Short Sales in Texas

THE TIMEFRAME TO INITATE A REAL ESTATE FORECLOSURE RELAXES FOR THE UNEMPLOYED

The Obama administration is making it easier for out-of-work homeowners to stay in their homes, as it tries to revamp its troubled foreclosure-prevention program. 

Starting Aug. 1, the Federal Housing Administration will extend the period for unemployed homeowners to miss mortgage payments to a full year from three or four months. That will allow qualified homeowners to go without making a monthly payment for 12 months before the foreclosure process begins. 

The extended grace period only applies to FHA-backed loans, which are usually given to low- and middle-income borrowers and represent about 14 percent of all active mortgages and roughly 25 percent of new mortgages, and homeowners in the government's Home Affordable Modification Program. 

But the change will likely only help "tens of thousands" of homeowners, Housing and Urban Development Secretary Shaun Donovan said Thursday. 

Last year, roughly 17,000 homeowners received a government-supported delay on their mortgage payments. About 3,500 borrowers with FHA-insured loans fall behind on their mortgages each month due to unemployment, officials said, and another 10,000 unemployed homeowners have taken advantage of a three-month delay in mortgage payments in the past year. 

Donovan said administration officials hope private lenders and government-controlled mortgage companies Fannie Mae and Freddie Mac, which back 90 percent of all new mortgages, will adopt a similar policy. 

"Our hope is that this will have broader effects," Donovan said during a conference call. 

Fannie Mae and Freddie Mac had no initial comment on Donovan's push for a broader, industry-wide grace period for the unemployed. 

But new rules going into effect Oct. 1 for the mortgage giants to allow for long-term forbearance when a home or a place of unemployment has been destroyed; if the homeowner or a dependent has a long-term disability or illness; or if the borrower has died and the property is in probate. Mortgage payments can be put off for up to a year in those cases. 

"It can be extended and has been extended for people for a variety of reasons," said Brad German, a Freddie spokesman. 

The government launched its chief foreclosure program in 2009 to help those at risk of foreclosure by lowering their monthly payments. Borrowers start with lower payments on a trial basis. But the program has struggled to convert them into permanent loan modifications. 

More than 1.6 million troubled homeowners received trial modifications over the past two years. But a majority of the applicants, about 854,000 homeowners, have dropped out of the program entirely. 

In recent weeks, administration officials have acknowledged that housing has become a significant drag on the economy. President Barack Obama said the housing market has "been most stubborn to us trying to solve the problem," during a town-hall-style meeting Wednesday on Twitter. 

He admitted that the government's programs to help homeowners were "not enough" and said the administration was "going back to the drawing board." 

Homeowners accepted into the foreclosure assistance program receive interest rates as low as 2 percent for five years. They can repay their loans over a longer period. The median savings for those who remain in the program is about $526 per month. 

Those who have their payments delayed must repay them, with interest. 

But many homeowners have complained that the program has been a bureaucratic mess. Some have said they were disqualified after banks lost their documents and failed to return their phone calls. Banks have blamed homeowners for failing to submit needed paperwork. 

Last month, the Obama administration blamed the three largest U.S. mortgage lenders for the failures of the foreclosure program, saying they hadn't done enough to help people at risk of losing their homes. The Treasury Department said it was withholding financial incentives that amounted to up to $1,000 per permanent loan modification, arguing the three lenders had incorrectly determined that many people were ineligible for assistance. 

The lenders, Wells Fargo & Co., Bank of America and JPMorgan Chase & Co., disputed the data, saying they were based on old reports, not audits from the first quarter of the year as the government claimed.

Texas Short Sales | 3 Most Aggravating Parts for a Listing Agent

1) A lender that does not care and shows it by not returning phone calls or emails, and lets a property to go into foreclosure due to their lack of responsiveness;

2) Uneducated real estate agents that perform BPO's for lenders.  The majority of these agents have no real experience in pricing distressed properties, yet the lenders are relying on the agent's valuation as if it was gospel.  To be a BPO agent, you do not need any formal training (other than a real estate license) and they are paid in the range of $40 to $65 to perform this extremely critical service); and

3) Buyer Agents that have no clue as to what they are doing when it comes to being involved in a short sale transaction. 

