Lynn Arends - Attorney | Designated Broker 's Blog

I'm going to be on the radio!

Fri, 11 May 2012 17:24:02 -0700

I’m excited to announce that I will be on the Tina & Drew Radio Show this weekend! You can tune in to AM 1090 or listen online at this link this Saturday, May 12^that 3 PM. I’ll be talking with Tina and Drew about short sales…. including the new changes made by FHFA to the way Fannie and Freddie servicers handle short sales, short sale vs. foreclosure or strategic default, and how I work with clients during my initial consultation.

We will be offering a special deal to listeners of the Tina & Drew Show, so tune in to find out more!

Help may be on the way...

Mon, 09 Apr 2012 17:21:23 -0700

The National Mortgage Servicing Settlement that was reached in February has now been finalized by a court order. The Settlement provides direct relief and new protections for Washington consumers.

Washington’s share of the record $25 billion dollar settlement over alleged widespread mortgage fraud is about $648 million, to be used in a few different ways.

Here are the highlights of WA’s settlement share:

-$483 million will go to loan modifications, including principal reduction, for borrowers who are at risk of default.

-$24 million is set aside for restitution payments to borrowers who lost their homes to foreclosure between Jan 1, 2008 and Dec 31, 2011

-$84 million is designated for helping borrowers who are current but underwater refinance their loans.

-$45 million will go to state foreclosure relief and housing programs distributed through the AG’s office.

The full press release can be found here.

More information will be made available as settlement programs are implemented, and consumers may need to wait before seeing any direct benefits from the settlement. The mortgage servicers are required to complete 75% of their consumer relief obligations within two years and 100% within three years.

Borrowers who are currently behind on their monthly mortgage payment, or may soon experience financial trouble, are urged to call their mortgage servicer for more information.

Contact our office to set up a time to talk with Lynn about the options available to you, and how this settlement might affect you!

Short Sale or Foreclosure? Now, Please!

Sat, 10 Mar 2012 12:20:57 -0800

The Mortgage Forgiveness Debt Relief Act is set to sunset on December 31, 2012 and it may not get extended. The law, first enacted in 2007, allows homeowners who have received principal reductions on their mortgages as the result of loan modifications, short sales or foreclosures to avoid income taxation on the amounts forgiven.

Here's a little history and how it works. Before 2007, all cancellations of debt by creditors (i.e., mortgage, personal or auto) were considered taxable events under the federal tax code. If you owed $500,000, but paid off only $350,000 through an agreement with the lender, the $150,000 difference would be treated as ordinary income and taxed at regular rates. The Act was due to expire on December 31, 2010 but was extended through 2012. Under this Act, you can avoid taxation on forgiven mortgage debt amounts up to $1 million for single filers, or $2 million if married filing jointly. To be eligible, the debt must be cancelled by a lender in connection with a mortgage restructuring, short sale, deed-in-lieu of foreclosure or foreclosure. But the transaction must be completed no later than Dec. 31, 2012.

Loss of this tax help will endanger huge numbers of distressed mortgage arrangements in the months (and years) ahead including those qualifying under the recent $25 billion mortgage settlement (see my previous blog post for more details on the settlement). Any borrower receiving any principal reduction or debt forgiveness may face hefty and ill-timed taxable income hits in the event this law is not extended.

The clock is ticking and that impending deadline has real estate and tax professionals on edge. Bottom line - if you are thinking about a short sale or foreclosure, do it now!

And if you are considering a short sale, some benefits to a seller instead of foreclosure might be:

1. A slight benefit in the credit score.

This is especially true if short sale is approved while the borrower is current (it can and does happen and is also a significant benefit in terms of ability to get a new home mortgage (in as little as 2 years).

2. If the seller has two mortgages.

A short sale provides a vehicle for resolving both debts at once, and a quality short sale negotiator will in most instances be able to settle the second for less than if the borrower let the first foreclose and then circled back to negotiate and settle the second.

