Stop Foreclosure

We hear about mortgage fraud and title fraud but what in the world is Foreclosure Fraud. Foreclosure Fraud is an attempt by unscrupulous individuals or companies to deceive homeowners of distressed properties. Homeowners facing foreclosure are at their most vulnerable state emotionally and financially. These unscrupulous predators know that this is the time to take advantage of the homeowners. They show up as the knight in shining armor with the rescue plan. They use many different methods; however they always have one of two goals in mind…To get the homeowner to part with some money or to get the homeowner to sign over some form of ownership in the property. Rather than calling it Foreclosure Fraud perhaps we should just call it A Foreclosure Scam.

Here are some Red Flags to help homeowners identify potential Foreclosure Scam Companies or Individuals:

•    Request Money Upfront – Reputable organizations that specialize in helping homeowners prevent foreclosure Do Not request money upfront.
•    Transfer Financial Authority – Another ploy these predators use is to have homeowners sign a “Power of Attorney” where the homeowner appoints them to act on the owners behalf. This can have devastating results.
•    Guarantee To Stop Foreclosure – No third party company or individual can make this guarantee. The only company that can guarantee stopping a foreclosure is the actual mortgage company that holds the loan. This also applies to a guarantee of a loan modification.
•    Advise Stop Paying The Mortgage – Some of these predators advise homeowners to stop paying the mortgage because it will strengthen the homeowners position in the lenders eyes. All they want you to do is skip a payment or two and just give them that money to represent you. If this recommendation is made to you, end the conversation and ask them to leave!
•    Assign The Deed – Never transfer ownership in your home to someone who does not have a financial stake in it. If a company wants you to transfer ownership tell them they will be added to the deed when they are approved by your mortgage company to go on the mortgage and complete the required documents at the closing.
•    Official Government Approved Organization – Really… Confirm how legitimate they are with the Better Business Bureau or Governor’s Office of Consumer Affairs. Most government websites list their approved entities and make it very easy for you to verify
•    Supply Information Online – Before releasing any personal information or financial information online or over the phone make sure you know who you are dealing with.

Do you feel that you may now be a little better informed about what to look for from these scammers? I hope so. If you are having difficulty with meeting your monthly mortgage obligation talk to your Mortgage Company. If you feel that your best option will be to sell your home and you may need to utilize a short sale, give me a call and we can discuss your options.

This article is being published in an attempt to help put into layman’s terms some of the verbiage in the directives associated with the Home Affordable Foreclosure Alternatives Program. I hope it helps.

Possibly one of the least successful programs the federal government has ever instituted is the Home Affordable Modification Program, known to some as HAMP. This program along with the Home Affordable Foreclosure Alternatives makes up the current Making Home Affordable initiative from the government. The purpose of HAMP was to provide an avenue for homeowners to refinance their mortgage to make the monthly payments more affordable. It seems as though the lenders tightened their lending practices just about the same time that the HAMP program was launched. Recent news reports have stated that as few as 5% of eligible home loans have received a permanent modification. The latest report of the HAMP Program from March 2010 shows a total of 230,801 permanent modifications have been done since the program’s inception in early 2009. At this rate it will take about 25 years for eligible loans to get modified. The requirements for a HAMP loan modification are as follows:

•    Homeowner desires to keep their home
•    The mortgage loan must be for the homeowner’s primary residence.
•    The mortgage must have been originated prior to January 1, 2009.
•    The amount of the loan should be $729,750 or less
•    If the account is not in default, the homeowner must be able to demonstrate imminent danger of default, which can include providing proof of a financial hardship, job loss, etc.
•    The payment on the first mortgage (second liens do not qualify for the program) must be more than 31% of the homeowner’s gross income. This includes principal, interest, insurance, taxes, and HOA fees. The gross income includes all borrowers, if more than one person signed the note.

The reason for starting this article with HAMP information and requirements is due to fact that in order to be eligible for the HAFA Program, a seller must first be HAMP eligible. The HAFA Program went into effect on April 5, 2010 and is due to expire on December 31, 2012. Where HAMP is designed for homeowners who desire to remain in their home HAFA is for homeowners who, due to the declining market and current economic conditions, desire to “Short Sale” their home or provide the lender with a “Deed in Lieu of Foreclosure”. HAFA is not for FHA, VA, Fannie Mae or Freddie Mac backed loans. To find out if your loan is eligible you must contact your servicer. HAFA requirements state that the homeowner:

•    Must be HAMP Eligible
•    The home must be the Primary Residence
•    The loan must have been originated before 01/01/2009
•    The loan must be in default or be reasonably suspect of going into default
•    The loan amount must be under $729,750
•    The monthly payment must exceed 31% of the homeowners Gross Income

HAFA vs. Traditional Short Sale

In a traditional Short Sale transaction everything is a guess regarding price and terms. The seller, homeowner, may agree to specific terms and conditions only to have the lender reject the transaction. With a non HAFA transaction the property would be marketed, then an offer received and then the waiting game, some of which we have seen go longer than 6 months, begins. See the timeline below for more information on HAFA timelines. With a HAFA transaction most of the waiting time is spent on the front end of the sales process prior to an offer being presented.

