Archive for Short Sale and Foreclosure

by Brandon Brittingham

In an attempt to help more consumers who are facing foreclosure, Chase has streamlined their requirements in order to expedite their short sale process. We will cover the basics on the process and timeline in this post. Chase will let you start the short sale process prior to having an offer on your property. However, in order to start the process, you have to show a legitimate financial hardship; meaning your financial picture has changed since you have taken out the loan.

Here are examples of what most lenders and investors accept as hardships:

Hardships that Qualify for a Short Sale:
1.Loss of employment
2.Business Failure
3.Damage to the property (could have been under insured)
4.Death of a Spouse or wage earner
5.Death of a non-wage earner. For example, a family member who was watching the seller’s children and now the seller has to pay to put the children in child care; or they were a financial contributor even though they weren’t on mortgage.
6.Severe illness
7.Inheritance (inherited an underwater property, cannot pay taxes etc…)
8.Relocation
9.Divorce
10.Military Service
11.Payment increase or mortgage adjustment
12.Insurance or tax increase
13.Legal separation
14.Too much debt vs income
15.Incarceration
16.Combination of above

These are all pretty self-explanatory but you need to remember that, whatever the hardship, it has to be documented and provable. If there is an income change, you will need to document it to the lender via pay stubs and tax returns; if it is an illness, you will have to provide medical records; divorce – you have to show the divorce decree. Regardless of the hardship, the more information you provide to support the claim the easier it is to show the bank there is a true hardship.

The very first step in the short sale process with Chase is to gather all of the documents needed for the short sale package. You can go directly to their website to download the package and get information on what you need. You can get it here:

https://www.chase.com/ccpmweb/chf/document/ChaseShortSaleFull.pdf

You cannot start the short sale process with Chase until they receive your financial package. To perform a short sale with Chase, you will also have to list the property for sale. You should have most of your financial package together when you are ready to list your property to avoid any time delays.

Once Chase has your package and you have it listed, they will verify that you qualify for a short sale and they will set you up with a “list assist professional” that will work with your agent to order a valuation on your property and verify all documents throughout the process. The list assist professional will inform your agent of the value range once it is received and will work with your agent until you receive an offer. It will then be assigned to a negotiator who will review the actual offer.

Here is some information on timelines based on who the investor of the loan is (meaning who actually owns the loan). Please note that these timelines are based on the time it will take after the bank has received a complete package from you.

Timelines based on investor for contract and short sale approval:
•FHA backed mortgage 45-60 days from receipt of complete offer
•Fannie-Freddie backed 60 days for approval
•USDA 60-75 days for approval
•VA 60-75 days for approval
•Portfolio owned (meaning Chase owns the loan) 45-60 days (these are closer to 45 days as Chase does not have to get approval from the investor when they can make the decision in-house).

In order to meet these timelines, it is important that you and your agent start the short sale process prior to having an offer so that:
1.Your documents can be reviewed
2.Your eligibility can be determined

Both of these steps have to take place whether or not you have an offer. Chase, like Wells and Bank of America, will review a borrower for short sale eligibility prior to having an offer on the property. For the best results get your package organized early in the process and submit it right away!

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Dec
29

Short Sales vs. Foreclosure

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by Christopher Reale

This week we are posting the best blogs of 2011 by category. We hope you enjoy them as much as you did when we first posted them. – The KCM Crew

Short Sale Vs. Foreclosure: A Short Sale Always Wins

Today’s ever changing real estate industry has brought upon some very challenging questions from our clients. We as counselors, want to put forth the best, non-emotional advice that we can, in hopes that we can help our clients and their families navigate the rough waters of the short sale process.

The most prevalent question and one that continues to permeate the industry is:

“Why should a seller go through the short sale process rather than letting their house be foreclosed upon?” 

While we cannot speak to every client circumstance, we can say one thing with complete conviction.  In almost all instances in which a potential seller is contemplating whether they should short sell their house or let it go through the foreclosure process, a short sale is the better option. The following are examples to consider:

Example A- Short Sale

Mr. Smith owns a home in which he has a mortgage balance of $220,000 and a current market value of $150,000. Mr. Smith has elected to short sell his property. His Realtor successfully obtains a buyer who puts forth an offer price of $120,000 (80% current market value according to Realty Trac Foreclosure Report 5/26/2011). After reviewing the buyers offer and the financial hardship information from Mr. Smith, Mr Smith’s bank agrees to accept the short payoff of $120,000 which would leave a deficiency balance of $100,000.

