Five ways to Stop Foreclosure- Iowa Edition

Posted on March 21, 2011 by admin

Ok, There is no magic pill here, the best way to stop foreclosure is to pay what you owe; however, if that is out of the realm of possibilities here is what you can do:

  • Get the bank an offer from a buyer to buy your home. Any offer, just get it now! Banks allow a procedure called a Short Sale in which you sell your house and agree to give whatever proceeds you get to your bank even if it is less than your outstanding balance.  Call someone you know who buys houses or call a Realtor and get your house listed ASAP (make sure they have successfully completed at least 5-10+ short sales themselves).
  • File for Bankruptcy. Before you do this, consult with your CPA and a qualified bankruptcy attorney to make sure its a fit. The law says that a court cannot proceed with foreclosure whilst the property is in bankruptcy proceedings. It will ensure, in most cases, that you will not get any deficiency judgments after the foreclosure or short sale.

Remember : Bankruptcy does not prevent foreclosure, you will still                  have to sell your home or pay it off to avoid foreclosure.

  • Loan Modification- A Loan Modification is any change or alteration to the original terms of the note that you signed when you purchased or refinanced your home. This can be a lowering of the interest rate on the home, a reduction of the principal balance, or a lengthening of the amortization of the loan. A good starting point for this process would be the Iowa Mortgage Help website: http://www.iowamortgagehelp.com

The only way that I have actually seen that works to tell ahead of time if you qualify for a loan modification is to run what is called a Rest Report.   If the Rest Report says that you qualify then you can submit it to your lender and you should be able to get your loan modified.  Don’t spend any money paying a loan modification company, until you have checked out the Rest Report.             

  • File an Answer to the Petition to Foreclose- When a bank begins a foreclosure process, they file a petition with the courts to foreclose on the mortgage. They are seeking a judgment ‘in rem” or “in the land”. In plain English, they are coming after the house to collect a debt that was represented by the note you signed promising to pay them back. Banks have to serve you this document, and if you file an “answer” to this petition you can buy up to 6 months to a year delay of the foreclosure. This document should be prepared by a competent attorney and you need to file this within the time frame allotted in the petition. Keep in mind, that if you file for this delay, then you may be reliquishing your rights not to be chased for a deficiency judgment. When a lender files for foreclosure without redemption, they cannot pursue a deficiency judgment, unless you file for a delay, so choose wisely!

check out Jeff Mathis’ Blog at  http://www.iowaforeclosure.blogspot.com/

  • Demand the bank to produce the note. Check out this site for details: http://tiny.cc/kOw3l The gist of it is, that banks have bundled and sold the rights to service these loans so many times that often times they don’t even have a copy of the original note anymore. Without it, a judge can rule that the servicer doesn’t have the right to foreclose without being able to show the terms of the deal as evidenced by the note.

So there it is, 5 ways you can stop your foreclosure. Remember, most of these are temporary solutions, to deal with the issue permanently you will need to either find a way to repay or sell the sucker.

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Help! My Rental in Des Moines is Being Foreclosed on!

Posted on March 11, 2011 by admin

One of the things we are coming across more and more of as we help do our part to stop foreclosures in Des Moines is investment properties being foreclosed on. This leaves the tenants in a troubling position and often times they are unaware of the foreclosure action and what their rights are. Don’t worry they can’t kick you out tomorrow, but you do need to know your rights.

On May 20, 2009 President Obama signed into law the Helping Families Save Their Homes Act. As a provision of this act Sections 701 – 704 of the larger bill are cited as the “Protecting Tenants at Foreclosure Act of 2009. Ultimately, the Law states that if the loan is a federally asscociated loan (which is almost all of them), then the following conditions apply:

IF :
1.) There is a lease in place that was entered into prior to the notice of foreclosure: (You should have received a copy of this notice as parties in possession of the property. So, if your lease was entered into before this document was served, you are probably ok.)
2.) The lease is not substantially below market rents
3.) The rental agreement is ‘arms length’ (not between family).

AND

4.) The person being foreclosed on is not the renter

THEN… The Buyer must honor the lease agreement.

Month to Month Tenants: If you are on a month to month agreement, then the buyer of the foreclosed property (most likely the bank, but possibly an investor), must give you no less than 90 days notice, following the sale at auction.

These laws stay in in effect until December 31, 2012. Make sure to consult all local laws and ordinances that may supercede any portion of this act.

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Tax Consequences of a Short Sale: Dealing with a 1099C

Posted on March 8, 2011 by admin

If you are a homeowner going through a foreclosure of Short Sale, it is important that you become well versed on 1099C’s.  This will prevent 2 things:

1.) A Coronary on or before February 2, 2010 when you receive your 1099C.

and

2.) Having to pay taxes on monies that were ‘forgiven’ by your bank in the short sale or foreclosure

Let us first talk about exactly what is a 1099C .  A 1099C is a Cancellation of Indebtedness form that a lender is required to fill out when the forgive a debt greater than $600.  The lender is supposed so send these out to you before February 2 in the year following the discharge of the debt.  Not all cancelled debt is considered a taxable event such as the following off the IRS website:

  • Bankruptcy: Debts discharged through bankruptcy are not considered taxable income.
  • Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you.You are insolvent when your total debts are more than the fair market value of your total assets.Insolvency can be fairly complex to determine and the assistance of a tax professional is recommended if you believe you qualify for this exception.
  • Certain farm debts:If you incurred the debt directly in operation of a farm, more than half your income from the prior three years was from farming, and the loan was owed to a person or agency regularly engaged in lending, your cancelled debt is generally not considered taxable income.The rules applicable to farmers are complex and the assistance of a tax professional is recommended if you believe you qualify for this exception.
  • Non-recourse loans:A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral.That is, the lender cannot pursue you personally in case of default.Forgiveness of a non-recourse loan resulting from a foreclosure does not result in cancellation of debt income.However, it may result in other tax consequences.

If your lender does not issue you a 1099C and you have had debt forgiven or discharged in the prior year, you still are required to report this. If you follow the formula under Section 3 on the IRS site you can easily figure out the amount that was forgiven (you may need to call your lender to verify the amount of the payoff prior to the sale).

Here is the good news….

The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.

This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.

More information, including detailed examples and qualifications can be found in Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments. Also see IRS news release IR-2008-17.

So, if you are like me, you may be saying now, “Ok, thats fine and dandy, I understand I don’t have to pay the taxes … but unpack this for me a bit, how do I actually go about doing this?  What forms do I need, what do I fill in the blanks with?”

I’m glad we asked that question, so here it goes.  You need to get yourself an IRS Form 982 and it looks something like this:

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Now, if the only debt you are reporting forgiven that you are excluding is due to a foreclosure or short sale then you only need to complete lines 1e, 2 and 10b.  What you do is go back to the 1099C that you received from your old lender and go to box 2 (see below), That number is what you will enter in box 2 and 10b of your form 982.

