The Mesquite Nevada Real Estate Blog

How many times have I heard or read this comment? Wish I had a dollar....

Here is a typical sequence of events:

Act I: John Q Homeowner, having suffered a personal financial setback, stops paying his mortgages, first and second. Being a want-to-do-the-right-thing sort of guy, he approaches Rachael Realtor to list his home on the market as a short sale. Rachael works her butt off, marketing the property, arranging showings, and preparing the short sale wad-o-crap required by the lenders, complete with John's loan number neatly printed on all hundred-odd pages. After several perfectly spaced price reductions, duly noted in the file, an offer comes in. It is immediately and gratefully accepted by John, who really doesn't much care what the terms are since there is nothing in it for him except the loss of a large squawking albatross from around his neck.

Act II - The wad-o-crap, complete with the crisp, newly accepted offer, is faxed to both lenders; several times each in fact, as it seems that it was mysteriously lost in the ether the first few times (sun spots, or possibly intercepted by aliens). Several months roll by, a BPO is ordered and performed, a negotiator assigned, and finally, trumpets blare and drums roll as the first lender kindly deigns to allow the deal to proceed on these terms. Oh, and in their beneficence, they agree to allow the second lien holder to receive some single digit percentage of what they are owed.

Act III - The joyous news is conveyed to the second lien holder, who, oddly, doesn't seem thrilled at their good fortune. In fact, they have the nerve to demand a larger sum. "What!!" sputters Rachael with righteous indignation. "But you will get nothing, NOTHING, if the seller allows his home to be foreclosed upon." Unmoved by her distress, the second digs in its heels. The buyers meanwhile find a nice, bank-owned home needing only double-digit thousands in deferred maintenance and with most of the appliances and fixtures intact and move on. The seller gives up in disgust and moves in with his mother, who is delighted to have someone to watch the soaps with, and the first lender forecloses.

Ok, quiz time. Did the second REALLY get "nothing"? Unlikely. There are at least three possible ways they come out ahead on this deal:

• Unbeknownst to the homeowner, his second lien holder bought insurance against his default. They will now collect on that insurance. Depending on the terms, that may not have been possible if they agreed to a short sale.
• The homeowner's loan with them was full recourse, and they now intend to hound him mercilessly for the deficiency and/or sell that right to a collection agency
• The bank in question has a loss sharing arrangement with the FDIC that will allow them to collect substantially more than the pittance offered by the first under the short sale scenario.

No doubt there are others I haven't thought of. Please feel free to add them in the comments. The point is, assuming that the second will be on board with your plans because otherwise they "get nothing" may end in disappointment. And really, do you honestly believe that the people running the bank are so stupid that they don't know their bottom line under each scenario? Many times they behave in ways that seem odd to us, but that may be because they don't see any point in wasting their time explaining themselves.

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Copyright © Linda S. Humphrey, all rights reserved

 

Linda S. Humphrey, M.D., CDPE, e-PRO, EcoBroker, GREEN

Broker/Owner - Humphrey Home Connections Realty, LLC

cell: 775-287-4665

office: 775-232-8515

www.HumphreyHomeConnections.com

I get a lot of e-mails.  I'm sure most of you do too.  However, from time to time, I'll click on an e-mail which looks like it may qualify as spam just out of sheer curiosity.  This e-mail arrived courtesy of Wells Fargo, a company which is currently processing tons of short sales.  It's excerpted below: (italicized bold portions are my additions)

 

********************************

April 30 is quickly approaching

 

The homebuyer tax credits have been pivotal in helping move inventory.  At this time, it appears that the government will not offer another extension.  Any first-time or move-up buyer who is interested in taking advantage of the tax credit must have a binding sales contract by April 30, 2010 - with the home purchase completed by June 30, 2010.  Our team is ready and eager to help your clients meet this deadline.

 

Short Sales remain significant factors in today's marketplace, allowing more prospective buyers than ever to become homeowners.  Because these transactions are more complex, it is imperative that real estate and lending professionals work efficiently as coordinated teams to help our customers.  To this end Wells Fargo has created a step-by-step REALTOR® Short Sale Guide, which you can access here.

