Tag Archives: short sale

Deficiency claims not permitted for First Trust Deeds (Mortgages) after distressed sales

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Rather than write my own post about this historic event, the passage of SB 931 - especially after the Governor vetoed SB 1178, another important component of the Anti-Deficiency Protection,  I thought it would be a better idea to simply re-post this fantastic article by the fabulous blogger Elizabeth Weintraub in Sacramento.  Now all we have to do is negotiate away the deficiency on the second trust deeds (mortgages) which can be a bit more challenging.

Here is her well written post about the passage of SB 931.

If a seller in Sacramento, — or anywhere in California for that matter — ever needed a good reason to do a short sale over a foreclosure, the fact that SB 931 was signed into law by Governor Schwarzenegger on Sept. 30th should be reason enough. First lenders can no longer go after a short sale seller of one to four units. Of course, the protection against a deficiency judgment is only for a first trust deed, but it no longer matters whether that first loan was purchase money (non-recourse) or hard money(recourse). It does not apply to subsequent or junior encumbrances.

The provisions of SB 931, which is now added as Section 580e to California Civil Code, prohibits a first lender from pursuing a seller after a short sale. It does not protect those who go through foreclosure. Although purchase money loans are non-recourse, some lawyers have argued that doing a short sale gives a bank certain rights to pursue a seller after a short sale, regardless.

I have received short sale approval letters that address this right and letters that do not. Sellers are not automatically exempt from a deficiency simply because the short sale letter does not address the issue.  SB 931 clears up that confusion.

However, here is the kicker. It applies only to short sales that close on or after January 1, 2011. This could possibly mean that many sellers with only one loan may elect to postpone closing their short sale until January. Of course, sellers  facing an auction really don’t have that luxury. They may have to close or go to foreclosure.

The new anti-deficiency law applies only to one to four units, and the sellers must not have committed fraud or be a corporation or political subdivision of the state.

See previous post about SB 931.


Short Sales Soar in California

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Once again, with poor economic forecast and what I consider to be the twin pillars of  real estate distress (unemployment and negative equity) continuing to remain problematic in most of the country; and the Federal Government’s HAFA program being encouraged for those who cannot qualify for loan modifications or were victims of dual track foreclosures, we should hardly be surprised that Short Sales are increasing in popularity in California and the rest of the country.   It simply makes financial sense for a lot of homeowners, lenders and investors at the moment.

What we have learned from the article below is that short sale transactions have tripled since 2008 and California accounts for about 25% of all short sales in the nation. Until we eliminate these distressed properties from competing in the marketplace with normal, non-distressed properties, we cannot expect the housing sector to come out of its current funk.

We all wait with hopeful anticipation of positive long term housing news which seem to elude us in favor of uncertain or often times confusing short terms trends.   Depending on the day of the week, we can get information that we are heading in the right direction or in the wrong direction. No one can predict with any amount of certainty whether we are out of the housing slump or not.

As I have said over and over, like a broken record, until and unless we can address the unemployment issue, the housing sector will not come out its current mess. Those people who are out of a job are more willing to give up their homes and those who have jobs are afraid of being laid off and will not consider buying a new home or moving up to larger homes.  So we have a situation where the unemployed are unloading properties, but the employed who can afford to buy are too afraid to buy.   It’s a sticky mess we are in.   Unfortunately, add to that the issue of  what many call the shadow inventory, and we are looking at many years out into the future where distressed properties will continue to affect the real estate space in a negative manner.

Yes, Short Sales will continue to soar in California, but that is not necessarily good news.

http://www.latimes.com/business/la-fi-short-sales-20100811,0,7193924.story

Freddie Mac short sales up 600% since 2008!

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The increase in short sales is self-evident in any MLS system around the country as the number of homeowners who are unable to qualify for loan modifications and do not want to be forced into foreclosures seek out a better alternative.  Foreclosure or short sale?  The choice is obvious.

Freddie Mac CEO Ed Haldeman announced the number of its short sales increase by 600% from 2008!  An increase was certainly obvious, but 600%?   And with HAFA still ramping up, that number is sure to increase in the near future.

In a statement put out this week, Haldeman said Freddie Mac is doing everything it can to prevent more foreclosures, and that short sales are becoming an ever-popular tool in situations where foreclosure is imminent and modifications have failed.

The rationale behind this increase in foreclosure is, again, obvious for distressed homeowners.