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So, that is pretty much it.  If you have further questions about the check out the following sites:

The Mortgage Forgiveness Debt Relief Act FAQ

Publication 4681 Canceled Debts, Foreclosures, Repossessions, and Abandonments with detailed examples

IRS New Release IR-2008-17

Tax Payer Advocate Service – 1-877-777-4778,

Home Foreclosure and Debt Cancellation (good for figuring out how to calculate your own 1099C income if bank fails to send you one)

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Foreclosure Options in Des Moines: Bankruptcy, Loan Modification or Short Sale?

Posted on March 6, 2011 by admin

If you are one of the millions of Americans who is looking at the prospect of not being able to pay next month’s payment on your home you are probably looking for a crash course on your options.  Well, I will try my best to give you the Cliff’s Notes version and hopefully give you some light at the end of the tunnel.

One of the first things you need to decide is whether this is going to be a long term or short term problem.   If it is merely a matter of needing a month or two worth of payments to get by until you get back to work or through a health problem, then maybe you can take inventory of possible resources around you.  It is going to be tough to refinance in today’s climate, especially without a job.  However, here are some other options:

OPTION A:

Finding additional sources of money:

  • Consider asking a family member for support.  This doesn’t have to be a handout if you are uncomfortable doing that.  You could work out an arrangement where they loaned you 4 months payments, say $4,000 (@ $1,000/mo).   You could, in exchange, give them a 2nd mortgage on your home and make them payments with interest for a short time until repaid. You can actually use a brother or sister’s (but not a parent’s) IRA to make you the loan and they could earn the interest tax free! It is probably a better rate than what they are getting in CD’s or the stock market. (see: http://www.trustetc.com/new/allowable-investments/ira-permitted-investments.html )
  • Maybe you own a car free and clear.   You might be able to get a loan on that car that would tie you over until you are back on your feet.  Be very, very careful with using debt to repay debt.  You should be quite sure that it is only going to be a short term problem that you are experiencing.  You don’t want to lose your car AND your house, especially given that you will need it to get back and forth to work.
  • Take a loan against a 401k or IRA.  Often times these retirement accounts will let you take a LOAN against them in times of hardship.  Don’t just go an withdraw the money, you will have to pay the taxes on it and lose all the benefits of tax deferral.  Speak to your accountant or do some research to make sure that you do this right.
  • You may have a whole life insurance policy that has cash value.  You could borrow against it, or you may decide to cash it in and exchange it for a more affordable, term life option.
  • Avoid taking cash advances on credit cards or pay day loans.  Those suckers will eat you alive in interest rates and fees. Only use these as a last resort.
  • Make a list of all your possible sources for cash, rank them by the costs that are associated with the borrowing (interest rates, points, monthly payments, etc.) and then pick one.

Say you have determined that this is going to be a prolonged problem, or that you don’t have any additional financial resources to draw from.  Then, you are going to have to make a determination whether or not the house is affordable at any price. This often involves a assessment of one’s total monthly expenditures and income.  It is really going to take sitting down and taking a long hard look at what you are working with.  For some of us, this may be the first time ever doing this.  What you are doing, in essence, is a Financial Statement or a monthly budget.  You need to get all your bills together and write them down.  Many of us have put off ever doing this because, we are scared of what we have known for a long time: That there is too much month at the end of the money!!  Let us say you did it though, and it looked like this:

  1. Groceries : $600
  2. Child Care: $550
  3. Mortgage: $1000
  4. Gas: $350
  5. Utilities/Cable/Telephone, etc: $850
  6. Other: $1,000
  7. Credit Cards: $700

Total:  $5,100

And let’s say the following represented your income:

Income:  John:  $2,500 (Net take home)   Mary: $2,500 (Net)

Now in this situation, John and Mary have been operating on a monthly budget that had them coming up short $100/mo BEFORE the hardship.  If the hardship is only going to be temporary, and the income will return shortly, they may want to consider Option A of finding a short term money solution.  You should be looking at ways to cut expenses in the interim.  Maybe you can consolidate some debt using OPTION A as the means to do this.  Perhaps you could pay off $7000 of credit card debt that requires payments of $700/mo and get $3,000 for 3 months of reserves of mortgage payments from a relative in exchange for a 2nd mortgage.  This would cut your monthly expenses.  Next look at non essentials, like cable or eating out, etc as ways to tighten the belts.   The thing that you may find is that after you are out of the woods, you may not even miss them.

OPTION B:

Loan Modification:   A loan modification is any alteration to the terms of your original note and mortgage that was originally signed with your lender.  This can include a principal reduction, lowered interest rate or tacking on missed payments to the back end of your loan. You will have to excuse me if I am less than enthusiastic about this option.  It sounds like a great solution, but here are the reasons that they don’t usually work:

  1. Servicers (those collecting your monthly payment that you may think is the lender)  don’t have any skin in the game and get paid to drag things out.  It is counter intuititve for them for many reasons.
  2. Investors in these pool of mortgage backed securities (of which your loan is one of many), often times have insurance called credit default swaps to cover default, but not modifications.  Sometimes they have multiple insurance policies and get paid up to 30 times the face value of your mortgage if you default. Which option do you think they are going to push?
  3. The terms of the security agreement that was sold with you mortgage in it doesn’t allow for modifications and would open servicers up to liability if they did do so. This creates further disincentives for them to work with you.
  4. Only the Modifications that come with Principal reductions appear to be having any effect. Less than 9% of Modifications under Obama’s plan had reduced monthly payments.
  5. You still must qualify via Debt to Income Ratios

If you have any shot at getting a loan modification done it will be by using the Rest Report.  The Rest Report was invented by consumer advocate Martin Mandelman, and it is the only thing that I know of that produces consistent results in helping homeowners see if they can qualify.  It also can help you do your own loan modification.  No need to pay some company to try to modify your loan, when you can know ahead of time if you are eligible and then you or your attorney can do it yourself.   You should be checking out HAMP’s site at: http://makinghomeaffordable.gov/

OPTION C:

Bankruptcy:  There are many (most lawyers), who would throw this out as Option 1. Bankruptcy is not something to be entered into lightly, it does have long term implications to you and your family.  It should be looked at as the nuclear option once all other resources have been exhausted.  There are those who have so much debt either because of medical bills, credit cards etc, that they may not be able to dig themselves out.  If that is the case, you should do some research into the different types of foreclosures (Chapter 7 and 13 being the most common) and find a knowledgeable Bankruptcy attorney. Start with this site: http://www.uscourts.gov/bankruptcycourts/bankruptcybasics/glossary.html

Will the Bankruptcy take care of my foreclosure problem? The answer is….temporarily.   There is a really good blog written by an expert attorney that will help you with BK options surrounding a foreclosure.  Also local Attorney Jeff Mathias has a very informative blog as well.   What happens is that it will STALL the foreclosure.  The banks can’t move forward while the BK is open.  Now they can get a motion for lifting of the stay of foreclosure if you don’t file correctly, otherwise they have to wait until this it is all done.   Once the BK is done or a stay is granted, they will begin the process of foreclosure again, and you will need to do something to stop it and avoid the foreclosure.

