Archive for the ‘short sales’ Category
Thursday, March 26th, 2015
The latest case on the Supreme Court docket could affect the number and difficulty of future short sales, so if you are short selling, purchasing/planning to purchase a short sale, or if you are an agent who may be selling one, please read on.
In Bank of America v. Caulkett, the Supreme Court will soon rule as to whether a borrower has the right to void a second lien through bankruptcy when his home is not worth the value of the first mortgage. In simpler terms, if you have two loans and file bankruptcy, and your home is not worth the amount of the first mortgage (say you owe $500,000 on the first loan and $100,000 on a second loan, and your home is worth $450,000), filing Chapter 7 bankruptcy would allow you to void the second loan. The home could then be sold via short sale and the second lienholder would get nothing and have no rights to intervene.
Back during the short sale wave of 2008-2011 many second lienholders were successfully able to block negotiated bankruptcy settlements that benefitted the borrowers and first mortgage holders; thus many short sales fell through, and those homes eventually ended up going into foreclosure. When the economy worsened many of these foreclosure proceedings got pushed to the back burner and homeowners stayed in their homes for long periods of time, even years, without paying anything. This led to damaged and neglected homes, and in some parts of the U.S. entire neighborhoods deteriorated. This of course resulted in cost increases for taxpayers and the bank bailout.
Not long after this all started many first lienholders began to offer small sums to the second lienholders (usually about $10,000) in exchange for their blessing on the short sales, and this became standard practice. But not all second lienholders acquiesce. If they are now given the legal right to block these agreements in bankruptcy it could create problems that would be passed along to taxpayers.
Two of the Justices – Kennedy and Sotomayor – have indicated that they do not think it fair that a second lienholder would be able to hold hostage a bankruptcy settlement reached by the borrower and first lienholder.
Keep an eye on this case and the outcome, which should be decided in June, especially if you are a homeowner in this situation, a short sale buyer or an agent who sells short sales. The decision could affect short sales as we know them…stay tuned.
Wednesday, November 13th, 2013
I used to love short sales…all it took was great organizational skills, persistence, a thick skin and a big mouth, and it was more or less simple to get a short sale closed. But after what my poor buyers just went through it makes me want to stay away from short sales for a while!
First of all, I have to say that I had the sweetest buyers one could imagine – kind, honest, and abundantly patient homebuyers who were so excited to buy their first home. They waited SEVEN months to get their home, and during this time saw just about every mistake a lender can make. The list is long, but here are a few of the mistakes either one or both of the short sale lenders made: failure to disclose the loan was being transferred (we could have had it postponed and closed months ago if they had been upfront, instead we had to start ALL over with one of the loans), misplacing the file in the wrong category (the second put it in the “first lender” category, which is a much longer process and thus held things up until it was discovered by the listing agent), granting approval and then not signing off on the paperwork before the deadline to close expired, and failure to sign off on the final HUD until the last minute possible – literally – and even that took multiple calls and threats to obtain.
Something to ponder: if a lender agrees to approve a short sale, and especially if that lender requires closing occur on or before a certain date, why would the lender hold off on getting the right paperwork to the listing agent so that can be accomplished? All parties in the transaction bent over backwards every time one of the lenders asked for something, yet the continued to not hold up their end of the bargain. In fact, it was so bad that we would get one approval, and by the time the other lender send over the approval the first one expired…this happened several times and we were constantly waiting for someone’s approval letter (while the lender whose letter was still valid was threatening to not renew it because we were taking so long!)
The icing on top of the cake came after we finally closed, when one of the lenders demanded original documents (they were sent the copies during escrow and specifically stated they did not need the originals), threatening to refuse to accept the escrow money if they did not receive it. Luckily all the parties – buyers, sellers and both agents – had saved their originals and that crisis was averted (lesson to remember: don’t ever throw anything away!)
Short sales can be horrible, or they can be easy. It is always a gamble to take on a short sale, and one must truly be patient. As a buyer’s agent you have no control over the banks and are not allowed to contact them, which makes me crazy. If you are contemplating a short sale purchase, make sure you understand all possible ramifications so that you are not surprised.
Congratulations to my clients for sticking it out and standing their ground – I know they will enjoy their beautiful new home!
Wednesday, August 14th, 2013
Short sales have received much stigma as of late, and more buyers have been steering clear of them. But for those who are willing to wait them out, can short sales still save you money? In order to answer to this question it is important to dissect the short sale and look at it’s components and ramifications.
