Potential sellers who do not have a financial hardship sometimes change their mind when they realize the types of paperwork the bank needs in order to have a successful short sale. Much of this documentation is required to justify to the lender(s)  why selling “short” is the only alternative.  People who have assets which could be used to pay the mortgage note, but just want to “walk”, may be denied a short sale or face a deficiency judgment if a short sale is successful.

    In addition to the hardship letter which details why the seller cannot pay the mortgage, the bank requires an authorization letter from the seller authorizing the lender to speak with the Realtor or attorney.  The Realtor then must assemble the “package” for the lender which includes; income tax returns, pay stubs, bank statements including savings and retirement accounts, copies of bills, a list of assets and liabilitieis, monthly expenditures, and documentation of other unusual expenses.  Other information may be requested by the lender to support the case for short sale. 

      Up to date information must be obtained about homeowner’s dues, other special assessments, any other liens on the property, and property tax status.  Sometimes the seller does not have current information about these items and the Realtor must track down this information.

   Working  with a reputable agent is paramount.   The sellers’ information requested is private and confidential, and contains all of the necessary ingredients fora successful identity theft; another reason that propels “foreclosure scammers”.

    All of this information is considered by the lender(s) when determining if an offer on a property will be accepted.  The lender(S) needs to know if the seller can contribute any amount of funds to the sale of the property.  The seller should determine if they are in a “deficiency judgment” state, or “non deficiency judgement” state.  A deficiency judgement permits the lender(s) to collect from the sellers the amount of a specified “deficiency” after closing on the house.  If the property is a second home, often a deficiency judgment will be granted.  Sometimes a judgment will be granted to the lender holding a HELOC (Home Equity Line of Credit) if the funds were not used for the home, such as improvement. 

    Working with a competent Realtor and/or attorney and exploring options is one of the best things an “underwater” seller can do to get answers and help himself/herself.  A Certified Public Accountant can also be included in the team to discuss income tax consequences of any action. 

    Going to a short sale is a far better option for the seller than foreclosure.  Unfortunately many people who have their homes sold in foreclosure never asked for professional help and as a result, will suffer the consequences of credit deterioration for a longer period of time. 

    If you or anyone you know is having problems, consult a Realtor, an attorney, or a CPA as soon as possible. The more time to solve the problem, the better for the seller.  If you need help, contact me at terry@terrybishop.com, and I can provide you with the name(s) of someone in your area who can help you.

   Short sale and foreclosure scammers come out of the woodwork when opportunity presents itself, and in today’s market, when as many as one in four homeowners are underwater in some areas, “foreclosure expert” scammers see the tree ripe for picking.

   Understandably homeowners will buy in when a person or “company” says they can make the problem disappear.  That is human nature.  The first red flag is when the “foreclosure consultant” asks for money up front.  If you, or someone you know,  has been victimized by such a “forclosure consultant”, gather as much information as possible and report that to the Better Business Bureau, a local and state Consumer Protection office,  and the Attorney General’s office.

   These “experts” prey on people who have little understanding of the law and are adept at presenting a believable case.  Always ask for credentials and write that information down in case you need it later.  Ask for as much information as possible and if that information is not forthcoming, cease dealing with that person. 

      Many of these people are high powered salespeople, and they may present information to you which you thought was confidential.  Remember, many documents relating to real estate are public information. Any liens, late taxes, the date the home was purchased,  quit claim deeds and other documents are in the public domain. 

    If the homeowner is going to pay up front money up, he/she is better off hiring a competent attorney for up to the minute legal advice.  Many attorneys will not charge an “upfront” fee, but will bill when the problem is resolved.  An attorney on board, can advise whether filing for bankruptcy is prudent, and can direct the homeowner and often postpone have any foreclosure action postponed.  

    Several states have laws on the books, or are passing laws, banning upfront fees.  Consumer fraud divisions are rift with complaints and are burdened by cumbersome consumer fraud laws when apprehending and bringing these people to justice.

    A CDPE (Certified Distressed Property Expert) or a Realtor with the National Association of Realtors Short Sale, Foreclosure Resource (SFR) designation will not ask for up front money.  They will present their credentials and lay out a plan.  These are people licensed by the state, and in many instances, fingerprinted, and they do not get paid unless the transaction is consumated.  It is easy to check with the State Department of Real Estate to make sure the person is licensed which can often be done on line.

