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Help! The Lender Wants More Money From Your Short Sale

by TeamForYOUrDreams

What if the bank demands more money from your Short Sale?

If you have a contract to sell your home in Raleigh, North Carolina for $200,000. You might feel that the sale is hard enough to face when you consider that it was once worth about $215,000 .  When the mortgage is larger than the money you will get from the sale it is a Short Sale. You submit the package to the lender who says they are going to disapprove the Short Sale because your sale price is way below their opinion of the market value for the home.  Maybe your lender believes your home is worth more than a similar size home in Cary.

What went wrong?  The bank wants to aviod giving the property away, so it gets an appraisal or a broker price opinion (BPO).   Many times that price is too high.  This was such a big issue in California that they had to pass a law that makes it a crime for a real estate agent to intentionally put too high a price on the property.  Why was this necessary?  The BPOs are frequently created by the real estate agents who will be the ones to sell the property if it is foreclosed.  In other words, if these agents caused the short sale to fail with a high value in BPO, these agents could get to list and sell the home. 

What do you do now?  Don't lay down and play dead.  Nearly every lender has a way to dispute the value in the appraisal or BPO.  Let's look at the method that Fannie Mae uses.

The standard Fannie Mae messages from their Valuation desk says that the Realtor needs to submit a package to the loan servicer and they say


"Complete packages includes a completed Submission form in Excel format and agent documents which may prove a lowered FNMA value. The qualifying criteria for a value dispute is as follows:
When disputing Minimum Net Reserve, at least one of the following documents must be included in the submission for review:
-Appraisal or Buyer's BPO (BPO that the Servicer did not order)
-CMA Report (w/ comp photos and descriptions), Listing History & Realtor Comments
-MLS Sheets of 3 to 6 Comps, Listing History & Realtor Comments
-Inspection Report with photos of repairs needed
-Detailed Contractor's Estimate with photos of repairs needed."

The real estate agent who has the property listed for sale will submit any one of the above items.  If the house is in bad condition, the simplest thing is to get a contractor to bid the cost of the repairs.  Appraisals are costly, so real estate agents typically submit a Comparative Market Analysis (CMA) with a history of the listing and some analysis by the real estate agent.  As an example, I have a Short Sale in Durham that is being reviewed by Wells Fargo.  The sales price in the contract is $100,000 and Wells Fargo believes the value is $115,000.  So, I sent them six comparable properties, three of which were sold in the last six months and the other three are for sale.  I included the showing service report of all of the times that the property was shown to a prospective buyer.  At one time, I had the property listed at $115,000, and  we had virtually no showings.  Every Realtor knows that if no buyer will even take a look at the property at that price, it will not sell for that much.  While real estate agents understand this, it is takes a little education to get a loss mitigation negotiator to believe it.

So, if your lender says it wants a higher price because its BPO indicates a higher value, that is not the final answer.  You challenge the value by furnishing the facts and figures like you see in the Fannie Mae procedure.  Then, you hope that the mistake will be corrected and your Short Sale will be approved.

For a more complete discussion of correcting BPO values in a Short Sale, go to http://shortsalesr.us/short-sale-dos-and-donts/bad-bpo-creates-a-bad-short-sale-decision/

The more Short Sales that get approved in the Triangle area of North Carolina, the less number of foreclosures and the faster the market will recover.

Short Sale Rules for HAFA Just Changed

by TeamForYOUrDreams

HAFA Short Sale Process Just Changed Again

The US Treasury issued Supplemental Directive 12-02 on March 9, 2012 to revise the Home Affordable Foreclosure Alternatives (HAFA) Short Sale program.   What does that mean for the HAFA Short Sale process?  More sellers will qualify for HAFA and more sales with junior liens will close.

