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Short Sale Credit Reporting

Distressed homeowner usually prefer a short sale over a foreclosure because it is supposed to be better on their credit and you can usually buy a home again sooner. However, some people are alarmed to find out that their lender has actually reported their short sale transaction as a foreclosure instead of a short sale. This is happening frequently enough that both the Federal Trade Commission and the Consumer Financial Protection Bureau are investigating this situation.

From what I understand, some lenders and credit bureaus actually have no code in the credit reporting systems for “short sale” specifically. What I often see instead is where the lender will report it as “settled for less than full balance” which is similar to a charge-off. But in some cases lenders are opting to use the code for “foreclosure” because the foreclosure process had been started, even though the final resolution was a short sale.

The major lenders and insurers of loans (Fannie Mae, Freddie Mac and FHA) all view short sales and foreclosures differently, and for the most part allow people to apply for a new home loan in as short as two years after a short sale but it can be three to seven years after a foreclosure. (There are some extenuating circumstances and new loan programs that can shorten both of these drastically.)

If you have had a short sale in the recent past, it would be a REALLY good idea to get a copy of your credit report (www.annualcreditreport.com is one option) to verify how it was reported. If you aren’t sure how to read it, contact me and I’ll be happy to sit down and review it with you. In addition, if you are applying for a new purchase loan, be sure your lender knows you did a short sale so they don’t just go by your credit report in case you are one of the ones with the incorrect reporting. If you find that your short sale was incorrectly reported as a foreclosure, you can file a complaint here: www.consumerfinance.gov (although there is no guarantee that will fix the issue).

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE (6683). To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

Another Short Sale Benefit

If you are faced with losing your home, it’s generally considered more beneficial to do a short sale versus a foreclosure. Most of the time the hit to your credit score is usually less, and you can buy another home sooner after a short sale than a foreclosure. The other big benefit is that after a short sale, it appears that California law now forbids lenders from pursuing you for the amount of the deficiency, where in a foreclosure they may be able to. There is also an argument to be made that a short sale could have better tax implications for some borrowers than a foreclosure, although I don’t have room to go into those details here.

But recently another benefit has come to my attention that I wanted to let you know about. If your loan is an FHA or VA loan, it’s possible that the FHA or VA may be able to pursue you for the deficiency after a short sale or a foreclosure. Note that they are the ones insuring your loan, so they are separate from your lender, who may be forbidden by California law from pursuing you. So this could be a big problem for many people who thought they were all done with their lender after the short sale or foreclosure.

However, the good news is that I was just reading through some major fine print on a FHA short sale, and I saw a small comment that if the borrower at least attempts a short sale, then the FHA may not pursue them for the deficiency, whether it winds up foreclosing or if the short sale is successful. I couldn’t verify if VA has a similar policy or not. But if you have an FHA or VA loan, this would be something to consider before you let a property foreclose. It may be worth making a good-faith effort at a short sale first.

I AM NOT AN ATTORNEY. PLEASE CONSULT YOUR OWN TAX EXPERT FOR YOUR SITUATION. If you have questions on any other real estate topic, call me at (925) 240-MOVE (6683). To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

Flopping

“Flipping” refers to someone buying a home for less than market value through legitimate means like at a foreclosure auction for cash and then fixing it up and selling it for more. “Flopping” is a new term that relates to flipping a short sale, but with the negative connotation that the home wasn’t fully exposed to the market, and that’s why it sold for less than market value, giving the “flopper” room to make a profit at the short sale lender’s expense. What we are seeing quite often is a home goes on the market as a short sale, but no showings are allowed, or gaining access to show is VERY difficult, and then soon after, literally sometimes minutes after it hits the market, the home goes pending. Then after a few months it closes escrow at less than market value, and even less than other offers that were submitted by other buyers. Soon after, it goes back on the market at a much higher price, sometimes with almost no fix-up work.

The “floppers” claim this is legal and ethical because no one is hurt, it’s up to the bank to determine if their offer is a good one or not, and no one ever gets caught. My argument would be that just because a bank is a faceless corporation doesn’t mean it’s OK to defraud them out of tens of thousands of dollars. There are actually state and federal laws against loan fraud, and concealing material facts (like the fact that the home wasn’t exposed to the market, or that the seller passed over much higher offers) is considered loan fraud. And while the bank will order an appraisal, there is no substitute for exposing the home to the market to find out what other buyers may be willing to pay. In addition, many lenders require all parties to sign a short sale addendum where they certify that the home was exposed to the market and that no material facts are hidden from the short sale lender. Lying on this form is also considered loan fraud. There are also many examples of people going to jail over this practice, and many more cases being investigated currently.

