Archive for the ‘Short Sales’ Category

HUD Delays Dual Agency Restrictions

Posted: September 30, 2013 in Short Sales

HUD has delayed its prohibition of dual agency listings on short sale properties according to a statement made this week by the National Association of Realtors (NAR).

The HUD prohibition had first been outlined in a July letter to mortgage servicers describing new anti-fraud requirements for short sales and deed-in-lieu of foreclosure transactions. The original policy was slated to go into effect October 1, 2013.

In response, NAR President Gary Thomas wrote a letter toHUD outlining NAR’s concern with both the reasoning behind the prohibition and the possible consequences of it.

“NAR has been told that the policy was implemented because the HUD Inspector General detected fraud and abuse in the pre-foreclosure sales process; however, no

statistics or reports were provided to NAR detailing short sale fraud by real estate agents,” the letter said. “NARtakes fraud very seriously…If there is evidence of fraud by our membership, we would like to be part of an effort to develop policies that effectively address these
issues.”

Thomas’s letter also raised concerns about how a prohibition on dual listing would affect agents’ and brokers’ ability to effectively serve their clients.

“More homeowners are at risk of falling into foreclosure if they cannot find a real estate agent, especially one who is knowledgeable about the short sale process, to list their homes,” Thomas said. “Some real estate brokers have hundreds of agents across multiple offices. If one of those offices chooses to list a short sale, under HUD’s new policy, none of the other agents can bring a buyer to that property. Members have told me that they will no longer list short sales because they do not want to restrict agents from representing their buyers, many of whom have been loyal customers for years.”

NAR announced Wednesday that, following talks withHUD, the proposed prohibition had been delayed indefinitely. “The result is that the dual agency policy will not be implemented on Oct. 1, allowing NAR to continue the dialogue with agency officials on a formal solution to the dual agency issue,” NAR said in a statement.

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Short sales have become a critical alternative to foreclosure for struggling homeowners who are underwater.

However, a decision by the Assembly Appropriations Committee within the California legislature is about to make this option much less appealing for troubled borrowers.

Failure to move Senate Bill 30 out of the appropriations committee in California means homeowners who sold their homes in a short sale over the past eight months will be forced to pay state income taxes on money they never received, the California Association of Realtors warned in a report.

Senate Bill 30, backed by C.A.R., conforms California tax law to federal tax law, which states that sellers cannot be taxed on forgiven debt. Without it, troubled borrowers wanting a short sale are stuck between a rock and a hard place, C.A.R. claims.

“We are disappointed that California Assemblyman Mike Gatto (D-Pasadena) failed to show the leadership necessary to provide relief to distressed homeowners who are already in dire financial trouble,” said C.A.R. President Don Faught.

He added, “These are real families in real financial need who may well be forced into bankruptcy by an unresponsive legislature.”

Under the current law, when a lender forgives mortgage debt in a short sale, the seller must pay state income tax on the amount of debt forgiven.

The previous California exemption to this rule lapsed at the end of 2012, so forgiven mortgage debt on short sales is now considered taxable state income.

“It’s a little surprising that the bill hasn’t gained more momentum given the administration and assembly’s enthusiasm for homeowner relief as clearly evidence by the California Homeowner Bill of Rights, which is almost by definition the most extreme servicing regulatory action we’ve seen anywhere in the country,” explained Auction.com executive vice president Rick Sharga.

He added, “It’s certainly not good news for homeowners who now may be disinclined to participate in short sales.”

Sharga said he fears the California market could see a shift in attitudes when it comes to the effectiveness of short sales, with lenders willing to pursue them while borrowers opt out.

“Short sales help the housing market recover from the downturn more than foreclosures do because it’s a better outcome for all parties involved,” Sharga stated.

Since the legislature has not passed the proposal during this session, there’s still unfinished business that will impact the taxpayers who sold their homes in a short sale.

