Loss Mit Services

The Short Sale Landscape is Changing

Posted on 22. Jan, 2013 by ctlms in Foreclosures, My Blog, Real Estate, Short Sale, foreclosure

Short sales are part of Loss Mitigation for the banks and the Loss Mitigation industry is constantly changing.

Over the past couple of months there have been a few major changes happening that affect short sales.  Not all of them for the better.

One common instance we are seeing is that many of the larger banks, that have had to settle with the government over foreclosure abuses, are service releasing large numbers of their delinquent loans to other services that are not bound by these settlement agreements.  This means many homeowners that are currently with a servicer that offers increased relocation incentives as part of that settlement, may find their loan is transferred and they no longer qualify for that incentive.  This transfer can even happen in the middle of a short sale, causing delays.

Another item we have seen, in particular with Bank of America but also with other lenders, is the forgiveness of some second mortgages in full, without a short sale.  This sounds great and is good when doing a short sale since you no longer have to negotiate with the second mortgage.  However, most of these loans that are forgiven are seriously delinquent and the banks know they will not recoup the money, or very little of it, anyway.  But by forgiving the full amount of it, they can "cook the books" for some of the foreclosure settlements requirements and take credit for a much larger principal forgiveness then they would seen from those loans anyway.

For short sales specifically the biggest change we have seen is the expiration of the Home Affordable Foreclosure Alternative (HAFA) short sale program for Fannie Mae and Freddie Mac owned loans.  HAFA still exists for the rest of this year for eligible loans not owned by the 2 GSE's.

With the expiration of HAFA for Fannie and Freddie came a new program called the Standard Short Sale program or HAFA2.  This program is open to many more homeowners than those that qualified for Fannie and Freddie's very restrictive HAFA program.  This new program also has some streamlined processed for seriously delinquent borrower with low credit scores.

However the program does have it's downside.  Firstly there is a new valuation process in use which is more commonly coming back with inflated values that are well above realistic market value.  This causes reasonable offers to be rejected because the banks are given a much higher Minimum Net requirement from Fannie and Freddie.  NAR and other industry groups are aware of this are attempting to have the FHFA , which is oversight for Fannie and Freddie, address this issue.  But for now we are stuck with it and it can be very frustrating.

Another negative to the program guidelines is that Waiver of the Deficiency balance is not guaranteed.  This means that not all sellers will be able to walk away from the remaining debt.  The new program has a detailed calculation that the lender must do to determine if the seller must be requested to bring cash to closing and/or sign a promissory note.  If the seller refused, the servicer no longer has the authority to approve the short sale on their own if the rest of the file is in line.  Instead they must send the file to Fannie or Freddie for their review and hopefully approval.  This is a negotiable term, but I have seen it go both ways already with some sellers being waived of this requirement and others having their short sales denied for not accepting.

The program is still very new so it is yet to be seen how common this is going to be, but it is here and we have to deal with it when it comes up.

Some other issues currently with short sales are seen with FHA loans. FHA is having serious cash reserve problems and may need to be bailed out.  Because of this, FHA has gotten much tighter on closing costs for attorneys and other fees.  In addition, Variance approvals for sellers that do not meet some of FHA's restrictive guidelines are being denied more often than in the past, likely in an effort to delay having to pay the insurance claim to the bank until later on when the property is foreclosed on.

A big take away from all of this is that we have to get involved with the servicer on the loan(s) as early as possible, preferably before there is an offer.  This way we can determine what kind of potential obstacles await us and can set the correct expectations for the process with all parties involved.

Sean Wilder

More Sellers to Qualify for HAFA Short Sales after 6/1/12

Posted on 30. Apr, 2012 by ctlms in Foreclosures, My Blog, Real Estate, Short Sale

More sellers, including investors, may qualify for HAFA after June 1, 2012!

The Treasury Dept issued an updated Directive to HAMP and in turn HAFA back in March with an effective date of 6/1/12

Some welcomed news is coming to short sales, unless Fannie Mae or Freddie Mac owns your loan.

There are currently 3 different versions on the Home Affordable Foreclosure Alternative (HAFA) short sale program.  Fannie Mae and Freddie Mac each have their own program guidelines, and then there is Treasuries version that covers everyone else.

The Treasury version has been ever evolving since inception and for the most part those changes have been positive.

Up until now the 2 biggest reasons that borrowers did not qualify for HAFA were either that the property had been non-owner occupied for too long or the borrower's mortgage payment was lower than 31% of their Gross Income.

Both of these issues are being addressed in the upcoming changes.

