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

   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

    The Home Valuation Code of Conduct and how it impacts Tucson real estate is also a concern of Tom Health, Vice President of Advocacy for the Southern Arizona Mortgage Lenders Association, Legislative Chair for the Arizona Mortgage Lenders Assocation and Director of the Arizona Association of Mortgage Brokers.   Tom is guest blogger today and what follows are his comments about the HVCC.

Thanks for taking the time to shed more light on the Home Valuation Code of Conduct (HVCC).  You touched upon several issues that are critical in understanding why we have to recall this policy and put in place a more meaningful method of ensuring quality appraisals.

You mention this is a “de facto regulation,” which is the perfect description.  HVCC was not implemented by an agency as a regulation, or by Congress as legislation; it was an agreement between one man and two, at the time, privately held companies.  The policy of HVCC circumvented standard public commenting periods and debate that would have been required if this were an actual regulation or law.  The Attorney General of New York, Andrew Cuomo, threatened Fannie Mae and Freddie Mac with massive lawsuits if they did not comply with this code.  The weak companies feared “tobacco type” lawsuits across the country and succumbed to the AG’s demands.

The foundation for this agreement was an investigation launched by the AG into alleged appraisal fraud resulting in values that were unrealistic, but led to huge earnings for a large national lender and their partially owned subsidiary appraisal management company (AMC).  Whether the attorney general had a foundation for his threats is not known, because as part of the agreement was to keep the results of the investigation undisclosed.

Due to the implementation of the HVCC, most lenders now work with an AMC, which is an unregulated entity and is often owned, in part or in totality, by the bank for which it performs appraisals.  Ironically, Cuomo’s code has led to the dominance of the very structure that prompted the investigation that led to the code.

What was intended to protect consumers from unscrupulous originators and appraisers has created a more expensive process for the borrower and created a lower quality and less reliable product.  You accurately point out that the cost of a report has increased, but the compensation to an appraiser has decreased.  Quality appraisers are unable to work for the reduced income and therefore, orders go to less experienced practitioners.  Many times, the appraiser is brought in from areas outside of the market and is unfamiliar with trends and characteristics of the property being inspected.

In addition to cost and quality, the code has presented a “portability” issue.  Consumers typically pay for the appraisal at or prior to time of inspection.  While the code allows the report to be transferred to another lender if the borrower so wishes and the appraisal is HVCC compliant, the reality is much different.  One large national lender has a written policy that it will only accept reports completed by its wholly owned, subsidiary AMC.  Any borrower wishing to switch to this lender would likely have to have to bear the cost of another appraisal.  This same lender also stipulates that it will only release its reports to other lenders if the borrower is declined or counter offered on the terms of the loan they requested.  In other words, if that lender wants the loan, they will not release the report even though the consumer has paid for it.

The only vocal supporter of HVCC is a professional group, Title/Appraiser Vendor Management Association (TAVMA), whose members are large AMC’s.  The Appraisal Institute has supported the HVCC mission of appraiser independence, but has asked for changes.  Fannie Mae and Freddie Mac are noticeably silent on the code.

The prevention of appraisal fraud and coercion has to be eliminated, but HVCC is a poorly planned and improper tool for the job.  Congress has introduced HR 3044 that would place an 18-month moratorium on HVCC and allow regulators to create a workable solution that takes the good intentions of HVCC and melds them with practical procedures that can strengthen the industry and protect consumers.

—

Tom is with Consolidated Lenders, The Heath Team  

 http://www.theheathteam.com/

 House Bill 3044:

http://www.govtrack.us/congress/billtext.xpd?bill=h111-3044

   Tucson real estate sales, although improving, now is also adversely impacted by the Home Valuation Code of Conduct (HVCC), a de facto regulation promulgated by Andrew Cuomo, Attorney General of the state of New York in conjunction with Freddie Mac and Fannie Mae.  Loans which are not Fannie Mae or Freddie Mac loans are not governed by the HVCC.

   The intent originally was to insure appraisals are done in accordance with independent safeguards, that appraisers were not coerced to hit a value specified by the lender or loan officer.  The HVCC lays out ten areas of concern Cuomo had regarding lenders and appraisers.  But rather than independent appraisers, Appraisal Management Companies (AMC) have surfaced and are a profit center for large banks which underwrite many of the Fannie Mae and Freddie Mac loans.  Appraisals must be ordered and “The Code requires the lender or any third party specifically authorized by the lender to select, retain, and provide for all compensation to the appraiser”1

   As a result, many independent appraisers and small appraisal companies can not longer afford to remain in business unless they join one of the AMC pools.   Lenders, erring on the side of caution, may no longer use these small independent companies because they are not an AMC. 

