Short Sales in Texas

What is a Texas Short Sale?

Completing Texas Short Sales is one of the most difficult transactions in all of Texas real estate.  It is important to know that the company and team you hire to complete this process for you have expertise in this area.

We find it beneficial to make sure our clients know what is going to happen throughout the process.

Below are the most common questions that have been asked by our clients.  If you are speaking with others and they can't answer the questions below, we recommend seeking another opinion.

What is a Short Sale?

A short sale in real estate is selling a property for less than is owned on the property.  For example:

Loan Amount:  $250,000
Market Value of Real Estate:  $200,000

In the above example, the property is upside down a minimum of $50,000.  In order to get the bank to accept an offer at $250,000, a team of experts who specialize in negotiations with banks and marketing short sale properties to the real estate community are needed. 

Common Questions

• How long does it take to complete a short sale?
  • Banks can take up to 60 days to give an official approval of an offer once it is received.  This process can be improved by communication with the bank by your representation.  Open and consistent communication is what improves the process.
  • Ensuring that the required paperwork by the bank is correctly filled out increases acceptance by over 45%.  Some banks will destroy an application that is even off by one item.  Our team ensures that your paperwork is completely filled out the first time so you have the greatest chance at acceptance.
    
    
• How long do I have until I have to move out?
  • The bank is required to let you know when they have filed the notice of default with the county recorders office for the county you are in.  The majority of banks do this after you have become 90 days late on your mortgage or 3 consecutive mortgage payments.  From this time the earliest a sale date can be set is 90 days from that date.  So you may not have to move out until days after you have missed your third payment.
    
    
• What are the consequences of doing a short sale?
  • Completing a successful short sale will mean that you will not have a foreclosure reported on your credit.  This will also mean that on lending applications where it asks if you have had a property foreclosed upon you will be able to answer, 'no'.  This is one of the single best consequences of doing a short sale.  By requesting a short sale with your lender or having a team such as us do this work for you, the number of calls you receive will be reduced by over 50%.
    
    
• What happens if it doesn't work?
  • If your property does not sell as a short sale, it may end up being foreclosed upon by the bank.
  • It is of the utmost importance to get the bank an offer to review so that they can decide how they can best help you and to accept the offer you have received.  It is for this reason that you need to have a real estate team who specializes in short sales present to the bank on your behalf.
    
    
• What kind of information will the bank as for?
  •  Each bank has their own separate set of forms that they can ask to be filled out.  In fact, if you have two loans, the amount of information can be different between both banks.  The types of information that can be asked for as follows:
    • Signed and dated hardship letter
    • Copies of last 60 days pay stubs
    • Copies of P&L statements (if you are self-employed)
    • Completed financial worksheet  - signed and dated
    • Copies of last two years tax returns
    • Copies of last 60 days bank statements
    • Copy of investment account statements
    • Copy of Listing Agreement
    • Estimated net sheet (Preliminary HUD-1)
    • Identification of liens on the property
      
      
  • We will guide you through all of the requirements regardless of which bank and which form that is required.
     
• What is a hardship letter?
  • A hardship letter is a statement of how you and your family got behind on your payments.  Banks are people, too, and they need to know what happened in order to help you out in the best possible manner.  Events that should be included in a hardship letter are as follows:
    • Loss of Job
    • Loss of overtime or income from a job
    • Family issues:  pending divorce, medical bills, other family issues
  • This is one of the main pieces of information that the bank uses in order to make its decisions from.  It is important that it is truthful and explains what happened to the fullest extent possible.
    
    
• What if I have declared bankruptcy?
  • Bankruptcy can delay a sale of your home at a trust sale.  Your bankruptcy attorney may have additional advice for you.  Our short sale specialists are proficient at communicating with your legal representation.
  • If you have declared bankruptcy, please let your short sale specialist know, and please give them your attorney's information so we may be in contact with them.
    
    
• What about bankruptcy?
  • Bankruptcy can delay the sale of your home.  Please refer to your legal representative for detailed questions on bankruptcy.
    
    
• What do I do with the letters I receive from the bank?
  • Read, review and get a copy of them to your short sale specialist.  These letters contain different pieces of information and it is critical to review all of them as they may have legal consequences to them.  Banks can send you letters in regards to the following:
    •  Loan Modification:  They can modify your loan so that the payment is more affordable for you and your family.
    • Loan Forbearance:  This is a temporary adjustment by the bank of the requirement to pay your mortgage.  They can do this for reasons such as health, job or family issues.  The amount that you do not pay is generally added to your loan balance or spread out over multiple payments.
      
      
• What do I do about people offering to buy my house if I just sign the deed over to them?
  •  Unfortunately, there are many individuals out there who do not care about helping homeowners in a time of need.  They in fact only care about being able to profit from your situation.  Our recommendation is that you make sure to have a real estate professional look at anything prior to signing any offer from one of these individuals.  If the person has a legitimate offer, they will not care who reviews the offer. This being said, there are several investors out there that are good, as well.  They are in it to help people, and make a few dollars for themselves while doing that.  (in which there is nothing wrong with that)
    
    
• How do I choose someone to represent me in this transaction?  Shouldn't I just call my local Realtor who markets in the area?
  • Unfortunately, 99% of real estate professionals are not trained on how to handle a property where more is owed that the property is worth.  They are not trained in negotiation and not trained on how to deal with the banks and their representatives. 
  • Agents need to have specialized training in order to complete this process so as to prevent further action by the bank against you.  In addition, agents need to have a deep understanding of the process and be able to explain the value to the bank of working with the home owner.
    