The transaction closes and is final.  Mr. Smith then pulls his credit report 30 days after the transaction takes place. On the report he notices that the mortgage trade line states “Mortgage debt was settled for less than full” and the balance on the mortgage is $0.  Mr. Smith is now on the road to financial recovery.

Example B- Foreclosure

For the ease of illustration we will use the same value and mortgage debt amounts as in Example A. However, Mr. Smith has elected to forgo the short sale process and let the bank foreclose on the property.  The bank holding his mortgage facilitates the proper legal procedures to foreclose on the property, all of which are costly.  Mr. Smith is notified and his property foreclosed upon of which is taken back by the bank to sell as an REO.

Six months later, the bank finally sells Mr. Smith’s home only they sell it for $90,000 (60% of current market value according to Realty Trac Foreclosure report dated 5/26/2011). Remember, as a short sale, the home would have sold for $120,000 keeping the deficiency to $100,000. In addition to the deficiency now being $130,000, the bank has elected to add on legal costs of $15,000 and asset preservation costs of another $5000 for a total deficiency liability of $150,000. Mr. Smith pulls his credit report 30 days after being notified that the bank has sold his property and of his liability.

On the report he notices that the mortgage trade line states “Foreclosure” and the balance is $150,000. Because of Mr Smith’s choice to choose foreclosure vs. short sale his road to financial recovery has taken a major detour. He not only has a foreclosure on his credit report but now has a much larger deficiency balance in which the bank, in most cases, will report on his credit report as a balance owed.

The Best Option is Clear

While the financial and credit advantages are clear when choosing a short sale over a foreclosure, other advantages are sometimes overlooked. The most important of all of them is maintaining the seller’s dignity and peace of mind. We have heard too many stories of families having to leave their homes because of a Sheriff’s order or some other type of legal action. The short sale process alleviates this negative social impact. The process puts the control back in the seller’s hands so that they can get back on the road to financial recovery and start providing for their families. In the battle of the two evils, a short sale always wins!!!

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The state’s Housing Department is looking to help thousands of Arizona homeowners struggling to pay their mortgages.

The department received $267 million from the federal government to keep people in their houses, and the bulk of that money is still up for grabs, said Reginald Givens, the Housing Department’s foreclosure assistance administrator.

So far, it has doled out a little more than $10 million, Givens said.

The state planned to use the money to pay down the principal for homeowners who are “underwater” on their mortgage, meaning they owe more than their home is worth. But it encountered resistance from lenders that weren’t interested in matching the government contribution with a principal reduction.

Financial institutions are reluctant to lower principals because it could chill future lending, said Brad German, a spokesman for Freddie Mac. A bank isn’t going to jump into writing a $100,000 loan if it fears it’ll only get paid $50,000 if property values drop, he said.

Because of the challenges with principal reduction, the state has broadened the program, called Save Our Home AZ. It now provides assistance to unemployed and – since the beginning of October – under-employed individuals facing foreclosure. That assistance provides up to $50,000 to qualifying homeowners to help them pay up to two years of mortgage payments.

Those who’ve quit their job and can’t find a new one won’t qualify for the help, Givens said.

“It has to be a true hardship, meaning not self-inflicted,” he said.

“I started letting go”

The state’s aim is to help 1,400 unemployed or under-employed homeowners, Givens said.

So far, it has helped 216 homeowners, Givens said. One of them is Victor Del Cid, a 46-year-old Tucson resident. Del Cid, a mason, had his hours cut when housing crashed and construction slowed.

Then his pay was cut.

Then, in December 2009, he was laid off. He burned through his savings to stay current on his mortgage. When he first had his hours and wages cut he struggled to pay his mortgage but his lender, Bank of America, told him he couldn’t get a loan modification because he was current on his payments.

By the time he stopped making payments, he’d lost his job and BofA told him he couldn’t qualify for a modification because he was unemployed. He then received notice he was delinquent on his loan, which had an original balance of $134,000, and his home near South Kolb and East Irvington roads had been scheduled for auction March 18, Pima County Recorder’s Office documents show.

Though he’d fought to keep his home, the reality of losing it began to settle in. “I started letting go, little by little,” Del Cid said.

Through the Pio Decimo Center, a Catholic housing counseling agency, Givens said he learned he might qualify for assistance through Save Our Home AZ. With that help, he was able to get current on his payments and the auction was canceled.

“They took a ton of weight off my shoulders,” Givens said.

Have application ready

Another homeowner, Crystal Basile, 37, said when she first heard about the program she thought it sounded too good to be true.

As of yet, for Basile, her instinct has proven right.

