Loss Mit Services

Beware the Vacant Short Sale

Posted on 26. May, 2017 by ctlms in Blog, Foreclosures, My Blog, News, Real Estate, Short Sale, foreclosure

What to look out for with a vacant short sale.

There are things to look out for when your short sale is a vacant house.  There are processes the lender will take that the seller and agent should be aware of.

The vast majority of the short sales we negotiate are on mortgages that are no longer current on payments.  Once the loan is delinquent the mortgage servicer is going to start certain processes that they are required to do.  Collection calls and letters are obvious actions they will be taking.  Eventually they will also start "soliciting" the borrower to apply for assistance.  This means sending them an application package and encouraging them to complete it and send it back to be reviewed for a loan mod and other options.

Vacant Properties have their own concerns.

Another process the servicer is going to do is to start checking on the property.  Somewhere within the first 90 days the bank is going to send a property preservation contractor to the property to see if it looks like it is occupied, being maintained, or vacant.  If the property is occupied, you may hear from the homeowner that they saw someone walking on the property or taking photos.  They may even peek in the windows.  This contractor is looking to see if the property is abandoned and they are taking photos for the report that they have to submit.

If the property looks vacant, the contractor will usually leave a door hanger or put a stick on the door that says something like "This property is believe to be abandoned.  If this is not the case, call you lender immediately at 555-555-5555".  If the property is not vacant, the homeowner will want to call and let the bank know that is not.  If the property is vacant and the homeowner is maintaining it and checking on it, they would want to let the bank know that also.

If it is Vacant, expect it to be Secured.

If the property is vacant, even if the homeowner is maintaining it, expect that the bank will "Secure" it.  Secure it means breaking in, changing the locks on at least one door, and usually winterizing it.  Even in warm weather months, it is not uncommon for them to still winterize it.  The lender has the right to secure the asset that is collateral on the loan against damage or loss of value.  So they will do that.  Their concerns are things like burst pipes and water damage in the cold months.  But even in the warm months, vandalism and damage due to stolen copper pipes are concerns.

So do not be surprised to show up at the property to find the locks changed and either no lock box or a different lock box than the one the agent left at the property.  Typically the agent's lock box will be found inside on the floor, still attached the the door handle that was removed and replaced.  Even if there is a real estate sign in the yard, it is not common for the preservation company to call the agent to ask about the occupancy or let them know they will be securing it, though it does happen sometimes.

The bank cannot lock out the homeowner.  So we or the homeowner are able to get the new lock box code or a copy of the keys.  The main reason they changed the locks was so that the preservation contractor has access to the property for routine checkups on the property in the future, without having to break in again.

Beware the Preservation Contractor!

The companies that are hired for the property preservation work are not licensed, or regulated in CT and many other states.  Many of these companies subcontract out the inspections and actual securing of the property.  There is little to no oversight or accountability.  Due to these facts, some of the shadiest people you will meet are involved here.  I have seen many instances of theft, vandalism, and shady actions by these companies.  I have seen properties secured that were obviously occupied.  Only for the occupant to come home and not be able to get in.  I have seen MANY things stolen.  I have seen utilities turned off in the middle of winter, but no water drained from the pipes.  I have seen doors and windows left wide open, presumably for someone else to come back after dark to steal from the house.

So what to do?

For the homeowner: If the property is vacated by the homeowner and the payments are not being made, they should move out all of their belongings.  Do not consider the property to be a good place to store belongings until closing.  Things will disappear once the property is secured and if they call the Police they will be told this is a civil matter, not criminal.  The bank has no accountability or oversight over these companies and does not care about any of this.

If you see that the property has been secured, check it out.  Did they turn everything off?  Did they drain the water?  Their incompetence may have put the property at further risk of damage, rather than reduced the chances as the banks intend.

For the agent: If the agent sees a sticker on the property or gets a call from a company that says they are going to secure the property, I would either remove the lock box or try to put it somewhere other than the door handle that would be changed if they changed the locks.  No one likes losing a lock box, especially the electronic ones.

This is all something to be aware of and keep in mind when dealing with vacant properties and delinquent mortgages.

Sean Wilder

Loss Mit Services

FHA Short Sale Update May 2017

Posted on 05. May, 2017 by ctlms in Blog, Foreclosures, My Blog, News, Real Estate, Short Sale, foreclosure

FHA short sales require 15 days Active on the MLS AFTER Approval to Participate (ATP) is issued.

