When Can I Buy A Home Again After Foreclosure or Short Sale?

One of the concerns a consumer has after experiencing a bankruptcy, foreclosure, or short sale (referred to as a “preforeclosure sale” by Fannie Mae) is the ability to obtain credit to purchase another home. Fannie Mae has updated its credit guidelines. This legal article summarizes those guidelines.

Q 1. How long is the time period after a foreclosure before a consumer can be eligible to obtain credit to purchase a home?

A Five years from the date the foreclosure sale was completed.

Additional requirements that apply after 5 years and up to 7 years following the completion date are as follows:

. The purchase of a principal residence is permitted with a minimum 10 percent down payment and minimum representataive credit score of 680.

. Purchase of a second home or investment property is not permitted.

. Limited cash-out refinances are permitted for all occupancy types pursuant to the eligibility requirements in effect at that time.

. Cash-out refinances are not permitted for any occupancy type.

(Source: FNMA Announcement 08-16, 6-25-08 )

Q 2. Why do the additional requirements for foreclosures in Question 1 only apply from 5 to 7 years following the foreclosure completion date?

A According to Fannie Mae policy in Part X, Section 103 of the Selling Guide, Fannie Mae requires only a 7-year history to be reviewed for all credit and public record information. The 7-year timeframe also aligns with the information provided by the borrower on the loan application relative to disclosure of a past foreclosure action. (Source: FNMA Selling Guide, 4-1-09. )

Q 3. Does a shorter time period apply if the borrower has “extenuating circumstances” that led to the foreclosure?

A Yes. Three years from the date the foreclosure sale was completed. The same additional requirements apply as listed in Question 1 except the minimum credit score of 680 is not required. (Source: FNMA Announcement 08-16, 6-25-08. )

Q 4. What are”extenuating circumstances” ?

A Fannie Mae describes “extenuating circumstances” as follows:

Extenuating circumstances are nonrecurring events that are beyond the borrower’s control that result in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations.

If a borrower claims that derogatory information is the result of extenuating circumstances, the lender must substantiate the borrower’s claim. Examples of documentation that can be used to support extenuating circumstances include documents that confirm the event (such as a copy of a divorce decree, medical bills, notice of job layoff, job severance papers, etc.) and documents that illustrate factors that contributed to the borrower’s inability to resolve the problems that resulted from the event (such as a copy of insurance papers or claim settlements, listing agreements, lease agreements, tax returns (covering the periods prior to, during, and after a loss of employment), etc.).

The lender must obtain a letter from the borrower explaining the relevance of the documentation. The letter must support the claims of extenuating circumstances, confirm the nature of the event that led to the bankruptcy or foreclosure-related action, and illustrate the borrower had no reasonable options other than to default on their financial obligations.

(Source: FNMA Selling Guide, 4-1-09 at 391. )

Q 5. How long is the time period after a deed-in-lieu of foreclosure before a consumer can be eligible to obtain credit to purchase a property?

A Four years from the date the deed-in-lieu was executed.

Additional requirements that apply after 4 years and up to 7 years following the completion date are as follows:

. Borrower may purchase a property secured by a principal residence, second home, or investment property with the greater of 10 percent minimum down payment ro the minimum down payment required for the transaction.

. Limited-cash-out and cash-out refinance transactions secured by a principal residence, second home, or investment property are permitted pursuant to the eligibility requirements in effect at that time.

(Source: FNMA Announcement 08-16, 6-25-08. )

Q 6. Does a shorter time period apply if the borrower has “extenuating circumstances” that led to the deed-in-lieu of foreclosure?

A Yes. Two years from the date the deed-in-lieu was executed. The same additional requirements apply as listed in Question 4 after 2 years up to 7 years. (Source: FNMA Announcement 08-16, 6-25-08. )

See Question 4 for the definition of “extenuating circumstances.”

Q 7. How long is the time period after a “preforeclosure sale” before a consumer can be eligible to obtain credit to purchase a property?

A Two years from the completion date. No exceptions are permitted to the 2-year period due to extenuating circumstances. (Source: FNMA Announcement 08-16, 6-25-08. )

Q 8. What is a “preforeclosure sale” mentioned in Question 6 and is that the same as a short sale?

A “A preforeclosure sale involves the sale of the property by the borrower to a third party for less than the amount owed to satify the delinquent mortgage, as agreed to by the lender, investor, and mortgage insurer” (Source: FNMA Announcement 08-16, 6-25-08 ).

Although the terms preforeclosure sale and short sale have been used interchangeably, there is a significant difference for purposes of obtaining credit. For Fannie Mae purposes, a preforeclosure assumes that the borrower has been delinquent in paying his or her mortgage and the lender agrees to accept a lesser amount to avoid the time and expense of a foreclousre action. A short-sale, however, can also refer to situations in which the lender of the mortgage agrees to a payoff of a lesser amount than is actually owed, even on a current mortgage, to faciiate the sale of teh property to a third party. (Source: FNMA Announcement 08-16 Q&A, 8-13-08. )

Q 9. Does a shorter time period apply if the borrower has “extenuating circumstances” that led to the preforeclosure (short) sale?