With a HAFA transaction the price, the closing costs contributions by the seller along with other variables are established by the lender. The lender is then bound by these terms for 120 days. Buyers will know the terms of the purchase from the start rather than having to play a wait and see game. This fact alone should help shorten the timeline for prospective buyers and hopefully eliminate those horror stories we have heard about regarding the amount of time involved in getting a short sale closed.

How to Get Started With HAFA

Even if you have not applied for or been contacted by your lender regarding a loan modification, to begin the HAFA process you start with the Request for Modification and Affidavit. On this form you will fill in the basic information paying special attention to the “Hardship Affidavit” section of the form. You should attach documentation showing that the monthly payment on your home exceeds 31% of your gross monthly income.

Benefits of HAFA for Sellers

HAFA provides some very special and important benefits compared to the traditional short sale for the homeowner who is facing foreclosure.

•    Seller is released of all liens
•    Shortened timeline after the receipt of a contract
•    Seller gets a $3,000 relocation allowance
•    The lender is bound by the established price and terms for 120 days

Disadvantages of HAFA for Sellers

While the upside seems to outweigh the downside of a HAFA transaction it would be inappropriate not to disclose the disadvantages also. As we see it the disadvantages for the Seller in a HAFA transaction are as follows:

•    Must be an arm’s length transaction
•    The Seller may have to pay taxes on the debt forgiven and the relocation allowance
•    Reporting to the major credit bureaus that the mortgage was settled for less that the full payment
•    You must have clear title to the property. Second lien holders must agree to a substantial short payoff. If a second position does not agree then all of this work has been for nothing
•    If you sign the standard Short Sale Agreement as it is written you are agreeing that if the home does not sale in the 120 day time period, you are agreeing to a Deed-in-Lieu of Foreclosure

Seller Responsibilities

In a HAFA transaction the homeowner is responsible for several items regarding the home:

•    All property maintenance both interior and exterior
•    All Utilities
•    Any Assessments
•    Association Dues
•    Maintain Insurance on the property

HAFA Timelines

In any real estate transaction timelines are an important part of the documentation required to achieve a successful closing. Timelines in HAFA are no different. Let’s look at the timelines in a HAFA transaction:

•    Lender responds to Request for Modification and Affidavit….No Specific Timeline
•    Seller and Broker respond to Short Sale Agreement(SSA)……14 Calendar Days
•    Seller responds to Alternative Request for Approval of Short Sale….14 Calendar Days
•    Request to Approve a Short Sale(RASS) 3 Business Days from receiving an offer
•    Lender response to Request to Approve a Short Sale………….10 Business Days

Important Certifications from the Seller

There are several very important items that as the seller you must certify. Under penalty of perjury you certify that:

1.    This is an arm’s length transaction, between the parties who are unrelated and unaffiliated by family, marriage or commercial enterprise
2.    There are no agreements or understandings between you and the buyer that you will remain in the property as a tenant or later obtain title or ownership of the property
3.    Neither you nor the buyer will receive any funds or commissions from the sale of the property
4.    There are no agreements or offers relating to the sale or subsequent sale of the property that have not been disclosed to the Servicer

Is That All

My intention is to present as complete an overview as possible and put it in layman’s terms for everyone to understand. I feel certain that with the HAFA Program having just launched that there will be changes as the program evolves. I will attempt to keep you posted as I become aware of changes to this program.

If you are in a situation where it may be necessary for you to short sale your home and would like free no obligation counseling on your options, feel free to give me a call or contact me by email. I will do everything I can to assist you through this difficult time.

Buying a Short Sale Home

Considering today’s market along with the tremendous growth in the number of short sale properties available, the potential for buyer’s to obtain a “Bargain Deal” has increased substantially. Of course the baggage that comes with the increased opportunities provided by short sale properties is that buyers must be in a position to wait for lender approval among other things to close. The process can often take up to 4 to 5 months and I have heard of some transactions taking over 9 months. Buyer’s should also understand that the seller probably did not have funds to maintain the property and it is almost a certainty that the property will be sold “as-is” without any repairs being made.

