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Do You Have An Adjustable Mortgage? Are You Upside Down? Loss Mitigation Lender Phone NumbersHomeowners Beware of ScamsDO NOT PAY A LOAN MODIFICATION COMPANY OR ATTORNEY WITHOUT FIRST CHECKING FOR FREE SERVICES
The Federal Government has given out millions of your tax dollars to provide FREE assistance for loan modification. Check here to find a HUD approved loan modifier.
The Riverside Fair Housing Council, for example, is on the HUD approved list. Many speak both Spanish and English. There are pay for service loan modification companies that are ethical and do a good job, but there are many more who do not. FREE is a very good price and is no risk to you. If modification happens WONDERFUL. If not at least it didn't cost you anything to try when using a free service. Though there are many real estate agents and real estate agencies providing such service, we believe that separation of real estate and agents and lenders are better for business and better for the client. Good lenders don't also have the time to be good agents and vice versa. It is tough enough, given today's challenges, to be good at what you are supposed to be doing full time.
There are many steps to a loan modification and a significant amount of paperwork. It is like applying for the loan all over again. But don't get discouraged. The outcome, if it means staying in your home, is worth the wait.
If loan modification does not happen, your next best alternative is Short Sale. Short Sales may look like a good deal when you are looking them up, but aren't always. Agent often use a short sale as a way to capture buyer leads. Agents will often price sales aggressively, hoping to attract buyers or hoping the lender will temporarily lose their mind long enough to accept a lowball offer or hoping to get an offer they can present so they know what a lender is thinking. Unfortunately, short sales are often listed for prices lower than any reasonable lender will accept.
Here is how they work.
The homeowner needs to sell the property because they've been transferred to Delaware and have to start the new job in a month. The house is worth $415,000. The first, with XYZl Bank USA, is a balance of $399,000 and the second is with ABC Bank and Trust with a balance of $45,000, for a total of $444,000 owed. On sale the property will have to pay back property taxes of $2,456, a mechanics lien of $12,345, a child support lien of $11,789 and, on sale, a real estate commission of $17,500.
1st $444,000
2nd $ 45,000
RE tax $ 2,456
mech lien $ 12,345
cs lien $ 11,789
re comm $ 17,500
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TOTAL $533,180
Value $415,000
Short $118,180
Now THAT'S a short sale. A mere $118,180 in the red.
This poor seller has an even more complicated problem. Both lenders would have to agree to the short sale. A standard sale has only two parties who have to agree, the Buyer and the Seller. In a short sale, the Lender is taking a loss of some kind and must agree to voluntarily take that loss. The lender can always foreclose. As you might suspect most lenders are not real happy about taking losses. Getting two lenders to cooperate, where one gets wiped out and the other gets something is not easy.
In cases like this the primary lender (1st) might allow the 2nd to get a $1,000 or so, but they might not. Remember, when involved with a short sale, you've invited mom-in-law to the party. Everything done has to have the approval of the lender.
Confirmed short sales are transactions in which the lender has already agreed to a price and conditions. Unconfirmed short sales require long periods of time, sometimes months, to get an answer.
Short Sale Package Before the lender will agree to a Short Sale, the listing agent must prepare a short sale package which often includes the following information:
Yes . . . it is a lot like applying for the loan all over again, but that is what is being done, only backward. The lender is trying to decide if the borrower is really in trouble or just trying to duck out. Before you get all upset, remember that the lender doesn't have to do this at all, and will do so if it is easy for them and only if they will lose more if they foreclose.
If the lender agrees to the Short Sale it is seldom done in writing and always has deniability. They will verbally agree to a price based on an agent's BPO. They will often contract for their own BPO to assure themselves that the short sale listing agent isn't pulling a fast one.It can take three to twelve weeks to get a lender response on a short sale and the listing agent is free to accept offers while waiting for a response. Being first means nothing, unless the listing agent agrees to remove the property from the market..
It seems logical that lenders would cooperate with short sales since, in a declining market, the longer they wait the more they lose. But there is contingent liability for the lender in a short sale. What if the lender and agent were both wrong and the property was worth more than agreed. Could the borrower come after the lender. Sounds far fetched, but yes.
As you can see from the above, short sales have many moving parts and while there are success stories for short sale buyers, there are far more failures. If you have the time to be patient and you are in love with that particular home, the wait might be worth it. If pressed for time, short sale is probably not the best direction. But if you insist, follow the below when making a short sale offer.