Timing: The old school of thought was that if a buyer was not in a hurry, a short sale could be a good investment – the price would be set, usually lower than other non-short sales in the area, and all the buyer had to do was await the lender approval. The problem has always been that awaiting the approval can take a long time – from several months to even (in some extreme cases) closer to a year. With the market changes and price increases, coupled with lower inventory levels in most areas, the waiting game can backfire for buyers. During that period it is possible prices will increase, making it possible that the short sale lender will counter the contract price. Mortgage rates may also go up during that time, making monthly payments higher for the buyers. Timing is thus a big consideration when purchasing a short sale, and has to be considered in light of the specific market, the availability of similar inventory that is not short, and price.
Price: It used to be that if one was willing to hold out for short sale lender approval, one could get a good deal on a home purchase. Most short sale lenders have a magic scale (feel the sarcasm here – I say “magic” because no one knows how these scales are formulated) – generally each lender has had a price range in which they will approve a contracted price, and it seems these ranges used to dip lower than they do at present.
When a short sale offer is submitted to a lender today, not only does one have to contend with the waiting game, but one also has to be aware that the lender or lenders may counter the contracted price. Some lenders have been countering prices at above comparable market value, since they are aware prices are rising in most areas; thus many lenders don’t seem to be content any longer to approve lower prices. The problem is in the timing – by the time the lender does its appraisal or BPO it can be months since the contract was accepted – thus the buyer may have to pay more to close AND has now missed out on other opportunities while waiting.
Missed Opportunities: In these times where we are seeing market prices escalate, waiting out a short sale could potentially mean a buyer is missing out on other home sales that will be priced higher down the road; in other words, if you make an offer on a short sale home now by the time it is actually approved you may have been able to purchase another, non-short sale home for a lower price. It is a risk each buyer has to consider, and of course depends on their attachment to the home they are waiting on.
Higher mortgage rates: Mortgage rates have increased and are expected to do so further with time. The short sale home you made an offer on months ago may have been affordable at that time, but months down the road your monthly mortgage payments may be higher than anticipated if rates went up during your waiting period. This has happened to clients of mine who have been waiting out a short sale, and it is something to consider when deciding to write that short sale offer.
All in all, a short sale can still be a “good deal,” but there are definitely factors to consider before jumping into waiting one out. Consult with your real estate agent and weigh all the factors – timing, price, other inventory, the possibility of increased mortgage rates effecting your monthly bottom line, and the status of the local market. It may still be worth it for some people, but for others short sales may not really be good deals after all.
Wednesday, April 10th, 2013
Someone called me the other day with a question about short sales and HOA fees. She wanted to know whether a homeowner should continue to pay HOA fees if they are involved in short selling their home, and are awaiting lender approval. The answer is YES.
Unlike other fees which short sale lenders typically agree to pay (such as county transfer fees and certain document fees, escrow and title fees, etc.), lenders normally will NOT pay late HOA fees. In most situations where the homeowner is behind on these fees, the buyer will end up having to pay for them. This obviously could be an issue if the balance is hefty.
The even bigger problem is that the HOA could file a lien on the property for the late fees. This could hold up the closing of the short sale, or even worse: cause the parties to miss the closing deadline that was specified in the lender approval letter.
The best advice to give short sellers (and I always do so right from the start) is to stay current with HOA payments, even when they are no longer current with their loan(s). This will assure a much smoother transfer of title and avoid any problems that could lead to a bungled short sale and a foreclosure.
If you have any other questions regarding short sales or questions related to legal ramifications of selling your home, please feel free to contact me at Rachel@LaMarRealEstate.org.
Wednesday, January 2nd, 2013
As expected, Congress has extended the Mortgage Forgiveness Debt Relief Act for one more year. This extension assures that homeowners who short sell their homes, obtain loan modifications or are subject to foreclosures, will not be liable for the taxation on mortgage debt that is forgiven by the lender(s).
Homeowners who currently have a short sale on the market, in escrow, or are considering listing their property as a short sale can breathe a sigh of relief and continue to pursue this path. However, as always, it is important to make sure to consult with your accountant, attorney, and a qualified short sale Realtor before pursuing a short sale or loan modification, in order to assure you are aware of all possible consequences and that it is the right option for you at this time.