What Short Sale Buyers Need To Be Prepared For

Prior to entering into a purchase and sale agreement for a short sale property, buyer’s need to have a full understanding of the process along with a knowledge of what is expected of them. Let’s examine what is expected of the buyer’s:

•    Prequalification For A Loan – The lender is going to want to see that the buyer has been completely prequalified by a reputable lender who has examined the buyers credit file with all three reporting agencies in addition to examining the buyers income and debt ratios
•    Realistic Expectations of the Time Frame – There is no set time frame in which a short sale transaction can be closed. One of the largest factors is how well did the listing agent prepare the short sale package for the seller’s lender. This is totally out of the buyer’s control and presents a real source of frustration. As stated earlier, the process can take 4 to 5 months.
•    Flexibility of a Closing Date – If a buyer is on a very strict time frame, such as an apartment lease coming to conclusion, a short sale is probably not the avenue a buyer in this situation would want to pursue. The time frames will almost certainly change and there can be multiple closing date extensions to the contract.
•    Resources to Make Necessary Repairs – Considering that the seller has experienced a financial hardship of some kind it only makes sense that they were probably unable to maintain the home. To help identify what potential problems there may be, make certain that you have a home inspection by a qualified home inspector.
•    The Lender Makes the Final Call – Buyers of short sale properties must understand that even though they have reached an agreement with the seller, it is the seller’s lender or, in some cases, lenders who will make the final call. It is possible for one lender to approve the transaction and the other not to approve it thereby starting the negotiation all over.
•    The Sale Can Fall Through – Through no fault of the buyer or the seller the sale of the property can fall through. As earlier stated, the lender has the final say as to whether or not they will approve the short sale.
•    Interest Rates Change – Interest rates change on a daily basis. In times of a more volatile market they can even change several times in a single day. When a contract is entered into a buyer may be expecting one interest rate and by the time the sale closes a different rate may prevail. Currently interest rates are at historic lows and the market is not volatile. This means that interest rates are remaining constant. I just wanted to share that the potential exists for interest rate fluctuation due to the amount of time that lapses between when the contract was entered into and the time it closes.
•    Knowledge of Who You Are Dealing With – For those of us who have successfully closed short sale transactions, we have a pretty good idea of what to expect from the various lenders. RE/MAX Chairman and CEO Dave Liniger took it upon himself to help educate some of the powers that be as can be witnessed in this article.

As your Atlanta Short Sale Buyers Agent there are several tasks that will be performed for you. You will get a complete market analysis of the property and the comparable properties in close proximity. In order to best determine how good a job the listing agent has done we will ask several questions:

1.    Is the short sale package ready for submission to the lender? If the agent is not familiar with what needs to be included in this package the chances for the property ever closing as a short sale are extremely low.
2.    How many liens are on the property? The more liens the more difficult it is to get everyone to agree and approve the short sale.
3.    If more than 1 lien, what are they? (a first mortgage, a second mortgage, a tax lien, a mechanics lien, etc.)
4.    What is the plan to satisfy the lien holders? There needs to be a satisfactory plan in place or we could just be spinning our wheels.

Finding a deal in today’s Greater Atlanta Market on a short sale property is easy. Following it through to conclusion is a talent. Why don’t we put my talent together with your desire to obtain a fantastic deal?

Whether you are interested in a Short Sale or a Foreclosure having proper buyer representation is to your advantage. Here is what one of my clients had to say about her experience:

I wanted to say thank you once again for making my house buying experience an exceptional one.  The care, time, patience and effort you took to ensure that I was satisfied with my purcase was exemplory. I have heard stories about the things other agents do and was very sceptical until I realise that you are the “REAL DEAL“..  You went above and beyond the call of duty to ensure that I had all the information necessary and that I would be aware of what to do and not to do!  Thanks Mack!  You were right…..when you are with Mack, get ready to pack!

Sheryl Clarke

Stop Foreclosure

What Makes an Effective Short Sale Package?

In the last article, The Anatomy of a Short Sale, we examined what potential requirements would be required to qualify for a short sale. Now we are going to examine what items are needed in order to assemble an effective short sale package for the lender. The short sale package, when completed with all the required documentation, can have a very positive effect on the result of the transaction. If there are multiple loans on the distressed property this package must be duplicated so that each lender has a complete package. How the short sale package is submitted to the lender is at the direction of the lender. The lender(s) may want it faxed, emailed or delivered in hard copy via the mail. Let’s look at the items that should be included in the package:

