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  • Flag_of_California.svgGovernor Arnold Schwarzenegger signed the California Foreclosure Prevention Act (CFPA) on February the 20th 2009. The Act is designed to encourage lenders and mortgage servicers to provide loan modification programs to borrowers.

    The Act extends the foreclosure process in California by 90 days. This provides borrowers with three more months to put their finances in order and find a way to avoid foreclosure. Mortgage providers can apply for an exemption from this extension to the State department. The state department provides exemptions to lenders and mortgage servicers that have a comprehensive loan modification program for borrowers. This program must provide help to borrowers and be designed to avoid foreclosure and help borrowers save their homes. The Act gives lenders an extra incentive to keep borrowers in their homes.

    Who qualifies for this extension? Everyone qualifies, unless your lender is granted an exemption. The Act is aimed at servicers not borrowers. Generally borrowers will qualify for the extension as long as:

    a)      The lender has not received an exemption because it has a loan modification program.

    b)      The loan was signed between January 2003 and January 2008.

    c)       The loan is the primary or first mortgage on the property.

    d)      The borrower lives in the property.

    e)      The borrower is not filing for bankruptcy.

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    These points highlight two important points you should consider carefully when deciding what to do when you are behind on your mortgage payments.

    First do not leave your home regardless of what your lenders says. Until your house is placed on auction and sold and the forbearance period has ended you have the right to live in your home. Use it. The moment you leave your home you give up certain rights and are no longer eligible for certain mortgage programs aimed at borrowers that live in the mortgaged homes.

    Second, don’t jump into filing for bankruptcy unless it is your last chance of saving your home and it is worth saving. Always talk to a bankruptcy lawyer before you make that decision. A bankruptcy will stop in their tracks any loan modification programs you might be in or had the choice of applying for. It also has long-term effects on your credit score. It will stay on your credit score for at least ten years making it difficult for you to get a loan in the future.

    The California Foreclosure Prevention Act gives lenders and mortgage servicers 90 more reasons to provide loan modifications to struggling homeowners. However, the chances are you have many more questions on the Act. Does this mean every loan in California should receive a loan modification? What time frame does a lender have to apply for an exemption? Or where can I find more information on the content of the Act? We will answer these and other questions in the next article of this series.

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