Friday, August 10, 2012
Huge Losses Force Homeowner Associations to Seek Alternatives to Foreclosure
“Condo and homeowner associations (HOA) have the right to foreclose and take possession of a property much quicker than a bank foreclosure because there are no affirmative defenses as in a mortgage foreclosure action,” said Victoria Coyne with Short Sale Innovations, a West Palm Beach company that specializes in short sales. When the HOA forecloses, they will receive a certificate of title issued from the court that is subject to the mortgage. The foreclosure will cost the HOA thousands of dollars, but the idea is to rent the property until the bank forecloses.
“I recently moved to a Palm Beach Condo that had a large number of delinquencies, and the attorney advised the HOA to foreclose on delinquent unit owners,” said Dickenson. “On the surface leasing sounds like a great way to recover HOA losses, but realistically who’s going to lease a property knowing the bank will evict them as soon as they foreclose?”
"In October 2010, the bank approved a short sale offer on one of the condos in my building," said Dickenson. “We were at an impasse because the HOA demanded $24,000 in delinquent fees, but the bank was aware of a Florida bill that only required them to pay $5,000 if they foreclosed.
The Florida Bill, SB 1196, was signed into law in June 2010 and requires lenders to pay the lesser of 1% of the mortgage amount or up to 12 months of past due HOA fees following the bank foreclosure. However, the bill fails to address how much the bank must pay in a short sale situation, and it actually encourages banks to foreclose when HOA’s won’t agree to a reduced payoff amount.
“It was really frustrating because I knew what the HOA would end up with at the end of the day,” said Dickenson. “The HOA attorney wouldn’t return my calls and the HOA didn’t understand why they should accept anything less than the $24,000 they were owed.” In October 2010, the bank cancelled the short sale, and in January 2011, the HOA foreclosed with the expectation this Palm Beach condo Beach condo would generate $1,500 in gross revenue per month.
The HOA never expected the angry homeowner would remove the appliances and leave the unit in disrepair, but this is a common occurrence, and why banks now offer homeowners thousands of dollars to leave the property in good condition when they vacate. After spending thousands to foreclose, the HOA decided to let the condo sit vacant rather than spend money on repairs. The HOA is now on the hook for $519 a month in property taxes and $786 a month in lost HOA dues until the bank forecloses.
The HOA held the condo for 15 months until the bank foreclosed in June 2012. In Florida, the bank is only required to pay the HOA $5,000 in accordance with the SB 1196 bill; therefore the HOA lost $27,371 by not approving the short sale in October 2010.
“This HOA foreclosed on six condos and total losses could exceed $150,000 because the HOA elected to foreclose rather than let the short sales progress,” said Dickenson.
“The HOA should explore alternatives with delinquent owners before spending money on costly foreclosure lawsuits,” said Dickenson. Instead of blocking owners from renting the property, consider adding a clause to a lease where 80% of the rent is paid directly to the HOA and 20% is paid to the owner. The property will remain in the owner’s name for property taxes and other liabilities. The HOA should encourage short sales because they are a win-win for everyone.
A contributor to this article, Short Sale Innovations, has closed over 600 short sales in South Florida by working closely with the banks to ensure the process is quick and efficient.
Kevin Dickenson Palm Beach real estate agent who specializes in distressed residential and commercial properties. In 2011, Dickenson closed over $24M and will be featured on HGTV’s Live Here, Buy This scheduled to air this Fall.
Wednesday, June 6, 2012
Ten Facts for Mortgage Debt Forgiveness from the IRS
IRS Tax Tip 2011-44, March 3, 2011
If you are a homeowner whose mortgage debt is partly or entirely forgiven during tax years 2007 through 2012, you may be able to claim special tax relief and exclude the debt forgiven from your income.
Here are 10 facts the IRS wants you to know about Mortgage Debt Forgiveness.
1. Normally, debt forgiveness results in taxable income. However, under the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude up to $2 million of debt forgiven on your principal residence.
2. The limit is $1 million for a married person filing a separate return.
3. You may exclude debt reduced through mortgage restructuring, as well as mortgage debt forgiven in a foreclosure.
4. To qualify, the debt must have been used to buy, build or substantially improve your principal residence and be secured by that residence.
5. Refinanced debt proceeds used for the purpose of substantially improving your principal residence also qualify for the exclusion.
6. Proceeds of refinanced debt used for other purposes – for example, to pay off credit card debt – do not qualify for the exclusion.
