Foreclosure Fairytales

Over the past 8 years that I have been involved in assisting Distressed Homeowners to Avoid Foreclosure, the opinions of so called experts have been plentiful. Many of these expert opinions were contradictory, and what is worse, just flat wrong. I’m sure most of them were well intended, none the less incorrect information delivered by perceived experts has led too many Distressed Homeowners down a more destructive path than necessary.

Among the most common and most uninformed opinions, was the idea that short sales have just the same effect on a homeowner as a Foreclosure. This has led too many homeowners to needless foreclosure, and a more rocky path to recovery than may have been necessary.

I have am providing a report for the sole purpose of dispelling the Foreclosure vs. Short Sale Myth and better inform Distressed Homeowners about the options available to them. This report is available to you, free of charge, just click on Free Report.  Following are a few of the topics covered in the report, with brief explanation. More detail about each topic can be found in the report.

Credit Scores

The typical Foreclosure affects a credit score between 250-300 points and the affect is for 3 to 7 years.

The typical Short Sale affects a credit score is as little as 50 points and the affect is for as little as 12 – 18 months.

 Credit History

 A Foreclosure stays on a credit report for 7 years. There is no category for a short sale so it shows as a paid account.

 Ability to get Future loans

 There is a specific question on every loan application form 1003 asking if you have had a foreclosure. That question must answer yes forever after a foreclosure. There is no such question about short sales.

 Current and Future Employment

 It has become more common in the past 10 years for potential employers to run credit checks. In some cases, employers are keeping tabs on the credit of current employees as well.

 Security Clearance

 Some military and other highly sensitive jobs requiring security clearances depend on good credit ratings.

 A quick review of the facts makes it pretty clear. There is no situation in which it is better to allow a foreclosure rather than short sale the property to avoid foreclosure.

 

 

2013 HAFA Short Sale Overhaul – Hardship Affidavit

Supplemental Directive 12-07

Treatment of the Hardship Affidavit is another significant change to the HAFA (Home Affordable Foreclosure Alternatives) Short Sale Program, administered by Laurie Maggiano’s office of the US Treasury Department. As mentioned in prior posts related to this topic, the average time for short sale approval has been reduced from 14 months to 4 months since the original version of HAFA was introduced. Revisions like this one are designed to reduce approval times even more.

Affidavit of Hardship Before and After:

Before Feb 1, 2013 – the Hardship Affidavit had to be completed prior to Short Sale Approval.
After Feb 1, 2013 – a Pre-determined Hardship is adequate for approval and the Hardship
Affidavit can be signed at the Closing.

Requirements: If a Borrower is 90 days or more delinquent on their mortgage and have a FICO score below 620 it is a Pre-determined Hardship. They can obtain short sale approval and the Hardship Affidavit can be completed at closing. If a borrower does not meet these requirements they must complete the Hardship Affidavit before applying for a HAFA Short Sale.

*A Borrower does not have to be delinquent to have a hardship.

The Hardship Affidavit is a three Page form
Find these forms at www.hmpadmin.com/

Seller must explain:

1. Nature of Hardship (reduction in income, increased expenses, increased debt obligations, unemployment, depleted cash reserves, etc.) and explanation
2. Desire to keep or sell property
3. Whether property is owner or tenant occupied
4. How many properties owned
5. Have they declared bankruptcy
6. If there has been a HAMP modification on the mortgage, permanent or trial

Buyer and Seller must affirm 6 points:

1. Sale is Arm’s Length Transaction
2. All agreements, understandings, contracts or offer relating to sale have been disclosed to the servicer
3. Unless disclosed to the servicer, no agreement exists that seller will remain in the property as a tenant or later obtain title to property
4. Neither party will receive funds or commissions from the sale except relocation assistance as recorded on HUD-1
5. All amounts paid to anyone in connection with the short sale are reflected on the HUD-1
6. Anyone receiving relocation assistance is required to vacate the property as a condition of the sale. Seller also affirms that recipient of assistance occupies the property as a principle residence

With this new change after Feb 1, 2013, upon receipt of a request for a HAFA short sale a Servicer can either issue an SSN or accept the purchase contract and issue an acknowledgement of the short sale. In cases where there is a pre-determined hardship this will save time for the step of having the Hardship Affidavit completed by the borrowers, received, uploaded, reviewed and acknowledged by the servicer, before the next steps in the approval process can go forward. For more info about your eligibility for this and other great programs to avoid foreclosure and potentially even receive $3,000 or more in relocation benefits at the closing, contact us or another experienced Short Sale Realtor who specializes in Short Sales and Foreclosure Avoidance.