    
• Are all short sales the same?
  • No.  It would be great if they were, as it would make things easier for home owners.  Any short sale specialist who has helped both buyers and sellers on short sale properties will tell you that not all short sales are created equal.  Success on short sales depends on a variety of reasons:
    • Uncooperative banks
    • Inadequate disclosure by the seller
    • Poorly prepared buyer
    • Bank delays
    • Poor communication by listing agent with the bank
    • Buyers back out
    • Seller fails to cooperate.
      
      
• Will I get a 1099 for the difference between the sale price and what I owe?
  • It is possible.  Each bank is different and the vast majority of banks will 1099 you for the difference.  This is considered debt relief by the IRS and we recommend all clients speak to their tax advisor for assistance.
    
    
• Why shouldn't I just let the home go to foreclosure?
  •  Your credit!  Foreclosure is one of the biggest damages to your credit that can be done.  You will have to disclose the fact that you had a foreclosure every time you try and purchase a new property in the future no matter how long it has been since you had the foreclosure.
  • You will still be 1099 for the difference in the foreclosure sales price and the amount owed.  In some cases, this can increase 50% by the time the property goes to foreclosure.
    
    
• What does it cost to have you work with us on a short sale?
  • We will not charge you any fees, whatsoever!
     
• Is it better or worse if I have two loans?
  • It depends.  Having two different lenders is one of the hardest short sales that can be done.  It depends on how each bank has viewed the transaction and how they have both been communicated with during the entire process.
    
    
• Is communication important and do I still have to keep calling the bank?
  •  Yes, communication is extremely important.  The number one reason for foreclosure is a lack of communication.  We prevent this from happening because we do the communication for you.  You have a job, but this is OUR job.  We get authorization to speak with the lender on your behalf, and make sure you stay informed of what is happening.
    
    
• How do I know what is going on?
  • Your Short Sale Specialist will communicate with you regularly throughout the process. 
    
    
• Why should I use You?
  • We choose you.  We choose to work with clients we believe that we can help.  Our experience and success in short sales and negotiations allows us to identify the clients we can help.  If we don't believe we can help you, we will tell you right away.
• What if I have a pre-payment penalty?
  •  Let us worry about that for you so you can get back to your life.
    
    
• Can the bank come after me or do they just get my property?
  • We specialize in negotiating with the bank and making sure they understand that working with us and you is in everyone's best interest.  The bank can ask for more information or seek other means to get payment if you have lied on your mortgage application and may or may not do this depending on the situation.  If you believe you may have lied on your mortgage application, please tell one o four short sale specialists.  Our goal is to make sure the bank works with us and you to resolve this stressful situation.
    
    
• Why would a bank agree to do this?  Don't they just want my home, anyway?
  • The bank doesn't want to own your home.  The foreclosure process is a very expensive process for the bank to carry out.  There are legal fees, property fees, court fees, and additional staff required by the bank to handle foreclosures for a bank.  Their goal is to prevent properties from going into foreclosure.
    
    
• Can't I just do all this myself?
  • You could, but would you go to court without a lawyer if the side that was facing you had 15 lawyers?  The fact is that this is a complicated real estate transaction with a large lending organization.  This process can take 100's of hours for a trained professional to complete.  Most people do not have the time to specialize in completing this kind of transaction.  Our team is here to take the worry out of the transaction for you.
    
    
• Who is Region Realty?
  • We are a team of real estate brokers, agents and other real estate personnel, who specialize in helping people get out of their properties that they can no longer afford or no longer wish to own.  Regardless of your situation, condition of your property, or how many you own, we can help you.  Everyone runs into difficulties now and then.  Our goal is to make your stressful situation go away so you can get back to your life.

In Texas, we have blessed in the fact that our state is one of the least affected by these economic hard times.  While that is the case, if you are looking to purchase a home, you should consider Dallas Short Sales or Houston Short Sales...there are some good deals out there just waiting to be found.

Rodney McNabb is a Texas Short Sale Specialist.  He is currently offering his services throughout Houston and the Dallas / Fort Worth areas.  You may contact him for a confidential interview at (713) 817-2125.

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.

New FTC Rule Requires Short Sale Disclosures

The Federal Trade Commission (“FTC”) has issued a final rule that may impact real estate professionals who represent clients involved in a short sale transaction. Depending on certain factors, the rules may require real estate professionals to make certain disclosures to consumers if they negotiate a short sale with a lender, advertise short sales experience, or take upfront fees from short sale sellers. The MARS rules took full effect on January 31, 2011.

Background

In November 2010, the FTC published the final Mortgage Assistance Relief Services final rule (“MARS rule”). The MARS rule is primarily directed at companies that offer loan modification services to consumers. When a company is marketing these types of services to consumers, the MARS rule requires that the MARS provider make certain disclosures to consumers. In addition, the MARS rule bars advance fees paid to a MARS provider, prohibit certain representations, and imposes record keeping requirements (must retain for 2 years all MARS advertisements, sales records for covered transactions, customer communications, and customer contracts). MARS providers can only receive payment if the consumer’s loan is modified by the lender.