3. A borrower still has a reasonable shot at getting a short sale completed before 12/31/12, when the principal residence exemption to Cancellation of Debt (COD) income is still in effect, versus a foreclosure, which will probably not happen until 2013 at this point, thus increasing the chances of income tax liability, particularly if there is a second lien that must be settled too.

In conclusion, every situation is unique and your mileage may vary, but short sale can be an excellent alternative to foreclosure, and something you may want to consider.

Come meet with me to discuss if you are a good candidate for a short sale, and how to take advantage of The Mortgage Forgiveness Debt Relief Act while it still exists!

Federal Mortgage Settlement = Good news/Bad news

Thu, 16 Feb 2012 11:45:03 -0800

By now, we all know that federal and state officials have announced a $26 billion foreclosure settlement with five of the largest home lenders (Bank of America, Citigroup, Ally Financial/GMAC, JP Morgan Chase and Wells Fargo).

The deal is supposed to protect consumers from unsound practices in mortgage servicing and foreclosure processing, and requires banks to give money back to borrowers who have been foreclosed on, and principal reduction to homeowners who are currently underwater. It also sets aside funds to help borrowers refinance or modify their loans.

While this sounds like great news for homeowners, there are some caveats…

Good news: Homeowners who are current, but “underwater”, may have their principal reduced.

Bad news: But only by an average of $20,000.

Good news: The settlement bars lenders from foreclosing on a homeowner who is under consideration for a loan modification. (Isn’t that the way it is supposed to be now?)

Bad news: This only works if assiduously and tirelessly enforced.

Good news: Eligibility.

Bad news: Borrowers whose loans are held by Fannie Mae or Freddie Mac need not apply.

Already foreclosed on?

Good news: You are eligible for restitution if you lost your home in 2008—2011 due to “robo-signing”.

Bad news: $2,000 max—not much help for families who have lost their homes.

Conclusion? I am cautiously…(un)optimistic about this settlement!

******************

For more information, check out the Legal Resources page at my website for a summary of the settlement, who is affected by it, and the projected timeline.

All of the details, including FAQs and further links can be found at www.nationalmortgagesettlement.com.

Contact my office today and set up an appointment to discuss your options and how this settlement could affect you.

Buying a Short Sale: From the Buyer’s Point of View

Mon, 28 Nov 2011 17:07:13 -0800

OVERVIEW

Buyers pursue short sales to get a good deal. But you might want to think twice about making an offer on a pre-foreclosure, short sale home. It's not as simple as you may believe, and very few can close in 30 (or even 60) days or less.

A short sale occurs when a bank agrees to accept less than what is owed on a Mortgage or Deed of Trust to release its lien. Negotiated right, a short sale can be an excellent alternative to foreclosure to both sellers and buyers. And banks will consider a short sale because it allows them to recoup some of their investment without the work and expense of selling the home themselves. However, just because a property is listed with short sale terms does not mean the lender will accept your offer, even if the seller accepts it.

It is important to do your research before making an offer to purchase. Your agent can find out who is in title, whether a foreclosure notice has been filed and how much is owed to the lender(s). This is important because it will help you to determine how much to offer and the likelihood that the lender(s) will accept your offer.

In addition, the lender will want to see that you have your own loan available and you are preapproved. Send a preapproval letter to the lender. It will help if your agent sends a list of comparable sales that support the price you are offering to pay for the home.

WRITING THE SHORT SALE OFFER AND SUBMITTING TO THE BANK

Short Sale Homes Sell at (Near) Market Value

Before a buyer writes a short sale offer, a buyer should ask his or her agent for a list of comparable sales.The bank will want to receive somewhat close to market value. Lenders will insist on a comparative market analysis, known as a CMA, or broker price opinion, known as a BPO. If a lender believes a better price can be obtained by taking the property back in foreclosure over a short-sale offer, the lender may hold out for a higher price. That price will be close to market value. Lenders accept short sales when the home is worth the short-sale price, which means market value.

