Free Neighbors Helping Neighbors Workshop!! 9/22/12

Are you asking yourself these kinds of questions?

  • Should I keep paying my mortgage?
  • Can my lender come after me if I walk away from my home?
  • What happens to my credit if I do a short sale or foreclosure?
  • Why won’t my lender modify my mortgage?
  • Are there tax consequences if I modify my loan, do a short sale, or the bank takes my house?

Are you a homeowner with an “underwater” mortgage, and confused on what to do?  Come join our panel of experts to hear clear, reliable information and solutions that will help you make decisions on how to get out of your problem and back on the road to long-term financial stability and security.

Panel members include a representative of the Keep Your Home California Program, a certified HUD counselor, loan modification expert, a realtor experienced in short sales, a mortgage professional and a real estate attorney.  Each of the panel members will present a brief summary of their area of expertise, followed by a question and answer session between the panel and workshop attendees.

The workshop is sponsored by the Neighbors Helping Neighbors organization, and hosted by the Concord Salvation Army.  Location: 3950 Clayton  Road, Concord, California.  Time:  10 a.m. to 12 noon.  Come join us and take your first step into a new, brighter future.

URGENT: FHFA Announces New Fannie/Freddie Short Sale Guidelines

The Federal Housing Financial Administration (FHFA) has just announced that it will align guidelines for Fannie Mae and Freddie Mac short sales and allow lenders and servicers to quickly and more easily qualify borrowers for a short sale.  Real estate professionals and associations have long advocated for a streamlined, standardized short sale process, and some of the changes below address some of the main concerns involving these transactions.

Effective November 1, 2012, the primary changes are as follows:

  • Eliminates current Fannie Mae and Freddie Mac short sale programs and creates a single standard short sale process for both entities (Fannie and Freddie HAFA programs will expire at the end of the year).
  • Enables servicers to quickly and easily qualify certain borrowers for short sales who are current on their mortgages without waiting for an approval from Fannie Mae or Freddie Mac Offers special treatment for military personnel with Permanent Change of Station (PCS) orders.
  • Standardizes and clarifies foreclosure suspensions on a property with an approved short sale.
  • May pay borrowers up to $3,000 in relocation assistance.
  • Fannie Mae and Freddie Mac will offer up to $6,000 to subordinate lien holders to expedite a short sale.

FHFA also clarified that a borrower experiencing a hardship must wait at least two years following a short sale before becoming eligible for a new Fannie Mae or Freddie Mac loan.

It is hoped that these new guidelines will improve short sales eligibility for those troubled homeowners trying to avoid a foreclosure so they can move on with their lives.  Of course, only time will tell….

See Fannie Mae’s press release regarding the new short sale guidelines:

For a copy of Freddie Mac’s Servicer Bulletin go to:

Time ticking down on important short sale tax protection.

For many homeowners considering a short sale of their property, among the most important factors is whether and to what extent they may face a tax liability as a result of the transaction.  The concern is well founded.

As a general rule, the IRS requires that any lender receiving less than the full amount of mortgage debt owed on a property must send the borrower a Form 1099 for that “deficiency” amount.  In other words, if you owe $250,000, and you short sell your property for $190,000, you will receive a Form 1099 for $60,000.

The most important question is whether you have to pay taxes on that $60,000 of “income.”  Prior to the collapse of the housing market, the income was virtually always taxable.  In 2007, Congress passed the Mortgage Debt Relief Act, which generally allows taxpayers to exclude income from the discharge of debt on their principal residence.  For purposes of the Act, the IRS defined “principal residence” as a property in which the taxpaper lives for a total of 24 of the 60 months preceding the discharge of the debt.

It is important to understand that the tax exemption does not apply to all debt on a principal residence.  The Act applies only to forgiven or cancelled debt used to buy, build or substantially improve your principal residence, or to refinance debt incurred for those purposes. In addition, the debt must be secured by the home. The maximum amount you can treat as qualified principal residence indebtedness is $2 million or $1 million if married filing separately.