OPTION D:

FIGHT!  GRRRR… now I am particularly fond of this option given that I know some of the background of what these Banksters have and are doing to this country and its citizens.  If you are going to fight the foreclosure there are two common ways of doing so in court:

  1. Pro Se: This means that you will be representing and defending yourself in the foreclosure lawsuit that the ‘bank’ is going to bring.  Now there is an old expression attributed to Abe Lincoln said, “A man who represents himself has a fool for a client.”  This does not mean that you can’t win.  In the modern court system you are going to have a tough go of things.  Being able to get your evidence introduced , and finding a sympathetic and educated judge may prove difficult.  If you want to research the viability of this option, consider reading some accounts of others who have gone before you at sites like: http://www.foreclosurehamlet.org/
  2. Finding competent counsel: The bank is going to file a foreclosure action after about 3 months of missed payments in Iowa.  They will issue you a notice of default and a notice of summary judgment.  If you do nothing….They win! They get a judgment and will start foreclosure and eventually take your house.  You can file an answer to their foreclosure.  This could be a request for a delay of up to 6 months, it could be an opportunity to request discovery (which is where you could present the material facts of your case) , but doing nothing is the last thing you should do.   Make sure if you are going to hire an attorney to defend you that they know what they are doing.  Don’t hire them because they are your brother-in-law and they went to night school.  You should research the cases of those that are winning, understand the law, learn about your mortgage company etc, and then interview multiple people.
  3. QWRL/Loan Audits: I would guess that over 90% of all loans have RESPA (Real Estate Settlement Procedures Act) and TILA (Truth in Lending Act) violations.  These can be discovered by the use of a QWRL (Qualified Written Response Letter) to get copies of all pertinent documents associated with your loan.  You could then take these documents and get a Forensic Loan Audit. Armed with this information, you may be able to win in court and get your foreclosure dismissed, or be in a better position to negotiate a loan modification or short sale.

OPTION E:

Selling:   IF you have determined that you don’t want to stay in the home any more or that you don’t want to fight the foreclosure you may decide that selling your home is the best option.  If this is the case, then you will have to determine whether you have any equity in your home. Equity is the difference between what you owe and what they house will sell for, like a spread or your money.

Example:  If you owed $100,000 on your mortgage, and your house could sell for $150,000.  The difference between the two (or $50,000) is your equity.

Now, if you can get someone to buy your home for $150,000, then out of your equity you would have to pay customary costs, like Realtor commissions, closings costs, tax prorations etc.  On the other hand, if you had the following scenario you have no equity:

Example 2: You own $100,000 on your mortgage, and your house is worth $90,000.  The shortfall is going to have to be paid by someone.

If you have the money, you could list the property for sale, sell it and pay the difference.  While it would hurt to have to do so, you could move on with your life.  If you are like most of America, that is probably not feasible.  If this is you, then you probably need to do:

Short Sale:  A Short Sale is a sale of real estate in which the sale proceeds fall short of the balance owed on the property’s loan.

In order to do a short sale you will need to have someone willing to buy your property, and you will need to have approval from your bank to sell it at their offering price. In order to find such a buyer you can either:

  1. List the property with a Realtor to help find a buyer
  2. Try to sell your house FSBO (For Sale By Owner) using yardsigns, Craigslist, etc
  3. Contact Local buyers and Real Estate Investors

What every route you take, you should take action.  Not doing anything will result in an almost assured foreclosure which may have damage not only to your credit and ability to qualify for a future loan, but also potential employment.

So, there they are! I hope you feel a little less in the dark about where you stand in this whole process.  The clock is ticking though, so whatever route you take, get educated and then be decisive.  Best of luck and feel free to send me an email if you have any questions or you can respond in the comments section below.

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Fannie Mae Cracking Down on Strategic Defaults

Posted on March 5, 2011 by admin

On June 23, 2010 Fannie Mae issued a press release that outlined a more hard line stance on people who are walking away from their homes despite being able to afford the payments

FNMA Press Release Strategic Default

FNMA Bulletin

You may ask, “What is a strategic default?”  Good question!

There are a couple parties involved here

  • You the borrower
  • The investor who backed your loan
  • The servicer who is handling your loan for the investor (this is probably who you have thought was your lender. i.e. the institution you have been making your payments to)

In a short sale, your investor will consider allowing a short sale if you are behind on your mortgage payments and have a good reason for being so.  The problem for these big investors/insurers of loans are that people are walking away for strategic reasons, not just due to legitimate hardships.  For example, people in CA who owe $600k on a house that is worth $300k are deciding they will never be able to dig themselves out and are bailing left and right.

What this bulletin is ultimately saying is that Fannie Mae (who was a government agency, then went private, and now is back to being government owned) is trying to make people think twice about this. They are doing so by stating the following:

  1. If you strategically default then you won’t be able to get another loan backed by FNMA for 7 years.  Keep in mind a good 50% or more of loans are backed by FNMA and Freddie Mac, so chances are your loan would fall in this category.
  2. The will try to come after you if they can.  You may want to read this article on whether or not this applies to you if you live in Iowa.  It ultimately will come down to whether they have obtained a judgment against you yet, and if that judgment is “In Personam” (against you the person) or “In Rem” (against the house or the land).  If they have received a judgement in IA and it is “In Rem” chances are they waived the right to come after you in exchange for you waiving your rights to redeem the property after the house is sold back to the bank.

You may ask how they will know if you are defaulting strategically or whether you have a legitimate case?  Well, they check a couple ways,

  1. They do a soft credit pull.  They are going to look on your credit to see if you are paying everything else and not paying your mortgage only.
  2. The will look at your financials (i.e. Bank Accounts, Paystubs, 1040′s, W-2′s, Financial Statements, etc).  They will try to see whether you HAVE the money and are choosing not to pay or whether you are really having a hardship.

To summarize, they can turn down your short sale if you are defaulting strategically.  They will also deny you for a loan for up to 7 years and they will chase you for the money afterwards if they are not precluded by law from doing so.

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Lack of Appraisal Standards Hurting Short Sales in Des Moines

Posted on March 3, 2011 by admin

Fannie Mae, one of the largest insurers of loans in America, has some grounds for concern.  In a recent audit of properties that have been taken back and purchased after foreclosure Fannie Mae is noticing that loose appraisal standards are resulting in their taking losses on loans that may have been avoided.  What FNMA is referring to is appraisals that were done when loans are originated. In a recent conversation with an underwriter of loans,  we were informed of some interesting trends that are occurring.  Consider the following:

When an appraiser determines a value for the property they are appraising (either on a purchase of refinance) often times the lender will require a RMV.  An RMV is a security measure that the underwriters use to double check the values given to them by the appraiser who gave the value to the underwriter looking to originate the loan.  Some of the things that they check for are:

  • Did they consider all relevant comparables in coming up with a value
  • Why did they choose the comparables that they did and not others?