A HAFA short sale applies only to a seller’s principal residence, so investment properties are not allowed.  The Treasury regulations that were first adopted for HAFA required the owner to occupy the home in order to qualify for HAFA. Every rule has an exception, and a HAFA Short Sale was allowed if the owner had moved over 100 miles within the last 90 days to get a job.  Later, this exception was modified to be that the owner was allowed to move within the last 12 months for any reason.  The latest revision says “There are no longer any occupancy requirements for HAFA eligibility.”   The home still needs to be the owners principal residence under Section 121 of the Internal Revenue Code, that requires the owner to live in the property for two years during the five years before the date of the sale.  You have to enjoy the complexity of an IRS rule, right?.   The directive does not discuss whether HAFA still requires that the seller must not have purchased another principal residence in the year before the sale, but I assume that is still applicable

What does this do?  More sellers will qualify for HAFA.  I did a short sale of a townhouse in Raleigh where the seller had moved out and took a new job, but she had not moved over 100 miles.  With the regulations that were in effect at the time, this Raleigh Short Sale did not qualify for HAFA.  With the current regulations, this Raleigh Short Sale would not have been eliminated on this basis.

Second and third loans are called junior lien holders because they are loans recorded against the property after the first loan.  The example that most people know is a Home Equity Line of Credit (HELOC) that is put on the property as a second loan.  The former rules limited the payment to all junior lien holders to $6,000.  Now, the regulations increase the amount allowed for these lien holders to $8,500.  This is the total allowed for the sum of the payments to all of the junior liens.  So, if you have a Cary Short Sale with a first, second and third loan, the total that can be paid to remove the second and third liens from the Cary Short Sale property is $8,500.

Do you agree that governmental regulations are sometimes odd?  The structure of HAFA qualifies for humorous.  HAFA is a program to allow Short Sales of the first loan on the property.  This HAFA policy restricts what can be done with second loans.  The lenders who own second loans do not have to follow these rules.  This is about the same as expecting the people who are driving in one state to obey the traffic regulations for the next state.  While it may be humorous, this change in the rules will permit the lenders who have first loans to pay more money to the lenders who have second loans.

What does this do?  More HAFA Short Sales will close on homes in the Triangle area of North Carolina because more money means more lenders will accept the proposed offer.  So, if you have an Apex Short Sale with a second lien of $80,000 and a judgment for $5,000, you may be able to get the junior liens to agree to your Short Sale in Apex with an offer of $8,000 to the second loan and $500 to the judgment because most junior lien holders will settle for 10% of the amount owed.

A HAFA Short Sale seller gets a relocation incentive of $3,000 paid at closing.  How do you get a Wake Forest Short Sale seller who is broke to move out of the house?  Provide some money to pay for the expense of moving  The new amendment to this policy allows the relocation incentive payment only if the borrower or a tenant is living in the property and they are required to move out when the Short Sale closes.   This change in regulations makes sense.  You pay for relocation only if someone has to relocate.   The result is that the lenders who approve the Short Sale will get more money in these situations.

What does this do?  The incentive to do a HAFA Short Sale just became less.  There might be a few Short Sale sellers in the Triangle who were encouraged to do a HAFA short sale by the $3,000.  Those owners of Triangle real estate might make a different decision.

There are less exciting changes to the regulations for monthly payments that allow the borrower to make the full payment during the Short Sale and the there is a change in the reporting of a HAFA Short Sale to the credit reporting bureaus. 

Is this good for Triangle Short Sales? Yes.  More sellers will qualify for HAFA, more sales with junior liens will close and the lenders pay relocation benefits only when someone relocates.

If you want to have a complete understanding of the entire HAFA Short Sale processs from start to finish, look athttp://shortsalesr.us/short-sale-how-to/how-to-hafa-the-process-from-start-to-finish/

Should a First Time Homebuyer Buy a Short Sale

by TeamForYOUrDreams

Should a first time home buyer make an offer on a property that is a short sale?  Short sales can be complicated, so some first time home buyers in Raleigh and the Triangle area of North Carolina sometimes avoid them.  Let me explain why.  A short sale has all the elements of a normal sale where the buyer and seller have to agree on a price and all the other terms. In addition to that, the agreement has to be approved by the bank that has a loan on the property i.e. the seller's lender has to agree to the deal.  More specifically, the lender has to agree to take the net proceeds of the sale.  The buyer is asking that lender to allow the sale to close in return for a "short" payment instead of a full payoff on the loan. While the payment is short, the time it takes to get the banks approval may be long.  As a result, many Raleigh and Cary first time home buyers do not want to wait for the approval.  If you want more detailed information on short sales, visit another of my websites at www.CreateAShortSale.com.