I AM NOT AN ATTORNEY. PLEASE SEEK LEGAL COUNSEL. If you have questions on any other real estate topic, call me at (925) 240-MOVE (6683). To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

Unintended Consequences

The California Homeowner Bill of Rights went into effect Jan. 1 of this year. It was promoted as a way to protect California homeowners against their lender foreclosing improperly before the homeowner has a chance to fully attempt a loan modification or short sale. Since it passed, we have seen a HUGE reduction in the number of foreclosures in California. But we’ve also seen a big reduction in short sales, too, as  loan servicers scramble to adjust their practices to conform to this new law. They are supposed to provide one point of contact for the borrower through the process. The loan servicers are also forbidden from what is called “dual tracking” where they work on a short sale or loan mod, but at the same time continue to pursue and then complete a foreclosure action. They are supposed to stop as soon as they receive a complete loan modification package or a short sale is approved. If the servicer violates this new law, it also gives the borrowers new powers to sue the servicer. One provision of the law that the banks were most worried about is that if the borrower has at least a “reasonable justification” to believe that the servicer violated a material provision of the law and then sues the servicer, the servicer may be responsible for all the research and legal costs. This is true even if at the end of the process it’s determined that the servicer did NOT violate the law. This could cost the servicer tens of thousands of dollars in legal fees and 6-12 months in delay even if they were foreclosing correctly and that is borne out by the courts.

Well, some legal experts are worried that the new law is so onerous against lenders that it could backfire in a way for some borrowers. There are two general types of foreclosure, a trustee’s sale and judicial foreclosure. Apparently this new law only applies to trustee’s sales. So the concern is that some lenders may opt for judicial foreclosure if that option is open to them. In some cases that can be really, really bad for the borrower but historically we rarely see judicial foreclosures. We’ll have to wait and see if these fears are valid or not.

SEEK LEGAL ADVICE FOR YOUR OWN SITUATION. I AM NOT AN ATTORNEY. If you have questions on any other real estate topic, call me at (925) 240-MOVE (6683). To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

How Late Is “Too Late”?

When is it too late to start a short sale? I get this call from people who know they have a short sale in their future, but they want to stay in the house as long as possible before the foreclosure. It’s not always just to live rent-free. Sometimes it’s to keep kids in school, or they haven’t located a rental yet, or whatever.

Over the past few years, lenders were VERY slow to foreclose. Sometimes it would take them 2-3 years before they pulled the trigger on the foreclosure, and even then they would postpone the foreclosure time and time again very easily. But I’m seeing signs that that will NOT be the case going forward. Most of the foreclosure moratoriums have been lifted, there have been a number of national foreclosure settlements, and I’m seeing some lenders start to move to foreclose MUCH quicker nowadays. The wild card is the new Homeowner’s Bill of Rights in California that may slow down foreclosures again, depending on how it’s implemented.

Once the lender does foreclose, it’s impossible to do a short sale then, because you no longer own it. The week before the sale is also quite difficult to start a short sale and have it be successful (although I’ve done it a few times). The month before the foreclosure sale is difficult, but certainly doable. What a lot of my clients do is wait for the Notice of Default to be filed, and then hurry up and do the short sale application at that point, and that usually leaves enough time to get the short sale approved, or at least far enough to where they’ll hold off on the foreclosure. However, I need to warn you that I had several clients in 2012 where we started the process soon after the Notice of Default, and the lender still foreclosed. So even though we had a good, market-value offer on the table, they said it was too late and they foreclosed. So if you really want to avoid the foreclosure, you can’t count on getting automatic foreclosure extensions anymore

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE (6683). To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

Walk From HOA Dues?

Oh, if I had $1 for every time someone asked me, “Should I stop paying my payment on…” and then insert one or more of the following: first mortgage, second mortgage, property taxes, insurance or HOA. I don’t have room to get into all those variables this week, but I did want to address a common misunderstanding in regards to HOA dues.

If your property is subject to HOA dues, you may not be able to “walk away” from your past due dues. If you stop paying your mortgage, stop paying your property taxes and your HOA dues, and then sell your property, different things will happen to each. Usually in a foreclosure or short sale, your lender will agree to pay your property taxes through the close of escrow. Anything after close of escrow is the new buyer’s (or the bank’s) responsibility. Any accrued interest, late charges, etc. on your mortgage will also be absorbed by your lender. But what about your HOA dues? If your bank forecloses, they are responsible for the HOA dues going FORWARD from the day they take ownership. In a short sale, the new buyer is similarly responsible for the HOA dues starting the day they own it.

But what about all the back HOA dues from the time you stopped paying to the time of either foreclosure or closing on the short sale? There is a good chance that the HOA dues are a personal responsibility of yours. You’ll have to go back and read your HOA documents to see if the dues are a personal responsibility, or if they ONLY attach to the property. If you are responsible, after the property is foreclosed or sold, the HOA may be able to sue YOU for those back dues plus penalties, and they add up quickly! Now, if the HOA filed a lien against the property, that may get paid through a foreclosure or a short sale because now it DOES attach to the property. I AM NOT AN ATTORNEY. SEEK LEGAL ADVICE FOR YOUR SITUATION.