Now that I have ranted, I feel better...thanks for listening.  Yes, it has been one of those weeks...and it's only Monday!   :-)

HAFA Provisions

• Complements HAMP by providing a viable alternative for borrowers (the current homeowners) who are HAMP eligible but nevertheless unable to keep their home.
• Uses borrower financial and hardship information already collected in connection with consideration of a loan modification.
• Allows borrowers to receive pre-approved short sales terms before listing the property (including the minimum acceptable net proceeds).
• Requires borrowers to be fully released from future liability for the first mortgage debt (no cash contribution, promissory note, or deficiency judgment is allowed).
• Uses standard processes, documents, and timeframes/deadlines.
• Provides the following financial incentives:
  • $3,000 for borrower relocation assistance;
  • $1,500 for servicers to cover administrative and processing costs;
  • Up to $2,000 for investors who allow a total of up to $6,000 in short sale proceeds to be distributed to subordinate lien holders, on a one-for-three matching basis.
• Requires all servicers participating in HAMP to implement HAFA in accordance with their own written policy, consistent with investor guidelines. The policy may include factors such as the severity of the potential loss, local markets, timing of pending foreclosure actions, and borrower motivation and cooperation.

Why is a Texas Short Sale Better Than a Texas Foreclosure?

When foreclosure occurs, a homeowner is forced to vacate the property and may encounter legal issues and costly fees involved with the foreclosure process. This is undesirable for both the homeowner and the lender.

In a short sale, a homeowner enters into a mutual agreement with the lender to end the mortgage. This is reflected on your credit report as “negotiated settlement of debt,” which may be less damaging to your credit than foreclosure.

For more information on the credit or tax implications of pursing a short sale to avoid foreclosure, we suggest you consult with your broker, accountant or other professional adviser.

What is a Deficiency Judgment?

A deficiency judgment is a judgment lien against a debtor, defendant or borrower whose Texas foreclosure sale did not produce sufficient funds to pay the mortgage in full. This option may or may not be available to the lender, depending on whether they have made a recourse or non recourse loan.

The fuller, statutory definition is: "the whole residue, or so much thereof as the court may determine to be just and equitable, of the debt remaining unsatisfied, after a sale of the mortgaged property and the application of the proceeds, pursuant to the directions contained in such judgment, the amount thereof to be determined by the court as herein provided.

The plaintiff's attorney (in other words, the bank's lawyer) must make a motion to receive such a deficiency judgment. Otherwise, the amount gained from the sale shall be deemed the full amount owed, and the plaintiff has no right to collect the additional debt. However, if the parties (mortgagor and mortgagee) have already agreed in their mortgage or promissory note, then the debtor could be liable for the full amount.

A debtor who has a deficiency judgment should see an attorney for possible remedies, including bankruptcy, an exemption from creditors,an appeal, or a motion. As with all legal research sources on-line, Internet users should take caution before applying such advice to your own case, and perhaps should consult an attorney.

Example: Upon Default by the Mortgagor a lender Forecloses on the mortgage. The unpaid balance of the loan is $102,000. The property is sold at public Auction and brings $80,000. The lender then seeks a deficiency judgment against the mortgagor to recover the $22,000 shortage, plus foreclosure expenses.

Deficiency States

Legislation enacted during the Depression still restricts the availability of deficiency judgments in several states. In some jurisdictions, deficiency judgments are prescribed in certain situations, while in other states, they are limited to the amount by which the debt exceeds the fair market value of the property. Waiver, the intentional relinquishment of a known right, of the benefits conferred by anti deficiency legislation contravenes public policy and is ineffective.

In non-deficiency states like Arizona a lender is unable to pursue any type of a deficiency judgment. Concerning foreclosures non-deficiency states are advantageous to owners in foreclosure because the lender is unable to pursue the deficiency judgment.

The good news is many lenders do not pursue deficiency judgments because someone that has lost a house to foreclosure is a poor candidate to collections on a deficiency judgment.