In addition to the delay in getting the approval, the approval is not a sure thing.  Across the nation, only 27% of short sales get final approval.  So, if you believe in following the national averages, you have a bit over a 1 in 4 chance of getting your Triangle short sale approved.  Instead of applying the national averages, you should look at the success rate of agents in Raleigh, Cary and other parts of the Triangle, as our listing agents are better trained so that more of the short sales are approved in the Triangle.  The buyers and their agents need to focus on the agent who represents the seller, called the listing agent.  That agent is the biggest factor in determining whether the short sale gets approved.  In other words, a first time home buyer in the Triangle needs to find out who has the property listed, because that agent is responsible for processing the short sale with the lender.  For example, you can count the number of short sales where I have not been able to reach an approval on your fingers.  So, I ran out of time to get the sale approved in less than 10 sales.  There are some other agents like me who get nearly all of their short sales approved.

Buying a short sale give a Triangle first time home buyer the opportunity to buy a home at a price that is usually below the market price.  In order to be successful with the purchase of a short sale property, the first time home buyers in the Triangle area of North Carolina need to analyze more than the property when they are deciding whether to make an offer on a Triangle short sale.  They have to first look at the property.  Then, they need to find out the success rate of the listing agent in getting short sales approved.

Instead of listening to me analyze the situation, listen to Rang, a Triangle first time home buyer who just bought his first condominium.  Feel free to let me know your ideas about short sale properties being purchased by first time home buyers.

http://www.youtube.com/watch?v=wW2GR35E0JQ

Fannie Mae and Freddie Mac loans were exempt from the HAFA short sale program that was put into effect by the Treasury on April 5, 2010.  Fannie Mae has just created its own version of HAFA with regulations that you can find at http://shortsalesr.us/FannieMaeHAFA.pdf.  Similarly, Freddie Mac has created its version of HAFA with regulations you can read at http://shortsalesr.us/FreddieMacHAFA.pdf.

Does this addition to HAFA make you happy?  In general, the terms are similar to the Treasury's short sale program that is supposed to expedite the review and approval of short sales by pre-approving the seler for the short sale and establishing the amount the lender will accept at the time the Short Sale Agreement (SSA) is entered into.  In other words, you qualify the seller and get the amount needed from the sale at the time you list the property.  However, there is a difference with Fannie and Freddie.  With the Treasury's program, the lender considering the short payoff may tell the Realtor how much they will settle for.  For those of you who do a lot of short sales, they will specify the amount they want to be paid at closing as shown on line 504 of the HUD.

In the Fannie and Freddie program, the servicer is prohibited from telling the seller, buyer and Realtor what this amount is.  Instead, the servicer will establish an asking price based on the condition of the market in the area.  Who is better at setting an asking price: (1) the Realtor who works there every day or (2) a Loss Mitigation negotiator with files from all over America?  When the contract is submitted, you hope that this asking price results in the Minimum Acceptable Net Proceeds (MANP).  If you do HAFA short sales, you have to love the acronyms :-) .  

Having the Broker Price Opinion or appraisal already done at the time the offer is presented is a benefit, and the servicer does not tell the Realtor what the acceptable net proceeds are in most of the non-HAFA short sales (except for FHA short sales where you know to the penny).  So, in this manner the program gives a benefit of the BPO already being done and the same result as the old fashioned short sale where you play "guess again" on the amount the lender wants.  But, it could have been better if Fannie and Freddie followed the Treasury's lead.