If you have questions on any other real estate topic, call me at (925) 240-MOVE (6683). To search theMLSfor free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

Free loan mod/short sale seminar

Updated for 2012. New loan mod/short sale laws and incentives will be discussed along
with the following topics:

  • Who is a good
    candidate for a loan modification vs. a short sale?
  • Can lenders
    pursue you after a short sale, foreclosure or loan modification?
  • Impact on your
    credit score and waiting period to buy another home.
  • Which lenders may
    pay you up to $30,000 to do a short sale.
  • Discussion of the
    “1099 issue” and the two big exceptions to it.
  • How the
    expiration of the Mortgage Forgiveness Act at the end of 2012 affects you.

June 12th at 6 pm or 7:30 pm or June 16th at 10 am or Noon. All will be the same
one-hour presentation including time for Q&A.

Presented by: Brian Sharp, Certified Distressed Property Expert.

««« MUST R.S.V.P. TO RESERVE A SEAT «««

Phone:
925.998.9712  Email:
Brian@SharpHomesOnline.com

 

SHORT SALE LAW UPDATE

In January the law in California changed so that in most cases your first mortgage lender can’t pursue you after a short sale. Then just a few months ago they added a provision that included junior mortgages, as well. It was often the junior lenders that were holding up short sales by demanding the right to pursue the borrower after. So at first this new law sounded great, but many of us were worried that the unintended consequence would be that more junior lenders would turn short sales down outright rather than give up their right to pursue for the deficiency after. Many junior lenders have the right to pursue the borrower after a foreclosure, so sometimes they’ll hold out for more money during a short sale, knowing that if the short sale falls through, they will have four years to pursue the borrower after a foreclosure.

Well, I am happy to report that so far I’m not seeing this as a problem. Since this new law came out, it seems like I’m having MORE success getting junior lenders to agree to the short sale than before. I even had one VERY difficult junior lender earlier this year who absolutely would NOT give up their right to pursue the borrower after the short sale. We went back to them after the new law passed and they approved it without a whimper!

I’m sure there will be some lenders who will decline short sales because of this new law. I just haven’t run across any yet. So the continuing good news about this new law is that if you have any junior liens, you need to really consider a short sale in your list of options. If you let the home foreclose, and you have a junior lien, they may be able to pursue you later, where you may have been able to avoid that in a short sale. Bankruptcy does usually address junior liens, but it can be devastating to your credit, and emotionally very taxing. Short sales aren’t “easy,” but they are definitely worth a look. THIS ARTICLE IS NOT LEGAL ADVICE. PLEASE CONSULT AN ATTORNEY.

UPDATE ON SHORT SALE LAW

Two weeks I reported to you the MAJOR change to California law in regards to short sales. If a lender agrees to a short sale, they are now prohibited from pursuing you after the short sale for the amount of the deficiency. This is in regards to all loans on 1-4 unit residential properties, so this means a first, second or other junior loans. We hope that this is good news. Obviously the good news is that lenders can’t pursue after short sales any longer, but the concern is that junior lien holders will be less likely to approve short sales. We’ll have to wait and see how it shakes out.

There are two interesting bits of fine print in the new law that I wanted to discuss today. First, the protections provided by this new law are VOID in cases of fraud or “waste.” Fraud means that if you are not completely honest with your lender in regards to the sale. For example, if you try to hide assets, lie about your income, misrepresent the “market value” of the property, etc. “Waste” is in regards to the property itself. If you start stripping the property of appliances and other fixtures, or don’t maintain the property in a reasonable manner then they could argue that their losses are greater than they would have been and void this new law.

The other bit of fine print that is in your favor is as follows: “Any purported waiver […] shall be void and against public policy.” This seems to say that if your lender approves your short sale, but wants you to sign something saying that you are waiving your rights under this new law as a condition of their short sale approval, that waiver may not hold up in court.

NEW SHORT SALE LAW

There is a new law in California that addresses a junior lender’s right to pursue after a short sale effective immediately. This will have a BIG impact on short sales, but whether it will lead to more short sales as was it’s intent or more foreclosures (see below) is yet to be seen.

Back in January, a new law went into effect that said that lenders who agree to a short sale on a FIRST mortgage had to accept the proceeds as full satisfaction, meaning they couldn’t pursue the Seller after for the deficiency. This was welcome news and has helped many short sales go through that otherwise would have been foreclosures. The new law that went into effect last week extends this protection to any junior liens, as well. This means 2nd loans, 3rd loans, HELOCs, etc.

The big question mark is how junior lenders will react. They may shrug their shoulders and say, “OK, it’s the law, we’ll comply. Here is your approval on the 2nd mortgage and we won’t be able to pursue the Seller after.” OR they may say, “Well, the only reason we were approving the short sale is BECAUSE we would have the right to pursue the Seller after the short sale to collect even more money later. So now that we have to give up that right, we’d rather TURN DOWN the short sale and take our chances pursuing them after the foreclosure.” The third (and much more likely) result of this law is that junior lenders are going to ask for A LOT MORE money in order to approve the short sale. So it’s possible in some cases that this new law will INCREASE foreclosures because the junior lender either turns the short sale down, or holds out for more money than the 1st lender will allow.

By the way, there are provisions in this law where if you commit fraud (lie about your financial situation) or waste (strip the house), then the protections don’t apply to you.

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