Where a homeowner has “cashed out” equity in a principal residence through refinance or a home equity line of credit for unrelated purposes, the tax exemption does not apply.  Similarly, the exemption does not apply to non-principal residences; i.e., rental or income property.

Now here’s the important part: THE ACT EXPIRES ON DECEMBER 31, 2012!  In other words, if you want to benefit from this very important tax exemption by short selling your home you need to start NOW.  Any delay risks having the sale not be approved, and as a result not closing, before the expiration of the act.

There is a chance that the Act may be extended; however, the current lack of bipartisan cooperation in Washington raises the very real chance that nothing will get done before the next Congress is sworn in next year.  And there’s no guarantee the new Congress will pass the legislation necessary to revive the Act.  Under the circumstances, my advice is better to be safe than sorry.

If you have questions about whether you qualify for the exemption, or have other issues relating to your mortgage, short sales or foreclosures, please contact my office and let’s talk.

URGENT: New Fannie/Freddie Short Sale Guidelines Take Effect June 15, 2012

Fannie Mae and Freddie Mac have announced aggressive new guidelines applicable to short sales involving FM loans.  The intention, as with most of the recent changes in federal “distressed property” programs, is to streamline the short sale process.  Many experts, this writer included, harbor serious doubts whether the guidelines can be achieved.

Chief among the new guidelines, effective June 15, 2012, is the requirement that servicers review and respond to short sale offers or requests within 30 days.  Servicers requiring more than 30 days must transmit weekly updates to the borrower/seller, and in all cases provide a final response within 60 days.  For HAFA short sales, the clock starts ticking once the borrower has presented a complete short sale approval package.  Requests for pre-approval of short sales also must be completed within the new time frames.

As one who has been tracking short sales since 2007, I frankly question whether these new deadlines can — and will — be met.  Certainly, I have observed situations where short sales are processed start-to-finish in 2 months or less; however, these are far and away the exception than the rule.  More typically, the short sale process from submission of the borrower’s package to issuance of approval by the servicer is 3-4 months or longer.  And indeed the timeline can be extended significantly where short sale approval must be issued by more than one lender/servicer.

The new guidelines provide financial incentives to servicers that complete short sales within the new FM timeline.  In addition, banks servicing Fannie loans risk fines and other penalties if they fail to follow the guidelines.  However, from what I’ve been able to determine, these penalties represent a proverbial “slap on the wrist.”  Only time will tell whether servicers that have to date have dragged their feet in processing short sales will now suddenly “snap to” and provide the timely review and approvals that have left far too many borrowers hanging.  Hope springs eternal….

Here is a link to a complete copy of the Servicer Guide Announcement:



Lenders Pushing Back on HARP 2.0

The blogosphere is chock-full of articles announcing the most recent and substantial changes to the federal government’s HARP 2.0 refinance program.  The most significant and widely touted change to the program is its elimination of loan to value ratios that previously had limited many homeowner’s access to the program.  As now designed HARP 2.0  purports to allow for unlimited loan-to-value (LTV) on most program refinances.  Great news, right?  Well, not so fast.

As author and mortgage expert Dan Green writes this week, “[A]s many underwater homeowners are finding out the hard way, just because HARP allows it, that doesn’t mean banks will do [it].”  Statistical data compiled by Green establishes that many major lenders are restricting HARP 2.0 refis to owners with loan to value ratios in the 105% to 125% range.  Unfortunately, this leaves an enormous portion of the underwater sector out in the cold.

Over the last several years I have consulted with hundreds and hundreds of distressed property owners in Northern California, and particularly in Alameda and Contra Costa counties.  Many distressed homeowners in these regions have LTV ratios of 200% and more.  Green’s statistics show that less than 5% of HARP 2.0 mortgage refinance applicants fall within this range.  Which means that, even for those folks who otherwise meet the program’s eligibility criteria, they’re not being helped.