The other bad news is that the servicer tells the Realtor how to market the property, and supervises the marketing plan.  Again, who knows better what will work (1) the Realtor who has developed an effective program or (2) the loss mitigation negotiator who just took the HAFA training course.   The guidelines mandate that the marketing program includes " a "For Sale" sign, Multiple Listing Service(s), flyers, print ads, open houses as well as appropriate usage of the internet;"  Few will argue with a for sale sign and putting it in the MLS, but open houses work less than 2% of the time according to NAR statistics.  Print ads have dramatically fallen because they are not that effective.  However, if you want to comply with the Short Sale Agreement you will do these things, because the agreement can be cancelled if you violate it.

Another problem is that a seller cannot be considered for a Fannie or Freddie HAFA short sale if a foreclosure is pending that could sell the property in 60 days, or if the state laws would allow a foreclosure in the next 60 days.  States like Texas can go from a dead start to a full foreclosure in less than 60 days, so does that mean you cannot do a Fannnie or Freddie HAFA short sale in those states?

There are some great benefits.  The servicer must respond to an offer within 10 business days.  That beats the months of waiting we do now.  The servicer must allow at least 45 days to close the sale after approval, with a maximum of 60 days.  Also the foreclosure must be postponed during the sale period, wich is at least 120 days. 

The financial incentives are similar. The seller gets $3,000 in moviing assistance.  The servicer gets more under Fannie and Freddie than the Treasury by receiving $2,200 for an approved short sale, as opposed to $1,500 for the Treasury. 

So, like everything else in short sales, there is some good news and some bad news.  But, at least there is a program that provides some tools that a savy Realtor can use to help a borrower in trouble.

If you need an encyclopedial of information on short sales, go to www.ShortSalesR.us and for the complete  Fannie Mae guidelines go to http://shortsalesr.us/FannieMaeHAFA.pdf and for the Freddie Mac guidelines go to http://shortsalesr.us/FreddieMacHAFA.pdf

Posted by Tim Burrell - While the Triangle area has a much better real estate market than the rest of the United States, there has been an increase in foreclosures.  For a while, we actually had a decrease in the number of foreclosures, but in the last few months they have gone up by 20%.  Since the number of foreclosures was originally low, the 20% increase is not a huge number of additional foreclosures.  However, it is a significant increase on a percentage basis.

I get the information on every property in Wake County where the foreclosure process is started.  I also get the dale and place of all foreclosure sales.  Some days, there are none, one or two.  Other days there are over 20.  For a county with such a big population, this is still not a large number of foreclosures.  But, the trend is a definite increase.

I represent several banks and asset managers in the sale of properties that have been foreclosed and taken back by the bank.  I started selling these types of properties in 1993, so I have a great deal of experience in this field.  As a result, I have been selected as one of the best agents in this area to represent financial institutions in the sale of their Real Estate Owned (REO) by prestigious REObroker.com.  If you look at www.REObroker.com and seach for a Realtor in Raleigh, Cary, Wake Forest, Holly Springs, Apex, Fuqua-Varina and other parts of this area, you will see the information about this part of my business.

Selling a foreclosed property is more difficult than a normal home, as the process is more complicated and involves more paperwork.  However, it is a great improvement to the neighborhood when we get a new family into the home so that they can turn the blighted property into an asset to the neighborhood.  I sold a foreclosure and a "short sale" property in the Glen Ridge Subdivision in Clayton.  The homeowners association was so pleased that they invited me to the annual meeting and said some wonderful things about our efforts.   

So, if you are looking for a foreclosure property to purchase, your Team has extensive experience in that field.  If you are in charge of managing REO properties, we are certified as being among the best in this area to sell the property. 

I hope the trend will reverse itself, so that the number of foreclosures decreases.  In the interim, I will help to get them sold and improve the neighborhood.

