Ron's Blog

Senators Lisa Murkowski, Scott Brown, and Sherrod Brown are proposing a bill requiring mortgage lenders to make a prompt decision on whether to allow a short sale at the request of a home buyer. The bill, “Prompt Notification of Short Sales Act,” will require a written response from the lender no later than 75 days after the receipt of the written request from the buyer.  This bill will require that the lender’s written response to the buyer must specify whether the request was approved, if more time is required the servicer must estimate a date a decision will be reached. The loan servicer is limited to one extension no longer than 21 days. This will give the distressed homeowner a more definite timeline for when the short sale will be completed so they can plan their move better.   In April 2011, Representatives Thomas Rooney of Florida and Robert Andrews of New Jersey introduced a similar version of the bill but it never came up for debate before a House committee before the legislative session ended.  The previous version said that that if a borrower submitted a written request for a short sale of a home and if they didn’t receive a written response within 45 days, the request would be considered approved. This new version extends the response time for lenders but includes a penalty if they fail to comply.  If the loan servicer doesn’t respond to a buyer’s request within the 75 day period, the buyer may be awarded $1000, plus reasonable attorney fees, per violation of the Act. The new bill would hold banks accountable to specific standards that they must follow, streamlining the process for everyone involved in the short sale transaction. It would make short sales more attractive to buyers and eliminate the uncertainty related to buying a short sale, resulting in more sales of distressed properties. This reduction of housing inventory will assist the stabilization of home prices and the real estate market.

A settlement has been reached with the five largest mortgage lenders over foreclosure abuses — this deal requires the banks to reduce some loans, send out checks to foreclosed Americans and refinance mortgages for underwater borrowers. Bank of America will pay nearly $8.6 billion. Wells Fargo will pay about $4.3 billion, JPMorgan Chase will pay roughly $4.2 billion, Citigroup will pay about $1.8 billion and Ally Financial will pay $200 million. This does not include $5.5 billion in federal and state payments.At least $10 billion will go toward reducing the principal for borrowers who are delinquent or underwater borrowers at risk of default. This is in contrast to President Obama’s recently proposed housing re-finance program that disallowed owners who missed more than one payment. One in five Americans with mortgages are underwater.  On average, these homeowners are underwater by $50,000 each.  It’s estimated that in order to completely wipe out all of the negative equity for the 11,000,000 underwater owners it would cost as much as $800 billion. With this settlement, at least $3 billion will go toward refinancing. Other payments will go toward state governments, and the federal government.Roughly one million underwater owners are expected to have their mortgage debt reduced by lenders or able to refinance their homes at lower rates. Another 750,000 people who lost their homes to foreclosure from September 2008 to the end of 2011 will receive checks for about $2,000. The aid is to be distributed over three years. The settlement money will be doled out under a complicated formula that gives banks varying degrees of credit for different kinds of help. As a result, banks are encouraged to help harder-hit borrowers with homes worth far less than what they owe. 

With a deadline looming today for state officials to sign onto a
landmark multibillion-dollar settlement to address foreclosure
abuses, the Obama administration is close to winning support from
crucial states that would significantly expand the breadth of the
deal.  The biggest remaining holdout, California, has returned to
the negotiating table after a four-month absence, a change of
heart that could increase the pot for mortgage relief nationwide
to $25 billion from $19 billion.  Another important potential
backer, Attorney General Eric T. Schneiderman of New York, has
also signaled that he sees progress on provisions that prevented
him from supporting it in the past.  The potential support from
California and New York comes in exchange for tightening
provisions of the settlement to preserve the right to investigate
past misdeeds by the banks, and stepping up oversight to ensure
that the financial institutions live up to the deal and
distribute the money to the hardest-hit homeowners.