The FTC and state attorney generals have actively prosecuted foreclosure rescue companies, based on evidence that consumers received very little benefit for these services. The prosecutions took place under unfair trade practices laws, although some states did enact laws specifically regulating this business model. The FTC itself has brought 40 cases and FTC staff told NAR that none of these cases involved real estate professionals acting in their licensed capacity.

The FTC began its rulemaking process in 2009. NAR submitted comments and testimony during the rulemaking seeking an exemption for real estate licensees. The FTC addressed NAR’s comments in the following footnote:

The Commission concludes that an exemption for real estate agents is not necessary. Real estate agents customarily assist consumers in selling or buying homes and perform functions such as listing homes for sale, showing homes, and finding desirable homes for consumers. The Commission is aware that real estate agents may perform these functions when properties are bought or sold through a short sale transaction, but does not consider these services to be MARS.

Final MARS Rule

The MARS rule covers short sale negotiations, and so this is the area where real estate professionals acting in their licensed capacity may need to comply with these rules. FTC staff has determined that “negotiate” will include communications with a lender about the possibility of a short sale transaction involving a consumer’s loan. A short sale is a transaction where the title to the property changes, the sales price is insufficient to pay all the liens, the seller does not provide funds to clear the liens on the property, and the lender agrees to allow the sale to occur by releasing the liens on the property. In some cases, the lender may hold the seller liable for the shortfall, which is called a “deficiency”.

The MARS rule contains the following definitions:

“Mortgage Assistance Relief Service” is defined as a “service, plan, or program offered or provided to the consumer in exchange for consideration” that provides services in relation to a consumer’s mortgage, including negotiating a possible loan modification, directing a consumer to stop or otherwise alter the amount of his/her mortgage payment, modifying the consumer’s payment arrangements, or negotiating a short sale of a dwelling on behalf of a consumer.

“Mortgage Assistance Relief Service Provider” is someone who “provides, offers to provide, or arranges to provide, any mortgage assistance relief service.”

Based on those definitions, the MARS rule can have an impact on a real estate professional that represents clients involved in a short sale transaction or markets himself/herself as a MARS provider (i.e. short sale specialist). The focus of this article is for real estate professionals who, while acting in their licensed capacity as a real estate professional, provide services that may fall within the MARS rule. If someone is operating a full-time MARS business and not acting as a real estate licensee, they should further review these rules and consult with counsel to assure their business practices comply with MARS.

Disclosures Required by the Rules

There are three types of disclosures that a real estate professional may need to make consumers. The rules have specific requirements on how the disclosures must be presented to consumers, depending on the communication medium. In all cases, the disclosure must be clear and prominent. For printed materials, the written disclosure must be the larger of 12-point type or one-half the size of the largest letter used to list the name of the firm providing the disclosures. Below are models that could be used in written materials; the requirements vary slightly for oral communications made to consumers.

General Commercial Communications Disclosures

A real estate professional that advertises MARS services which is not directed at a specific consumer will need to include in all advertisements a clear and prominent disclosure with the following:

IMPORTANT NOTICE (in two point-type larger than the font size of the disclosure): (Name of company) is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan. If you stop paying your mortgage, you could lose your home and damage your credit rating.

Consumer-Specific Commercial Communications

The second disclosure is required in all communications that the MARS provider directs to specific “prospective” clients, and so these disclosures may need to be made by a real estate professional that represents a seller in a short sale transaction. These communications must be provided by the MARS provider before the provider begins mortgage-assistance services on behalf of the consumer. As discussed in this article, the time when the real estate professional needs to provide this disclosure will vary, as a listing broker may not be aware that the transaction will need to be a short sale until far into the listing process.

In order to comply with this disclosure requirement, a listing broker should provide this disclosure to the client in a letter or memo once he/she is aware the transaction may be a short sale, highlighting this fact in the document and prominently displaying the below disclosure statement. The real estate professional should work with their attorney in drafting this document. NAR has also provided a model disclosure form. The disclosure must provide the following:

IMPORTANT NOTICE (in two point-type larger than the font size of the disclosure): You may stop doing business with us at any time. You may accept or reject the offer of mortgage assistance we obtain from your lender [or servicer]. If you reject the offer, you do not have to pay us. If you accept the offer, you will have to pay us (insert amount or method for calculating the amount) for our services. (Name of company) is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan. If you stop paying your mortgage, you could lose your home and damage your credit rating.