Communicating with the Loss Mitigation Negotiator

The stronger your relationship with the loss mitigator the better your chance of getting a short sale accepted. This is a people business and you will earn more paydays by increasing your communication skills.

The loss mitigator has an interesting job. They may be working 200-300 files at any given time so time is a very limited commodity.

Next, ask yourself what type of personality is likely to be a loss mitigator? Somebody that loves to talk and is very chatty? Somebody that is very empathetic and understanding? Not likely!

Most often a loss mitigator will be direct and to the point. But don't mistake the loss mitigator for somebody that's revealing all of their cards. Many are paid on commissions so they will play hardball in the negotiations as long as possible.

In the initial call with the loss mitigator I will be very pleasant and easy going. My goal is to establish rapport and find out their preferred way to communicate. I'll ask "Do you prefer to communicate by phone, fax or email?" All have their advantages and disadvantages.

Phone: Get their direct number and that of their supervisor in case they are out for any reason. The phone is very efficient if you can get through to the person directly without going through a prolonged messaging service and pushing 100 buttons.

FAX: Hands down the best way to communicate with loss mitigators. Lenders keep a log of faxes so be sure to log the number and time of your call. If faxing to a department fax expect 24-48 hours for a response. Always ask if the loss mitigator has a direct fax number. If so you are golden.

eMail: Personally this is my favorite way to communicate in the modern day world. Fast. Decisive. Available anytime. Some loss mitigators like to communicate through email and it can be very efficient. Always ask if the loss mitigator has an email address. However, do not rely on emails for short sale communications. 1) the email may not go through. 2) If the loss mitigator changes positions in the company the address could be terminated and you'll be left wondering what happened. Email are great... but if you use them be sure to also use the phone and fax so there are records of your communication.

Beware of Texas Foreclosure Rescue Scams

• Beware of anyone who asks you to pay a fee in exchange for a 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. Recognize and avoid common scams.     
• Assistance from a HUD-approved housing counselor is FREE.
• 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 or transfer over the deed to your house.
• 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.
• Never make a mortgage payment to anyone other than your mortgage company without their approval.

Private Mortgage Insurance (PMI) and the Texas Short Sale

PMI is known as the acronym for private mortgage insurance.  Private Mortgage Insurance is used when a borrower has less than 20% for a down payment. Private mortgage insurance protects mortgage lenders against potential losses in the event of borrower default.  The insurance company, collects a monthly premium from the borrower (based on risk analysis) and agrees to pay the lender a certain amount of money if the loan defaults (usually 17-25% of the loan amount).  It's model was based on FHA loans and their mortgage insurance premium (called MIP, probably to confuse you).  FHA and VA offer guarantees to the lender equal to as much as 25% of the mortgage balance.

If a borrower defaults on his conventional mortgage (goes 90 days late on a payment), the lender files the state-specific foreclosure notice and sends in a claim to the insurance company to recover as much as 20% of the mortgage balance.  This, in turn, gives the lender a smaller risk when the lender sells the property to recover their losses.

Let's assume we have a $300,000 loan for a property that was purchased last year for $317,000.  It may be selling for as little as $260,000 today. Assume it costs about 9% to sell the property.   You should know two things:

How much will the lender receive from the insurance company if the borrower defaults? 

$300,000 times .20= $60,000

What price must the lender sell for to not have a loss?  

Well, the lender's exposure has been limited to $240,000 now that they received $60,000 from the mortgage insurance company.  We take $240,000 divided by 91% (remember that it costs 9% to sell so the 91% represents the net proceeds).       $240,000/.91= $263,736.

Why is this so important to Dallas Realtors?  When negotiating an offer for a property that would result in a short payoff to a lender, you need to remember this fact:  PMI claims will mitigate some of that loss.  If you know that a seller has PMI on their mortgage, you have that much more wiggle room when negotiating a short sale with the lender.  Lenders have been known to attack Realtor's commissions as much as 50% when a short sale exists.

