for value and without notice. 2924.5. Recitation of acceleration clause in instruments encumbering small residential properties No clause in any deed of trust or mortgage on property containing four or fewer residential units or on which four or fewer residential units are to be constructed or in any obligation secured by any deed of trust or mortgage on property containing four or fewer residential units or on which four or fewer residential units are to be constructed that provides for the acceleration of the due date of the obligation upon the sale, conveyance, alienation, lease, succession, assignment or other transfer of the property subject to the deed of trust or mortgage shall be valid unless the clause is set forth, in its entirety in both the body of the deed of trust or mortgage and the promissory note or other document evidencing the secured obligation. This section shall apply to all such deeds of trust, mortgages, and obligations secured thereby executed on or after July 1, 1972. 2924.6. Limitations on acceleration (a) An obligee may not accelerate the maturity date of the principal and accrued interest on any loan secured by a mortgage or deed of trust on residential real property solely by reason of any one or more of the following transfers in the title to the real property:

17-3

(1) A transfer resulting from the death of an obligor where the transfer is to the spouse who is also an obligor. (2) A transfer by an obligor where the spouse becomes a coowner of the property. (3) A transfer resulting from a decree of dissolution of the marriage or legal separation or from a property settlement agreement incidental to such a decree which requires the obligor to continue to make the loan payments by which a spouse who is an obligor becomes the sole owner of the property. (4) A transfer by an obligor or obligors into an inter vivos trust in which the obligor or obligors are beneficiaries. (5) Such real property or any portion thereof is made subject to a junior encumbrance or lien. (b) Any waiver of the provisions of this section by an obligor is void and unenforceable and is contrary to public policy. (c) For the purposes of this section, "residential real property" means any real property which contains at least one but not more than four housing units. (d) This act applies only to loans executed or refinanced on or after January 1, 1976. 2924.7. Enforcement of acceleration of maturity date of principal and interest or disbursement of proceeds of property insurance by beneficiary, trustee, mortgagee, or agent (a) The provisions of any deed of trust or mortgage on real property which authorize any beneficiary, trustee, mortgagee, or his or her agent or successor in interest, to accelerate the maturity date of the principal and interest on any loan secured thereby or to exercise any power of sale or other remedy contained therein upon the failure of the trustor or mortgagor to pay, at the times provided for under the terms of the deed of trust or mortgage, any taxes, rents, assessments, or insurance premiums with respect to the property or the loan, or any advances made by the beneficiary, mortgagee, or his or her agent or successor in interest shall be enforceable whether or not impairment of the security interest in the property has resulted from the failure of the trustor or mortgagor to pay the taxes, rents, assessments, insurance premiums, or advances. (b) The provisions of any deed of trust or mortgage on real property which authorize any beneficiary, trustee, mortgagee, or his or her agent or successor in interest, to receive and control the disbursement of the proceeds of any policy of fire, flood, or other hazard insurance respecting the property shall be enforceable whether or not impairment of the security interest in the property has resulted from the event that caused the proceeds of the insurance policy to become payable. 2924a. Conduct of sale by attorney for trustee

17-4

Where by the terms of any trust or deed of trust a power of sale is conferred upon the trustee, the attorney for such trustee may conduct the sale act in such sale as the auctioneer for the trustee. 2924b. Request for notice of default and sale (a) Any person desiring a copy of any notice of default and of any notice of sale under any deed of trust or mortgage with power of sale upon real property or an estate for years therein, as to which deed of trust or mortgage the power of sale cannot be exercised until these notices are given for the time and in the manner provided in Section 2924 may, at any time subsequent to recordation of the deed of trust or mortgage and prior to recordation of notice of default thereunder, cause to be filed for record in the office of the recorder of any county in which any part or parcel of the real property is situated, a duly acknowledged request for a copy of the notice of default and of sale. This request shall be signed and acknowledged by the person making the request, specifying the name and address of the person to whom the notice is to be mailed, shall identify the deed of trust or mortgage by stating the names of the parties thereto, the date of recordation thereof , and the book and page where the deed of trust or mortgage is recorded or the recorder's number , and shall be in substantially the following form: In accordance with Section 2924b, Civil Code, request is hereby made that a copy of any notice of default and a copy of any notice of sale under the deed of trust (or mortgage) recorded , 19 , in Book page records of County, (or filed for record with recorder's serial number , County) California, executed by as trustor (or mortgagor) in which , is named as beneficiary (or mortgagee) and as trustee be mailed to at Name Address NOTICE: A copy of any notice of default and of any notice of sale will be sent only to the address contained in this recorded request. If you address changes, a new request must be recorded. Signature "

Upon the filing for record of the request, the recorder shall index in the general index of grantors the names of the trustors (or mortgagor) recited therein and the names of persons requesting copies. (b) The mortgagee, trustee, or other person authorized to record the notice of default shall do each of the following: (1) Within 10 business days following recordation of the notice of default, deposit or cause to be deposited in the United States mail an envelope, sent by registered or certified mail with postage prepaid, containing a copy of the notice with the recording date shown thereon, addressed to each person whose name and address are set forth in a duly recorded request therefor, directed to the address designated in the request and to each trustor or mortgagor at his or her last known address if different than the address specified in the deed of trust or mortgage with power of sale.

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(2) At least 20 days before the date of sale, deposit or cause to be deposited in the United States mail an envelope, sent by registered or certified mail with postage prepaid, containing a copy of the notice of the time and place of sale, addressed to each person whose name and address are set forth in a duly recorded request therefor, directed to the address designated in the request and to each trustor or mortgagor at his or her last known address if different than the address specified in the deed of trust or mortgage with power of sale. (3) As used in paragraphs (1) and (2), the "last known address" of each trustor or mortgagor means the last business or residence address actually known by the mortgagee, beneficiary, trustee, or other person authorized to record the notice of default. The beneficiary shall inform the trustee of the trustor's last address actually known by the beneficiary. However, the trustee shall incur no liability for failing to send any notice to the last address unless the trustee has actual knowledge of it. (c) The mortgagee, trustee, or other person authorized to record the notice of default shall do the following: (1) Within one month following recordation of the notice of default, deposit or cause to be deposited in the United States mail an envelope, sent by registered or certified mail with postage prepaid, containing a copy of the notice with the recording date shown thereon, addressed to each person set forth in paragraph (2), provided that the estate or interest of any person entitled to receive notice under this subdivision is acquired by an instrument sufficient to impart constructive notice of the estate or interest in the land or portion thereof which is subject to the deed of trust or mortgage being foreclosed, and provided the instrument is recorded in the office of the county recorder so as to impart that constructive notice prior to the recording date of the notice of default and provided the instrument as so recorded sets forth a mailing address which the county recorder shall use, as instructed within the instrument, for the return of the instrument after recording, and which address shall be the address used for the purposes of mailing notices herein. (2) The persons to whom notice shall be mailed under this subdivision are: (A) The successor in interest, as of the recording date of the notice of default, of the estate or interest or any portion thereof of the trustor or mortgagor of the deed of trust or mortgage being foreclosed. (B) The beneficiary or mortgagee of any deed of trust or mortgage recorded subsequent to the deed of trust or mortgage being foreclosed, or recorded prior to or concurrently with the deed of trust or mortgage being foreclosed but subject to a recorded agreement or a recorded statement of subordination to the deed of trust or mortgage being foreclosed. (C) The assignee of any interest of the beneficiary or mortgagee described in subparagraph (B), as of the recording date of the notice of default. (D) The vendee of any contract of sale, or the lessee of any lease, of the estate or interest being foreclosed which is recorded subsequent to the deed of trust or mortgage being foreclosed, or recorded prior to or concurrently with the deed of trust or mortgage being foreclosed but subject

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to a recorded agreement or statement of subordination to the deed of trust or mortgage being foreclosed. (E) The successor in interest to the vendee or lessee described in subparagraph (D), as of the recording date of the notice of default. (F) The Office of the Controller, Sacramento, California, where, as of the recording date of the notice of default, a "Notice of Lien for Postponed Property Taxes" has been recorded against the real property to which the notice of default applies. (3) At least 20 days before the date of sale, deposit or cause to be deposited in the United States mail, an envelope, sent by registered or certified mail with postage prepaid, containing a copy of the notice of the time and place of sale addressed to each person to whom a copy of the notice of default is to be mailed as provided in paragraphs (1) and (2), and addressed to the office of any state taxing agency, Sacramento, California, which has recorded a notice of tax lien prior to the recording date of the notice of default against the real property to which the notice of default applies. (4) The mailing of notices in the manner set forth in paragraph (1) shall not impose upon any licensed attorney, agent, or employee of any person entitled to receive notices as herein set forth any duty to communicate the notice to the entitled person from the fact that the mailing address used by the county recorder is the address of the attorney, agent, or employee. (d) Any deed of trust or mortgage with power of sale hereafter executed upon real property or an estate for years therein may contain a request that a copy of any notice of default and a copy of any notice of sale thereunder shall be mailed to any person or party thereto at the address of the person given therein, and a copy of any notice of default and of any notice of sale shall be mailed to each of these at the same time and in the same manner required as though a separate request therefor had been filed by each of these persons as herein authorized. If any deed of trust or mortgage with power of sale executed after September 19, 1939, except a deed of trust or mortgage of any of the classes excepted from the provisions of Section 2924 does not contain a request of the trustor or mortgagor for special notice at the address of the person given therein or does contain such a request but no address of the person is given therein and if no request for special notice by the trustor or mortgagor in substantially the form set forth in this section has subsequently been recorded, a copy of the notice of default shall be published once a week for at least four weeks in a newspaper of general circulation in the county in which the property is situated, the publication to commence within 10 business days after the filing of the notice of default. In lieu of publication, a copy of the notice of default may be delivered personally to the trustor or mortgagor within the 10 business days or at any time before publication is completed, or by posting the notice of default in a conspicuous place on the property and mailing to the last known address of the trustor. (e) Any person required to mail a copy of a notice of default or notice of sale to each trustor or mortgagor pursuant to subdivision (b) or (c) by registered or certified mail shall simultaneously cause to be deposited in the United States mail, with postage prepaid and mailed by first-class mail, an envelope containing an additional copy of the required notice addressed to each trustor or mortgagor at the same address to which the notice is sent by

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registered or certified mail pursuant to subdivision (b) or (c). The person shall execute and retain an affidavit identifying the notice mailed, showing the name and residence or business address of that person, that he or she is over the age of 18 years, the date of deposit in the mail, the name and address of the trustor or mortgagor to whom sent, and that the envelope was sealed and deposited in the mail with postage fully prepaid. In the absence of fraud, the affidavit required by this subdivision shall establish a conclusive presumption of mailing. (f) No request for a copy of any notice filed for record pursuant to this section, no statement or allegation in the request, and no record thereof shall affect the title to real property or be deemed notice to any person that any person requesting copies of notice has or claims any right, title, or interest in, or lien or charge upon the property described in the deed of trust or mortgage referred to therein. (g) "Business day," as used in this section, has the meaning specified in Section 9. 2924c. Curing default; Notice of default; Limitation on costs and expenses; Attorney fees (a) (1) Whenever all or a portion of the principal sum of any obligation secured by deed of trust or mortgage on real property or an estate for years therein hereafter executed has, prior to the maturity date fixed in that obligation, become due or been declared due by reason of default in payment of interest or of any installment of principal, or by reason of failure of trustor or mortgagor to pay, in accordance with the terms of that obligation or of the deed of trust or mortgage, taxes, assessments, premiums for insurance , or advances made by beneficiary or mortgagee in accordance with the terms of that obligation or of the deed of trust or mortgage, the trustor or mortgagor or his or her successor in interest in the mortgaged or trust property or any part thereof, or any beneficiary under a subordinate deed of trust or any other person having a subordinate lien or encumbrance of record thereon, at any time within the period specified in subdivision (e), if the power of sale therein is to be exercised, or, otherwise at any time prior to entry of the decree of foreclosure, may pay to the beneficiary or the mortgagee or their successors in interest, respectively, the entire amount due , at the time payment is tendered, with respect to (A) all amounts of principal, interest, taxes, assessments, insurance premiums, or advances actually known by the beneficiary to be, and that are, in default and shown in the notice of default, under the terms of the deed of trust or mortgage and the obligation secured thereby, (B) all amounts in default on recurring obligations not shown in the notice of default, and (C) all reasonable costs and expenses, subject to subdivision (c), which are actually incurred in enforcing the terms of the obligation, deed of trust , or mortgage, and trustee's or attorney's fees, subject to subdivision (d), other than the portion of principal as would not then be due had no default occurred, and thereby cure the default theretofore existing, and thereupon, all proceedings theretofore had or instituted shall be dismissed or discontinued and the obligation and deed of trust or mortgage shall be reinstated and shall be and remain in force and effect, the same as if the acceleration had not occurred. This section does not apply to bonds or other evidences of indebtedness authorized or permitted to be issued by the Commissioner of Corporations or made by a public utility subject to the Public Utilities Code. For the purposes of this subdivision, the term

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"recurring obligation" means all amounts of principal and interest on the loan, or rents, subject to the deed of trust or mortgage in default due after the notice of default is recorded; all amounts of principal and interest or rents advanced on senior liens or leaseholds which are advanced after the recordation of the notice of default; and payments of taxes, assessments, and hazard insurance advanced after recordation of the notice of default. Where the beneficiary or mortgagee has made no advances on defaults which would constitute recurring obligations, the beneficiary or mortgagee may require the trustor or mortgagor to provide reliable written evidence that the amounts have been paid prior to reinstatement. (2) If the trustor, mortgagor, or other person authorized to cure the default pursuant to this subdivision does cure the default, the beneficiary or mortgagee or agent for the beneficiary or mortgagee shall, within 21 days following the reinstatement, execute and deliver to the trustee a notice of rescission which rescinds the declaration of default and demand for sale and advises the trustee of the date of reinstatement. The trustee shall cause the notice of rescission to be recorded within 30 days of receipt of the notice of rescission and of all allowable fees and costs . No charge, except for the recording fee, shall be made against the trustor or mortgagor for the execution and recordation of the notice which rescinds the declaration of default and demand for sale. (b) (1) The notice, of any default described in this section, recorded pursuant to Section 2924, and mailed to any person pursuant to Section 2924b, shall begin with the following statement, printed or typed thereon: "IMPORTANT NOTICE [14-point boldface type if printed or in capital letters if typed] IF YOUR PROPERTY IS IN FORECLOSURE BECAUSE YOU ARE BEHIND IN YOUR PAYMENTS, IT MAY BE SOLD WITHOUT ANY COURT ACTION, [14-point boldface type if printed or in capital letters if typed] and you may have the legal right to bring your account in good standing by paying all of your past due payments plus permitted costs and expenses within the time permitted by law for reinstatement of your account, which is normally five business days prior to the date set for the sale of your property. No sale date may be set until three months from the date this notice of default may be recorded (which date of recordation appears on this notice). This amount is as of your account becomes current. , and will increase until

While your property is in foreclosure, you still must pay other obligations (such as insurance and taxes) required by your note and deed of trust or mortgage. If you fail to make future payments on the loan, pay taxes on the property, provide insurance on the property, or pay other obligations as required in the note and deed of trust or mortgage, the beneficiary or mortgagee may insist that you do so in order to reinstate your account in good standing. In addition, the beneficiary or mortgagee may require as a condition to reinstatement that you provide reliable written evidence that you paid all senior liens, property taxes, and hazard insurance premiums. Upon your written request, the beneficiary or mortgagee will give you a written itemization of the entire amount you must pay. You may not have to

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pay the entire unpaid portion of your account, even though full payment was demanded, but you must pay all amounts in default at the time payment is made. However, you and your beneficiary or mortgagee may mutually agree in writing prior to the time the notice of sale is posted (which may not be earlier than the end of the three-month period stated above) to, among other things, (1) provide additional time in which to cure the default by transfer of the property or otherwise; or (2) establish a schedule of payments in order to cure your default; or both (1) and (2). Following the expiration of the time period referred to in the first paragraph of this notice, unless the obligation being foreclosed upon or a separate written agreement between you and your creditor permits a longer period, you have only the legal right to stop the sale of your property by paying the entire amount demanded by your creditor. To find out the amount you must pay, or to arrange for payment to stop the foreclosure, or if your property is in foreclosure for any other reason, contact:

(Name of beneficiary or mortgagee) (Mailing address) (Telephone) If you have any questions, you should contact a lawyer or the governmental agency which may have insured your loan. Notwithstanding the fact that your property is in foreclosure, you may offer your property for sale, provided the sale is concluded prior to the conclusion of the foreclosure. Remember, YOU MAY LOSE LEGAL RIGHTS IF YOU DO NOT TAKE PROMPT ACTION. [14-point boldface type if printed or in capital letters if typed]" Unless otherwise specified, the notice, if printed, shall appear in at least 12-point boldface type. If the obligation secured by the deed of trust or mortgage is a contract or agreement described in paragraph (1) or (4) of subdivision (a) of Section 1632, the notice required herein shall be in Spanish if the trustor requested a Spanish language translation of the contract or agreement pursuant to Section 1632. If the obligation secured by the deed of trust or mortgage is contained in a home improvement contract, as defined in Sections 7151.2 and 7159 of the Business and Professions Code, which is subject to Title 2 (commencing with Section 1801), the seller shall specify on the contract whether or not the contract was principally negotiated in Spanish and if the contract was principally negotiated in Spanish, the notice required herein shall be in Spanish. No assignee of the contract or person authorized to record the notice of default shall incur any obligation or liability for failing to mail a notice in Spanish unless Spanish is specified in the contract or the assignee or person has actual knowledge that the secured obligation was principally negotiated in Spanish. Unless specified in writing to the contrary, a copy of the notice required by subdivision (c) of Section 2924b shall be in English.

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(2) Any failure to comply with the provisions of this subdivision shall not affect the validity of a sale in favor of a bona fide purchaser or the rights of an encumbrancer for value and without notice. (c) Costs and expenses which may be charged pursuant to Sections 2924 to 2924i, inclusive, shall be limited to the costs incurred for recording, mailing, publishing, and posting notices required by Sections 2924 to 2924i, inclusive, postponement upon the written request of the trustor pursuant to Section 2924g made to either the beneficiary or trustee not to exceed fifty dollars ($50) per postponement and a fee for a trustee's sale guarantee or, in the event of judicial foreclosure, a litigation guarantee. (d) Trustee's or attorney's fees which may be charged pursuant to subdivision (a), or until the notice of sale is deposited in the mail to the trustor as provided in Section 2924b, if the sale is by power of sale contained in the deed of trust or mortgage, or, otherwise at any time prior to the decree of foreclosure, are hereby authorized to be in an amount which does not exceed two hundred forty dollars ($240) with respect to any portion of the unpaid principal sum secured which is fifty thousand dollars ($50,000) or less, plus one-half of 1 percent of the unpaid principal sum secured exceeding fifty thousand dollars ($50,000) up to and including one hundred fifty thousand dollars ($150,000), plus one-quarter of 1 percent of any portion of the unpaid principal sum secured exceeding one hundred fifty thousand dollars ($150,000) up to and including five hundred thousand dollars ($500,000), plus one-eighth of 1 percent of any portion of the unpaid principal sum secured exceeding five hundred thousand dollars ($500,000). Any charge for trustee's or attorney's fees authorized by this subdivision shall be conclusively presumed to be lawful and valid where the charge does not exceed the amounts authorized herein. (e) Reinstatement of a monetary default under the terms of an obligation secured by a deed of trust, or mortgage may be made at any time within the period commencing with the date of recordation of the notice of default until five business days prior to the date of sale set forth in the initial recorded notice of sale. In the event the sale does not take place on the date set forth in the initial recorded notice of sale or a subsequent recorded notice of sale is required to be given, the right of reinstatement shall be revived as of the date of recordation of the subsequent notice of sale, and shall continue from that date until five business days prior to the date of sale set forth in the subsequently recorded notice of sale. In the event the date of sale is postponed on the date of sale set forth in either an initial or any subsequent notice of sale, or is postponed on the date declared for sale at an immediately preceding postponement of sale, and, the postponement is for a period which exceeds five business days from the date set forth in the notice of sale, or declared at the time of postponement, then the right of reinstatement is revived as of the date of postponement and shall continue from that date until five business days prior to the date of sale declared at the time of the postponement. Nothing contained herein shall give rise to a right of reinstatement during the period of five business days prior to the date of sale, whether the date of sale is noticed in a notice of sale or declared at a postponement of sale.