Posted by Tim Burrell - The pain may have been lessened for some "short" sales.  One of the problems with a "short" sale used to be that a seller had to pay income tax on the amount the payment was "short".  A "short" sale is where a home is sold and the seller does not repay the full amount of the mortgage, i.e. the payment is "short".  So, if you owed the bank $300,000 and you paid $250,000 when the sale closed, the $50,000 that you are short is taxed as ordinary income.  That could cost you $14,000 to the IRS and more to the state taxing authorities.

The Mortgage Forgiveness Debt Relief Act of 2007 was just signed into law eliminating the income tax for some sellers whose sales close between January 1, 2007 and January 1, 2010.   There are several requirements:

1. The property sold must be your principal residence, as defined in section 121 of the Internal Revenue Code.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

2.  The debt that is forgiven must be  "Qualified Principal Residence Indebtedness", i.e. the money used to acquire a principal residence.

3. There is a limit of Two Million Dollars for the amount of non-taxable Debt Forgiveness, a limit that will not affect anyone in the Triangle.

These rules raise some questions. The biggest one is what is Qualified Principal Residence Indebtness.   The law says "For purposes of this section, the term `qualified principal residence indebtedness' means acquisition indebtedness . . . with respect to the principal residence of the taxpayer."  So, if you refinanced the house for more than what you owed and took money out to spend on other things, that additional amount is not covered by this law.  For example, you had a loan of $200,000 when you bought the house.  You refinanced it with a loan of $400,000, and used the additional money to pay off your other debts.  If you sell the home and pay $350,000 instead of the $400,000 debt,  this new law does not protect you from paying income tax on the $50,000 that was "short".  If you take out a mortgage to buy the house, refinance it for the amount owed on that mortgage (and no more), then your payment to pay off the mortgage is $50,000 short, you will not pay tax on that amount.

Another question is do you need to have lived there for 2 years out of the five years before your home is sold, as that requirement exists to establish a home as your principal residence in order to avoid paying tax on the gain when you sell your primary residence.   It does not make sense to impose that requirement based on the purpose and intent of the legislation, but there is a lot of the Internal Revenue Code that does not make sense.

One more question is what happens if you refinance the home and use the additional funds to remodel the home.  Normally, that would increase your basis in the home, so it would decrease your tax liability if you sold the house.  So, it would be logical to allow this type of refinancing to be subject to the protection of the new law.  Again, it is hard to rely on logic when dealing with the IRS, so I hope there are some regulations developed to interpret this situation.

The amount of forgiven debt that is not taxed is subtracted from the basis of your next house, so that when you sell it, you have to recognize more gain on that sale.  For example, you go short by $75,000 when you sell a home, you buy another one later for $400,000.  Your basis is not $400,000, but $325,000 as the $75,000 is subtracted from your basis.  So, when you sell it, you will have $75,000 more gain.  Remember, there is an exemption from tax for $500,000 of gain for a married couple filing jointly, so this amount of additional gain could be covered by this exemption.  Even if it is not, if you make more than $500,000 in gain and have to pay some tax, you should not cry.

One other good thing this law did was to extend the deduction for the payments for Mortgage Insurance to 2010.  We used to avoid Mortgage Insurance in sales that did not have 20% down payment, as it was not deductible.  Now it is.

It is hard to find the text of the law, but here is a link to how it looked when it passed, so you can read it for yourself. http://tinyurl.com/2qdnwj .   This law is so new, and in need of interpretation, that if you find yourself in this situation, you need to consult a tax professional before you sell.

So, for people who bought a home, did not refinance it for more, and sold it for less than they owed, there is no income tax due on the short sale, so long as the sale is less than two million dollars short.  This legislation eliminates one of the most miserable parts of a short sale, as it was obnoxious for a homeowner to loose all their equity, have to sell their house, and then get a tax bill.

If you have any thoughts on this, I enjoy comments.

Displaying blog entries 1-6 of 6

Contact Information

Photo of Team For Your Dreams, Inc. Real Estate
Team For Your Dreams, Inc.
REMAX United
7721 Six Forks Road, Suite 110, Raleigh, NC 27615
Raleigh NC 27615
919-846-3272
919-812-5111
Fax: 310-347-4041