A No. There are no exceptions to the 2-year time period. (Source: FNMA Announcement 08-16, 6-25-08. )

Q 10. If a borrower sold his or her property as a short sale but was never delinquent on that mortgage and is now attempting to purchase a new primary residence, will Fannie Mae purchase the loan?

A The loan will be eligible for delivery to Fannie Mae provided that the borrower’s previous mortgage history complies with Fannie Mae’s excessive prior mortgage delinquency policy-that is the borrower does not have one or more 60-, 90-, 120-, or 150-day delinquencies reported within the 12 months prior to the credit report date-and the borrower has not entered into any agreement with the short sale lender to repay any amounts assoicated with the short sale, including a deficiency judgment. (Source: FNMA Announcement 08-16 Q&A, 8-13-08 ; FNMA Selling Guide, Part X, Chapter 3, Section 302.09. .)

Q 11. Are preforeclosure (short) sales and deed-in-lieu of foreclosure actions identified on a credit report?

A Preforeclosure sales may be reported as “paid in full” with a “settled for less than owed” remarks code, and the mortgage tradeline would indicate any recent delinquency. A deed-in-lieu may be reported by a remarks code indicating a deed-in-lieu. (Source: FNMA Announcement 08-16 Q&A, 8-13-08. )

Q 12. How long is the time period after a bankruptcy (all except Chapter 13) before a consumer can be eligible to obtain credit to purchase a property?

A Four years from the discharge or dismissal date of the bankruptcy action (Source: FNMA Announcement 08-16, 6-25-08 ).

Q 13. How long is the time period after a Chapter 13 bankruptcy before a consumer can be eligible to obtain credit to purchase a property?

A Two years from the discharge date and four years from the dismissal date (Source: FNMA Announcement 08-16, 6-25-08 ).

Q 14. Does a shorter time period apply if the borrower has “extenuating circumstances” that led to the bankruptcy (all actions)?

A Yes. Two years from the discharge or dismissal; however, no exceptions are permitted to the 2-year time period after a Chapter 13 discharge (Source: FNMA Announcement 08-16, 6-25-08 ).

See Question 4 for the definition of “extenuating circumstances.”

Q 15. How long is the time period after multiple bankruptcy filings before a consumer can be eligible to obtain credit to purchase a property?

A Five years from the most recent dismissal or discharge date for borrowers with more than one bankrutcy filing within the past 7 years (Source: FNMA Announcement 08-16, 6-25-08 ).

Q 16. Does a shorter time period apply if the borrower has “extenuating circumstances” that led to the multiple bankruptcies?

A Yes. Three years from the most recent discharge or dismissal date. The most recent bankruptcy filing must have been the result of extenuating circumstances. (Source: FNMA Announcement 08-16, 6-25-08. )

See Question 4 for the definition of “extenuating circumstances.”

Q 17. What is the difference between a Chapter 13 bankruptcy and a Chapter 7 bankruptcy?

A Chapter 13 permits a borrower with a regular income to propose a plan to repay some or all of his or her obligations over a period of up to five years. A borrower who files a Chapter 7 is permitted to retain exempt assets and receive a discharge of the borrower’s debts. Chapter 7 is a relatively quick liquidation process that is generally completed within 120 days. Chapter 7 cases are rarely dismissed. (Source: FNMA Announcement 08-16 Q&A, 8-13-08. )

Q 18. What is the difference between a Chapter 13 dismissal and a Chapter 13 discharge?

A A borrower who files a Chapter 13 can dismiss the case at any time (voluntary dismissal) or the case may be dismissed by the court based on the borrower’s failure to comply with the requirements of the Bankruptcy Code or to make the required payments. If the borrower who files a Chapter 13 case makes all of the payments required by the plan, the borrower receives a discharge at the end of the plan. A borrower who doesn’t make all the payment required by the plan may still receive a discharge if the court finds, among other things, that the borrower made a certain amount of the payments and the borrower’s failure to make all of the payments was due to circumstances beyond the borrower’s control. (Source: FNMA Announcement 08-16 Q&A, 8-13-08. )

Q 19. What are the requirements to re-establish a credit history?

A After a bankruptcy or foreclosure-related action, a credit history must meet the following rquirements to be considered re-established:

. It must meet the requirements for elapsed time (as discussed in this article.

. It must reflect that all accounts are current as of the date of the mortgage application.

. it must include a minimum of four credit references. At least one of the references must be a traditional credit reference, and one of the references must be housing-related.

A housing-related reference must cover the period following the bankruptcy discharge or dismissal, foreclosure, or deed-in-lieu, and can be in the form of mortgage payments or rental payments.

If rental payments wre not reported to the crdit repositories, the lender must obtain copies of bank statements, money orders, or cnacled checks for the most recent 12-mnth period as a supplement to the rent verification.

. It must reflect three of the four credit references, including rental housing references, as active in the 24 months preceding the date of the mortgage application.

. It must include no more than two installment or revolving debt payments 30 days past due in the last 24 months.

. It must include no installment or revolving debt payments 60 or more days past due since the discharge or dismissal of the bankruptcy or the completion of the foreclosure-related action.