The settlement reached by Congress also maintains the current capital gains rates on the sale of principal residences – the first $250,000 for single tax payers and $500,000 for married couples will be excluded.
Friday, November 16th, 2012
Short sales have become part of the real estate landscape, and as one in four homeowners are underwater nationwide, they will likely continue to stay there for some time. Lenders have finally accepted this and have been trying to implement new programs to make them a better choice than foreclosures. For the most part, they are on the right track, but we are still seeing resistance and lots of snares in the road. The new Fannie Mae/Freddie Mac short sale program offers something big to struggling homeowners: the chance to short sale their homes even if they are current on their mortgage payments.
Normally, in order to short sale your home you have to be delinquent on your mortgage payments. Some lenders say they will consider short sales for those not yet delinquent, but the reality is that until you are late with your payments they don’t have the time to tango. Now, if your loan is securitized by Fannie or Freddie, you could be eligible for a short sale even if you are not delinquent, but can prove a hardship.
If you are in this situation you will need to contact your mortgage servicer and ask them to participate in the Fannie/Freddie non-delinquent short sale program. You will want to find a qualified area real estate agent who is experienced in selling short sales, and get your home listed on the market. Once you find a qualified buyer, you will present the contract to your servicer, along with proof of hardship (there is a packet of information you will have to provide – whether your servicer wants it up front or at the time you have an accepted offer will be up to the servicer).
Hardships: There are multiple kinds of hardship that could be acceptable. These may include job loss, injury or disability, major illness, job transfer (there are usually mileage requirements), pay cuts, divorce, and death of a borrower or wage earner, to name a few. If you think you have a hardship, contact your servicer to find out whether you qualify.
Caveats: There are a few things you want to watch out for if you are able to go through a short sale under this new program.
1. Credit implications: As with every short sale, you will need to be aware of potential credit hits. There is no lesser effect for these types of short sales, however, apparently it is in the works. Typically with a short sale you can expect your credit score to drop up to 150 points, but that really depends on where it was before you were approved for a short sale. I have seen some sellers take a big hit, and others barely see any negative effects. If you keep in mind the 150 number, that is most likely the worst case scenario. Hopefully soon there will be an exception with the credit bureaus for these types of short sales.
2. Second liens are another potential snake in the grass with the new program. First lienholders have agreed to pay only up to $6000 to second lienholders upon a successful short sale closing under the program. If you have a large outstanding second lien balance, there is a chance that lienholder may refuse to accept this sum (which is ridiculous, as they would likely get nothing if the home went to foreclosure, but such is the case). Make sure you know exactly how much you owe and what the second lienholder’s policy is – a savvy short sale agent/negotiator will know how to help in this regard.
3. Deficiency states: if you live in a deficiency state (where the state can go after you for the difference between the short sale price and what you owed on your mortgage), you need to beware. The lender may require a cash contribution to cover the difference on the loan balance, or possibly have you sign a promissory note. California is NOT a deficiency state, so selling your home via short sale requires NO contribution from the borrower, and there is no state tax liability on the sale.
As always, I recommend really understanding all the implications of a short sale before embarking on one. Make sure you hire an agent who really knows how to negotiate, as well as all the steps involved throughout the short sale process. If you are informed you will make the best decisions for you and your family. To find out whether your loan(s) is owned by Fannie Mae, visit https://www.knowyouroptions.com/loanlookup. For Freddie Mac loans, go to https://ww3.freddiemac.com/corporate/.
Images courtesy of Dreamstime.
Sunday, November 4th, 2012
Bank of America issued a notice recently to agents about the possibility of selling off loans in the middle of a short sale, which could drastically affect your short sale (and even cancel it last minute). It is very important that both homeowners and their agents understand what is happening, before listing a property for short sale.
As is customary, many lenders sell loans, even those that are delinquent – this is nothing new. But the fact that B of A sent out a notice about it is concerning, because of the timing that is mentioned for possible sales. The notice states that while in the midst of a short sale, borrowers’ loans may be sold to other servicers. If that happens, there is no guarantee that the pending short sale will close. Here are the steps by which this may happen (as spelled out in the notice):
• Bank of America will send the homeowner a letter 15 days before the servicing transfer date.
• Bank of America may call the agent to advise of the impacts to the short sale.
• The new servicer will send a letter or statement advising the homeowner where to send payments.