    The HUD.gov site has information about non profit organizations which are approved by HUD to give information about loan modificaitons, short sales, and foreclosures. 

    Know with whom you are dealing.  That is your best defense against fraud.

Resources:

Department of Housing and Urban Development - housing counselorshud.gov/portal/page/portal/HUD/i_want_to/talk_to_a_housing_counselor

Certified Distressed Property Expert:  http://www.cdpe.com/find-cdpe-results.html

National Association Realtors:   http://www.realtor.org/home_buyers_and_sellers/

Arizona Foreclosure Workbook from the Arizona Attorney General’s Office:

http://www.azag.gov/consumer/foreclosure/documents/StateTaskForceWorkbook.pdf

   Additional options exist for homeowners who are facing financial difficulties and are, or believe, they will be unable to meet mortgage payment(s).  Gone are the days when the person who defaults on a mortgage is considered a “deadbeat”.  Most people today know a hard working person who has defaulted because the challenge of one situation causing financial hardship, was one too many.

    The hardship can be as simple as a relocation to keep a job.  When a person owns a home and is relocated and then must carry two properties;  a home in the old location, and a rental property in the new destination, the additional cost can be enough cause financial hardship.  Yet the person had to move to keep his/her job.   Properties may not be selling in the old location for the price of the loan amount.  A short sale may be the only option. Prior to the move, the anticipated hardship may be sufficient grounds for the lender to permit a short sale.

    Members of our Military face hardship when they are redeployed for longer periods of time than originally anticipated.  The Service Members Civil Relief Act (SMCRA) provides protections and caps all interest for active duty military personnel, incurred prior to their active status, at six per cent.  This includes credit card debt, automobile debt, and mortgage interest debt.  Proof of active duty must be provided.  All active duty military personnel should review all of their debt obligations and invoke SMCRA for any debt carrying more than a six per cent interest rate.

    If the value of the property is greater than the loan amount, the property can be sold at a realistic price. In areas which continue to face depressed pricing, this is a viable option.  The price offered on a property a year ago (often which sellers turned down), seem ridiculously high in today’s market in many areas.  Pricing must be ahead of the curve.

     A controversial solution, and one not advocated by Realtors is “Strategic Default”.   Homeowners begin thinking about strategic default when their property has decreased in value 20 to 25% .  Homeowners are able and  continue to make mortgage payments, but feel they are paying for something which garners no value.  In many areas of the country, property values have decreased 30% or more.  Residents do not see values coming back for ten years or more.  Homeowners   “Walking away” is a deliberate personal business oriented move. 

     Moral and ethical considerations of strategic default are debated, against the dilemma faced by people who can afford their mortgages, but see people who have been irresponsible in their money management, get cash for keys (a program where the lender pays up to $1500 to the homeowner to vacate after foreclosure). 

    Regardless of the path chosen by the homeowner, credit will be impacted.  Foreclosure will cause the most damage.   It is imperative that people who believe they will face a financial hardship contact a Realtor to discuss options, or seek the advice of a credit counselor who will not charge any upfront fees. 

    I am happy to provide additional information:  e mail me at terry@terrybishop.com and put BLOG in the subject area.  If you need to find a qualified Realtor to help you, I can help.

Resources:

Service Members Civil Relief Act:     http://www.military.com/benefits/legal-matters/scra/overview

 Strategic Default:  http://en.wikipedia.org/wiki/Strategic_default

 Department of Housing and Urban Development:  http://portal.hud.gov/portal/page/portal/HUD/topics/avoiding_foreclosure

Note:  Hud.com is a commercial site and is not the Department of Housing and Urban Development…make sure you go to HUD.GOV

      Short sales and foreclosures are not always the best option for the homeowner.  If the situation which curtails income is temporary, the homeowner can ask for “forebearance”. 

     Forebearance involves negotiating a repayment plan for the amount of payments missed, usually with penalties and interest.  The missed payments can be put at the end of the mortgage amortization or an extra amount each month can be included in the regular mortgage payment.   The lender will want to be assured of the homeowner’s ability to repay the newly negotiated amount and will ask for evidence such as pay stubs.  The newly negotiated amount is in force until the deficiency is made current, and then  the payment will revert to the amount prior to the default. 