More examples of revisions designed to reduce Short Sale Approval times will be discussed in future posts. Post 4 of 5 on this subject

 

Four Questions to ask a Potential Short Sale Realtor

Choosing a real estate agent is an important decision! If you’re pursuing a short sale, selecting the right agent is even more critical than a traditional Real Estate Transaction. Short sales require specific knowledge and expertise that not all real estate agents possess. Just as your agent is responsible for marketing your property and ensuring that you get the best possible deal in a traditional transaction, in a Short Sale transaction your agent is responsible for providing all required documentation and negotiating with your lender(s) for the best possible outcome. Here are a few questions to ask when you interview your short sale agent candidates.
1. What kind of experience do you have with short sales?
There are many realtors who have taken a class or course onshort sales and even may have earned a designation of some kind that indicates they are a short sale expert. However, some agents actually specialize in short sales and foreclosures. You’ll want to find an agent with this expertise. Navigating through the short sale process is much different than negotiating a traditional home sale. An experienced short sale agent will help you prepare your materials properly for the bank, increasing your chances of being approved for a short sale in the first place. Rather than asking about longevity, ask about the number of short sales actually completed as well as how many years experience they have in short sales.
2. How will you market my property?
In addition to completing your paperwork and negotiating properly, your real estate agent must also figure out how to make your property as attractive as possible to other buyers and “get the word out” about your home. This goes beyond listing your home on the MLS. It includes determining the ideal buyer for your property and the type of financing the property will qualify for. Some homes listed for short sale work for investors, while others are better for owner occupant buyers. Marketing a property to investors is certainly different than marketing it to first-time home buyers!
3. Do you see any issues with my short sale?
A real estate agent can’t give legal or financial advice, but an expert agent can explain some of the common pitfalls of short sales and outline what you should expect. For example more liens on the property can make it more difficult. Different servicers and investors offer different types of short sale programs. HUD rules for FHA loans have different rules than other types of Short Sales. If there is mortgage insurance on the loan they have a say in the approval process. Obtaining a release of the deficiency with no recourse is imperative and requires a great deal of expertise in understanding the different programs, lender programs, and requirements. Avoid an agent who tries to make the short sale process seem overly easy or simple. You’ll want an agent who gives an honest, accurate evaluation of your short sale situation.
4. What percentage of the Short Sales that you take on get approved and close?
It’s one thing for a realtor to market themselves as a short sale expert and take on a short sale. It’s quite another to get it properly prepared, conveyed to the lender(s), and negotiated for a Full release including not only the lien but also the note obligation with written agreement that there will be NO recourse opportunity for any lien holders after the transaction successfully closes.
In addition to choosing an agent with the right experience and credentials, you’ll want to select someone who makes you feel comfortable and confident going into the short sale process. You’ll be working closely with this person on an incredibly important transaction and trusting them with sensitive financial information.

 

Major Changes Announced for HAFA

Major news in the short sale and housing industry! On Friday, March 9, the Obama Administration announced updates to the Home Affordable Foreclosure Alternative (HAFA) program. Created in 2009, HAFA is a government-sponsored initiative assisting all Home Affordable Modification Program (HAMP) eligible homeowners in avoiding foreclosure through short sales and deed-in-lieus.

The HAFA updates will go into effect on June 1, 2012, and will allow more distressed homeowners to seek assistance. Most importantly, the deadline for submitting for HAFA eligibility will be extended a full year, from December 31, 2012, to December 31, 2013.

Other major changes from March’s updates to the HAFA program include:

• The removal of occupancy requirements. Previously, HAFA required homeowners to have lived in the property within the last 12 months.

• $3,000 relocation incentives will be limited to properties occupied by an owner or tenant at the time of the short sale.

• Mortgage payments will be allowed to exceed 31% of the homeowner’s gross monthly income. This update will allow a homeowner to stay current on her mortgage and still qualify, minimizing the overall impact to her credit.

• Secondary lienholders may receive up to a maximum of $8,500, up from $6,000 previously.

• And one of the most dramatic changes: The Credit Bureau Reporting will be Account Status Code 13 (paid or closed account/zero balance) or 65 (account paid in full/a foreclosure was started), as applicable.

With these updates, a homeowner can be current on their mortgage, qualify for HAFA, continue to make their payments, and execute a short sale with minimum impact on their credit!