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Pursuant to the terms of this subdivision, no beneficiary, trustee, mortgagee, or their agents or successors shall be liable in any manner to a trustor, mortgagor, their agents or successors for the failure to allow a reinstatement of the obligation secured by a deed of trust or mortgage during the period of five business days prior to the sale of the security property, and no such right of reinstatement during this period is created by this section. Any right of reinstatement created by this section is terminated five business days prior to the date of sale set forth in the initial date of sale, and is revived only as prescribed herein and only as of the date set forth herein. As used in this subdivision, the term "business day" has the same meaning as specified in Section 9. 2924d. Right to reimbursement for costs and expenses of enforcement; Trustee's or attorney's fees; Prohibition against kickbacks (a) Commencing with the date that the notice of sale is deposited in the mail, as provided in Section 2924b, and until the property is sold pursuant to the power of sale contained in the mortgage or deed of trust, a beneficiary, trustee, mortgagee, or his or her agent or successor in interest, may demand and receive from a trustor, mortgagor, or his or her agent or successor in interest, or any beneficiary under a subordinate deed of trust, or any other person having a subordinate lien or encumbrance of record those reasonable costs and expenses, to the extent allowed by subdivision (c) of Section 2924c, which are actually incurred in enforcing the terms of the obligation and trustee's or attorney's fees which are hereby authorized to be in an amount which does not exceed three hundred fifty dollars ($350) with respect to any portion of the unpaid principal sum secured which is fifty thousand dollars ($50,000) or less, plus 1 percent of any portion of the unpaid principal sum secured exceeding fifty thousand dollars ($50,000) up to and including one hundred fifty thousand dollars ($150,000), plus one-half of 1 percent of any portion of the unpaid principal sum secured exceeding one hundred fifty thousand dollars ($150,000) up to and including five hundred thousand dollars ($500,000), plus one-quarter of 1 percent of any portion of the unpaid principal sum secured exceeding five hundred thousand dollars ($500,000). Any charge for trustee's or attorney's fees authorized by this subdivision shall be conclusively presumed to be lawful and valid where that charge does not exceed the amounts authorized herein. Any charge for trustee's or attorney's fees made pursuant to the provisions of this subdivision shall be in lieu of and not in addition to those charges authorized by subdivision (d) of Section 2924c. (b) Upon the sale of property pursuant to a power of sale, a trustee, or his or her agent or successor in interest, may demand and receive from a beneficiary, or his or her agent or successor in interest, or may deduct from the proceeds of the sale, those reasonable costs and expenses, to the extent allowed by subdivision (c) of Section 2924c, which are actually incurred in enforcing the terms of the obligation and trustee's or attorney's fees which are hereby authorized to be in an amount which does not exceed three hundred fifty dollars ($350) or one percent of the unpaid principal sum secured, whichever is greater. Any charge for trustee's or attorney's fees authorized by this subdivision shall be conclusively presumed to be lawful and valid where that charge does not exceed the amount authorized herein. Any charges for trustee's or attorney's fees made pursuant to the provisions

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of this subdivision shall be in lieu of and not in addition to those charges authorized by subdivision (a) of this section and subdivision (d) of Section 2924c. (c)(1) No person shall pay or offer to pay or collect any rebate or kickback for the referral of business involving the performance of any act required by this article. (2) Any person who violates this subdivision shall be liable to the trustor for three times the amount of any rebate or kickback, plus reasonable attorney's fees and costs, in addition to any other remedies provided by law. (3) No violation of this subdivision shall affect the validity of a sale in favor of a bona fide purchaser or the rights of an encumbrancer for value without notice. (d) It shall not be unlawful for a trustee to pay or offer to pay a fee to an agent or subagent of the trustee for work performed by the agent or subagent in discharging the trustee's obligations under the terms of the deed of trust. Any payment of a fee by a trustee to an agent or subagent of the trustee for work performed by the agent or subagent in discharging the trustee's obligations under the terms of the deed of trust shall be conclusively presumed to be lawful and valid if the fee, when combined with other fees of the trustee, does not exceed in the aggregate the trustee's fee authorized by subdivision (d) of Section 2924c or subdivision (a) or (b) of this section. (e) When a court issues a decree of foreclosure, it shall have discretion to award attorney's fees, costs, and expenses as are reasonable, if provided for in the note, deed of trust, or mortgage, pursuant to Section 580c of the Code of Civil Procedure. 2924e. Junior mortgagee's request to senior delinquencies; Liability for failure to give notice lienor for notice of

(a) The beneficiary or mortgagee of any deed of trust or mortgage on real property either containing one to four residential units or given to secure an original obligation not to exceed three hundred thousand dollars ($300,000) may, with the written consent of the trustor or mortgagor that is either effected through a signed and dated agreement which shall be separate from other loan and security documents or disclosed to the trustor or mortgagor in at least 10-point type, submit a written request by certified mail to the beneficiary or mortgagee of any lien which is senior to the lien of the requester, for written notice of any or all delinquencies of four months or more, in payments of principal or interest on any obligation secured by that senior lien notwithstanding that the loan secured by the lien of the requester is not then in default as to payments of principal or interest. The request shall be sent to the beneficiary or mortgagee, or agent which it might designate for the purpose of receiving loan payments, at the address specified for the receipt of these payments, if known, or, if not known, at the address shown on the recorded deed of trust or mortgage. (b) The request for notice shall identify the ownership or security interest of the requester, the date on which the interest of the requester will terminate

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as evidenced by the maturity date of the note of the trustor or mortgagor in favor of the requester, the name of the trustor or mortgagor and the name of the current owner of the security property if different from the trustor or mortgagor, the street address or other description of the security property, the loan number (if available to the requester) of the loan secured by the senior lien, the name and address to which notice is to be sent, and shall include or be accompanied by the signed written consent of the trustor or mortgagor, and a fee of forty dollars ($40). For obligations secured by residential properties, the request shall remain valid until withdrawn in writing and shall be applicable to all delinquencies as provided in this section, which occur prior to the date on which the interest of the requester will terminate as specified in the request or the expiration date, as appropriate. For obligations secured by nonresidential properties, the request shall remain valid until withdrawn in writing and shall be applicable to all delinquencies as provided in this section, which occur prior to the date on which the interest of the requester will terminate as specified in the request or the expiration date, as appropriate. The beneficiary or mortgagee of obligations secured by nonresidential properties that have sent five or more notices prior to the expiration of the effective period of the request may charge a fee up to fifteen dollars ($15) for each subsequent notice. A request for notice shall be effective for five years from the mailing of the request or the recording of that request, whichever occurs later, and may be renewed within six months prior to its expiration date by sending the beneficiary or mortgagee, or agent, as the case may be, at the address to which original requests for notice are to be sent, a copy of the earlier request for notice together with a signed statement that the request is renewed and a renewal fee of fifteen dollars ($15). Upon timely submittal of a renewal request for notice, the effectiveness of the original request is continued for five years from the time when it would otherwise have lapsed. Succeeding renewal requests may be submitted in the same manner. The request for notice and renewals thereof shall be recorded in the office of the county recorder of the county in which the security real property is situated. The rights and obligations specified in this section shall inure to the benefit of, or pass to, as the case may be, successors in interest of parties specified in this section. Any successor in interest of a party entitled to notice under this section shall file a request for that notice with any beneficiary or mortgagee of the senior lien and shall pay a processing fee of fifteen dollars ($15). No new written consent shall be required from the trustor or mortgagor. (c) Unless the delinquency has been cured, within 15 days following the end of four months from any delinquency in payments of principal or interest on any obligation secured by the senior lien which delinquency exists or occurs on or after 10 days from the mailing of the request for notice or the recording of that request, whichever occurs later, the beneficiary or mortgagee shall give written notice to the requester of the fact of any delinquency and the amount thereof. The notice shall be given by personal service, or by deposit in the mail, first-class postage paid. Following the recording of any notice of default pursuant to Section 2924 with respect to the same delinquency, no notice or further notice shall be required pursuant to this section. (d) If the beneficiary or mortgagee of any such senior lien fails to give notice to the requester as required in subdivision (c), and a subsequent foreclosure or trustee's sale of the security property occurs, the beneficiary

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or mortgagee shall be liable to the requester for any monetary damage due to the failure to provide notice within the time period specified in subdivision (c) which the requester has sustained from the date on which notice should have been given to the earlier of the date on which the notice is given or the date of the recording of the notice of default under Section 2924, and shall also forfeit to the requester the sum of three hundred dollars ($300). A showing by the beneficiary or mortgagee by a preponderance of the evidence that the failure to provide timely notice as required by subdivision (c) resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error shall be a defense to any liability for that failure. (e) If any beneficiary or mortgagee, or agent which it had designated for the purpose of receiving loan payments, has been succeeded in interest by any other person, any request for notice received pursuant to this section shall be transmitted promptly to that person. (f) Any failure to comply with the provisions of this section shall not affect the validity of a sale in favor of a bona fide purchaser or the rights of an encumbrancer for value and without notice. (g) Upon satisfaction of an obligation secured by a junior lien with respect to which a notice request was made pursuant to this section, the beneficiary or mortgagee that made the request shall communicate that fact in writing to the senior lienholder to whom the request was made. The communication shall specify that provision of notice pursuant to the prior request under this section is no longer required. 2924f. Notice of sale; Posting, publication, and recording; Contents; Place of sale; Bids prior to sale (a) As used in this section and Sections 2924g and 2924h "property" means real property or a leasehold estate therein. (b) (1) Except as provided in subdivision (c), before any sale of property can be made under the power of sale contained in any deed of trust or mortgage, or any resale resulting from a rescission for a failure of consideration pursuant to subdivision (c) of Section 2924h, notice of the sale thereof shall be given by posting a written notice of the time of sale and of the street address and the specific place at the street address where the sale will be held, and describing the property to be sold, at least 20 days before the date of sale in one public place in the city where the property is to be sold, if the property is to be sold in a city, or, if not, then in one public place in the judicial district in which the property is to be sold, and publishing a copy * * * once a week for the same period, in a newspaper of general circulation published in the city in which the property or some part thereof is situated, if any part thereof is situated in a city, if not, then in a newspaper of general circulation published in the judicial district in which the property or some part thereof is situated, or in case no newspaper of general circulation is published in the city or judicial district, as the case may be, in a newspaper of general circulation published in the county in which the property or some part thereof is situated, or in case no newspaper of general circulation is published in the city or judicial district or county, as the case may be, in a newspaper of general circulation published in the county in this state that (A) is contiguous to the county in which the property or some part thereof is situated and (B) has, by comparison with

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all similarly contiguous counties, the highest population based upon total county population as determined by the most recent federal decennial census published by the Bureau of the Census. A copy of the notice of sale shall also be posted in a conspicuous place on the property to be sold at least 20 days before the date of sale, where possible and where not restricted for any reason. If the property is a single-family residence the posting shall be on a door of the residence, but, if not possible or restricted, then the notice shall be posted in a conspicuous place on the property; however, if access is denied because a common entrance to the property is restricted by a guard gate or similar impediment, the property may be posted at that guard gate or similar impediment to any development community. Additionally, the notice of sale shall conform to the minimum requirements of Section 6043 of the Government Code and be recorded with the county recorder of the county in which the property or some part thereof is situated at least 14 days prior to the date of sale. The notice of sale shall contain the name, street address, and telephone number of the trustee or other person conducting the sale, and the name of the original trustor, and also shall contain the statement required by paragraph (3) of subdivision (c). In addition to any other description of the property, the notice shall describe the property by giving its street address, if any, or other common designation, if any, and a county assessor's parcel number; but if the property has no street address or other common designation, the notice shall contain a legal description of the property, the name and address of the beneficiary at whose request the sale is to be conducted and a statement that directions may be obtained pursuant to a written request submitted to the beneficiary within 10 days from the first publication of the notice. Directions shall be deemed reasonably sufficient to locate the property if information as to the location of the property is given by reference to the direction and approximate distance from the nearest crossroads, frontage road, or access road. If a legal description or a county assessor's parcel number and either a street address or another common designation of the property is given, the validity of the notice and the validity of the sale shall not be affected by the fact that the street address, other common designation, name and address of the beneficiary, or the directions obtained therefrom are erroneous or that the street address, other common designation, name and address of the beneficiary, or directions obtained therefrom are omitted. The term newspaper of general circulation as used in this section has the same meaning as defined in Article 1 (commencing with Section 6000) of Chapter 1 of Division 7 of Title 1 of the Government Code. The notice of sale shall contain a statement of the total amount of the unpaid balance of the obligation secured by the property to be sold and reasonably estimated costs, expenses, advances at the time of the initial publication of the notice of sale, and, if republished pursuant to a cancellation of a cash equivalent pursuant to subdivision (d) of Section 2924h, a reference of that fact; provided, that the trustee shall incur no liability for any good faith error in stating the proper amount. An inaccurate statement of this amount shall not affect the validity of any sale to a bona fide purchaser for value, nor shall the failure to post the notice of sale on a door as provided by this subdivision affect the validity of any sale to a bona fide purchaser for value. (2) If the sale of the property is to be a unified sale as provided in subparagraph (ii) of paragraph (a) of subdivision (4) of Section 9501 of the Commercial Code, the notice of sale shall also contain a description of the

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personal property or fixtures to be sold. In the case where it is contemplated that all of the personal property or fixtures are to be sold, the description in the notice of the personal property or fixtures shall be sufficient if it is the same as the description of the personal property or fixtures contained in the agreement creating the security interest in or encumbrance on the personal property or fixtures or the filed financing statement relating to the personal property or fixtures. In all other cases, the description in the notice shall be sufficient if it would be a sufficient description of the personal property or fixtures under Section 9110 of the Commercial Code. Inclusion of a reference to or a description of personal property or fixtures in a notice of sale hereunder shall not constitute an election by the secured party to conduct a unified sale pursuant to subparagraph (ii) of paragraph (a) of subdivision (4) of Section 9501 of the Commercial Code, shall not obligate the secured party to conduct a unified sale pursuant to subparagraph (ii) of paragraph (a) of subdivision (4) of Section 9501 of the Commercial Code, and in no way shall render defective Or noncomplying either that notice or a sale pursuant to that notice by reason of the fact that the sale includes none or less than all of the personal property or fixtures referred to or described in the notice. This paragraph shall not otherwise affect the obligations or duties of a secured party under the Commercial Code. (c)(1) This subdivision applies only to deeds of trust or mortgages which contain a power of sale and which are secured by real property containing a single-family, owner-occupied residence, where the obligation secured by the deed of trust or mortgage is contained in a contract for goods or services subject to the provisions of the Unruh Act (Chapter 1 (commencing with Section 1801) of Title 2 of Part 4 of Division 3). (2) Except as otherwise expressly set forth in this subdivision, all other provisions of law relating to the exercise of a power of sale shall govern the exercise of a power of sale contained in a deed of trust or mortgage described in paragraph (1). (3) If any default of the obligation secured by a deed of trust or mortgage described in paragraph (1) has not been cured within 30 days after the recordation of the notice of default, the trustee or mortgagee shall mail to the trustor or mortgagor, at his or her last known address, a copy of the following statement: YOU ARE IN DEFAULT UNDER A

(Deed of trust or mortgage) DATED , UNLESS YOU TAKE ACTION TO PROTECT YOUR PROPERTY, IT MAY BE SOLD AT A PUBLIC SALE. IF YOU NEED AN EXPLANATION OF THE NATURE OF THE PROCEEDING AGAINST YOU, YOU SHOULD CONTACT A LAWYER. (4) All sales of real property pursuant to a power of sale contained in any deed of trust or mortgage described in paragraph (1) shall be held in the county where the residence is located and shall be made to the person making the highest offer. The trustee may receive offers during the 10-day period immediately prior to the date of sale and if any offer is accepted in writing by both the trustor or mortgagor and the beneficiary or mortgagee prior to the time set for sale, the sale shall be postponed to a date certain and, prior to which the property may be conveyed by the trustor to the

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person making the offer according to its terms. The offer is revocable until accepted. The performance of the offer following acceptance, according to its terms by a conveyance of the property to the offeror shall operate to terminate any further proceeding under the notice of sale and it shall be deemed revoked. (5) In addition to the trustee fee pursuant to Section 2924c, the trustee or mortgagee pursuant to a deed of trust or mortgage subject to this subdivision shall be entitled to charge an additional fee of fifty dollars ($50). (6) This subdivision applies only to property on which notices of default were filed on or after the effective date of this subdivision. 2924g. Time and place of sale; Postponement; Conduct of sale (a) All sales of property under the power of sale contained in any deed of trust or mortgage shall be held in the county where the property or some part thereof is situated, and shall be made at auction, to the highest bidder, between the hours of 9 a.m. and 5 p.m. on any business day, Monday through Friday. The sale shall commence at the time and location specified in the notice of sale. Any postponement shall be announced at the time and location specified in the notice of sale for commencement of the sale or pursuant to paragraph (1) of subdivision (c). If the sale of more than one parcel of real property has been scheduled for the same time and location by the same trustee, (1) any postponement of any of the sales shall be announced at the time published in the notice of sale, (2) the first sale shall commence at the time published in the notice of sale or immediately after the announcement of any postponement, and (3) each subsequent sale shall take place as soon as possible after the preceding sale has been completed. (b) When the property consists of several known lots or parcels they shall be sold separately unless the deed of trust or mortgage provides otherwise. When a portion of the property is claimed by a third person, who requires it to be sold separately, the portion subject to the claim may be thus sold. The trustor, if present at the sale, may also, unless the deed of trust or mortgage otherwise provides, direct the order in which property shall be sold, when the property consists of several known lots or parcels which may be sold to advantage separately, and the trustee shall follow that direction. After sufficient property has been sold to satisfy the indebtedness no more can be sold. If the property under power of sale is in two or more counties the public auction sale of all of the property under the power of sale may take place in any one of the counties where the property or a portion thereof is located. (c) (1) There may be a postponement of the sale proceedings at any time prior to the completion of the sale at the discretion of the trustee, or upon instruction by the beneficiary to the trustee that the sale proceedings be postponed. There may be a maximum of three postponements of the sale proceedings pursuant to this subdivision. In the event that the sale proceedings are

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postponed three times, the scheduling of any further sale proceedings shall be preceded by the giving of a new notice of sale in the manner prescribed by Section 2924f. * * * (2) The trustee shall postpone the sale upon the order of any court of competent jurisdiction, or where stayed by operation of law, or by the mutual agreement, whether oral or in writing, of any trustor and any beneficiary or any mortgagor and any mortgagee. Any postponement pursuant to this paragraph shall not be a postponement for purposes of determining the maximum number of postponements permitted pursuant to this subdivision nor shall a postponement resulting from the prohibition upon a sale within seven days from the expiration of an injunction, restraining order, or stay as provided in subdivision (d) be deemed a postponement for purposes of this subdivision. In addition, one postponement by the trustee based upon a reasonable belief that a petition for bankruptcy has been filed shall not be a postponement for purposes of determining the maximum number of postponements permitted pursuant to this subdivision. (d) The notice of each postponement and the reason therefor shall be given by public declaration by the trustee at the time and place last appointed for sale. A public declaration of postponement shall also set forth the new date, time, and place of sale and the place of sale shall be the same place as originally fixed by the trustee for the sale. No other notice of postponement need be given. However, the sale shall be conducted no sooner than seven days after the earlier of (1) dismissal of the action or (2) expiration or termination of the injunction, restraining order, or stay (which required postponement of the sale), whether by entry of an order by a court of competent jurisdiction, operation of law, or otherwise, unless the injunction, restraining order, or subsequent order expressly directs the conduct of the sale within that seven-day period. If the sale had been scheduled to occur, but this subdivision precludes its conduct during that seven-day period, a new notice of postponement shall be given if the sale had been scheduled to occur during that seven-day period. The trustee shall maintain records of each postponement and the reason therefor. 2924h. Bidding; Penalties (a) Each and every bid made by a bidder at a trustee's sale under a power of sale contained in a deed of trust or mortgage shall be deemed to be an irrevocable offer by that bidder to purchase the property being sold by the trustee under the power of sale for the amount of the bid. Any second or subsequent bid by the same bidder or any other bidder for a higher amount shall be a cancellation of the prior bid. (b) At the trustee's sale the trustee shall have the right (1) to require every bidder to show evidence of the bidder's ability to deposit with the trustee the full amount of his or her final bid in cash, a cashier's check drawn on a state or national bank, a check drawn by a state or federal credit union, or a check drawn by a state or federal savings and loan association, savings association, or savings bank specified in Section 5102 of the Financial Code and authorized to do business in this state, or a cash equivalent which has been designated in the notice of sale as acceptable to the trustee prior to and as a condition to the recognizing of the bid, and to conditionally accept and hold these amounts for the duration of the sale, and (2) to require the last and highest bidder to deposit, if not deposited previously, the full

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amount of the bidder's final bid in cash, a cashier's check drawn on a state or national bank, a check drawn by a state or federal credit union, or a check drawn by a state or federal savings and loan association, savings association, or savings bank specified in Section 5102 of the Financial Code and authorized to do business in this state, or a cash equivalent which has been designated in the notice of sale as acceptable to the trustee, immediately prior to the completion of the sale, the completion of the sale being so announced by the fall of the hammer or in other customary manner. The present beneficiary of the deed of trust under foreclosure shall have the right to offset his or her bid(s) only to the extent of the total amount due the beneficiary including the trustee's fees and expenses. (c) In the event the trustee accepts a check drawn by a credit union or a savings and loan association pursuant to this subdivision or a cash equivalent designated in the notice of sale, the trustee may withhold the issuance of the trustee's deed to the successful bidder submitting the check drawn by a state or federal credit union or savings and loan association or the cash equivalent until funds become available to the payee or endorsee as a matter of right. For the purposes of this subdivision, the trustee's sale shall be deemed final upon the acceptance of the last and highest bid, and shall be deemed perfected as of 8a.m. on the actual date of sale if the trustee's deed is recorded within 15 calendar days of the sale. However, the sale is subject to an automatic rescission for a failure of consideration in the event the funds are not available for withdrawal as defined in Section 12413.1 of the Insurance Code. The trustee shall send a notice of rescission for a failure of consideration to the last and highest bidder submitting the check or alternative instrument, if the address of the last and highest bidder is known to the trustee. If a sale results in an automatic right of rescission for failure of consideration pursuant to this subdivision, the interest of any lienholder shall be reinstated in the same priority as if the previous sale had not occurred. (d) If the trustee has not required the last and highest bidder to deposit the cash, a cashier's check drawn on a state or national bank, a check drawn by a state or federal credit union, or a check drawn by a state or federal savings and loan association, savings association, or savings bank specified in Section 5102 of the Financial Code and authorized to do business in this state, or a cash equivalent which has been designated in the notice of sale as acceptable to the trustee in the manner set forth in paragraph (2) of subdivision (b), the trustee shall complete the sale. If the last and highest bidder then fails to deliver to the trustee, when demanded, the amount of his or her final bid in cash, a cashier's check drawn on a state or national bank, a check drawn by a state or federal credit union, or a check drawn by a state or federal savings and loan association, savings association, or savings bank specified in Section 5102 of the Financial Code and authorized to do business in this state, or a cash equivalent which has been designated in the notice of sale as acceptable to the trustee, that bidder shall be liable to the trustee for all damages which the trustee may sustain by the refusal to deliver to the trustee the amount of the final bid, including any court costs and reasonable attorneys' fees.