    Reinstatement can occur if the homeowner is expecting funds which can be used to bring the delinquent loan current.   An insurance settlement, an income tax refund, an inheritance, any anticipated source of funds which can be paid at one time to the lender to bring the loan current is called reinstatement.   The homeowner should talk with the lender and explain these funds are anticipated and will be used for the loan.  Reinstatement is a good option when one or two payments have been missed because of some extraordinary circumstance where restitution will be made.  Like all other plans, the lender will want documentation of the event. 

     If the homeowner has the funds available and can qualify in today’s market, a refinance can be a good option.  Rates are still very low and especially if there is an Arm (adjustable rate mortgage), very often a homeowner can cut the amount of payments.  Remember however, that if the homeowner has owned the property for six years and refinanced to another 30 year mortgage, the clock starts ticking again for another 30 year mortgage.  However, this option may provide the breathing room necessary but the homeowner should be sure to request a fixed rate mortgage to avoid further surprises.  Homeowners must provide all the documentation necessary to the lender including pay stubs, tax returns, assets and liabilities, divorce decrees, etc.

     A Deed in Lieu of Foreclosure also called deed in lieu, is another homeowner option.  The property must be worth more than the note on the property.  The homeowner negotiates with the lender and agrees to send the keys of the property and turn the property over to the lender so the lender will not foreclose on the property. 

    If you need additional information, contact me at terry@terrybishop.com.  If you are looking for a Realtor in your area who understands distressed properties, contact me and I will find you a competent, knowledgeable Realtor in your area.

Resources:

Department of Housing and Urban Development:   http://portal.hud.gov/portal/page/portal/HUD/topics/avoiding_foreclosure

Freddie Mac:  http://www.freddiemac.com/singlefamily/makinghomeaffordable.html

Fannie Mae:   http://www.fanniemae.com/kb/index?page=home

    Short sales?  Many people mistakenly believe they must be delinquent on the mortgage payment prior to doing a short sale.  However, a short sale can be initiated by the homeowner if a hardship exists. 

     If hours or salary is cut, a medical expense, an extraordinary expenditure, a death, an incarceration, a job loss,  any number of life’s problems—these situations should spur the homeowner to request that the lender agree to a short sale if the homeowner believes there will be a problem making the mortgage payment(s).

   The fact that the property is no longer worth what it was when originally bought is not grounds for a  short sale. 

    Being proactive is the key to a successful short sale.  The credit rating will suffer, but not as much as with a foreclosure.  Contacting the lender(s) immediately to inform the lender(s) of the situation is paramount. 

    Working with a Realtor who understands short sales and foreclosures such as a CDPE (Certified Distressed Property Expert) or an SFR, the new National Association of Realtors designation for Short Sale and Foreclosure Resource, can help the homeowner immensely.  The Realtor should first try and do a loan modification for which there is generally no compensation.  Only after knowing this is not possible should the Realtor embark upon a short sale.

    Under no circumstances should a homeowner pay someone for a loan modification or sign up for a “rescue program”.  Scams abound, and many are illegal.  Often a homeowner is worse off, having spent precious funds on a bogus solution.

    Realtors trained in short sales know how to document and talk with lender negotiators, and in many instances, cut through the red tape by preparation and understanding of lender systems.   

     The lender(s) does not want to take back the property;  Lenders are not in the business of owning property and a successful short sale is beneficial to all parties involved.  Pricing properties accurately for a short sale is paramount.  The lender is looking for a fair market value, not a deal and a half for a buyer. 

     Sellers must be prepared to document their hardship, provide pay stubs, income tax returns, copies of savings and retirement accounts, as well as details of assets and liabilities.

    Tomorrow:  Options other than Short Sale

    Terry Bishop, a Realtor with RE/MAX Excalibur in Tucson, Arizona has earned her CDPE and her SFRas well as other designations.  She can be contacted at terry@terrybishop.com for further information.

     Charles Dickens sums up my sentiments of this past decade, the start of the twenty first century succinctly in Chapter One of A Tale of Two Cities.