“Foreclosure alternatives like short sales and deeds-in-lieu help borrowers to avoid the stigma of foreclosure, shorten the waiting period before they can buy a new home, and may inflict less damage on their credit reports,” Haldeman said.

He added that these alternatives are also helpful to lenders and insurers. Citing several independent studies, Haldeman said banks lose more than $50,000 per foreclosed home or as much as 30-to-60% of the outstanding mortgage.

You don’t need media reports like these to know that short sales are increasing dramatically, just ask your local realtor who handles a lot of short sales whether their short sale volume is increasing.

Fannie Mae’s first move against strategic defaulters.

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Today, Fannie Mae announced how it would deal with strategic defaulters: they will be punished by being unable to qualify for a loan for up to 7 years through Fannie Mae and the latter will reserve the right to take legal action to recoup the losses in states that permit deficiency judgments (not the case in California).  The line has been drawn in the sand.

Strategic defaulters, or those borrowers who have the financial ability to pay their mortgages but who choose not to and walk away because the value of their homes are underwater, are becoming a big problem for banks as the stigma is becoming less and less meaningful and the distressed properties market is ever increasing.   One study puts strategic default at 1/3 of all defaults which eventually lead to foreclosures.

Fannie Mae is addressing a big problem for itself and trying to force strategic defaulters to think twice before walking away from their mortgage obligations.  It’s a perfectly understandable move on its part as it is trying to do potential future damage control.   This reason is also why it has agreed to participate in the HAFA program guideline to encourage negotiated and approved short sales rather than have homeowners simply walk away. Fannie Mae and Freddie Mac have figured out it is better to work with the distressed borrowers and, for those who qualify, work out an agreed short sale resolution rather than have the property foreclose, as the loss to them will be significantly greater in the end. They are simply engaging in good business practices by mitigating their loss.

Check the facts before you open your mouth – its the first step in negotiating

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Let me just start by saying this is my effort at sharing an experience I encountered today so that newer agents out there do not fall into the same trap.  Hopefully someone can walk away having learned something positive from this experience.

I have always believed the first rule of negotiations is to know where you stand before you engage the other party. Pretty elementary, right?  Sort of the first rule of negotiations 101.

Well, it seems that little gem of advice is sometimes lost to Realtors out there who proclaim themselves as  being “professional negotiators” as if that were a special badge of honor that only a handful secretly receive.  We Realtors are all negotiators, it just seems some are better prepared and do the prep work to insure they do not look incompetent.

Unfortunately, these days, in their desperation to close any deal, agents sometimes open themselves up to ridicule and more importantly, do their clients a dis-service by not being adequately prepared when they negotiate. Not only will they not get a deal, they may possibly lose the client whom they failed to protect.

I am engaged with a veteran agent (probably 30 years in the business) who is on the buy side of a deal.   The deal is taking longer than anticipated because one of the lenders is dragging their feet in coming to a decision on a short sale.  Everyone is frustrated including me, so I understand his impatience.  But nothing can happen until the second approves the deal.

But today he was trying to re-negotiate the price on the deal in a back-handed way which I did not really appreciate.  First, he claimed that the prices in the complex were falling drastically in the past two weeks and he now believed his client was over-paying for the property.  I told him if he believed that to be true, then his clients had the right to back out and I would return the deposit; I have a back up offer that will be glad to fill in.  (His claim of prices in the complex dropping is incorrect).   Secondly, he claimed we may not close in time to claim his client’s $8,000 tax credit because we cannot, at this point close escrow by June 30 (This is true).  Finally, he claimed his client was further harmed because the California Tax Credit (up to $10,000) had been exhausted within 2 weeks of it being announced (This was news to me) and he couldn’t get that either, so he wanted to reduce the offer price.

I understood the message he was trying to convey: 1) that the prices in the complex were falling and 2) the California Tax Incentives had run out and his client was depending on that.  He was claiming his client was hit with a double whammy.  Well, I would have been sympathetic if he had verified these claims before he made them to me and tried to unilaterally re-negotiate the contract.

1.  He was simply uninformed about the prices in the complex.  They were not falling dramatically, an identical unit had come on the market only 7 days ago for nearly $10,000 more than the price he offered to pay.  This is basic stuff, you check the comps before you talk prices.   2.  His claim that the Tax Credit fund had been exhausted, was again, an incorrect claim.  http://www.ftb.ca.gov/individuals/new_home_credit.shtml The fund is only 57% depleted!  I have no reason to lower the price; I am thinking he should raise the price since the house looks like a better deal now than before.