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If the last and highest bidder willfully fails to deliver to the trustee the amount of his or her final bid in cash, a cashier's check drawn on a state or national bank, a check drawn by a state or federal credit union, or a check drawn by a state or federal savings and loan association, savings association, or savings bank specified in Section 5102 of the Financial Code and authorized to do business in this state, or a cash equivalent which has been designated in the notice of sale as acceptable to the trustee, or if the last and highest bidder cancels an instrument submitted to the trustee as a cash equivalent, that bidder shall be guilty of a misdemeanor punishable by a fine of not more than two thousand five hundred dollars ($2,500). In the event the last and highest bidder cancels an instrument submitted to the trustee as a cash equivalent, the trustee shall provide a new notice of sale in the manner set forth in Section 2924f and shall be entitled to recover the costs of the new notice of sale as provided in Section 2924c. (e) Any postponement or discontinuance of the sale proceedings shall be a cancellation of the last bid. (f) In the event that this section conflicts with any other statute, then this section shall prevail. (g) It shall be unlawful for any person, acting alone or in concert with others, (1) to offer to accept or accept from another, any consideration of any type not to bid, or (2) to fix or restrain bidding in any manner, at a sale of property conducted pursuant to a power of sale in a deed of trust or mortgage. However, it shall not be unlawful for any person, including a trustee, to state that a property subject to a recorded notice of default or subject to a sale conducted pursuant to this chapter is being sold in an "as-is" condition. In addition to any other remedies, any person committing any act declared unlawful by this subdivision or any act which would operate as a fraud or deceit upon any beneficiary, trustor, or junior lienor shall, upon conviction, be fined not more than ten thousand dollars ($10,000) or imprisoned in the county jail for not more than one year, or be punished by both that fine and imprisonment.

2924i. Notice regarding final payment on balloon payment loan (a) This section applies to loans secured by a deed of trust or mortgage on real property containing one to four residential units at least one of which at the time the loan is made is or is to be occupied by the borrower if the loan is for a period in excess of one year and is a balloon payment loan. (b) This section shall not apply to (1) open end credit as defined in Regulation Z, whether or not the transaction is otherwise subject to Regulation Z, (2) transactions subject to Section 2956, or (3) loans made for the principal purpose of financing the construction of one or more residential units.

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(c) At least 90 days but not more than 150 days prior to the due date of the final payment on a loan that is subject to this section, the holder of the loan shall deliver or mail by first-class mail, with a certificate of mailing obtained from the United States Postal Service, to the trustor, or his or her successor in interest, at the last known address of that person, a written notice which shall include all of the following: (1) A statement of the name and address of the person to whom the final payment is required to be paid. (2) The date on or before which the final payment is required to be paid. (3) The amount of the final payment, or if the exact amount is unknown, a good faith estimate of the amount thereof, including unpaid principal, interest and any other charges, such amount to be determined assuming timely payment in full of all scheduled installments coming due between the date the notice is prepared and the date when the final payment is due. (4) If the borrower has a contractual right to refinance the final payment, a statement to that effect. If the due date of the final payment of a loan subject to this section is extended prior to the time notice is otherwise required under this subdivision, this notice requirement shall apply only to the due date as extended (or as subsequently extended). (d) For purposes of this section: (1) A "balloon payment loan" is a loan which provides for a final payment as originally scheduled which is more than twice the amount of any of the immediately preceding six regularly scheduled payments or which contains a call provision; provided, however, that if the call provision is not exercised by the holder of the loan, the existence of the unexercised call provision shall not cause the loan to be deemed to be a balloon payment loan. (2) "Call provision" means a loan contract term that provides the holder of the loan with the right to call the loan due and payable either after a specified period has elapsed following closing or after a specified date. (3) "Regulation Z" means any rule, regulation, or interpretation promulgated by the Board of Governors of the Federal Reserve System under the Federal Truth in Lending Act, as amended (15 U.S.C. Sec. 1601 et seq.), and any interpretation or approval thereof issued by an official or employee of the Federal Reserve System duly authorized by the board under the Truth in Lending Act, as amended, to issue such interpretations or approvals. (e) Failure to provide notice as required by subdivision (a) does not extinguish any obligation of payment by the borrower, except that the due date for any balloon payment shall be the date specified in the balloon payment note, or 90 days from the date of delivery or mailing of the notice required by subdivision (a), or the due date specified in the notice required by subdivision (a), whichever date is later. If the operation of this section acts to extend the term of any note, interest shall continue to accrue for the extended term at the contract rate and payments shall continue to be due at any periodic interval and on any payment schedule specified in the note and shall be credited to principal or interest under the terms of the note. Default

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in any extended periodic payment shall be considered a default under terms of the note or security instrument. (f)(1) The validity of any credit document or of any security document subject to the provisions of this section shall not be invalidated solely because of the failure of any person to comply with this section. However, any person who willfully violates any provision of this section shall be liable in the amount of actual damages suffered by the debtor as the proximate result of the violation, and, if the debtor prevails in any suit to recover that amount, for reasonable attorney's fees. (2) No person may be held liable in any action under this section if it is shown by a preponderance of the evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adopted to avoid any such error. (g) The provisions of this section shall apply to any note executed on or after January 1, 1984. 2924j. Trustee's notice of conflicting claims to proceeds of sale under power of sale; Declaration of unresolved claims; Deposit in court (a) Unless an interpleader action has been filed, within 30 days of the execution of the trustee's deed resulting from a sale in which there are proceeds remaining after payment of the amounts required by paragraphs (1) and (2) of subdivision (a) of Section 2924k, the trustee shall send written notice to all persons with recorded interests in the real property as of the date immediately prior to the trustee's sale who would be entitled to notice pursuant to subdivisions (b) and (c) of Section 2924b. The notice shall be sent by first-class mail in the manner provided in paragraph (1) of subdivision (c) of Section 2924b and inform each entitled person of each of the following: (1) That there has been a trustee's sale of the described real property. (2) That the noticed person may have a claim to all or a portion of the sale proceeds remaining after payment of the amounts required by paragraphs (1) and (2) of subdivision (a) of Section 2924k. (3) The noticed person may contact the trustee at the address provided in the notice to pursue any potential claim. (4) That before the trustee can act, the noticed person shall submit a written claim to the trustee, executed under penalty of perjury, stating the following: (A) The amount of the claim to the date of trustee's sale. (B) An itemized statement of the principal, interest, and other charges. (C) That claims must be received by the trustee at the address stated in the notice no later than 30 days after the date the trustee sends notice to the potential claimant.

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(b) The trustee shall exercise due diligence to determine the priority of the written claims received by the trustee to the trustee's sale surplus proceeds from those persons to whom notice was sent pursuant to subdivision (a). (c) If, after due diligence, the trustee is unable to determine the priority of the written claims received by the trustee to the trustee's sale surplus of multiple persons or if the trustee determines there is a conflict between potential claimants, the trustee may file a declaration of the unresolved claims and deposit with the clerk of the superior or municipal court, as applicable, of the county in which the sale occurred, that portion of the sales proceeds that cannot be distributed , less any fees charged by the clerk pursuant to this subdivision . The declaration shall specify the date of the trustee's sale, a description of the property, the names and addresses of all persons sent notice pursuant to subdivision (a), a statement that the trustee exercised due diligence pursuant to subdivision (b), that the trustee provided written notice as required by subdivisions (a) and (d) and the amount of the sales proceeds deposited by the trustee with the superior or municipal court. Further, the trustee shall submit a copy of the trustee's sales guarantee and any information relevant to the identity, location, and priority of the potential claimants with the superior or municipal court and shall file proof of service of the notice required by subdivision (d) on all persons described in subdivision (a). The clerk shall deposit the amount with the county treasurer subject to order of the superior or municipal court upon the application of any interested party. The clerk may charge a reasonable fee for the performance of activities pursuant to this subdivision equal to the fee for filing an interpleader action pursuant to Article 2 (commencing with Section 26820) of Division 2 of Title 3 of the Government Code. Upon deposit of that portion of the sale proceeds that cannot be distributed by due diligence, the trustee shall be discharged of further responsibility for the disbursement of sale proceeds. A deposit with the clerk of the superior or municipal court pursuant to this subdivision may be either for the total proceeds of the trustee's sale, less any fees charged by the clerk, if a conflict or conflicts exist with respect to the total proceeds, or that portion that cannot be distributed after due diligence , less any fees charged by the clerk. (d) Before the trustee deposits the funds with the clerk of the court pursuant to subdivision (c), the trustee shall send written notice by first-class mail, postage prepaid, to all persons described in subdivision (a) informing them that the trustee intends to deposit the funds with the clerk of the superior or municipal court, as applicable, and that a claim for the funds must be filed with the court within 30 days from the date of the notice, providing the address of the court in which the funds were deposited, and a phone number for obtaining further information. Within 90 days after deposit with the clerk, the court shall consider all claims filed at least 15 days before the date on which the hearing is scheduled by the court, the clerk shall serve written notice of the hearing by first-class mail on all claimants identified in the trustees' declaration at the addresses specified therein. The court shall distribute the deposited funds to any and all claimants entitled thereto. (e) Nothing in this section restricts the ability of a trustee to file an interpleader action in order to resolve a dispute about the proceeds of a

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trustee's sale. Once an interpleader action has been filed, thereafter the provisions of this section shall not apply. (f) "Due diligence," for the purposes of this section means that the trustee researched the written claims submitted or other evidence of conflicts and determined that a conflict of priorities exists between two or more claimants which the trustee is unable to resolve. 2924k. Priority of order of distribution of proceeds; Trustee's costs and expenses (a) The trustee, or the clerk of the court upon order to the clerk pursuant to subdivision (d) of Section 2924j, shall distribute the proceeds, or a portion of the proceeds, as the case may be, of the trustee's sale conducted pursuant to Section 2924h in the following order of priority: (1) To the costs and expenses of exercising the power of sale and of sale, including the payment of the trustee's fees and attorney's fees permitted pursuant to subdivision (b) of Section 2924d and subdivision (b) of this section. (2) To the payment of the obligations secured by the deed of trust or mortgage which is the subject of the trustee's sale. (3) To satisfy the outstanding balance of obligations secured by any junior liens or encumbrances in the order of their priority. (4) To the trustor or the trustor's successor in interest. In the event the property is sold or transferred to another, to the vested owner of record at the time of the trustee's sale. (b) A trustee may charge costs and expenses incurred for such items as mailing and a reasonable fee for services rendered in connection with the distribution of the proceeds from a trustee's sale, including, but not limited to, the investigation of priority and validity of claims and the disbursement of funds. If the fee charged for services rendered pursuant to this subdivision does not exceed one hundred dollars ($100), the fee is conclusively presumed to be reasonable.

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MORTGAGE CONSULTANT'S ACT

FORECLOSURE

The following California law is fairly self-explanatory. Basically, if anyone tries to help you save your house from foreclosure, then that person is subject to the Mortgage Foreclosure Consultant's Act.
Section 2945. Legislative findings and declarations 2945.1 Definitions. 2945.2 Owner's right to cancel contract with consultant; time and manner of cancellation 2945.3. Written contract; contents; language, date, and signature; notice of cancellation; form 2945.4. Prohibited practices 2945.5 Waiver. 2945.6. Action against consultant; judgment; cumulative remedies; limitation of actions. 2945.7 Violations; punishment; cumulative remedies. 2945.8 Severability. 2945.9 Liability of consultant for statements or acts committed by representative (New) 2945.10 Limitation of liability under section 2945.9; voiding provision or contract; arbitration. (New) 2945.11 Representative of consultant; statements to be provided to owner, remedies (New) 2945. Legislative finds and declarations (a) The Legislature finds and declares that homeowners whose residences are in foreclosure are subject to fraud, deception, harassment, and unfair dealing by foreclosure consultants from the time a Notice of Default is recorded pursuant to Section 2924 until the time of the foreclosure sale. Foreclosure consultants represent that they can assist homeowners who have defaulted on obligations secured by their residence. These foreclosure consultants, however, often charge high fees, the payment of which is often secured by a deed of trust on the residence to be saved, and perform promises of help, take no other action, are diverted from lawful businesses which could render beneficial services, and often lost their homes, sometimes to the foreclosure consultants who purchase homes at a fraction of their value before the sale. (b) The Legislature further finds and declares that foreclosure consultants have a significant impact on the economy of this state and on the welfare of its citizens. (c) The intent an purposes of this article are the following: 18-1

(1) To require that foreclosure consultant service agreements be expressed in writing, the safeguard the public against deceit and financial hardship; to permit recision of foreclosure consultation contracts; to prohibit representations that tend to mislead; and to encourage fair dealing in the rendition of foreclosure services. (2) The provision of this article shall be liberally construed to effectuate this intent and to achieve these purposes. 2945.1. Definitions The following definitions apply to this chapter. (a) "Foreclosure consultant" means any person who makes any solicitation, representation, or offer to any owner to perform for compensation or who, for compensation, performs any service which the person in any manner represents will in any manner do any of the following: (1) Stop or postpone the foreclosure sale. (2) Obtain any forbearance from any beneficiary or mortgagee. (3) Assist the owner to exercise the right of reinstatement provided in Section 2914c. (4) Obtain any extension of the period within which the owner may reinstate his or her obligation. (5) Obtain any waiver of an acceleration clause contained in any promissory note or contract secured by a deed of trust or mortgage on a residence in foreclosure or contained in any such deed of trust or mortgage. (6) Assist the owner to obtain a loan or advance of fund's (7) Avoid or ameliorate the impairment of the owner's credit resulting from the recording of a notice of default or the conduct of a foreclosure sale. (8) Save the owner's residence from foreclosure. (b) A foreclosure consultant does not include any of the following: (1) A person licensed to practice law in this state when the person renders service in the course of his or her practice as an attorney at law. (2) A person licensed under Division 3 (commencing with Section 12000) of the Financial Code when the person is acting as a prorater as defined therein. (3) A person licensed under Part 1 (commencing with Section 10000) of Division 4 of the Business and Professions Code when the person makes a direct loan or when the person (A) engages in acts whose performance requires licensure under that part, (B) is entitled to compensation for the acts performed in connection with the sale of a residence in foreclosure or with the arranging of a loan secured by a lien on a residence in foreclosure, (C) does not claim, demand, charge, collect, or receive any compensation until the acts have been performed or cannot be performed because of an owner's failure to 18-2

make the disclosures et forth in Section 10243 of the Business and Professions Code or failure to accept an offer from a purchaser or lender ready, willing, and able to purchase a residence in foreclosure or make a loan secured by a lien on a residence in foreclosure on the terms prescribed in a listing or a loan agreement, and (D) does not acquire any interest in a residence in foreclosure directly form an owner for whom the person agreed to perform the acts other than as a trustee or beneficiary under a deed of trust given to secure the payment of a loan of that compensation. For the purposes of this paragraph, a "direct loan" means a loan of a real estate broker's own funds secured by a deed of trust on the residence in foreclosure, which loan and deed of trust the broker in good faith attempts to assign to a lender, for an amount of at least sufficient to cure all of the defaults on obligations which are then subject to a recorded notice of default, provided that, if a foreclosure interest in the residence in foreclosure or in the outcome of the sale is not owned, controlled, or managed by the lending broker, the lending broker does not acquire any interest in the residence in foreclosure directly from the owner other than as a beneficiary under the deed of trust; and the loan is not made for the purpose of effect of avoiding or evading the provisions of this article. (4) A person licensed under Chapter 1 (commencing with Section 5000) of Division 3 of the Business and Professions Code when the person is acting in any capacity for which the person is licensed under those provisions. (5) A person or his or her authorized agent acting under the express authority or written approval of the Department of Housing and Urban Development or other department or agency of the United States or this state to provide services. (6) A person who holds or is owed an obligation secured by a lien on any residence in foreclosure when the person performs services in connection with this obligation or lien. (7) Any person licensed to make loans pursuant to Division 9 (commencing with Section 22000), 10 (commencing with Section 24000), or 11 (commencing with Section 26000) of the Financial Code, subject to the authority of the Commissioner of Corporations to terminate this exclusion, after notice and hearing for any person licensed pursuant to any of those division upon a finding that the licensee is found to have engaged in practices described in subdivision (a) of Section 2945. (8) Any person or entity doing business under any law of this state, or of the United States relating to banks, trust companies, savings and loan associations, industrial loan companies, pension trusts, credit unions, insurance companies, or any person or entity authorized under the laws of this state to conduct a title or escrow business, or a mortgagee which is a United States Department of Housing and Urban Development approved mortgagee and any subsidiary or affiliate of the above, and any agent or employee of the above wile engaged in the business of these persons or entities. (c) "Person" means any individual, partnership, corporation, association or other group, however organized. (d) "Service" means and includes, but is not limited to, any of the following: (1) Debt, budget, or financial counseling of any type.

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(2) Receiving money for the purpose of distributing it to creditors in payment or partial payment of any obligation secured by a lien on a residence in foreclosure. (3) Contracting creditors on behalf of an owner of a residence in foreclosure. (4) Arranging or attempting to arrange for an extension of the period within which the owner of a residence in foreclosure may cure his default and reinstate his obligation pursuant to Section 2914c. (5) Arranging or attempting to arrange for any delay or postponement of the time of sale of the residence in foreclosure. (6) Advising the filing of any document or assisting in any manner in the preparation of any document for filing with any bankruptcy court. (7) Giving any advice, explanation or instruction to an owner of a residence in foreclosure which in any manner relates to the cure of a default in or the reinstatement of an obligation secured by a lien on the residence in foreclosure, the full satisfaction of that obligation, or the postponement or avoidance of a sale of a residence in foreclosure pursuant to a power of sale contained in any deed of trust. (e) "Residence in foreclosure" means a residence in foreclosure as defined in Section 1695.1. (f) "Owner" means a property owner as defined in Section 16956.1. (g) "Contract" means any agreement, or any term thereof, between a foreclosure consultant and an owner for the rendition of any service as defined in subdivision (d). 2945.2. Owner's right to cancel contract with consultant' time and manner of cancellation (a) In addition to any other right under law to rescind a contract, an owner has the right to cancel such a contract until midnight of the third "business day" as defined in subdivision (e) of Section 1689.5a after the day on which the owner signs a contract which complies with Section 2945.8. (b) Cancellation occurs when the owner gives written notice of cancellation to the foreclosure consultant at the address specified in the contract. (c) Notice of cancellation, if given by mail, is effective when deposited in the mail properly addressed with postage prepaid. (d) Notice of cancellation given by the owner need not take the particular form as provided with the contact and, however expressed, is effective if it indicates the intention of the owner not to be bound by the contract. 2945.3. Written contract, contents, language, date, and signature; notice of cancellation; form (a) Every contract shall be in writing and shall fully disclose the exact nature of the foreclosure consultant's services and the total amount and terms of compensation. 18-4

(b) the following notice, printed in at least 14-point boldface type and completed with the name of the foreclosure consultant, shall be printed immediately above the statement required by subdivision (c): "NOTICE REQUIRED BY CALIFORNIA LAW or anyone working for him or her CANNOT: (Name) (1) Take any money from you or ask you for money until has completely finished doing everything he or she said he or she should do; and (Name) (2) Ask you to sign or have you sign any lien, deed of trust, or deed." (c) The contract shall be written in the same language as principally used by the foreclosure consultant to describe his services or to negotiate the contract; shall be dated and signed by the owner; and shall contain in immediate proximity to the space reserved for the owner's signature a conspicuous statement in a size equal to at least 10-point bold type, as follows: "You, the owner, may cancel this transaction at any time prior to midnight of the third business day after the date of this transaction. See the attached notice of cancellation form for an explanation of this right." (d) The contract shall contain on the first page, in type size no smaller than that generally used in the body of the document, each of the following: (1) The name and address of the foreclosure consultant to which the notice or cancellation is to be mailed. (2) The date the owner signed the contract. (e) The contract shall be accompanied by a completed form in duplicate, captioned "notice of cancellation", which shall be attached to the contract, shall be (easily detachable, and shall contain in type of at least 10-point the following statement written in the same language as used in the contract: "NOTICE OF CANCELLATION
(Enter date of transaction) (Date)

You may cancel this transaction without any penalty or obligation, within three business days from the above date. To cancel this transaction, mail or deliver a signed and dated copy of this cancellation notice, or any other written notice, or send a telegram to
(Name of foreclosure consultant)

at
(Address of foreclosure consultant's place of business)

NOT LATER THAN MIDNIGHT OF


(Date)

I hereby cancel this transaction:


(Date)

"
(Owner's signature)

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(f) The foreclosure consultant shall provide the owner with a copy of the contract and the attached notice of cancellation. 2945.4. Prohibited practices It shall be a violation for a foreclosure consultant to: (a) Claim, demand, charge, collect, or receive any compensation until after the foreclosure consultant has fully performed each and every service the foreclosure consultant contracted to perform or represented he would perform. (b) Claim, demand, charge, collect or receive any fee, interest, or any other compensation for any reason which exceeds 10 percent per annum of the amount of any loan which the foreclosure consultant may make to the owner. (c) Take any wage assignment, any lien of any type on real or personal property, or other security to secure the payment of compensation. Any such security shall be void and unenforceable. (d) Receive any consideration from any third party in connection with services rendered to an owner unless such consideration is fully disclosed to the owner. (e) Acquire any interest in a residence in foreclosure from an owner with whom the foreclosure consultant has contracted. Any interest acquired in violation of this subdivision shall be voidable provided that nothing herein shall affect or defeat the title of a bona fide purchaser or encumbrancer for value an without notice of a violation of this article. Knowledge that the property was "residential real property in foreclosure," shall not constitute notice of a violation of this article. This subdivision shall not be deemed to abrogate any duty of inquiry which exists as to rights or interests of persons in possession of residential real property in foreclosure. (f) Take any power of attorney from an owner for any purpose, except to inspect documents a provided by law. (g) Induce or attempt to induce an owner to enter a contract which does not comply in all respects with Sections 2945.2 and 2945.3. 2945.5. Waiver Any waiver by an owner of the provisions of this article shall be deemed void and unenforceable as contrary to public policy. Any attempt by a foreclosure consultant to induce an owner to waive his rights shall be deemed a violation of this article. 2945.6 Action against consultant; judgment; cumulative remedies; limitation of actions (a) An owner may bring an action against a foreclosure consultant for any violation of this chapter. Judgment shall be entered for actual damages, reasonable attorneys' fees and costs, and appropriate equitable relief. The court also may, in its discretion, award exemplary damages and shall award exemplary damages equivalent to at least three times the compensation received by the foreclosure consultant in violation of subdivision (a), (b), or (d)

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of Section 2945.4, in addition to any other award of actual or exemplary damages. (b) The rights and remedies provided in subdivision (a) are cumulative to, and not a limitation of, any other rights and remedies provided by law. Any action brought pursuant to this section shall be commenced within four years from the date of the alleged violation. 2945.7 Violations; punishment; cumulative remedies Any person who commits any violation described in Section 2945.4 shall be punished by a fine of not more than ten thousand dollars ($10,000), by imprisonment in the county jail for not more than one year, or in the state prison, or both that fine and imprisonment for each violation. These penalties are cumulative to any other remedies or penalties provided by law. 2945.8 Severability If any provision of this article or the application thereof to any person or circumstance is held to be unconstitutional, the remainder of the article and the application of such provision to other persons. 2945.9 Liability representative of consultant for statements or acts committed by

A foreclosure consultant is liable for all damages resulting from any statement made or act committed by the foreclosure consultant's representative in any manner connected with the foreclosure consultant's (1) performance, offer to perform, or contract to perform any of the services described in subdivision (a) of Section 2945.1, (2) receipt of any consideration or property from or on behalf or an owner, or (3) performance of any act prohibited by this article. (b) "Representative" for the purposes of this section means a person who in any manner solicits, induces, or causes (1) any owner to contract with a foreclosure consultant, (2) any owner to pay any consideration or transfer title to the residence in foreclosure to the foreclosure consultant, or (3) any transfer title to the residence in foreclosure to the foreclosure consultant. 2945.10. Limitation of liability under section 2945.9; voiding provision or contract; arbitration (a) Any provision in a contract which attempts or purports to limit the liability of the foreclosure consultant under Section 2945.9 shall be void and shall at the option of the owner render the contract void. The foreclosure consultant shall be liable to the owner for all damages proximately caused by that provision. Any provision in a contract which attempts or purports to require arbitration of any dispute arising under this chapter shall be void at the option of the owner only upon grounds as exist for the revocation of any contract. (b) this section shall apply to any contract entered into on or after January 1, 1992. 2945.11. Representative of consultant; statements to be provided to owner; remedies 18-7

(a) Any representative, as defined in subdivision (b) of Section 2945.09, deemed to be the agent or employee or both the agent and the employee of the foreclosure consultant shall be required to provide both of the following: (1) Written proof to the owner that the representative has a valid current California Real Estate Sales License and that the representative is bonded by an admitted surety insurer in an amount equal to at least twice the fair market value of the real property which is the subject of the contract. (2) A statement in writing, under penalty of perjury, that the representative has a valid current California Real Estate Sales License, that the representative is bonded by an admitted surety insurer and has complied with paragraph (1). The written statement required by this paragraph shall be provided to all parties to the contract prior to the transfer of any interest in the real property which is the subject of the contract. (b) The failure to comply with subdivision (a) shall at the option of the owner render the contract void and the foreclosure consultant shall be liable to the owner for all damages proximately caused by the failure to comply.