7. If you qualify, claim the special exclusion by filling out Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, and attach it to your federal income tax return for the tax year in which the qualified debt was forgiven.
8. Debt forgiven on second homes, rental property, business property, credit cards or car loans do not qualify for the tax relief provision. In some cases, however, other tax relief provisions – such as insolvency – may be applicable. IRS Form 982 provides more details about these provisions.
9. If your debt is reduced or eliminated you normally will receive a year-end statement, Form 1099-C, Cancellation of Debt, from your lender. By law, this form must show the amount of debt forgiven and the fair market value of any property foreclosed.
10. Examine the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. You should pay particular attention to the amount of debt forgiven in Box 2 as well as the value listed for your home in Box 7.
For more information about the Mortgage Forgiveness Debt Relief Act of 2007, visit http://www.irs.gov. A good resource is IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments.
You can also use the Interactive Tax Assistant available on the IRS website to determine if the cancellation of debt is taxable. The ITA tool is a tax law resource that takes you through a series of questions and provides you with responses to tax law questions
Taxpayers may obtain copies of IRS publications and forms either by downloading them from http://www.irs.gov or by calling 800-TAX-FORM (800-829-3676).
Links:
Form 982
Form 1099-C
Publication 4681
If you are a homeowner whose mortgage debt is partly or entirely forgiven during tax years 2007 through 2012, you may be able to claim special tax relief and exclude the debt forgiven from your income.
Here are 10 facts the IRS wants you to know about Mortgage Debt Forgiveness.
1. Normally, debt forgiveness results in taxable income. However, under the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude up to $2 million of debt forgiven on your principal residence.
2. The limit is $1 million for a married person filing a separate return.
3. You may exclude debt reduced through mortgage restructuring, as well as mortgage debt forgiven in a foreclosure.
4. To qualify, the debt must have been used to buy, build or substantially improve your principal residence and be secured by that residence.
5. Refinanced debt proceeds used for the purpose of substantially improving your principal residence also qualify for the exclusion.
6. Proceeds of refinanced debt used for other purposes – for example, to pay off credit card debt – do not qualify for the exclusion.
7. If you qualify, claim the special exclusion by filling out Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, and attach it to your federal income tax return for the tax year in which the qualified debt was forgiven.
8. Debt forgiven on second homes, rental property, business property, credit cards or car loans do not qualify for the tax relief provision. In some cases, however, other tax relief provisions – such as insolvency – may be applicable. IRS Form 982 provides more details about these provisions.
9. If your debt is reduced or eliminated you normally will receive a year-end statement, Form 1099-C, Cancellation of Debt, from your lender. By law, this form must show the amount of debt forgiven and the fair market value of any property foreclosed.
10. Examine the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. You should pay particular attention to the amount of debt forgiven in Box 2 as well as the value listed for your home in Box 7.
For more information about the Mortgage Forgiveness Debt Relief Act of 2007, visit http://www.irs.gov. A good resource is IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments.
You can also use the Interactive Tax Assistant available on the IRS website to determine if the cancellation of debt is taxable. The ITA tool is a tax law resource that takes you through a series of questions and provides you with responses to tax law questions
Taxpayers may obtain copies of IRS publications and forms either by downloading them from http://www.irs.gov or by calling 800-TAX-FORM (800-829-3676).
Links:
Form 982
Form 1099-C
Publication 4681
Wednesday, March 7, 2012
Bank Owned Homes Hidden From Public Affect Home Values Nationwide
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| Click Title to View Full Story |
Wednesday, February 15, 2012
Banks Pay Delinquent Borrowers $35,000 For Short Sales
In an effort to cut their losses, banks are paying some struggling homeowners as much as $35,000 to sell their homes before they end up in foreclosure. The deals are aimed at incentivizing homeowners who owe more on their home than it is worth and who are seriously delinquent on their payments to sell their homes in a short sale.
When Chase Mortgage (JPM, Fortune 500) told Angelique Pierce, that she would receive a check for $25,000 if she sold her house, she couldn't believe it. "I got the offer in the mail," said the Rancho Cordova, Calif. resident. "I called my bank to ask if it was real."
Now, she's trying to sell her three-bedroom ranch for just $95,000 -- almost half of the $179,000 she paid for the place in late 2002.
For the banks, foreclosure has become an increasingly difficult and expensive option. Homeowners have learned to fight the banks tooth and nail, dragging out cases for years.
And as the cases drag, expenses grow. Homeowners not only stop paying their mortgages but they stop paying property taxes and conducting normal maintenance as well. Roofs, siding, plumbing and other parts of the home deteriorate and the property loses value. By the time banks take possession, they're out tens of thousands of dollars.