Moving forward, it will be critical to determine which lenders are in fact honoring the unlimited LTV criteria.  I will do my best to keep you apprised of the identity of these lenders.  In this regard, it is critical to recall that HARP 2.0 does not require homeowners to refinance through their existing lender.  Any bank representative that advises you to the contrary simply is incorrect.

Please let me know if you think you or your client may benefit from HARP 2.0, and I’ll do my best to help you select a qualified mortgage professional in your area to help with the application process.  Meanwhile, for a complete description of the current program guidelines, including a clear and comprehensive set of FAQ’s, I refer you to Dan Green’s excellent website:

URGENT – Bank of America announces changes to their short sale process

Real estate professionals with pending Bank of America short sales need to be aware of significant changes to the Bank of America short sale process.  Released on April 2, the changes, “aimed at streamlining and expediting the process,” include new requirements for initiating a short sale and changes to Equator.

Beginning April 13, 2012, Bank of America will require the following five forms to be submitted to initiate a short sale:

  1. Bank of America Third-Party Authorization Form;
  2. IRS Form 4506-T  Request for Transcript of Tax Return;
  3. 60-day Estimated HUD-1 (or HUD-1 with closing date if shorter than 60 days;
  4. Signed Purchase Contract including Buyers Acknowledgement and Disclosure;
  5. Bank of America Short Sale Purchase Contract Addendum.

If you currently have a short sale file with Bank of America, you will need to complete any outstanding tasks in Equator before April 13. Look for the tasks titled “Submit Short Sale Offer,” “Upload Offer Documents,” and/or “Upload Supporting Documents.”

If these tasks are not complete by April 13, you may be required to re-upload all documents to match the new system (that means five new documents, even if you were only missing one). Your file may also be declined, depending on your open tasks time compared to average timelines.

As always, it is imperative to stay current on the most recent changes affecting your client’s transaction.  I will endeavor to provide all relevant information as it becomes available.  If you have questions or concerns about the new process requirements, please contact me.

Important HAFA Program Changes Announced

The federal government’s flagship HAFA short sale program continues to evolve in hopes of more effectively addressing the needs of distressed homeowners for whom continued ownership is not longer a realistic option.  The most recent Supplemental Directive 12-02 was released on March 9, 2012; loan servicers are instructed to implement program changes effective immediately.  They include:

  • There are no longer any occupancy requirements for HAFA eligibility.
    Previously, HAFA required that the property be occupied as the borrower’s primary residence at some point within the prior 12 months.
  • The amount a servicer may authorize the settlement agent to pay from gross proceeds to subordinate mortgage holder(s) in exchange for a lien release and full release of borrower liability is increased from $6,000 to $8,500.
  • Borrower relocation incentives will be limited to HAFA short sales or Deed-in-Lieu transactions where the property is occupied by a borrower or a tenant at the time of the Short Sale Agreement or DIL Agreement and who will be required to vacate the property as a condition of the sale or DIL.
  • Borrowers may now elect to remain current on the loan during the term of the Short Sale Agreement or DIL Agreement.
  • Credit bureau reporting of HAFA transactions are amended as follows:
    • If the real estate is sold for less than the full balance owed and the deficiency balance is forgiven, report the following Base Segment fields as specified:  Account Status Code = 13 (Paid or closed account/zero balance) or 65 (Account paid in full/a foreclosure was started), as applicable.
  • The deadline for HAFA has been extended. A borrower now has until December 31, 2013 to submit a Short Sale Agreement or a written request for a consideration for a Short Sale Agreement to be eligible for HAFA.

The stated intention of the program updates is to expand the availability of HAFA’s benefits to more struggling homeowners.  Certainly, the increase in the amount of gross proceeds available to settle junior liens should help.  This has been an area of particular concern, most especially in California where the implementation in 2011 of SB 457 barred
lien holders from reserving collection rights following short sales or, alternatively, from conditioning short sale approval from additional seller contributions.  Of course, as with all previous program changes, the proof will be in the pudding.  Stay tuned….