•    The Cover Letter – Also known as the Short Sale Proposal Letter. This letter should be one page that is clear and concise providing the lender with an accurate overview of the distressed owner’s situation, what they owe on the property, what the property is worth, what repairs are needed on the property and complete details of the negotiated purchase offer.
•    Short Sale Payoff Application (If Applicable) – This application, if applicable, will be provided by the lender, should be completed by the seller and should be included in the short sale package.
•   Seller’s Hardship Letter – The hardship letter allows the seller to explain their situation to the lender. The sellers should communicate that they are sorry, their circumstances and that they have exhausted all their options and the next step is letting the property go to foreclosure.
•    Seller’s Financial Information – The owner’s financial information can easily be compiled by listing Assets (Real Estate, Stocks, Bonds, Mutual Funds, Bank Accounts, Personal Property and Retirement Accounts), Liabilities (Real Estate Loans, Personal Loans, Credit Card Debt, IRS Liens, Judgments and Lawsuits) and Monthly Expenses ( Credit Card Bills, Utility Bills, Car Payments, Insurance Payments, Food and Clothing, Medical Bill and Prescriptions, Child Support and Tuition Expenses)
•    Supporting Financial Information – These documents are typically the same as the ones that were provided when the seller applied for the mortgage(Pay Stubs, w-2’s or Tax Returns and Bank Statements or Credit Reports) The lender will advise as to how far back they want you to go with the documentation.
•    Supporting Hardship Information – A complete picture of the distressed homeowner’s situation can also be supported by also providing the lender with additional documentation (HOA Liens, Medical Bills, Disability Statement, Unemployment Benefits or Status or Divorce Decree).
•    Repair Estimate – If repairs on the property are needed, a detailed estimate of cost by a licensed contractor should be included with the short sale package.
•    Market Analysis – The REALTOR should prepare a BPO, Brokers Pricing Opinion, to be included in the package. This BPO will highlight data such as Average Days on the Market, Number of Short Sales and Foreclosures in the area, Pricing Trends, Recent Economic Data and the Absorption Rate. The lender will also order one or two BPO’s after they receive the short sale package.
•    Marketing History – The lender want to see that everything possible has been done to obtain the best price for the property. They want to see a complete list of showings, feedback and advertising.
•    Purchase Contract – The Purchase and Sale Agreement will be totally negotiated, executed (signed by all parties) and submitted with all supporting documents to the lender. The supporting documents would be the buyer’s preapproval letter, a copy of their earnest money deposit and a Preliminary HUD-1 prepared by an attorney.

Follow-Up is Needed

After the short sale package has been submitted several things must be verified with the lender. This follow up is vital to the success of the short sale. We must make certain that the package was received and there is nothing more needed in order to approve the sale. We must also verify that the Loss Mitigation Department has or will communicate with the Foreclosure Department to try to ensure that foreclosure proceedings have been halted. During this process we will establish how the Loss Mitigation wants to be contacted; phone, fax or email.

Incomplete Package = Failure

One of the most common reasons why short sales fail to reach a successful closing is because an incomplete short sale package was submitted to the lender. It is important to remember that in today’s market the loss mitigation departments of the lenders are completely covered up distressed property transactions. The negotiators simple do not have time to hold someone’s hand and guide them through the process or let them know what documentation they are missing. They devote their time to working on short sale transactions where they have complete packages and documentation. The incomplete packages simply get put in a pile that will be handled when they have the time, which they never will. Just by the nature of the beast, short sale transactions can take a long time….Without a complete short sale package they will take forever.

Should We Talk?

If you reside in the Greater Atlanta Area, are in a distressed housing situation and would like a confidential meeting to discuss your options feel free to contact me. You may use the contact form on this page or you can call me at 770-318-2572.

Stop Foreclosure

The Anatomy of a Short Sale

Not every owner of distressed property is a candidate for a short sale and therefore they cannot all be saved from foreclosure. In this article we will examine the circumstances that may qualify a homeowner for participation in a short sale.

Is There a Valid Hardship?

What exactly constitutes a valid hardship? Loss of Equity due to a declining market is not considered to be a valid hardship. Lenders will however consider and possibly entertain a short sale for homeowners who have experience one or more of the following:

•    Job Loss
•    Business Failure
•    Illness and Medical Costs
•    Divorce or Death of a Spouse
•    Natural Disasters

Is There Sufficient Time to Accomplish a Short Sale?

A short sale, as we defined earlier, is a situation in which the seller (1) owes more on the loan than the sale of the property will likely produce and (2) is unable to bring funds to closing to satisfy the deficiency. The timeframe for completing a short sale in Georgia can be very limited due to Georgia being a Non-Judicial Foreclosure state. Once a homeowner realizes that there is a problem they should consult with a real estate professional knowledgeable in the short sale process. There can be a matter of only a month or two in order to complete a short sale. Both the homeowner and the REALTOR should have conversation with the lender, confirming each conversation in writing, and establish a time line that the lender will allow for the transaction to be completed. Short Sale transactions are not for the faint of heart. They are often very difficult and time consuming therefore they should be handled by a REALTOR experienced with short sales and distressed properties.

Roles of Finance, Tax and Legal Professionals

One constant message in this series has been to keep finance, tax and legal professionals involved in the process. Realizing that homeowners who are approaching mortgage default may argue that they cannot afford to pay these professionals, I understand. I would like to point out however that some attorneys that work with owners of distressed property take into consideration the current financial reality and allow ways to navigate the process with little or no upfront fees. There are several websites that can direct distressed owners to free counseling.