Short sales also command higher prices than foreclosed homes. In December, foreclosed properties sold for an average of 22% less than conventional sales, while the discount for short sales was only 14%, according to the National Association of Realtors. All that has been true for years, but it is only lately that these outsized incentives, which Bloomberg recently reported on, have surfaced.
Sellers are more cooperative when they're going to receive a five-figure check for their troubles.
Nick Chaconas, an agent with discount broker Redfin, wondered why one seller was so anxious to sell their home. "Since I represent the buyer, I didn't even know about the incentive until the closing," he said.
It turned out that the seller's bank was writing her a check for $30,000. Whether sellers can expect incentives from their banks depends on multiple factors, including where they live.
Wells Fargo (WFC, Fortune 500) limits its offers to certain states, such as Florida, where the foreclosure process can be lengthy, according to spokeswoman Veronica Clemons. The bank has paid $10,000 to $20,000 to borrowers who short sell or transfer their title to Wells via a deed-in-lieu.
Jumana Bauwens, Bank of America's spokeswoman, called it a "test-and-run program" that may be expanded to other states.
The offers are not always a panacea for homeowners struggling to pay the bills, however.
Pierce, for example, has not been able to make hers pay off. She had a buyer but her second mortgage holder refused to go along with the deal unless it got a share of the $25,000 she was being offered by the bank. She said that the bank balked at the deal and the sale was cancelled.
She's looking for another buyer, but it's up in the air if Chase will honor its original offer if the second mortgage holder won't cooperate.
In short sales, homes are sold for less than what is owed and the bank forgives the excess debt. Banks
have been reluctant to approve such deals in the past -- since they take a loss on the home -- but in certain cases, it's become a much better proposition than letting the homeowner fall into foreclosure.
This new approach by the banks has startled plenty of homeowners, according to Elizabeth Weintraub, a Sacramento-area real estate agent who specializes in short sales.
"Initially, the homeowners are skeptical," she said. "The bank may have already turned down their request for a modification. Then, one day, they call and say, 'Let us give you some cash.'"
When Chase Mortgage (JPM, Fortune 500) told Angelique Pierce, that she would receive a check for $25,000 if she sold her house, she couldn't believe it. "I got the offer in the mail," said the Rancho Cordova, Calif. resident. "I called my bank to ask if it was real."
After Pierce became disabled a few years ago and had to stop working work, she fell behind on payments on both her first and second mortgages, valued at $250,000 and $50,000, respectively.
Now, she's trying to sell her three-bedroom ranch for just $95,000 -- almost half of the $179,000 she paid for the place in late 2002.
Foreclosure free ride: 3 years, no payments
From the bank's point of view, the offers make sense, according to Tom Kelly, a spokesman for Chase Mortgage, who would not comment on Pierce or other individual cases. "The first choice is a modification but if that's impossible than a short sale is a faster, more efficient solution," he said.For the banks, foreclosure has become an increasingly difficult and expensive option. Homeowners have learned to fight the banks tooth and nail, dragging out cases for years.
And as the cases drag, expenses grow. Homeowners not only stop paying their mortgages but they stop paying property taxes and conducting normal maintenance as well. Roofs, siding, plumbing and other parts of the home deteriorate and the property loses value. By the time banks take possession, they're out tens of thousands of dollars.
Foreclosures: America's hardest hit neighborhoods
"I've seen a lot of foreclosures for sale where it would cost a lot more than $20,000 to get them into condition to sell again," said John Hayton, a short sale specialist in Orlando, Fla, who has had a number of clients receive offers from the banks.Short sales also command higher prices than foreclosed homes. In December, foreclosed properties sold for an average of 22% less than conventional sales, while the discount for short sales was only 14%, according to the National Association of Realtors. All that has been true for years, but it is only lately that these outsized incentives, which Bloomberg recently reported on, have surfaced.
Sellers are more cooperative when they're going to receive a five-figure check for their troubles.
Nick Chaconas, an agent with discount broker Redfin, wondered why one seller was so anxious to sell their home. "Since I represent the buyer, I didn't even know about the incentive until the closing," he said.
It turned out that the seller's bank was writing her a check for $30,000. Whether sellers can expect incentives from their banks depends on multiple factors, including where they live.
Wells Fargo (WFC, Fortune 500) limits its offers to certain states, such as Florida, where the foreclosure process can be lengthy, according to spokeswoman Veronica Clemons. The bank has paid $10,000 to $20,000 to borrowers who short sell or transfer their title to Wells via a deed-in-lieu.