       “It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way”

   So it has been with the gyrations of the real estate market, especially here in Tucson where property values soared more than 45% in less than three years, where people could buy a $400,000 home with no money down.  The Light shone upon all…and then it came wickedly crashing down to the season of Darkness.

      But now, people are acclimating to what is occurring in this market. Sellers desiring to move on to other places know that the price they get for their home is not the price they would have commanded in 2006…but then what they are paying for their new accommodations is substantially less than 2006 pricing.  A degree of Realism has set in.

    Snowbirds, arriving daily to escape shoveling snow, scrapping sheets of ice from car windows, slip sliding on black ice, or desiring just to get away from bone chilling temperatures and get warm, have a plethora of homes from which to choose, in all price ranges, and substantially lower in price than last year.

    Communities throughout the county have homes which are in distress.  Potential buyers should look for a Realtor who is knowledgeable about short sale and foreclosure properties as well as an agent who understands resale and new home construction transactions.  Checking the credentials of potential agents and insuring that agent is a Realtor should be the first order of business.  A Realtor abides by the code of conduct and ethics set forth by the National Association of Realtors.  Not all real estate agents are Realtors.

Tomorrow:  Looking for a Tucson home

   The new Mortgage Disclosure Improvement Act (MDIA) promulgated by the federal government is not much of a change for lenders who were ethical and disclosed costs initially;  but for those unscrupulous lenders who performed “bait and switch” during the home buying heyday, lamentations are rampant.

   “The purpose of the new Mortgage Disclosure Improvement Act is to insure buyers are fully aware of closing costs and interest rates which they will be charged on their mortgage loan,” said Courtney Walker, Vice President of Nova Home Loans.  “They don’t get to the closing table and are surprised by the numbers”, Walker continued.

   Within three days of applying for a loan, a full cost disclosure must be given to the applicant.  The cost disclosure must be given before any fees are collected, with the exception of any fee charged for pulling the consumer’s credit report, according to the amendment to Regulation Z, Truth in Lending.  Closing cannot take place for seven days unless specifically requested for an emergency.

   In the heyday, reputable lenders provided cost estimate sheets for their clients with the closing costs and loan costs spelled out, including the interest rate.  Good Realtors helped clients by providing clients with names of honest lenders and kept an eye on closing costs, making sure there were no pre payment penalties or other charges unless the client understood the terms of the loan. 

   This legislation comes as a result of the numbers of people who said they did not understand the terms of their loan and the loan costs, such as the option arm loans or the first 80% fixed rate loan with an adjustable rate for the second loan. 

    “The point of the MDIA is that whenever closing costs or interest rates change, the APR reflects these changes in the closing costs and interest rate.”  Walker gave the following example:  A person is offered a fixed rate and the APR is stated, and then offered a 2% rate with a $10,000 up front charge.  How does that person know which loan to choose?  ”How are they going to compare an apple with an orange?  The APR will help do that”, Walker said.

   Under the new legislation, if the APR moves 1/8 of a point either up or down, the lender must redisclose to the client “to insure that the buyer is fully aware”.  The borrower must be given a reasonable amount of time to review the new numbers.   “The buyer must receive, review and acknowledge in writing the new disclosure”  and if the new numbers are not approved, then the buyer must change courses. 

    Escrow fees are included in the APR so it is important that the Title Company named in the buyer contract documents is not changed.  Title companies in the Phoenix area charge different rates than the title companies here in Tucson.  For people purchasing foreclosure or short sale properties, any costs the buyer pays, such as allowable seller closing costs, must be included in the APR. 

    If the market moves tremendously, and interest rates go down, redisclosure is mandated, even if to the borrower’s advantage.  Lenders cannot collect upfront fees from borrowers at the time of application.   These include appraisal fees and lock in fees. 

    Lock in fees are relatively new and are similar to earnest money, Walker said.  The purpose of up front lock in fees is because investors (of the loans which the borrower is applying) are beginning to penalize lenders for not delivering on loans for which borrowers apply.  This is often due to borrowers shopping rates.  “Time, money, and effort is put into getting a loan approved” Walker said, and the lock in fee shows good faith on the part of the borrower.  The fee is remitted at the close of escrow as a credit on the closing statement.

    The new requirements do not add time to the loan process, Walker said.  “Nova underwrites locally, draws the docs locally, and funds from its own money,” she added.  “Even with FHA and VA loans, we have basically a 30 day turn around time”.