   Additionally, the cost of an appraisal has escalated.  There is another level of management involved with the AMC.   Appraisals used to cost between $325 and $375; now they are $400 plus.  Ironically, the appraiser, the person with the expertise, is now paid at least $100 less than pre-AMC.   The differential goes to the AMC.

    Appraisers new to the market join the pools to beef their resume and gain experience.   Lenders request the appraisal from an AMC approved by the entitity subsequently underwriting the loan.   Appraisals may be done by people who do not know the area,

      Appraisers have guidelines and take some of  their comps from within a mile of the  property.  Tucson properties have been appraised by out of area appraisers and these appraisals may come in unusually low.  In a one mile segment, one 1/2 mile area may have custom built homes valued at $800,000 whereas the other 1/2 mile segment may have tract homes valued at $250,000.   Each property may be 3,000 square feet but looking at paper, the appraiser does not know the difference.  This skewing would occur  with automated valuation models which are not prohibited by the code. (http://en.wikipedia.org/wiki/Automated_Valuation_Model)

         As a Realtor representing my client, I often spoke with the appraiser and provided my comps with other pertinent  information.   If I represented a property and knew the comps showed two distressed properties, I made sure the appraiser understood.   Perhaps I knew a property had been flooded or there had been a fire, this information materially impacts the value of that home…it should not materially impact the value of the home I am trying to sell.   Understanding the area or the history of the area and properties is part of the knowledge base used to make good decisions.  

 1- Fannie Mae guidelines FM 0109 page 2 2009

Resources:

Home Valuation Code of Conduct 

http://www.freddiemac.com/singlefamily/pdf/122308_valuationcodeofconduct.pdf 

http://www.appraisalinstitute.org/ano/current.aspx?volume=10&numbr=11/12

https://www.efanniemae.com/sf/guides/ssg/relatedsellinginfo/appcode/pdf/appraisalguidance.pdf

http://www.freddiemac.com/singlefamily/hvcc_faq.html

http://www.fhfa.gov/webfiles/277/HVCC122308.pdf

http://narblog1.realtors.org/mvtype/president/2009/06/all_is_not_quiet_on_the_midwes.html

  http://narblog1.realtors.org/mvtype/appraisalinsight/cuomo_agreement/

http://appraiseractive.blogspot.com/2009/07/hvcc-update-nar-president-charles.html

   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

   I was pleased to open my e mail this morning and find a post from a gentleman who refered me to an extensive treatise on the housing bill.   There is no way that I can provide a synopsis of what the article contained, so I will reproduce the post from the gentleman along with the link to the articles.

   The point was made that the author didn’t believe that Congress people read the bill, and when I waded through the nearly 600 pages, that was my sentiment exactly.  

    His original post said:   “Don’t know your opinion of Catherin Austin Fitts, but this is one hell of a read.  She’s one fine detective.”

    The link is as follows:

            http://solari.com/archive/housing_bill/

     Much of this bill was written long ago, as far back as 2002, and like much legislation, just waiting for the appropriate time to tuck this legislation into something which seemingly is worthwhile.

     Additional comments are more than welcome!

     Every two years, Arizona Realtors must take the Ethics class which covers the Code of Ethics and Standards of Practice of the National Association of Realtors.  You can find the Code on my website  at http://www.terrybishop.com/tools.html with links in both Spanish and English.

    The Code of Ethics has three main segments:  Duties to Clients and Customers;  Duties to the Public; and Duties to other agents.  It is the basis by which Realtors must conduct business and the Code of Ethics and Standards of Practice are the guidelines used during mediation and arbitration of a dispute.

    Answers to most problems which arise in a real estate transaction can be found in the Code and in the Standards of Practice.  It was first adopted in 1913 and has been subsequently amended almost annually since 1986.

    The Code covers everything from disputes about compensation to the difference between a client and a customer…and who is owed fiduciary responsiblity.  

   For example, in today’s market, when sellers are still trying to get top dollar for their property, “Realtors, in attempting to secure a listing, shall not deliberately mislead the owner as to market value.”  Despite what the seller may want to hear, the Realtor has an obligation to tell the seller in a forthright manner whether a property may be priced too high.  (Article 1, Standard of Practice 1-3)

    There are 17 articles in the Code and within each Article are standards of practice.   The Code of Ethics and Standards of Practice provide the basis for much real estate law.  Although only eight pages, this document is chocked full of answers to questions which arise on a daily basis with real estate transactions.