• If an offer has already been accepted on your short sale, a closing has been set and an approval letter issued, the new servicer will determine if the short sale will continue. (Yikes – a little too much discretion here!).
The scary part is that B of A is giving itself an out – why would a lender approve a short sale, only to then sell the loan while the property is in escrow? This makes not sense whatsoever. B of A states, “Real estate professionals should advise homeowners that, similar to foreclosure, a servicing transfer is a risk that may occur at any time during the short sale process. This is why it is important to move as quickly as possible to facilitate the short sale.” Wow – if I have to tell this to potential short sellers, why would they want to risk a short sale? Why would a buyer want to risk making an offer, with the very real prospect of losing money and not closing? And why would I, as an agent, want to risk spending marketing dollars and time in selling the property? NO ONE WINS!
It seems to me here that B of A is trying to cover it’s behind, but this warning and the described act is contradictory to short sale approvals.
The solution here is this: if you have a B of A loan and are considering a short sale, you need to have your agent or negotiator discuss this with B of A before listing your home. I would ask to get something in writing that B of A will not sell the loan after the short sale has been approved and during the escrow period, up until the deadline that is provided in the approval letter. This applies whether you have a first or second loan with the bank. If B of A is not willing to do this, you can either take a risk or look into other options.
This move is a step in the wrong direction by B of A, and thus they remain on the top of my “lenders who are not cooperative” list. What a shame that this bank – Bank of AMERICA, for goodness sake, is not willing to truly help American homeowners. Maybe they ought to think about a name change.
Tuesday, October 16th, 2012
It is almost here: the dreaded end of the federal short sale tax breaks, also known as the Mortgage Forgiveness Debt Relief Act. Come December 31, sellers who have not yet closed escrow on their short sales will no longer escape the capital gains tax on the difference between the sales price (of their home via a short sale) and the amount owed on their mortgage…UNLESS the tax breaks are extended. Will this happen, and if not, what will happen to short sales?
First of all, I have to say that I think the tax will be extended. It simply does not make sense at this critical economic time to not extend the tax break. Doing so wreaks all kind of havoc, including surges in foreclosures and bankruptcy filings, which neither the government nor the banks want to see.
Failure to extend the act would undermine everything that is improving in the real estate market and cause us to jump many steps backwards. The fact that an extension has not yet been announced makes people nervous, but due to the Presidential election and other important issues on the proverbial table, I think it has been put on the backburner for a short time.
Lets take a look at the main arguments for not extending the tax break:
1. Too costly. There are some who believe that the law will not be extended, as they feel the alleged $2.7 billion it will cost to do so is not justified due to the deficit. To this I would say it will be a lot more costly if millions of homes go into foreclosure again, as people find they have no other solution and cannot afford to stay in their homes. The lenders will be stuck with tons of inventory that they have to sell, many that will be trashed, and the market will drop again, creating another real estate nightmare. Just when we are coming out of the bad market is not a good time to cause it to dive again.
2. Easy escape for homeowners – ? Another argument in favor of not renewing the tax savings is that doing so encourages people to default on their loans. In other words, if people know they can short sale their homes and walk away without financial ramifications, it makes it easier than staying in a home they cannot afford and trying to make it work. I do not agree with this argument, as I think the stress would just lead to more bankruptcy filings and foreclosures, which in the end is even worse for the lending institutions (not to mention for millions of families).
It remains to be seen what will happen come the end of the year. The bottom line is this: if you are contemplating a short sale and your house is not yet listed on the market, or if your home is listed but you have not yet sent any offers over to your short sale lender, it is a good time to discuss your options with both your agent and a financial adviser, CPA and/or attorney. You must understand your options and what could happen if the law is not extended, because it could effect your decision whether to close your short sale.
If you are in the middle of a short sale and you have obtained or are soon to obtain lender approval, you need to make sure that the lender(s) release you in writing from any financial liability once escrow closes, if it is to close after December 31.
[Note that regardless of when your short sale is closing, you should ALWAYS make sure the lender approval letter has language to this effect…most lenders automatically state such in the approval letters, but if not you need to have your agent or negotiator ask that it be included]. You also need to check your state laws to determine state tax liability with short sales, as laws do vary. For more information about short sales you can visit my website.
Wednesday, September 19th, 2012
Some of the big lenders are making grievous errors that are costing homeowners, buyers and their agents time, money and much aggravation. The biggest problem is that oftentimes departments claiming to help borrowers do not communicate. Let’s look at an example.