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HOME EQUITY SALES CONTRACTS ACT

The following California law is fairly self-explanatory. Basically, if anyone tries to buy your house which is in foreclosure, then that person is subject to the Home Equity Sales Contracts Act.
Section 1695.1 Definitions 1695.2 Form of contract 1695.3 Terms of contract 1695.4 Right of cancellation 1695.5 Notice of right to cancel 1695.6 Equity purchaser to provide contract: Acts prohibited 1695.7 Seller's right to bring action 1695.8 Violation: Punishment 1695.9 Provisions not exclusive 1695.10 Waiver 1695.11 Effect of unconstitutional provision 1695.12 Presumption of loan transaction 1695.13 Unconscionability 1695.14 Rescission 1695.15 Liability of equity purchaser for damages resulting from statements of representative 1695.16 Voidness of contract provisions attempting to limit liability 1695.17 Statements required of representatives 1695. Legislative findings and declarations: Intent and purposes of chapter a) The Legislature finds and declares that homeowners whose residences are in foreclosure have been subjected to fraud, deception, and unfair dealing by home equity purchasers. The recent rapid escalation of home values, particularly in the urban areas, has resulted in a significant increase in home equities which are usually the greatest financial asset held by the homeowners of this state. During the time period between the commencement of foreclosure proceedings and the scheduled foreclosure sale date, homeowners in financial distress, especially the poor, elderly, and financially unsophisticated, are vulnerable to the importunities of equity purchasers who induce homeowners to sell their homes for a small fraction of their fair market values through the use of schemes which often involve oral and written misrepresentations, deceit, intimidation, and other unreasonable commercial practices. b) The Legislature declares that it is the express policy of the state to preserve and guard the precious asset of home equity, and the social as well as the economic value of home ownership. c) The Legislature further finds that equity purchasers have a significant impact upon the economy and well-being of this state and its local communities, and therefore the provisions of this chapter are necessary to promote the public welfare. 19-1

d) The intent and purposes of this chapter are the following: 1) To provide each homeowner with information necessary to make an informed and intelligent decision regarding the sale of his or her home to an equity purchaser; to require that the sales agreement be expressed in writing; to safeguard the public against deceit and financial hardship; to insure, foster, and encourage fair dealing in the sale and purchase of homes in foreclosure; to prohibit representations that end to mislead; to prohibit or restrict unfair contract terms; to afford homeowners a reasonable and meaningful opportunity to rescind sales to equity purchasers; and to preserve and protect home equities for the homeowners of this state. 2) This chapter shall be liberally construed to effectuate this intent and to achieve these purposes. 1695.1. Definitions The following definitions apply to this chapter: a) "Equity purchaser" means any person who acquires title to any residence in foreclosure, except a person who acquires such title as follows: 1) For the purpose of using such property as a personal residence. 2) By a deed in lieu of foreclosure of any voluntary lien or encumbrance of record. 3) By a deed from a trustee acting under the power of sale contained in a deed of trust or mortgage at a foreclosure sale conducted pursuant to Article 1 of Chapter 2 of the Title 14 of Part 4 of Division 3. 4) At any sale of property authorized by statute. 5) By order or judgment of any court. 6) From a spouse, blood relative, or blood relative of a spouse. b) "Residence in foreclosure" and "residential real property in foreclosure" means residential real property consisting of one- to four-family dwelling units, one of which the owner occupies as his or her principal place of residence, and against which there is an outstanding notice of default, recorded pursuant to Article 1 of Chapter 2 of Title 14 of Part 4 of Division 3. c) "Equity Seller" means any seller of a residence in foreclosure. d) "Business day" means any calendar day except Sunday, or the following business holidays: New Year's Day, Washington's Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans' Day, Thanksgiving day, and Christmas Day. e) "Contract" means any offer or any contract, agreement, or arrangement, or any term thereof, between an equity purchaser and equity seller incident to the sale of a residence in foreclosure. f) "Property owner" means the record title owner of the residential real property in foreclosure at the time the notice of default was recorded. 1695.2 Form of contract Every contract shall be written letters of a size equal to 10-point bold type, in the same language principally used by the equity purchaser and equity seller to negotiate the sale of the residence in foreclosure and shall be fully completed and signed and dated by the equity seller and equity purchaser prior to the execution of any instrument of conveyance of the residence in foreclosure. 1695.3 Terms of contract Every contract shall contain the entire agreement of the parties and shall include all the following terms: 19-2

a) The name, business address, and the telephone number of the equity purchaser. b) The address of the residence in foreclosure. c) The total consideration to be given by the equity purchaser in connection with or incident to the sale. d) A complete description of the terms of payment or other consideration including, but not limited to, any services of any nature which the equity purchaser represents he will perform for the equity seller before or after the sale. e) The time at which possession is to be transferred to the equity purchaser. f) The terms of any rental agreement. g) A notice of cancellation as provided in subdivision (b) of Section 1695.5. h) The following notice in at least 14-point boldface type, if the contract is printed or in capital letters if the contract is typed, and completed with the name of the equity purchaser, immediately above the statement required by Section 1695.5 (a): "NOTICE

REQUIRED BY CALIFORNIA LAW

Until your right to cancel this contract has ended, (name) or anyone working for (name) CANNOT ask you to sign or have you sign any deed or any other document."
The contract required by this section shall survive delivery of any instrument of conveyance of the residence in foreclosure, and shall have no effect on persons other then the parties to the contract. 1695.4 Right of cancellation a) In addition to any other right of recision, the equity seller has right to cancel any contract with an equity purchaser until midnight of the fifth business day following the day on which the equity signs a contract or until 8 a.m. on the day scheduled for the sale of the proper pursuant to a power of sale conferred in a deed of trust, whichever occurs first. b) Cancellation occurs when the equity seller personally delivers written notice of cancellation to the address specified in the contract or sends telegram indicating cancellation to that address. c) A notice of cancellation given by the equity seller need not take the particular form as provided with the contract and, however expressed, effective if it indicates the intention of the equity seller not to be bound to the contract. 1695.5 Notice of right to cancel a) The contract shall contain in immediate proximity to the space reserved for the equity seller's signature a conspicuous statement in a size equal to at least 12-point bold type, of the contract is printed or in all capital letters if the contract is typed, as follows: "You may cancel this contract for the sale

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of your house without any penalty or obligation at any time before (Date and time of day) See attached notice of cancellation form for an explanation of this right."
b) The contract shall be accompanied by a completed form in duplicate, captioned "notice of cancellation" in a size equal to 12-point bold type, if the contract is printed or in capital letters if the contract is typed, followed by a space in which the equity purchaser shall enter the date on which the equity seller executes any contract. This form shall be attached to the contract, shall be easily detachable, and shall contain in type of at least 10-point, if the contract is printed or in capital letters if the contract is typed, the following statement written in the same language as used in the contract: "NOTICE OF CANCELLATION (Enter date contract signed) You may cancel this contract for the sale of your house, without any penalty or obligation, at any time before (enter date and time) To cancel this transaction, personally deliver a signed and dated copy of this cancellation notice, or send a telegram to (name of purchaser) at (street address of purchaser's business) NOT LATER THAN (enter date and time of day) I hereby cancel this transaction (date) " (seller's signature) c) The equity purchaser shall provide the equity seller with a copy of the contract and the attached notice of cancellation. 1695.6 Equity purchaser to provide contract: Acts prohibited a) The contract as required by Sections 1695.2, 1695.3, and 1695.4 shall be provided and completed in conformity with those sections by the equity purchaser. b) Until the time within which the equity seller may cancel the transaction has fully elapsed, the equity purchaser shall not do any of the following: 1) Accept from any equity seller an execution of, or induce any equity seller to execute, any instrument of conveyance of any interest in the residence in foreclosure. 2) Record with the county recorder any document, including, but not limited to, any instrument of conveyance, signed by the equity seller. 3) Transfer or encumber or purport to transfer or encumber any interest in the residence in foreclosure to any third party, provided no grant of any interest or encumbrance shall be defeated or affected as against a bona fide purchaser or encumbrancer for value and without notice of a violation of this chapter, and knowledge on the part of any such person or entity that the property was "residential real property in foreclosure" shall not constitute notice of a violation of this chapter. This section shall not be deemed to abrogate any duty of inquiry which exists as to rights or interests of persons in possession of the residential real property in foreclosure. 4) Pay the equity seller any consideration. 19-4

c) Within ten days following receipt of a notice of cancellation given in accordance with Sections 1695.4 and 1695.5, the equity purchaser shall return without condition any original contract and any other documents signed by the equity seller. d) An equity purchaser shall make no untrue or misleading statements regarding the value of the residence in foreclosure, the amount of proceeds the equity seller will receive after a foreclosure sale, any contract term, the equity seller's rights or obligations incident to or arising out of the sale transaction, the nature of any document which the equity purchaser induces the equity seller to sign, or any other untrue or misleading statement concerning the sale of the residence in foreclosure to the equity purchaser. e) Whenever any equity purchaser purports to hold title as a result of any transaction in which the equity seller grants the residence in foreclosure by any instrument which purports to be an absolute conveyance and reserves or is given by the equity purchaser an option to repurchase such residence, the equity purchaser shall not cause any encumbrance or encumbrances to be placed on such property or grant any interest in such property to any other person without the written consent of the equity seller. 1695.7 Seller's right to bring action An equity seller may bring an action for the recovery of damages or other equitable relief against an equity purchaser for a violation of any subdivision of Section 1695.6 or Section 1695.13. The equity seller shall recover actual damages plus reasonable attorney's fees and costs. In addition, the court shall award exemplary damages or equitable relief, or both, if the court deems such award proper, but in any event shall award exemplary damages in an amount not less than three times the equity seller's actual damages for any violation of paragraph (3) of subdivision (b) of Section 1695.6 or Section 1695.13. Any action brought pursuant to this section shall be commenced within four years after the date of the alleged violation. 1695.8 Violation: Punishment Any equity purchaser who violates any subdivision of Section 1695.6 or who engages in any practice which would operate as a fraud or deceit upon an equity seller shall, upon conviction, be punished by a fine of not more than ten thousand dollars ($10,000) by imprisonment in the county jail for not more than one year, or in the state prison, or by both that fine and imprisonment for each violation. 1695.9 Provisions not exclusive The provisions of this chapter are not exclusive and are in addition to any other requirements, rights, remedies, and penalties provided by law.

1695.10 Waiver Any waiver of the provisions of this chapter shall be void and unenforceable as contrary to the public policy. 1695.11 Effect of unconstitutional provision

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If any provision of this chapter, or if any application thereof to any person or circumstance is held unconstitutional, the remainder of this chapter and the application of its provisions to other persons and circumstances shall not be affected thereby. 1695.12 Presumption of loan transaction In any transaction in which an equity seller purports to grant a residence in foreclosure to an equity purchaser by any instrument which appears to be an absolute conveyance and reserves to himself or herself or is given by the equity purchaser an option to repurchase, such transaction shall create a presumption of affecting the burden of proof, which may be overcome by clear and convincing evidence to the contrary that the transaction is a loan transaction, and the purported absolute conveyance is a mortgage; however, such presumption shall not apply to a bona fide purchaser or encumbrancer for value without notice of a violation of this chapter, and knowledge on the part of any such person of entity that property was "residential real property in foreclosure" shall not constitute notice of a violation of this chapter. This section shall not be deemed to abrogate any duty of inquiry which exists as to rights or interests of persons in possession of the residential real property in foreclosure. 1695.13 Unconscionability It is unlawful for any person to initiate, enter into, negotiate, or consummate any transaction involving residential real property in foreclosure, as defined in Section 1695.1, if such person, by the terms of such transaction, takes unconscionable advantage of the property owner in foreclosure. 1695.14 Recision (a)In any transaction involving residential real property in foreclosure, as defined in Section 1695.1, which is in violation of Section 1695.13 is voidable and the transaction may be rescinded by the property owner within two years of the date of the recordation of the conveyance of the residential real property in foreclosure. (b)Such recision shall be effected by giving written notice as provided in Section 1691 to the equity purchaser and his successor in interest, if the successor is not a bona fide purchaser or encumbrancer for value as set forth in subdivision (c), and by recording such notice with the county recorder of the county in which the property is located, within two years of the date of the recordation of the conveyance to the equity purchaser. The notice of recision shall contain the names of the property owner and the name of the equity purchaser in addition to any successor in interest holding record title to the real property and shall particularly describe such real property. The equity purchaser and his successor in interest if the successor is not a bona fide purchaser or encumbrancer for value as set forth in subdivision (c), shall have 20 days after the delivery of the notice in which to reconvey title to the property free and clear of encumbrances created subsequent to the rescinded transaction. Upon failure to reconvey title within such time, the rescinding party may bring an action to enforce the recision and for cancellation of the deed. (c) The provisions of this section shall not affect the interest of a bona fide purchaser or encumbrancer for value if such purchase or encumbrance occurred prior to the recordation of the notice of recision pursuant to subdivision (b). Knowledge that the property was residential real property in 19-6

foreclosure shall not impair the status of such persons or entities as bona fide purchasers or encumbrances for value. This subdivision shall not be deemed to abrogate any date of inquiry which exists as to rights or interests of persons in possession of the residential real property in foreclosure. (d) In any action brought to enforce a recision pursuant to this section, the prevailing party shall be entitle to costs and reasonable attorneys fees. (e) The remedies provided by this section shall be in addition to any other remedies provided by law.

1695.15. Liability of equity purchaser for damages resulting from statements of representative (a) An equity purchaser is liable for all damages resulting from any statement made or act committed by the equity purchaser's representative in any manner connected with the equity purchaser's acquisition of a residence in foreclosure, receipt of any consideration or property from or on behalf of the equity seller, or the performance of any act prohibited by this chapter. (b) "Representative" for the purposes of this section means a person who in any manner solicits, induces, or causes any property owner to transfer title or solicits any member of the property owner's family or household to induce or cause any property owner to transfer title to the residence in foreclosure to the equity purchaser. 1695.16 Voidness of contract provisions attempting to limit liability (a) Any provision of a contract which attempts or purports to limit the liability of the equity purchaser under Section 1695.15 shall be void and shall at the option of the equity seller render the equity purchase contract void. The equity purchaser shall be liable to the equity seller for all damages proximately caused by that provision. Any provision in a contract, which attempts or purports to require arbitration of any dispute arising under this chapter shall be void at the option of the equity seller only upon grounds as exist for the revocation of any contract. (b) This section shall apply to any contract entered into on or after January 1, 1992. 1695.17. Statements required of representatives (a)Any representative, as defined in subdivision (b) of Section 1695.15, deemed to be the agent or employee, or both the agent and the employee of the equity purchaser shall be required to provide both of the following: (1) Written proof to the equity seller that the representative has a valid current California Real Estate Sales License and that the representative is bonded by an admitted surety insurer in an amount equal to twice the fair market value of the real property which is the subject of the contract. (2) A statement in writing, under penalty of perjury, that the representative ha a valid current California Real Estate Sales License, is bonded by an admitted surety insurer in an amount equal to an least twice the value of the real property which is the subject of the contract and has complied with paragraph (1). The written statement required by this paragraph shall be provided to all parties to the contract prior to the transfer of any interest in the real property which is the subject of the contract. (b) The failure to comply with subdivision (a) shall at the option of the equity seller render the equity purchase contract void and the equity purchaser shall 19-7

be liable to the equity seller for all damages proximately caused by the failure to comply.

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ADDITIONAL READING AND SERVICES

For more information on the various topics discussed in How To Fight Foreclosure and Win with Honor check your local libraries or book stores for the following books, or call the phone number listed. General Reading Malone, Laurence Adams. How To Avoid Foreclosure. White Hall, VA.: Betterway Publications, 1986. Weidemer, James I. The Homeowner's Guide To Foreclosure. Dearborn Financial Publishing, 1992. Financial Reorganization Bailard, Thomas E.. and others. Personal Money Management. 5th ed. Chicago: Science Research Associates, Inc., 1986. Ventura, John. Fresh Start. Dearborn Financial Publishing, 1991. Jensen, Jeff. Repair Your Credit. Jensen Publications, 1994. Jensen, Jeff. Rebuild Wealth. Jensen Publications, 1994. Bankruptcy Ventura, John. The Bankruptcy Kit. Dearborn Financial Publishing, 1991. Ventura, John. Fresh Start. Dearborn Financial Publishing, 1991. Weidemer, James I. The Homeowner's Guide To Foreclosure. Dearborn Financial Publishing, 1992. Changing Your Mortgage Terms (Workouts) Malone, Laurence Adams. How To Avoid Foreclosure. White Hall, VA.: Betterway Publications, 1986. Weidemer, James I. The Homeowner's Guide To Foreclosure. Dearborn Financial Publishing, 1992.

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Refinancing Steinmetz, Thomas C. The Mortgage Kit. Publishing, 1991.

2nd ed. Dearborn Financial

Legal System Malone, Laurence Adams. How To Avoid Foreclosure. White Hall, VA.: Betterway Publications, 1986. Weidemer, James I. The Homeowner's Guide To Foreclosure. Dearborn Financial Publishing, 1992. Selling Your Property Lank, Edith. The Publishing, 1992. Homeseller's Kit. 2nd ed. Dearborn Financial

Irwin, Robert. The Home Renovation Kit. Dearborn Financial Publishing, 1992. Honychurch, Reginald R., and Battles, Relocation Kit. Dearborn Financial Publishing, 1992. Acting Quickly Covey, Stephen R. The 7 Habits of Highly Effective People. New York: Simon & Schuster, 1989. Maintaining a Calm and Clear Mind Ledgerwood, Graham. Keys To Higher Consciousness. 445 East 17th Street, Costa Mesa, CA 92627: Everest Publishing Company, 1989. Exploring New Possibilities Helmstetter, Shad. What To Say When You Talk To Yourself. New York: Pocket Books, 1982. Howard K. The Complete

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Kim, Tae Yun. Seven Steps To Inner Power. San Raphael: New World Library, 1991. Rico, Gabriele Lusser. Writing the Natural Way. Los Angeles: J. P. Tarcher, Inc., 1983. Real Estate Forms and Data Real Estate Forms from First Tuesday, 1992. P.O. Box 20068, Riverside, California 92516. Telephone (714) 781-7300 Real Estate Comparables. DataQuick Information Network, Telephone 800-888-4492. Homestead Forms, Wolcott, Inc. (Available at your local stationary store; see the Yellow Pages)

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GUARANTEE
My guarantee is simple: This guarantee applies only to homeowners who have received a notice of default. If, after completing the Action Plan, you have not found an appropriate solution to your foreclosure situation, then return the book, the sales receipt, a copy of your notice of default and the completed Action Plan for a complete refund. This guarantee does not apply to any other purchases. The reasons the Action Plan must be filled out: 1. Since the Action Plan was designed to guide a homeowner in foreclosure to the most appropriate solution, and since the Action Plan keeps track of your key foreclosure-fighting activities, then, by doing the Action Plan exercises you will have the highest probability of finding the most appropriate solution to your particular situation. 2. It demonstrates that you actually did the exercises (studies have proven that a percentage of people who buy self-help books do not actually read them). For Refunds: 1. Return the entire book, How to Fight Foreclosure and Win With Honor, along with your completed Action Plan, to: Jensen Publications
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200 Main Street, Suite 104-201 Huntington Beach, California 92648 2. Send a letter stating your reason(s) for returning the book and why you feel the book did not help you. 3. Please allow 2 - 4 weeks to analyze the information in your completed Action Plan and to process your request for a refund.

