Short Sales 1-2-3

Though a mortgage modification may sound complicated, it’s not. It just requires
completing some financial forms. It’s kind of like qualifying for a home loan in
reverse. After all, you already own the home. The time-consuming part of a loan
modification is usually just the follow up.

The first step is to call your lender. Most banks
will require you to input your loan number and social security number, so have
that information ready. Some banks are set up for the Making Home Affordable Program,
others you will be asking for the Loss Mitigation Dept.

Next, request that a Making Home Affordable loan modification package be mailed to you.
Eventually you will have a specialist or “negotiator” assigned to your file, and you
will want to get that person’s direct phone number and email address, so it’s a good idea to purchase a spiral notebook and keep it close to your telephone.



Have you seen the fine print in the new Bank of America/Countrywide short sale approval letter?  It is kind of hard to read here, but believe me, it’s sending shockwaves to some unsuspecting short sale sellers.  Here is a portion of the new approval letter:

 
(I told you it was hard to read!) The key statement that concerns people is this: “Bank of America may pursue a deficiency judgment for the difference in the payment received and the total balance due…”  WTF? It appears that there are contradictory elements:

1. The letter states that Bank of America has “agreed to accept a short payoff”.  Now, how can they “accept” a short payoff, then state they “might” collect the rest?  They either are accepting it, or they are not.

2.  It states “there may be tax consequences for entering into a short sale“.  Again, the statement mentions the words ”short sale”, and alludes to the 1099-C, where cancelled debt is reported to the IRS.  Again, either the debt is cancelled or it is not.  Why would Bank of America reference short sale tax consequences if they were, in fact, cancelling all the remaining debt?

Neither contradiction supports their reference to collect the deficiency in the future.  Since I have had several concerned sellers who have received this approval letter, I emailed a Bank of America senior negotiator to get an official explanation.  Here is what they said: 

Countrywide/Bank of America cannot remove the deficiency verbiage from the approval letter. We must reserve the right to collect the unpaid balance of the loan for the benefit of our investors and mortgage insurance companies that insures payment on the loan. The purpose of the short sale letter is to properly disclose this to the borrower so they may consider all of their options with respect to their mortgage loan.

In my experience with short sales, I have never known anyone to pursue the deficiency once the short sale has closed.

So, how can you alleviate concerns when receiving this letter?  Of course, suggest that the homeowner consult with an attorney, but consider the alternatives if you do not accept the short sale.  Deed-in-lieu of foreclosure, which will produce the same deficiency, and be worse on future borrowing ability?  Or foreclosure, with severe future borrowing constraints, liabilities and consequences?  None of the choices are that palatable, but short sale is still clearly your best option.

Wendy Rulnick, Broker, CRP, CRS, GRI, ABR     Rulnick Realty, Inc.

Destin FL Real Estate



Recently an appraiser wrote on a blog that he had paired the online foreclosure databases (found at either Realtytrac.com or ForeclosureRadar.com ) against the statistics found in the local Realtor MLS (multiple listing system) inventory and noticed something rather sinister: the datasets didn’t reconcile.

He discovered that the number of foreclosures posted in Online sites far exceeds the sum of listings and sales found in the realtor multiple listing system by about 70%.

Does this really mean that 70% of foreclosures posted in online databases ARE NOT listed or sold? If so, what might be happening to these homes? Are Lenders holding the foreclosures back from being sold because these Zombie banks are insolvent and can’t afford to take the losses?

Or is something else happening? Well, here are three other scenarios which may help to explain the data disconnect.

1.Erroneous Foreclosure Data. The numbers reflected by Realtytrac.com and Foreclosureradar may not be giving a true and accurate picture of foreclosures. Internet companies are great at tracking raw data, however, they may be counting a property as a foreclosure twice: once when the homeowner has missed three payments (as in a Notice of Default) and twice: when the property has been sold at auction. Also a homeowner who reinstates his loan months earlier will often still be counted as a foreclosure on an online site.

2. Short Sales. A short sale takes place when the owner wishes to sell the property at fair market value, but owes more than what the home is worth. After finding a purchaser and collecting his financial data, the homeowner then makes a request to his lender(s) to reduce the principal balance of the loan(s) so that the sale can be consummated. Because a Lender often takes about 9 weeks to review the owner’s application and purchase contract, the Lender can appear to be acting like a Zombie. The auction date for a short sale may be waived by the lender or extended in order to close escrow, and for this reason it can appear that the house may be at eminent risk of foreclosure on an online site ” yet not show up as either a listing or sale on the realtor’s database.

3. Loan Modifications. To an online Foreclosure website, someone trying to modify their loan might appear to be in foreclosure because they may have missed making several payments. The online site will show a property as being in foreclosure even if the lender has agreed to postpone the late payments. And the property will not show up in the realtor’s MLS database because the owner has no intention of selling.

Naturally this does not explain everything. There will still be homes that fall through the cracks; damaged properties with toxic mold for example, that will be placed on hold while the lender settles with a knuckle-dragging, insurance company.

There may also be a logic explanation for the disconnect that might have more to do with the government regulations that banks have to follow than anything else. But the idea of a Night of the Living Dead scenario, filled with understaffed zombie bank personnel walking the earth while they are doing the best they can under these current challenging circumstances, that uhmmmm, that could never happen, could it?

Every short sale support center is different. One thing that I’ve noticed about the GMAC short sale support department is that each employee that you talk to will have an ID number. Be sure to note this number in your journal. Remember: the lender can and will record your telephone calls because they are attempting to collect a debt. So if there is a discrepancy, and many times there will be one, you’ll want to recall who you spoke with and what the conversation was about. Having a pen and notebook handy can really help out!
BTW: if you’re looking to make money online, a friend of mine suggested this system. You won’t make millions but he’s made a few hundred bucks. Click Here!

One thing I’ve learned with when doing a short sale or loan modification with GMAC, or any second lienholder, is not to give up! 

Here is what I mean by not giving up. We were doing a short sale with WaMu and GMAC. Washington Mutual held the first trust deed and GMAC had the second. The first lienholder was owed $345,000 and the secondholder $65,000.

Our purchase contract was for $306,000 with $6,000 of costs.

$306,000 vs $345,000 + $65,000 =$410,000
-6,000
$300,000 $410,000
- 22,480 of sellers closing costs
$277,520

So WaMu was being asked to take a shortfall of $67,750
and GMAC was being asked to take a shortgage of $65,000.

As a second lienholder, GMAC would stand to lose $65,000 if the house was sold at a foreclosure sale, however, they still held an interest in the property. That interest would have to be extinguished before the property could be sold. So in order to do the short sale, we needed to get a “lien release” from GMAC.

WaMu claimed that according to their internal bank policy, they could only pay GMAC the amount of $2,000 for a secondary lien release but this amount was not enough for GMAC; and they refused to reduce their lien.

The foreclosure sale date was scheduled for April 22. And though we continued to call GMAC to accept a total payment of $6,000 and they refused.

Two days after the foreclosure sale, April 24, GMAC said that they would accept the $6,000. But it was too late, right? The sale date had already passed!

At this point, most people would have given up hope. The deal was dead. The first had extinguished the claims of the second lienholder. Stick a fork in it. The turkey was cooked.

We called the first lienholder to see if they would still give us another chance. After all, what did we have to lose? It was then that I discovered that WaMu had postponed the sale date for one month. Why? Maybe because we had called so many times and they knew that we had worked so hard on this file.

To make a long story short, we resubmitted the paperwork, including the GMAC lien release and everything went through. YAY!

Moral of the story: don’t give up hope. Even when times look dark there is still a ray of hope somewhere, if you keep looking for it.