Many banks will discount the price a little bit from market value, but to get an acceptance, offers should be reasonable and close to the comparable sales. Some short sales are priced ridiculously low. The short sale price may have little bearing on market value and may, in fact, be priced below the comparable sales to encourage multiple offers. Or for that matter, any offer on the eve of a scheduled Trustee Sale (in an attempt by the Real Estate Agent to salvage commissions). So to get your offer accepted, it will need to be priced near market value. If you're not prepared to pay above a superficial price on a lowball short-sale listing, then pass.

The Buyer Must Qualify

In a normal transaction, a buyer's lender will examine credit history, length of time on the job, debt ratios, and a host of other criteria to determine a borrower's qualifications. In a short sale transaction, buyers also need to submit their loan prequalification letter along with their offer to the seller’s lender.

Prequalification means a loan officer has determined a borrower is credit worthy and financially able to qualify for a certain loan.Prequalification differs from preapproval because prequalified is based on a lender's opinion, not on verification.

Contrast that with a Preapproval Letter from a lender which says the borrower’s credit, bank references and employment have been verified. The letter is not binding on the lender because it is subject to other conditions such as an appraisal of the property. A preapproval letter from a lender carries substantial weight because it shows the seller and seller’s lender the buyer is serious.

Tip: Send a preapproval letter and a copy of a sizeable earnest money deposit that adequately reflects the buyer's ability to obtain a mortgage and intent to close the transaction.

SHORT SALE BUYER: BEWARE!

Lenders Discount Commission

Generally, only lenders who have sold loans to Fannie Mae or Freddie Mac are paying traditional real estate commissions to real estate agents. The rest often discount commissions. Moreover, agents end up doing two to three times the work of a conventional transaction and don't appreciate getting paid less to do more work. If you have agreed to pay your agent a certain percentage under a buyer broker agreement, you could be liable for the difference between what the lender will pay and what your contract stipulates, if your agent refuses to waive the difference.

Higher Buyer Closing Costs

Because lenders rarely will pay for any extras, as a seller would be willing to do, if you want any of those extras, you will pay for them yourself. Sometimes lenders will refuse to pay for standard seller closing costs such as transfer taxes, too. If you want specific inspections, you will probably pay for them out-of-pocket.

Lynn Arends, concentrates her Seattle practice at Lynn Arends Law Group PLLC and Lynn Arends Realty Group, on short sale and foreclosure issues. She is a frequent speaker for the Washington State Bar and the King County Bar and an instructor for the Washington Association of Realtors. Contact her at lynn@lynnarends.com or visit her blog and website at www.lynnarends.com.

Help is on the Way!

Mon, 18 Apr 2011 15:19:24 -0700

Foreclosure Fairness Act: New Law to Help Washington Homeowners

Last Thursday Gov. Chris Gregoire signed into law a new bill giving homeowners the statutory right to sit down with their lenders and discuss modifying their loan.

In an effort to protect WA homeowners from foreclosure, under the new WA Foreclosure Fairness Act, lenders must now send to homeowners in default a letter explaining their right to a sit-down to discuss alternatives to foreclosure. If that letter goes unanswered, the bank must make three attempts by phone, and then send a certified letter before proceeding with the foreclosure process.

Lenders must conduct "a good faith review" of the homeowner's financial situation and offer loan modifications, if possible. The new law allows a mediator to handle a negotiated agreement between the lender and homeowner.

The problem, as I see it, is that many homeowners will simply ignore these communications. After all, homeowners behind on their payments are already overwhelmed with harassing collection calls and letters and may simply view these as just another collection attempt by their lender and not their statutory right to mediate.

Some parts of the law are effective immediately and the entire House Bill 1362, aka the Foreclosure Fairness Act can be found here.

Click here to find out more about the Second Substitute House Bill 1362

King County Bar Association (Reprinted): Bar Bulletin, Volume 29, Issue 7, March 2011

Mon, 11 Apr 2011 14:36:58 -0700

Is a Short Sale Really an Alternative to Foreclosure?

By: Lynn Arends

Short Sale Basics

A short sale occurs when a bank agrees to accept less than what is owed on a mortgage or deed of trust to release its lien. Negotiated correctly, a short sale can be an excellent alternative to foreclosure to both sellers and buyers. And banks will consider a short sale because it allows them to recoup some of their investment without the work and expense of selling the home themselves.