Basile, who lives in Oro Valley, owned a tile installation company with her husband, Mark. They ran the company for almost a decade, but with the slowdown in construction, they were forced to shut down the business.

The Basiles, who have two young daughters, also struggled with medical issues.

“We were still paying our mortgage … but we knew foreclosure was inevitable,” Basile said.

The couple worked with a housing counselor, who told them they might qualify for assistance through Save Our Home AZ.

But after not hearing back from the counselor for weeks, they learned they couldn’t yet apply for assistance because they’d been working toward a temporary loan modification through the federal Home Affordable Modification Program.

Givens, of the Arizona Housing Department, confirmed that those in the temporary modification program cannot qualify for the assistance. But homeowners who are denied a permanent modification can qualify, so it’s good to have that application ready for submittal, he said. Also, homeowners approved for a modification who experience an additional hardship might still qualify for the program, he said.

So far, most homeowners who’ve applied for assistance through the unemployment program have received it, Givens said. In the cases where the applicant is denied, it’s because another member of the household has a job or the homeowner refinanced the home to get a cash loan.

Goal: Pay down principals

Save Our Homes AZ hasn’t found an effective way to pay down cash-strapped homeowners’ principal balances to levels that better reflect property values, but Givens said they’re working toward that goal.

The program plans to help 4,000 homeowners with principal reduction, he said. So far it’s only been able to do so for a handful of homeowners.

For its part, Freddie Mac will accept money to pay down principals as long as it’s not required to match the payment, said German, the lender’s spokesman. The principal payment also shouldn’t come with the requirement that Freddie Mac approve a modification it otherwise wouldn’t, he said.

Lenders are trying to accept principal reduction, but in a way that won’t continue to drive down property values, German said.

Do you qualify?

To find out if you’re eligible for the Save Our Home AZ program, go to www.savemyhomeaz.gov and complete the self assessment. After filling out the application, you will be contacted by a housing counselor approved by the U.S. Department of Housing and Urban Development.

For more information – or if you don’t have access to the Internet – contact the Arizona Foreclosure Help Line at 877-448-1211.

Available programs include:

• Principal reduction up to $50,000 for homeowners who owe more than their home is worth.

• Mortgage payment assistance up to $50,000 for those who are unemployed and under-employed.

• Short-sale assistance to help pay closing costs if a qualified homeowner wants to sell rather than stay in a house.

We are again honored to have Christopher Reale, Director of Short Sale Operations at Lepizzera and Laprocina Title and Escrow Services, as today’s guest blogger. He is an expert on the short sale process and will share his knowledge with us on a regular basis. – The KCM Crew

Short sale success does not stop at educating the seller as to their loss of mitigation options and then successfully negotiating with the seller’s bank to accept a short payoff. Today’s complex real estate market warrants more.  Having negotiated over 1000 successful short sales, we have found one aspect of the short sale process that needs serious attention: Educating the buyer regarding the proper short sale procedures.

Educating the buyer and setting the correct expectations is imperative to a successful short sale transaction. Nothing is more discouraging than successfully negotiating a short sale only to have the buyers walk from or not be able to close the transaction. The following are some precautionary and educational items to consider which would avoid such buyer fallout.

Patience is a Virtue

Not every buyer is a short sale buyer.  However, one important characteristic a short sale buyer must have is patience. Setting the proper expectations regarding the time frame of a short sale plays a key role in bringing the short sale to the closing table.  If a buyer is not willing to stay in the transaction for at least 90 days, they are not a short sale buyer. Of course we cannot speak for every circumstance. But, in most cases, the short sale process takes 60-90 days to complete.  For their patience, the buyer will likely earn instant equity. The average short sale, according to the Realty Trac report dated 5/21/11, sells for 79 percent of market value. To that end, a buyer will earn “patience equity” (a term coined by Steve Harney).

Work with a Lender that Understands the Short Sale Process

The pre-approval process should be the same whether the buyer is being pre- approved to buy a short sale or pre-approved to buy a non-distressed property. This seems like simple advice doesn’t it?  However, from our vast experience negotiating short sales, we have found that 35% of successfully negotiated short sales do not reach the closing table because the buyers financing falls through. We must educate buyers to work with the proper lender who will not only walk them through the mortgage process, but also understands the short sale process. Too many mortgage applications start at the time of short sale approval. Some short sale approvals expire in 10- 15 days from date of issue. In many cases, that is not enough time for a lender to underwrite the file, order title, order appraisal and fund the loan.