. It must include no housing debt payments past due since the discharge or dismissal of the bankruptcy or the completion of the foreclosure-related action.

. It must include no new public records since the discharge or dismissal of the bankruptcy or the completion of the foreclousre-related action. Public records include bankruptcies, foreclousres, deeds-in-lieu, preforeclosure sales, unpaid jdugments or collections, garnishments, liens, etc.

(Source: FNMA Selling Guide, 4-1-09 at 392. )

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Erin Bucaro had her eye on a four-bedroom home in Fairway Canyon, a golf community in Beaumont, Calif.

Driving around the neighborhood, she noticed papers posted on the door, a sign that a bank had taken it over. She’d have to move fast.

Bucaro lost out on a nearby foreclosure in February. By the time she put in an offer a week after it listed for sale, it had already gone to escrow.

This time the 29-year-old nurse made sure her offer would be first on the table the morning it listed.

The 3,000-square-foot home went up for sale at $227,000 — less than half of what it sold for brand-new a couple of years earlier.

Bucaro agreed to the list price, but asked the bank to pay $8,500 in closing costs. It countered at $234,000, including costs. Bucaro accepted.

Buyers are out in force — and aggressive — in many markets hard-hit by foreclosure, such as Riverside and San Bernardino counties in Southern California’s Inland Empire, where Beaumont is. Other major foreclosure spots are Las Vegas, South Florida and Phoenix.

With prices cut up to 50% from their peaks, low interest rates and $8,000 tax credits for first-time buyers like Bucaro, people are vying for bank-owned bargains as hungrily as speculators during the housing boom. Multiple bids are common.

“Supply and demand takes over,” said Mark Stark, owner-broker at Prudential American Group Realtors in Las Vegas, which has the highest foreclosure rate in the U.S.

Troubled Properties Sell

Homes banks took back and are selling off make up anywhere from 40% to 80% of the inventory in these markets. Many go at prices that barely cover construction costs.

“If you’re Mr. and Mrs. Smith and you want to sell your house, you can’t compete with the bank properties,” said broker Bob Wasson of ReMax Results in Moreno Valley, Calif.

Distressed homes made up a third of May sales, downwardly distorting the U.S. median existing-home price, the National Association of Realtors said this week. The median fell 16.8% from a year ago to $173,000.

In just the last year, purchase prices in top foreclosure markets dropped nearly 30%, by various first-quarter estimates. Miami fell even more.

Foreclosed homes in Riverside and San Bernardino counties are selling at 2000 prices. It’s the same in Las Vegas. South Florida is back to 2003.

“Foreclosures are devastating for values,” said Peter Zalewski, principal of Condo Vultures, a brokerage in the Miami area. “That said, as first-time buyers pick off properties, it’s working to stabilize prices.”

And clear out inventory: The number of unsold homes on the market at the end of May fell 3.5% from April to nearly 3.8 million, the NAR said.

Price Risk Persists

Some surveys suggest month-to-month price drops in hard-hit markets are getting less severe. But an expected new wave of foreclosures as payment-option adjustable rate mortgages reset higher, plus more job losses, might stall a recovery and push prices down further.

For now, though, demand for bank-owned homes in foreclosure-heavy spots is so high that contracts are being signed at prices above original, albeit deeply cut, listings. It’s especially true for homes in good shape.

“We have qualified buyers who are willing to pay more than the listed price,” said Garey Teeters, a broker with Coldwell Banker-Teeters in Yucaipa, Calif.

But appraisals often come in under the agreed-upon sales price, quashing the deal. “It’s the biggest problem we have now,” Teeters said.

Close to 20% of contracts over the last two months have been canceled due to low appraisals, he says, as new government appraisal guidelines make appraisers more cautious.

Prices have dropped the most — and are still falling — in exurbs farthest from urban coastlines. They include new developments bordering the Florida Everglades and the easternmost reaches of the Inland Empire in California, like Beaumont.

Taking advantage of the steep dip, a Jamaican banker is assembling a portfolio of $40,000 homes in Homestead, some 20 miles south of Miami. In this region, new housing tracts reach to the brink of the Everglades.

In Las Vegas, as other foreclosure markets, the low end is seeing the steepest drops. Here, homes going for $70 per square foot are common.

“If I had a bucket full of money, I’d buy 10 myself,” said Heidi Kasama, broker-owner at Windermere Summerlin Real Estate.

Investors Flash Cash

Stark says about 38% of Las Vegas deals are cash, indicating investor activity. Most financing is through government-insured Federal Housing Administration loans.

Bucaro says she “got into the perfect storm” of motivating factors. As first-time buyers, she and her ironworker husband get an $8,000 federal tax credit. And as an Air Force veteran, she qualified for a zero-down Veterans Affairs loan. She got a 30-year fixed mortgage at 4.85%. The couple and their two young children plan to move in by July 1.

“I’m so happy,” Bucaro said.

But real estate agents complain that moratoriums on foreclosures have kept back a lot of new inventory, limiting the number of homes they can sell to now-eager buyers. Also, they say banks are releasing foreclosed homes to the market in a slow and controlling way.

