Archive | Tips for Sellers
On August 6, 2010 The Federal Housing Administration (FHA) announced it will be rolling out a new program on September 7, 2010 that will offer new FHA insured mortgages to underwater homeowners who are current on their mortgages provided the homeowner’s lender will agree to write off at least 10% of the unpaid mortgage balance.
Sound too good to be true? Well there is a catch. The homeowner must get their lender (servicer) and the investor who owns the mortgage to take a short payoff of the loan. Many lenders and investors are reluctent to do this. So although the program looks great to homeowners it may be easier said than done.
Who qualifies?
- Homeowner must be in a negative equity position (underwater).
- Must be current on the existing mortgage.
- Homeowner must occupy the property.
- Homeowner must qualify for new FHA loan and have a minimum FICO score of 500.
- The existing loan cannot be an FHA loan.
- The existing lien holder (lender) must agree to write down at least 10% of the unpaid balance.
- The new re-financed FHA first mortgage cannot have a loan-to-value greater than 97.75%.
- If there is a second lien it can be re-subordinated to the new loan, but the 2 loans combined cannot be great than 115% loan to value.
Interested homeowners should contact their servicer for more information. When I looked on Bank of America’s website, my servicer, I found mention of the program but that they had not worked out the details and to keep checking back. With the program scheduled to roll out in early September, you may find this to be the case with many lenders.
If you would like a copy of the FHA Mortgagee Letter that details the program, please feel free to contact me.
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In the State of Nevada real estate agents have specific duties they are required to provide to all parties and more specifically to the client with whom they are representing. These duties are clearly defined on the Duties Owed By a Nevada Real Estate Licensee. This form is provided to all clients, in every real estate transaction and is a required document by the State of Nevada.
To all parties in a short sale the agent must act in a manner which is not deceitful, fraudulent or dishonest, while exercising reasonable skill and care. The agent must also disclose to each party in the transaction all material and relevant facts.
Reasonable skill and care would require the agent to seek training on short sales as they are much more complex transactions than a regular purchase or sale. The agent should be familiar with marketing strategies for short sales, the short sale process, bank requirements, and diligently follow up through the transaction. The agent must disclose to each party material facts – what lien holders are involved, has a Notice of Default or Sale been filed against the property, what is the homeowner’s hardship. In addition to any other facts that might be pertinent – are their other liens, is the agent using an 3rd party negotiator, is the seller current or delinquent, is this the seller’s primary residence, does the seller qualify for HAFA? These are all material and relevant facts in a short sale.
In addition, the agent is charged with additional duties to their client – the buyer or the seller.
- Exercise reasonable skill and care – again the agent should seek education on short sales.
- Not disclose confidential information without written consent of the client – in a short sale transaction the seller authorizes the agent to discuss confidential information with the seller’s lien holder.
- Seek a sale, purchase…at the price and terms stated in the brokerage agreement or price acceptable to the client. This is done through agents listing the property in MLS, marketing the property etc.
- Present all offers made to, or by the client as soon as practicable, unless waived by client. The listing agent has the obligation to present all offers made to the seller. If the seller accepts an offer then subsequent offers should be presented for back up position. Only one offer should be forwarded to the seller’s lien holder.
- Disclose to the client material facts of which the licensee has knowledge concerning the real estate transaction. The licensee should inform the seller of the legal and tax implications of a short sale, how the short sale process works etc.
- Advise the client to obtain advice from experts relating to matters which are beyond the expertise of the licensee – it cannot be stressed enough that agents should not be giving legal, tax or credit counseling advice to clients. These are all areas where clients should be referred to a licensed professional.
- Account to the client for all money and property the licensee receives in which the client has an interest. When representing a buyer on a short sale, if the earnest money is not going to be deposited until short sale approval is procured, the agent should clearly identify who has these funds.
Agents should clearly not be giving sellers advice on the legal, tax and credit implications of short sale but directin them to the great FREE resources available in our community. On the buyer’s side, agents should be collecting as much information about the short sale as possible to help thier buyer’s make informed short sale purchase decisions.
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The new Home Affordable Foreclosure Alternative (HAFA) program introduced by the Treasury starts today. This program was designed to help homeowners who did not qualify for the Home Affordable Modification (HAMP) program or were unsucessful at completing a trial modification. The new HAFA program allows the homeowner to apply for and get a pre-approved short sale on their FIRST MORTGAGE.
The key to the new HAFA program is that the homeowner must meet the HAMP guidelines to be considered, which are as follows:
- Property must be the homeowner’s primary residence.
- The first mortgage must have originated before 2009.
- Mortgage payments must be delinquent OR default is reasonably foreseeable.
- Unpaid balance is not more than $729,750.
- Homeowner’s TOTAL monthly payment (principle, interest, taxes, insurance and HOA dues) MUST EXCEED 31% of thier GROSS MONTHLY INCOME.
Timelines for this program are set at much shorter periods than traditional short sales.
- Within 30 days of the request to be considered the servicer must respond to the homeowner.
- 14 calendar days from the servicer’s response the homeowner must sign the “short sale agreement” and return it to the servicer.