We are committed to accelerating the short sale process.  In fact, for those loans we hold in our portfolio, we have already undertaken efforts to streamline the sales approval process.  The majority of the loans we service, however, are owned by other investors.  So in many cases, Wells Fargo must obtain the approval of the first and any second mortgage investors.   Our goal in these situations is to move the process along as quickly as we can.

****************************

The Question?

 

Is the definition of a binding sales agreement referencing the agreement between the buyer and seller applicable when a bank must approve the sale for the transaction to close?  In this case, the e-mail seems to intimate that the binding sales agreement includes their clearance of first and second mortgages.  

 

A subsequent call to another senior loan officer confirmed my uneasy suspicion.  This loan officer also agreed with the position that states that the sale is NOT binding until the bank signs off on it! There may be a significant disagreement about what constitutes a binding sales agreement for the purposes of the buyer's ability to legally claim the Tax Credit.

 

What's at Stake?

 

For the real estate community, a binding sales agreement occurs when there is a binding agreement between buyers and sellers.  The approval by the mortgage company is viewed as merely another contingency to the contract.

 

If the alternate view expressed by some lenders is ever deemed to be the correct definition of a binding sales agreement, this could prove troublesome for many potential home buyers who are staking their claims on homes which will require short sale approvals that may not be delivered prior to April 30, 2010 although they have an agreement with the seller AND may be able to close prior to June 30, 2010.

 

Curious...

 

What are your thoughts on this?  Has anyone explored this issue with the tax authorities? 

 

 

Lola Audu, is the Designated Broker & Owner of Audu Real Estate.  Our company specializes in helping people buy and sell homes in the greater Grand Rapids, West Michigan area.  We've had the privilege of helping hundreds of clients succeed in their goals of purchasing and selling property including demonstrated success in the negotiation of Short Sale Transactions. You can contact us via e-mail @ info@auduhomes.com or by phone at 616-791-0511. 

           

In my home state of Minnesota, Minneapolis and Saint Paul have nearly 39 percent of homeowners under water.   I've had the question, "I'm upside down on my home, what are my options?" so many times that I wanted to prepare a menu of options for people to reference.  This article briefly outlines 9 potential solutions that may serve you well.  The target audience here is not necessarily someone who's in default on their loan but simply one who owes more than the home is worth.

All too often, when one is upside down on their home and/or struggling with their mortgage, they reach out for one to three options that they may have heard about on the news or from a friend.  What homeowners should be doing is seeking the advice of qualified real estate agents, real estate attorneys and a skilled loan officer.  But, . . . before a homeowner picks up the phone, there's a lot of homework to do!  Before one calls the professionals, they'll just be spinning their wheels until the following items are ready:

1. Know your address.  You may know it to be one thing but for these purposes, your address is whatever http://www.usps.gov/ tells you it is.  So go to this website, click on "find a zip code" and type your address.  The postal service will then give you the address it has registered for you.  This is the address that Fannie Mae and Freddie Mac use so it would serve you well to do the same.
2. Collect your financial documents.  Whether you're working with a loan officer on a loan, a Realtor on a short sale or an attorney on a bankruptcy or modification, they'll all need a complete set of your financials.  This includes 09 and 08 tax returns, W2's and 1099's.  If you're self employed, you'll need 2009 and 2008 tax returns from your business.  If you haven't filed your 09's, get it done.  You'll also need copies of your most recent paystub, most recent bank statement, most recent statement on any retirement accounts, and a copy of a mortgage statement on each mortgage you have.  Getting these documents scanned to image documents such as Adobe Reader can really speed things up.
3. Collect your legal documents.  It would be wise to, at the very least, have a copy of your mortgage note.  If you are planning on meeting with an attorney, it would be much better to have your entire closing package.  This should have been provided to you by the title company that closed your loan.  Again, getting these documents scanned to image documents such as Adobe Reader can really speed things up.
4. This isn't necessary, but it's wise.  Get a copy of your credit report at http://www.annualcreditreport.com/ (this site is truly free and not a scam).  Knowing the content of your credit will help you write letters of explanation if you're doing a mortgage loan or a hardship letter if you're doing a short sale.

