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Showing posts with label loss mitigation. Show all posts
Showing posts with label loss mitigation. Show all posts

July 28, 2011

Lengthy Short Sale Process a Painful Reality

Hi Folks,
   How is everyone today?

   The National Association of Realtors (NAR) just released their "Pending Home Sales Index" (PHSI) for June, which reflects "When the contract has been signed", but, "the transaction has not closed". The figures came in at 2.4% above May, and 19.8% above June 2010, with the biggest increases from May to June were in the South and the West,

   Now, if you were not aware, the PHSI is a "forward-looking indicator", which assumes about 2 months between the contract signing and the closing. The question this raises in my mind is the following; what about the lead time for short sales from contract to closing? These have been trending longer, and according to a recent story, "Short sales are among the most arduous real estate transactions, often taking six months or more to close -- if they get done at all".

   In the story written by Greta Guest for the Detroit Free Press, and titled, "Shortsales, longwaits: Buyers and sellers find process frustrating", Guest cites an agent in Oxford, Michigan, who worked on a short sale that stretched eight months. Michelle Chappell, an agent with Real Living John Burt Realty in Oxford, said that after the process which she called "heart-wrenching" for her buyers, she said, "This was the last one I sold. I said no more. I won't do it.". Chappell reflects a growing number of Realtors that are avoiding short sales because they can be so difficult, writes Guest (she aptly uses the term, "Short sale shy")

   Why such a long process?

   "Homes with more than one mortgage and mortgage insurance tend to take the longest", said Ellen Mahoney, president of Complete Title Services' loss mitigation division in Birmingham, Mich, writes Guest. She adds that a "growing reason short sale deals fall through or take longer" is because of mortgage insurance" purchased after the homeowner closes on the deal and the loan is later sold to other lenders and investors.".

   Other factors also contribute to the lengthy process, but ultimately, as Guest writes, "These kinds of delays mean buyers walk away because of the time and frustration involved."

   What do you think would trim down the time? Perhaps a standardized process (like the one the Government has tried to implement without success to this point, yet)?

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Have a Great Weekend, and Happy Rent-to-Owning !
Rob Eisenstein
HomeRun Homes Blog: http://blogging.lease2buy.com
HomeRun Homes Websites: http://www.lease2buy.com and http://www.homerunhomes.com

TAGS: #shortsales #lossmitigation #mortgageinsurance #realtor

January 7, 2011

Do Banks Really Forgive a Mortgage Balance After a Short Sale?

Hi All,

   I hope you had a great week, and if you're in the bulls eye of the next snowstorm as we are, I ask you to be careful and drive slowly !

   We recently received the same question from a few different people, and we would like to address that question today. We were asked approximately, "how often is a mortgage balance "forgiven" after a Short Sale?". We posed a few related questions to some professionals with quite a bit of experience, and we'll cover each question along with the answers below.

Question #1: "Will the house loan company forgive an outstanding balance after a home is sold on a short sale"

   David Bartels, an agent and a short sale negotiator, tells us that, "Absolutely. This happens almost every time on transactions we negotiate". Greg Cook, a Mortgage Professional, says that, "In a short sale when the balance of a mortgage debt is "forgiven", the lender almost always will issue a 1099 for that amount.", and continues to say that, however, the "the Mortgage Debt Forgiveness Act of 2007, provides for no tax liability on owner occupied properties up to $2,000,000. So while the debt may be forgiven there is no income tax liability." Cook adds that, "Whether or not a lender chooses to pursue a deficiency judgement for that amount is 1) at their discretion (and) 2) subject to state laws, and this can vary from state to state". Robert Nagle, an attorney in Phoenix, says that he has, "represented over 200 homeowners regarding strategic default. In Arizona, due to the anti-deficiency statutes, most first mortgages (purchase money and refi) forgive deficiencies, and certainly purchase money seconds do, too."

Question #2: "Are there any "rules" that say what amount, if any, will be forgiven?":

   Bartels responds and says that, "Each lender has their own guideline they use to determine whether or not to pursue a deficiency balance. They are not disclosed to anyone. Pursuit of deficiency judgment varies widely and is determined by the investor (owner of the loan).". Additionally, he says that, "For the most part the lender you are negotiating with just services the loan. They do not own it and take direction from the actual investor (owner or the loan)."

Question #3: "Do these rules differ from state to state?":

   "Yes", says Bartels, "CA for instance is a no-deficiency state. This means a lender cannot pursue a deficiency on short sales in CA. On Jan 1 this was expanded to include non owner occupied homes. Exceptions are some(times) made if the homeowner took cash out and used it for something other than improvements on the subject home."

Question #4: "Do they differ between a first house loan and a second house loan (i.e. first is paid off, but a balance remains on the second)?":

   Bartels reminds us that, "A short sale cannot occur unless 2nd releases the lien on the property. This is done via the short sale negotiation. There is no circumstance where a short sale could occur, but the 2nd lien holder does not release the lien.". Cook adds that, "Second mortgages are an entirely different game and will depend on lender and state law.", and adds that, "I was on a conference call with the head of loss mitigation (western division) for Bank of America and he said he had not heard of one lender pursuing a deficiency judgment. Reason? "You can't get blood from a turnip" and pursuing the judgment only increases costs to the lender and the former homeowner is likely to BK out of it anyway." Nagle chimes in on the equity second loans, and says that, "The rule of thumb that I feel the lenders are following is 10 cents on the dollar and a full release IF the borrower does a short sale. The gloves come off if the home has gone through foreclosure."

Question #5: "If it is not forgiven, what happens then?":

   Bartels says that the short sale negotiation and the release of lien negotiation are separate, and that, "When we get an approval that is conditioned on a cash contribution or a deficiency, we have a 2nd negotiation to pay the amount or pay an amount in exchange for no deficiency judgment. There are several ways to do this. We have been successful 100% of the time eliminating deficiency judgements post short sale for our clients so far." Cook says that, "In California, there is no deficiency judgment allowed on owner occupied properties for the loan used to purchase or renovate. As of today, refinanced loans may still be subject to deficiency judgment, but that is likely to change once the new legislature gets their feet under them (it passed in the last session but was vetoed by the Governator)."

   Overall, if you are facing a short sale as an option, it is important that you speak with your mortgage company (all of them), obtain approval for the short sale, consult an agent and also a Real Estate attorney. Make sure you have a plan from A to Z in place before setting it in motion.

   Have we missed anything? Comments? Suggestions?

Have a Great Weekend, and Happy Rent-to-Owning !
Rob Eisenstein
HomeRun Homes Blog http://blogging.lease2buy.com
HomeRun Homes Website http://www.lease2buy.com

Tags: #shortsale #foreclosure #lossmitigation #loan