    Some lenders are recommending a 45 day closing time, so that if a contract is written August 1, closing should be stated September 15.    A Realtor who works closely with the lender is your best advisor, knowing the turn around times of lenders is even more important, and it underscores the need to use local lenders.

Resources:

Nova Home Loans    http://www.lancedickson.com

Federal Reserve Board Press Release

 http://www.federalreserve.gov/newsevents/press/bcreg/20090508a.htm

Federal Register:  http://edocket.access.gpo.gov/2009/pdf/E9-11567.pdf

   We have been working for a few weeks now trying to determine what type of property to purchase…single family, duplex, home with a guest house…for an investment property.   Trying to sort out what is most advantageous for a new investor is not always easy since there are so many things to consider. 

   What area?

   What type of property?  A property= high end;  B property=middle of the road; or C property= lower end.

    What price range?

    Who is the audience to whom the rental is targeted?

    Laying the appropriate groundwork is paramount to success; understanding the accounting when one owns rental property; understanding the advantages of a 1031 tax deferred exchange;  deciding whether to form an LLC,  all are important considerations.   This means talking with professionals; the accountant, the facilitator for information, and possibly an attorney.  Formulating some type of long term plan with short term goals so we are all on the same page regarding the map to success comes next.

   But in the meantime, we have been looking at various types of property to familiarize my client with the maket.  There seemed to be plenty of potential candidates for purchase on the market a month or so ago, but suddenly, she said, everything she liked has a contract on it.

   The real estate market is definitely stirring.  Properties priced correctly and which show well are not languishing on the market as they were a few months ago.   Second homes and retirement homes are showing signs of life.  Adding steam to the market is Tucson’s AARP designation as the number one place to live which is both an affordable and desirable retirement area.

    Real estate prices are still low, interest rates remain below 6%, and although requirements for loans have tightened somewhat, money is available.  People are putting their homes on the market, there still is an abundance of short sales and foreclosure properties, and savy investors are purchasing properties on the steps of the courthouse.

   A good cross section of housing is available and Tucson remains a buyer’s market.   It is time to scoop up there bargains because this market will not last.   It always boils down to supply and demand.  

   If you are thinking Tucson, now is the time to act.  Use a local lender who knows and understands our market here, and a good Realtor who listens to your needs and wants.  Take a look at my web site to garner information which will help you as well as provide the opportunity to input your own criteria and see what is out there, and if you don’t have a Realtor now, contact me.  I am always willing to help! 

   Take the comments of my client seriously…”all the good properties suddenly have contracts on them!”

Lenders:

Lance Dickson -  Nova Home Loans -  http://www.lancedickson.com

Tom Heath - The Heath Team   - http://www.theheathteam.com

Jerry Sundt - VIP Mortgage http://www.sundtmortgage.com

Realtor:    Terry Bishop  http://www.terrybishop.com

The path taken by people trying to get out from under negative equity or mounting bills is littered once again with potential legal problems for Realtors, buyers, and sellers.  The passage of the Arizona Senate Bill 1271 emphasizes the need for people to seek legal counsel when contemplating a foreclosure or short sale.

The Arizona Association of Realtors  (AAR) requested that Governor Jan Brewer amend the call for a Special Session of the Legislature to review the issues resulting from the passage of Senate Bill 1271, otherwise known as the Anti Deficiency legislation.

This bill states that within 90 days of the sale of property under a trust deed, “an action may be maintained to recover a deficiency judgment against any person directly, indirectly, or contingently liable on the contract for which the trust deed was given as security…”

This does not apply to any property 2 ½ acres or less used as a one family or single two family dwelling by the trustor  for at least six months and for which has a certificate of occupancy was issued

The legislation continues that the deficiency judgment will be for an amount equal to the amount owned to the beneficiary as of the date of the sale, as determined by a court.  This can be for the difference in the fair market value, less the amount of liens owed, and includes any interest which may be incurred. 

The party seeking remediation must act within the 90 day period, and if no action is pursued, the proceeds of the sale are considered full payment of debt.