Bank Buys Take Time

Complicated guidelines for selling bank-owned homes also are slowing what would otherwise be a much faster sales pace, says Mike Novak-Smith, a broker with ReMax Results in Riverside, Calif.

In Las Vegas, inventory is about half what it was a year ago, brokers say. “If we got it back to 25,000 or 30,000, I’m very confident we could handle it. The market is selling about 3,500 homes a month,” Stark said.

But Teeters said, “The dam is about to break. We’re told that in July, banks will release more REOs (real estate owned by banks).”

Las Vegas broker Kasama sees more bank supply coming on as well.

“Banks have a large backlog of inventory they will bring back on the market,” she said. “That will continue to keep our prices low.”

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Scottsdale, Arizona-based National Short Sale Center says more than 50 percent of the homeowners it is working with to secure short sales have been approached by “circumspect individuals or companies” proffering fraudulent foreclosure rescue services.

With 20 percent of the nation’s homeowners underwater, the Obama administration recently introduced a new component of its Making Home Affordable program, aimed at steering struggling homeowners who do not qualify for a federal loan modification toward short sales. The government’s new plan will pay a servicer $1,000 for completing a successful short sale and will pay the borrower $1,500 to assist with relocation expenses.

While a short sale can prove to be a practicable alternative to foreclosure, National Short Sale Center says many struggling homeowners are confused about short sales and fall for deceptive offers, including phone calls, letters, advertisements, and e-mails (also known as phishing).

Travis Hamel Olsen, president of National Short Sale Center, stressed, “Under no circumstances should anybody be paying an upfront fee to complete a short sale. Unscrupulous companies use myriad ways to take advantage of unsuspecting homeowners. Usually if the deal seems too good to be true, then it probably is.”
FORECLOSURE SCAMS

Foreclosure and loan modifications scams are a growing area of concern for lawmakers, investigators, and the industry. The Federal Bureau of Investigation (FBI) is currently looking into more than 2,100 mortgage fraud cases-a 400 percent increase from five years ago. The recently enacted Fraud Enforcement and Recovery Act of 2009 allocates $500 million to the FBI, Justice Department, Secret Service, and Postal Service to combat mortgage fraud.

The types of fraud circulating include sale-leasebacks, quitclaims, stripping homeowner equity, and misleading homeowners into signing over deeds. And with the administration’s mortgage relief initiatives and its recent push for modifications, dozens of bogus companies with official-sounding names and fake Web sites mimicking the fonts and layouts of government sites claim to help struggling homeowners modify their mortgages. Some unsuspecting borrowers have fallen prey to unscrupulous con artists that take them for up to $7,000 before disappearing.

Olsen said, “The fraud usually comes through in the fine print, but foreclosure rescue teams and highly suspect scammers are basically taking homes through a variety of means, resulting in foreclosure and eviction.”

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Washington, D.C. - May 6, 2009 - (RealEstateRama) - An amendment by Senators John Kerry and Kirsten Gillibrand to protect renters from being thrown out of their homes after a foreclosure passed the Senate today as part of the larger housing bill, the Help Families Save Their Homes Act of 2009 (S. 896.) S. Amdt. 1036, the Protecting Tenants at Foreclosure Act, ensures that tenants and families nationwide have at least 90 days to find their next home if they are renting in a building that is foreclosed upon.

“More than 30,000 renters across New York, who dutifully pay their rent on time each month, may face eviction because they live in a building that is about to be foreclosed,” said Sen. Gillibrand. “These tenants have almost no rights when a bank seizes their home. Families without the means to find temporary housing or move into another unit can be kicked onto the streets, because their landlord failed to meet his or her obligation to pay. This is wrong and I am proud to partner with my colleagues to pass new protections for these families.”"Renters are blameless victims in the housing crisis,” said Sen. Kerry, who has previously introduced legislation to protect military families facing foreclosure. “Tenants who do no wrong shouldn’t be evicted without notice and without the necessary time to make alternative living arrangements. This victory will prevent a spike in vacant properties in our communities and give families who don’t have the means to find another place a chance to plan.”Renters often have no idea their home is about to be foreclosed upon. Depending on state law, renters in foreclosed properties may be evicted with limited notice, forcing families to move quickly and increasing the number of vacant properties in neighborhoods. Low-income renters who live in properties subject to foreclosure are lack the resources necessary to easily relocate.

The Protecting Tenants at Foreclosure Act states that tenants in any federally related mortgage loan (as determined under Section 3 of the Real Estate Settlement Procedures Act) or any dwelling or residential real property with a lease have a right to remain in the unit until the end of the existing lease. If a purchaser intends to use the property as a primary residence, the lease may be terminated and the tenant must receive 90 days notice to vacate; and tenants without a lease or with a lease terminable at will under state law must receive 90 days notice to vacate.

The amendment is cosponsored by Senate Majority Leader Harry Reid (D-Nev.), Senate Banking, Housing, and Urban Development Committee Chairman Chris Dodd (D-Conn.), and Sens. Edward Kennedy (D-Mass.), Richard Durbin (D-IL), Barbara Boxer (D-Calif.), and Jeff Merkley (D-OR).