These are good measures, they prevent rogue appraisers from colluding with borrowers to inflate property values to get more money on refinances and purchases.  Here is the problem:

They have no such means of checks and balances when banks are determining a value on your short sale offer.

You probably don’t realize how important the bank’s perception of your home’s value is as a determining factor in whether or not you get your short sale approved.   Let me tell you how the process works.   When a bank or servicer believes they hold a loan where default is imminent, they may decide to order what they call a BPO.

BPO: a “Broker’s Price Opinion”, done by Realtors, is similar to a Comparative Market Analysis, like the ones your Realtor gives you when you are looking to sell your house.

Here is the problem with using BPO’s to come up with value

I.) Not all Realtors are created equal. There are many very good, experienced real estate professionals who know their markets and home values because they have honed their craft for years.  There are others who started last week.  As with any other job where you are just getting your feet wet, you need to have cash flow coming in while you build up your book of business.  Many times this means that new agents will do BPO’s as a way to make some quick money (about $50-100/per BPO) between actual closings.

II.) Some agents have a vested interest in seeing your short sale not getting approved. For some new agents (a very small percentage), BPO’s are seen as a way of establishing a relationship with lenders that could lead to listings.  They see doing BPO’s as a loss leader to getting REO listings later on from that same bank.

REO: (Real Estate Owned by the bank)- when your house gets foreclosed on it becomes an REO, and the bank needs someone to list it.

Are you seeing the problem here?  If the BPO agent tells the bank that market value is what the short sale offer price is, THEN the house gets sold and there is one less REO (thus one less possibly listing for that agent).   Most of the time, the BPO agent has no clue what the short sale offer is on the house as they are not privy to it or they don’t ask the listing agent. It is up to the OPINION (remember Broker’s Price Opinion), of that agent- who may have started last week- as to what your house is worth.

Let me give you an example:

John and Mary have had their house listed for $200,000 for 8 months with no offers.  They finally get an offer for $170,000. The bank orders a BPO from a Realtor. That agent receives an email with the order and sits at their desk and pulls up 3 comparable listings and sales.  That agent sees the house listed for $200,000, and without knowing the short sale offer, assumes the house is worth roughly that listed amount.  They write up the report stating their opinion that the house is worth $200,000 and run out to snap some pictures of the house.  Two weeks later, the bank has the BPO in hand and denies the Short Sale, stating that the BPO says the house is worth more than the offer.

Whether your Short Sale gets approved or denied rests squarely on the banks perceived value of your home and the person who is sent out to give them that value.   If the offer lines up with the BPO value, you will likely get an approval.

This brings us back to our original thesis, that the lack of standards on valuations are hurting short sales in Des Moines.  Until the standards are changed so that only a licensed appraiser can determine the value of a property you will continue to have:

  1. Conflicts of interest on the part of those giving valuations to the banks that leads to more short sale rejections based on over valued homes.
  2. Improper and widely varying valuations caused by lack of standards for those giving the valuations.

The other parties that are equally at fault are the lenders themselves. I was always told, “The thing about free advice…you get what you pay for”. Lenders pay $50 for a BPO, they pay $300-500 for a full appraisal.  You get what you pay for, and with the volume of foreclosures they don’t want to pay for them.   The best model out there right now is HUD’s Preforeclosure Sale Program.   It requires that a full appraisal be done up front, by a licensed appraiser.   Then the property can be listed at that appraised value.  Subsequently, offers can be accepted in the next 90 days between 88 to 84% of that appraised value.

Another problem that exists is that banks will tie the hands of the agents who go out to the property.  They will tell them that they cannot use comparable home sales that are foreclosures (REO’s or other short sales).  This is absurd, in some areas all that exists are short sales and REO’s. Fannie Mae themselves state that the market perception of short sales and foreclosures are markedly different from other types of sales (often a 20% difference in price just due to market reaction and perception).   If the agents aren’t allowed to compare apples to apples -only to oranges- how can you truly come up with an actual representation of value?

Another trick that banks like to do is using what is called a 2075 valuation which uses a computer program like Zillow or Cyberhomes to come up with what your home is worth.  In Des Moines, Zillow’s algorithm uses the Polk County Assessor’s comps from the last 24 months to value your home.  The bank won’t let appraisers or BPO agent’s use comps that are more than 6 months old, yet they rely on Zillow which is using comps as old as 24 months ago.  This means back before the Tax Credit expired when there was still a frenzy, back before home sales declined 30% nationwide.

Do you think that Zillow knows that your basement floods every time it rains? Do you think that Cyberhomes knows about your new neighbor who is required by law to introduce himself to everyone in the community?

You may be asking yourself, “Why would banks do this? Don’t they want to get this off their books? Wouldn’t it make more sense for them to sell the house now?”  The answer to your question is yes, but here lies the problem.  The institution that you think of as your bank, is likely not your bank.  They probably have just bought the servicing rights to your loan and are representing someone else like Fannie Mae, Freddie Mac, Wells Fargo, Bank of America, etc.   What that means is that they get paid to service your loan, and the longer they service it the more they make.  Let that sink in.  So, if your short sale takes twice as long to process, they get paid more.

As we mentioned before, banks will spend the money on HUD backed loans for an appraisal because it is law. They also get reimbursed by HUD, so it doesn’t cost them any more for the better quality.  It is just like anything else, when it is your money at stake you treat it differently.  If you can get ahold of the investor backing your loan, they will have a wholly different approach as it is their money.

To summarize, we need more appraisers doing valuations on short sales. They have no vested interest in the back end of the deal, and they have been professionally trained and certified to provide accurate values.  For the record, there are many, many really good agents out there who know their markets like the back of their hand who could and do good BPO’s. Changing to appraisers would just help create more consistency and hopefully accurate valuations and decrease the chance of a conflict of interest.

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They don’t call them CHASE for nothing…

Posted on March 3, 2011 by admin

For those who have worked in and around short sales for any length of time you will notice a pattern of behavior with certain banks.  The pattern I would like to identify for you today revolves around Chase Home Finance and their agressive attempts to recoup their losses after a short sale.  Chase Home Finance is one of a small faction of banks who has adopted a quick strike approach to collection efforts following a short sale.  This is important to you if you have a Chase Home Finance loan.

There are two different types of approval letters that get issued on a short sale with Chase. Ones that have deficiency language included in the approval and ones that don’t.  Let me show you an example of a letter where Chase is agreeing to ‘chase’ you.