I shot down the grounds for his argument in 5 minutes.  He could easily have verified the information if he took 10 minutes to go online and look them up before he made these false claims to me. This is an individual who has been selling real estate for probably close to 30 years.  This was simply embarrassing for him and certainly did not make his client’s case any stronger.  Now I question whether I want to continue to do business with him or simply deal with the back up offer.   What was he thinking?  All he managed to demonstrate today was that he doesn’t know the first thing about negotiating and now has planted a seed in my head as to whether he is a competent agent or not.

Folks, check the comps and do your due diligence before you start making claims which could back fire on you and your clients.  That’s your job.

Bank of America’s new stance on short sales.

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The announcement of HAFA in April was supposed to change the way we do our business for those of us who do a lot of short sales.  Not because it was supposed to revolutionize the way short sales were done, but because it was going to be the Federal Government stepping in and trying to standardize the process of how to complete a short sale.  In the lawless world of short sales, that was like a cool breeze on a hot sticky day: very much welcomed.

Many naysayers poo poo’ed the program, saying it was never going to fly and that lenders would not abide by the terms because it was not in their favor.  But you know, there always will be naysayers whose job it is to simply criticize any new idea that comes along which challenges the status quo.

Yes, there are still glitches in the system and many employees of banks do not understand or have not been trained in HAFA and we get to deal with a high percentage of them who are not helpful.  However, an announcement made last night will resonate and have long term impact on the dynamics of the distressed properties marketplace, in my opinion.

 

Matt Vernon, the executive in charge of short sales and REOs at Bank of America (BofA) announced that institution will now focus on short sales to liquidate their assets before they get into foreclosure.  “We’re going to do everything possible to liquidate property prior to foreclosure,” Vernon said. “REO will still be available, but we will do everything we can to do short sales.”   This is wonderful news for consumers as their underwater properties can be disposed of without having to be forced into foreclosure and devastating their credits.  This is also good for banks because industry surveys have shown that nets proceeds to banks are significantly higher when short sales are utilized as compared to REOs.  BofA is of course is still in the business of making money and has chosen a profitable method, but this method also benefits the homeowners as well. And with all of the loan modifications applications out there, and the unfortunate reality is that a large percentage of those loan modifications will default and end up on the foreclosure circuit.

Mr. Vernon has spoken previously and have been pushing for the notion of short sales taking a more prominent role at BofA. BofA was suffering  from backlash on their Loan Origination business as a consequence of them developing a notorious reputation in the short community as being difficult to work with.  This move will be followed by other banks in my opinion, like airlines follow and match fares when one major player comes out and takes a stand.

HAFA may not have lived up to the expectation people had about its efficacy in making  short sales easier to handle or process, but what it has done is provided an environment where a big player like BofA can come out and concentrate on short sales as a major tool to unload their real estate portfolio.  This move on the part of BofA has now pushed short sales out of the niche market and pushed it into the mainstream, making it easier for consumers to get short sale approval, and hopefully quicker too. Now here is truly a win-win solution for all involved parties.

Fannie Mae and Freddie Mac to participate in HAFA.

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For those of you who have been following HAFA, one thing that bothered most people was the fact that the large GSEs Fannie Mae and Freddie Mac were not participating in the HAFA program.  Well, as of June 1, that is no longer the case.  Both Fannie and Freddie have announced they will implement their own version of HAFA starting August 1, 2010. Like the private sector’s  HAFA program, the program will end on December 31, 2012.

However, some of the major differences offered by the new Fannie Mae and Freddie Mac HAFA programs include, but are not limited to:

- Both institutions will pay the servicer a $2,200 incentive fee for successful short sales
- Both institutions will pay the servicer a $1,500 incentive fee for all successful DILs
- The Deed for Lease (D4L) is available for borrowers who request and are approved to remain in the property following a successful DIL

The specific details on these programs are listed in their websites.  eFannieMae.com andFreddie Mac Bulletin.

What does this latest move mean?  It simply means that with the two large Government Sponsored Enterprises (GSE) now on board with HAFA, the short sale process and its effect on how the process will be handled in the future is now complete.  The days of lenders dragging their feet and making up their own rules on how short sales will be processed and approved is over now (theoretically, at least).  Everyone will have the same process by which to abide.

Hire the best short sale agent you can find – it will save you money in the long run.

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Homeowners, Foreclosure prevention is serious business; please treat it that way.  In short sales, because the borrowers are suffering some sort of financial hardship, the lender has to pay for the usual closing related costs, including broker fees.   However, this does not mean you, the borrower, should simply hand over the responsibilities to any agent, desperate for business. There are repercussions if the short sale cannot be completed and you are faced with foreclosure; and you may end up spending money needlessly.

