Short Sales and Federal Loan Modification

Short Sales & Federal Loan Modification

HAMP – You have heard of “HAMP” (the Obama Administration’s Home Affordable Modification Program), the details of which canbe read by clicking HERE.  Also see the footnote on HAMP below[i]

HAFA – The HAMP program now has a supplement to address short sales.  The Supplemental Directive 09-09 provides guidance to lenders on the Home Affordable Foreclosure Alternatives Program (in other words short sales) which is known as “HAFA” and its details can be read by clicking HERE.

Effective Date - HAFA is effective April 5, 2010, (but participating lenders may elect to implement HAFA prior to this date)

General Terms: 

• Help
  If your home owner would like to speak with a counselor about this program, call the Homeowner’s HOPE™ Hotline 1‐888‐995‐HOPE (4673). The Homeowner’s HOPE™ Hotline offers free HUD‐certified counseling services and is available 24/7 in English and Spanish. Other languages are available by appointment.
• Short Sale Agreement
  The HAFA Short Sale Agreement or” SSA,” Exhibit A, pg. 16 of the Directive  outlines the roles and responsibilities of the servicer and borrower in the short sale listing process and provides key marketing terms, such as a list price or acceptable sale proceeds and the duration of the SSA.
• Price   
  Allows the borrower to receive pre-approved short sale terms prior to the property being listing.
• Commission
  Prohibits the reduction in the real estate commission agreed upon in the listing agreement.
• Release of Liability
  Requires that borrowers be fully released from future liability for the debt.
• Release of 2^nd Deed Liability
  This section is called the “Investor Reimbursement for Subordinate Lien Releases,” and declares that lenders may pay up to a total of up to $3,000 in short-sale proceeds to subordinate lien holders (2nds), or allow payment of up to $3,000 to subordinate lien holders.  Subordinate lien holders that receive payment must release their liens and waive all future claims against the borrower.
• Cash For Keys
  Borrower entitled to an incentive payment of $1,500 to assist with relocation expenses to be reported on the HUD-1 Settlement Statement.
• Arms Length Transaction
  Home cannot be sold to anyone who is related to the home owner nor to anyone who has a close personal or business relationship with the homeowner.  Seller cannot get any portion of commission (even if home owner is licensed).
• 90 Day NO Flip
  Any buyer of the home must agree to not sell the home within 90 calendar days of the date it is sold.

HAFA Consideration/Requirements

• Lenders will create a written policy for when it will offer the HAFA program to borrowers.
• Borrowers must first apply for HAMP prior to the short sale HAFA being offered.
• The property must be borrower’s principal residence.
• Loan must be originated on or before January 1, 2009.
• The mortgage must be delinquent or default is reasonably foreseeable.
• Unpaid principal balance may not be more than $729,750 (different for duplexes)
• The borrower’s total monthly mortgage payment must exceed 31 percent of the borrower’s gross income.

Time Frames:

• SSA Offer to home owner by Lender.
  Lender to consider borrower for HAFA within 30 calendar days of the date the borrower requests a short sale.  Lender to notify the borrower in writing of the availability of HAFA option and allow the borrower 14 calendar days from the date of the notification to contact the servicer by verbal or written communication and request consideration under HAFA.
• Days to Close Escrow.
  Home owner has120 calendar days from the date of the offer of HAFA to home owner to close escrow on the short sale.
• Response Time By Lender.
  Offers submitted at the list price to the Lender (with a letter that the buyer is approved for a mortgage loan) will be responded to within 10 business days of lender’s receipt, provided the these documents are within the terms and conditions of SSA (and any other liens are released) the Lender will approve the sale.

 What Should You Do?