The settlement would require banks to provide billions of dollars
in aid to homeowners who have lost their homes to foreclosure or
who are still at risk, after years of failed attempts by the
White House and other government officials to alter the behavior
of the biggest banks.  The banks — led by the five biggest
mortgage servicers, Bank of America, JPMorgan Chase, Wells Fargo,
Citigroup and Ally Financial — want to settle an investigation
into abuses set off in 2010 by evidence that they foreclosed on
borrowers with only a cursory examination of the relevant
documents, a practice known as robo-signing. Four million
families have lost their homes to foreclosure since the beginning
of 2007.  If banks fall short of the multibillion-dollar
benchmarks set out for principal reduction and other benefits for
homeowners, they will have to pay the difference plus a penalty
of up to 40% directly to the federal government, according to Mr.
Madigan.  The settlement, if all states participate, will also
include $3 billion to lower the rates of mortgage holders who are
current. Banks will get more credit for reducing principal owed
and helping families keep their homes, and less for short sales
or taking losses on loans that were likely to go bad, like those
that were severely delinquent.

There is a lot being written and even more being said about the current Real Estate Market. Some of what you hear is true, a lot of what you hear is not, especially regarding short sales. If you are interested in listing your home as a short sale, there are a lot of things you're going to hear, but you need to know the facts.

There are some great opportunities in the home market today (especially if you're buyer); however, the market is being driven primarily by short sales. And with short sales being a relatively new phenomenon as a market driver, there are a lot of unknowns and just plain myths circulating in real estate papers, blogs and desks. To take advantage of the market as a seller, or a buyer, it's necessary to understand short sales and be able to separate fact from myth.

Below are several of the most common myths associated with listing your home as a short sale or buying a short sale property.

Myth: The Bank Would Rather Foreclose than approve a Short Sale

Not true. At all. The reality is that foreclosing is the last thing banks want to do. Why? Because then they’ll have to pay the costs of foreclosure and they will only be able to sell it at the current market rates (probably much less than the current mortgage).
If you cannot make your payments, the best thing for them is to except the short sale at market rates. Banks, investors and even the federal government have all publicly stated that if a person is qualified for a short sale, the deal needs to be considered. Good for sellers, good for buyers.

Overwhelmingly, banks receive more on their investment through a short sale than a foreclosure.

Myth: You Must Be Behind on Your Mortgage to Negotiate a Short Sale

False. Remember: the definition of a short sale is a negotiation between you and a lender. In the past, this was a common precondition but it is no longer the case. Most lenders today don’t require you to be behind on your mortgage before you reach out to negotiate a short sale.

FYI: The qualifications for a short sale include:

• Financial Hardship - There is a situation causing you to have trouble affording your mortgage.
• Monthly Income Shortfall - “You have more monthly expenses than monthly income.” A lender will want to see that you cannot afford, or soon will not be able to afford your mortgage.
• Insolvency - The lender will want to see that you do not have significant liquid assets that would allow you to pay down your mortgage.

If you meet these three requirements listed above and believe that you soon may be unable to afford your mortgage, act immediately. Any delay could limit your options. Do not wait until you are in the foreclosure process before you act.

Myth: There is Not Enough Time to Negotiate a Short Sale before Foreclosure

This is probably the #1 myth that hurts homeowners the most. Many do not realize that foreclosure is a process, sometimes a lengthy one. Generally there is time to make decisions that may result in better outcomes especially if you realize you are getting into trouble and act soon.

Did you know the foreclosing lender can stall a foreclosure up to the final day of the process? It's true. Today, many lenders will stall a foreclosure with as little as a phone call from you explaining that you are trying to sell and almost all lenders will stall a foreclosure with a legitimate contract. Again: they do not want to pay for a foreclosure. For real estate professionals who understand foreclosures and short sales, there is time available until the foreclosure process is complete.

Myth: Listing My Home as a Short Sale is an Embarrassment

Wrong. Recent estimates show about half of U.S. sales will be short sales or foreclosures. You are not alone. In fact, most people who have purchased or refinanced their home in the last five years, unless they had a very large amount of equity, are now underwater. Odds are, your situation is dictated by the market and the economy. You are to be congratulated for admitting you need help, taking action and finding a professional who can work with you to solve the problem.