Disclosure When Providing an Offer of Mortgage Relief The third disclosure needs to be provided, in a clear and prominent manner, at the time the real estate professional presents its client with the lender’s short sale approval letter. The disclosure must be provided on a separate page and state:

IMPORTANT NOTICE: Before buying this service, consider the following information (in two point-type larger than the font size of the disclosure): This is an offer of mortgage assistance we obtained from your lender [or servicer].You may accept or reject the offer. If you reject the offer, you do not have to pay us. If you accept the offer, you will have to pay us [same amount as disclosed previously] for our services. If you stop paying your mortgage, you could lose your home and damage your credit rating. The real estate professional must also provide a notice from the lender or servicer that describes all material differences between the seller’s current loan and the lender’s proposal to modify the loan if the seller accepts the short sale offer, which may include the lender holding the seller liable for the deficiency amount. This information will likely be contained in the lenders short sale approval letter

MARS Scenarios

Real Estate Professionals with Possible Short Sale Listings

Negotiating a short sale with a lender will cause the real estate professional to fall within the definition of a MARS provider and so would be subject to the MARS rule. As stated above, negotiation will include communications with a lender about a short sale transaction on behalf of a client. How the broker will need to comply with MARS will depend on the facts and circumstances of the broker’s business and how the broker has conducted the negotiations. A brokerage which promotes itself as a MARS provider will need to fully comply with MARS.

A broker that becomes involved in a short sale transaction listing during the normal course of his/her real estate brokerage operations and doesn’t otherwise promote himself/herself as a MARS provider will need to comply with the MARS rule for the specific transactions involving a short sale if the broker will negotiate the loan with the lender or otherwise arranges for such negotiations. The broker will provide the Consumer-Specific Commercial Communications disclosure to consumers as soon as he/she is aware of the need for a short sale transaction.

The time when these disclosures need to be made will depend on the facts of each transaction. If the broker learns that a short sale will be required during its initial meeting with the seller, the broker will need to make the required disclosures at that time. A broker who doesn’t learn that a short sale is required until the first offer is received will not need to make disclosures until that time.

The time for disclosure is similar to the requirement that many MLSs impose upon participants. Under those rules, a participant has a duty to let other MLS participants know about the possibility for a short sale when it is “reasonably known” by the listing broker. Real estate professionals should follow a similar process in making MARS disclosures to their clients.

Example #1: Real estate broker A has a residential real estate brokerage business and is paid by commission. He does not advertise as a MARS provider. A takes a listing from a seller, but the property does not sell during the first six months and prices in the local market have dropped during that time. A then receives an offer that is substantially below the listing price, but consistent with the recent sales in the market. The seller informs A that his mortgage exceeds the offer price but the seller will accept the offer if the lender would be willing to accept the offered price. If A decides to continue working with his client during the short sale and will negotiate with the lender or will arrange for a MARS provider to negotiate with the lender, A should now make the Consumer-Specific Commercial Communications disclosure and may also need to update the listing in his local MLS.

Example #2: Real estate salesperson B has a prospect walk into her office, inquiring about possibly selling his home. The prospect tells B that he has lost his job and so needs to sell his home because he cannot afford to continue making mortgage payments. Based on the amount remaining on his loan and current market conditions, B may need a short sale in order to sell his home. B will need to provide the client with the Consumer-Specific Commercial Communications if she decides to pursue this listing.

MARS & Marketing Materials

The MARS rule require an entity who specifically markets MARS to consumers to make certain general disclosures in all advertisements promoting MARS services. So, any brokerage that specifically solicits business from short sale sellers will need to include these disclosures in all of its advertisements, including telephone solicitations.

A real estate brokerage that isn’t specifically seeking to be a MARS provider yet wants to mention its short sale experience/qualifications in its marketing materials may or may not need to provide the general MARS disclosures. The FTC’s practice is to review ads on a case-by-case basis, and determine the impression that a particular ad would make upon a “reasonable” consumer.

So, an advertisement listing the accomplishments of a licensee and the types of services that the licensee provides to his/her clients which mentions experience with short sale transactions, among other services, may not need to comply with the MARS advertising rules. Similarly, an advertisement identifying a licensee as having the SFR designation, without more, is also likely outside of the MARS advertising rules. However, an advertisement promoting a real estate professional’s short sales brokerage business will likely need to comply with the rules, since the average consumer would have the impression that these advertisements are from a MARS provider.

Licensees Accepting Upfront Fees

As stated above, the MARS rule bar the receipt of upfront fees. Therefore, brokers whose business model involves upfront fees need to be aware that if they take an upfront fee from a client and then later help the client negotiate a short sale, they will be in violation of MARS.

Buyer’s Representatives

Buyer’s representatives may need to make the Consumer-Specific Commercial Communication to sellers if they negotiate a modification of the seller’s loan with a lender while representing a potential buyer. Despite the fact that the buyer’s representative does not otherwise represent the seller in the transaction, the buyer’s representative will be seen as a MARS provider once he/she begins negotiating the terms of the short sale with the lender(s). Additionally, the buyer’s representative cannot charge a separate fee to the seller for this service, unless the buyer’s representative has entered into a separate agreement with the seller and this agreement meets the other conditions of the MARS rule (no upfront fee, can only receive payment if the loan is modified, and the other relevant provisions of the regulation).

Referrals

The MARS rule also includes in the definition of MARS provider “any person that…arranges for others to provide any mortgage assistance relief service.” Therefore, any licensee referring a client to MARS provider in exchange for a referral fee will need to be careful that it is not “arranging” the mortgage relief services for its client; otherwise, it will need to comply with the MARS disclosure requirements.

If a real estate professional does have clients in need of short sales but the real estate professional would rather refer the short sale negotiations with the lender(s) to a MARS provider, a possible solution is to offer the client a list of providers and allow the client to choose the MARS provider. Whether the real estate professional is seen as arranging the transaction will again be a factual determination, but allowing the client to choose the provider and making it clear that the client is not required to use the MARS providers offered by the real estate professional should remove the real estate professional from the need to comply with the MARS rule. The real estate professional should also disclose upfront any referral fee arrangements with the MARS provider to the client.