“If the bill ultimately doesn’t pass, families that were forced to sell their home in a short sale will be forced to pay state income tax on money they’ve never actually received,” Faught warned.

He added, “We hope that that the legislature will rectify this in the closing days of the session.”

Among the available foreclosure prevention tools, short sales are becoming the weapon of choice for servicers while the use of loan modifications has slowed, data from Fitch Ratings revealed.

For example, among bank servicers, the percentage of resolutions in the loan modification category decreased to 26 percent in the last half of 2012 from 57 percent in the first half of 2010, according to Fitch’s latest quarterly index.

However, for nonbank servicers, loan modifications are ranged between 69 to 71 percent during the same time period.

Meanwhile, short sales showed significant increases over the last couple of years. In 2012, short sales represented 51 percent of resolutions for bank servicers, up from a low of 20 percent in 2010. For nonbank servicers, short sales grew to 16 percent in 2012, up from 11 percent in 2010.

“Loan modifications have fallen due partly to overall declines in mortgage delinquencies,” explained Diane Pendley, managing director at Fitch. “However, they may also have fallen out of favor since many modified loans have already failed and do not qualify for another modification.”

In instances where modifications are not possible, the rating agency explained servicers will look to a short sale, which allows servicers to save by avoiding the cost of dealing with a foreclosure.

Fitch also compared staffing levels for banks and nonbanks, noting a diverging trend. In late 2010, bank staffing levels expanded rapidly as banks worked to address the high level of defaults, but they are now reducing their staff as defaulted loans become resolved or transferred. Nonbank services though have shown a need to expand in response to their growing portfolios.

Banks also tend to higher more temporary employees, at 12 percent on average, compared to about 3.5 percent for nonbank servicers, according to the report.

In addition, the number of loans per employee is much higher for banks though the number has decreased significantly over the last two years from about 800 to about 500 in 2012. Nonbank servicers have kept their loan per employee numbers lower, averaging around 275.

Fitch also found nonbanks have shorter timelines when resolving 60-plus delinquencies. For nonbanks, it takes about 14 months to resolve loans through a repayment, modification, short sale or foreclosure, while banks take about 22 months to resolve a delinquency.

One reason for the difference could be the requirements for banks under the national mortgage settlement, as well as the difference in staffing levels, according to Fitch.

Though, Fitch anticipates the playing field may become more even in days ahead.

“[W]ith nonbank servicers coming under the regulatory control of the CFPB and a large portion of the banks’ defaulted or high risk product moving to their portfolios, nonbank servicers will be challenged to maintain this advantage,” the report stated.

Foreclosed houses and short sales represented only 33% of the home purchase market in April, down from 35.6% in March and well below the 43.6% rate recorded a year earlier, Campbell/Inside Mortgage Finance said in a new survey.

The sharp drop in distressed real estate sales shows the market gradually moving away from record numbers of REOs in the wake of the housing crash.

Still, the HousingPulse Tracking Survey from Campbell/Inside Mortgage Finance warns banks could still be holding back on the sale of REO inventory until home prices rise further, thereby inflating market prices.

With this in mind, the survey doesn’t rule out the possibility of a spike in distressed property sales in the future.

Investors also slowed their buying activity in April, accounting for only 21.6% of all transactions, the lowest share since November 2012.

When investors do buy, they tend to grab foreclosed properties in need of repair to turn them into rental properties.

Investors still made up 62.8% of all damaged REO purchases last month, down from March, but up from 60.4% a year ago.

Investor purchases through short sales jumped to a record high of 35.3%, the HousingPulse survey said. This figure is up from 31.8% in March and 30.5% a year earlier.

Most mortgage fraud takes place in the short sales andREO space, according to Rob Hagberg, associate director of fraud investigations at Freddie Mac. “This area is ripe with fraud,” he said during a webinar hosted by CoreLogic.

While servicers and others in the industry have adapted to some fraud schemes and put measures in place to detect and prevent fraud, schemes continue to evolve as fraudsters find new ways to manipulate sales.