“No state in the nation feels the pain of the foreclosure crisis as intensely as Nevada,” said Majority Leader Reid. “The most recent statistics show that one in every 27 Nevada homes is in some stage of the foreclosure process. Homeowners suffer deeply as they struggle to keep their houses, but renters often face sudden and unjustified loss of the roofs over their heads because of foreclosure as well. Those without the money to pick up and move unexpectedly suffer the greatest trauma, and this legislation provides them deserved and overdue protections.”

“A tidal wave of foreclosures is sweeping across the country and my home state of Connecticut, leaving countless victims in its wake, including many renters who are facing eviction through no fault of their own,” said Chairman Dodd. “This measure will help defend the hard-working tenants who pay their rent on time and are being unfairly forced out of their homes because their landlord is in foreclosure. Just as we have established protections for borrowers who fell prey to predatory lending, we must also protect these often-overlooked victims of the foreclosure crisis.”

“This amendment offers important protections to tenants who, through no fault of their own, are being forced out of their homes during this foreclosure crisis,” said Sen. Kennedy. “I commend Senator Kerry for offering this amendment, and I’m hopeful that it will be approved.”

“Renters have been the forgotten victims of the housing crisis,” said Sen. Merkley. “It is simply unfair that these families, who followed the rules and who may have lived in their houses and apartments for years, should be forced to leave their homes by circumstances beyond their control. I applaud Senator Kerry for bringing this issue to light and fighting for these innocent victims of the foreclosure crisis.”

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Trying to cut its losses, Bank of America Corp. has changed its policy on short sales, making it easier for borrowers to sell their homes instead of going into foreclosure.

Until a month ago, B of A and its Countrywide Financial Corp. had required that 10% of a home’s sale price go toward paying off home equity lines of credit before they would agree to a short sale. But Terry Francisco, a spokesman for the Charlotte company, said Monday that it changed its policy last month, agreeing to accept 5% of the sale price when there is no equity available to holders of the first or second liens.

The new policy “is based on the assumption that it is in the best interest of all parties involved to accept a short sale, as opposed to proceeding to a foreclosure,” Francisco said. “We believed that the previous policies set an arbitrary amount that did not take into account the savings derived from proceeding with a short sale.”

B of A expects the change to increase the number of short sales, he said, and even though it is releasing the liens, it reserves the right to pursue deficiency judgments against borrowers.

With foreclosure moratoriums being lifted in the past month, bankers are looking for ways to deal with an anticipated flood of distressed properties and are trying to determine which borrowers will get loan modifications and which will go into foreclosure.

Experts on short sales say they have been difficult to negotiate with lenders that are often reluctant to accept discounted payoffs when a home is sold for less than the balance due on the mortgage. But losses on foreclosures can be as much as 30% higher than on short sales, and housing prices are still falling, so servicers are slowly starting to change their policies, experts said.

One critical issue is second liens, particularly home equity lines of credit; these lenders are even more loath to permit a short sale, knowing that the primary lien will likely receive almost all the sale price, leaving little or nothing for holders of secondary notes.

Raffi Tal, chief operating officer at IShortSale Inc. in Woodland Hills, Calif., said holders of second liens are often offered payoffs of $1,000 to $3,000 in short sales, and many such deals are held up because the lenders refuse to accept these payoffs.

“The banks are holding short sales hostage,” Tal said. “They don’t care that a year from now they will have to take over the property and sell it for 30% less when they could have sold the property in a short sale in 30 to 90 days.”

Experts have long complained that the largest lender-servicers - B of A, Wells Fargo & Co., JPMorgan Chase & Co. and Citigroup Inc. - are also the largest holders of second liens.

The four largest banking companies own 52% of residential revolving lines of credit, or $441 billion of loans in the second lien position, according to Laurie Goodman, senior managing director at Amherst Holdings LLC’s Amherst Securities Group LP. That includes $92.6 billion of second liens on their balance sheets, she said.

Tom Kelly, a spokesman for Chase Home Finance, said it has a “disciplined process” for handling short sales with HELOCs.

The process includes determining if the offer is at fair market value, which may require a new appraisal, requiring that borrowers submit hardship information to determine their ability to contribute to the shortfall and investigating for misrepresentations and “non-arm’s-length transactions,” Kelly said. “This doesn’t happen overnight.”

Norm Miller, a professor of real estate at the University of San Diego’s Burnham-Moores Center for Real Estate, said 77% of foreclosures in California have second mortgages, most of them HELOCs, which often scuttle short sales.

There are other factors holding up short sales, including the commissions paid to real estate agents and mortgage insurance.

Some servicers have cut real estate commissions on short sales from the standard 6% to 3% or less, experts said. To combat that practice, Fannie Mae adopted a policy March 1 saying the sales “may not be conditioned upon a reduction of the total commission” paid to real estate agents.

Matt McCabe, the president of Loan Resolution Corp., a Scottsdale, Ariz., company that helps lenders resolve defaulted loans, said servicers “put themselves in a position” to get a short sale rejected. “Some realtors were shying away from short sales because it takes so long and commissions were being cut, even though it saves lenders a lot of money.”