New Obama administration initiatives, such as the Home Affordable Foreclosure Alternatives Program (HAFA) and recent changes to HUD's Pre-Foreclosure Sales Program (PFS) for FHA loans, have made short sales an ever more viable option in today's current economic state. But before signing up for a short sale, here are some issues to consider:

Who Qualifies?

Assuming the property is underwater (more is owed than what it's worth), here are the necessary criteria to be considered for a short sale.

• The mortgage is in default or default is foreseeable.

Yes, borrowers can be current on their payments and still be considered for a short sale.

• The seller has experienced a true hardship

Basically, this is the "what has changed since you took out the loan that you could afford it then but can't now" test. Examples of a hardship are unemployment, job relocation, divorce, bankruptcy, illness, or disability.

• The seller has no assets.

Before accepting a short sale, a lender will require the seller to submit a short sale package. This includes the seller's tax returns, financial statements, bank and credit card statements, hardship letter, and schedule of assets. If there are assets, the lender may not approve the short sale because the seller has the ability to bring cash to the closing or the seller may still be granted a short sale but be expected to pay back the deficiency.

Deficiency Judgments

A deficiency is the difference between the amount received and the amount owed. Although a promissory note makes the seller personally liable for the debt, whether the bank can pursue a deficiency judgment after a foreclosure or short sale depends in part on the security instrument used and that state's deficiency statute.

Most lenders foreclose through a trustee's sale. In some states, that extinguishes the debt and usually does not give the lender the right to pursue a deficiency judgment. However, when a senior lienholder nonjudicially forecloses and the second lienholder is wiped out during a foreclosure under a trustee's sale, the junior security interest is extinguished but the obligation on the note is not-possibly giving the junior lienholder the right to pursue a judgment on the debt.

And yes, a lender can issue a 1099 to a borrower and still attempt to collect the remaining debt. The mere issuance of the Form 1099 does not alter the creditor's legal right to attempt to collect the debt and it does not act as an admission that the debt is no longer due (although the creditor will need to amend the 1099 issued to the borrower upon collection).

Junior Lienholders

The property may be encumbered by more than one lien. If so, all junior lienholders (and any mortgage insurer) must agree to accept a short sale. This is where good negotiation skills and playing well with others kicks in. In today's typical short sale, it is often the only the first lienholder who is receiving any money. Generally, it is up to that first lender to give some of its proceeds to the junior lienholders. This encourages the junior lienholder to agree to the short sale and release its lien. That amount, whether it is $3,000 or $5,000, is negotiated between the senior and junior lienholders.

But lately some junior lienholders have been demanding outrageous sums of money to approve the short sale and requiring contributions from the buyer, seller, and/or real estate agents. Often, all of this occurs without any disclosure to the first lender. Monies not disclosed or paid outside of closing? That's called mortgage fraud.

To me this is a case of the junior lender cutting off its nose to spite its face. In the event that the short sale fails, the first lender will most likely get the property back in the foreclosure, thus eliminating the second lien entirely.

It's All About the Debt!

Even if a client is a perfect short sale candidate, I spend a lot of time walking people through what nonjudicial foreclosure looks like. To me, this is the "what if I wake up tomorrow and do nothing" option. That's the baseline. Everything else-short sale, deed-in-lieu, loan modification, or bankruptcy-requires some action and needs to yield a better result. What that means is that I need to negotiate a better settlement in a short sale than any of the other options, especially with respect to the remaining debt.

For example, when my office receives the standard short sale letter of consent from a certain lender on a first mortgage, it always says that the lender is not waiving its right to a deficiency. If the client is delinquent in its payments, and facing a nonjudicial foreclosure on the first, given that the Washington Non-Judicial Foreclosure Statute prohibits the lender from obtaining a deficiency (except against a guarantor, which does not apply in virtually all residential sales), the client is better off simply allowing the property to go to foreclosure rather than allowing it to go to short sale. So the question is: Why does the lender not recognize this reality and waive its deficiency in transactions involving a pending nonjudicial foreclosure? Or if the mortgage insurer is calling the shots, why is it not able to convince the mortgage insurer to pay the claim without proceeding to foreclosure?