• Work with your Seller to get the bank’s written policy of HAFA for your client’s particular lender.
• Work with the 2^nd Mortgage (if it exists) to determine if they are on board with HAFA.
• Gain the pre-approved short sale figure from the Lender.
• Read the SSA that the lender will be providing borrower,  Exhibit A, pg. 16 of the Directive. 
• Ensure the Addendum to Sort Sale dictates that the terms of the Lender within the SSA are agreed to by the Buyer as to the 90 day “no flip rule.”

 

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[i] Home Affordable Modification Program: Overview  The Home Affordable Modification Program is designed to help as many as 3 to 4 million financially struggling homeowners avoid foreclosure by modifying loans to a level that is affordable for borrowers now and sustainable over the long term. The program provides clear and consistent loan modification guidelines that the entire mortgage industry can use.

Borrower eligibility is based on meeting specific criteria including:
1) borrower is delinquent on their mortgage or faces imminent risk of default
2) property is occupied as borrower’s primary residence
3) mortgage was originated on or before Jan. 1, 2009 and unpaid principal balance must be no greater than $729,750 for one-unit properties.

After determining a borrower’s eligibility, a servicer will take a series of steps to adjust the monthly mortgage payment to 31% of a borrower’s total pretax monthly income:

• First, reduce the interest rate to as low as 2%,
• Next, if necessary, extend the loan term to 40 years,
• Finally, if necessary, forbear (defer) a portion of the principal until the loan is paid off and waive interest on the deferred amount.

Note: Servicers may elect to forgive principal under HAMP on a stand alone basis or before any modification step in order to achieve the target monthly mortgage payment.

The Home Affordable Modification Program includes incentives for borrowers, servicers and investors.

 

TGIF Legal Tip: Doc Fee Versus Commission

Transaction or Administrative Fees also known as Doc Fees, or BAC fees…are back in the news.  Sue Sanders, NVAR General Counsel has issued the following Opinion Statement, “Risk to the Unwary” concerning these fees.  She reminds us that RESPA only allows fees for services, “actually performed.”  Prudential, Americana Group, REALTORS® agrees. 

As noted in the Prudential, Americana Group, REALTORS® Policies and Procedure Manual, p. 44, the “Broker Administrative Commission” is a commission, and not merely a fee.  Like all commissions it is not required.  It is separately invoiced by Americana for accounting purposes, as it is additional commission, in excess of the listing and selling commission.  The Americana BAC fee invoice is located here.

So…the $350 question is WHAT IS IT?  It is commission that is not required by the state or federal government to ensure that prospective purchaser’s and sellers’ transactions comply with federal state laws and regulations.  It is not a fee for additional services.  The BAC is additional commission for the real estate services provided by Americana for a buyer or seller.  It is for services actually performed and is the result of the buyer and seller engaging Americana.  The BAC is assessed to each client in excess of the commission that the listing broker typically pays the buyer’s broker and is in excess of the listing commission amount.  The BAC is separated from the other commission, such as the listing or buyer broker, and is earmarked as a commission for the client to pay separately from other charges for the broker’s accounting purposes.  Federal law states a real estate broker’s fees may only be charged if the broker is engaged independently and the fees are reasonable and customary. See HUD Handbook 4155.1  for additional information.

Americana has created an information sheet to be shared with your clients which is located as a website [web site link] on the bottom of the BAC invoice, it is also located at the end of the BAC fee on Ameriforms.

 

TGIF Legal Tip: Real Property Inspections

Real Property Inspections & Prior Inspections

 

Inspections From Prior Transactions:  In the current REO/Short Sale dominated environment there are many failed transactions.  Within these failed transactions there is, at times, a home inspection performed.  This ‘prior inspection’ may or may not be the reason for the prior cancellation.  Lately these ‘prior inspections’ have become an issue where a defect was discovered in the ‘prior inspection’ affiliated with the prior failed transaction, yet this defect is not noticed in the inspection of the successful transaction.  It is rare, but it can happen.