- At this point the homeowner then lists the property.
- Once an offer is recieved the homeowner must submit it to the servicer within 3 business days.
- The servicer then has 10 business days to accept or reject the offer.
If the servicers can meet these deadlines it will greatly improve the market for these short sale properties. (I for one am currently in the watch and see mode.)
Here are some other key points that must be considered….
- Homeowner gets a $1500 incentive for relocation assistance at the conclusion of the sale.
- Homeowner must negotiate separately with any second mortgages etc.
- If there is mortgage insurance the insurer must waive their rights to recieve additional payment.
- Must be an arms-lenght transaction.
- Servicer/Investor must agree not to pursue a deficiency balance against the homeowner (this is huge!)
Contact me for more detailed information and to see if you might qualify for this program.
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One year ago, the interest rate on a 30-year fixed conforming and FHA loan was 4.875%, an incredibly low rate. However, the rate for those same loans today stands at only 5.125%, a mere ¼ point increase. With the 7.5% decrease in median home value in Truckee for homes in the conforming price range in the past year, Buyers are still ahead if they purchase today.
Jumbo loans are a different story. One year ago, a 30-year fixed jumbo was 7.875%. Today, it’s 5.75%, a 2.125 point drop. The median price of homes in the jumbo arena dropped over 6%, so with both interest rates and value of those homes down, Buyers can buy much more than they could have a year ago. So those who decided to “wait and see” made a good decision.
HOWEVER, neither the interest rates nor the home prices will stay this low. We certainly hope that Buyers trying to outsmart the market won’t be left out in the cold. Literally.
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It is true that both foreclosure and short sales have serious consequences for homeowners faced with the inability to pay thier mortgages. The following are some of the ways homeowners are affected showing the difference between foreclosure and short sale. (Source: Distressed Property Institute)
PURCHASING A HOME IN THE FUTURE…
- Fannie Mae Insured Loans for Primary Residences - Foreclosure requires a 5 year wait before purchasing again vs. a 2 year wait if you sold through a short sale.
- Fannie Mae Insured Loand for Non-Primary Residences – Foreclosure requires a 7 year wait and short sale again will only require a 2 year wait.
- Future Loan Applications – On any 1003 application the borrower who has a foreclosure will have to mark “YES” to the questions “Have you had a property foreclosed upon or given title or deed in lieu thereof in the last 7 years?”, yet a borrower who has done a short sale will not have to answer yes to this question.
CREDIT HISTORY AND CREDIT SCORE
- Credit scores can be lowered anywhere from 250 to over 300 points with a foreclosure and will typically affect your credit score for over 3 years. With a short sale only late payments will show and after sale the mortage will be reported as paid or negotiated. The short sale’s affect can be as little as 50 points and can be as brief as 12 to 18 months.
- Credit history for foreclosure will remain as a public record on your credit history for 10 years or more. A short sale is not reported on a credit history, typicall it shows the mortgage was “paid in full, settled.”
EMPLOYMENT
- SECURITY CLEARANCE – If you have a security clearance, a foreclosure can result in a revokation of your clearance, where typcially a short sale on its own does not challenge a security clearance.
- Your current employment can be affected if your employer checks your credit regularly.
- Many employers are requiring credit checks when hiring for new positions. A foreclosure could challenge future employment opportunities.
DEFICIENCY JUDGEMENTS
- In 100% of foreclosures in Nevada the bank has the right to pursue a deficiency judgement. With a short sale the lender often agrees in writing to give up the right to pursue a deficiency judgement.
- With foreclosure the price the home sells for after the bank gets it back through the foreclosure process is often significantly less then the proceeds they would receive in a short sale. Thus the deficiency balance is typically much higher with a foreclosure than with a short sale.
There is a common misconception that foreclosure and shortsale are equal, but as you can see the truth is that the consequences of a short sale can be more favorable for homeowners.
If you or someone you know if facing foreclosure please contact me and I can help you understand the options available to you and give you referrals to others who can help.
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Many homeowners in the Reno-Sparks area are facing issues with mortgage delinquency and possibly foreclosure. This can be a very stressful time and knowing the process and where to go for help can be very beneficial. As a member of the Nevada Association of REALTORS Foreclosure Prevention Task Force, I have come across a very valuable tool for homeowners – “Nevada Foreclosure Information Workbook”. This booklet was compiled by the Nevda Statewide Foreclosure Prevention Taskforce. You can download this booklet from Nevada Department of Business and Industry’s website. Here is a link http://foreclosurehelp.nv.gov/Brochures/ForeclosureWorkbook.pdf.
The booklet covers topics like – Understanding Delinquency, Understanding Your Financial Situation, Know Your Mortgage, Know Your Options, Beware of Scams, Tools for the Homeowner, and Document Checklist for Dealing With Your Lender. There are also definitions for many of the terms you may need to know. There is also a list of resources.
If you are facing issues with delinquency the best thing you can do is take a pro-active approach and educate yourself on the process. This will enable you to have more successful results when dealing with your lender.
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Many borrowers are under the assumption that their responsibility for a mortgage ends with a short sale or foreclosure. This is not always the case.