I was speaking to a fellow agent yesterday who told me about a horror situation with a bad agent doing a short sale for a client of hers. This particularly inadequate agent told the borrowers they had to vacate the house prior to the listing the house, so these borrowers had to move out to an apartment, believing that was required to do a short sale.   They won’t know how long this short sale will take to be approved, so they are now paying rent for an unspecified amount of time into the future.  This was a completely unnecessary move; and these borrowers did not have the financial wherewithal to make this move.

These borrowers, by not checking into the agent’s background and experience ended up having to spend thousands of dollars they did not have to spend.  A competent agent would not advise the borrower to move out before listing house, especially in this circumstance when there was nothing warranting such a move.

Ask for references. You don’t have to pay for the agent’s fee, so why would you not get the most experienced and qualified representation you can find out there?  This is a no brainer.  If an agent is good, his clients will vouch for him/her; conversely true if the agent is bad.

The Nuts and Bolts of HAFA – Which lenders are participating? Part 3 of 3

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As we come to the final part of the series, and have learned about the details and the eligibility of the HAFA program; we have learned that it is beneficial to the homeowner who cannot qualify for loan modifications.  And because the lenders typically will net more through a short sale than foreclosure, it makes financial sense for them to participate, especially in conjunction with the bonus components which have increase dramatically as of March 26, 2010.

So without further adieu, the list of lenders and servicers who have agreed to participate with the HAFA program are posted below.  For the full detailed list, please click on the final link below.

Who is Supporting HAFA?

Lender and loan servicers participating in HAFA must have signed a servicer participation agreement with Fannie Mae – the program administrator and financial agent representing the United States in this case – to participate in HAMP by December 31, 2009. Therefore, most lenders are participating. As April 5 approaches, lenders are developing comprehensive programs in order to prepare for the expected flood of applications for short sale agreements and deeds-in-lieu of foreclosure that HAFA will unleash.

Bank of America

  • Bank of America announced in March its commitment to participate in HAFA when it activates. It has been preparing for a more streamlined process for months though its support of HAMP.
  • Bank of America’s short sale processor Equator has announced the launch of a brand-new best practices software workflow solutions directly related to HAFA.

Citibank

  • Citibank is participating in HAMP which is a requirement for participating in HAFA

GMAC Financial Services

  • GMAC has started a program to preemptively contact borrowers who are not eligible for loan modifications under HAMP and offering discussing alternatives through HAFA and claims a three-day turnaround on short sale applications

Lenders Asset Management Corporation (LAMCO)

  • LAMCO has been training teams of specialists to support mortgage servicers comply with HAFA and quickly negotiate short sales

Wachovia

  • Wachovia is participating in HAMP which is a requirement for participating in HAFA

Wells Fargo

  • Wells Fargo is participating in HAMP which is a requirement for participating in HAFA
  • Wells Fargo has been ramping up efforts to assist homeowners by actively contacting those who are facing hardships

NATIONAL PARTICIPATING SERVICERS

Currently, the HAFA Program has not been activated. Therefore, there is not yet an official list of participating lenders. Generally speaking, lenders who participate in HAFA are also participating in HAMP. For a full list of servicers participating in HAMP, visit Making Home Affordable’s Participating Servicers List.

The Nuts and Bolts of HAFA – Who is Eligible? Part 2 of 3

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As discussed briefly in the previous post , HAFA is the new Federal Government’s Program designed to complement the loan modification Program (HAMP), to help those borrowers who cannot qualify for said loan modification efforts.   Below is a bit more detail in a FAQ format.

What does HAFA stand for?
Also known as the “April Program”, HAFA stands or Home Affordable Foreclosure Alternatives. It’s a brand-new government program starting on April 5, 2010 that will streamline and incentivize alternatives to foreclosure. Under HAFA, participating banks must work with you to help you avoid foreclosure.

What are the “Alternatives” in HAFA?
HAFA provides two alternatives that will allow you to avoid foreclosure:

  • Short Sale – If you owe more on your home than it is now worth, a short sale will help you sell your home and save yourself from financial ruin. According to HAFA, a real estate agent must be involved in this process. Agents with the CDPE designation are specially trained to help you with a short sale.
  • Deed-In-Lieu – This is where the bank accepts the deed of your home instead of (“in-lieu of”) foreclosure. You do not get to keep your home, but your mortgage debt is forgiven.