So who is the perfect short sale candidate? Three scenarios immediately come to mind.

• There is only one loan and there is a program for dealing with the deficiency. HAFA, HUD's PFS, and the VA's Compromise Sale Program are all attempts to waive deficiencies in short sales and deeds-in-lieu.

• Two loans and the first is being fully paid off in the short sale. Foreclosure does not benefit the borrower in any way. It's all about the second lien and I can negotiate that debt as part of the short sale.

• Borrowers who are able and desire to remain current on their payments. Obviously, being current never triggers the foreclosure. And if credit is important, clearly the biggest hit to credit is every month a borrower doesn't make a payment. Again, this is debt I can negotiate.

In the end, it's all about the debt.

Beware of Condominiums and Any Super-Priority Liens

Unless the former owner of the unit files bankruptcy, he or she remains liable for the preforeclosure assessments on the foreclosed unit. But in states such as Washington, the association may also have a six-month preference for association dues owed prior to a foreclosure sale. What that means is that HOAs are a force to be reckoned with in any short sale transaction because if an HOA can collect six months of dues from the lender or new buyer in a foreclosure, they will need to be offered more than that amount to accept a short sale and release its lien. So it's important to do the math when dealing with an HOA. But the good news is that when an HOA approves a short sale, it is usually for satisfaction of debt and the seller is not liable for any additional preforeclosure or short sale assessments.

Buying Again After a Foreclosure or a Short Sale

At the time of this writing, the dust has not yet settled on the requisite waiting period after a short sale or foreclosure. Not long ago, Fannie Mae came out with new guidelines. Unless the foreclosure was the result of documented extenuating circumstances, which only requires a three-year waiting period (with additional requirements), all borrowers will now be required to meet a seven-year waiting period after a prior foreclosure to be eligible for a new mortgage loan eligible for sale to Fannie Mae. Contrast that to the waiting period after a short sale which can be as little as two years depending on the loan-to-value ratio and other factors.

Final Short Sale Thoughts: Seller Beware!

A short sale is nothing more than a voluntary agreement on the part of a lender to release its security interest. Unless an express written term of the short sale approval is the waiver of any right to a deficiency, that lender, or the lender's assignee, will have the right to seek recovery of the deficiency, and may pursue an action up to the expiration of the statute of limitations for collection of a note. In my opinion, any attorney advising a borrower otherwise is committing malpractice. Finally, always seek legal counsel before attempting to pursue a short sale. A real estate agent cannot give legal advice.

See this article in the King County Bar Spring Bulletin or Print the PDF

New FTC MARS RULE

Mon, 24 Jan 2011 18:19:28 -0800

Attorney's Life on MARS

The FTC has issued a final rule that gives federal and state authorities a new tool to combat the increase in deceptive mortgage relief practices.

The final rule does not affect attorneys who provide mortgage assistance relief services (MARS) in connection with the practice of law if certain basic requirements are met, but the FTC warns of MARS providers that try to use attorneys as fronts to avoid state laws.

Over the past three years, the FTC noticed a spike in the number of consumers scammed by MARS providers that charge advanced fees in the hundreds or thousands of dollars then disappear or fail to provide the promised service. Often, the delay and the cost combine to leave homeowners in a much worse position.

Many states have responded by passing state laws, commonly known as mortgage rescue statutes, under which MARS providers cannot charge advanced fees. Lawyers often are exempt from these mortgage rescue statutes.

Mortgage assistance relief services

In general, MARS means "any service, plan, or program" that offers or provides assistance in preventing or postponing foreclosure sales, negotiating loan modifications, obtaining forbearance's or modifications in the timing of loan payments, or negotiating extensions.

Lawyers often provide these services in connection with representing clients in bankruptcy, foreclosure, or other administrative proceedings. Without an exemption, lawyers would become subject to all the requirements of the new federal rule.

