Posts Tagged ‘real estate short sales’

Will Mortgage Servicers Become the Country’s Landlords?

Thursday, December 31st, 2009

Will Mortgage Servicers Become the Country’s Landlords?

Foreclosures have skyrocketed over the past two years and even more are predicted in the coming year. Not only are massive foreclosures tragic for the individual families losing their homes, but they are also responsible for major lender losses, resulting in the current mortgage credit crunch. They have caused dramatically dropping house prices, and increased crime and problems for neighborhoods where foreclosures are rampant. Banks, consumer advocate groups, and the government have been searching for ways to stem the tide of these destructive defaults.

Enter the Deeds For Lease (D4L) program from government-controlled mortgage financier Fannie Mae. With this initiative, Fannie Mae would essentially become the landlord for seriously struggling homeowners. It is designed to “minimize family displacement, deterioration of neighborhoods caused by vandalism and theft to vacant homes, and the effect these have on families, communities and home price stabilization.” Here’s how it works:

A homeowner with a Fannie Mae-backed mortgage facing foreclosure must contact their servicer to see if they qualify. If the homeowner does not qualify for any other home loan

help, like mortgage modification or a short sale, then he/she may be eligible for the program. These homeowners must also be able to afford rent at the current market price. At that point the borrower turns over the home’s deed to the bank, the bank forgives the loan, and the borrower is allowed to rent the same home back from the bank for up to 12 months. During that time the renter will be expected to figure out other living arrangements so that the bank can then sell off the house.

Will other banks follow suit in order to stop losing money on foreclosures? Not likely, according to a recent online Time article. It quoted Cheryl Lang, CEO of Integrated Mortgage Solutions, as saying the main problem lies in the legality of the program. “Once a lender takes possession, if there’s a mold issue or Chinese drywall, whatever the problem is with that house, whether or not the lender is aware of it, that’s a liability.”

Many of the nation’s largest lenders, including Citigroup and JPMorgan Chase, have meager interest in converting homes into rentals. “We’re in the lending business,” says Chase spokesman Tom Kelly. “We’re not really equipped to be landlords.” Lenders are sitting on nearly half a million repossessed houses nationwide, but getting rid of them quickly, even if that means taking a hit on price, seems to be the preferred response. A recent presentation by the head of Chase’s retail-financial-services division showed that the company’s servicing portfolio went from having about 52,000 repossessed homes in September 2008 to only some 30,000 in September 2009. Over that period, the average price at which the firm sold houses from that stock dropped from $175,000 to $150,000.

Now, none of that means rent-backs won’t eventually take off. There are plenty of examples in recent past of housing policies starting at the federal housing agencies and later expanding industry-wide thanks to strong-arming from some combination of the Obama administration and Congress. Loan modifications are the quintessential example. Perhaps one more relevant bit here is the law that was passed earlier this year requiring banks that repossess houses to honor the terms of existing leases (i.e. to not immediately kick out any existing renters). Fannie Mae already had such a policy in place. Over the summer, an Assistant Secretary of the Treasury Department told a Senate panel that the administration was considering rent-backs, but the idea hasn’t gained traction since then.

After all, the big administration push has been loan modifications. Earlier this week, Treasury reported that through October more than 650,000 homeowners have received trial modifications under the government’s “Making Home Affordable” plan. How long lasting that help will be, though, is a different question. As of Sept. 1, only 1,711 borrowers had successfully completed the trial phase and received permanent changes to their loan terms, according to a report by the Congressional Oversight Panel.

If loan modifications aren’t the long-term success the administration is banking on, people will wind up losing their homes to foreclosure anyway, and the number of repossessed properties owned by banks will again rise. According to foreclosure tracker RealtyTrac, the number of foreclosure notices nationwide has been ticking down the past three months, but the number of notices is still running about 19 percent higher than last year. Considering high unemployment and how many people still owe more on their mortgages than their houses are worth, there might be a chance yet for attention to turn to the idea of renting houses back to former owners.

Military Personnel Receive Federal Help on Short Sales

Tuesday, December 29th, 2009

Members of the military who find themselves in a short-sale situation now have a new tool via the Homeowners Assistance Program (HAP) through the Department of Defense (DoD).

Congress expanded HAP when they passed the American Recovery and Reinvestment Act of 2009; and now nearly every military personnel involved in a short sale can get financial help through HAP if they find themselves upside down when they must sell because of a mandatory permanent transfer.

The HAP website ( contains several brochures for military personnel and for real estate professionals to help understand the expanded guidelines for those using the program.

Authorized under Section 1013 of the Demonstration Cities and Metropolitan Development Act of 1966, HAP is a law that is managed by the U.S. Army Corps of Engineers “to assist eligible homeowners who face financial loss when selling their primary residence homes in areas where real estate values have declined because of a base closure or realignment announcement.” The American Recovery and Reinvestment Act expands the legislation temporarily for DoD employees caught up in the mortgage crisis. Those who can apply for assistance include:

  • service members and DOD employees who are wounded, injured or become ill when deployed;
  • surviving spouses of service members or DOD employees killed or died of wounds while deployed;
  • service members and civilian employees assigned to BRAC 05 organizations; and
  • service members required to permanently relocate during the home mortgage crisis.

The assistance is limited to employees who were reassigned within about a 5-and-a-half year period between 2006 and 2012 and the house being considered must have been the applicant’s primary residence. Some of the criteria for eligibility include:

  1. Permanent reassignment requires move of more than 50 miles.
  2. Reassignment ordered between 1 February 2006 and 30 September 2012.
  3. Property purchased (or contract to purchase signed) before 1 July 2006.
  4. Property was the primary residence of the owner
  5. Owner has not previously received these benefit payments.

An online brochure, which can be printed via a PDF file, is available here.