In a short sale the mortgage holders are increasingly requiring borrowers to sign a promissory note, a written promise to pay back all or a portion of the debt, as a condition of the short sale approval. Increasingly mortgage holders are asking sellers to sign a promissory note or retaining their right to pursue a deficiency.
In many states lenders have the right to come after borrowers for unpaid mortgage debt from a foreclosure or short sale, seeking a deficiency judgment. Many times it is the second mortgage holder who will pursue the deficiency as the first may have been satisfied through the short sale.
Whether or not a mortgage holder will pursue the borrower can depend on (1) their agreement with the investor or servicer, (2) what is allowed by State law, or (3) if the return outweighs the potential return. In addition, if there isn’t a true financial hardship that is when the mortgage holder might be more inclined to try to collect the unpaid balance.
In Nevada, NRS 40.455 gives creditor 6 months from the date of foreclosure or trustee’s sale to request a hearing and determine if a deficiency judgment is owed the creditor.
As a REALTOR it is outside of my area of expertise to advise a client regarding a promissory note or whether or not they could get hit with a deficiency judgment in the future. I strongly advise anyone who is faced with a short sale or foreclosure to consult an attorney before making any decisions.
Please keep in mind that in order to complete a short sale you will need a TEAM of professionals including an experience REALTOR, a CPA and an attorney. Each of these team members will play a critical role in assisting you.
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On Saturday, April 25th, the City of Reno, in partnership with Consumer Credit Affiliates of Northern Nevada (a federally funded not for profit) will be hosting two workshops. The first workshop will start at 9am and will aim to assist households at-risk of experiencing foreclosures. After the hour long workshop, it will be followed with an informational session and one-on-one time with those attendees who are interested in speaking to counselors and providers.The second workshop starts at 1:00pm and is intended to provide information, resources and first-time homebuyer education to individuals and families interested in becoming homeowners. After the hour long presentation by Consumer Credit Affiliates, there will be an informal informational session and an opportunity to meet with various providers, including credit counselors, banks and Dickson Realty. Get information on such items as down payment assistance, first time homebuyer tax credit or how to purchase foreclosed homes.
The event takes place at the Downtown Ballroom and is free of charge.
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I attended a foreclosure seminar recently and had the pleasure of sitting in on a presentation conducted by J.C. Melvin, www.JCMelvin.com . I’ve known JC for many years and find him to be a very talented and motivating speaker/trainer. In any event JC used a “Bucket of Mud” metaphor and related it to our industry. That is that many brokers, agents, loan officers, escrow officers, etc. etc. etc. are walking around yearning for the good old days. These guys wake up, grab their buckets and head off to spread their “old school” skills and cheer with anyone that’ll listen. Let’s face it guys, our world’s changed so you’d better get over it. I’d like to offer a few points for all to consider:
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Buyers actually have to qualify for a home. They need good credit. The lender may actually require a down payment. Say it isn’t so! Risky lending practices created most of this mess. Don’t you think it should be this way? Perhaps we could have avoided all of this had things stayed as they were when I entered the industry in 1991. Those that ignore history are doomed to repeat it, get over it.
- Distressed properties will continue to dominate the Nevada market for the foreseeable future. We real estate pros must innovate, adapt and most importantly learn. This is a whole new world. It’s filled with hard work and accountability. Much more focus should be placed on loss and risk management. Our top people must embrace this and get over it.
- We will work harder for less money, get over it. We may need to work 40 – 50 hours per week or more. In the words of my teenage son, OMG!
- Banks, asset managers, third party REO (Real Estate Owned, the industry word for “forclosure”) service providers are overwhelmed. Much of this is caused by a lack of training from the real estate pros they rely upon for their field work. By the way, you typically can’t buy a bank-owned home conditioned upon the sale of another home. You probably won’t get your short-sale done in 45 days. Your listing is not worth 20% more than the nearly identical foreclosure listing down the street. The claw foot tub, great border paper and 16 pound nails are not worth $50,000. We really owe it to the public on this one.
I would like to make one statement directed towards some banks and loan servicers. Please stop using your collection department staff to manage loan modification. It’s kind of like asking your dentist to remove your appendix. Loan originators must be patient and intuitive. Skills not typically associated with your “repo-man”. Oh! And please stop losing my short sale file. You never seem to misplace my house payment!
Thanks for listening, I’m going to go sell another REO now.
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Curb appeal remains the standard. If a house doesn’t have it, the property is likely to languish on the market. A Michigan State University study estimated that good landscaping adds 6 percent to 11 percent to the eventual sales price of a home. It doesn’t take a ton of cash to get curb appeal. Often a little bit of elbow grease will do the trick.
Here are the basics:
- Front yard and porch. Mow the grass and keep it green. Keep the porch immaculate – no dirt or bugs.
- Mulch all the beds. Flowers and shrubs help, but if the owner can’t afford anything else, mulch will do the trick.
- Paint will pay off. Covering everything with a fresh coat of paint – preferably a neutral color – will help the house sell. Freshening up the front door is particularly important.
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Saturday, August 14, 2010 By: Amy Shocket
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