For example, many fraudulent REO and short sale transactions involved the use of a straw buyer who temporarily purchased a home at an undervalued price and then sold it to a third party at a higher price.

These transactions would be immediately suspicious to anyone reviewing property records, which would show a home was sold for one price one day and then almost immediately resold at a higher price.

Savvy perpetrators are now eliminating the second buyer. Property records will not reveal a middle buyer, but they will reflect a higher price than the servicer agreed to.

Another growing trend in short sale fraud is what Hagberg calls the “short sale and stay.” This occurs when an underwater homeowner wishes to keep his or her home but wants to lower his or her loan amount.

The homeowner will recruit someone—often a friend or family member—to purchase the home through a short sale, and the original owner will remain in the home.

Sometimes, a wife will use her maiden name to purchase the home from her husband, and the couple will stay in their home.

Both short sale and REO fraud often require fraudsters to convince servicers a home is worth less than it actually is.

To accomplish this, fraudsters have attempted to bribeREO brokers, manipulate MLS data to lower the prices of comparable properties, and have engaged in reverse staging to make a property appear in worse condition than it is.

In cases of reverse staging, Hagberg has seen cabinet doors removed from kitchen cabinets, garbage left lying around the home, and sometimes old fish hidden behind refrigerators to create pungent scents.

Sometimes BPOs include false property stigmas such as high crime rates, and in a few instances Hagberg has seen properties undervalued by as much as $40,000 under inaccurate statements that the home had been a meth lab and would need to be entirely gutted.

Violations of a landmark mortgage settlement alleged by New York’s attorney general are also widespread in California, a housing advocacy group says.

“Banks aren’t doing what they’re supposed to be doing to help people stay in their homes,” said Kevin Stein, associate director of the California Reinvestment Coalition, a San Francisco-based group that lobbies for low-income Californians.

New York Atty. Gen. Eric Schneiderman announced Monday he planned to sue Wells Fargo and Bank of America for “flagrantly” violating terms of last year’s $25 billion National Mortgage Settlement.

The enforcement action would mark the first time a state’s attorney general has cracked the whip on any of the five servicers that signed the settlement. In addition to BofA and Wells Fargo, JPMorgan Chase & Co., Citigroup Inc. and Ally Financial Inc. were parties to the agreement.

The settlement put in place 304 standards for mortgage servicing aimed at helping smooth the process by which homeowners can get modifications to their mortgages and prevent foreclosures.

The standards prohibit so-called “dual tracking,” the practice of foreclosing even while homeowners seek a loan modification. The standards require each customer to get a single point of contact, and also mandate timelines for responses to customers seeking assistance.

“There’s a lot of frustration that we don’t see compliance with the agreement and we don’t see better outcomes for homeowners who are trying to stay in their homes and for communities that are trying to stabilize,” Stein said Monday.

Last  month, the California Reinvestment Coalition released a survey of housing counselors and lawyers that found mortgage servicers were not living up to terms of the settlement.

Short Sale Information

Posted: April 3, 2013 in Short Sales

How Does it Work??

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Contact Jeff Mertl for 
a free consultation. 
A specialist will perform an 
evaluation to determine if conditions exist for a 
short sale, loan modification, forbearance or other 
acceptable workout solution.
 
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We prepare a
  comprehensive short sale package containing the
required documents to be delivered to the lender and delivers the information to Jeff to explain and work with you.

 

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Jeff Mertl 
aggressively market 
the property to generate 
the best possible 
purchase offers.


 

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When the lender approves 
the terms and conditions of 
the short sale, Jeff Mertl moves forward with the 
closing of the sale between the owner and new buyer.
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Jeff Mertl aggressively markets the property to 
generate the best possible 
purchase offers.
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We negotiate the 
terms of the short sale with 
the lender. These terms may include the sale price, closing costs and more.