What the foreclosure settlement means for you
Bank of America (BAC, Fortune 500) had a pilot program in Florida that paid incentives of $5,000 to $20,000 for sales that were initiated between Sept. 26, 2011 and Nov. 30, 2011 and close by the end of this August. The amount of the incentive is based on 5% of the unpaid balance, with a $5,000 minimum and $20,000 maximum.Jumana Bauwens, Bank of America's spokeswoman, called it a "test-and-run program" that may be expanded to other states.
The offers are not always a panacea for homeowners struggling to pay the bills, however.
Pierce, for example, has not been able to make hers pay off. She had a buyer but her second mortgage holder refused to go along with the deal unless it got a share of the $25,000 she was being offered by the bank. She said that the bank balked at the deal and the sale was cancelled.
She's looking for another buyer, but it's up in the air if Chase will honor its original offer if the second mortgage holder won't cooperate.
Thursday, November 3, 2011
Great News for “Underwater” Homeowners ~ Changes to HARP Program Announced
If you are wondering what this means...and if you can benefit...here is some helpful information. The President's proposal is not a new program, but a revision to the current Home Affordable Refinance Program (HARP).
One of the biggest changes under new HARP provisions: Now Homeowners can refinance no matter how “underwater” they are!
Next, an Appraisal is not necessary IF Fannie Mae or Freddie Mac can electronically estimate the value through their valuation models, saving YOU Time & Money!
Keep in mind that these updates to HARP apply only to people whose mortgage is currently secured by Fannie Mae or Freddie Mac...and whose loan was securitized by Fannie Mae or Freddie Mac prior to May 31, 2009. How do I know if my loan is owned or has been guaranteed by Fannie Mae or Freddie Mac?
Loan Lookup for Fannie Mae: www.fanniemae.com/loanlookup
Loan Lookup for Freddie Mac: www.freddiemac.com/mymortgage
Below are most of the highlights of the new changes to the HARP Program:
•There is no longer and Loan-to-Value cap of 125%
•The mortgage must be owned or guaranteed by Freddie Mac or Fannie Mae.
•The mortgage must have been sold to Fannie Mae or Freddie Mac on or before May 31, 2009.
•The mortgage cannot have been refinanced under HARP previously unless it is a Fannie Mae loan that was refinanced under HARP from March-May, 2009.
•The current loan-to-value (LTV) ratio must be greater than 80%.
•The borrower must be current on the mortgage at the time of therefinance, with no late payment in the past six months and no more than one late payment in the past 12 months.
•Condominiums are already eligible under HARP.
•Appraisals are waived where an Automated Evaluation can be obtained.
•Borrower can go to any lender offering the HARP program and doesnot have to go to the lender that currently services their loan or the lender that originated their loan.
•The property must be the borrower's primary residence.
•The HARP Program will be extended until December 31st, 2013.
•There will be no Loan Level PriceAdjustors if the borrower refinances into a shorter loan term and lower Loan Level Adjustors for others. (This equates into a lower interest rate)
Helpful Links:
http://www.fhfa.gov/webfiles/22721/HARP_release_102411_Final.pdf
http://www.makinghomeaffordable.gov/ or call 1-888-995-HOPE (4673)
http://www.knowyouroptions.com/ or www.FannieMae.com/homeowners
www.FreddieMac.com/avoidforeclosure
Tuesday, December 14, 2010
Top 20 Frequently Asked Questions on Florida Short Sales and Foreclosures
1. Are foreclosure websites like RealtyTrac accurate?
"I signed up a month to try it out and discovered that homes listed under the bank owned category were often nothing more than contractor or HOA liens," said Dickenson. "The data is seriously flawed in my opinion."
2. What is a short sale?
A short sale occurs when a borrower owes more than the home is worth and submits a request to the lender for a discounted payoff.
3. What is a lis pendens?
A lender will file a lis pendens (lawsuit) against a borrower typically after 3 months of non-payment. When the suit is filed, the borrower is now in the “pre-foreclosure” phase.
4. What is the best way to buy a Florida foreclosure?
If the home is listed on the MLS, find a good realtor who knows the process and use him as your guide. If the home isn't listed on the MLS, the borrower will need to be contacted because they are in control of the property until the home is foreclosed. Keep in mind that borrowers in default may be very difficult to get in touch with.