Determining What Is Owed on the Property

In order present a true picture to the lender it is imperative that we determine exactly what is owed on the distressed property. Let’s look at the items that will have to be satisfied in order to have a successful closing:

•    Principal Balance and Interest
•    Real Estate Taxes
•    Second Mortgage or HELOC (Home Equity Line of Credit)
•    Home Owners Association Dues
•    IRS Tax Liens
•    Mechanics Liens

Property Condition

Understanding that there has been difficulty in staying current on the mortgage, it is likely that maintenance of the property has been neglected. We should examine the home and evaluate what will be needed in order to have the opportunity to successfully close the transaction. This doesn’t mean that repairs must be made, however we should take them into account so that we can again build our case for the lender.

How to Price a Short Sale Property Listing

As the listing agent for a short sale, my goal is to price the property in a manner that the seller, the homeowner, will receive and offer that has a realistic chance of closing. There are instances where the listing agent prices the property where the seller needs the price to be, which may be too high. Another fault is when the property is priced at an unbelievable low price which entices buyers to submit an offer only to have it rejected by the seller’s lender, who must ultimately approve the contract.

There is no set formula for pricing a short sale, however in order to reach a successful closing the proper price should be somewhere on the low end of fair market value. Freddie Mac has stated that their target sales price is 88% of the Broker Price Opinion (BPO). We would have to think that the guidelines would be similar for FHA and Fannie Mae.

What Do We Need From Distressed Property Owners?

In order to complete a successful short sale we must first start with a solid beginning. The homeowner must provide the REALTOR with an Authorization to Release Financial Information for each lien. The seller should have already contacted the Loss Mitigation Department of their lender. As your REALTOR, I will also be contacting them. This must be done for each of the lien holders. There are multiple questions that I will be asking the lender’s representative so that we can make the process as smooth as possible. Just as with non short sale listings the seller should fill out a Sellers Property Disclosure Statement and let potential purchasers know everything about the home.

Negotiating a Short Sale Contract

The contract for a short sale is entered into between the buyer and the seller, not the buyer and the lender. The seller’s lender only approves the contract. Taking this into account we will negotiate the contract in the same manner that we would negotiate a non short sale offer. Once we have an accepted contract between the buyer and the seller, we will not submit any additional contracts to the lender. If we obtain additional contracts we will negotiate them as backup contracts and treat them as such. We should however anticipate several questions from an experienced buyer’s agent prior to the submission of an offer:

•    Is the short sale package ready for submission to the lender?
•    How many liens are on the property?
•    If more than one lien what are they?
•    What is the plan to satisfy all the lien holders?

As you can see we need to have a solid plan in place in order to answer these questions as well as others that may arise. We accomplish this by have an open line of communication with all lien holders as well as each other.

Do you know someone in need of this level of service? As a Short Sale and Foreclosure Resource, I am here to help. Don’t hesitate to contact me as we need to get the ball rolling if we are going to stop foreclosure.

Stop Foreclosure

In the initial article on Atlanta Short Sale and Foreclosure Information we examined the terminology used with short sales and foreclosures along with the pre-foreclosure and foreclosure process. In this article we are going to examine potential options available to owners of distressed properties. Please understand that these options are being presented in a general context and to determine which option would best suit an individual circumstance it would be best for the homeowner to also discuss all options available with qualified finance, tax and legal professionals.

Distressed Homeowner Options

Refinance

Homeowners that are current on their mortgage may be able to take advantage of today’s lower interest rates by refinancing via the Making Home Affordable initiative launched in early 2009. The criteria to be eligible under this program are as follows:

•   The Home – Must be owner occupied and be a one to four unit home
•    The Existing Mortgage – Must be owned or backed by Fannie Mae or Freddie Mac and the Loan-To-Value Ratio (LTV) is above 80% but not more than 125% (If you don’t know if your loan fits into this category you can check to see at http://makinghomeaffordable.gov/loan-lookup.html)
•    The Borrower – Is current on existing mortgage payments and has sufficient income to support the new mortgage payments

Sell and Bring Cash to Closing

Even though many homeowners may not have the cash to cure a deficiency at closing, they may have assets in the form of Treasury Bonds or Individual Retirement Accounts to do so. Homeowners can avoid the credit damage that a short sale or a foreclosure can cause by curing the deficiency in this manner. Before considering this option homeowners are strongly advised to consult with their financial and tax professionals to examine any negative effects.