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NOTES

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Suggestion and Evaluation Response Sheet


To assist in updating How To Fight Foreclosure and Win With Honor and to make it an even more useful tool for others who are facing foreclosure, please circle the comment that shows how useful the book was for you. Please complete the next page, too.
The Action Guide Was very helpful Did not read Not enough information Too much information Your interest level: high average low Option 1: How To Reorganizing Your Finances Win By

Was very helpful Did not read Not enough information Too much information Your interest level: high average low Option 2: How To Bankruptcy Win With

Was very helpful Did not read Not enough information Too much information Your interest level: high average low Option 3: How To Win By Changing Your Mortgage Terms Was very helpful Did not read Not enough information Too much information Your interest level: high average low

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Option 4: How To Win By Refinancing Was very helpful Your interest level: low

Did not read Not enough information Too much information Option 5: How To Win By Using The Legal System Was very helpful Did not read Not enough information Too much information Your interest level: high average low Option 6: How To Win If You Are In The Military Was very helpful Did not read Not enough information Too much information Your interest level: high average low Option 7: How To Win By Selling Your Property Was very helpful Did not read Not enough information Too much information Your interest level: high average low Option 8: How To Win By Giving Away Your Property Was very helpful Did not read Not enough information Too much information Your interest level: high average low The Action Plan Was very helpful Did not read Not enough information Too much information

high

average

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Your interest level: low

high

average

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Suggestion And Evaluation Sheet (continued)


How To Explore New Possibilities Was very helpful Did not read Not enough information Too much information Your interest level: high average low The 5 Step Approach Was very helpful Did not read Not enough information Too much information Your interest level: high average low

How To Act Quickly Was very helpful Did not read Not enough information Too much information Your interest level: high low

average

How To Maintain a Clear and Calm Mind Was very helpful Did not read Not enough information Too much information Your interest level: high low

average

Improvements/Suggestions - What improvements or suggestions can you make to help the book be more beneficial and useful to future homeowners in foreclosure? Did you discover any new and/or better ways to fight foreclosure? Attach additional pages, if necessary: _________________________________________________________________________________________ _______ _________________________________________________________________________________________ _______ _________________________________________________________________________________________ _______ Interesting Stories - If you would like to share any interesting stories about how you fought foreclosure, then please, write them down in the spaces provide below. Attach additional pages, if necessary: _________________________________________________________________________________________ _______ _________________________________________________________________________________________ _______ _________________________________________________________________________________________ _______ Would you please share your improvements, suggestions, or interesting stories with future homeowners in foreclosure by allowing it to be reprinted in our next edition of How To Fight Foreclosure and Win With Honor? Yes No If yes, then please fill in you name, address, and telephone number below: Testimonial - I would like to hear about the help you received from How To Fight Foreclosure and Win With Honor. Please write your comments below. Attach additional pages, if necessary.

Home Equity Sales Contracts Act

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_________________________________________________________________________________________ _______ _________________________________________________________________________________________ _______ _________________________________________________________________________________________ _______ Would you please share your testimonials with future homeowners in foreclosure by allowing us to reprint it in our advertising or future editions of the book? Yes No If yes, then please fill in the information below: Name:____________________________________________Address:____________________________ ________ City______________________________________________Phone:_______________________________ ________ Please copy/remove pages 20-5 & 20-6 and mail to: Jensen Publications, 200 Main Street, Suite 104-201, Huntington Beach, California 92648

Glossary

Abstract of Judgment: Summary of a court's judgment. When recorded in a county, it creates a general lien upon all real and personal property owned by the judgment debtor. Abstract of Title: A historical summary taken from public records of all documents affecting the title of a property. Abstracter (conveyancer): A specialist in title search and abstract preparation. Accelerated Depreciation: Any method of depreciation that achieves a faster rate of depreciation then the straight-line method. Acceleration Clause: A clause deed or mortgage which allows demand immediate payment of loan balance if borrower does payments when due. in a trust lenders to the entire not make

Acre: A unit of measurement used in real estate, one acre equals 43,560 square feet. ACRS: Accelerated cost recovery system. This is a method used to recover investment cost under the 1981 Tax Reform Act, which replaced depreciation.

Action to Quiet Title: A court action to clarify ownership of a property and to remove any interest in the title. Removes clouds on the title. Adhesion Contract: A one-sided contract without equality of bargaining position where a standard contract term is forced upon the second party, to its detriment. Said contract term or provision may not be specifically enforceable if unconscionable. Adjustable Rate Mortgage: A mortgage in which the interest rate rises or falls with changes in prevailing rate. Adjusted Market Price: The value of a comparable property after adjustments have been made for differences between it and property that has been appraised. Adjusted Sales Price: The sales price of a property less commissions, fix-up, and closing costs. Ad Valorem Taxes: Taxes based according to the value of the property.

Acceptance: Consent to an offer to enter into a contract. Accession: The increase of land either by man or natural cause, such as a river changing its course. Accounting: A detailed statement of the mutual demands of debt and credit between the parties arising out of contract or fiduciary relationship. Accrued Interest: Interest which has been deferred beyond the period earned. Acknowledgment: A declaration by someone that they signed a particular document.

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Advances: Money advanced by the beneficiary under a deed of trust to pay real property taxes, hazard insurance premiums, and other items needed to protect the beneficiary's interest under the deed of trust. Adverse Possession: Acquisition of real estate through prolonged and unauthorized occupation. Air Lot: The air space over a parcel of land. AIREA: The American Institute of Real Estate Appraisers. Alienate: To transfer the title to real property from one person to another. Alienation Clause: A provision in a loan contract that the loan must be paid in full if ownership is transferred. Alienation of Title: Any kind of change in ownership. All Inclusive Deed of Trust: AITD. Also known as a wrap-around mortgage deed of trust that includes within the terms of the note the obligations owing under a prior deed of trust. Amortization: Payment of a loan requiring periodic installments that include both interest and partial repayment of principal. Amortization Table: A schedule for a complete payoff of a certain sum and interest in a given period by scheduled payments over the term. Amortized Loan: Loan that is completely paid off, both as to principal and interest, by a series of regular payments that are equal or nearly equal. Amount Realized: selling expenses. Selling price less

Affidavit: A written, sworn statement before witnesses. Agent: A person who has been given authority from another to act in his behalf. Agreement For Sale: A document whereby the purchaser agrees to buy a specific piece of real estate and the seller agrees to sell. (Same as Purchase Contract) interest, discount points, and loan fees. Appraisal: An estimate of property's market value. Appraisal Letter: A valuation report in the form of a business letter. Appraiser: A qualified person who is hired to make estimates on the market value of property. Appreciation: An property value. increase in

Assessed Value: A value placed on a property for tax purposes, set by the tax assessor. Assessment Roll: A list that shows assessed values for all lands and buildings in a taxing district. Assessment: A tax for a specific purpose, such as sewer or street maintenance. Asset: All forms of property owned by a person that has value. Assign: To transfer your rights to another under a contract. Assignee: One to whom a right or property is transferred. Assignment: If the loan on house is insured by FHA, you qualify for an assignment of mortgage to HUD. This means your may your HUD

Annual Percentage Rate (APR): Finance charge over a full year, includes 21-2

will become your lender. To be accepted for assignment, circumstances beyond your control (such as: illness, death, separation, divorce, unemployment or underemployment, etc.) must have forced you to miss three or more monthly payments. You must show that there is a reasonable prospect that you will be able to resume full mortgage payments after three years. Prospect is dependent upon employment potential, training, education, recovery from illness, etc. Assignment always involves a repayment plan, but unlike those worked out with a private lender, HUD's plan can provide for a longer term with lower payments. Assignment can also involve a mortgage extension or recasting. Assignment of Mortgage: A contract that transfers mortgage ownership from one party to another. Assignment of Rents: A clause in a trust deed which gives the beneficiary the right to collect rents of the secured Attorney In Fact: One who is authorized to act in the place of another. Bad Faith: Actual or constructive fraud by secretly misleading another,intentionally refusing to fulfill an obligation. Balloon Mortgage: A mortgage in which the final payment is larger than any of the preceding payments. Balloon Payment: The final payment on a balloon mortgage. Bank: A financial institution that loans money from others for a fee. Bankruptcy: A legal proceeding which allows a debtor to discharge certain debts of obligations without paying the full amount, or which allows the debtor time to reorganize his/her financial affairs so he/she can fully pay his debts. A bankruptcy does not discharge obligations secured by a deed of trust.

property in the event of a default. It requires a court order, and a receiver is assigned to collect the rents. Because of the expenses of this action, it is usually only done for large, income producing properties. Association: A nonprofit organization that can own property and transact business in its own name. Assumption of Loan: The buyer takes upon himself the obligation to repay the existing loan as a condition of the sale. Assumption Fee: A fee charged by the lender for changing the records of a piece of property to a new owner who is assuming an existing loan. Attachment: Seizure of property by court order. Base Line: The east and wet line that fixes the center of a township and range system. Basis: Bookkeeping starting point for tax purposes. For property, it is the purchase price. It may increase or decrease based on certain factors. Bench Mark: A permanently fixed market in the ground used as a reference point of known location and elevation. Beneficial Interest: A unit ownership in a real estate vestment trust. of in-

Beneficiary: The lender in a deed of trust transaction. Beneficiary's Demand: Instructions by a beneficiary (usually in writing) under a deed of trust stating and demanding the amount necessary for issuance of a reconveyance.

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Beneficiary's Statement: Statement of a lender giving the remaining principal balance due on a note and other information concerning the loan. It is usually obtained in escrow when the landowner wishes to sell or refinance. Beni: Short for beneficiary. Bequest: Personal under a will. property received

Breach of Contract: Failure to perform as required by a contract. Broker: A person licensed by the state to represent either the seller or buyers of property, loosely referred to as a real estate agent. Brokerage Fee: Broker's commission, usually a percentage of the sales price, paid by the seller. Buy-Down: A cash payment given to a lender to reduce the interest rate a borrower must pay. Buyer's Market: A market with few buyers but many sellers. CAP: The maximum interest percentage changes under a VIR (Variable Interest Rate) loan. Capital Gains: Profit from the sale of property after accounting for the inflationary decline in value of money during the time the property was owned. Capital Gains Tax: An investment incentive which currently imposes federal taxes only forty per cent of the profits of a qualified investment held for more than six months. Capital Loss: The loss from the sale of property. Certificate of Reduction: A document prepared by a lender showing how much of an existing loan needs to be repaid. Certificate of Title: A written opinion by an attorney as to who owns a parcel of land. Chain of Title: Shows the chain of ownership from the present property owner back to the original source of title.

Bilateral Contract: A situation in which a promise is exchanged for a promise. Bill of Sale: A written agreement by which one person transfers his personal property to another. Binder: A contract or restraint. Blanket Mortgage: Also blanket Deed of Trust. Mortgage or deed of trust that covers more than one lot or parcel of real property; often covers an entire subdivision. As individual lots are sold, a partial reconveyance from the blanket mortgage is ordinarily obtained.

Blind Pool: An investment pool where property is purchased after investors have already invested their money. Blockbusting: An illegal practice which causes panic selling so that property can be obtained for deflated prices. Cash Flow: The money left over each year after collecting rents and paying operating expenses and mortgage payments. Cash-On-Cash: The cash flow produced by a property divided by the amount of cash necessary to purchase it. Caveat Emptor: Let the buyer beware. The buyer must examine the goods or property and buy at his own risk. CC&R's: Covenants, conditions, and restrictions by which a property owner agrees to abide. 21-4

Chattel Mortgage: A pledge of personal property; a security for payment of a debt. Clause: A section in a legal document addressing a specific provision. Closing: The finalization of the sale and purchase of property also referred to as a settlement. Closing Costs: The miscellaneous expenses involved in closing a real estate transaction, over and above the price of the property, usually paid by the buyer on the closing date. Closing Statement: Balance sheet at COE itemizing accounting disbursements. Cloud on Title: A claim or encumbrance which appears to impair the title but which can be shown by proof to be unfounded. Co-broker: A person who finds prospects for the broker and receives a finder's fee for this referral. COE: Close of escrow. Color of Title: A fact which appears to support the claim to title but which can be shown by proof to be unfounded. Collateral: The property pledged by a borrower to assure loan repayment. Commercial Loans: Loans made to commercial businesses (restaurants, stress, repair shops, etc.). Commitment: Pledge, promise or firm agreement. FHA commitments are of two types, conditional and firm. The former is a commitment of a definite loan amount on a parcel of property subject to approval of a presently unknown borrower who will be required to have a satisfactory credit rating. The latter type is an agreement by FHA to insure a loan on a specified property with a specified borrower.

Common Elements: Those parts of a condominium in which each unit owner holds an undivided interest. Community Property: Property jointly owned by both husband and wife in which each has one-half interest. Comparables: Estimating the value of properties similar to another properties of known value. Comparative Analysis: A method of appraisal in real estate in which selling prices of similar properties are used as the basis for arriving at the value estimate. It is also known as the Market Data Approach. Complaint: The first pleading in a civil action by a Plaintiff starting the lawsuit. Compound Interest: Interest paid on original principal and on the accrued and unpaid interest which has accumulated. Competitive Market Analysis: A method of valuing homes that looks at recent home sales, homes currently on the market and homes that were listed but have not yet sold. Condition: A stipulation or qualification in a deed, which if violated or not performed, defeats the deed and places the title back in the hands of the original grantor. IT also may mean a requirement to be met or a contract which is to be completed or is in effect. Condition Precedent: A condition that must be fulfilled before title can be transferred. Condition Subsequent: A condition which provides that if the owner

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fails to do something, his title may be defeated and he may lose his title. Conditional Sale Contract: Contract of sale under which title remains in the seller until the conditions off the contract have been performed. Condominium: Individual ownership of separate portions of a building plus joint ownership of the common elements. Conflict of Interest: Two competing interests which are irreconcilable. (Where one is attempting to serve two masters). Consideration: Anything of value given to induce another to enter into a contract. Consolidation Loan: Combining several small loans into a single larger loan. This is done usually to reduce the amount of payments made each month or to get a lower interest rate. Construction Loan: A loan where money is advanced as construction takes place. Constructive Trust: Establishing those holding title or possession to property as trustee(s) for claimant/Plaintiff. Contingency: A condition which must be fulfilled before a valid contract is in effect. Contract: A legally enforceable agreement made between two or more parties. Contract For Deed: A method of selling and financing property whereby the buyer obtains possession but the seller retains the title. Conventional Loans: Real estate loans that are not insured or guaranteed by the government. Conversion Loan: Short term financing for converting residential or commercial properties to condominiums.

Conveyance: The transfer of ownership of real property from one person to another. Cooperative: An arrangement involving a multi-unit apartment building owner by a corporation which leases space to its share holders. Corporation: A business owned by stock-holders. Co-signer: A person who signs a note along with the borrower and becomes liable for repayment of the loan along with the borrower. Cost Approach: Property valuation based on land value plus current construction costs minus depreciation. Covenant: A written agreement or promise. Credit Lease Loan: Financing dependent on credit borrower instead of the value of his property. Creditor: A person or firm to whom money is owed. Crier: The conducting auction. person the "crying" or foreclosure

Dealer: One whose occupation is the sale of real property from inventory and whose profits on such sales, because of dealer status, are ordinary income rather than capital gains. Debtor: The person owing money. Declaration of Homestead: Document recorded to establish a homestead to protect the owner against judgment liens. It does not protect against voluntary liens such as deeds of trust.

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Declaratory Relief: Court opinion determining the rights of the parties, or a question of law, without ordering anything to be done. Deed: A document that conveys legal title of property to a neutral third party if borrower defaults on loan. Deed in Lieu of Foreclosure: A deed given by a trustor to the trustee for the benefit of the beneficiary to prevent foreclosure of the property. Avoids the trouble and expense to the lender and credit problems for you of foreclosure. You, the borrower, give the lender full title to the property in exchange for being relieved of all financial responsibility under the mortgage. You will not Default: Failure to perform a duty or to discharge an obligation. Omission or failure to perform any act. Forfeiture. Usually in foreclosures this means not paying the loan payments or principal. Deficiency Judgment: A judgment against a borrower if the sale of repossessed property at foreclosure does not bring in enough to pay the balanced owed on the mortgaged. Delinquent Loan: A loan payments are past due. in which

receive any financial from this process.

settlement

Deed of Reconveyance: The document which transfers legal title back to the trustor (borrower) from the trustee after a debt is secured by a trust deed has been paid. Deed of Trust: A document that conveys legal title of property to a neutral third party if borrower defaults on loan. Deed Restrictions: Provisions placed in deeds to control future use of land by homeowners. Depreciation: A gradual decrease in the value of a house (but not the land) due to wear the tear. Deterioration: Loss of value of physical structures de to wear and tear. Discount: To sell a promissory note for less than its face value. Discount Broker: A broker who charges less than the prevailing commission rates in his locality. Discount Points: A fee made by the lender to adjust the interest rate on a loan. Discounting Interest: Taking of interest in advance. Discounting by a lender means lending money on a note and deducting the interest in advance. Document: Written instruments which record information which might be used in evidence in court. Documentary Transfer Tax: A method for counties and cities to tax real property transfers. Most California counties require that a tax be paid prior to recording the deed. The rate is $1.10 per $1,000 of equity. The tax is usually

Demand: People wanting to buy or rent a property. High demand usually results in high prices. Low demand leads to low prices. Deposit Receipt: A form used to accept "earnest money" to bind an offer r the purchase of real property. This is usually combined with the terms of the sale in the form of a deposit receipt and purchase contract. Demurrer: A legal pleading which disputes the sufficiency of a Complaint or Cross-Complaint. Department of Housing and Urban Development (HUD): A federal agency that sponsors programs to assist homeowners and community development. 21-7

written on the deed and thus is useful in computing sale price. DOE: Fictitious party defendant of a lawsuit. Dower: The right of a widow to a portion of her deceased husband's property. Dragnet Clause: Broad clause in many deeds of trust in favor of a lending institution to secure already exiting loans. The clause extends the deed of trust to cover every past and present obligation between debtor and creditor. Due-On-Sale: A clause in a note or mortgage that gives the lender the right to collect the entire unpaid balance of the loan if the property is sold. Duress: The use of coercion to force a person to act against his or her will.

Economic Duress: Forced business choice where there is no freedom of decision, no reasonable alternative. Eminent Domain: The government's right to take private property, with just compensation for public use. Emotional Distress (the infliction of): The act of intentionally or negligently causing worry, stress, aggravation by conduct. Encroachment: The unauthorized intrusion of a building or other improvement onto another person's land. Encumbrance: Any legal claim by a third party that limits title to property, such as a lien, lease or easement. Equitable Estoppel: Judicially stopping one whose acts, conduct or silence, denies claimed rights to be asserted.

Earnest Money: A deposit that accompanies an offer to purchase property. Easement: The right for one party to use land belonging to another for a special purpose, such as the use of a road. Equitable Relief: Result sought on basis of justice and fairness, to impose a benefit for Plaintiff, by imposing conditions of action or inaction upon others. Equity: The market value of property above the debt against it. Equity Capital: The difference between total capitalization (in money and property) and debt capital (loans). It is money used to purchase the equity in real estate. Equity Purchase: Buying the equity -the amount obtained by subtracting liens from value. Equity Mortgage: A loan made against the appreciated value of the borrower's property.

Escalator Clause: Contract clause that provides for upward or downward adjustment of certain items of cost or expense top cover specified contingencies. Escrow: Money or documents held by a third party until the conditions of a contract are fulfilled. Escrow Account: A non-interest bearing account held by the lender which is sued to pay the borrower's property taxes, insurance and other periodic expenses connected with the property. Estate: The interest or right which a person has in real estate.

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Estoppel: Forbidden by law to speak against one's own act or deed. Evict: The forced physical moving of a person in real property. Excess Equity: The amount of equity above the amount paid for it. An unrealized or "paper" profit. Execute: To complete, to make, to perform, to do, to follow out, to execute a deed, to make a deed, including especially signing, sealing and delivering; to execute a contract is to perform the contract, to follow out to the end, to complete. Executed: A contract that has been fully performed; a signed instrument. Exclusive Listing: A contract in which a seller gives a real estate agent the sole right to sell his property. Exclusive Right to Sell: A listing that gives the broker the right to collect a commission no matter who sells the property during the listing period. Extension: An agreement by the lender which allows a borrower to make smaller payments on existing debt over a longer period of time. Fair Market Value: The highest prices that a seller can expect to obtain from the sale of property or assets at current market conditions. Fannie Mae: See Federal Mortgage Association. National

Federal Housing Administration (FHA): A government agency which insures residential mortgages against loss due to default. They impose certain structural and qualifying standards which have been used as a standard throughout the real estate industry. Federal National Mortgage Association: Originally organized by the federal government but later converted to a part public, part private corporation which buys and sells mortgages.

Federal Tax Lien: An obligation to the United States government as a result of non-payment of taxes. Fee simple: The largest collection of rights that a person can hold in a piece of real estate. FHA: See Federal Administration. Housing

FHLBB: Federal home loan bank board. Fiat Money: Money created by the government, printing press money. Fiduciary: A person placed in a position of trust and confidence such as between a broker and client. Finance Charge: A fee imposed on the borrower in order to make a loan. Finder's Fee: A fee paid to a person not requiring a license, for information useful to a broker. Fixed Rate Mortgage: A mortgage where the interest rate remains constant throughout the term of the loan.