Chase Short Sale Approval with Deficiency Language

Notice that in the approval letter it states that the approval is for the ‘release’ of Chase’s security interest (mortgage) against the property.  What you are looking for is a release and a satisfaction of the mortgage. That is a key and crucial difference.  Now let me show you an approval letter from Chase Home Financial without the deficiency language included.

Chase Home Finance Approval Letter without Deficiency Language

As you can see in the letter, Chase Home Finance has agreed to not only release its security interest (mortgage) against the property to allow the short sale to go forward, but ALSO waive their rights to collect the remaining balance from the homeowner.

Many times in the months following the short sale, a homeowner will get a call from Chase Home Finance’s collection arm.  They will state that they are calling to notify the homeowners of their attempts to collect the deficiency on the balance remaining after the short sale.  This is usually where the panic sets in.  If you have done your due dilligence and made sure that the approval did not have deficiency language in it, then you can just go to your file, grab the letter and send it to them.  That will usually stop the calls.

Your Homework if you have a Chase Home Financial Short Sale:

  1. Check the language in your short sale approval letter prior to closing.  Does it have deficiency language in it?  If so, get a new approval with the language removed.  If Chase refuses to remove it proceed to step 2:
  2. Consult with your attorney to review the terms of the approval letter and your local laws regarding foreclosures. Some states have laws protecting consumers from deficiency collections following a foreclosure.   Be armed with information about local laws, that you can cite to collections companies if needed.

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Considering the outcomes when choosing your Short Sale Program

Posted on March 2, 2011 by admin

Usually if someone is having to consider doing a short sale, it is because they are experiencing an economic hardship of some sort.  Whether by illness, loss of job of divorce the short sale is usually the symptom of a larger problem.

It is importgant to consider the requirements of the short sale program that you are entering into prior to enrolling in one program or another.   I want you to look at a page from Bank of America’s Cooperative Short Sale Program in which they show three types of Short Sale programs with three outcomes if the short sale is unsuccessful.

The Three options they are showing are:

1.) HAFA Short Sale

2.) Bank of America Cooperative Short Sale

3.) Conventional Short Sale

Possible Outcomes for a Declined Short Sale (3 programs)

What does this mean if you are a homeowner facing foreclosure?  It means that short sales are not a guaranteed thing.  You first have to find a buyer, generally by listing the property with an agent.  If you are fortunate enough to find a buyer then you must meet the price that the bank is willing to take based upon their independent valuation of the property.

But, what happens if you cannot get your house sold at the price the bank is asking for? If you look at the chart above you will see that in the government program (HAFA) and the Bank of America program (cooperative short sale) require a voluntary deed in lieu of foreclosure.

A deed in lieu of foreclosure is when you voluntarily give the deed (ownership) to your property back to the bank, in lieu of (instead of) them foreclosing on you.

What may be the benefits to you and the bank to this proposition? The benefit to the bank is that they are able to take the long and costly process of foreclosure (which demands a high burden of proof on their part) and considerably shortens the process thus saving them money.

What may be the benefits to you? Some may say that you avoid the foreclosure on your credit report which they believe may look better.  There is much debate over this area.  You also may be able to negotiate the release of any deficiency or ability by the bank to chase your for any loss the bank may incur. This may be a benefit unless your state prohibits it anyway like in most cases in Iowa.  Ask your attorney about Iowa code section 654 and the difference between an “In Rem” judgement and a personal judgment. If the bank cannot pursue you anyways it is more of a value to the bank.

**Side note: Most foreclosures are initiated by first mortgage holders who have the biggest stake in your house.  Most of the protections from creditors comes from the party instigating the foreclosure action who must choose to get a personal judgment or a judgment against the house.  If you have a second mortgage or lien, you are generally not afforded the same protection against them, and a settlement will need to be worked out with them.**

A final benefit to you may be that you don’t have to worry about selling the house like in a short sale and thus it is a quick way to be done with things.

What are some down sides to the deed in lieu (DIL)?

  1. You cannot do a DIL if you have a second mortgage or junior liens on the property. The bank has to insure that the deed they are getting back is free of any encumbrances aside from their mortgage, which they can release.
  2. You lose your ability to occupy the property after the deed in lieu.  Many people need some time to find suitable living arrangements elsewhere or to try to work out a modification on their loan.
  3. By entering into a program that ends in a voluntary DIL, you agree to give the bank your house at the end of the short sale attempt if you cannot sell it at the price they say it is worth.    (This is opposed to a traditional short sale where if you try to sell it at the bank’s price the first time and it won’t sell, the bank will come out and reevaluate the home and consider a lower list price or offer).

Did you know that in the state of Iowa that you can file for a six month delay of foreclosure once you are served with foreclosure paperwork?  An attorney can prepare this for you for as little as $100-200.  Or, you can do it for free at the courthouse.   This means, that if you needed some extra time, you could have it to stay in your home while you work things out.  You lose this ability if you are required to do a deed in lieu.

For some people, they are just ready to be done with the house.  For others then are needing some more time to get back on their feet.  It is important to weigh your options, speak with your attorney or CPA or a knowledgable real estate professional who has done a number of short sales.  Ask them about what types of short sale programs they have worked with.  Ask them the difference between the 3 types of short sales to see if they know. Then choose wisely.

**please note: the author of this article or any contributers to ShortSaleDesMoines.com are not licensed attorneys.  Any information on this site is for educational purposes only and should not be construed as legal advise.  Before making any decisions regarding your home or mortgage, please consult with a licensed attorney or financial advisor**

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Why bank’s are now “Cooperative” with Short Sales in 2011

Posted on January 30, 2011 by admin

There has been much talk of bank’s rolling out new ‘cooperative’ short sale programs in 2011.  It appears as if the last of the big banks have finally seen the light and have come to the conclusion that short sales are the wave of the future and now want to fast track short sales.  Banks are talking about how they are ready to streamline the process and do everything that they can to help facilitate the short sale process.

What has happened in the last couple months that would make the banks so eager to make this big push for short sales?  Quick!! To the Short Sale Time Machine.

October 2010:

-Bank’s begin a foreclosure moratorium amidst allegations from ex- employees substantiating instances of robo-signing.

-Bank’s beginning losing more cases that pertains to their ability to foreclose on homes

see U.S. Bank v. Ibanez, 10694 Where the Massachusetts courts ruled that 2 foreclosures were invalid because the ‘banks’ did not own the mortgages.

or Bellistri vs. Ocwen, Where a Missouri court rules that a banks note is not secured by the property making a foreclosure impossible because it was separated from the mortgage.

What does all this mean if you are a bank? It means that judges are starting to get wise to the shenanigans that the bank’s have been pulling, and as a result are starting to make sure that they have their ducks in a row if they are to get a foreclosure decree and judgment.  This is definitely not the path of least resistance if you are a bank.

You see, bank’s have a couple ways to recoup their money:

  • They can either take your house back and sell it (foreclose on it) OR
  • They can let you sell it and take the money (short sale).