5. Can a buyer contact the bank to buy the home after the lis pendens is filed?
Only the deed holder has the authority to sell the home prior to a final judgment of foreclosure. The lender will not talk to any third party unless the borrower has given the individual written authorization. Another option is for the lender to sell the note, but most banks don't want to be bothered with a single small transaction.
6. Is the bank obligated to accept the contract price agreed to?
No. If an owner accepts a short sale offer, the contract MUST be contingent upon the lenders agreement to a discounted payoff and there is absolutely NO guarantee the lender will agree. The lender will hire a real estate agent or appraiser to perform a "broker price opionion" (BPO) to determine fair market value. Be prepared for a counter from the lender if the offer price is low.
7. What does the borrower need to supply to qualify for a short sale?
The bank will require a lot more documentation to discount the loan compared to what was supplied to obtain the loan. The lender will typically request two years tax returns, the last 3 pay stubs, a financial statement, four months of bank statements and a hardship letter as a minimum. Banks employ forensic accountants to make sure the borrower is in true financial hardship and keep in mind that a lot of people borrowed money for homes they couldn’t afford using no-doc stated income loans. A borrower who misrepresented income may refuse to provide the required documentation if it proves fraud. The buyers contract should contain a right to cancel clause if the seller fails to submit a complete short sale package to the lender within 10 days.
8. The offer and short sale package was submitted over four months ago and we haven't received a response. What’s going on?
Banks are overloaded with short sale requests. If a lis pendens has not been filed, the file is at the bottom of the banks pile. If a final judgment of foreclosure has been filed, this means a court date has been set and the home will be sold at auction in less than 30 days. In this case, the file is at the top of the pile. If the lis pendens is filed, it's in the pipeline and the buyer should be prepared to wait at least 4 months. A good negotiator should follow up with a buyer every two weeks and buyers will need to be patient.
9. Can a Seller accept more than one short sale offer and submit it to the bank?
The owner can accept a backup offer, but the new Florida FAR/BAR short sale addendum does not allow the seller to submit backup offers to the bank until the contract in first position is cancelled. Make sure your agent is using the most recent contract package and have an attorney review all documents.
10. Who is taking care of the house during the four to twelve months the buyer is waiting for the bank to approve a Florida short sale?
Nobody. Typically, the seller has vacated, the power is off and there is a good chance mold is growing in the home. The pool will turn green and black algae will burrow into the finish. Be prepared for the seller to strip the appliances, ceiling fans and light fixtures. Even worse, some owners will destroy the home out of anger. Make sure the contract provides a right of cancellation.
11. Should a buyer conduct a home inspection after the Seller accepts the offer?
No. It's best to trigger all key dates (inspections, mortgage commitment, etc) from the date the bank accepts the offer, not the seller acceptance. It's not uncommon for a house to start growning mold after sitting four to twelve months without air conditioning in Florida.
12. What happens if there is a first and second mortgage?
If there are two different lenders, the lender in first position controls how much is paid to the second lender. The second lender must agree to the amount and the deal is dead if they don't. If the second lender doesn't agree, the buyer has two options; (1) buy the second position note or (2) let the first lender foreclose.
13. Is there anything else that can kill the deal while the buyer is waiting for the bank to approve the short sale?
Yes.
A. The IRS can enter the picture and they always take first position (in front of the lenders).
B. The borrower could file bankruptcy.
C. The HOA could foreclose if the owner is delinquent.
D. The bank could refuse to pay the full amount of the delinquent HOA fee, but the buyer always has the option to pay.
14. Can the home be purchased from the court at foreclosure auction?
Yes, but court auctions are AS IS and access to the home for inspection purposes may be impossible. The buyer should also hire an attorney to review the title prior to auction day. Buyer beware!
15. The house was sold by the court at public auction and the bank bought it back. Can it be purchased now?
Yes. The bank has foreclosed and all liens (HOA, etc) have been eliminated. The bank will appraise the home to determine fair market value and it will be (1) listed on the MLS by a Florida bank owned real estate agent or (2) sold in a bulk offering package to investors or (3) listed with an auction company. The home is now an REO (real estate owned) and will be sold AS IS. There is a strong demand for Florida REO homes and they are usually under contract within days. It's not uncommon to have multiple offers and bidding wars on REO homes.
16. Who pays the realtors commission in a short sale?
The bank will pay the real estate commission. If you have concerns, add a clause stating the sale is contingent upon the lender paying the commission and any unpaid property taxes and liens.