The real estate professional also needs to take steps to assure that any MARS provider to whom it refers customers is complying with the MARS rule, as it is a violation if “substantial assistance” is provided to someone that you know or should have known is not complying with the MARS rule.

Conclusion

If a real estate professional represents clients in short sales, takes an upfront fee for his/her services, or promotes himself/herself to potential short sale sellers, the real estate professional needs to be aware of the MARS rule and the disclosure requirements.

Changes for Bank of America Short Sales

As Bank of America continues to enhance the short sale process, real estate agents will notice changes when initiating a transaction in Equator, beginning March 11.

What Is Changing:

New fields will be required when initiating short sales in Equator. Agents should be prepared to provide the following information regarding the loan and the homeowner's situation:

• Loan Number
• New: Borrower First Name
• Borrower Last Name
• New: Property Best Contact Telephone
• Reason for Default
• New: Do you have a signed purchase contract?
• New: What is the property's primary purpose?
• New: Who currently occupies the property?
• New: When was the property last occupied by the homeowner?

How This Change Will Improve the Short Sale Process:

Providing this information upfront will help Bank of America identify if the homeowner is eligible to participate in the federal government's Home Affordable Foreclosure Alternative (HAFA) program. If the homeowner is eligible, Equator will generate a message informing the agent that the homeowner must contact Short Sale Customer Care at 866.880.1232 to discuss their interest in the HAFA program. Although several attempts to contact the homeowner will be made, agents are encouraged to ask the homeowner to contact Bank of America as soon as possible, which will speed up the process.

Treasury Department Modifies HAFA Program

Important changes took effect yesterday in the government’s Home Affordable Foreclosure Alternative (HAFA) program. The Treasury Department has revamped its short sale program by easing income restrictions and documentation requirements for homeowners facing foreclosure to help streamline the HAFA process and make the program more accessible to homeowners. In the first eight months, only 661 short sales have been processed through the program.

 

One of the most significant changes is the elimination of the requirement that the borrower’s total monthly mortgage payment exceeds a 31% debt-to-income ratio, a requirement that many industry professionals believe should never have been there in the first place. This change will allow more people to qualify for HAFA, broadening the reach of the program.

Another change that will allow more people to apply is that the amount of time that a property may have been vacant prior to signing a short sale agreement has been extended from 90 days to 12 months. However, the requirement that the property was the sellers’ principal residence prior to relocation remains.

Other changes pertain to second mortgages. Previously, second-mortgage investors were required to accept 6% of the unpaid balance owing to them, up to a cap of $6,000. Under the new guidelines, the $6,000 cap for second mortgages remains in place, but the 6% rule has been eliminated.

The HAFA process will also be streamlined by a requirement mortgage servicers provide borrowers with a short sale agreement within 30 days of being requested to do so.

Travis Olsen, chief operating officer at Loan Resolution Corp., expects the changes will lead to a big jump in HAFA enrollment. “A lot more people are going to qualify for the program,” he said. “Elimination of the debt-to-income requirement along with the relaxed non-owner occupancy rule makes it easier for those who do qualify to get their short sale successfully closed.” LRC is a Scottsdale, Ariz., vendor that specializes in short sales.

Borrowers are entitled to a $3,000 relocation incentive payment when a short sale or DIL is completed. When a deed in lieu transaction is completed, the mortgage servicer can make the incentive payment even if the borrower stays as a renter under the HAFA changes.

Mortgage servicers will have the option to pay the borrower a relocation incentive either upon a successful surrender of title or when the borrower vacates or re-purchases the property at a future date, according to a TARP Inspector General report.

Can a Texas Short Sale Put $3k in Your Pocket?

The treasury department has created the HAFA (Home Affordable Foreclosure Alternatives). This program is eligible to homeowners that would otherwise be eligible for the HAMP loan modification program, but due to extenuating circumstances are still unable to afford to keep the home.

One of the requirements of a HAFA short sale is that the borrower be released from any future obligation on the first mortgage. This is important because it means that the lender can never turn around and demand that the borrower pay the difference in sale price to loan amount. They are not allowed to accept any cash contribution from the homeowner, or any promissory note or deficiency judgement. A HAFA short sale is a true release of the mortgage obligation.

HAFA also allows for a contribution to release a 2nd mortgage or equity line. The program will pay out as much as $6k to junior lien holders.

For the homeowner the HAFA program does offer a $3k incentive to the borrower, paid at the time of closing. This money can be used for any purpose the borrower needs it for and can be a lifesaver when moving costs are factored in.

The eligibility requirements for HAFA include:

• The property must be the homeowner’s primary residence.

• The first loan must have been originated before January 1 2009

• The mortgage payment must be delinquent or default is imminent.

• The balance of the loan cannot exceed $729,750

• The total monthly mortgage payment must be in excess of 31% of the household gross income 

Other important information to understand about a HAFA short sale:

The sale of the property must be to a buyer that is not related or affiliated with the seller.

• The servicer will report the short sale to credit reporting agencies as settled for less than the full balance, which may negatively impact the credit score.