Let’s look at these options from a bank’s perspective.  The first two require the bank to get possession of the home and the last one you remain the owner:

A.) Foreclosure and resale: which is becoming increasingly more difficult and expensive as these pesky judges are forcing the bank’s to actually show documentation that they have the right to take your home.

B.) Deed in Lieu (pretty much a voluntary foreclosure):  You give the house back to the bank and they sell it.  You give them the deed to the house in lieu of them threatening to foreclose. The bank will love you forever and like you for always if you do this. Why? Because you will fix all their title problems for them.  No need to foreclose anymore, you gave them the house.  No need to have their ducks in a row, you gave them the house.

Or

C.) Short Sale:  The Servicer for the bank approves the sale with the investors approval and then sends a release to your county’s recorders office.  Unlike a judge, the recorders office doesn’t do any due diligence to ensure that the party sending the release of mortgage had the ability to do so.  Not even checking to see if they were a robosigner. As long as it looks legit, they file the release of mortgage and no one is the wiser.   (In this option the bank takes about a 13-19 % Short Sale discount as opposed to up to a 44% discount at a foreclosure sale. source Realty Trac)

Or

If you were the bank, which option would you choose? Sounds like it is time to get cooperative with short sales!  Now, to be fair, the banks were completely unprepared for the tidal wave of foreclosures that hit.  They did not have dedicated short sale departments or the infastructure to handle the short sales they were asked to process.  They are now getting close to being staffed up, and systems like Equator have made the process much more smooth.

It has been my experience in all types of negotiations that when a party is pushing for one type of outcome and then makes a dramatic concession or has a change of heart … you should stop and ask why.

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How a reverse mortgage and a short sale stopped foreclosure

Posted on November 12, 2010 by admin

I had lunch the other day with a Mortgage Specialist from Wells Fargo.  He specializes in Reverse Mortgages.  What is a reverse mortgage  you might ask?  Good question.

A reverse mortgage is a special type of loan that enables borrowers who are at least 62 years of age to convert some of their home equity into loan proceeds that are typically tax-free funds.

If you owned your home free and clear, you could get a reverse mortgage that would allow you to get a lump sum of money or monthy annuity stream.  Often times you don’t have to make payments on the loan if you do not so elect.

A couple key requirements a reverse mortgage before we get into the story about their use in the foreclosure prevention and short sales.

  1. They are HUD backed loans, eligible properties include single family homes, condos, townhomes  or 2-4 unit dwellings.
  2. Borrowers must be 62 years of age and occupy the property as their primary residence.
  3. Home must either be free and clear or the proceeds be used to pay off an existing mortgage.
  4. Even if borrower elects taking the NO PAYMENT option, they must keep up taxes and insurance on the home.

A couple of the benefits of the reverse mortgage:

  1. Customer retains the ownership of the house.  Just like any other mortgage, you own the home and the bank just has a lien to protect the money they have loaned.
  2. Loan Proceeds can be used for any purpose, meeting daily and monthly expenses, or covering health care costs…or paying off old debt on the property (a mortgage in default perhaps)
  3. Loan proceeds ARE NOT considered income and will not affect Social Security or Medicare benefits.
  4. Interest rate options can be fixed or variable (at the time of this article, the fixed rate option was 4.9% and the line of credit option was 2.45%)
  5. Distribution options.  The money from the reverse mortgage can be taken as a lump sump, monthly annuity stream or a line of credit to draw on as needed.

Banks are willing to make these loans because they are relatively low risk (>60% LTV), and they will either get paid monthly or get paid when the house sells.

Now how does this apply to people that may be in a situation where they are facing or foreclosure or under the threat of losing their home?  The following is the example that representative from Wells Fargo told me that they had recently done.   There was a woman who had gotten behind on her mortgage payments to a local bank.  For the sake of easy math, let us use the following numbers:

Amount owed to local lender: $100,000

Amount available on reverse mortgage loan at 60% loan to value (assuming value @ $100,000) = $60,000

So, what can we see in this scenario?  The homeowner has a loan of $100,000 and she can no longer afford her monthly payments due to health reasons, loss of income, etc. The local bank is facing the real likelihood of having to spend the next year foreclosing on the house, paying for attorneys, maintenance crews, and hiring a Realtor to try to recoup their costs.  In the mean time, they have a bad loan on their books.  What do they decide to do?  The agree to take a discounted payoff on their $100,000 mortgage.

Why would they do that? Let us look at some of the costs that the bank may incur and what they might likely net if they DID NOT do this:

  • $2,500 -$5000 in attorney foreclosure costs.
  • $1,500-$3,000 in property preservation and mainenance
  • 20% decline in property value as it is deemed a ‘distressed sale’ by the market
  • $4,800 in Realtor Commission (assuming $80k sale price after foreclosure)

Net to Local Bank:  $80,000 – $5,000 – $3,000 – $4,800 = $67,200.  This is the best case scenario for the bank, often the properties get damaged after a year siting vacant. The market continues to decline, etc, etc.   For the local bank, the proposition of getting $60k cash in hand makes more sense than waiting a year or more to get $67,200.

What about our homeowner, why does it make sense for her? Well, the entire reason that she is in foreclosure is because she cannot afford her monthly payments, at least not the entire amount.  Let us look at her new situation.

  • She now has a new loan on the property in the form of a reverse mortgage for $60,000.  She took the proceeds and paid off the local bank, who released her old mortgage.
  • She no longer has monthly principal and interest payments on her home, which was the root cause of her going into foreclosure.  Her $60,000 new loan balance will continue to grow at the rate of 4.9% or 2.45% interest depending which option she elected.  Every year her loan balance will continue to grow a little bit.  When she dies or sells the property, the loan balance will be paid off at that time.
  • She can stay in her home.
  • She didn’t have to worry about qualifying income or creditwise for the loan.  Most people who are in default on a mortgage cannot refinance because of their credit or lack of income.  This is also a problem for many self-employed people or those on disability.

What are the conditions that had to be met in order for this deal to happen?

  1. The homeowner had to be the right age to qualify for a reverse mortgage (<62)
  2. The underlying mortgage holder of the first mortgage had to be willing to take a short payoff at 60% of what was owed. This could have also worked with a first and second mortgage if the 2nd was willing to subordinate their loan.
  3. ** The underlying bank was aware that the homeowner was going to continue to retain possession and use of the home. Many short sales require homeowners to sign an affidavit stating that they are not benefiting in any way from the short sale. Many larger banks would generally consider continuing to live in the house a benefit and not allow the short sale.  Because it was a local bank, they could see the economic value to both themselves and the homeowners and made the decision to move forward.

That is how a reverse mortgage stopped her foreclosure and allowed her to stay in her home.  It is really kind of a unique situation, and the stars have to allign to make it work, but if this information happens to help out one or two people then it is worth while.