It' just keeps getting harder and harder to work with FHA short Sales

The FHA Preforeclosure Sale Program aka a FHA Short Sale, is already the most complicated, Red Tape Laden, program there is for short sales.  But HUD just keeps making it worse.  Over the last few years HUD has continued to add more and reason to deny struggling homeowners the ability to do a short sale, or at minimum, making it maddeningly complicated to do so.

For example, any of the following reasons can get you denied for a short sale, unless a Variance is approved to the rule; Non-Owner Occupancy, Property Rented over 18 Months, Surplus Income Above the Expenses, Mortgage Payment too Low compared to Gross Income, Approved for a Retention Option, Weak Hardship Reason, and the list goes on.

Recent Changes to the 15 day Marketing Rule.

For a couple years FHA has had a rule that the property must be Actively listed on the MLS, at the FHA appraised value, for at least 15 days, AFTER the ATP is issued, before any offer will be reviewed.  The ATP is the Approval to Participate (ATP).  This is the seller's approval into the preforeclosure sale program.  It is a "pre" approval to do a short sale.  Once that is issued the financial review of the seller is over, the appraisal amount is disclosed and the 120 day approved marketing period starts.  This is when the min 15 days of marketing starts also.  EVEN IF YOU ALREADY HAVE AN OFFER!

For the last couple years HUD has been approving variances for this rule.  A variance is when HUD approves of an exception to their rules.  The previous policy with HUD had been that so long as the property had been marketed for at least 15 days before an offer was accepted, even if that was prior to the ATP being issued, they were approving the exception.  HUD now says they will no longer approve this variance.  I have heard this from a couple larger mortgage servicers as well as directly from a HUD escalations specialist at the HUD National Servicing Center, which is where we escalate FHA short sales if the bank is not doing things correctly.

So Now What?

Being forced to list the property as ACTIVE on the MLS, if you already have an offer in place, causes some issues for the agent.  It is a violation of MLS rules to list a property as being ACTIVE if you are already under contract with a buyer.  If you wait to list the property until the ATP is issued, then you have no issues.  But that may waste a few months of potential marketing time during the pre-approval process.  So then, disclosing to the buyer that the property will need to be reactivated on the MLS is likely a good idea, should you receive an offer prior to the ATP being issued.  What you do when you put the property back on ACTIVE is up to you and speaking with your Broker may be a good idea.  The cleanest thing would likely be to terminate the contract, put it back on ACTIVE and then execute a new contract with them after the 15 days.  Then there is no gray area.  But if you have had that offer for quite some time, that may be uncomfortable for the buyer.  So each case may be different.

Just be Aware of this Policy.

Notable Exception.

As with most FHA short sale rules, there are exceptions.  There is one notable exception to the above 15 day marketing rule. That exception is on files that are already past "First Legal Action".  First Legal Action is when the file has been sent to an attorney to file foreclosure and that attorney has delivered to the state Marshal, the package to serve the homeowner with to start the foreclosure.  If the file is past this date, it is not eligible for the pre-approval or the 120 day ATP marketing period.  Since an ATP with 120 day marketing period cannot be issued, it is not possible for the property to be marketed for 15 days after the ATP is issued.  So long as the property was listed for 15 days, it can be reviewed for approval.  So files that are already in foreclosure, do not have this 15 day after the ATP issue.

One of the very first things we do with a new short sale file is determine the loan type.  This way if there are issues or concerns with the file, we can let everyone know and we can all plan accordingly for the transcation.

Sean Wilder

Loss Mit Services

Short Sale Update 2015

Posted on 20. Mar, 2015 by ctlms in Blog, Foreclosures, My Blog, News, Real Estate, Short Sale, foreclosure

The state of short sales in 2015

It's a whole new world out there.

The loss mitigation industry, policies and procedures, and the general landscape of mortgage servicers is constantly changing.  Keeping track of all these changes can sometimes be a job all in itself.

In the past year the changing landscape of mortgage servicing has been in flux more than usual. Billions of dollars in Mortgage Servicing Rights (MSRs) have been being sold back and forth between mortgage servicers resulting in Servicing Transfers.  This is when the borrower receives notice that a new servicer will be handling their loan.  If you're in an active workout review like a short sale, this means at least a month delay while the loan is ported into the new servicer's systems and likely, you end up starting over from the beginning.  National Servicing Standards were put in place to eliminate these delays, but thus far they have not resulted in much success.

Another big development has been the sale of seriously delinquent loans to hedge funds by FHA, Fannie Mae and Freddie Mac.  All 3 of them have been pooling Billions of dollars in delinquent loans that are either insured by FHA or owned by Fannie or Freddie and putting them up for auction.  These are then bought by hedge funds.  This also results in the same type of servicing transfer as the MSR sales do.  However in these cases, the loans are now owned by a new investor, whereas a MSR sale is just the serving rights, the investor has not changed.