 As The Listing Agent, Attempt To Get A Copy Of All Inspections.  As you know in the Greater Las Vegas Association of REALTORS® Residential Purchase Agreement  Section 12(B) p. 7 Property Inspection/Condition, if a buyer cancels the purchase agreement due to a specific inspection report, the buyer is to provide the seller with a copy of the inspection report.  But what if the cancellation is to due to another reason?  Ask the selling agent for any reports gained by the buyer via email or facsimile. 

 As The Selling Agent, Request of the Seller, Any Prior Inspections In Their Possession:  When making an offer on a short sale or REO request of the Seller via p. 10, Section 28  Additional Terms, “Seller to provide to Buyer copies of any inspection reports in Seller’s possession concerning the property.  This shall include inspections prior to listing and/or any previous unsuccessful escrows.”  This information, can then be forwarded to your buyer.

 

TGIF Legal Tip: Clark County Property Tax Alert

Property Tax Alert Clark County

Property Tax Amount and Lowering Property Taxes

I have received calls on how real property taxes may be affected by the current economic market in Clark County.

How Is Tax Determined?

Real Property taxes in Clark County are based upon a formula, not the sales price.  To calculate the real property tax you multiply value times .35 times tax rate.  (VALUE x .35 x RATE).  Example:  $1,000,000 x .35 = $350,000 assessed value.  To calculate the tax, multiply the assessed value ($350,000) by the tax rate (.035): $350,000 x .035 = $12,250.

How Is Value Determined?:

The value is generated by the Clark County Assessors  office. 

When is Value Determined?:

Notice of value was sent by mail to property owners on December 1, 2009.

How Do You Appeal Value (Lower your Taxes):

Owners have between December 15 to January 15, 2010 to file an appeal.  Owner can telephone and speak to the Assessor to request an appeal form OR go to 500 S Grand Centennial Parkway 2nd Floor Las Vegas, Nevada to get an appeal form.  Beware of Scam:  Be aware there is no such thing as a “Property Tax Review Board.”  The Board claims that it can lower property taxes for property owners.  Questions regarding this matter can also be addressed by contacting the Nevada Attorney General’s Bureau of Consumer Protection at (775) 684-1169. 

Deadline:

Appeals must be filed within these 30 days, December 15, 2009 to January 15, 2010.  

More Questions:

Questions regarding a tax amount for a specific property should contact the Treasurer’s Office 702-455-3882.

 

Short Sale Wallet Size Answer Sheet

A one pager, wallet size, Short Sale Foreclosure Wallet Size Answer Sheet if you will, to hand to clients on the basics of short sales.  The full text is as follows:

Short Sale / Foreclosure

Wallet Size Answer Sheet

Prudential, Americana Group, REALTORS®

 

What is it?

 A Short Sale is when the home sold for less than the debt against property and the lender agrees to accept a discounted payoff.

A Foreclosure is when the lender seizes the home that the loan is secured by through the foreclosure process, which is notice of acceleration of note, notice of default, notice of sale, and then actual forced sale of the home known as a ‘trustee sale.’

What are the tax consequences?

 Short Sale & Foreclosure….all debt forgiven results in 1099C debt. Whether it is a principal (where you live) or rental property makes a difference as to how much tax you may pay. Simply stated, if debt you owed is canceled the IRS sees that as income to you, as if you received a pay check. You can exclude canceled debt from income if it is your principal residence debt, which is debt incurred in acquiring or improving your qualified principal residence up to $2 million ($1 million if married filing separate). See this publication from the IRS http://www.irs.gov/pub/irspdf/p4681.pdf on “Canceled Debts Foreclosures Repossessions and Abandonments.”

What are the Credit Issues?

Foreclosures and Short Sales will appear on your credit history and affect you for up to 10 years. This may affect a.) employment or b.) security clearance, etc. Rumor is that a short sale is better than foreclosure for these items? There is no evidence to back this up. Arguments on both sides are out there. We do know that there is a specific spot on the credit reports for foreclosure, whereas short sales are reported differently.