Getting this done is arduous but it will prove invaluable to those you ask for help.  Now you're ready for that menu of options:

1. Fannie Mae DU Refi Plus - If your loan is owned by Fannie Mae, you may be entitled to refinance up to 125% of your home's value.  You can get a loose idea of what your home is worth at http://www.cyberhomes.com/.  To see if your home is owned by Fannie Mae, go to http://loanlookup.fanniemae.com/loanlookup/ and enter your address as it appeared at http://www.usps.gov/.  If it is owned by Fannie Mae and you owe less than 125% of the value of your home, you may be eligible for this loan.  The rates are slightly higher than normal advertised rates because of pricing add ons but they are close enough to market rates to be a heck of a deal.
2. LP Open Access - If your loan is owned by Fannie Mae, you may be entitled to refinance up to 125% of your home's value.  You can get a loose idea of what your home is worth at http://www.cyberhomes.com/.  To see if your home is owned by Freddie Mac, go to https://ww3.freddiemac.com/corporate/ and enter your address as it appeared at http://www.usps.gov/.  If it is owned by Freddie Mac and you owe less than 125% of the value of your home, you may be eligible for this loan.  The rates are slightly higher than normal advertised rates because of pricing add ons but they are close enough to market rates.  This program will not let you finance more than 5 thousand dollars in closing costs and prepaids so if your settlement charges exceed 5 thousand, be prepared to bring cash to closing.
3. FHA 115% Write Down Refi - This one doesn't have a name yet so I just made that up.  It's a complicated program and I'm not sure how successful it will be.  Essentially, if you're refinancing a non-FHA loan, you'd take a loan out at 97.75% of your home's value.  A balance may be subordinated to the first mortgage thus becoming a 2^nd mortgage but that loan may not exceed 115% of the homes value.  For any of this to happen, the existing lender/s must write down their loan balances by at least 10%.  Here is the announcement for this program.  You must be current on your mortgage to qualify for this loan.  A history of late payments will likely disqualify you for this loan.
4. FHA Short Refi - This one is a little simpler.  Essentially, you get preapproved for a 97.75% loan to value FHA refinance.  This loan will support a certain amount to be paid to your existing lender.  Whatever the loan can't support, assuming you can't come up with the difference in cash, will have to be written off by your existing lender.  You'd be surprised how many lenders are willing to do this (I know I have been).  This was officially permitted by HUD in December of 2009.  You must be current on your mortgage to qualify for this loan.  A history of late payments will likely disqualify you for this loan.
5. Modification - You do not necessarily have to be in default to get a loan modification.  If you've had any kind of hardship (i.e. involuntary reductions of income or unavoidable increase in expenses that indicates that you might go into default and you feel that you owe so much on your home and at such poor terms that you're losing your incentive to repay, that might be enough to qualify.  Many people have their own opinions on this and I don't assume that mine is the best but I don't recommend contacting your lender directly as a starting point for a modification and I don't recommend calling a pay for hire service either.  I recommend calling 1-888-995-HOPE (4673) to speak with a HUD approved counselor for free.  They will conduct an interview and serve as an initial intermediary between you and your lender.
6. Chapter 11 Bankruptcy - It's expensive, it's a long and hard process but unlike Chapter 7 and Chapter 13, a judge can order a mortgage modification under a Chapter 11 bankruptcy plan.  It is the most flexible type of bankruptcy and is thus difficult to explain.  Consult an attorney with specific Chapter 11 experience.
7. Deed in Lieu - This is where the owner of a property deeds the property back to the lender to avoid foreclosure.  Obviously, this only makes sense if you want to get out of the situation quickly and don't want the house anymore.  I highly recommend the assistance of an attorney in this to ensure that the act of deeding in lieu serves as payment in full of your mortgage to prevent both damage to your credit and the potential of deficiency judgments. 
8. Short Sale - A short sale is where a homeowner and lender cooperate to sell a home in a situation where more is owed on the home that the house is worth.  The buyer and their Realtor prepare the home for sale and market it and in exchange, the lender writes down the balance of their note to facilitate the sale.   It is less costly that foreclosure so lenders are typically willing to do this.  Often times, with the help of a good Realtor, damage to your credit can be ameliorated.  When choosing your agent, make sure they have a lot of past experience with short sales, are aware of what is changing in short sales and, preferably, they have done short sales that involve your current lender.
9. Foreclosure - Now I hesitate to even mention this but a fact is a fact.  Foreclosure is an option.  If you're upside down and you can't make your payments, sometimes you just have to let go.  Too many people think the sheriff's sale is the end.  It's just a step in the process.  Although it varies by state, foreclosure is usually a 9 month process.  So, 9 months of living there and then you move out.  It's an ugly option. . . but it's an option.