Playing the Simon card in short sale negotiations

As a real estate professional negotiating short sales on behalf of underwater property owners, your chances of success are directly tied to the laws that apply to your client’s situation.  In other words, if a lender won’t approve your client’s short sale, what leverage do you have to “push back” and change that decision?

We start by analyzing the client’s foreclosure rights.  That is, what will happen if the short sale doesn’t get approved and the client instead lets the lender foreclose? California has “anti-deficiency” laws that lay out exactly what happens when a lender forecloses.  In most cases, the answer depends on the type of loan (or loans) involved.

A loan that is used to buy a borrower’s primary residence is considered a “non-recourse” loan.  If a lender forecloses on such a non-recourse loan, all it gets is the property.  The law bars the lender from collecting the balance still owing, commonly called the “deficiency.”  (There are some rare exceptions to this rule, typically involving income or commercial properties; those are not addressed here.)

If the borrower took out a second loan as part of the original purchase money financing, that loan is also considered “non-recourse.”  If the first mortgage (known as the “senior lien holder”) forecloses its loan, the second lender (the “junior”) is barred from collecting its deficiency.

In contrast, if the second mortgage was not purchase money but instead was added later (often as a home equity loan or “HELOC”), the loan is considered a “recourse” loan.  In that situation a foreclosure by the senior lien holder usually does not bar the junior lender from collecting its deficiency.  However, there is a very important exception to this law.   That exception is known as the Simon rule (named for a 1992 case called Simon vs. Bank of America).

The Simon rule comes into play where senior and junior liens were issued by the same lender; e.g., Bank of America first and Bank of America second.  In that case, the law bars the junior from collecting its deficiency if the senior forecloses.  The rationale is that the senior has the ability to protect its own junior loan; and where the senior decides not to do so, Simon says that it gives up its right to collect the deficiency on the junior.

If your client has a Simon loan situation, you now have much stronger leverage in negotiating a short sale.  If the lender denies the short sale, you simply advise that your client will let the property go to foreclosure.  In that case, the lender will get zero on its second loan.  And in most situations, lenders would rather get something for their junior lien than nothing.

With the recent changes in California short sale laws – in particular the new SB 458 – many realtors I’ve talked to are afraid that second loans won’t approve short sales.  For that reason, it’s more important than ever to know what exactly cards you can play on your client’s behalf when seeking that approval.  In some cases, the Simon card may just be your “ace in the hole.”

If you suspect you may have a potential Simon situation, first locate copies of the deeds of trust for both the senior and junior liens.  Then give me a call and I’ll help your clients and you analyze those documents to determine if in fact Simon applies.

Finally, I’d like to thank Kim McAtee of Coldwell Banker’s Orinda, California office for suggesting the blog topic.  I always welcome readers’ suggestions on topics they’d like to see.  Thanks, Kim!

SB 458 Fills Hole in Homeowners’ Short Sale Protection

On July 11, 2011, Governor Jerry Brown signed Senate Bill 458.  Effective immediately, the new law provides critical protection to homeowners pursuing short sales of their underwater properties.

A little background: On January 1, 2011, California’s anti-deficiency laws (contained in Section 580 of the Code of Civil Procedure) were amended to include limited protection to borrowers following a short sale.  Prior to that time, the only anti-deficiency protections available to borrowers occurred following a foreclosure of the loan by the senior lien holder.  By adding subsection “e” to Section 580, Senate Bill 931 enacted a bar against senior lien holders pursuing collection of a loan deficiency following that lender’s consent to a short sale.  Unfortunately, no similar protection was enacted for borrowers with junior liens on their properties.

The problem developed that these junior lien holders were aggressively pursuing collection of loan balances despite agreeing to short sales negotiated by the borrower and the senior lien holder.  The end result was that many borrowers were opting for foreclosure in an attempt to obtain protection under the foreclosure anti-deficiency statutes.  This trend compounded the foreclosure crisis and further drove down property values.  For that reason, and on an expedited basis, the California Association of Realtors sponsored SB 458 specifically to bar collection by junior lien holders who consented to short sales.  That is the legislation that Governor Brown signed on July 11th.