What is the liability for the Debt AFTER the foreclosure or short sale?

6 Months

Foreclosure – The foreclosing lender has the right to sue the home owner after the foreclosure for the difference between the amount gained at the ‘trustee sale’ discussed above and the balance of debt owed. The lender has only 180 days (six months) from trustee sale to file, after that the owner is no longer liable.

6 Years

Foreclosure 2nd Deeds – All deeds that are junior to the foreclosing lender have different rights than the foreclosing bank. These lenders are called ‘sold off junior lien holders’ and they have six (6) years to recoup their debt. That means you get foreclosed on November 12, 2009, these junior lien holders have until November 12, 2015 to sue you. In other words, you will have just finished buying your plane tickets for the 2016 Olympics to Rio de Janeiro and you can still be sued. It’s a long time.

Short Sale – All lenders that agree to a discounted payoff and ‘release the lien’ from the property to allow the short sale are no longer ‘secured lenders’ and are now ‘sold off junior lien holders’ as described above and have six (6) years to sue you. UNLESS, and this is big, the seller gets the lender to release the homeowner from any future liability as to the forgiven debt

 

TGIF Legal Tip: Seller Protection in a Nevada Short Sale

Seller Protection in a Short Sale

I have received a few comments where the Seller received short sale approval from the lenders(s) but at terms the Seller could not accept.  For example the lender refused to ‘release’ the seller from future liability.  See my blog on Short Sale Release Language.  To protect your seller, make the agreement contingent upon your selling client receiving a full release from any future obligations from the lenders.  The current Addendum to the Short Sale declares, that the “Purchase Agreement is contingent upon Seller and/or Seller’s Agent obtaining approval from Lender (“Lender Approval”) to accept an amount less than what is owed on the Property,” page 1, Paragraph 1, line 15.

 What you should say, “The contingency of paragraph 1, page 1 shall not be met until all terms and conditions of Lender Approval are approved by the Seller, at Seller’s sole discretion, and shall include the Seller being released from any future liability from all parties with a vested interest in the forgiven debt.

The Greater Las Vegas Association of REALTORS® has not yet changed the language on their form, and they may not.  Therefore I added it on paragraph 11, automatically here .  If it is not required it can be removed.

 

UPDATE * * * Cosmopolitan Las Vegas * * * UPDATE

Memorandum

 

RE:     Lawsuit Update

            For Prudential, Americana Group, REALTORS®

            Selling Salespersons of the Cosmopolitan West Tower Only

 

Deadline for Your Buyers To Respond:  December 4, 2009

 

Hogg vs. Nevada Property I, LLC

Eighth Judicial District Court, Clark County, Nevada Case  No. 09A582541

Related Cases: 

• Eighth Judicial District Court, Clark County, Nevada Case No. 09A582669 (Consolidated)
• Eighth Judicial District Court, Clark County, Nevada Case No. 09A583375 (Consolidated)

Judicial Officer:  The Honorable Judge Elizabeth Gonzalez

Department 11, Courtroom 14C (14^th Floor) 200 Lewis Ave., Las Vegas,  Nevada 89155

On October 20, 2009, the District Court in the above-referenced matter(s) Ordered “A Preliminary Approval of Class Settlement and Settlement Class Certification.”

All interested parties should log on to the website http://www.cosmosettlement.com to register and lodge their concerns, approval, etc. The deadline to respond is December 4, 2009.  How and where to respond is in the Memo from the Settlement Class attorney which can be read by clicking here.

This case’s documents can be viewed at http://wiznet.wiznet.com/clarknv/pages/login.jsp, the lawsuit’s Case Number is A582541.

Clark County Court Records are located via the internet on: https://www.clarkcountycourts.us/Anonymous/Search.aspx?ID=900.

Judge Elizabeth Gonzalez reports that the next hearing is December 14, 2009, at  9:00 a.m. Department 11, Courtroom 14C (14^th Floor), 200 Lewis Ave., Las Vegas, Nevada 89155.