Federal Home Loan Bank Board: A federal agency that regulates federally chartered savings and loan associations. First Mortgage: The first recorded mortgage on a property. Has senior priority and is the first to be paid in the event of foreclosure. First Position: The most senior lien or encumbrance on real estate title records. 21-9

Flat-fee Broker: A broker who will list a property and help the owner sell it for a fixed fee. Floating Rate Mortgage: A mortgage that has an interest rate which fluctuates with the lending institutions prime rate. F.N.M.A.: Abbreviation for the Federal National Mortgage Association. It is an agency which buys big blocks of loans from banks, thus enabling the banks to loan more money. The F.N.M.A. gets its money by selling securities in the market to investors. The securities are guaranteed by the loans behind them. Forced Sale: An involuntary sale of real property. The owner is forced, usually by law, to sell a property for whatever it will bring. Usually the sale will occur within a short period of time. Often the actual sale is carried out by someone other than the owner: a trustee, a sheriff, a judge, or another official.

rights. Fraud involves cunning, deception, collusion, or artifice to cheat or deceive another person. Freddie Mac: Federal Home Loan Mortgage Corporation. Free and Clear: "Free" means a freehold estate -- one of indefinite duration. "Clear" indicates that there are no money encumbrances against the title. Funding: The financing, by payment of loan funds, near the close of escrow. Future Advance Clause: Clause in a deed of trust permitting the lender to make additional advances in the future that will also be secured by the deed of trust. Garnishment: A procedure by which a portion of a debtor's wages are held back to repay creditors. General Damages: Damages implied, or presumed, as a direct result from another's breach or wrong. General Index: County recorder's record of documents filed, organized alphabetically by names of parties involved. GI Loans: A guaranteed loan available to veterans under a federal government program administered by the Department of Veterans Administration. Gift Deed: A deed that states "love and affection" as the consideration rather than cash or other assets. Ginnie Mae: See Government National Mortgage Association. Government National Mortgage Association: Also known as Ginnie Mae, is a part of HUD and sponsors a mortgage backed securities

Foreclosure: The procedure by which a person's property is taken and sold to satisfy an unpaid debt. Forbearance agreement: A type of repayment plan (usually written but may be oral) made between the mortgagor and the mortgagee. Under a forbearance agreement the lender allows you a time during which you make lower mortgage payments until the loan is up-to-date again. Forfeiture: Loss of anything of value due to failure to perform. Forty Thieves: A colorful name for the professional foreclosure buyers in one area. Usually there are appreciably fewer than forty of them. Fraud: An intentional false representation or concealment of a material fact which is used to induce another person to act. This false action causes a loss of property or of legal 21-10

program and provides residential loans.

subsidies

for

Grace Period: A period of time after the due date of a loan that is not subject to late penalties. Grant: The ownership. act of conveying

Graduated Payment Mortgage: A fixed interest rate mortgage where the monthly payment starts low and then increases.

Grantee: The person named in a deed who buys real estate. Grantor: The owner of the thing being granted. The person who makes a grant. In the case of a deed, the seller. Gross Annual Income: Total yearly income of a property before deduction of expenses or of vacancy factors. Gross Multiplier: Method of appraising income property. Establishes the value based upon multiple of the gross annual income. Guarantee of Title: A guarantee by an abstract company or title company that the title is vested as shown on the guarantee. It is backed only the assets or reserves of the guarantor. Guardian's deed: A deed used to convey the property of a minor. Highest and Best Use: That use which is most likely to produce the greatest net return to the land and/or building over a given period of time. Homestead Protection: State laws which protect the homeowner against forced sale of his property. HUD: Department of Housing and Urban Development. Hypothecate: To give property to secure a debt without having to give up possession of it. Implied Covenant of Good Faith and Fair Dealing: An unwritten part of every California contractual relationship to

Grant Deed: The customary document used in California to transfer title to real property. deal honestly, fairly and in good faith with the other parties. Impound Account: An account set up by a lender for receiving payments from the borrower of real property taxes, insurance premiums or other payments relating to the property in monthly installments. (For restrictions on use see CC law #2954-2955.) Improvement District: An area that receives the benefits of a special public improvement which is paid for by its residents. Inadequate Remedy at Law: When the relief sought is preventive, rather than compensatory. Income Approach: A method of estimating the value of property based on the monetary returns that the property can be expected to produce. Incorporate by Reference: include without repeating. To

Indicated Value: Estimating the worth of property based on the recent sales of comparable properties. INFRA: Below, after. Injunction: A prohibitive writ, allowing or stopping an act which is unjust and inequitable, which has no adequate remedy in money damages. Insider: One of the professional foreclosure investors who are known by other professionals.

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Installment Contract: The selling and financing of property where the seller retrains title but the buyer takes possession while making payments. Institutional Lender: An entity such as a bank, savings and loan association, life insurance company, pension fund, or real estate investment trust that invests depositor's or client's fund in secured real property loans or other loans. Instrument: A written legal document. Insurance Premium: The amount of money that must be paid to the insurance company for the coverage. Interest: The fee for the use of money.

Interest-Only Loan: A loan for which only interest is paid until the end of the term when the entire principal becomes due. Interference with Interim Loan: A short term construction loan which is usually replaced by a longer term loan. Intermediate position that until default passes to the Theory: The legal a mortgage is a lien at which time title lender.

Into the Property for, Into It For: A phrase which indicates how much money the person paid for the property plus all liens and loans against the property for which the owner is obligated. Landlord: Owner or lessor of real property. Late Charges: A charge imposed by a lender for late payment of the amount due on a promissory installment note. Lease: A contract that gives the right to use property for a period of time. Legal Description: A proper and formal method of describing a parcel of real estate that is recognized by law. There are several methods used. Lessee: The tenant. Lessor: The landlord.

Involuntary Lien: A lien imposed against property by operation of law without consent of the owner, such as a tax lien, judgment lien or mechanic's lien. Irreparable Damages: Damages for which no certain monetary standard exists for measurement. IRS: Internal Revenue Service, the taxcollecting arm of the U.S. government. Joint Tenancy: A type of ownership of property by two or more people with equal interest in the property and in the right of survivorship. Should one die, the others inherit all rights of the deceased person. Joint Venture: The association of two or more parties in a single business dealing. Judgment: The final determination of a court on a matter presented to it. An order of a court. Judgment Lien: A claim against property in favor of the holder of a court-ordered judgment. Junior Mortgage: Any mortgage that has a lower priority than the first mortgage. 21-12

Leverage: The process of making money in real estate by using someone else's money. Liability: A debt. Lien: A claim on a debtor's property as security for payment of a debt.

Lien Theory: The legal position that a mortgage creates a charge against property rather than conveying it to the lender upon default by the debtor. Life Estate: The conveyance of fee title for the duration of the beneficiary's life. Limited Partners: A partner who provides capital but is not involved in the management and has limited liability. Limited Partnership: A partnership in a business venture composed of limited partners who supply financial backing and general partners who operate the partnership. Line of Credit: Money that a lender makes available to a borrower. Liquid Assets: Assets that can be converted to cash in a short amount of time. Liquidate: To convert assets to cash. Limited Partner: The passive investor in a limited partnership. Much like a share holder in a corporation, the limited partner does not make decisions in running the partnership. Loan Commitment: An oral or written promise to process a loan in a limited period of time, usually 30-60 days, at specified interest rate,monthly payment, terms and charges/fees. Loan Escrow: An escrow account opened for the purpose of repaying a loan. Loan Fee: A fee charged by the lender over and above the annual interest in order to make the loan. Loan Servicing: The task of collecting monthly payments and handling insurance and tax impounds, delinquencies, prepayments and mortgage releases.

Limited Partnership: A partnership having one or more limited partners and one or more general partners. Limited partners have limited liability; general partners have full liability and are responsible for management and control of the business. Lis Pendens: A notice lawsuit delivered to recorder's office at lawsuit to foreclose is of a pending the county the time a filed.

Listing: An employment contract between an owner and a broker empowering the broker to attempt to find a buyer for the property of the owner. If the broker brings a buyer who offers the purchase terms specified in the listing contract, the broker is entitled to receive an agreed commission payment from the owner. Littoral right: The right for a land owner to use the water of a lake or sea bordering his land. Loan Broker: A person who negotiates loans between borrower and lender. Loan to Facilitate: A loan made by a lender to facilitate the sale of real property which the lender owns. Loan-to-Value ratio: The amount of money a lender will loan on a property divided by its appraised value. Lock-in Clause: A condition in a mortgage that prevents the borrower from paying off the loan before a specified time. Loose Money: Funds lenders have immediately available to loan. Maker: Their person who signs a promissory note.

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Malicious: Intentional doing of a wrongful act, to cause damages, without cause. Market Approach: A method of valuing a property based on the prices of recent sales of similar properties. Market Price: The price actually paid for property. Market Value: The highest price a seller can reasonably expect to obtain from the current sale of property.

terms of a promissory note or the phraseology of a deed of trust. Modus Operandi: operation; scheme. Method of

Money Damages: Compensation paid in lieu of fulfilling contract obligations. Mortgage: A lien on a property which a borrower gives the lender as security for repayment of the borrowed money. Mortgage Banker: A company that makes mortgage loans and then sells them to other financial institutions and investors. Mortgage Broker: A person who brings together borrowers and lenders. Mortgage Company: A firm that specializes in making real estate loans and selling them to investors. Mortgage Extension: May be used after a period of reduced or suspended payments. The lender allows payments to be made after the original term of the mortgage in order to make up for earlier missed or reduced payments. Mortgage Guarantee Insurance Corporation (MGIC): The oldest and largest private mortgage insurance company in the United States. Mortgage Pool: A fund of mortgage loans that is used as an investment. Mortgagee: A lender who receives a mortgage as security for his loan. payments. Monthly payments are adjusted so that missed amounts are gradually paid back. To keep monthly payments low, the recasting agreement may also

Maturity: The end of the life of a loan when all payments have been made. Mechanic's Lien: A claim placed against property by workmen or material suppliers for unpaid services or supplies. Merchant Builder: One who builds for sale. Meridian Line: The north and south line that fixes the center of a township and range system. Metes and Bounds: A method of describing the boundaries of land, setting forth all the boundary lines together with their terminal points and the angles between the lines. Middleman: A person who brings two or more parties together but does not conduct negotiations. Military Affidavit: A sworn statement, in writing, that the property owner is not entitled to any rights under the Soldier's and Sailor's Civil Relief Act of 1940. Modification Agreement: An agreement between the beneficiary (lender) and trustor (property owner) to change the Mortgagor: A borrower who pledges his property in order to gain a loan. Mortgage Recasting: May also be used after a period of reduced or suspended 21-14

provide for extending the period of the mortgage. Given a longer period monthly payments can be lower, but you will pay more interest. Recasting is a change in the mortgage terms. Multiple Listing Service: An organization that provides a means for brokers to exchange information on listings. Municipal Bond Programs: A source of home loans that receives financing from municipal bonds. Mutual Consent: Both parties freely approve of or assent to the terms of a contract. Narrative Appraisal: An unusually thorough appraisal report that can run in length up to 100 pages. National Association of Realtors (NAR): The largest association for realtors in the United States. Natural Person: contrasted to a corporation). A living person legal person (a

New Income or Net Spendable: The cash remaining from the gross income after deducting operating expenses, principal and interest payments and income taxes. Net Lease: A lease where the renter is responsible for paying operating expenses and taxes as well as the rent. Net Listing: A listing where the brokers commission is determined by the difference between the selling price and a minimum price set by the seller. Net Spendable: The amount of money remaining at the end of the year after collecting rents and paying operating expenses and mortgage payments. Non-Assumption Clause: A condition stated in a note or mortgage that gives the lender the right to call the entire loan balance due if the property is sold. Notarize: To witness a signature on a document and to place a notary public's seal on that document. It guarantees that the person signing is the person with the same name as that of the signature. Notary: A state witness before whom certain acts are performed and statements sworn to as being true. Note: A signed document in which one party promises to pay on a debt to another party. Note Modification: A contract which modifies an existing note, secured by a Deed of Trust, on real property. Notice of Default: The first step in the foreclosure process. IT is recorded in the county recorder;'s office and shows that the borrower is behind on payments.

Negative Amortization: A situation where the interest rate is higher than what is being paid, so that the principal increases and the borrower owes more than when the loan was originated. Negative Cash Flow: A condition where the amount of cash paid out exceeds the cash brought in. Negotiable: Capable of being transferred by indorsement; assignable or transferable in the ordinary course of business. Negotiable Instrument: Instrument (e.g., a promissory note or check meeting certain legal requirement) that allows it to circulate freely in commerce. Negligence: Doing, or failing to do, something which TARM (The Average Reasonable Man) would not do; failing to meet the standard care required by duty to others.

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Notice of Trustee's Sale: The last step before the foreclosure auction. Recorded in the county recorder's office, the document is advertised and posted. It gives the time and location of the trustee's sale. IT also contains the legal description of the property to be sold. Offsite Improvements: Grading, installing sewers, drains, gutters, curbs, sidewalks and public utilities, paving and other improvements to the land excluding buildings, fences or landscaping. (see Fin C Law 500072.) Open-end Mortgage: A mortgage which contains a clause which allows the mortgagor to borrow additional money on the mortgage without paying ordinary financing charges. Open Listing: A listing that gives brokers a nonexclusive right to find a buyer. Operating Expenses: The minimum expenses necessary to maintain the production of income. Option: The right to purchase or lease property at a predetermined price within a specified time. Optionee: The person who receives an option on property. Optionor: The owner of the title who gives an option. "Or More": The clause in a trust deed or note which permits an early pay-off of the loan. For example: "The borrower will pay $100 a month or more." Origination Fee: A fee charged by the lender in order to make the loan. Outrageous Conduct: A serious insulting or abusive wrong committed to the person, feelings or rights of another. Outsider: Someone who bids at a foreclosure auction and who is not a 21-16

Offset Statement: Statement customarily furnished to an escrow holder from a tenant regarding rent, security deposits, and other rights of possession in the sale of income property. Also, statement furnished by an owner of land subject to an encumbrance as to the amount due. (See also beneficiary's statement.) regular foreclosure professional. Someone who is not recognized as a professional foreclosure buyer by the other professionals. Such a person is sometimes known as an "outside bidder". Overencumbered Property: Property which has a market value less than the loans against it. Ownership and Legal Right Possession: Lawful title something. P&L Statement: statement. Profit and of to loss

PAC: Political Action Committee. Package Mortgage: A mortgage secured by a combination of real estate and personal property. Partial Reconveyance Deed: A deed used to reconvey a portion of land encumbered by a blanket trust deed or mortgage. It is sometimes called a "deed of partial reconveyance." Partial Release Clause: Allows a portion of the property to be released from a mortgage when part of the loan is paid off. Partially Amortized Loan: A loan that begins with amortized payments but ends with a single balloon payment. Participation Loan: A mortgage loan in which the lender receives

interest profits.

plus

percentage

of

the Perjury: A deliberate while under oath. lie made

Partnership: Two or more person joined together for the operation of a business; they share the profits in certain portions as agreed. Partnership Agreement: The agreement between the partners setting forth their rights and duties. IT is usually a written agreement. Party: A term that refers to a person involved in a business or legal proceeding. Passive Investor: An investor who does not want to be involved with management control of the investment venture, preferring to rely on the expert judgment of a professional. Payday: The paying of a potential buyer at a foreclosure auction so that he will not bid. This is an illegal activity.

Personal Net Worth: Generally refers to total assets (exclusive of home, automobile and personal furnishings) less total liabilities. PITI: A loan payment that combines principal, interest, taxes, and insurance. Plat: A map showing the location of individual properties Player: A popular term for the equity purchaser, or foreclosure investor. He's in the foreclosure "game." Points: A percentage of the loan amount paid to the lender for the privilege of borrowing money. One point equals one percent of the loan amount. Preliminary Injunction: An injunction ordering or restraining conduct until the time of trial. Preliminary Title Report: A report from a title company of the present condition of a title. The report is made prior to the issuance of a policy of title insurance. Prepayment Clause: A provision in a loan agreement permitting the debtor, for consideration, to pay part or all of the balance of the debt before its due date, thus saving interest. Prepayment Penalty: A clause in a Note and/or Deed of Trust, requiring a penalty for early payoff, in part or full, of the principal balance--usually 6 months' interest. Primary Financing: The trust deed and note that has first priority.

Police Power: The right of the state to regulate the use of private property for the protection of the health, safety, morals or general welfare of the public. Portfolio: A collection of mortgages and other investments held by an individual or company. Postponement: A verbal announcement made at the time and place of the scheduled trustee's sale. The announcement establishes the nw time for the trustee's sale. Power of Attorney: Written authorization given to one person to act in behalf of another. Power of Sale: A clause in a mortgage to conduct a foreclosure sale without having to go to court. Prayer: Request for relief in a lawsuit (Complaint or Cross-complaint.)

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Prime Rate: The interest rate banks charge their top borrowers at any particular time. Principal: The actual amount of money borrowed before finance and other charges are added. Priority: Determines which loan or lien is to be paid off first with moneys realized from a foreclosure sale or a tax sale of a property. The highest priority obligations are paid first; then any remaining money goes to the lower priority ones. Pro Form Statement: A statement that predicts income, operating expenses and net operating income.

Proximate Cause: The direct cause, producing damage, without which the result would not have occurred. Publication Letter: The authorization from the beneficiary to the trustee to begin publication of the notice of trustee's sale. Publication Period: The interval beginning after the reinstatement period and ending with the trustee's sale. During the publication period, the notice of sale is advertised, posted and recorded. Punitive Damages: damages. Punishment

Probate: A minimum four-month period during which the Superior Court has jurisdiction over the administration of the estate of a deceased person. Probate Court: Superior Court which has authority over property of deceased persons, minors and insane persons. Promissory Estoppel: A promise which is reasonably expected to, and does, induce action or forbearance and is binding, if injustice can be avoided only by enforcement of promise. Promissory Note: A written promise to repay a loan. Prospectus: A disclosure statement that describes an investment opportunity. Qualifying: The person conducting a foreclosure auction asks potential bidders to prove that they have enough money to purchase the property. He will do this before allowing them to bid at the sale. Quite Title: Establishing Plaintiff's title to real property by compelling an adverse claimant to establish his claim or be forever barred from asserting it.

Purchase Contract: A document whereby the purchaser agrees to buy a specific piece of real estate and the seller agrees to sell. (Same as Agreement For Sale.) Purchase Money Encumbrance: Any money or trust deed that is given by a buyer to a seller for all or part of the purchase price. IT is a way for a seller to extend credit to a buyer when he does not have all the purchase money. Purchase Money Mortgage: A loan used to purchase real property.

Quitclaim Deed: A simple document that conveys any claims the grantor has to the grantee, contains no covenants, warranties nor implications of the grantor's ownership. Range: A column of townships that parallels the Meridian Line. It is used in surveying and describing the location of property. Real Estate: Land and anything that is made a part of is such as a

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house. realty.

Same

as

real

property

and Regression: An appraising principal stating that a high-valued property placed in a neighborhood of lower valued property seeks the level of the lower valued properties. Regulation Z: A federal law requiring lenders to show borrowers exactly how much they are paying for credit. Rehabilitation: The restoration of a property to a satisfactory condition without drastically changing the plan, form or style or architecture. Reinstatement: Curing of a default by a borrower and restoration of the loan to current status through payment of past-due amounts. Reinstatement Period: An interval of three calendar months following the recording of a notice of default. During this period, a default may be cured when the owner pays whatever is owed to the lender. Release: Giving potential claim. up a claim or

Real Estate Owned: Real property owned by a lender. Often the term is restrictively used to mean real property owned by a lender as a result of the lender's foreclosure proceedings, or because a lender took a deed in lieu of foreclosure. Real Property: Land, that which is attached to the land, that which grows on or in the land, and that which is immovable. Realtor: A real estate broker who is a member of the National Association of Realtors. Realty: See real estate. Recision of a Notice of Default: The document removing the effect of a previously recorded notice of default. It must be signed by the beneficiary and recorded by the trustee. Reconveyance: An instrument which is recorded on real estate chain of title when a loan secured by Trust Deed, is paid off in full. Record: To file for record in the office of the County Recorder. This gives constructive notice to the world of the contents of the document. Redemption: The right ownership in property previous indebtedness. to by reclaim paying

Release Clause: Mortgage or Deed of trust clause providing for release of specified portions of the property on payment of a specific sum of money. Rent: Consideration paid for the use and possession of a property. R.E.O.: The abbreviation for "Real Estate Owned". The term is used to describe properties owned by institutional lenders after foreclosing on loans secured by the properties. (mortgagee) to help the borrower to make up missed payments. Generally these agreements

Redlining: Refusing to make loans for property in certain neighborhoods. Refinance: To pay off an existing debt to obtain another. Reformation: Equitable remedy to reform or rewrite contracts which fail, through fraud, mutual mistake, or understanding of the parties, to express the parties' true intention. Repayment Plan: A written or oral agreement made between you, the borrower (mortgagor), and the lender 21-19

require higher payments than the regular monthly mortgage amount for a short period of time (3 to 6 months), until the loan can be brought up-todate. You must not agree to a payment plan you cannot live up to; but you must be willing to pay what you realistically can afford. Your lender or the mortgage servicer is usually willing to make these arrangements with you. To establish a repayment plan, contact the mortgage servicer in person and explain what caused the delinquency. Be open and honest. Repo: Short for "repossession". A property which a lender owns after a foreclosure sale. The lender has "repossessed" the property much as a bank would repossess an automobile upon which they loaned money.