Rich Rollins, the president and chief executive of National Quick Sale LLC, a Jacksonville, Fla., start-up that specializes in short sales, said mortgage insurance companies also are holding up the process, because the insurers take the first 25% loss on a short sale.

Experts agree that many servicers are ill-equipped to handle the negotiations that typically involve several lenders, a defaulted borrower and a willing buyer, who typically waits months before a package is approved. In some cases, short sale offers are rejected because the calculation for the property’s fair net value does not match the buyer’s offer - even if that offer is higher.

“Short sales have always been the last tool that servicers ever use, because they have to coordinate with too many stakeholders in the loan, and it takes a lot of follow-up,” said Cheryl Lang, the president of Integrated Mortgage Solutions, a Houston consulting firm.

Servicers typically have a small staff with knowledge of short sales working out of the loss mitigation department, which is separate from real-estate owned specialists with expertise valuing properties. Many servicers “just don’t have the technology and infrastructure to deal with short sales,” Lang said.

Because the majority of short sales involve multiple lien holders, a buyer often waits at least 90 days before getting a response from a lender on an offer. In a rapidly changing housing market where prices are falling every month, many buyers are unwilling to wait that long and often walk away.

“The banks really need to get short sales done faster,” McCabe said.

Some specialists said the government should not have given the largest lender-servicers money through the Troubled Asset Relief Program, because they were then unwilling to accept short sale offers and are waiting for the housing market to recover.

Tony Renzi, the president of GMAC Mortgage and chief operating officer of Residential Capital LLC, said servicers are starting to see “more flexibility from second lien holders,” largely because of the sheer volume of foreclosures expected. “There’s more of a recognition, given that the second lien would rather take something than see the property go through liquidation and have the second lien charged off. Getting something is better than nothing.”

Courtesy Kate Berry - Financial Planning

In these difficult financial times, more and more sellers are finding they need to sell their homes for less than they owe on their mortgages, known as a “short sale .” This can be a good deal for you as a buyer, as long as you’re aware of the extra time and work required to make it happen.

The Mortgage Lender’s “Short Sale” Factors

The seller’s mortgage lender will be considering many factors in deciding whether to approve a short sale, including:

* Whether the seller is deserving of a break, due to financial hardship caused by unforeseen circumstances such as layoffs, divorce or illness
* Whether it would be cheaper to simply repossess the house, make any necessary repairs and sell it through a real estate agent
* How many other properties the mortgage lender currently has in default
* Whether there are co-signors who can be held responsible for the balance owed on the mortgage

The Short Sale Process

Your chances of success with the seller’s mortgage lender improve if your communication with them is organized and complete. Your first contact with the seller’s mortgage lender’s “loss mitigation department” is crucial in making a good impression. You’ll want to send them what’s called a “Release” or “Authorization to Release Information” already signed by the seller, which allows the mortgage lender to talk with you about the seller’s mortgage.

In your first talk with the mortgage lender’s loss mitigator, you’ll want to find out:

* Whether they think a short sale might be a possibility
* What information they’ll need to complete the process

Loss mitigators sometimes receive bonuses based on how many defaulted loans they can clear up, so they’re more likely to pay attention to your sale if you can show them you’re taking care of as many details and objections as possible.

It will be necessary to be specific about the seller’s financial difficulties with what’s called a “hardship letter.” The mortgage lender may also require paystubs, copies of medical bills, checking account statements and other appropriate evidence from the seller. The seller’s mortgage lender will look at the seller’s credit reports to verify the seller’s financial predicament. This will all take extra time.

Broker’s Price Opinion

The mortgage lender will order what’s called a “broker’s price opinion,” which gives the mortgage lender some idea of what the property is actually worth in the current market. A broker’s price opinion will be based on:

* the value of comparable properties in the same neighborhood
* the general condition of the neighborhood
* the condition of the specific property in relation to neighboring houses

If the person who is inspecting the property needs to look at the interior of the house, you’ll want to be sure someone is there to let him or her in. You may also want to provide the inspector with copies of low comparable houses in the neighborhood, and high estimates on any needed repairs. The lower the broker’s price opinion, the more likely the mortgage lender will approve a short sale.

Settlement Statement Scrutiny

The seller’s mortgage lender will want to have an advance look at what’s called the ” Settlement Statement” or “Settlement/Disbursement Estimate.” The mortgage lender will be carefully reviewing:

* Commissions going to real estate brokers
* Where your financing is coming from (Cash? A loan?)
* Payments to cover outstanding liens and taxes
* Approximate date of the closing
* Any cash to the seller (a definite no-no)
* Any other expenses which may raise a red flag

While buying a home on a short sale can be frustrating and time consuming, your hard work can pay off in a home that’s worth considerably more than you paid for it.

Poor Strategy When Facing Foreclosure

In some markets more than 1 out of 10 homeowners are dealing with a pending foreclosure.  The most common initial reaction is to avoid the lender and bury one’s head like an ostrich hoping to avoid danger.  It is impossible to hide from mortgage obligations without dire consequences but a proactive strategy can produce positive results.