 

Assessed value of Colorado property declines

According to the Denver Post http://www.denverpost.com/legislature/ci_16908034?source=rss
assessed value of Colorado Properties declined in 2010 for the first time since real estate troubles in the 1980’s, and residential properties are expected to plummet another 10.4% in 2011. In the 80’s the oil bust and the savings-and-loan collapse were blamed for the decline in real estate values. As we enter the second decade in the 21st century, the culprits are “The sustained high level of foreclosures, economic downturn and tight mortgage financing market have put downward pressure on home prices throughout Colorado” the Report said. As we work our way through the difficulties associated with high unemployment, lethargic economy, and declines in real estate values, more and more families are finding themselves in trouble on their mortgages. Many distressed homeowners find that they are not able to make the mortgage payment which they once qualified for, either because of job loss, curtailment of income, high debt, or medical issues. To boot, their property is no longer worth as much as they owe, making it difficult to even sell just to get out from under it. In some of these situations, depending on their particular scenario, the homeowner may be able to qualify for a loan modification we all continue to hear so much about. Unfortunately, according to most of the professionals who are attempting to help people obtain a modification or workout program so they can stay in their home, it is a very small percentage of borrowers who are getting the permanent solution they are looking for approved by their lenders. For the rest, a Short Sale is a much better alternative to at least avoid Foreclosure and the aftermath of life after Foreclosure. That is where we come in. As a Certified Distressed Property Expert, my first consultation with a Distressed Homeowner is designed to help them determine if their situation may qualify them for a loan modification or one of the other alternatives to stay in their home. If we agree they should try to keep their home, I have experienced professionals who will give them the best possibility of keeping their home, by assisting the homeowner in compiling all of the critical information and documentation necessary, as well as negotiating on their behalf with the lender(s). In the event that they are not able to keep the property, my team and I have a proven system and track record to successfully sell the property for what it is worth in today’s real estate market, and negotiate the short pay with their lender. A Short Pay involves the mortgage lender(s) on the property agreeing to accept less than the full principal balance of the loan, the net proceeds from the Short sale, and release the lien on the property so it can be sold to avoid foreclosure.

Read more: Assessed value of Colorado property declines – The Denver Posthttp://www.denverpost.com/legislature/ci_16908034?source=rss#ixzz199DACYoA
Read The Denver Post’s Terms of Use of its content: http://www.denverpost.com/termsofuse

 

5 Keys plus to a smoother Short Sale

5 Keys to better Short Selling:

• The right Short Sale Agent: Many agents do not do short sales, some are just getting into doing them, and some have become “experts” by taking a class.  BE CAREFUL!  There are only a few players in town who have the 3 critical criteria:  1. Long term Experience doing Short Sales, 2. Success closing Short Sales, 3. Processes to manage the Short Sale.  Without these 3 criteria, run the other way.
• Pricing Plan: Your agent should price the home accordingly.  A short sale is not a give away but it is a sale at today’s market value, or slightly below….remember supply is very high and demand is very low.  Too many times I see homes priced well above the market value while the REALTOR and the owners hope for an offer.  We do things differently:  We have a plan to price and move the price accordingly to get the results that we demand.
• CLEAN and CURB APPEAL: Forget the idea that you don’t need to keep things nice because someone is getting a really good deal.  Newsflash:  There are really good deals everywhere.  Your Short Sale must stand out!  Get rid of junk.  Correct over stuffed rooms and over stuffed closets.  Clean like you have never cleaned before.  Clean the carpets, bathroom grout, shine up everything, clean the windows.  Go outside, trim the hedges, clean up the yard, add some flowers.  This is a competition and you must win.
• Access: There should be no problems showing the home at any given day or time.  If you restrict showings, you could be turning away your buyer.  I have several homes that have tenants in the property – This is bad as the tenants almost always deny showings on a regular basis.  If you have tenants, discuss with them some options to get them to move.
• Compliance: The banks will require specific documents from you the Seller and often times will require updated documents while we are in negotiations with the bank.  Your timely compliance is crucial.  Waiting a day or two in between request and you are pushing the closing out a couple more days.  Be aggressive with request and get your business handled.
• BONUS ITEM:  Front Load your Inspections: If you have the cash on hand and even if it is extremely tight, you should pay to have a complete home inspection completed before the home goes on the market.  About $200 bucks total.  This would remove any “contingencies” for the buyer as they know exactly what they are getting before going into a contract.  Too often a buyer finds out 90 days into the contract that the house needs new siding and the buyer can’t afford to replace it when they close and the seller can’t afford to replace it either.  Obviously, knowing what is potentially wrong with the house ahead of time would help to avoid these situations and avoid wasting your time.