SB 458 is unusual in that it contains an “urgency provision.”  In most situations, there is a lag between the time a governor signs a bill and when it becomes effective.  But SB 458 (which revises the new Code of Civil Procedure Section 580e) by its terms is effective immediately, a clear recognition by the legislature and the governor of the serious nature of the problem created by the junior lien holders’ hard-nosed collection actions.  SB 458 will apply to any short sale that closes escrow on or after July 11, 2011.  (In other words, we look to the date escrow closes, rather than the date of the lender’s approval.)

The law also specifically makes “void and against public policy” any attempt by a junior lien holder to force a borrower to waive the protections of the new law as a condition of a short sale approval.  In other words, even though a borrower may sign a waiver in a short sale approval letter, if escrow closes after July 11, 2011 the lender may not enforce the waiver.

In addition, effective immediately a lender cannot require a borrower to pay any additional compensation in exchange for a short sale approval; however, the new law does not prohibit a borrower from voluntarily offering a monetary contribution to a lender in hopes of obtaining a short sale.  A lender is also permitted under the new law to negotiate for a contribution from someone other than the borrower, such as other lenders, agents, relatives, and the like.

A significant question exists whether junior lien holders will now simply refuse to approve short sales and instead force borrowers into foreclosure, further exacerbating the housing crisis.  A similar concern was raised following the enactment of SB 931; however, that concern has proved largely unfounded.  In short, we will have to wait and see.

If you or a client has questions regarding the applicability of the new legislation to a particular transaction, please contact me and I will be happy to consult with you and/or the client regarding this issue.

HAFA: Hope or another hoax?

Like many professionals in the distressed property arena, I was genuinely excited with the federal government’s roll out last year of the HAFA short sale program.  Since the real estate meltdown began in 2007, those of us advising potential short sale candidates experienced growing frustration with the interminable delays of most lenders in processing “traditional” short sale requests.  Too often, those delays translated into lost
buyers, understandably unwilling to “hang in there” indefinitely while overwhelmed lenders dithered.

The HAFA program’s structure seemed clearly directed at this core program.  By putting the lender approval process at the front of end of the short sale process, sellers and their agents would be able to market properties as “pre-approved,” thus creating transparency and predictability for interested buyers.  And in fact, initial experience with the program seemed to warrant guarded optimism that we were finally on the road to smoother processing of the growing number of short sale transactions.  More recent experience raises serious questions whether that optimism was misplaced.

On one hand, the Department of Treasury’s internal statistics through April 2011 purport to show that roughly 46% of HAFA Agreements started resulted in closed transactions.  My own experience belies this rosy picture.  We know that currently roughly 70,000 HAFA transactions are in some stage of processing. What these numbers and the DOT’s statistics don’t reflect is the number of HAFA applicants whose applications have been rejected for reasons wholly unrelated to their program eligibility.

Several of my clients have been told by lender representatives that the lender does not participate in HAFA, even though the lender is listed on the DOT’s approval lender list.  Other clients have been summarily dismissed from HAFA following submission of required paperwork because program time deadlines were not met, even though the failure to meet those deadlines resulted from the lender’s own processing delays.  Yet other lenders have outsourced HAFA processing to incompetent third party processors.  The horror stories abound.

My concern is that, like the once ballyhooed and now roundly reviled HAMP program, lenders lack the qualified bandwidth to effectively process qualified HAFA applications.  And with the frequent and multiple revisions to program eligibility guidelines, it’s not surprising many lenders simply don’t know if an applicant is qualified.  The trend seems to be to simply reject the applicant, hope they don’t push back, and instead opt for HAFA’s far less beneficial deed-in-lieu program or simply walk away.  Ultimately, and once again, it is the distressed homeowner who gets the shaft.

Hardly the hopeful we had once envisioned.  Stay tuned.