Lender Workout

Remember the lender does not want the home. The lender, in many circumstances, will work with owners of distressed properties to help the homeowner keep their home. Let’s examine Mortgage Workout Options:

•    Forbearance – If you have a reasonable plan for catching up your lender may allow you to make partial payments or skip payments. Inform your lender if you are expecting a Tax Refund, A Bonus, or perhaps a new job. Let them know what is changing that will positively impact the situation
•    Reinstatement – Reinstatement refers to making a payment that covers all the late payments and is usually at the end of the forbearance period
•    Repayment Plan – Perhaps you can’t afford reinstatement, your lender may allow you to pay an additional amount each month until you are caught up
•    Loan Modification – Many lenders may agree to amend or modify your mortgage to avoid foreclosure. Ways that the mortgage could be modified  would include:
1.    Adding all the missed payments to the loan amount and increasing the loan amount to cover the increased principal
2.    Increasing the number of years for you to repay the loan, lowering the interest rate or forgiving a portion of the loan to reduce your monthly payment
3.    Switching an Adjustable Rate Mortgage to a Fixed Rate Mortgage helping you to avoid the fluctuations in your monthly payment
4.    Establishing an escrow account for taxes and insurance with your mortgage so that you do not have those large expenditures

Earlier we discussed the Making Home Affordable Initiative for Fannie Mae and Freddie Mac owned or backed properties where the homeowner is current on the mortgage. Homeowners struggling to stay current on their mortgage who have experienced a change in income or other financial hardship may seek a loan modification via the Home Affordable Modification; which is a component of the Making Home Affordable Program. The Home Affordable Modification is a voluntary program with participation from major mortgage servicers. Let’s look at the requirements for this program:

•    The Home – Must be owner occupied and is a one to four unit home
•    The Existing Mortgage – The unpaid balance is less than $729,750 for one unit properties (Higher Limits are available for 2, 3 and 4 unit properties), the loan was originated before January 1, 2009 and payments exceed 31% of the borrowers gross monthly income

Under the Home Affordable Modification, once the loan has been modified there is a three month trial period. If during the trial period the borrower is successful with the modified interest level and the mortgage payment, the lender will execute an agreement that lowers the interest rate to a fixed rate for five years and caps the interest rate for the remaining life of the loan.

Please note that these lender workouts and loan modifications are not an area where I represent homeowners in an agency capacity or a client relationship. Even though they are real estate related transactions they are not a real estate transaction as defined by law. Even though I cannot represent homeowners with these options, they are viable alternatives for distressed property owners and they should be covered in this article.

Short Sale

Again, a Short Sale is defined as a situation in which the seller owes more money on the loan (and any other liens on the property) than the sale of the property will likely produce and the seller is either unable or unwilling to bring money to closing. In a short sale situation the lender has not yet foreclosed on the property and there is a window of opportunity for the homeowner to sell the property and at least partially satisfy the loan.

A short sale is considered to be preferable to a foreclosure because typically the homeowner’s credit is not damaged as severely as with a foreclosure. A short sale can also lessen the impact on the surrounding community.

There is also a portion of the Making Home Affordable Initiative that can be applied to a short sale. For borrowers that meet the eligibility requirements of the Home Affordable Modification but do not qualify for a modification Foreclosure Alternatives may be an option. Under this program borrowers and mortgage services are both provided with incentives to help prevent foreclosure.  The incentives are as follows:

•    $1,000 for lenders for a successful short sale or deed in lieu of foreclosure
•    $1,500 for distressed homeowners to help with relocation expenses
•    Up to $1,000 for junior lien holders (second mortgage or HELOC) to release liens
•    90 days up to 1 year for homeowners to market and sell the property
•    No foreclosure may occur during the marketing period specified in the Short Sale Agreement
•    Mortgage servicers cannot charge fees to borrowers for participating in Foreclosure Alternatives
•    Mortgage servicers cannot negotiate lower commissions after an offer has been received. (This has been a problem in the past and has caused some real estate practitioners to not show short sale properties)

Deed In Lieu of Foreclosure

A deed in lieu of foreclosure occurs when the borrower agrees to trade the property to the lender in exchange for the lender cancelling the note. Market conditions have the greatest influence whether or not the lender will accept a deed in lieu of foreclosure. Typically lenders are less willing to accept a deed in lieu of foreclosure in a declining market.

Foreclosure

While foreclosure is an option, hopefully it will be the option of last resort. The previous options have been directed at ways to avoid foreclosure. In some cases foreclosure may be the best option even though it will most certainly wreck the homeowner’s credit.

Do Nothing or Walk Away

Walking away from the loan or asking the lender to proceed with a short sale simply because the value of the property went down is not a recommended option. If this is an option that a homeowner elects to pursue, it is highly recommended that the homeowner seek advice from an attorney. Often there will be additional financial consequences for homeowners that take this route.

Summary

In this article we examined and explored options that are available to owners of distressed properties. We looked at various Government Programs that are designed to assist in prevention of foreclosures. I cannot stress enough how important it is for homeowners to communicate with their lender when they are faced with this type situation.

If you reside in the Greater Atlanta Area, are in a distressed housing situation and would like a confidential meeting to discuss your options feel free to contact me. You may use the contact form on this page or you can call me at 770-318-2572.

Last Friday I attended the Short Sale and Foreclosure Resource Designation continuing education class that is currently being offered by the Real Estate Buyers Agent Council of the National Association of REALTORS. The purpose of the class was to help educate the participants with the latest information and show how real estate agents can best serve as a resource for both sellers and buyers of distressed properties.