 

          Prudential, Americana Group, REALTORS® cannot offer legal advice to a Buyer of the Cosmopolitan.  All Buyers of the Cosmopolitan are encouraged to seek their own personal legal representation in reviewing this matter. If the Buyer has already retained counsel, the Buyer should address this matter with that counsel.

 

TGIF Legal Tip: Short Sale Release Language

In my September 10, 2009 Short Sale  discussion I spoke of 7 hot topics on short sales.  Number three (3) was the “Loans – Foreclosure Debt Recovery”.  I reminded you to know if there is a First – Second – Third Deed of Trust encumbering the home?  Also to know the terms of debt forgiveness.  Have the seller ask the lender, “what are the terms of the forgiveness of the debt?”  Charge Off? Waived? 1099?  Advise the seller to seek legal counsel.  Nevada is a deficiency judgment state, which means a seller can be sued after they have been foreclosed upon.  A second can pursue a foreclosed owner for six years.  By performing a short sale, instead of foreclosure, the one-action rule and the deficiency protections are no longer applicable.  The Seller in a short sale will have a tax consequence.  Sellers in a short sale may also be sued by the lender for breach of non payment of a contractual obligation.  The statute of limitations in Nevada for breach of contract is six (6) years.

The following are some examples of language used by the lenders to deal with debt.  Some are good, some not so good, some BAD.  If you have examples, redact the confidential information, and send them to me at darrenw@americanagrp.com

Example 1 – Not GOOD

In this one, the lender states, “may pursue a deficiency…”  The seller may be sued for up to six (6) years.

BAC Home Loans Servicing, LP and/or its investors may pursue a deficiency judgment for the difference in the payment received and the total balance due, unless agreed otherwise or prohibited by law, if the short sale closes on the loan referenced above.  In addition, if this loan is covered by mortgage insurance, the mortgage insurance company may reserve the right to pursue the seller for the deiciency based on the terms of the mortgage insurance policy.

What can you do?

Write a letter to the lender. 

Please remove that paragraph and insert language to the affect that all parties agree to release each other for any and all claims”

Recently the Stout Law Firm, James R. Stout, Esq., 4560 S. Decatur Blvd., Suite 201 Las Vegas, Nevada 89103, 702-794-4411 was retained by a client of Prudential®, Americana Group, REALTORS® and such a letter worked to amend to this language on a Bank of America lender short sale.

Example 2 – GOOD

In this one, the lender states, “settle your account…”

This letter is to inform you that Chase Home Finance LLC has agreed to your request for a Short Sale, and will accept a minimum of $$$$$ to settle your account and release the lien(s) on the above-referenced Property.

Example 3 – GOOD

In this one, the lender states, “will be charged off and no additional payment will be required…”

Our Customer(s) agrees that upon the posting of the agreed upon Short Sale amount, the remaining loan balance, if any, will be charged off and no additional payment will be required.  Please note a $0.00 balance will appear on the Customer’s file with the credit bureau as “Account legally paid in full for less than the full balance.”

Example 4 – GOOD

In this one, the lender states, “full and final satisfaction on the first mortgage …”

This letter will confirm our acceptance ofthe short payoff on the above referenced property.  We agree to accept the proceeds generated by the $$$$ “as is condition” purchase as full and final satisfaction on the first mortgage indebtedness on the above referenced property.

SEE my OTHER blogs on short sales:

7 recent tips  

Demand to Close  

NV Mediation Program and How it Affects Shortsale  

Short sales When Seller Files BK

Click the following for:

IRS publication on how 1099 taxes are calculated, exempt, etc.  

IRS explanation as to taxes resulting from Foreclosure and Debt Cancellation.

Deficiency EXPLANATION

 Taxes EXPLANATION Personal Residence

 One Action Rule EXPLANATION