• The new buyer may not resell the house for a period of 90 days from purchase.

• The HAFA program is slated to end on December 31, 2012 

Most lenders have a specific process they follow when reviewing loans for HAFA and will always review it for this program before they look at any other options. Speaking with a short sale expert should never cost a homeowner anything and will be extremely valuable to help determine any and all options to avoid foreclosure.

Foreclosures decrease in 2010 due to short sales and modifications

Nevada saw a 19 percent decrease in foreclosure starts in 2010 -- the first drop in four years -- as more short sales and loan modifications were approved, an annual summary from San Francisco-based Fore- closureRadar showed.

The online foreclosure tracking firm counted 86,010 filings of new foreclosure actions last year, down from 106,425 in 2009. They're up from 75,814 and 38,690 the previous two years.

California and Arizona foreclosure filings fell 33 percent and 18 percent in 2010, respectively, while Washington and Oregon had 14 percent and 10 percent more.

A number of factors have slowed the foreclosure process in Nevada, including programs such as the government's $75 billion Home Affordable Mortgage Program, or HAMP, and the state's foreclosure mediation program.

Officials from the mediation program on Thursday announced $300,000 in grants to provide education classes and free legal advice for Nevada homeowners facing foreclosure.

Investors flipped foreclosures for solid profits in the first half of the year as buyers hurried to take advantage of the tax credits, ForeclosureRadar Chief Executive Officer Sean O'Toole said Thursday.

However, the housing market began to slow when the tax credit expired at the end of April and the government's push for loan modifications waned, he said.

The "robo-signing scandal" also led to a dramatic drop in foreclosure sales toward the end of the year. Bank of America completely halted the foreclosure process for nearly two months.

As a result, Nevada experienced a 6 percent drop in foreclosure sales to 42,828 in 2010, compared with 45,420 in 2009, ForeclosureRadar reported. Arizona's foreclosure sales dropped 26 percent and California's sales dropped 6 percent. Oregon and Washington were up 39 percent and 14 percent, respectively.

O'Toole said it's possible Nevada will see an increase in foreclosure filings and sales this year, but not a wave.

"I expect to see a trickling out of foreclosures," he said. "Foreclosure levels are at an all-time high in absolute numbers, but they're at a historically low rate as a percentage compared with the people not making a payment, so it's a weird conundrum."

The foreclosure cloud will probably hang over Las Vegas for at least another two years, Las Vegas housing analyst Larry Murphy said. Roughly 20 percent of Las Vegas homeowners with a mortgage are 90 days delinquent on their payments and three-fourths are "underwater," or owing more than their homes are worth.

Lenders are reluctant to foreclose on a property because they don't want to become the landlord, but they'll foreclose before they reduce the principal mortgage balance because "it's in their DNA," the president of Las Vegas-based SalesTraq said.

He reported 21,499 bank repossessions in 2010, a 10 percent decline from 24,000 the previous year. The median price of a real estate-owned, or bank-owned, home sale was $110,000, compared with $118,000 for a nondistressed home.

A survey this week from the Nevada Association of Realtors showed that most Nevadans were not aware of federal and nonprofit programs designed to help them avoid foreclosure. More than 60 percent of those surveyed said they had never heard of the Home Affordable Foreclosure Alternative program.

Al Astraus, 82, said he's "heard rumblings" about HAFA, but nobody has told him how to apply for the program. He bought a $310,000 home in Las Vegas in 2006 and is current on his payments, but worries what will happen when his five-year adjustable-rate mortgage resets in April.

"There appears to be practically a conspiracy to accelerate foreclosures, not prevent them," he said. "That's leading to the demise of the American middle class. We will become a second- or third-rate country."

Only 3 percent of homeowners facing foreclosure said they used the Nevada foreclosure mediation program or found it helpful, the Realtors' survey found.

The program received more than 8,000 requests and mediated about 4,200 cases in its first year, with 46 percent of homeowners approved to stay in their homes, said Verise Campbell, deputy director of the mediation program. Another 16 percent came out with an agreement to vacate the home through a short sale, "cash for keys" or deed in lieu of foreclosure.

"At least they know when they're leaving," she said.

The grants announced Thursday include $49,250 to Legal Aid Center of Southern Nevada for foreclosure education; $76,680 to Legal Aid Center for the "Ask-a-Lawyer" program; $75,000 to Nevada Legal Services; $76,680 to Consumer Credit Counseling Services; and $31,185 to Washoe County Senior Law Project.

"Ask-a-Lawyer" allows homeowners to talk with an attorney about their situation without having to spend thousands of dollars unnecessarily or become potential scam victims, Campbell said.

Nevada Legal Services has scheduled free monthly foreclosure information classes beginning Feb. 8 in English and Feb. 17 in Spanish. More information on the classes is available at www.nlslaw.net.

District Court Judge Elizabeth Gonzales said the mediation grant is a major step toward working with Nevada homeowners to find an alternative to foreclosure and to find good legal help.

Do Tenants Have Protection in Short Sales

Question: I have rented a house for several years. The current owner told me that he is going through foreclosure. He says that he is about to conclude an agreement to allow a "short sale" of the property, which I understand allows the house to be sold for less than the amount of the mortgage. I thought there were special protections for tenants who are caught up in foreclosures. Are there any special protections for me if there is a short sale?