Fore more information feel free to email us: info@shortsaledesmoines.com

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The secret to getting the bank to approve your short sale

Posted on October 30, 2010 by admin

There is formula that I am going to share with you to explain why certain offers short sale offers get approved by banks and why others get turned down.  Here is it:

Offer to purchase (A) > Appraised Value (B) = Short Sale Approval (C)

So to recap, an offer comes in on your house for $100,000(A).

The bank orders an appraisal (B), and it comes in at or below $100,000

=

Approval (The bank sees the offer as in line with or greater than the market value)

Let us modify an old internet meme that makes the rounds to give us a visual representation of this.

This is your house:

If the appraiser tell the bank that your house is like THIS:

Then the short sale offer on your house will be turned down as the bank thinks that your house is worth more than the offer.

If the appraisal on your house tells the bank that your house is more like THIS:

Then the bank will happily accept the offer as they don’t want the house back and the offer matches market value or exceeds it.

There are certain exceptions where your house can appraise at one price and the bank will look at offers that are lower than the appraised value (such as FHA backed loans where offers as low as 88-84% of the appraisal may be considered, or certain conventionally backed loans where offers within 80% of the appraisal could be looked at.)  But, generally speaking, it is strictly a function of whatever that appraiser or Realtor told the bank your house is worth.

So, if you are making an offer on a Short Sale and it gets turned down, or you are a homeowner and wondering why the bank rejected your buyer, chances are the offer was not within an acceptable range to what the house was appraised at.

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Selling your house in Des Moines? Where are the buyers at!?

Posted on August 16, 2010 by admin

2010 has been a year like no other for the real estate market both in Des Moines and nationwide.  As our nation has been bomarded with foreclosures, politicians have been under enormous pressure to get the problem fixed and to fix it fast.   We all know that most quick fixes in life don’t stick.  If you are a doctor, you cannot heal a broken leg quickly.  A financial planner can’t fix a lifetime’s worth of zero financial planning for someone looking to retire.

Let me show you what happens to a housing market when the government looks to fix housing quickly.  The following chart is Les Sulgrove over at www.desmoineshomeinfo.com, one of my favorite new sites for up to date snapshots on the Des Moines real estate market.

You can notice the huge spike in home sales in Q1 of 2010, this is directly linked to the first time home buyer’s stimulus and low interest rates.  High home sales made for good press in the early parts of this year and engendered talks about recovery in the housing sector.  Look however, at the numbers from 2009 they are emblematic of what you would see in a ‘normal’ year. Housing sales tend to rise after winter into spring, remain steady through summer and then tail off as it gets colder in winter.

All that we did with the tax credit and other forms of stimulus was to take a year’s worth of buyers and get them to buy early in the year and not later.  Now you can hear the crickets and see the tumbleweeds rolling by.

There are some markets in Des Moines that are having better luck finding buyers and moving their inventory more quickly.  Some of the better areas to be selling in right now are Clive, Indianola, Norwalk and Des Moines East Side (under $80,000).  See Les’ chart below:

What does all this mean if you have a house to sell and are facing a foreclosure and needing to do a short sale?  It means ultimately that there are less buyers out there for the remainder of 2010.  You may want to consider alternatives to a retail buyer for your home.  There are still people who buy property for Investment purposes.  The biggest thing that you need in a short sale situation is an offer, any offer.  The bank will not appraise your house and tell you what they will take until they have an offer.

Consider talking to a reputible investor in your town or someone who currently owns alot of rental property.  They may be willing to make the offer you need and buy your house if the price is right.  IF not, get a Realtor to list your home and have them drop the price every week until a buyer rears their head.

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Loan Modifications in Des Moines: Qualifying under HAMP Guidelines

Posted on March 18, 2010 by admin

If, like may Americans and Iowans you are finding your self with too much month left at the end of the money, you may have heard of something called a loan modification.  For most people it is an alien sounding word like Arteriosclerosis, where by the time you finally know what it means- it already too late.   What a loan modification is -in laymen’s terms- is any change or alteration to your promise to pay back the bank.  It usually happens in the form of lowered payments, a reduction in principal or tacking on missed payments to the back of the loan.

The other thing I hear many people say is something to the effect of , “Hey, isn’t our (adjective) President Obama supposed to set up some bailout money to help with this?”  This sentence is generally delivered like a mad gab depending on what side of the political isle you find your self on.

The answer to your query is yes, there is something out there for you…potentially.  It is called H.A.M.P, and it is highly likely that your bank or mortgage servicer is a participant. If you have a Fannie Mae or Freddie Mac backed loan (check here)  then they are required to participate (although as of today’s date April 21st they have yet to comply).

The Home Affordable Refinance Program gives up to 4 to 5 million homeowners with loans owned or guaranteed by Fannie Mae or Freddie Mac an opportunity to refinance into more affordable monthly payments. The Home Affordable Modification Program commits $75 billion to keep up to 3 to 4 million Americans in their homes by preventing avoidable foreclosures. http://makinghomeaffordable.gov/about.html

In order to tell if a homeowner would qualify for a loan modification, the government apparently hired John Nash from “A Beautiful Mind” to come up with something call the NPV Test (Ok, maybe it wasn’t John Nash).  The guts of the Net Present Value test are as follows:

1.) You Front End Debt to Income (referred to in the industry as DTI) can not exceed 31% after the modification.

  • Now in plain English what this means is that if you made $45,000/yr gross/ 12 =  $3,750/mo  then your total monthly payments on your house could not be more than 31% of that number = $1,162.50./mo

Your bank or servicer, would look at your financial situation and see whether they could realistically lower your payment enough to make that happen.

2.) Net Present Value of Modification: This is the bank’s way of telling you “It’s not you … it’s me”.  They are looking at your loan as two roads diverging in the woods.  They are using this complex model to determine what they perceive the likelihood of you defaulting again if they do the loan modification  -vs.- the amount of money your house is likely to sell for if they foreclose on it – minus the cost to do so.  So, if they plug you into the system and they think you are a good candidate +  the house is in a bad market = approved loan mod.  If, on the other hand, you have a mountain of debt + no job + and the market is rebounding in your area= declined.  The following is an explanation from www.makinghomeaffordable.gov:

In the context of a mortgage borrower who has become distressed, the investor- or a third party servicer acting on behalf of the investor- faces the choice of whether to modify the mortgage or to leave it as is. Each choice generates expected cash flows, and the present value of these two cash flows are likely to be different.  If the loan is modified, there is a greater chance the borrower will be able to repay the loan in full. If not, there is a higher likelihood that the loan will go into foreclosure, and the investor will absorb the asscociated losses. If the NPV of the modified loan is higher that the NPV of the loan ‘as is’, the loan is said to be “NPV Positive”.