A proper pre-approved short sale buyer would be one who is brought through a complete underwriting analysis prior to the short sale offer. This includes full income analysis, full asset analysis and full credit analysis. The ideal lender is one who completes the underwriting procedure and has a credit decision pending clear title and appraisal. The lender should also help in keeping the buyer engaged throughout the process. In a lengthy short sale negotiation, the lender should be proactive in keeping the loan file up to date with recent paystubs, asset documentation etc.  This will ensure the transaction closes on time and without extensions.

Complete Inspections Prior to the Short Sale Approval

This is a confrontational subject but each buyer should be educated to understand that in most cases any major deficiency regarding the condition of the property will not be cured prior to closing. However, in many instances, if the deficiencies are known prior to the start of the short sale negotiation, the short selling bank will be more willing to except a sale price that is discounted deeper to the current market value. It is a challenging task to go back to the bank and ask for a lower sales price when a home inspection that was done after short sale approval showed major deficiencies.

In addition to the home inspection, the lender appraisal can be done prior to the short sale approval.  In most circumstances where the short selling bank’s broker price opinion shows a property value that is much higher than the buyer offer, the lender appraisal can be used to negotiate the value.

We should educate buyers as to the pros and cons of completing the inspections prior to short sale approval.  We understand there is a monetary commitment that would have to be made. Having said that, having the inspections done can save allot of aggravation to the seller and buyer later in the process.

In closing, the above are just a few items to consider when educating the buyer regarding the proper short sale procedures. If we remember to keep the buyer engaged and walk them through the process every step of the way, we will ensure the buyer earns their “patience equity” and the short sale transaction closes.

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WASHINGTON – With hundreds of thousands of homeowners facing imminent foreclosure and estimates of 2 million or more in the wings, are there any financial tools available to distressed borrowers that haven’t been tried yet?

Equally important politically: Is there a way to help owners that won’t rack up huge federal expenditures and add to the deficit?

The Obama administration has been exploring options – including a new refinancing program expected later this month – but a concept has surfaced on Capitol Hill that might offer modest help with no revenue cost to the government: Amend the tax code to allow homeowners who have 401(k) retirement plans to pull out money to save their houses from foreclosure without the usual tax penalties.

The change would work like this: Under current rules, anyone making what’s known as a “hardship” early withdrawal of funds from their 401(k) must pay the IRS a 10 percent penalty on top of ordinary income taxes. A new bill introduced Oct. 5 would waive the penalty if the purpose of the distribution is to make loan payments to avoid loss of a primary home to foreclosure.

Co-authored by Sen. Johnny Isakson and Rep. Tom Graves, both Republicans from Georgia, the bill would allow owners to pull out up to $50,000.

The money could be used in a lump sum to pay down the delinquent mortgage balance or to fill shortfalls caused by reductions of household income.

It could also be used as part of loan modification agreements with lenders designed to avert a foreclosure.

However the money is used to resolve the mortgage delinquency, it would need to be spent within 120 days of receipt and could not exceed 50 percent of the current amount of funds in the retirement account.

Owners would still be subject to income taxes on the amounts withdrawn, but would escape the penalty.

Though neither of the co-sponsors claims the bill would actually raise revenues – they simply say it won’t cost the government anything – some pension program experts say it might.

Edward Ferrigno, vice president for Washington affairs at the Plan Sponsor Council of America, a group that represents employers who offer workers 401(k) accounts, said that by triggering taxable distributions from otherwise untouched, tax-deferred plans, the bill “should generate revenues.”

Titled the HOME Act, the proposal sheds light on the potential foreclosure-avoidance resources – and the drawbacks – connected with tapping employee pension accounts. Though avoiding foreclosure is one of the permitted hardship uses allowed with 401(k)s, the 10 percent penalty discourages potential users, Isakson and Graves argue.

Their bill would remove that disincentive and provide an emergency escape hatch for owners sliding fast toward foreclosure.

Putting aside the potential positives, are there downsides to making a hardship withdrawal from your 401(k), even penalty-free? You bet. Pulling out 401(k) dollars early – with or without a tax penalty – is still an expensive way to raise money. Not only does it deplete the tax-deferred savings you’ve set aside, but in the case of hardship withdrawals, you are prohibited by IRS rules from making new contributions to your plan for six months.

Even if the HOME bill makes it through Congress – and there’s no assurance it will – taking the hardship route should never be your first choice. It should be your last resort, when there’s nothing else that will save your house and you don’t want to walk away.

However, also consider the pension plan alternative that may already be buried away in your plan documents: A save-the-house loan to yourself. If the numbers work, and you have a reasonable chance of avoiding foreclosure and repaying the loan, check it out.

It just might be your solution.

Contact Kenneth Harney at kenharney@earthlink.net

 

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