The first step is to stare the problem right in the face.  You’ve got to deal honestly with the questions at hand.  For instance:

• Could you afford to stay if the payment was lower?
• Are you expecting that you can catch up on arrears?
• Do have the money to move if evicted or sold as a short sale?
• What would be the effect of a deficiency judgment on your financial condition, both present and future?

Next is to determine the goals of your strategy.  Where do want to be when this is over?

• Do you want to stay in the house if the payment can be made affordable?
• Do you owe much more than the house is worth and just want a way out with some damage control?
• Do you need to stay in the house for as long as possible without being able to make any mortgage payments?

Your options will be dictated by how you have addressed the above questions and defined your immediate goals.  The most common options include a refinance or modification of the mortgage, a sale of the property, negotiating a deed in lieu of foreclosure or just stalling what may be an inevitable foreclosure.  Most important to remember is that in most states a foreclosure is a legal procedure.  Richard Weinstein, an attorney in Jupiter, Fl specializes in foreclosure defenses and explains that, “there is much too much at stake for the average individual to try to properly address all the issues of the foreclosure process.  The homeowner has rights they must demand and possibly assets they need to protect.  Unrepresented borrowers very often find themselves unnecessarily homeless and still hopelessly in debt.”

I couldn’t agree more!  I have seen too many regretful real life experiences with disastrous results that could have been averted if the homeowner in distress had gotten proper advice before it became too late.  The sooner the dangers are acknowledged the more options that remain available, both practical and legal.

Some have advised that the first person to talk to is your lender.  Here I disagree.  Doesn’t it make more sense to first speak with someone who is already prepared for your lender’s response and knows what information should be shared?  If you find yourself in the position that you cannot meet your mortgage obligations I encourage you to speak to a mortgage professional that is well versed in all possible remedies.  Century Plaza Mortgage offers free consultations for homeowner’s in need.  Please call 909-973-9651 for more information and visit www.Leeforloans.com

Now that negative equity sales are accounting for more than half of the transactions in many markets if you’re not involved in any short sales you might be getting left in the dust.  Real Estate Agents, Mortgage Brokers, Short Sale Negotiators and Title Agents are all wrestling with the same beast - no matter how hard you work and how high your level of expertise, many short sale transactions will fall apart.

Lately, second mortgage holders have had no qualms about squashing deals over a few thousand dollars.  Just when FNMA and Freddie Mac have announced they will protect Real Estate Agent commissions in short sale negotiations, second lien holders are insisting on higher pay-offs and suggesting it comes from commissions.

Here’s a quote from a recent conversation with a negotiator in Citi’s loss mitigation department: “Citi’s position is that real estate agents should not profit from short sales and should share in the losses”.  Some lenders, including Bank of America and Citi, have suspended progress on many negotiations midstream until new authorization forms are signed on their letterhead.  Countrywide has insisted on second lien pay-offs before making determinations, then closed files if it takes more than a few days to get attain them.  Of course by now we are all getting accustomed to documents being lost or misplaced as part of standard operating procedure in loss mitigation departments.

As frustrating as all this sounds, nothing is more disappointing than working hard (very hard), for months and finally getting an offer accepted by the bank only to find the buyer, for whatever reason, is no longer interested in proceeding.

The reasons are many, but most could be avoided if the lenders could condense the timeline on the negotiating process.  In many instances the buyer’s due diligence clock doesn’t start until the offer is accepted by the lender and the buyer can choose to walk with limited consequences.  Now, everyone involved has run the gauntlet and the accepted offer is without a buyer!  Real Estate Agents, Mortgage Brokers, Title Agents and Short Sale Negotiators are “all dressed up and nowhere to go”.  The work has all been done and no one is getting paid! The distressed sellers and disappointed Agents need to find new buyers before the lenders acceptance of the offer expires, normally in 30-45 days.

Once again, time remains the # 1 obstacle to a smooth and successful short sale transaction. On the selling side it takes the form of the time spent negotiating with the lender and keeping the buyers engaged, all the while trying to keep the property from getting to the courthouse steps.  From the buyer’s side of the market, there is a teeming interest in purchasing these deeply discounted properties but without waiting for 4-6 months to see if an offer will be accepted while other opportunities come and go.

Many real estate professionals are finding salvation in a brand new, free cooperative service at RealEstateRoadkillUSA.com.  The website takes these “accepted offers in need of buyers” and presents them, not only as the best deals in the market, but ready to close immediately.  Remember, once an offer is finally accepted the lender doesn’t care who the buyer is as long as the bottom line remains the same.

Although the service has only recently become available, real estate agents and buyers are flocking to the website like bees to honey (or vultures to carrion).  These are the absolute hottest deals available and all the work has already been done to prepare them for closing.  Wouldn’t you have to be crazy to buy any property without looking here first?  Likewise, if the buyer is lost on an accepted offer it makes perfect sense to post it on RealEstateRoadkillUSA.com immediately.  Currently the website is servicing limited areas but opportunities exist for enterprising real estate professionals poised to serve as “gatekeepers” in their market.  Details are available in the “Join Our Network” section.