HAFA also provides up to $3,000 in Borrower Relocation Assistance to help you transition beyond a short sale or deed-in-lieu of foreclosure.

Why should I consider a HAFA short sale?
HAFA sets distinct guidelines and incentives for banks and lending companies so that you will know whether or not you can complete a short sale. One of the common myths about short sales is that they take forever to complete. HAFA makes sure that short sales happen more quickly by streamlining the short sale process.

How is HAFA different from a short sale?
The main issue with traditional short sales was that they took too long, and it was difficult to keep buyers interested in the process. HAFA is a program designed to speed up the short sale process and even gives banks incentives for each short sale they do. Also, after completing a HAFA short sale, you may be given up to $3,000 in Borrower Relocation Assistance to help you transition. During a non-HAFA short sale, there is no government incentive for banks to help you.

Do I have to hire a real estate professional for a HAFA short sale?
Yes, but it doesn’t cost you anything. HAFA pays the real estate professional’s fees. It is a requirement of a HAFA short sale that you work with a real estate professional to help you through the process. CDPE-designated agents understand this process, and are located throughout the country. Find a CDPE in your area today to help you get started.

How do I get started?
Your first step should be to contact an educated real estate professional in your area. An agent can walk you through the HAFA process, determine your eligibility, and provide you with the best solutions available for your particular circumstances.

How do I qualify?
Most homeowners facing financial hardship can qualify for HAFA. If you applied for a HAMP Trial Period Plan but did not qualify, or were unable to complete the Trial Period Plan, you are definitely eligible for HAFA. If you are unsure about your situation, contact a CDPE in your area immediately.

What’s in it for me?
HAFA is the only program that gives you cash for avoiding foreclosure through a short sale or deed-in-lieu of foreclosure. If you complete a short sale or deed-in-lieu, then up to $3,000 in Borrower Relocation Assistance may be available to aid in your transition. This program seeks to ensure that no one will be left high-and-dry if they cannot afford their home. The biggest gain of HAFA, however, is that it helps you get your life back if you feel like there are no other solutions when faced with foreclosure.

How long does the process take?
HAFA speeds up the short sale process by putting in place distinct timelines that the banks—and you—must follow. Each step of the process has a defined amount of days in which it must happen. This keeps everyone on track. The longest possible time allowed in the HAFA short sale process is four months.

What is the April Program?
HAFA is commonly referred to as the April Program.

HAFA Scams
There are many people out there trying to scam homeowners by requesting up-front fees for HAFA short sales. This is fraud. A CDPE-designated agent will never ask you for money. MakingHomeAffordable.gov(MHA) provides the following guidelines:

  • Beware of anyone who asks you to pay a fee in exchange for counseling service or modification of a delinquent loan.
  • Scam artists often target homeowners who are struggling to meet their mortgage commitment or anxious to sell their homes.
  • Beware of people who pressure you to sign papers immediately, or who try to convince you that they can “save” your home if you sign paperwork or transfer over the deed to your house.
  • Never make a mortgage payment to anyone other than your mortgage company without their approval.
  • Do not sign over the deed to your property to any organization or individual unless you are working directly with your mortgage company to forgive your debt.

Who is Eligible for HAFA?

Most homeowners in facing financial hardship are eligible. As a rule, if a homeowner is eligible for HAMP but cannot pay the mortgage, then he or she is eligible for an assisted short sale through HAFA. However, loans owned or guaranteed through Fannie Mae or Freddie Mac do not qualify. Servicers must consider possible HAMP eligible borrowers for HAFA within 30 calendar days if the borrower has one or more of the following criteria :

  • Does not qualify for a HAMP Trial Period Plan
  • Does not successfully complete a HAMP Trial Period Plan
  • Is delinquent on a HAMP modification by missing at least two consecutive payments
  • Requests a short sale or deed-in-lieu

For a loan to qualify, it must meet the following criteria:

  • The property is the borrower’s principal residence
  • The mortgage loan is a first lien mortgage originated on or before January 1, 2009
  • The mortgage is delinquent or default is reasonably foreseeable
  • The current unpaid principal balance is equal to or less than $729,750
  • The borrower’s total monthly mortgage payment (as defined in Supplemental Directive 09-01) exceeds 31 percent of the borrower’s gross income
  • The mortgage is not owned or guaranteed by Fannie Mae or Freddie Mac

Part 3 of 3  Which Banks are supporting HAFA?