Short Sale Offer:
The seller will agree to anything. They get nothing anyway. They have no equity and will receive no money. What do they care? Until the LENDER approves your deal, you have nothing too.
Instruct your agent to hold onto your good faith money. DO NOT PUT MONEY INTO ESCROW until the short sale offer is ACCEPTED by the LENDER. There is a little box on the purchase contracts which allows for this. You don't want your money tied up. You want to remain free to make other offers. There is no responsibility owed to a short sale lender that does not answer quickly. Make sure your agent gives you a Short Sale Addendum, which explains everything that could occur in a short sale.
Have your agent ask the listing agent to put the sale in HOLD status in the MLS while the lender looks over the short sale offer. If the listing agent is smart, they won't, but they might. Putting the property on hold effectively protects the buyer while the lender thinks about it. Offer what the property is worth or slightly less. In a declining market there is danger that the property will fall in value while the lender is making up their mind, and will not appraise when the dust settles.
Keep looking. Until you get an answer, you've got nothin' till the lender says you do. Maybe something better will crop up. Maybe a good looking REO will pass by. Ask your agent to put you on a drip campaign with your search criteria built in. Until it's over it ain't over.
Short sellers and short sell lenders will not agree to pay for much, usually not even termite. No repairs, no buyer credits. They may even try to pawn off escrow and title. but they must pay for their part of title. Here's the rub. The short seller is getting nothing from the sale and usually has no cash, at least cash they are willing to spend on a lost cause. This means that buyers often have to pay for more costs than are customary.
Short Sale Listings There is no listting more difficult or time consuming than a short sale. The sad truth is that only one in ten will actually result in anything other than foreclosure. There are companies specializing in short sales that have a better record, but they cost money and a homeowner with no equity has a tough time throwing good money after bad.
After putting together a short sale package and submitting it to the lender or lenders involved, followup is required. Daily, or at least every other day, calls must be made to the admin or asset manager responsible for making the decision. They don't like it, but if you don't bug them, your package goes to the bottom of the pile. Those who harrass get served. Those who do not, don't.
This seems harsh, but it stands to reason. Lenders don't like short sales and don't want to deal with them. They appoint lower level employees to handle and dismiss short sales. That is, until they wake up and realize they are costing themselves money and that short sales may represent an opportunity to sell quicker and for more.
In the early ninties, when short sales started to pop up, lenders refused to acknowledge there was a problem. It was not unitl '93-'94, when a recession was in full swing, that lenders started to realize short sales were superior to foreclosure. The home was sold quicker in short sale and in a declining market, that was important. By '95 most lenders had the short sale business down and were approving short sales so agents could actually help liquidate the growing inventory. Lenders, like the rest of us, have short memories and every time a downturn happens, it takes them a few years to catch on. Every housing slowdown seeme to create the same pattern for lenders; initial denial, eventually short sale acceptance and loan modifications, then better liquidation of assets. Judge for yourself where lenders are in any economic slowdown.
For sellers, a short sale is slightly better for their credit than a foreclosure. Foreclosures ding credit more harshly and stay on credit reports longer than a charge off, which is how a short sale is reported. In some cases lenders even forget to file a short sale against the borrower's credit report, but don't count on it. The lender may also, as terms of acceptance of the short sale, ask for an unsecured note. If the terms are good and the payment is reasonalbe, comply, but only if the lender agrees not to record the shortsale and related charge off on your credit. If they are going to ding you anyway and the payment creates a hardship, why make the payment? On the other hand if the lender agrees not to ding your credit and the payment is affordable, your credit report will be in far better shape. If no note is offered or agreed, try to get a release from recourse, an agreement that the lender will not come after you. A long shot, but it could happen.
A short sale does not wipe out recourse. Where California foreclosure on purchase money loans eliminates the possibility of the lender coming after deficincies later, a short sale does not. A short sale triggers both deficiency and recourse. The lender can come after your other assets and can, if they are nastily inclined, file a 1099 with the IRS for the shortfall.
Why so many short sales and so little traditional sales? Contrary to popular belief, Short Sales are not the fault of foolish buyers, but in fact are largely the result of rapidly falling prices. Riverside and San Bernardino Counties have lost nearly 61% of their value in just over two years, bringing values close to 2002 levels and in some areas 2001 levels. No matter how smart buyers were after 2002 and regardless of how much money they put down, their property is probably worth less than what is presently owed. That would be most of the homeowners in Riverside and San Bernardino Counties. That would mean there are few, if any, standard sales leaving only short sales and REO's.