Myth: Short Sales are Impossible and Never Get Approved

Although sometimes this may seem like the case (ask any real estate professional dealing with short sales) this is not true. Are short sales more difficult to execute? Yes. Do you, as a homeowner, need to learn about a new process? Yes. Are they impossible? Absolutely not.

While there are no guarantees in any transaction, more and more short sales are being approved regularly. Banks have a lot of inventory to move and they are getting better at moving it.

Myth: Banks are Waiting on a Bailout and Not Accepting Short Sales

You may have heard this, but the reality is that banks (and the U.S. government) are trying to do anything they can, within reason, to avoid foreclosing on properties. It's preposterous to believe they would deny a short sale in hopes that some future legislation would pass and pay them for losses. Not going to happen.

Today, more banks are aggressively pursuing short sales and working with agents who understand how to process them. Freddie Mac recently hosted national training Webinar for real estate agents where they expressly stated the organizational goal of “eliminating distressed assets through modification or short sale.” I.e.: they are doing whatever they can do expedite the process.

Myth: Buyers are Not Interested in Short Sale Properties

Actually, the opposite is true. Short sales are more difficult for everyone involved. But, the most important thing for most buyers today is value. Today many buyers are targeting foreclosures and short sales because that's where the deals are and that's where most offers are made. For buyers, short sales and foreclosures have become synonymous with the term “good deals” and with good reason. They are. Listing with an experienced agent who is educated in the short sale process will provide you with a great chance of quickly seeing a contract on your property.

Now that you know some of the facts, it's time to get moving. If you are looking for help buying or selling your home you should contact a local real estate professional today to answer any further questions and help get the process rolling.

After your lender forecloses on you, do you still have a financial obligation? The short answer for most people is probably yes! For most former homeowners, their lender have the option to file for a "deficiency judgment", that is the difference between what the former homeowner owed on their mortgage and what the bank could sell it for at auction minus costs. These deficiency judgments are ticking time bombs that can explode years after the borrowers lose their homes.

This is an area of law that is strongly influenced by state law. Some states, such as California, are “non-recourse” and don’t allow deficiency judgments. But, even there, if the if the original loan was refinanced, some or all of it may be subject to claims. In the case of foreclosure, lenders can pursue deficiencies in more than 30 states, including Florida, New York and Texas.

Deficiency judgments on short sales and deeds-in-lieu can happen in many more places. In these cases, extinguishing the debt is often a matter of negotiating with the bank. But even when lenders are willing, many borrowers may not be aware that they have to ask for release. So, if you are pursuing a short sale, be sure your lender releases you from any further obligation.

Because of falling home prices, borrowers who always paid their mortgage but who have run into unforeseen circumstances — like unemployment or a job transfer — can no longer sell their homes for what they owe. As a result, they are being forced to short sell or foreclose and are getting caught up in deficiency judgments.
Whether banks can and will pursue deficiency judgments depends on many factors, including what state the borrower lives in and whether there’s a second mortgage or other liens. But if borrowers ignore the possibility of deficiencies, it could haunt them. Once the banks have a judgment, they can pursue you anywhere. They can ask for financial records, have your wages garnished and, if you fail to respond, a judge can put you in jail. There is every reason to believe that many will be filed over the next few years, based on the fact that banks have sold many of these accounts to collection agencies and other third parties, at discount. The parties who bought those notes wouldn’t have paid money for them unless they had the intention of acting.

What can be scary is that the judgments don’t have to be obtained immediately. Lenders or collection agencies may wait until debtors have recovered financially before they swoop in. In Florida, the bank can wait up to five years to file. Once the court grants a judgment, the lender has 20 years there to collect, with interest.
Sometimes lenders go after borrowers walking away from their homes if they have other assets. Banks will sometimes pull the borrowers credit reports to see if it’s a strategic default. If you’re behind on all your other payments, you’re okay. But if you’re not, they’ll come after you.

In summery almost anything is preferable to a foreclosure where the borrower is completely at risk to what the bank may decide to do at some time in the future. A properly negotiated short sale will let you know what your future financial responsibility will be. In most cases it can be negotiated away.