When we are under stress, we often reach for the first or easiest option that might get us away from the cause of that stress.  In the case of the underwater homeowner, that can be a huge mistake.  Few know how many options they really have and, if these options are weighed carefully, they can learn that with some effort on their part and the help of qualified professionals, they can get away from their problem with a good solution in hand.

Please remember that all four of these loan types are very difficult and consequently, you'll need an excellent loan officer.  Managing your legal risk in a deed in lieu situation or conducting a Chapter 11 requires a seasoned and sophisticated attorney.  Proper execution of a short sale is both a science and an art so, if that's the route you take don't make a quick decision on a Realtor.  Just because they advertise as a short sale expert doesn't make it so.  Choose your professionals wisely, be deliberate in choosing the solution that you want and be organized and you'll find that you're closer to being stress free again than you think.

My heart goes out to you for your situation and, . . . if misery loves company, . . I'm right there with you!

Charles Dailey

612.234.RATE (7283)

charles@charlesdailey.com

This should lead it off quite nicely:)

Back in my early days of lending, I recall quite vividly the very first Rehab Loan I did.  While I did some legwork in actually knowing the ropes of that particular product before advertising the bejesus out of a very niche loan, I still was caught like a reindeer in some oncoming car's speeding headlights when trying to get them closed in a streamlined sort of fashion.  And then, I had it mastered.  As my particular luck would have it, most of those programs disappeared shortly thereafter.

The echoes in the back of my head rang of a long-lost product I had only heard about and most of what I heard were borderline horror stories.  The FHA 203(K) loan reared its mysterious head and stared me in my wide-eyed glance.  I gotta admit, there was major hesitation on my part in even wanting to get involved in such a misunderstood product.  I knew little about it and wanted to concentrate more on the Conventional sort of stuff that I grew up with in the industry... at least at that point.  Hey, of course I want to corner the market, but not at the risk of looking like an incompetent SOB at the end of the day.

Then, I encountered experts in that very product.  I figured, let's roll repair.

After doing more homework than my combined High School & College Education would vouch that I did back in the day, I chose to go after a market that just may make a dent in not only enhancing the housing market... but the very neighborhoods we live in.

This is just a taste of the FHA 203(K) Renovation Loan!

• Add a deck or porch, makes for one heck of a Summertime BBQ.
• Upgrade the electrical system and avoid reading overdue utility bills under candlelight.
• Modernize the kitchen and watch the The Food Channel in a comparable stadium.
• Replace a furnace and heck, it's a furnace.  You really don't want that entity breaking down anytime soon!
• Paint the exterior and/or interior.  Yours could be the only lavender house in the neighborhood:)
• Install new carpeting.  There's nothing like getting rid of stained residue from a German Shepard you never owned.
• Remodel a bathroom.  Hey, might as well let loose of your naked body in comfortable surroundings!
• Replace roofing and/or siding.  There were 58 mile per hour winds in Pennsylvania today, that stuff may come in handy.
• Refinish wood floors.  That's a big selling point for yours truly.  I adore wood floors and have an aggressive amount of ShamWow merchandise to prove it:)

Program Features:

• Low down payment
• Buy and remodel a home with one mortgage!  You can finance the purchase plus the cost of the improvements with one monthly mortgage payment.
• At least $5,000 in repairs needed to qualify for the 203(K) Loan.
• They can be used for owner occupied 1-4 unit family dwellings.
• Closing takes place before the improvements/repairs are made.
• Money for the repairs and renovations is held in an escrow account and paid out after each phase of work is completed, inspected and approved.
• By the way, they are fixed rates!

Consider this the teaser post to the taste buds of home renovation lending.  Yup, I'm your proverbial appetizer.

 

Jason Sardi

Mortgage Consultant

1-866-262-8720 ext. 229

jsardi@ihmci.com

Located at our Allentown, Pennsylvania office.  Pennsylvania Based Mortgage Banker/Broker whose area of service include PA, NJ, NY, CT, DE, MD, VA, SC, FL, MI and IN.