Short Sales are, for many reasons, problematic. Only buyers with the gift of patience should attempt them. They can take weeks, even months to complete, if they get completed at all. Lenders and sellers change their minds after months of waiting. The foreclosure clock is ticking while unpaid payments gather interest. Lender portfolios are bought anad sold, changing the holder of the underlying short sale notes and asset manager.
On average, only one in ten short sales actually happen. For very good reasons, short sales cannot be counted in standard inventory numbers and many buyers, after having been burned by a short sale, avoid them like the plague. If short sales are removed from consideration, and there are very few standard sales, REO's (real estate owned or "bank owned") comprise the bulk of available inventory. Unfortunately, for the present, REO's are also in short supply.
Federal and California governmental moratoria in foreclosure have slowed the process for many REO's. There is a huge tsunami likely to hit sometime mid to late summer, presuming the supply is not again artifically reduced or restrained.
Some theorize that the federal bail out has allowed many lenders to cut back room deals, selling properties in bulk to their cronies at below market prices. They argue that taxpayer money and new accounting rules are being used to subsidize lender losses, allowing such greed. It is difficult to say for sure if that is what is happening, but there could be truth to the supositions.
According to consumer advocacy groups, the former number two for Countrywide has teamed up with a very large money investor to buy up bad Countrywide loans. Rather like letting the arsonist back in to pick over the ashes.
That coincides with government plans to sell off troubles assets to large investors. The Fed plan is similar to what happened in the eighties through the Resolution Trust Company, which was a resounding clunker to American taxpayers. The RTC was charged by the Feds with liquidating troubled Savings and Loan assets. Unfortunately that also lead to a great deal of insider deals and questionable transactions at taxpayer expense. Wherever there is big money there is the potential for abuse and teh Feds are providing very big taxpayer money.
The present buyer frustrating lack of inventory and impending wave of foreclosures is proof that artificial interventions by regulators will be very expensive. Problems cannot be solved by putting one's head in the sand. Giving local real estate professionals and home buyers first choice seems a far better solution as that always has been, and always will be, the market reality. What is an REO? REO stands for Real Estate Owned and that means property already taken back by a lender. They are not the same thing as a short sale, or a home in forclosure or a home under a Notice of Default (NOD). An REO has already been through the full legal process and the home is the proud possession of the holder of the note. This is an important distinction.
A home in foreclosure, default or NOD is still the property of the borrower. If a borrower removes a dishwasher and sells it to pay for food, there could be civil action for harming the eventual lender's property. However, after it becomes corporate owned, an REO owned by the lender, removal of the dishwasher is theft, even if taken by the former owner.
Another term often interchanged with REO is Corporate Owned, but they are not always the same thing. An REO is specific to properties taken back by a lender. Corporate owned properties can be bought at auction. What auction, you ask? Let's look at the Foreclosure process.
Foreclosure Process
Before a lender even begins, the borrower is usually 60-90 days behind in their payments.
We need to get something straight here. Lenders don't do the dirty work. To protect consumers from predatory lenders, the State of California uses a Deed of Trust to secure real estate loans. That means that a Trustee will have to file all the notices and complete the foreclosure.
New law requires that the lender deliver a 60 day Notice of Intent fo file a Notice of Default. After 60 days, the trustee will post a Notice of Default on the front door, indicating that the borrower has 90 days to bring the loan current. 90 days later the foreclosing trustee will post a Notice of Sale, giving the borrower an additiopnal 21 days to bring the loan current or pay it off (yeah . . . right). The Notice of Sale must also be published in a periodical of general cirulation. Thhirty days after the Notice of Sale is posted, the property is sold at a Sheriff's sale (auction), usually on the courthouse steps or some other easily identifiable public place. The auction wipes out all other debt behind the foreclosing lender including liens, tax and otherwise and junior lenders (second trust deed). The only thing foreclosure does not wipe out is property tax.
Many people think they can get a good deal bidding on properties sold at the courthouse and they may be right. Unfortunately you have to be able to deliver a cashiers check for the full purchase. Not too may of us can do that.