In the letter to Governor Brewer, Tom Farley, CEO and Cheif Lobbyist for the AAR,  points out this bill applies people with second homes, rental property, and family owned property.  Developers, Farley said, are not protected . The statute points to the “subtle difference” in the property “being utilized as a one or two family dwelling”  which is how the existing statute reads, rather than the amended version which specifies “the focus is on the trustor themselves utililizing the property instead of the property being utilized”.

Farley’s letter came as a result of researching case law and the consequences of this bill.  He substantiates the letter with case law from various jurisdictions.  Lenders receiving Troubled Asset Relief Funds (TARP) are authorized to seek deficiency judgments against property owners after foreclosure.  Deficiency judgments allow for the judgment creditor to garnish the wages of the judgment debtor, employ collection agencies, garnish non earnings such as bank deposits, take non-exempt property and sell it at a public auction to satisfy the debt, and place a judgment lien on real property owned or later acquired by the judgment debtor.

The legislation came as a result of lobbying from the Arizona Bankers Association.  Arizona is one of the highest foreclosure/short sale states and Arizona bankers would like to recover some portion of the millions of dollars lost.  The bill, as of this writing, is scheduled to go into effect September 30, 2009.  Unless rewritten in the special session, the courts may be filled with lenders seeking deficiency judgments against former homeowners, which will create another series of problems including a rush to file for Bankruptcy on the part of judgment debtor.

Resources:

Text of SB 1271:

http://www.azleg.gov/legtext/49leg/1r/bills/sb1271s.pdf

Arizona Association Realtors:

http://aarnews.com/

http://aarnews.com/?s=SB+1271&x=26&y=9 

Other Blogs about SB 1271:

http://en.wordpress.com/tag/sb-1271/

   Any number of life events can cause a homeowner to become delinquent on his or her mortgage payment:  loss of job, divorce,  death, incarceration, medical bills, caring for children’s children, caring for parents, adjustments in mortgage terms, accident.  These are life’s events.  Mortgage delinquency is not planned.

   The State of Arizona, through Attorney General, Terry Goddard, and the Arizona Foreclosure Task Force, has issued a booklet about foreclosure which can be download from your computer.  The workbook, which provides timely and accurate information, is at:

                http://www.arizonaforeclosuretaskforce.com

Although this information was written for the citizens of the Grand Canyon State, the worksheets and general information pertain to anyone.  The specifics of foreclosure in Arizona may differ in your state; check with your local HUD office or your own Attorney General’s office, or seek the counsel of a qualified attorney and Realtor who understand the foreclosure process. 

The booklet warns against “scams” where people promise to keep you in your home or suggest you can get a better interest rate.  The old adage applies:  “If it’s too good to be true, it probably is”.

Although it is often frustrating, people who believe they may be in financial trouble, should contact their lender immediately and determine if any “work-out” can be done.  Keeping a journal of information detailing the time and date, plus the general conversation and to whom you spoke is important.  Chances are you will not speak to the same person when you make calls and having this ready reference will be be invaluable. 

You should be prepared to detail the “hardship” you face and a “hardship letter” will be required if you eventually go to a “short sale”. The worksheets in the booklet help the consumer detail how and when the hardship took place. 

For the state of Arizona, a list of housing counselors is provided.  If you are located outside of Arizona, call your local HUD office (Department of Housing and Urban Development listed under the Federal Government).  Housing counselors are trained to work with the lenders and may have more success than you as an individual homeowner may have.  They will need your information from the worksheets.

Budget forms are provided since the lender will want to know about your personal assets and liabilities.  Easy to use forms help determine what type of loan (s) you may have on your property.  Once you complete this information, you should have a good understanding of your financial situation and whether a short sale or foreclosure is the only option, or whether you can keep your home. 

Options are detailed if you elect not to keep your home which also includes bankruptcy and the types of bankruptcy.   Finally  there is a segment on scams and how to recognize a scam.

Remember, this is public information and as soon as Notice of Sale if filed with the Recorder’s Office, people will come out of the woodwork offering to “help” you.   If you know of someone who may be facing financial difficulties, share this information with him or her. 

Be proactive and knowledgeable, for in knowledge there is power.

Resources:

http://www.arizonaforeclosuretaskforce.com/wp-content/uploads/2009/05/2009-arizona-consumer-foreclosure-info-wrkbk.pdf

www.hud.gov