17. Will the borrower be liable for the mortgage deficiency?
There is no guarantee the lender will waive the deficiency. Some lenders require unsecured notes from the borrower while others waive the deficiency in writing. It depends on the bank, the borrower’s financial situation and how good of a negotiator you hired. Dickenson recommends retaining an attorney with a proven track record to negotiate the short sale.
18. Can the house be rented while the borrower is in foreclosure?
Yes, but the owner must disclose the home is in foreclosure. If the lease is executed prior to the filing date of the lis pendens, the foreclosing lender must honor the lease and has the right to evict with 90 days notice. The lender will usually offer the tenant “cash for keys” to vacate after they take possession. If the lease is executed after the lis pendens is filed, the bank has the right to evict the tenant with 30 days notice.
If the home is in a community with a homeowners association (HOA), the board probably won't approve the lease if the owner is delinquent on HOA fees. Delinquent owners should consider leasing the property and paying the HOA from rental proceeds. "It's always better to have a tenant in the house rather than letting it sit vacant with the air conditioning off," said Dickenson.
If the property is a condo hotel, the rental management agreements usually contain a clause allowing the association to use rental proceeds to pay delinquent fees.
19. Can the HOA foreclose if the borrower is delinquent on HOA fees?
Yes, and it's a fairly simple process because there is usually no defense in this situation. "HOA's believe it's easy to rent homes once they take possession, but who's going to rent a house that could be foreclosed any day by the lender," said Dickenson.
20. Is there a defense against the lenders foreclosure action?
Click the free book Florida Defense Secrets in the right sidebar and then retain a bankruptcy attorney to discuss your options.
2. What is a short sale?
A short sale occurs when a borrower owes more than the home is worth and submits a request to the lender for a discounted payoff.
3. What is a lis pendens?
A lender will file a lis pendens (lawsuit) against a borrower typically after 3 months of non-payment. When the suit is filed, the borrower is now in the “pre-foreclosure” phase.
4. What is the best way to buy a Florida foreclosure?
If the home is listed on the MLS, find a good realtor who knows the process and use him as your guide. If the home isn't listed on the MLS, the borrower will need to be contacted because they are in control of the property until the home is foreclosed. Keep in mind that borrowers in default may be very difficult to get in touch with.
5. Can a buyer contact the bank to buy the home after the lis pendens is filed?
Only the deed holder has the authority to sell the home prior to a final judgment of foreclosure. The lender will not talk to any third party unless the borrower has given the individual written authorization. Another option is for the lender to sell the note, but most banks don't want to be bothered with a single small transaction.
6. Is the bank obligated to accept the contract price agreed to?
No. If an owner accepts a short sale offer, the contract MUST be contingent upon the lenders agreement to a discounted payoff and there is absolutely NO guarantee the lender will agree. The lender will hire a real estate agent or appraiser to perform a "broker price opionion" (BPO) to determine fair market value. Be prepared for a counter from the lender if the offer price is low.
7. What does the borrower need to supply to qualify for a short sale?
The bank will require a lot more documentation to discount the loan compared to what was supplied to obtain the loan. The lender will typically request two years tax returns, the last 3 pay stubs, a financial statement, four months of bank statements and a hardship letter as a minimum. Banks employ forensic accountants to make sure the borrower is in true financial hardship and keep in mind that a lot of people borrowed money for homes they couldn’t afford using no-doc stated income loans. A borrower who misrepresented income may refuse to provide the required documentation if it proves fraud. The buyers contract should contain a right to cancel clause if the seller fails to submit a complete short sale package to the lender within 10 days.
8. The offer and short sale package was submitted over four months ago and we haven't received a response. What’s going on?
Banks are overloaded with short sale requests. If a lis pendens has not been filed, the file is at the bottom of the banks pile. If a final judgment of foreclosure has been filed, this means a court date has been set and the home will be sold at auction in less than 30 days. In this case, the file is at the top of the pile. If the lis pendens is filed, it's in the pipeline and the buyer should be prepared to wait at least 4 months. A good negotiator should follow up with a buyer every two weeks and buyers will need to be patient.
9. Can a Seller accept more than one short sale offer and submit it to the bank?
The owner can accept a backup offer, but the new Florida FAR/BAR short sale addendum does not allow the seller to submit backup offers to the bank until the contract in first position is cancelled. Make sure your agent is using the most recent contract package and have an attorney review all documents.
10. Who is taking care of the house during the four to twelve months the buyer is waiting for the bank to approve a Florida short sale?