Like it or not, short sale transactions are going to represent a growing market for years to come.  Lenders are being encouraged to exhaust all options before foreclosing and hopefully they will streamline and homogenize the process in the months to come.  In the meantime we can only try to work smart and diligently to avoid “All Work and No Pay”.

If someone is about to lose their home to foreclosure, then you can guarantee they’re feeling stressed. They’re probably being bombarded by calls and letters from creditors, and for many people it all becomes too much to handle. They close their eyes and hope it will all just go away.

Reality is, that it won’t, and as an investor interested in buying foreclosures, the hardest part can be convincing the homeowner that they really are going to lose their house unless they do something about it. It can also be difficult to convince them that you really are trying to help them, even though you are helping yourself make a profit at the same time.

When you’re dealing with foreclosures, time is of the utmost importance. You need to have enough time to bail out the homeowner and take over the property before it’s too late. That’s why it can be a good idea to subscribe to a foreclosure listing service - you get access to listings at the earliest possible time, and don’t have to use your valuable time looking for potential foreclosure properties from other sources.

Many people facing foreclosure have spoken to an attorney, and are convinced that bankruptcy is their only option. In most cases this isn’t true, but attorneys tend to stick to what they’re familiar with, which is bankruptcy, rather than mentioning other possibilities such as:

- Deed in lieu
- Straight sale
- Foreclosure presale
- Compromise sale
- Short payoff
- Workouts
- Assignment

There are still more options than these, which shows that bankruptcy definitely isn’t the only choice for the homeowner. When you’re dealing with a homeowner in foreclosure, make it clear that you’re offering an alternative to bankruptcy. Find out whether they really understand what bankruptcy will do to their credit history and how it will affect their future.

If you’re serious about buying foreclosure properties, then you need to become familiar with everything that’s required in the process, and check everything for every property you consider. These items include:

- Loan and mortgage documents
- Loan amount, monthly payment, and interest rate
- Any outstanding taxes
- Existing insurance policies
- Any other liens or judgments

Make sure you have enough information to complete all the necessary tasks before the foreclosure occurs. If there’s not enough time, don’t even bother starting. Having said that, learn as much as you can about ways to delay foreclosure, and help the homeowner to implement them all. If may just give you enough time to take over the property before the foreclosure auction.

Above all, focus on creating a solution where everybody wins. It’s never an easy time for the homeowner, so be prepared for plenty of anger, frustration and resentment - some of which may be directed at you. Walk away if it’s obvious the person doesn’t want to work with you. Find someone who is interested in finding a solution, show empathy for their situation, put together a strategy to get the best possible result for them, and before long you’ll find yourself with a good portfolio of investment properties.

Real Estate Road Kill Usa .com

Newest figures show that buyer’s are coming back into the real estate market drawn by huge price reductions.  2 years ago there was a critical shortage of affordable housing and now it’s turned into a stellar buyer’s market.  It’s also estimated that as much as 40% of the homes sold are short sales, meaning the house is being sold for less than the amount of the seller’s mortgage balance.

When successful, a short sale transaction is a big WIN-WIN-WIN situation.  Sellers are getting out from under their unmanageable mortgage obligation, banks are unloading inventory and buyers are getting the deals of a lifetime.  Realtors® also benefit since most lenders will not consider short sale offers on For Sale By Owner properties.  Realtors® experienced in “negative equity” transactions are in high demand.

The key to being able to take advantage of the current market crises is patience.  When an offer is made on a property for less than what is owed on the mortgage the lender decides whether they are better off accepting the “short” offer or foreclosing on the property.  Foreclosures are typically a losing proposition for both sides and the offers from qualified buyers are welcome.  Unfortunately, lenders are unprepared to handle the volume of preforeclosure situations and the wait for a decision on a short sale offer is currently running from 1 to 4 months.

While an incredible opportunity for buyers, this type of transaction can be very frustrating for Realtors® and short sale negotiators.  Mark Greene, owner/founder of Short Sale Operations, LLC in Jupiter FL, explains, “since the buyer’s “due diligence clock” doesn’t start ticking until the bank accepts an offer many deals don’t come to fruition even after months of fierce negotiating.  The prospective buyer may have changed their plans during the long wait.

At this point the deep-discount price has been accepted by the lender and the contract must close in 30-45 days.  The good news is that the lender doesn’t really care who the buyer is once the transaction reaches this stage.  It is these deals (approved short sale offers with no immediate buyers present) that offer the precious low hanging fruit for opportunistic buyers.  A new website, www.RealEstateRoadKillUSA.com is receiving national attention for bringing this inventory of approved offers to the public. 

Realtors and buyers are flocking to it like bees to honey (or vultures to carrion).  These are the absolute hottest deals in town and all the work has already been done to prepare them for closing.  Simply, it makes sense to check this list as the absolute first step when shopping for residential real estate. 
         
Whether you find yourself on the distressed or the opportunistic side of this market be sure you are working with real estate and mortgage specialists who can present all your options.  Buying and selling in “short sales” situations requires specific knowledge of the procedure to be successful.  Consultations are always free at Elite Lending, 561-575-5626 and via the RealEstateRoadKill Regional Licensees that will be operating shortly. We are all proud to be serving our community in these trying times.