Answer: There is a federal law, the Protecting Tenants at Foreclosure Act, which gives additional rights to "bona fide" tenants living in a property that changes ownership due to a foreclosure. This law requires a minimum of 90 days' notice to month-to-month tenants after the foreclosure has been completed. Tenants who have a bona fide lease are entitled to remain until the lease expires.

These protections apply only after the foreclosure has been completed. In Texas, foreclosure is completed when a trustee sale has occurred, resulting in a new legal title to the person or company that purchased the property at the trustee sale auction. The current owner has no standing to control the trustee sale.

A short sale occurs as a result of a voluntary agreement among the current owner, the new owner and the lender, whose permission is required. The purpose of the short sale procedure is to avoid the trustee sale and find a new owner before the old owner's rights are extinguished by the trustee sale.

Unfortunately for you, this means that the additional protections of the foreclosure act will not be available to you because the foreclosure was never completed. The new owner taking title pursuant to the short sale becomes your new landlord and can decide to continue your tenancy or terminate it pursuant to the usual 30-notice period, or a 60-day notice period if you have been a tenant for more than one year.

HAFA Changes | Supplemental Directive 10-18 | December 28, 2010

Supplemental Directive 10-18 December 28, 2010
Home Affordable Foreclosure Alternatives Program – Policy Update

In February 2009, the Obama Administration introduced the Making Home Affordable (MHA) Program to stabilize the housing market and help struggling homeowners get relief and avoid foreclosure. In March 2009, the Treasury Department (Treasury) issued uniform guidance for loan modifications by participants in MHA across the mortgage industry and subsequently updated and expanded that guidance to include the Home Affordable Foreclosure Alternatives Program (HAFA) to provide borrowers with an alternative to foreclosure through a short sale or deed-in-lieu (DIL) of foreclosure when a loan modification is not available. In December 2010, Treasury issued version 3.0 of the Making Home Affordable Program Handbook for Servicers of Non-GSE Mortgages (Handbook), a consolidated resource for guidance related to the MHA Program for mortgage loans that are not owned or guaranteed by Fannie Mae and Freddie Mac (Non-GSE Mortgages).

This Supplemental Directive provides policy enhancements to HAFA and amends and supersedes the notated portions of the Handbook. This Supplemental Directive is effective February 1, 2011; however, servicers may begin to implement the changes outlined in this Supplemental Directive immediately. By February 1, 2011, servicers must make appropriate updates, consistent with investor guidelines, describing the basis on which the servicer will offer HAFA to borrowers (HAFA Policy) and ensure that all potentially eligible borrowers are evaluated and treated consistently.

Servicers that have executed a servicer participation agreement and related documents (SPA) must follow the guidance set forth in this Supplemental Directive. This guidance does not apply to first lien mortgage loans that are owned or guaranteed by Fannie Mae or Freddie Mac, or insured or guaranteed by a federal agency, such as the Federal Housing Administration, Veterans Administration or the Department of Agriculture’s Rural Housing Service.

This Supplemental Directive covers the following topics:

• Monthly Gross Income

• Vacant Property

• Release of Subordinate Liens

• Timing for Issuance of Short Sale Agreement

• Timing for Response to Alternative Request for Approval of Short Sale

• Real Estate Brokerage Commissions

• Alternative Deed-in-Lieu Programs

• Borrower Notices

• Retroactivity

• Reporting

• Compliance

• Monthly Gross Income

With respect to HAFA eligibility, servicers are no longer required to verify a borrower’s financial information or to determine if the borrower’s total monthly mortgage payment (as defined in Section 6.1.2 of Chapter II of the Handbook) exceeds 31 percent of the borrower’s monthly gross income as currently set forth in Section 2 of Chapter IV of the Handbook. Servicers must continue to verify the borrower’s hardship by obtaining a signed Hardship Affidavit or Request for Modification and Affidavit (RMA). Notwithstanding the foregoing, each servicer may include a requirement in its HAFA Policy that borrowers provide updated financial information to evaluate the borrower.

Vacant Property
To be considered for HAFA, the property currently must be or recently must have been the borrower’s principal residence. A property that has been vacant or rented to a non-borrower for not more than 12 months prior to the date of the Short Sale Agreement (SSA), Alternative Request for Approval of Short Sale (Alternative RASS) or DIL agreement (DIL Agreement) is eligible for HAFA, so long as the borrower provides documentation that the property was such borrower’s principal residence prior to relocation and such borrower has not purchased a one- to four-unit property during the 12-month period prior to the date of the SSA, Alternative RASS or DIL Agreement. The borrower’s reason for relocation does not need to be connected to re-employment or transfer of employment. Also, there is no longer a minimum distance requirement. Servicers are not required to verify the number of miles the borrower moved from the property.

Release of Subordinate Liens
Subordinate mortgage/lien holders will continue to be paid in order of priority as set forth in Section 6.2.4.2 of Chapter IV of the Handbook. However, servicers are no longer limited by the six percent cap with respect to payments to each subordinate mortgage/lien holder. The servicer, on behalf of the investor, shall determine the amount or percentage of the unpaid principal balance of the lien that will be paid to each subordinate mortgage/lien holder until the $6,000 aggregate cap is reached. Each servicer must include in its HAFA Policy how subordinate mortgage/lien holders will be paid. Investors continue to be eligible for incentive reimbursement for up to one-third of the cost to extinguish subordinate liens as described in Section 12.3 of Chapter IV of the Handbook.