Knowing your numbers and how PMI affects a lender will help you defend your commission. If you understand the net effect the sale will have on a lender, your short sales will go much more smoothly.

HAFA | Home Affordable Foreclosure Alternatives with Freddie Mac

As a component of the Making Home Affordable Program (MHA), the Home Affordable Foreclosure Alternatives (HAFA) initiative offers eligible borrowers who did not qualify for or complete a permanent modification under the Home Affordable Modification program (HAMP) or another home retention option to avoid foreclosure. HAFA solutions help stabilize communities by limiting foreclosures in surrounding neighborhoods and allow affected borrowers to transition into more affordable housing.

Program Eligibility

• The initiative strives to help borrowers who do not qualify for or complete a HAMP permanent modification, or other Freddie Mac foreclosure alternatives, transition into more affordable housing and avoid foreclosure.

• Servicers must proactively offer a HAFA Short Sale to eligible borrowers and use standard documents and tools.

• All potentially eligible borrowers must be considered for HAFA before the mortgage is referred to foreclosure or a pending foreclosure sale is conducted.

• Borrowers cannot make cash contributions or promissory note obligations to satisfy either the first lien or subordinate liens, and upon completion of the HAFA Short Sale or HAFA Deed-in-Lieu all mortgage debts are extinguished.

• Borrowers and Servicers may receive incentives for successfully closing a HAFA Short Sale or HAFA Deed-in-Lieu, subject to certain requirements.

• The initiative is mandatory August 1, 2010, for first-lien mortgages owned, guaranteed, or securitized by Freddie Mac that were originated on or before January 1, 2009, and it will expire December 31, 2012.

• Eligible properties are single-family 1-4 unit primary residences, including condos, Single-Family Seller/Servicer Guide (Guide)-eligible manufactured homes, and negotiated conforming jumbos.

• Servicers must verify that the borrower is occupying the property as a primary residence, and it is not abandoned, condemned, or vacant (without an applicable exception).

• Borrowers must meet the basic eligibility criteria for HAMP, but not qualify for or complete a HAMP modification or other Freddie Mac home retention solutions.

• Borrowers must be more than 60 days delinquent and have cash reserves less than the greater of $5,000 or three times their current monthly mortgage payment.

• Borrowers who may be in foreclosure, in pending litigation involving the mortgage, or who are in active bankruptcy may be eligible for this initiative.

• Borrowers must be able to convey a clear, marketable title to the mortgaged property.

Key Features

• The initiative strives to help borrowers who do not qualify for or complete a HAMP permanent modification, or other Freddie Mac foreclosure alternatives, transition into more affordable housing and avoid foreclosure.

• Servicers must proactively offer a HAFA Short Sale to eligible borrowers and use standard documents and tools.

• All potentially eligible borrowers must be considered for HAFA before the mortgage is referred to foreclosure or a pending foreclosure sale is conducted.

• Borrowers cannot make cash contributions or promissory note obligations to satisfy either the first lien or subordinate liens, and upon completion of the HAFA Short Sale or HAFA Deed-in-Lieu all mortgage debts are extinguished.

HAFA | Freddie Mac Mortgage and Borrower Eligibility

The following mortgages are eligible for HAFA:

• First-lien mortgages, owned, guaranteed, or securitized by Freddie Mac that were originated on or before January 1, 2009.
• Eligible properties are single-family 1-4 unit primary residences, including condos, Guide-eligible manufactured homes, and negotiated conforming jumbos.
• Mortgaged property is not abandoned, condemned, or vacant (without an applicable exception).

Borrowers may be eligible for this initiative if they meet the following requirements:

• Borrowers must be more than 60 days delinquent and have cash reserves less than the greater of $5,000 or three times their current monthly mortgage payment.
• Borrowers must have first been considered for a HAMP modification and then for other Freddie Mac home retention options under Guide Chapter B65, but was either ineligible, did not complete, or declined the modification.
• Borrowers may be in foreclosure, in pending litigation involving the mortgage, or in active bankruptcy.
• Borrowers must be able to convey a clear, marketable title to the mortgaged property.