What is a forbearance agreement?

Definition

A forbearance agreement is one way to prevent foreclosure or default. A forebearance agreement is an arrangement to postpone a borrower’s monthly payment for a limited and specified time period. The loan continues to accrue interest during a forbearance. A forbearance request must be approved by your lender. Most lenders are willing to enter into such an agreement if the borrower can pay at least 50% of the mortgage or loan arrearage or 1 full months payment and is willing to pay the remainder in 24 months.

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Process in buying a foreclosure, or distressed property in California?

Also can you help me understand what a tax lien property is and it's buying process and foreclosure's buying process, which is better?

High level version of the cycle.

1. People become behind in their bills.
2. At some point the lender decides that it is time to file a formal notice of default. They publicly declare that they are going to take action to seize the house (starting foreclosure).
3. Up until some point before the auction the borrower has the option of catching up and stopping the foreclosure action.
4. An auction is held and anyone can bid. The borrower/owner looses the property to the winning bidder. That bidder might be the lender as they enter the first bid.
5. If the lender is not outbid and 'wins' they get the property. They will then proceed to list it with an agent or otherwise work to get it sold off.

You can buy from the borrower in default before the auction. You might even try a short sale where the lender agrees to take less than they are owed.

You can bid at the auction. You need to have ready to hand over the winning amount right then and there if you win. No time to line up a loan secured by the property.

You can buy from the bank after the auction if the bank ends up with the property.

For trust deed sales in CA there is no right of redemption after an auction.

As to your other question about tax liens. You are bidding on a lien held by the county. It is not the same as bidding on the property. You buy the lien and get to collect from the county when the person pays the taxes owed. You earn a rate of return. If they do not pay then you an trigger the next step to force payment.

It is rare for a tax lien to convert into title to the property if the property has a house on it and there are no defects that makes the property worthless. Someone will step forward (the owner or the lender) to pay off the tax lien first.

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Foreclosure Help

Since foreclosure is still escalating all over the country, FDIC Chairperson Sheila Bair proposed to use $24.4 billion from the $700 billion Troubled Asset Relief Program (TARP). She is now appealing to the incoming Obama administration to see this fund through.

The said program is within the Emergency Economic Stabilization Act approved by the Bush administration last October 3. It hopes to avoid 1.5 million foreclosures and reassure the lenders for payments.

To Chairperson Bair’s disappointment, Treasury Secretary Henry Paulson seems to be concerned and shows some disapproval to Bair’s proposal. Last month, Paulson expressed his worries about the foreclosure problems, but did not agree on using the TARP fund. He must be seeing a different approach to the panic-worthy foreclosure problem and a more apt use for the TARP.

House Financial Services Committee Head Barney Frank has been negotiating with Paulson on Bair’s project. It would be really disappointing to see this beneficial project go into waste.

Now, the Treasury Secretary seems to be more solicitous. It is speculated that Paulson may approve a $2 billion fund based from the Emergency Economic Stabilization Act to jumpstart Bair’s proposal. This fund will be used to pay up $1000 lender administration fee for 2 million mortgages. This will really help some millions with foreclosure trouble.

But Bair is still seeking for the approval of the remaining $22.4 billion foreclosure-plan fund. This may be used for loss sharing programs between lenders or financers and the FDIC for mortgages that fail 6 months after modification.

Foreclosure is one of the upsetting effects brought about by the economic recession of 2008. We just have to cross our fingers and hope that soon to be inaugurated President Obama will agree on using some federal money to pay up and solve foreclosure problems.

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