Timing for Issuance of Short Sale Agreement
The servicer must complete and send to the borrower an SSA no later than 30 calendar days from the date the borrower responds to the servicer’s HAFA solicitation as set forth in Section 4 of Chapter IV of the Handbook. If an unsolicited borrower requests consideration under HAFA, the servicer must evaluate the borrower’s eligibility and, if eligible, complete and send the borrower an SSA no later than 30 calendar days from the date of the borrower’s request.

Timing for Response to Alternative Request for Approval of Short Sale
No later than 30 calendar days from the date of receipt from the borrower of an executed sales contract, Alternative RASS, and a signed Hardship Affidavit or RMA, the servicer must communicate approval or disapproval of the sale or provide a counter offer on the Alternative RASS.

Real Estate Brokerage Commissions
With respect to SSA transactions, the real estate commission that may be paid shall be the amount indicated in the listing agreement between the borrower and the listing broker, provided that such commission shall not exceed six percent of the contract sales price. When the servicer has retained a contractor to assist the listing broker with the transaction, the servicer must include a statement in the SSA that any associated vendor fees will not be charged to the borrower or deducted from the real estate commission.

With respect to Alternative RASS transactions, when the servicer has retained a contractor to assist the listing broker with completion of the transaction, the servicer must include a statement in the Alternative RASS form that any associated vendor fees will not be charged to the borrower or deducted from the real estate commission.

The model RASS and Alternative RASS forms have been updated to reflect these changes and are available on www.HMPadmin.com.

Alternative Deed-in-Lieu Programs
DIL Agreements between servicers and borrowers that provide an option for the borrower to continue to occupy the property on a rental basis (deed-for-lease) or provide an opportunity for the borrower to repurchase the property at some future time are also eligible for financial incentives under HAFA, so long as all other program requirements are met. At the discretion of the servicer in accordance with investor guidelines, the borrower relocation incentive may be paid either upon the successful closing of the DIL or at a future time when the borrower vacates or repurchases the property. Servicers offering programs of this type must include program descriptions and conditions in their HAFA Policy.

Conditional DIL agreements that allow a borrower to reinstate the original loan following some period of rental occupancy are not eligible for HAFA incentives unless and until the DIL is final and the borrower no longer has the option of reinstating or modifying the original first mortgage lien.
Borrower Notices

Under Chapter 4 of Section IV of the Handbook, when a borrower who was not previously evaluated for HAMP requests a short sale or DIL, and the servicer determines that the borrower meets the HAMP eligibility requirements and will be solicited for HAFA, the servicer must notify the borrower verbally or in writing of the availability of HAMP and allow the borrower 14
calendar days from the date of the notification to contact the servicer by verbal or written communication and request consideration for HAMP. This Supplemental Directive clarifies that this notification may be given simultaneously with the servicer’s consideration of the borrower for HAFA.

Retroactivity
Servicers are not required to implement the terms of this Supplemental Directive as to any loan that has been reported via the HAMP Reporting Tool or for any loan as to which a borrower has been determined to be ineligible for HAFA. Notwithstanding the foregoing, servicers may re-evaluate borrowers previously determined to be ineligible for HAFA using the guidance in this Supplemental Directive. Each servicer’s HAFA Policy must contain a written policy that describes the basis on which the servicer will re-evaluate such borrowers under HAFA.

Reporting
Under HAFA, servicers are required to provide periodic loan level data to the Program Administrator. Updated HAFA reporting and payment processes implementing the terms of this Supplemental Directive are currently under development by the Program Administrator. Subsequent guidance on such processes will be provided on www.HMPadmin.com. Servicers of loans with SSAs or DIL Agreements entered into under HAFA after the date of this Supplemental Directive will not be required to report updated HAFA data using the HAMP Reporting Tool until the reporting processes are in place, but in this interim period servicers must collect and store information on all such HAFA transactions so that the necessary data can be reported when the updated processes become available. The policy guidance set forth in this Supplemental Directive will not require the collection of any additional data beyond the data servicers were required to collect prior to the issuance of this Supplemental Directive. When the updated reporting processes become available, servicers will be provided instruction on how to report the "Front Ratio before Modification” (DD77 in the HAFA Data Dictionary) and potentially other existing fields affected by this Supplemental Directive. Finally, HAFA incentives for such loans will not be paid until the updated reporting and payment processes through the HAMP Reporting Tool are in place; borrowers, servicers and investors will be reimbursed for all incentives relating to such HAFA transactions closed prior to the updated reporting and payment processes becoming available.

Compliance
In addition to the requirements of Section 2.2.3 of Chapter I of the Handbook, servicers are required to retain all documents and information received during the process of determining borrower eligibility, including evidence of receipt of required documents such as the Hardship Affidavit or RMA, RASS or Alternative RASS, as well as the evidence used to determine if the property was vacant. Servicers are also required to retain all documents and information related to the terms of the SSA or approval of the Alternative RASS.

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.