FHA, Fannie Mae, and Freddie Mac all have very details loss mitigation guidelines that the servicer has to follow and many of them have protections for the homeowner.  These guidelines require the servicer to attempt to work things out with the borrower before foreclosing.  Most also include that an approved short sale result in the settlement of the debt so that none of it is left collectible after closing.  This all goes out the window with the Asset sales.  There is talk about enforcing some level of responsibility to attempt a workout with the borrower on future sales, but past sales did not have that.  This has all resulted in some new servicers in the industry that are servicing the loans purchased by these Hedge Funds.  Many of these servicer push to foreclose or push for a deed in lieu of foreclosure rather than a short sale.  That is not to say they will not do a short sale.  But these servicers are more apt to go straight to talking deed in lieu with the borrower and totally skip the short sale option.

One positive result with some of these new servicers and these asset sales has been a shorter decision timeline than with most other short sales.  Not all are faster, but some of these new servicer care less about the financials of the borrower and more about what the offer is and what the market value is.  Remember that these loans are already seriously delinquent.  So this makes more sense since the likelihood of the borrower being able to cure the default on a seriously delinquent loan is pretty low.

HAFA short sale updates.

The HAFA short sale program also got a major update in Feb of 2015.  2 areas of the HAFA guidelines in particular were updated.

The 1st are is the amount of funds allowed to be offered to a junior mortgage.  Previous HAFA guidelines allowed for "up to $8500" to a junior lien.  $8500 was often the highest of any other short sale program, however in recent years many of the servicers have latched onto the "up to" language and have established lower caps.  These caps are typically a percentage of the Unpaid Principal Balance (UPB) of the junior mortgage.  These range to 6-10% of the UPB.  So a junior mortgage owned $30,000 may be offered just 10% or $3,000 rather than the $8500 max allowed.  This can result in the junior lien not accepting since the guidelines also require they forgive the remainder of the balance.

The updated HAFA guidelines allow for a Min of $12,000 to the junior lien.  As has happened with nearly all other HAFA guideline changes, not all of the servicers have correctly implemented the new changes and some are still trying to set a % cap that could be lower than $12,000.  These require escalation to the HAMP Solution Center and the Treasury Dept to get oversight involved.  Unfortunately that ends up causing more delays in the process.

The 2nd guideline that was updated was the Relocation Incentive that Owner Occupied sellers are eligible for on HAFA short sales.  This has been increased to $10,000 from $3,000.  I have seen no idication why this was changed.  But this is great news for those sellers who qualify.

Remember though that HAFA is now a small percentage of short sales.  Fannie Mae and Freddie Mac no longer participate in HAFA and neither do any Government Insured or Guaranteed loans.  So these are only conventional loans not owned by Fannie or Freddie and owned by participating investors and servicers.  So this is a small %.

Current Time-Lines.

Unfortunately time-lines for short sale approvals have not improved and in many cases have regressed.  Revisions to the FHA short sale guidelines in late 2013 added much complication to guidelines already riddled with red tape. So FHA loans take longer than ever to get short sale approval.

Many of the larger banks such as Chase, Bank of America and Wells Fargo have also reduced the size of their loss mitigation staff.  Over all they are seeing fewer applications for short sales due to recover on some of the country.  However areas of the country like here in CT have not seen price appreciation or job growth.  So we are seeing short sales as busy as every and the reduced staff levels at these servicers is causing delays.

In general the mortgage servicers are as dysfunctional as ever.  It is all too common for the servicers to deny files for incorrect guidelines.  I would say that we have escalate at least 75% of our files that would otherwise be denied if we did not know the correct guidelines and escalated to the appropriate dept or oversight agency.

We here are Loss Mit Services are busier than ever processing short sales.  We have added staff over the past year to help manage our caseload and not compromise our service.  We will continue to do so as needed and as always we strive to get every short sale approved.

Income Taxes

The last topic I want to discuss is the Mortgage Debt Forgiveness Act.  This act allows taxpayers who have had mortgage debt cancelled on a purchase money mortgage on their primary residence to avoid the possibility of being taxed on that debt cancellation.  This act was passed in 2007 and extended several times.  It expired at the end of 2013.  It was not extended until just a couple weeks before the end of 2014 and was retroactive to cover all of 2014.

We find ourselves again without this protection for struggling homeowners in 2015.  There are already bills in congress to extend this yet again.  However this was the same this time last year.  So though we expect that this will likely be extended again, it has yet to be and may not be till much later this year.

Sean Wilder