The Making Home Affordable Plan is structured to produce modifications that are mostly likely to test NPV positive, increasing the number of modifications that will be done, and keeping more Americans in their homes.  It does this first, by lowering the probability that borrowers will default by making borrower payments more affordable, and second by providing incentive payments that are added to cash flows received by lenders (or investors).

The good news?  If you pass the test your in.  The bad news?  The people giving the test are the same people who got us into this mess.  Consider the following quote:

…customization capabilities are built into the base NPV models to preserve the ability servicers, lenders and investors [have] to tailor the base NPV model to reflect the unique characteristics of the loans they service or own and to incorporate knowledge gained from years of working with those particular groups of mortgages.

This means that many (especially larger) banks “participating” in HAMP can modify the model and as a result of customization servicer NPV results and resulting modification decisions will likely
vary -even when borrowers’ circumstances appear to be similar.  So, if two identical homeowners were with 2 different banks (Citimortgage and Bank of America) they could get opposite results.  The other distressing part of this is that according to Bankrate.com:

The NPV test is a “black box” in which data goes in, a decision comes out, and borrowers aren’t privy to details about how the decision was made. The Federal Housing Finance Agency maintains secrecy over its formulas, updated at the beginning of each quarter, for calculating projected home values and REO discounts. Mortgage servicers don’t disclose the probabilities that they assign for redefault and self-cure rates and the rest.  Consumer advocates have lobbied, in vain, for this information to be made public. “Without access to the NPV analysis, homeowners are entirely reliant on the servicer’s good faith,” Julia Gordon, senior policy counsel for the Center for Responsible Lending, told the House Financial Services Committee Dec. 8.

I anticipate similar challenges with loan modifications to those that have persisted before. Consider the following findings from a Center for Community Capital at UNC:

  1. Loan Mod’s cost servicers about $500-600.
  2. Sub-primer servicers derive high fees from late fees & can expect to be reimbursed in a foreclosure, so no incentive to modify.
  3. For securitized loans, the Pooling and Servicing Agreement may limit or preclude a loan modification. Doing so may open the servicer up to litigation risks.
  4. Redefault rate is extremely high because modifications don’t usually come with principal reductions to reflect declining home prices. Two studies (Credit Suisse and the OCC) showed default rates on Loan Modifications ranged from 40-53%
  5. Only 53% of Loan Modifications ended up with a lowered payment.  While 23% ended up with a higher payment. The remainded had the same payment.

The only loan modifications that seem to work long term are those where you have a payment reduction of about 35% or more, and/or a principal reduction in your mortgage balance.  In order to do this though, you need to imploy some pretty advanced strategies of negotiation.

There is one way that I have discovered to give your self a decent chance at getting a loan modification done.  It is called a Rest Report. Developed by Martin Mandelman of the consumer advocate site Mandelman Matters, the Rest Report takes all your information and tells you ahead of time whether you can qualify.  It tells you if you meet the proper ratios, it tells you if you pass the Net Present value test, it shows you whether it makes more sense for your bank to modify your loan or foreclosure.  If you can show your lender a copy of a Rest Report, you may stand a chance.

In summary, a loan modification is an option under HAMP, you can request one today here: http://makinghomeaffordable.gov/requestmod.shtml.   If you get approved, fantastic!  If you don’t get approved you should look at two other things:

1.) Ask your bank if they would consider doing a moratorium. This is an industry term for a stay or relief.  It will often buy you up to 6 months to try to work out other options.  Many times they will let you make half payments during that time and not do start the foreclosure.  While you are under the terms of the moratorium you can pursue a:

2.) Short Sale:  If you get declined for a loan modification under HAMP, they are to offer you as an option immediately a short sale. See their information sheet here. Borrowers who successfully complete a short sale may be eligible for up to $1,500 in relocation incentives.

I hope this information is helpful, for more information about short sales and issues related to them, feel free to read our other articles on the site.  Thanks for visiting us.

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Rising number of Short Sales and Foreclosures in Des Moines?

Posted on February 24, 2010 by admin

If the Nationwide statistics put on in a Recent article at Campbell/Inside Mortgage Finance Monthly Survey of Real Estate can be used for inference- then yes :

* Short sales have jumped from about 10 percent of distressed property sales during most of last year to 15.9 percent of home purchase transactions in January.
* By contrast damaged real estate owned or bank owned properties accounted for only 13.4 percent and move-in ready bank-owned accounted for 13.8 percent of all sales.
* Short sale properties are most often purchased by first-time home buyers
* Survey results showed that short sales typically sell for only 91 percent of listing price.  (Source: UPI.com)

What does all this information mean for homeowners in Des Moines?   Ultimately, it is showing us that 2 things are happening:

1. The rate of new foreclosures are not declining.  We are actually experiencing the 2nd wave of the mortgage crisis.  These are the more exotic loans that were originated coming back to roost.  They include Interest Only Loans, Pick-a-Payment Loans, Alt-A, Option ARM’s and the like.  These loans and their resetting interest rates will carry this wave through 2012 to 2013.
2. The public is getting a greater consciousness about their options and how a Short Sale can limit the impact of a foreclosure, allowing them to sell even when they owe more than the house is worth.

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Bank of America rumored to be planning to dump as many as six times as many foreclosures into the market as were processed in 2009!

Posted on December 30, 2009 by admin

This is from Denniger. My thoughts are these:

1.) B of A is like a Big fish who swallowed another fish (CW), problem was…it was a poisonous puffer fish full of toxins.

2.) B of A didn’t want to realize all there losses in the same year (most likely had to do with spreading out losses and tax deferred assets. Given that they wanted to take the losses in 2010, because they didn’t anticipate a return to profitability until 2012, B of A wanted to make sure that these T.D.A’s  didn’t expire, thus making them have to pay heavy penalties.  As a side bar, this is also why I believe that these banks are stockpiling cash reserves, to pay for these expiring T.D.A.’s.   Also read about the new accounting standards regarding capital reserves and why these cannot be used any more to compute a banks capital requirements. http://mandelman.ml-implode.com/2009/12/obamas-speech-avoids-using-the-n-word/

3.) They are also garnering heavy servicing fee’s whilst doing this for the investors who backed these loans (if they weren’t owned by B of A.) Some companies accounted for as much as 12-20% of their annual profits from servicing costs which are recouped from the investor after a short sale or foreclosure.

4.) They had to revamp the system entirely to deal with the $*!  storm. (see. REO Trans, Equator, Titanium Solutions, etc)

5.) Many of their seasoned negotiators (like their office in Texas) left to go work for Citi, Chase, etc… leaving them understaffed and with inept people.

6.) 2010 May be the year of BOA approvals! Remember when Countrywide and Bank of America used to be one of the good ones to work with? I anticipate a rash of activity in the 1st quarter of the year as they hustle to move out inventory.

Time will tell, mark the tape :) !!!

http://market-ticker.denninger.net/archives/1787-A-Short-Treatise-On-The-USeless-Economy.html

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