This next paragraph is very important for purchasers of houses where the HAP program is being used.

The execution of this program requires the assignment of the contract to the Department of Defense, via the U.S. Army Corps of Engineers. In essence, the seller conveys the house over to the USACE and then the purchaser buys the house from the USACE all at the same time at the same settlement or escrow table. Your state laws may require a few differences, but this is how it’s executed on the ground level.

Many Realtor contracts contain paragraphs that will not allow the assignment of a contract, so military sellers using HAP may need to strike this paragraph to allow the contract to go through without any hiccups.

An “assigned” contract is one where one party in a sales contract can assign their interests over to a third party before settlement. It would say something like: “this contract is between ‘Mr. and Mrs. Seller’ and ‘Mr. and Mrs. Buyer and/or assigns.'”

With this language, it allows Mr. and Mrs. Buyer to slip in Mr. and Mrs. Buyer-2 at some point in the performance of the contract. It’s legal, and is usually used via a pre-foreclosure contract where one party is finding houses for sale and selling them to a secondary buyer once they get the terms of the contract in place.

Thus, in the use of the DoD’s HAP program, the purchaser needs to understand that at the end of their contract, before they go to settlement, the seller will no longer be Mr. and Mrs. Seller, but the U.S. Army Corps of Engineers.

Written by M. Anthony Carr
December 28, 2009

Charles D’Alessandro

[email protected]
tel 718 253-9600
fax 718 253-9573

Navigating Short Sales: What to Do When the Sale Price Leaves You Short

Tuesday, December 29th, 2009

If you’re thinking of selling your Brooklyn home, and you expect that the total amount you owe on your mortgage will be greater than the selling price of your home, you may be facing a short sale. A short sale is one where the net proceeds from the sale won’t cover your total mortgage obligation and closing costs, and you don’t have other sources of money to cover the deficiency. A short sale is different from a foreclosure, which is when your lender takes title of your home through a lengthy legal process and then sells it.

1. Consider loan modification first. If you are thinking of selling your home because of financial difficulties and you anticipate a short sale, first contact your lender to see if it has any programs to help you stay in your home. Your lender may agree to a modification such as:

· Refinancing your loan at a lower interest rate

· Providing a different payment plan to help you get caught up

· Providing a forbearance period if your situation is temporary

When a loan modification still isn’t enough to relieve your financial problems, a short sale could be your best option if

· Your property is worth less than the total mortgage you owe on it.

· You have a financial hardship, such as a job loss or major medical bills.

· You have contacted your lender and it is willing to entertain a short sale.

2. Hire a qualified team. The first step to a short sale is to hire a qualified real estate professional* and a real estate attorney who specialize in short sales. Interview at least three candidates for each and look for prior short-sale experience. Short sales have proliferated only in the last few years, so it may be hard to find practitioners who have closed a lot of short sales. You want to work with those who demonstrate a thorough working knowledge of the short-sale process and who won’t try to take advantage of your situation or pressure you to do something that isn’t in your best interest.

A qualified real estate professional can:

· Provide you with a comparative market analysis (CMA) or broker price opinion (BPO).

· Help you set an appropriate listing price for your home, market the home, and get it sold.

· Put special language in the MLS that indicates your home is a short sale and that lender approval is needed (all MLSs permit, and some now require, that the short-sale status be disclosed to potential buyers).

· Ease the process of working with your lender or lenders.

· Negotiate the contract with the buyers.

· Help you put together the short-sale package to send to your lender (or lenders, if you have more than one mortgage) for approval. You can’t sell your home without your lender and any other lien holders agreeing to the sale and releasing the lien so that the buyers can get clear title.

3. Begin gathering documentation before any offers come in. Your lender will give you a list of documents it requires to consider a short sale. The short-sale “package” that accompanies any offer typically must include

· A hardship letter detailing your financial situation and why you need the short sale

· A copy of the purchase contract and listing agreement

· Proof of your income and assets

· Copies of your federal income tax returns for the past two years

4. Prepare buyers for a lengthy waiting period. Even if you’re well organized and have all the documents in place, be prepared for a long process. Waiting for your lender’s review of the short-sale package can take several weeks to months. Some experts say:

· If you have only one mortgage, the review can take about two months.

· With a first and second mortgage with the same lender, the review can take about three months.

· With two or more mortgages with different lenders, it can take four months or longer.

When the bank does respond, it can approve the short sale, make a counteroffer, or deny the short sale. The last two actions can lengthen the process or put you back at square one. (Your real estate attorney and real estate professional, with your authorization, can work your lender’s loss mitigation department on your behalf to prepare the proper documentation and speed the process along.)

5. Don’t expect a short sale to solve your financial problems. Even if your lender does approve the short sale, it may not be the end of all your financial woes. Here are some things to keep in mind:

· You may be asked by your lender to sign a promissory note agreeing to pay back the amount of your loan not paid off by the short sale. If your financial hardship is permanent and you can’t pay back the balance, talk with your real estate attorney about your options.

· Any amount of your mortgage that is forgiven by your lender is typically considered income, and you may have to pay taxes on that amount. Under a temporary measure passed in 2007, the Mortgage Forgiveness Debt Relief Act and Debt Cancellation Act, homeowners can exclude debt forgiveness on their federal tax returns from income for loans discharged in calendar years 2007 through 2012. Be sure to consult your real estate attorney and your accountant to see whether you qualify.

· Having a portion of your debt forgiven may have an adverse effect on your credit score. However, a short sale will impact your credit score less than foreclosure and bankruptcy.

Note: This article provides general information only. Information is not provided as advice for a specific matter. Laws vary from state to state. For advice on a specific matter, consult your attorney or CPA.

Charles D’Alessandro
Fillmore Real Estate
[email protected]
tel 718 253-9600
fax 718 253-9573
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