Each seller who will potentially be involved in a short sale has a somewhat unique situation and set of circumstances. My job is to help you understand what your options are.

First Things First – The Terminology

Let’s look at the terminology, words and acronyms used to describe the foreclosure process as they relate to distressed properties in the Atlanta Market:

•    Foreclosure: The legal process by which a defaulted borrower is deprived of his or her interest in a mortgaged property
•    Pre-Foreclosure: The period of time beginning with the initial mortgage default up to the time when the distressed property is sold
•    NOD: Short for Notice of Default. This is the official notice from the lender notifying the borrower that they have defaulted on the mortgage. The NOD formally begins the foreclosure process.
•    Reinstatement Period: The timeframe stipulated in the Notice of Default in which the borrower has to reinstate the loan by making required payments and bringing the account into good standing
•    Short Sale: A short sale is a situation in which the seller (1) owes more on the loan than the sale of the property will likely produce and (2) is unable to bring funds to closing to satisfy the deficiency
•    Notice of Sale: If, after receiving the Notice of Default, the borrower does not or is unable to reinstate the loan, a Notice of Sale is recorded. The Notice of Sale explains where and when the foreclosure sale will be held
•    Foreclosure Sale: A foreclosure sale is when the property is auctioned off to the highest bidder. This is also referred to as a Sheriffs Auction, a Sheriff’s Sale or a Trustee’s Sale
•    REO: The acronym for Real Estate Owned. REO is the status of the property when the foreclosure sale is unsuccessful and the ownership of the property is transferred involuntarily to the lender

The Foreclosure Process

Pre-Foreclosure

•    The Borrower Misses Payments
•    The Lender attempts to Contact the Borrower
•    The Lender sends The Notice of Default (NOD)
•    If the Borrower does not Reinstate the Loan within the required timeframe the Notice of Sale is Recorded

Foreclosure

•    The Foreclosure Sale is conducted

REO

•    If the foreclosure sale is unsuccessful, ownership in the property is transferred involuntarily to the lender and the property is now Real Estate Owned

How I Can Help

My goal is to be a resource for distressed homeowners in the Greater Atlanta Market by helping them understand what options are available. I can also guide them to Foreclosure Avoidance Counseling which in many cases is free. Due to Georgia being a Non-Judicial Foreclosure State, time is of the essence regarding working towards a solution in a short sale or pre-foreclosure situation. To be totally blunt, in the State of Georgia there is an express lane to the foreclosure sale. If you know of anyone who can use this service, please don’t hesitate to contact me.

Atlanta Short Sale and Foreclosure Information Part 2
Take a look at The Options Available

Atlanta Short Sale and Foreclosure Information Part 3
The Anatomy of a Short Sale

Atlanta Short Sale and Foreclosure Information Part 4
An Effective Short Sale Package

Atlanta Short Sale and Foreclosure Information Part 5
What Buyers Should Be Prepared For and The Role of a Short Sale Buyers Agent

Builder Short Sales

A builder doing a short sale on a new construction property is just plain scary. What you as a buyer are being told, in a not so subtle way, is that the builder is probably not going to be able to cover any warranty work that needs to be performed on your new home. Having that builder backed warranty for the first year is a huge financial advantage. Getting a home warranty can rectify some of your exposure however many of the items that need to be corrected in that first year are cosmetic items that a home warranty does not cover. After all, the appliances are covered under the manufacturer’s warranty. I have yet to see a new construction home that does not have settling cracks and nail pops during that builder warranty period. Now, I don’t want you to think that I’m saying not to buy a Builder Short Sale. I’m just saying that you need to buy it at a price that makes it worthwhile to take on the additional financial risk.

Is It A Tough Market?

Sure the market is tough for the new home builders right now. It’s tough for everyone. Everything involved in our economy is tough. These tough times require that you, as an educated buyer, demand certain things from your agent. Possibly the most important thing that an agent can do for a buyer in today’s market is share the knowledge about builders and construction techniques that has been obtained through years of hard work. Not only the sharing of knowledge, but also the ability to obtain current information about the prospective builder’s financial status and prospects for the future. No one wants to be in a situation where they purchase a home today and the builder is gone tomorrow.

Educated Buyers Work With Business People

In the past the thought was that “If you build it they will come”. To some degree that was accurate. In today’s market educated buyers are working with builders and agents that treat their business as a business. The builders and agents that will survive in this market are businesspeople that operate and act like businesspeople.

Don’t Scare Me

The thought of one of my buyers purchasing a home from a builder via a short sale scares the mess out of me. I take pride in protecting my buyer’s best interest. I just don’t think this type transaction is a good fit for buyers who don’t understand the additional financial risks involved.