Reverse Mortgage: A mortgage contract where the lender makes monthly payments to the homeowner who later repays in a lump sum. Risk Factors: Those elements of a given investment which serve to create a risk of loss of the invested capital. Sale by Advertisement: This allows a lender to see a property under foreclosure without going to court first. Satisfaction of Mortgage: A certificate from the mortgagee that the loan has been repaid. Seasoned Loan: A loan that has been in existence long enough to demonstrate the borrowers diligence in payment. Secondary Financing: Junior trust deeds or mortgages. Secondary Mortgage Market: The buying and selling of existing mortgages. Second Mortgage: A mortgage that is obtained on a piece of property when one is already in existence. Section: One of the 36 squares in a township. It contains 640 acres and is one square mile.

Reproduction Cost: The cost of reproducing a new replica building on the basis of current prices with the same or closely similar materials. Request for Notice of Default: Notice recorded by the holder of a junior lien requesting that he be notified if a notice of default is recorded under a prior deed of trust. Rescind: To cancel a contract from the beginning; to restore the parties to their original positions. Recision: The mutual agreement of the parties to a contract to release each other. Restrictive Covenants: Clauses in deed which restricts what the landowner can do with the property. Reserves: The setting aside of a specific amount of money to be used for future expenses. Restraint of Bidding: An agreement by two or more people to not raise the bidding on a property being sold at a foreclosure auction. Such an agreement is illegal. 21-20

Security: Collateral; property pledged or hypothecated to secure payment of a debt or performance of an obligation. Security Agreement: Agreement between lender and borrower creating a security interest in property pledged or hypothecated. Security Device: The document used when property is used as a

security for a loan. A trust deed, a mortgage, a land contract. Security Interest: A term designating the interest of the creditor in the property of the debtor in all types of credit transactions. It thus encompasses such terms as the following: chattel mortgage, pledge, trust receipt, chattel trust, equipment trust, conditional sale and inventory lien. Separate Property: Property owned by a husband or wife which is not community property. Sheriff's Deed: Conveys title of property to buyer as a result of a court-ordered foreclosure sale. Simple Interest: The amount paid for the money lent at a certain rate agreed upon by the parties or fixed by law. Single Person: A person who has never been married. S.O.P.: Standard Operating Procedure. Sleeper's Note: Promissory note on which no payments are made until the note is due and payable. At that time all principal and interest must be paid. A type of straight note. Soldier's and Sailor's Relief Act: An act passed by Congress in 1940 for the financial protection of those people entering the military service. It offers some protection against their being foreclosed upon. Special Warranty Deed: A deed that contains a parties that the grantor has not encumbered the property. Square-Foot Method: A method used for appraising a property based on the square foot construction costs of similar buildings. Statue of Frauds: A law requiring that certain types of contracts be written in order to be legally binding. 21-21

Seller's Market: A market condition where there are much more buyers than there are sellers. Senior Mortgage: A mortgage that holds first priority over any others in the event of a foreclosure. Settlement: A meeting in which property is conveyed to the buyer. Shared Appreciation Mortgage: A mortgage in which the borrower gives the lender a share of the property's appreciation in return for a lower interest rate. Statue of Limitations: The time limit allowed by law in which a wronged party can seek justice in court. Statutory Redemption: The right of the borrower to reclaim property after a foreclosure sale has taken place by paying his debt. Steal: A popular term for a very good purchase. Similar to a super bargain; however, less clearly defined. Not all steals are truly super bargains. Step-Up Rental: A lease includes agreed upon increases. that rent

Straight Line: A method of calculating depreciation whereby an equal sum is set aside annually from income to pay the cost of replacing improvements which are presumably deteriorating or losing value. Straight Note: Note in which the entire principal is repaid on one sum, rather than in installments. A mortgage loan with no amortization payable at interest only payments. Terms on the loan are usually only five years or less. Subdivision: A division of land into 5 or more parcels with the intent

to sell, lease or finance now or at any time in the future. Subject to the Existing Loan: The homeowner sells his property without paying off his mortgage. The buyer then makes payments to the seller but does not take personal responsibility for the loan. Sublease: A lease that is given by a renter. Subordination Clause: A clause in a trust deed or mortgage by which the lender relinquishes his priority to a subsequent trust deed, mortgage or other lien. It benefits the borrower. Substitution of Trustee: A written document by which one trustee is appointed in place of another. Subsurface Right: The rights to the use of land below the surface. Subordinate: To make inferior or junior to another interest or lien. Subordination Agreement: Agreement under which a prior or superior lien is Take-Out Loan: A long term arranged to replace a short construction loan. loan term

made inferior or subject otherwise junior line.

to an

Summons: A notice to defendant or cross-defendant that an action has been started and that a judgment will be entered against him if he fails to answer. Super Bargain: Buying a property for two-thirds or less of its market value. SUPRA: Above, before. Surface Rights: The right to use the surface of a piece of real estate. Surplus Money Action: A claim file by a junior mortgage holder for payment as a result of a foreclosure sale. Syndicate: Pooling arrangement or association of persons who invest in real property by buying shares in some type of organization such as a partnership, joint venture, corporation, or other entity. Syndicator: The sponsor forms the syndicate. who

Tenants in Common: Ownership in a single piece of property by two or more persons. Tenancy in Partnership: Ownership by two or more people who unite their property in a lawful business venture. Term: The length of time it takes for the loan to be paid in full. Term Loan: A loan in which only interest payments are made until the end of the term when the entire principal becomes due. Tight Money: Refers to a condition in which loan money is in short supply and loans are hard to get.

Tax Deed: Conveys title to property that has been sold by the government because of the non-payment of taxes. Tax Free Exchange or Tax-Deferred Exchange: A method of deferring capital gains by exchanging real property for other like property. Tax Lien: A lien placed on property to insure the payment of taxes. Tax Loss: A paper loss which the individual may show in his or her tax return. Tax Shelter: A savings in income tax that an investment can produce for its owner. 21-22

Time-Sharing: Shared ownership of property in which owners are given specified numbers of days that they can use the property each year. TRO: Temporary Restraining Order. Title: A document showing evidence of ownership. Title by Prescription: Acquiring ownership to property through prolonged and unauthorized occupation, also known as adverse possession. Title Insurance: Insurance policy with a title insurance company by which the company undertakes to defend a title if another party makes claims to it, and to compensate the insured against loss on account of title defeats. Mortgage title insurance insures only the lender against faulty real estate titles. Owner's title insurance insures only the owner's interest. Title Search: An examination of publically available records and documents to determine current legal ownership of a parcel of land. Tort: A civil wrong or injury violating a duty imposed by statutory or case law. Townhouse: A multiple dwelling with shared walls but individually owned. Township: A unit of land containing 36 square miles; it is 6 miles long on each side. It is used to locate property. Township and Range System: The crossing of a base line and meridian line that fixes the point from which a system of townships and ranges are identified. Transfer Fee: The lender's fee to substitute a new debtor (trustor) on a Deed of Trust. Unimproved Real Property: Land without a building or other man-made improvement. Also called raw land. Unlawful Detainer Auction: A lawsuit to evict a tenant or former owner who unlawfully remains in possession of real property. Trust Deed: See Deed of Trust. Trustee: A person who holds property in trust for another to secure the payment of debt. Trustee's Deed: Deed given by the trustee under a deed of trust when the property is sold under the power of sale. Trustee's Sale: An auction sale of the property described in a deed of trust that is the subject of the trustee's sale proceeding. Trustee's Sale Guarantee: A policy of title insurance that accompanies a title report on a property. It insures the trustee as to the completeness and correctness of the information about the title situation of a property contained in that report. The guarantee is obtained by the trustee before initiating a trustee's sale. Trustor: The borrower in a deed of trust. Undivided Interest: Ownership by two or more individuals, each having the right to use the entire property. Unilateral Contract: A contract where a promise is exchanged for a specific performance. Usury: Usually refers to charging an interest rate higher than that permitted by law. Unsecured Note: A loan which is not secured with collateral and is given on the basis of a borrowers credit worthiness and signature.

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VA: See Veterans Administration. Variable Formula: The conditions which determine the size and frequency of interest rate changes. Variable Rate Mortgage: A mortgage loan in which the interest rate rises or falls with prevailing rates. Vendee: A buyer. Vender: A seller. Veterans Administration (VA): Government agency which guarantees loans given to qualified veterans. Void Contract: A contract that is no longer legally binding. Voidable Contract: A contract that obligates one party to fulfill his part but allows the other the right to cancel the agreement. Voluntary Lien: Any lien placed on property with consent of, or as a result of, the voluntary act of the owner. Wait of Execution: A process of the court under which property is seized and sold. Warranty: A guarantee statement is true. that a

Warranty Deed:A deed which contains a covenant whereby the grantor agrees to protect the guarantee against any claimant of title. Wraparound Mortgage: A second mortgage in which the lender assumes the first mortgage. The borrower makes one payment to the second mortgagee who, in turn, sends the proper payment to the first mortgagee. Zoning: Governmental relating to the use of land.

21-24

INDEX

1001 Uses For A Brick..........................................15-4 3 Suggestions Suggestion 1: How To Act Quickly....................13-1 Suggestion 2: How To Maintain A Clear And Calm Mind.............................................................14-1 Suggestion 3: How To Explore New Possibilities 15-1 4 Important Basic Questions................................16-2 4 Steps to Financial Freedom.................................5-2 Step 1: Determine where you are financially......5-2 Step 2: Decide where you want to go................5-3 Step 3: Formulate a plan for reaching your goals ......................................................................5-3 Step 4: View financial planning as an ongoing process................................................................5-4 5 Keys to Successful Workouts...............................7-4 5 Model Lawsuits.................................................9-15 Model 1: Suing a bank.............................9-20, 9-36 Model 2: Suing a mortgage company or a financial institution.....................................................9-22 Model 3: Suing before a sheriff's or trustee's sale ....................................................................9-28 Model 4: Suing after a sheriff's or trustee's sale ....................................................................9-29 Model 5: Suing against an unlawful debt..........9-31 Other defenses...............................................9-35 5 Types of Loans...................................................8-4 Borrow From Friends Or Relatives......................8-9 Conventional Refinancing..................................8-6 Hard Money Loans............................................8-7 Second Or Third Mortgages...............................8-7 The Equity Line of Credit...................................8-4 5-Step Approach: How To Use This Book To Fit Your Needs Quick.......................................................3 Step 1: Become Familiar with the Action Guide Summary........................................................1-1 Step 2: Make Time To Work Through The 8 Options ......................................................................2-1

Step 3: First Read The Options That Seem Most Relevant To You..............................................3-1 Step 4: Look For Other Ideas In The Book That May Be Helpful.......................................................4-1 Step 5: Complete The Action Plan To Find A Solution..............................................................16-1 7 Habits of Highly Effective People Habit 1: Be proactive.......................................13-5 Habit 2: Begin with the End in Mind..................13-6 Habit 3: Put First Things First..........................13-6 Habit 4: Think Win/Win....................................13-6 Habit 5: Seek First to Understand, Then to Be Understood...................................................13-6 Habit 6: Synergize...........................................13-6 Habit 7: Sharpen the Saw................................13-7 8 Options Section................................................1-38 First Read The Options That Seem Most Relevant To Your Case.......................................................3-1 How to Win by Giving Away Your Property........12-1 How to Win by Refinancing Your Property..........8-1 How to Win by Selling Your Property................11-1 How to Win by Using the Legal System...............9-1 How to Win if You are in the Military................10-1 How to Win Through Bankruptcy........................6-1 Look For Other Ideas In The Book That May Be Helpful...........................................................4-1 Make Time To Work Through The 8 Options........2-1 Win by Changing Your Mortgage Terms..............7-1 Win by Reorganizing Your Finances....................5-1 8 Options To Fight Foreclosure...............................1-2 8 Steps to a Successful Budget Emotional Insights Into Budgeting Attitudes.......5-6 Helpful Hints....................................................5-6 Step 1: The planning stage...............................5-4 Step 2: The Forecasting stage...........................5-4 Step 3: The Planning Meeting With Your Family. 5-4 Step 4: Now You Are Ready To Actually Start Budgeting!......................................................5-5 Step 5: First Month's Progress Report...............5-5 Step 6: Continuing on in the Future Months.......5-5 Step 7: Controlling Spending And Operating A Successful Budget................................................5-5 Step 8: A Look Back..........................................5-6 Acknowledgements..................................................5 Act Quickly, How To.............................................13-1 Action Guide............................................................3 Action Guide Section................................................5

8 Options to Fight Foreclosure and 3 Suggestions ......................................................................1-2 Get Familiar with the Action Guide Summary of the 8 Options........................................................1-1 The Action Guide Summary................................1-3 Time Line of Options........................................1-13 What if Foreclosure Ran its Course?.................1-15 Action Guide Summary Explore new possibilities.................................1-12 How To Win By Changing Your Mortgage Terms. .1-4 How To Win By Giving Away Your Property.......1-10 How To Win By Refinancing...............................1-5 How To Win By Reorganizing Your Finances........1-3 How To Win By Selling Your Property.................1-8 How To Win By Using The Legal System..............1-6 How To Win If You Are In The Military.................1-7 How To Win With Bankruptcy.............................1-4 Maintain A Clear And Calm Mind.......................1-12 Quick action is crucial......................................1-11 Action Plan........................................................3, 1-9 Contents.........................................................16-5 Option 1: How to Win by Reorganizing Your Finances.......................................................16-7 Option 2: How to Win with Bankruptcy........16-11 Option 3: How to Win by Changing Your Mortgage Terms..........................................16-21 Option 4: How to Win by Refinancing..........16-37 Option 5: How to Win by Using the Legal System ..................................................................16-41 Option 6: How to Win if You are in the Military ..................................................................16-55 Option 7: How to Win by Selling Your Property ..................................................................16-57 Option 8: How to Win by Giving Away Your Property.....................................................16-71 Action Plan Section..............................................12-7 Complete The Action Plan To find A Solution That Fits Your Need...............................................16-1 Suggestion 1: How To Act Quickly....................13-1 Suggestion 2: How To Maintain A Clear And Calm Mind.............................................................14-1 Suggestion 3: How To Explore New Possibilities 15-1 The Action Plan...............................................16-5 Adjusted Rate Mortgage (ARM)..............................8-6 Advantages of quitclaiming..................................12-2 Affirmations........................................................15-1 Affirming your prosperity ....................................15-2 Affordable Housing Act..........................................9-9

Agent.................................................................11-7 All-Inclusive Trust Deed How A.I.T.D. Increases Income.......................11-18 How The A.I.T.D. Benefits The Homeowner Who Is In Foreclosure.............................................11-17 Appraised Value....................................................6-9 APR......................................................................9-6 APR calculations...................................................1-6 Asset Collateralization...........................................7-2 Attorney...............................................................9-3 Automatic stay......................................................6-2 Automatic stay stops foreclosure...........................6-3 Bankruptcy see How to Win Through Bankruptcy..................6-1 Bankruptcy relief..................................................6-2 Be organized.......................................................13-3 Beneficiary.........................................................1-17 Blue skying.........................................................15-4 Breathing Exercises.............................................14-1 Belly Breathing...............................................14-2 Counting Out..................................................14-2 Hush Breath....................................................14-2 The 10-10-10 Breath........................................14-2 The Triple Inhale/Exhale..................................14-1 Budget control sheet.............................................5-6 Budgeting.............................................................5-4 Budgeting tips......................................................1-3 CAL-VET Alternatives of Junior Lien holders...................7-13 An Example of Cal-Vet Foreclosure Procedure...7-14 Cal-Vet and the California Code of Regulations. 7-12 Consequences of Failure to Respond or Otherwise Act...............................................................7-14 Default and Foreclosure..................................7-13 First Month of Delinquency..............................7-14 Fourth Month of Delinquency...........................7-15 Notice of Intent to Cancel................................7-13 Notice to Other Lienholders.............................7-13 Reliance by Title Insurance Companies.............7-14 Second Month of Delinquency..........................7-15 The Title 12 Action and the Junior Lienholder....7-15 Third Month of Delinquency.............................7-15 Cal-Vet Loan Assistance.........................................7-3 Calculating the APR...............................................9-6 California Civil Code Section Home Equity Sales Contracts Act......................19-1 Mortgage Foreclosure Consultant's Act............18-1 Power of Sale..................................................17-1

Calm (How to stay calm)......................................14-1 Capital gain..........................................................6-6 Capital Gains How To Compute Gross and Net Capital Gains.....6-9 Capital gains tax...................................................6-6 Capital improvements............................................6-6 CCCS....................................................................1-4 Chapter 11 -- reorganization..................................1-4 Chapter 13 -- debt adjustment...............................1-4 Chapter 13 Bankruptcy: Debt Adjustment..............6-2 Chapter 13 protects your home..............................6-4 Chapter 20 -- a combination of chapters 7 and 13. . .1-4 Chapter 7 -- liquidation..........................................1-4 Chapter 7 Bankruptcy: Liquidation........................6-3 Civil code Home Equity Sales Contracts Act......................19-1 Mortgage Foreclosure Consultant's Act............18-1 Power of Sale..................................................17-1 Civil Code Section 2924.........................................9-3 Civil Code Section 2934a........................................9-5 Civil Code Section 2937.........................................9-5 Civil Code Section 2943.........................................9-5 Class Action Lawsuits..........................................9-12 Clustering...........................................................15-5 Commission(s)......................................................6-6 Conforming Loan Assistance..................................7-3 Consumer Credit Counseling Service (CCCS).....5-1, 5-6 Consumer Loan Advocates (CLA) ...........................9-7 Consumer Loan Advocates (CLA) hotline...............9-11 Contact Consumer Credit Counseling......................1-3 Contacting the mortgage servicer..........................7-5 Contemplation.....................................................15-4 Conventional refinance...................................1-6, 8-4 Counting out breath............................................1-12 Court Room Karate Weapons Summarized............9-40 Courtroom Karate................................................9-36 Creating delays.....................................................1-7 Creating Foreclosure Delays..................................2-2 Creating more time...............................................2-2 Creating new habits with self talk........................15-2 Credit Counselors..................................................5-6 Credit history......................................................8-11 Credit Ratings.......................................................8-3 Credit repair.........................................................8-3 Danger Signals...............................................1-3, 5-2 Debt adjustment...................................................6-2 Debt Management Plan............................1-3, 5-1, 5-7 Debt-consolidation loan.........................................5-2

Decreasing The Principal Amount.........................7-10 Decreasing your expenses...................................1-12 Deducting the estimated sales costs......................6-6 Deed of Trust......................................................1-17 Deed-in-Lieu of Foreclosure see How to Win by Giving Away Your Property. .12-1 Deed-in-Lieu-of-Foreclosure.................................1-11 Deep belly breathing exercise..............................1-12 Default judgments...............................................9-17 Deficiency judgment............................................1-21 Denial.................................................................13-1 Dept counselor......................................................4-1 Developing a new attitude about life....................15-2 Disclaimer...............................................................2 DVA Preforeclosure Avoidance A Lender Workout...........................................7-22 DVA Fact Finding............................................7-23 DVA Refunding Program..................................7-24 Lender's Notice of Intention to Foreclose..........7-24 Partial Payments.............................................7-23 Payment In-Full...............................................7-24 Supplemental Servicing Program.....................7-22 DVA Preforeclosure Avoidance Program.................7-3 Economic Cycles Affect Real Estate Prices.............11-2 Equity............................................................6-4, 6-8 How To Compute Equity.....................................6-9 Equity investors..................................................1-10 Equity line of credit........................................1-6, 8-4 Equity partner.....................................................1-10 Equity Purchase Contract...................................11-21 Equity Purchaser Equity Purchase: The Players And Process......11-20 Notice of cancellation....................................11-23 Notice required by California law.........11-21, 11-22 The Equity Purchase Contract........................11-21 The Home Equity Sales Contract Act...............11-20 Errors Two areas where errors commonly occur............9-3 Two important points........................................9-2 Errors and Fraud Finding errors and fraud....................................9-2 Errors In The Foreclosure Process..........................9-3 Errors In The Loan Servicing..................................9-3 Escrow Opening An Escrow........................................11-27 The recommended escrow process for the seller in foreclosure..................................................11-28 Escrow costs and fees...........................................6-6

Example Of A Quitclaim Circumstance...................12-3 Exclusive Agency Listing......................................11-6 Extended Loan......................................................7-2 Extended mortgage...............................................7-2 False disclosure....................................................5-8 Fear....................................................................13-2 Federal housing authority (FHA)....................7-3, 7-17 FHA/HUD Mortgage Assignment.............................7-3 HUD-approved Housing Counseling Agencies....7-20 Qualifications..................................................7-17 What is HUD?..................................................7-17 File bankruptcy (BK)..............................................2-2 Financial goals......................................................5-3 Financial planning.................................................5-4 Financial Reorganization see How to Win by Reorganizing Your Finances. .5-1 Finding a creative solution ..................................15-4 Finding A Good Agent..........................................11-7 Finding a good broker/agent..................................1-9 Finding a New Place to Live................................11-28 Finding Errors and Fraud ......................................9-2 Finding Errors In The Foreclosure Process..............9-3 Finding Errors In The Loan Servicing......................9-6 Finding new ideas for fighting foreclosure............15-6 Flexible Expenses..................................................5-4 For sale by owner..................................................1-9 For sale by owner with a broker.............................1-9 Forbearance Agreement........................................7-2 Forecasting Expenses............................................5-4 Forecasting income...............................................5-4 Forecasting stage.................................................5-4 Foreclosure Judicial...................................................1-15, 1-21 Non-Judicial............................................1-15, 1-16 one action rule................................................1-21 Foreclosure Defenses By Laurence Adams Malone ........................................................................9-15 Foreclosure Process After The Trustee's Sale, Who Becomes The New Owner?.........................................................1-21 After The Trustee's Sale: Getting Evicted .........1-22 After The Trustee's Sale: Getting Paid To Leave 1-22 Judicial Foreclosure................................1-15, 1-21 Judicial Versus Non-judicial Foreclosure...........1-16 Lender Reluctance To Foreclose.......................1-16 Non-Judicial Foreclosure..................................1-15 Non-Judicial Foreclosure Explained...................1-16 Non-Judicial Process And Time Line..................1-17