Owner Occupancy

With these new revised guidelines there will no longer be any occupancy requirements for HAMP modifications or HAFA short sales for Non-Fannie Mae or Freddie Mac owned loans.  This means that even investor owned properties may qualify.

31% Gross Income Rule

This guidelines still exists.  However a new Tie 2 eligibility has been added that can be used to further evaluate borrowers whose mortgage payment is already below 31% of their gross income.  This will allow for more of their overall financial picture to be considered when determining if there is a financial hardship.

The bottom line is more non-owner occupied properties including properties that were never owner occupied and more financially strapped borrowers will qualify for HAFA.  HAFA gives a seller the best chance of walking away from a short sale with full forgiveness of debt.

Sean Wilder

Short Sales and Title Searching

Posted on 17. Nov, 2011 by ctlms in Blog, Foreclosures, My Blog, News, Real Estate, Short Sale

Should an agent do a search of the title on a listing?

Alright, so it has been way too long since my last post on short sales.  I totally apologize.

Today's topic is going to be on searching title.

In today's real estate environment there are a few things agents should be doing with their listings to cover their own "assets".  Asking the sellers about their mortgages and any liens is one of these.

You do not want to be the agent that takes the word of a seller that they have plenty of equity to sell without a short sale, only to find out a week before closing that it is not true.  This just doesn't look good for you or your brokerage and it can jeopardize your commission if the deal falls through.

Plus, there are many cases where the seller does not know that they have title issues.  Many people do not realize that small claims and collections judgments as well as medical judgments can be, and often are, attached as judgment liens to their property.

It is very important today that you research the title of your listings before taking the listing.  Many agents already go down to the town hall and pull the field card for the property and allot of agents also get a copy of the deed.  Some Broker's actually require this be in the file, as they should.

So while you're there you should be searching the title for mortgages and any other liens that may be on the property.

Many towns now have their land record index right online where you can search the title and get an index of what documents are recorded for that property.  A simple search like this can quickly reveal documents of concern such as; Judgment Liens, Tax Liens, Water or Sewer Liens, Lis Pendens, etc.

Now I am not saying that every Realtor needs to be a title search expert.  But a simple purchase date forward search of the land records can uncover any possible issues to your transaction closing so that they can be addressed long before the 11th hour before closing.

In the case of a short sale this is critical.  Any money judgments against the property need to be negotiated with the lien holders.  If we do not know about them, we can't negotiate them.  It is also very difficult to renegotiate with a mortgage company to pay a judgment after they have already approved a short sale and that judgment was not listed as an expense from the beginning.

On top of that, many judgments for credit card liens and medical liens are very difficult to get released for less than full payoff.  Spending months negotiating a short sale on a property that has unknown judgments on it that will doom the property to foreclosure, or the seller into bankruptcy, is not fair to all parties involved.  These need to be known up front so that if they are unwilling to negotiate, all parties know it sooner rather than later.

One of the most useful resources here in CT is Jud.CT.gov.  Here you can search by the seller's name and find foreclosures and lawsuits.  There are 2 areas to search.

Under the Case Look-up link on the left;

1. Civil/Family will find foreclosures, collections and divorces.  If the plantiff has the same last name as your client, it's probably a divorce

2. Small Claims will find all small claims files.

Any judgments for collections or small claims that do not show as satisfied are more than likely recorded as a lien on the property as well.

In addition to this resource, the town clerk's office will have any and all liens recorded against the property.  When searching though an electronic index the following guide of commonly used document short cuts may be useful.

ASN = Assignment, FCL = Foreclosure, IRS = IRS Tax Lien, JDG = Judgment Lien, LN = Lien, LPN = Lis Pendens (foreclosure initiated), MEC = Mechanics Lien, MTG = Mortgage, QTC = Quit Claim, REL = Release, SOJ = Satisfaction of Judgment, TXL = Tax Lien, WAR = Warantee Deed

This is by no means an exhaustive list and the short cuts differ from town to town.  You may also come across others that are less common.

But if you are fortunate, your listing will have 1 War, 1 or more MTG and that is it.

When processing a file for a short sale, we typically try to check any online resources available to us to investigate the status of the title.  But we rely heavily on the listing agent and the seller to inform us of any issues that need to be addressed in the short sale negotiations.  The only other alternative would be to require every single seller that we process a file for to pay for a title search on their property.  Since these issues come up without being presented to us by the agent or seller a small percentage of the time, we feel that would add cost to many sellers unnecessarily.

These issues can be easily discovered by a cursory search of the land records by the listing agent and many brokers already advise or require their agents to do so given the pervasiveness of title issues today.

So if you do not often take this extra step on your listings, I hope these suggestions cause you to consider doing so in the future to save yourself some future headaches.

Sean Wilder