Nobody. Typically, the seller has vacated, the power is off and there is a good chance mold is growing in the home. The pool will turn green and black algae will burrow into the finish. Be prepared for the seller to strip the appliances, ceiling fans and light fixtures. Even worse, some owners will destroy the home out of anger. Make sure the contract provides a right of cancellation.
11. Should a buyer conduct a home inspection after the Seller accepts the offer?
No. It's best to trigger all key dates (inspections, mortgage commitment, etc) from the date the bank accepts the offer, not the seller acceptance. It's not uncommon for a house to start growning mold after sitting four to twelve months without air conditioning in Florida.
12. What happens if there is a first and second mortgage?
If there are two different lenders, the lender in first position controls how much is paid to the second lender. The second lender must agree to the amount and the deal is dead if they don't. If the second lender doesn't agree, the buyer has two options; (1) buy the second position note or (2) let the first lender foreclose.
13. Is there anything else that can kill the deal while the buyer is waiting for the bank to approve the short sale?
Yes.
A. The IRS can enter the picture and they always take first position (in front of the lenders).
B. The borrower could file bankruptcy.
C. The HOA could foreclose if the owner is delinquent.
D. The bank could refuse to pay the full amount of the delinquent HOA fee, but the buyer always has the option to pay.
14. Can the home be purchased from the court at foreclosure auction?
Yes, but court auctions are AS IS and access to the home for inspection purposes may be impossible. The buyer should also hire an attorney to review the title prior to auction day. Buyer beware!
15. The house was sold by the court at public auction and the bank bought it back. Can it be purchased now?
Yes. The bank has foreclosed and all liens (HOA, etc) have been eliminated. The bank will appraise the home to determine fair market value and it will be (1) listed on the MLS by a Florida bank owned real estate agent or (2) sold in a bulk offering package to investors or (3) listed with an auction company. The home is now an REO (real estate owned) and will be sold AS IS. There is a strong demand for Florida REO homes and they are usually under contract within days. It's not uncommon to have multiple offers and bidding wars on REO homes.
16. Who pays the realtors commission in a short sale?
The bank will pay the real estate commission. If you have concerns, add a clause stating the sale is contingent upon the lender paying the commission and any unpaid property taxes and liens.
17. Will the borrower be liable for the mortgage deficiency?
There is no guarantee the lender will waive the deficiency. Some lenders require unsecured notes from the borrower while others waive the deficiency in writing. It depends on the bank, the borrower’s financial situation and how good of a negotiator you hired. Dickenson recommends retaining an attorney with a proven track record to negotiate the short sale.
18. Can the house be rented while the borrower is in foreclosure?
Yes, but the owner must disclose the home is in foreclosure. If the lease is executed prior to the filing date of the lis pendens, the foreclosing lender must honor the lease and has the right to evict with 90 days notice. The lender will usually offer the tenant “cash for keys” to vacate after they take possession. If the lease is executed after the lis pendens is filed, the bank has the right to evict the tenant with 30 days notice.
If the home is in a community with a homeowners association (HOA), the board probably won't approve the lease if the owner is delinquent on HOA fees. Delinquent owners should consider leasing the property and paying the HOA from rental proceeds. "It's always better to have a tenant in the house rather than letting it sit vacant with the air conditioning off," said Dickenson.
If the property is a condo hotel, the rental management agreements usually contain a clause allowing the association to use rental proceeds to pay delinquent fees.
19. Can the HOA foreclose if the borrower is delinquent on HOA fees?
Yes, and it's a fairly simple process because there is usually no defense in this situation. "HOA's believe it's easy to rent homes once they take possession, but who's going to rent a house that could be foreclosed any day by the lender," said Dickenson.
20. Is there a defense against the lenders foreclosure action?
Click the free book Florida Defense Secrets in the right sidebar and then retain a bankruptcy attorney to discuss your options.
Saturday, August 14, 2010
Tenants of Foreclosed Homes often Unsure of Options
Erin Kennedy-Florez was 10 months into a one-year lease on a home in Richmond, Calif., when she found a notice on her door saying the home was being foreclosed.
She said she called her landlord, who told her that he was trying to refinance the house and to keep paying him rent. “I was paying the rent, but he was not paying the mortgage,” Kennedy-Florez said.
Soon after, the house went into foreclosure, and Kennedy-Florez immediately heard from a law firm representing Freddie Mac, the federal real estate lending agency that held the note on the home. “I had to decide whether I still wanted to be living there while they were showing it to potential buyers,” she said.
Kennedy-Florez’s situation reflects a problem that tenants rights’ groups say has been flying under the radar since the home foreclosure crisis began in 2008.