There is a better opportunity to buy prior to the auction, while the property is in the Notice of Default phase. In years past, even in good real estate times, there were foreclosures. Some of the properties foreclosed actually had equity. In those types of transactions, buyers would swoop in, offer a couple thousand dollars to turn over the keys, and sometimes people did just that. Due to the potential for financial abuse, California has some very strict rules regarding buying while in NOD. Agents have to use special purchase forms called an Notice of Default Purchase Agreement (NODPA) and must give a five day right of recission. In times where values are falling rather than rising, there are fewer of these.
Properties purchased at auction by investors are Corporate Owned and are most often repaired and flipped.
REO's can be a good deal. Either they have been fixed up to be very marketable or they are totally unfinancible, making them a good deal for investors and people with a tool box. The first determination to make is which kind of buyer you are. If you want to finance using FHA (90% of all buyers in 2009) you will have to make offers on properties suitable for FHA. Homes with exposed wires, missing light or plug covers, tears in carpet or flooring that pose a tripping danger, in short anything that poses a safety and soundness issue probably will not pass FHA muster.
FHA properties, as indicated above, tend to be the most popular and therefore will go the quickest. Those in good repair and well located are likely to sell in mere days with multiple offers. Those in disrepair or poorly located will sell slower, but eventually they will sell. Lenders have to sell, but recent restrictions in the foreclosure process have slowed both foreclosure itself and eviction, the removal of former owners from the property.
Eviction - Cash for Keys
When a lender completes a foreclosure and becomes the proud owner of their new REO, what happens to the former owner occupant? The former owner or any tenant living in the property immediately have the same rights as any other tenant in the State of California excepting laws requiring just cause for eviction. Foreclosure is cause for eviction whether known by the tenant or not. Tenants and former owners must be given 30 days notice prior to commencement of eviction. Tenants who have been in the property twelve months or more must be given 60 days.
Lenders will often offer money, Cash for Keys, to bribe the tenant or former occupant to leave voluntarily. This is not because they are kind-hearted, though some clearly are, it is because it is cheaper for them to do so. The eviction process can take 60 to 90 days and up to 180 days if a bankruptcy is involved. It is cheaper to offer cash and get the property to market quicker than to wait it out and pay legal fees. This is particularly true in a declining market where values are dropping by as much as 1% per month. Typically when Cash for Keys is offered, the property must be left in good condition, with all appliances that were there left in place, the yard cleaned up, the garage empty and the house left in broom clean condition (no junk anywhere - everything must go). The value of Cash for Keys changes dependent on the lender. Most will offer around $1,000 though some offer less and some much more. Some lenders will not offer Cash for Keys to former owners.
Eviction is a California court process in which the owner/landlord must follow strict procedures or risk the wrath of a judge.
Recourse or Not
The State of California has a single action rule which means, in a non-recourse transaction, the lender can either come after the property or come after the borrower, but cannot do both. Purchase money loans and loans strictly for home improvement are non-recourse. Cash out refi's, where you bought a new pink Caddie and went to Vegas to see Elvis impersonators, or any other purpose, trigger recourse. Loan application fraud, investment properties, and trust deed secured business loans also will result in recourse, a 1099 or both. If they can come after you will they? Can you get blood out of a turnip? Some lenders will try, some are more realistic, but in theory they can on recourse notes.
Abandoned Personal Property
More often than not a tenant or former owner rapidly vacated has more stuff than space. There are very strict rules regarding the personal property left behind. These rules also apply to new home owners finding personal property left behind by the seller (a fridge in the garage or pool table in the family room).
Real property is anything that would normally be affixed to the house or yard, like trees, below ground pools, light fixtures, dishwashers, stovetops, ovens (except freestanding). Personal property is pretty much anything else.
The former occupant must be given an Abandoned Personal Property Notice, posted on the front door of the vacated property. This notice gives the former occupant 15 days to reclaim the property.
There two seperate directions to go dependent on relative value of the personal property left behind:
Flip Rule
To avoid the potential for investor abuse, the Federal Housing Administration (FHA) adopted rules which make buying and immediaetly selling properties, flipping, more difficult. FHA, by the way is the only one who cares about flipping. The flip rule states that an offer to purchase may not be made on a property until after 90 days after the property was foreclosed when using FHA financing. This is why many corporate owned listings warn about FHA offers for the first few months of the listing.
REO Offers
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