Non-Judicial Sequence of Events......................1-18 Non-Judicial Time Periods................................1-17 Reasons For Residential Foreclosures...............1-16 Tax Consequences of Foreclosure.....................1-24 Trust Deeds Explained.....................................1-17 Voiding The Notices of Default or Trustee's Sale ....................................................................1-21 What Is Foreclosure?.......................................1-15 Foreclosure sales strategy...................................11-3 Forms A Deed-In-Lieu of Foreclosure..........................12-6 A Straight Quitclaim Deed...............................12-5 A.I.T.D Addendum - full payoff.......................11-45 Affidavit to court.............................................10-6 Agents Inspection Disclosure.........................11-34 Agreement to Modify.......................................7-37 All-Inclusive Trust Deed (a.I.T.D.)...................11-44 Broker Appraisal (Broker Price Opinion)..........11-59 Broker Price Opinion......................................11-59 Budget control sheet.......................................5-24 Budget guidelines...........................................5-11 Clustering worksheet - focus: miscellaneous. .15-10 Clustering worksheet - possible focus: how to fight foreclosure....................................................15-7 Clustering worksheet - possible focus: how to improve well-being........................................15-9 Clustering worksheet - possible focus: how to increase income............................................15-8 Counter Offer................................................11-56 Disclosure Statement Form............................11-31 DVA Letter #1.................................................7-32 DVA Letter #2.................................................7-33 Equity Purchase Agreement...........................11-50 Equity Sharing Addendum..............................11-52 Escrow closing statement..............................11-62 Estimate of the net proceeds.........................11-60 Exclusive Right to Sell Listing........................11-38 Financial disclosure.......................................11-58 Flyer example...............................................11-41 Flyer form.....................................................11-42 Forecasting expenses......................................5-14 Forecasting income.........................................5-12 Forecasting short term goals...........................5-20 Hardship Explanation and Remedy Proposal. . .11-57 Homestead declaration, married persons.........6-12 Homestead declaration, single person..............6-11 HUD Forbearance Form 1a...............................7-38

HUD Forbearance Form 1b...............................7-39 HUD Forbearance Form 2a...............................7-40 HUD Forbearance Form 2b...............................7-41 HUD Forbearance Form 3.................................7-42 HUD form 92068f............................................7-27 HUD Letter of Notification #1...........................7-25 HUD Letter of Notification #2...........................7-29 HUD Letter of Notification #3..................7-30, 7-31 Lease-Option Financial Disclosure Statement..11-48 List of affordable areas inside california.........11-29 List of affordable areas outside california.......11-30 Note Modification............................................7-36 Notice of Default.............................................1-31 Notice of Default Advertising...........................1-33 Notice of Rescission........................................1-35 Notice of Trustee's Sale...................................1-32 Notice of Trustee's Sale Advertising.................1-34 One Party Showing........................................11-40 Preparing the Agreement to Modify A promissory Note.............................................................7-34 Prequalification Worksheet For All Loan Types..8-17 Promissory Note..............................................1-29 Purchase Offer..............................................11-54 Real Estate Transfer Disclosure Statement.....11-35 Record of Expenditures...................................5-18 Refinance Worksheet 1....................................8-13 Refinance Worksheet 2....................................8-14 Refinance Worksheet 3....................................8-15 Refinance Worksheet 4....................................8-16 Request for N.O.D and N.O.Delinquency.........11-43 Residential Lease Agreement.........................11-39 Sample Bankbook Entry...................................5-19 Seller Carryback Disclosure...........................11-53 Seller's Authorization To Negotiate................11-61 Standard Option to Purchase.........................11-49 Substitution of Trustee....................................1-30 Suggested letter to creditor on installment note ....................................................................10-5 Suggested letter to mortgage holder on a security agreement........................................................10-4 The fritter finder.............................................5-22 Traditional lease-option (contract for Deed)....11-46 Trust deed example.........................................1-27 Trust deed explanation....................................1-26 Fraud...................................................................9-2 Two important points..........................................9-2 Fritter finder.........................................................5-4 Generate cash.......................................................1-3

Get Familiar With The 8 Options.............................1-1 Glossary.............................................................21-1 Grace Periods....................................................11-14 Gross capital gain.................................................6-9 Guarantee...........................................................20-3 Hard money .........................................................8-4 Hard money loans.................................................1-6 Home Equity Loans are similar to ARMS..................9-8 Home Equity Sales Contracts Act..........................19-1 Home Pricing Strategy.........................................11-2 Home Selling Basics.............................................11-2 Economic Cycles Affect Real Estate Prices........11-2 How To Sell "For Sale by Owner"......................11-9 Offer/Counter-offer Strategies.........................11-3 Pricing Strategy..............................................11-2 The Foreclosure Sales Strategy........................11-3 You Must Disclose Your Property's Condition....11-3 Home Selling Programs A buyer aided by seller financing...................11-13 A mortgage insurance-assisted foreclosure presale ..................................................................11-23 A party to lease-option..................................11-10 A sale-leaseback...........................................11-19 Assumption/transfer of loan...........................11-25 Get a partner (equity sharing)........................11-19 Get an equity purchaser................................11-20 The regular retail buyer.................................11-10 Homestead exemption...........................................6-4 Disabled Persons, or Senior Citizens..................6-6 How to Deduct..................................................6-6 Married Couple.................................................6-6 Single Persons..................................................6-6 How Chapter 20 Protects Your Home......................6-8 How maintain a clear and calm mind Gently stretch your tension away..................14-2 How to act quickly...............................................13-1 7 Habits of Highly Successful People................13-5 Be Persistent..................................................13-2 Do It Now........................................................13-2 General tips for working through the options....13-2 Reasons people do not act quickly...................13-1 Tips for moving quickly....................................13-2 How to Avoid Foreclosure on Your Home, Farm, or Business. .......................................................9-3 How to explore new possibilities..........................15-1 Affirmations: affirming your prosperity...........15-2 Clustering example.........................................15-6 Finding a creative solution...............................15-4

Rephrasing Your Self Talk: The Essential Attitude Adjustment...................................................15-1 Stay Focused on Your Goal...............................15-3 Visualizations: Visualizing a new way to live....15-3 How To Figure The Remaining Time ......................2-1 How to file a quitclaim deed ................................12-3 How to maintain a clear and calm mind.................14-1 Breathing exercises.........................................14-1 The deep relaxation technique.........................14-7 How to win by changing your mortgage terms........7-1 5 keys to successful workouts............................7-4 Balloon payment modification..........................7-11 Borrower responsibilities...................................7-5 Cal-Vet loan assistance....................................7-12 Common questions from the lender/servicer.......7-5 Conforming loans............................................7-11 DVA Preforeclosure Avoidance.........................7-21 FHA/HUD Mortgage Assignment.......................7-17 How to get started on a workout........................7-5 Installment Payment Modification....................7-11 Interest Rate Modifications...............................7-9 Lender/Servicer Responsibilities........................7-5 Liability Transfer Modifications........................7-11 Negotiating the details of a workout..................7-1 Note modifications.....................................7-7, 7-8 Principal amount modifications........................7-10 Private mortgage insurance.............................7-16 Special workout assistance................................7-3 The market affects the lender's attitude............7-7 Types of workouts.............................................7-1 Workout hotlines..............................................7-3 Writing up a workout.........................................7-1 How To Win By Giving Away Your Property............12-1 A Deed-In-Lieu-of-Foreclosure..........................12-2 A Straight Quitclaim Deed...............................12-2 An Example Of A Deed-in-Lieu..........................12-3 Deeds Must Have Acceptance..........................12-2 How to file......................................................12-3 HUD and DVA Deed-In-Lieu Programs...............12-4 The advantages of the Quitclaim or Deed-in-lieu ....................................................................12-2 How To Win By Refinancing Best and Worst Case Scenarios..........................8-3 Borrow From Friends Or Relatives......................8-9 Conventional Refinancing..................................8-6 Five different categories of loans.......................8-1 Hard Money Loans............................................8-7

How Lenders Rate Homeowners.......................8-11 Lenders Change With the Real Estate Cycles......8-3 Loan qualification.............................................8-1 Mortgage brokers...........................................8-10 Prequalification Worksheet For All Loan Types..8-17 Refinance Worksheet 1....................................8-13 Refinance Worksheet 2....................................8-14 Refinance Worksheet 3....................................8-15 Refinance Worksheet 4....................................8-16 Second Or Third Mortgages...............................8-7 The Equity In Your Property...............................8-2 The Equity Line of Credit...................................8-4 The 5 Types of Loans.........................................8-4 The route of the typical institutional real estate loan..............................................................8-10 Your credit rating..............................................8-3 How To Win By Reorganizing Your Finances............5-1 CCCS telephone numbers..................................5-9 Credit counselors..............................................5-6 Danger Signals.................................................5-2 4 Steps to Financial Freedom.............................5-2 Getting started.................................................5-1 How to set up a successful budget.....................5-4 The CCCS debt management plan.......................5-7 How To Win By Selling Your Property....................11-1 A buyer aided by seller financing...................11-13 A mortgage insurance-assisted foreclosure presale ..................................................................11-23 A party to lease-option..................................11-10 A sale-leaseback...........................................11-19 Assumption/transfer of loan...........................11-25 Example of how a.I.T.D. Increases income.......11-18 Finding a new place to live.............................11-28 Get a partner (equity sharing)........................11-19 Get an equity purchaser................................11-20 How to find a good agent.................................11-7 How to sell "for sale by owner"........................11-9 Lender short-pay...........................................11-25 List of affordable areas inside california.........11-29 List of affordable areas outside california.......11-30 Opening an escrow........................................11-27 Some basics of home selling............................11-2 The foreclosure sales strategy.........................11-3 The regular retail buyer.................................11-10 Typical home purchase contracts.....................11-1 Using a real estate broker...............................11-4 With an A.I.T.D. With The Existing Interest Rates Readjusted..................................................11-18

How To Win By Using The Legal System..................9-1 Consumer Loan Advocates (CLA)........................9-7 Credit Is Not Money.........................................9-14 Errors In The Foreclosure Process......................9-3 Errors In The Loan Servicing..............................9-3 Errors on home equity loans and commercial lines of credit..........................................................9-8 Finding errors and fraud....................................9-2 Finding Errors In The Foreclosure Process..........9-3 Finding Errors In The Loan Servicing..................9-6 5 major causes for errors...................................9-7 How CLA May Help You find Errors.....................9-9 Key signs of errors............................................9-8 Lawsuits.........................................................9-11 Lenders Must Respond In A Timely Manner.........9-9 Prelawsuit Negotiations....................................9-2 Regulation Z: Truth In Lending..........................9-6 Two important points about errors and fraud.....9-2 When You Order a CLA Audit Analysis Report....9-10 How to Win If Your Are In The Military..................10-1 How To Ensure Your SSCRA Rights...................10-2 SSCRA Reduces Mortgage Payment Interest.....10-3 The Soldier's and Sailor's Civil Relief Act..........10-1 How To Win Through Bankruptcy............................6-1 A Test-Case Example Of The 3 Deductions........6-10 Automatic Stay Stops Foreclosure......................6-3 Chapter 13: Debt Adjustment............................6-2 Chapter 7: Liquidation......................................6-3 Choosing Between Chapter 7 and 13..................6-5 Getting Started.................................................6-1 Homestead Exemption.......................................6-6 How Chapter 13 Protects the Home....................6-4 How Chapter 20 Protects the Home....................6-8 How Chapter 7 Protects the Home......................6-4 How To Compute Equity.....................................6-9 How To Compute Gross and Net Capital Gains.....6-9 The Purposes of Bankruptcy..............................6-2 Types of Bankruptcy Relief................................6-2 HUD and DVA Deed-In-Lieu Programs ..................12-4 Hush breath........................................................1-12 What If Foreclosure Ran Its Course? ...................1-15 Increasing The Principal Amount..........................7-10 Increasing your income........................................1-12 Injunction.............................................................1-6 Introduction..........................................................1 Judicial foreclosure.....................................1-15, 1-21 Junior lienholder..................................................1-19

Laws.....................................................................9-5 Home Equity Sales Contracts Act......................19-1 Mortgage Foreclosure Consultant's Act............18-1 Power of Sale..................................................17-1 Lawsuit see How To Win By Using The Legal System........9-1 Lawsuits.............................................................9-11 3 Types of Lawsuits.........................................9-11 Bonding Requirements....................................9-13 Class Action Lawsuits......................................9-12 Lis Pendens....................................................9-13 Preliminary Injunctions and Temporary Restraining Orders..........................................................9-12 Setting Aside the Sale.....................................9-13 Lawsuits, 5 Models..............................................9-15 Lease option.......................................................1-10 Lease-option, Benefit of the Traditional Lease-option ..................................................................11-13 Lease-option, Benefits of the Straight Lease-option ..................................................................11-13 Lease-option, Straight.......................................11-10 Lease-option, traditional....................................11-10 Lease-options - Legal Notes...............................11-11 Lease-options, Important Facts..........................11-12 Legal defenses against foreclosure......................9-14 Legal system.........................................................9-1 See How To Win By Using The Legal System.......9-1 Legal system provides ways to halt foreclosure......1-2 Lender Reluctance To Foreclose...........................1-16 Lender Short Pay...............................................11-25 Liens..................................................................1-15 Liquidation...........................................................6-2 Lis Pendens.........................................................9-13 List of affordable areas inside california.............11-29 List of affordable areas outside california...........11-30 Loan qualification Best and Worst Case Scenarios..........................8-3 Lenders Change With the Real Estate Cycles......8-3 The Equity In Your Property...............................8-2 Your Credit Rating............................................8-3 Loan-to-value ratio (LTV).......................................8-2 Lowering your monthly credit payments.................5-1 Malone's Foreclosure Defenses............................9-15 Mental affirmations.............................................15-2 Military See How To Win If You Are In The Military.........10-1 Military exemption................................................2-2 Mind stretching...................................................15-1

Model Lawsuits...................................................9-15 Answering a Complaint....................................9-37 Co-signing and Mortgage Deed of Trust Assumption ....................................................................9-33 Counterclaims.................................................9-34 Court room karate...........................................9-38 Courtroom karate weapons summarized...........9-40 Courtroom karate: weapons in your arsenal of defense........................................................9-36 Failure to tender a lawful consideration...........9-39 In counterclaim and third party complaint actions ....................................................................9-41 Legal karate...................................................9-33 Legal karate: what to do..................................9-38 Motions..........................................................9-39 Refinancing debts or loans..............................9-33 Summary of Options Before Judgment..............9-42 The Answer and Counterclaim, Third Party Complaint Definitions...........................................9-41 Trial by motion versus trial by jury...................9-35 Mortgage brokers................................................8-10 Mortgage Foreclosure Consultant's Act.................18-1 Mortgage Insurance Assisted Foreclosure Presale Department of Veteran's Affairs.....................11-24 How To Contact the Insurer............................11-25 Private mortgage insurance companies..........11-24 Mortgage workouts...............................................7-5 See How To Win By Changing Your Mortgage Terms ......................................................................7-1 Negotiate a workout..............................................1-2 Negotiations.........................................................9-2 Net capital gain.....................................................6-9 Non-judicial foreclosure...............................1-15, 1-16 Power of Sale..................................................17-1 Non-Judicial Time Periods ...................................1-17 Note Modification..................................................7-2 Note Modifications..................................................7-8 Agreement to modify form.................................7-37 Balloon Payment Modification..........................7-11 Installment Payment Modification....................7-11 Interest Rate Modifications...............................7-9 Liability Transfer Modifications........................7-11 Note Modification Form...................................7-36 Preparing the Agreement to Modify A promissory Note.............................................................7-34 Principal Amount Modifications........................7-10 Some points to consider....................................7-8 Notice of Default.................................................1-19

Offer/Counter-offer Strategies.............................11-3 One action rule....................................................1-21 Options that may create more time........................2-2 Partial Payments...................................................7-2 Pay and Accrue.....................................................7-2 Planning meetings................................................5-4 Postures.............................................................14-2 Half Moon.......................................................14-4 Head to the Knee............................................14-6 Revitalizing Star Pose......................................14-3 Triangle..........................................................14-5 Power of Sale......................................................17-1 Prelawsuit Negotiations.........................................9-2 Preliminary Injunctions........................................9-12 Prepayment Penalties........................................11-14 Private Mortgage Insurance (PMI)..........................7-3 Promissory Note..................................................1-17 Promissory note secured by a deed of trust............8-9 Home Purchase Contracts....................................11-1 A buyer aided by seller financing...................11-13 A mortgage insurance-assisted foreclosure presale ..................................................................11-23 A party to lease-option..................................11-10 A sale-leaseback...........................................11-19 Assumption/transfer of loan...........................11-25 Get a partner (equity sharing)........................11-19 Get an equity purchaser................................11-20 The regular retail buyer.................................11-10 Purposes Of Bankruptcy........................................6-2 Quitclaim Deed Deed-In-Lieu-of-Foreclosure.............................12-2 Straight Quitclaim Deed..................................12-2 Quitclaiming See How To Win By Giving Away Your Property. 12-1 Straight quitclaim deed...................................12-2 Quitclaiming deed-in-lieu-of-foreclosure..............................12-2 Real Estate Broker...............................................11-4 Exclusive Agency....................................11-4, 11-6 Exclusive Right To Sell.....................................11-4 How To Find A Good Agent...............................11-7 Real estate cycles...........................................7-7, 8-3 Reasons For Residential Foreclosures...................1-16 Record of expenditures...................................5-4, 5-6 Refinance your property........................................1-2 Refinancing See How To Win By Refinancing Your Property....8-1 Regulation Z..........................................1-6, 9-6, 9-36

Reorganize your finances.......................................1-2 Reorganize your finances through bankruptcy........1-2 Reorganizing your finances.............................3-1, 5-1 Repayment Plan....................................................7-1 Rephrasing your self talk.....................................15-1 Return To Childhood............................................15-4 Revised payment schedule....................................5-3 Sales Costs...........................................................6-6 Second mortgages Third Mortgages...............................................8-7 Secured creditor...................................................6-4 Selecting a real estate agent.................................1-9 Self-destruction..................................................13-2 Sell through a real estate broker............................1-9 Sell your property.................................................1-2 Seller carryback..................................................1-10 Seller Financing.................................................11-13 An All-Inclusive Deed of Trust........................11-17 The Seller-carryback......................................11-13 Seller Carryback A Request For Notice of Default and Notice of Delinquency................................................11-15 Benefits to the homeowner in foreclosure.......11-16 Converting A Note To Cash.............................11-16 Credit Check.................................................11-15 Interest Rate and Length of Term...................11-14 Late Charges and Grace Periods.....................11-14 Prepayment Penalties....................................11-14 Tax Aspects..................................................11-15 The Promissory Note and Deed of Trust..........11-14 Selling Your Property...........................................11-1 For sale by owner............................................11-1 Required disclosure forms.............................11-31 Sell through a real estate broker......................11-1 Selling it yourself with a broker.......................11-1 The disclosure statement................................11-3 Seven Steps To Inner Power.................................15-3 Short Pay..........................................................11-25 Slashing expenses.................................................5-1 Soldiers' and Sailors' Civil Relief Act.....................10-1 Reduce loan and interest payments.................10-2 Set aside completed foreclosure proceedings. . .10-2 Stop foreclosure proceedings..........................10-2 Staying calm.......................................................14-3 10-10-10 breath..............................................14-2 Belly breathing...............................................14-2 Hush breath....................................................14-2 Triple inhale/exhale.........................................14-1

Staying Focused on Your Goal .............................15-3 Step 1: Become Familiar with the Action Guide Summary........................................................1-1 Step 2: Make Time To Work Through The 8 Options How To Create More Time..................................2-1 How To Figure The Remaining Time....................2-1 Options That May Create More Time...................2-1 Step 3: First Read The Options That Seem Most Relevant To Your.............................................3-1 Step 4: Look For Other Ideas In The Book That May Be Helpful...........................................................4-1 Step 5: Complete The Action Plan To find A Solution That Fits How To Move Through The Action Plan Quickly. 16-1 Important Questions.......................................16-1 The Talk-It-Out Exercise..................................16-1 The Write-It-Out Exercises...............................16-1 Steps To Financial Freedom...................................5-7 Stretch Your Tension Away..................................14-3 Suggestion and Evaluation Response Sheet..........20-5 Suing the lender...................................................1-7 Suit at common law.............................................9-20 Telephone numbers Cal-Vet loan assistance....................................7-16 CCCS - California...............................................5-9 Comparables hotline.........................................7-7 Consumer loan advocates................................9-10 DVA California offices......................................7-24 HUD offices.....................................................7-18 Loan workout hotlines.......................................7-3 Temporary Indulgence...........................................7-2 Temporary restraining order...........................1-6, 2-2 Temporary Restraining Orders.............................9-12 The 5-Step Approach The 5 Steps At-A-Glance.......................................4 The Action Plan 4 Important Basic Questions............................16-2 The Three Suggestions..........................................1-2 Time Line of Options.............................1-1, 1-13, 1-17 Total capital improvements....................................6-9 Triple inhale/exhale.............................................1-12 Trustee...............................................................1-17 Substitution of................................................1-18 Trustee sale..........................................................1-6 Trustee's Sale.....................................................1-19 Trustor...............................................................1-17 Truth in lending....................................................1-6 Unlawful Detainer: Eviction

If the previous owner challenges the eviction. . .1-23 If the previous owner does not challenge the eviction.........................................................1-23 Judgement Against The New Owner..................1-24 Judgement Against The Tenant/Previous Owner 1-23 Using The Legal System ........................................9-1 Veterans...............................................................1-8 Visualizations......................................................15-1 Visualizing a new way to live................................15-3 Voiding the foreclosure sale.................................1-20 What To Say When You Talk To Your Self..............15-2 Win By Changing Your Mortgage Terms..................7-1 Workouts Contact your lender/servicer..............................7-5 Cooperate.........................................................7-6 Put the final workout agreement in writing........7-7 Request a workout............................................7-6 Seek advice and assistance...............................7-7 Substantiate your claims...................................7-6

NOTES

NOTES

22-45

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