Let’s say a seller is in the middle of a short sale, almost to the approval phase when, to his excitement, he discovers his loan interest rate has reset and lowered – maybe he can actually afford the payments now, and wouldn’t that be great to keep his home! So he calls the loan modification department, and the representative tells him they can help him work it out, but he must cancel his short sale, so together they contact the short sale department and the seller cancels his short sale.
The seller has nothing in writing stating that his loan modification will be granted, and no promises are made. Here is the issue: the loan modification department let the seller cancel the short sale without providing terms and explaining how any agreements will work, including any monetary consequences involved. If the loan modification does not work out in his favor, the seller may have no options left but to foreclose (unless the lender allows another short sale attempt).
The above scenario is frustrating, and as much as it would make me very happy for all the distressed sellers out there to discover there was a way for them to keep their homes, I do not believe that anyone should make a decision without facts, including either a written offer with terms or a written agreement.
The solution here is for the loan modification department and the short sale departments to communicate and change their policy. Sellers should not be required to cancel their short sales until they know whether they will qualify for a loan modification. Even if they do qualify, they may not like nor be able to afford the new payments. Therefore, there should be a holding period for the short sale, where the seller and the loan modification department have to work out a plan. This period should take no longer than 10-14 days. If at the end of that period the seller is not satisfied with the terms offered, s/he should be able to jump back into the short sale.
This is a simple solution that will prevent unnecessary foreclosures…because NO ONE SHOULD MAKE A DECISION WITHOUT LEARNING ALL THE FACTS AND CONSEQUENCES FIRST. I challenge big lenders to do the right thing and truly help distressed borrowers by not pushing them into a corner from which they may not be able to escape.
Saturday, August 25th, 2012
Beginning November 1 there will be some significant changes to how short sales are handled, and the new guidelines could be a big benefit to those sellers who otherwise may not have been able to short sell their homes. A short sale is when a home is sold for less than the amount owed on the mortgage(s), allowing the borrower to escape some of the harsher ramifications from a foreclosure.
The Federal Housing Finance Agency (FHFA) is changing the Fannie Mae and Freddie Mac short sale guidelines, which will allow borrowers to be qualified by their servicers for short sales in a more timely manner, and will apparently streamline the short sale process, making it smoother and, dare I hope, quicker. How are they planning to do this? Here are the changes that are anticipated:
• A single short sale process will be created for Fannie and Freddie short sale programs. This will allow for smoother and streamlined processing time, which will enable agents and homeowners to determine timeframes for approval and closing. Servicers must respond to short sales within 30 days, with a final decision for the borrower by 60 days after submission.
• Borrowers who are current on their mortgages will be able to qualify for short sales (subject to showing they have a hardship), without waiting for short sale approval from Fannie and Freddie, and instead of waiting until payments are missed, thus eliminating further damage to credit scores and helping to clear short sale inventory much quicker. Most importantly, the guidelines for proving hardship will be loosened.
•Provides special treatment for military personnel who have received permanent change of station (PCS) orders. Personnel who are being relocated will automatically be eligible for short sales, even if they are current on their mortgages.
• May provide up to $3000 in relocation assistance to those borrowers who qualify.
• Allows and standardizes foreclosure suspensions on approved short sale properties. This one is big – it will prevent servicers from foreclosing on your property if your short sale has been approved, so no more worrying during the short sale process that the home will be sold at auction during that time.
• Payment to secondary lien holders by Fannie and Freddie of $6,000. Although this happens frequently already, it will be nice to have a guarantee that Fannie and Freddie will offer these subordinate lien holders money, which makes getting their approval on short sales a bit easier.
The potential downside of these changes is that there may be large supplies of short sale inventory in some areas, which could have a negative effect on area home sale prices, at least until the supply is sold.
The upside to this new process is that it will clear the market of distressed property, which will allow a return to “normal” growth cycles in the future, and instill higher levels of consumer confidence in the markets. It will also be positive news for those home sellers who would have headed toward foreclosure, providing an easier way out from under a mortgage that was literally sinking them.
These new guidelines are a step in the right direction, as we need to clear out this inventory and make the process easier and not so mysterious. The proof will be in the pudding, however, so I am definitely looking forward to November 1, and streamlined short sales. If you have questions about short selling your home, please feel free to contact me.