They say thousands of renters have lost security deposits, paid rent to former landlords who no longer owned the house, and agreed to move on short notice because they didn’t know their rights.
Kennedy-Florez accepted a cash settlement to move three weeks after the foreclosure in November 2009. She received the check the day she moved out but struggled to come up with the security deposit for a new rental in El Cerrito, Calif.
The landlord still owed her a $3,200 security deposit and has been paying it back in $100 and $200 installments, she said.
“I jumped at the first place I could find,” she said. “I’m hoping this place isn’t shaky, too.” Kennedy-Florez’s former landlord said the home had been foreclosed but that he had paid back the security deposit in full.
Some foreclosure situations have probably been resolved to the satisfaction of landlords and renters alike, said Gabe Treves, program coordinator with rights group Tenants Together, which is based in San Francisco. But Treves said his agency has helped 3,000 renters squeezed between landlords who are behind on their mortgage payments and lenders trying to recover their investments.
“The vast majority of the tenants we talk to are having their rights violated,” Treves said. “Banks are being very aggressive in trying to get the tenants out, because they are stuck on the idea that if tenants vacate the home they can sell it.”
Wells Fargo Bank is committed to following all rules that protect tenants who are living in foreclosures, spokesman Jason Menke said. At the same time, Wells Fargo is in the business of lending money for home purchases, not in managing rentals, he said. “Generally, it’s our object to get a new owner into the house as quickly as possible,” Menke said. “It’s in our best interest and that of the community to return properties to the market.”
California Attorney General Jerry Brown launched an investigation into the issue last month, partly in response to the Tenants Together report.
Brown sent a letter in June to California banks, lenders, investors and law firms asking them to explain their procedures for dealing with tenants in foreclosed properties in an effort to find out whether laws are being broken.
Tenants are protected by a 2009 federal law that allows them to stay in their units for 90 days after a foreclosure notice is posted, but they have other rights as well:
-Renters can insist on staying in their units until the end of their leases, except when the new owner of a single-family home wants to move in.
-They can require banks and their agents to put all communication in writing.
-They are not required to take cash incentives to move out before the law requires.
-Harassment, such as changing locks without a court order, entering the home without permission or shutting off utilities, is illegal.
In addition, 16 cities in California, including Oakland, Richmond, Berkeley and Hayward, have just-cause eviction ordinances that rule out foreclosure as grounds for an eviction. Tenants have the right to continue renting the home indefinitely absent any other grounds for eviction unless the new owner wants to move in.
Wells Fargo sends tenants a letter outlining their legal options if it forecloses on the house where they live, Menke said. The bank often offers cash incentives for tenants to move out before the three-month period has passed.
The bank also honors lease agreements as long as the tenant has a copy of the lease. But if the bank sells the house, tenants have 90 days from the sale to move, said Wells Fargo spokeswoman Mary Berg.
“If the new owner wants to move in, then the tenant is no longer protected unless the new buyer decides to keep the renters there,” Berg said.
Lynne Codde and her daughter Shelby were renting an Antioch, Calif., home that was sold at auction. The new owner, a property management company, offered them $500 to move out immediately, she said. “We just kind of laughed at them and went online and found out what our rights were,” Codde said.
She said representatives of the company started showing up twice a week to ask them about their plans to move. One day a woman showed up who claimed that she had rented the house from the new owners.
“Three or four weeks in, they called and asked us how much it would take to get us out,” she said.
The property company eventually agreed to pay them $4,000, which they used to put down a security deposit and first month’s rent on a house in Fremont, Calif.
Sunday, June 27, 2010
Wednesday, June 2, 2010
Crist signs condo bill designed to ease foreclosure crisis
The bill, SB 1196, requires lenders that foreclose on condo units to cover 12 months of unpaid homeowner association assessments or 1 percent of the original mortgage debt, whichever is less. Previously, lenders had to pay six months of assessments or 1 percent of mortgage debt.
The measure also makes it easier for condo boards to opt out of expensive fire sprinkler, smoke detector and elevator upgrades that must be completed by 2014. In addition, the bill adds protections for bulk buyers of condo units and suspends voting rights for condo owners who are 90 days delinquent.
As foreclosures mount, condo advocacy groups have been urging Florida lawmakers to shift more of the burden of unpaid assessments to lenders. The associations face budget shortfalls because of the increase in vacant units. The reduced revenue has resulted in the postponement of maintenance and other services.
Sunday, May 9, 2010
Saturday, April 10, 2010
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