One of the requirements of being a licensed agent is to successfully complete various continuing education classes during each year. Last fall I attended a class on “Understanding Appraisals”. The instructor for this class is an Atlanta Appraiser by the name of Scott Murphy. I found Scott to be extremely knowledgeable and he was more than helpful for the agents taking the class. Taking into account Scott’s experience and expertise, I requested his insight on the effects of a short sale on appraised values from an appraiser’s viewpoint. The following is Scott’s reply: 

The effect on the market due to short sales is yet to be seen. Short sales are relatively new to the market. Many short sales will go to investors who know how to manage the complex and time consuming process. They will work the system to obtain the property significantly below market. They in turn will relist and sell the house at market value, much the same as the foreclosure process. These sales will hopefully self correct themselves. The sales that will be most damaging to the market are those which sell to owner occupants slightly below market value with full market exposure.

The true test to the validity of the sale and to determine if the sale is a true arms length sale would be its exposure to the market. Foreclosure sales are generally discarded because a lack of exposure to the market or they are significantly inferior in condition to other homes in the neighborhood. Short sales, on the other hand, are typically in similar condition to other homes in the neighborhood. If the home is multiple listed for a reasonable amount of time (IE: 30 days or more) it is then thought to have been adequately exposed to the market and may very well be an arm’s length sale. The effect these sales will have on the market will be determined by the exposure and the number of them in a given neighborhood. Most neighborhoods can support 1-2 short or distressed sales without altering values. When the number of short of distressed sales exceeds the number of arm’s length sales values will significantly decrease.

I want to thank Scott for taking the time to share his insight. His answer has brought up an even more thought provoking question, Are short sales in any way responsible for the declining markets as viewed by the various mortgage lenders? If so would they not be like a double edged sword, they cut the losses of the lender by foregoing a foreclosure but create a more difficult lending environment for purchasers because entire market areas are becoming classified as declining markets.

If you are having difficulty paying your monthly mortgage payment, you are not alone. Lenders got very creative, even greedy, while inventing mortgage programs that helped families buy their first home or refinance existing mortgages. Many of these programs were for buyers with no money for a down payment or for families with less than perfect credit. These loans were known as subprime loans. One of the most popular of these loan programs were the hybrid adjustable rate mortgage. A hybrid ARM has a low interest rate initially (a teaser rate) which is followed by significant upward adjustments during the remaining years of the loan. Other than lenders, declining or flat markets and tougher economic conditions have contributed to everyone having a more difficult time meeting our monthly obligations.

Recently a new phrase has come into the real estate market, not only in Atlanta, but throughout the nation. That phrase is a short sale.

What is a Short Sale

A short sale is when you have the ability to sell you home, but the proceeds from the sale are less than the actual payoff and expenses involved in selling the home. In a short sale, the mortgage company agrees to accept less than the payoff they are owed. A short sale is an alternative to foreclosure which may benefit both the lender and borrower. Typically a short sale is a better solution for the lender than foreclosure. If the lender had to foreclose on the property, they would be responsible for attorney fees, possible eviction costs, utilities and other various costs associated with a foreclosure. In allowing a short sale the lender may be able to reduce their losses compared to a foreclosure. One important point is that the lenders typically require documentation as to the hardship that has caused the need for a short sale.

What Hardships are Acceptable

Most mortgage companies require a hardship letter prior to discussing a short sale. The hardship letter should present the facts clearly and honestly and must provide the proof regarding the situation that caused the borrower to fall behind on their payments. The following hardships are frequently accepted by mortgage lenders:

• Job Loss or significant loss of income
• Divorce or Separation
• Excessive Medical Bills
• Death of a Spouse
• Military Service
• Adjustment in Mortgage Payment

How Does a Short Sale Affect My Credit

The late payments that lead up to the short sale will, as expected, have a negative impact on your credit. The main advantage to a short sale is avoiding foreclosure. A short sale should be less detrimental on a credit report than either a foreclosure or a deed-in-lieu of foreclosure.

The Mortgage Debt Relief Act of 2007

By signing H.R. 3648, The Mortgage Debt Relief Act of 2007, President Bush changed the tax ramification for anyone selling their home via short sale or owners who are renegotiating their mortgage. Prior to this legislation signed into law any shortage on a full payoff to a lender was considered taxable income.

Work With a Professional

If you are thinking about a short sale on you home, it is recommended that you meet with a professional and discuss you exact circumstances so that you can be given the best guidance for your situation. Working with a REALTOR® who knows how to talk with the Loss Mitigation Departments at the lender as well as being able to guide you on all the proper documentation required for a short sale will make this process easier for you. The actual documentation required by each lender can vary dramatically. To successfully complete a short sale transaction it is necessary for you to have all the elements documented and in place along with having an effective short sale strategy.

I will be happy to meet with you to evaluate your situation and discuss the options that are available to you. Feel free to contact me via email or phone.