Under the new rule, any for-profit entities providing mortgage assistance relief services are, among other things, prohibited from misrepresenting any material aspect of their services, advising a consumer to cease communication with a lender, or taking advanced fees. The prohibition on advanced fees is not effective until Jan. 31, 2011.

In addition, a person violates the rule by providing substantial assistance to a MARS provider if the person knows (or consciously avoids knowing) the provider is violating the rules.

The rule also is designed to prevent abuses by mandating that MARS providers disclose certain information to the consumer, including their "for-profit" status.

Attorney exemption/client trust accounts

Attorneys who are providing MARS "as part of the practice of law" are partially exempt from the new rule as long as the attorney is licensed in the state in which services are provided (or where the consumer's "dwelling" is located) and the attorney complies with applicable state laws and regulations.

However, to get the full benefit of the exemption, attorneys must comply with certain provisions regarding client trust accounts. In order to be fully exempt, lawyers must place advanced fees in a client trust account before performing legal services and comply with state laws and regulations, including licensing regulations, applicable to client trust accounts.

A lawyer who does not comply with the client trust account provisions cannot charge advanced fees, or "request or receive payment of any fee or other consideration," until the lawyer executes a written agreement between the consumer and the consumer's loan holder. In addition, the lawyer must make specific disclosures through the written agreement, but is otherwise exempt from other provisions of the final rule.

The proposed rule did not exempt lawyers at all, but several state bar associations, along with the American Association, sought an amendment to the proposed rule that would provide an exemption for lawyers.

Without an exemption, these bar associations feared the rule could undermine the confidential attorney-client relationship and "make it difficult or impossible for many consumer debtors to obtain the legal services that they desperately need to help negotiate changes to their residential mortgages with their lenders and keep their homes."

All in all, it is hoped that the new FTC MARS rule will curb the "mortgage rescue" charlatans who prey on the most vulnerable of our public.

To find out what the Federal Trade Commission is saying: http://www.ftc.gov/opa/2010/11/mars.shtm

MERRY XMAS FROM FREDDIE MAC!

Tue, 07 Dec 2010 20:14:21 -0800

Freddie Mac announced Wednesday it will suspend foreclosure evictions from December 20^th through January 3^rd. This is the third straight year Freddie Mac has suspended evictions during the holiday season. (This move only applies to those homes that have mortgages backed or guaranteed by Freddie Mac). Sibling company, Fannie Mae, also won't evict people over the holidays, but that has not yet been announced via news release regarding their upcoming suspension of holiday foreclosures. Fannie Mae and Freddie Mac purchase home loans from lenders and package them into bonds with a guarantee against default and sell them to investors. Today they own or guarantee about half of all U.S mortgages.

So Happy Holidays from Fannie and Freddie!

However, did you know...

According to RealtyTrac, foreclosure homes accounted for 25% of all U.S. residential sales in the third quarter of 2010 and the average sale price of properties that sold while in some stage of foreclosure was more than 32% below the average sales price of properties not in the foreclosure process-up from a 26% discount in the previous quarter and a 29% discount in the third quarter of 2009.

REO's sold for an average discount of nearly 41% and accounted for 15% of all sales in the third quarter.
Pre-foreclosure sales, which are often short sales, sold for an average discount of 19% and accounted for nearly 10% of all sales.

Looking at those statistics, it makes you wonder why investors Fannie and Freddie seem so eager to foreclose.

But at least for the Holidays... Merry Christmas!

For more information and foreclosure statistics visit - www.RealtyTrac.com.

Listing Agents: Beware??

Tue, 16 Nov 2010 17:48:11 -0800

Q: In a short sale, do Listing Brokers have a duty to disclose how far underwater the Seller is?

A: If you're in California, the answer may be "yes".

In Holmes v. Summer, G041906 (Cal.App.4th, filed October 6, 2010), a recently decided California appellate case, the court ruled that the sellers' brokers can be held liable for damages and costs incurred by a buyer in a failed transaction when the existing debt on the property exceeded the sale price. The court found that the brokers owed a duty of disclosure to the buyers.

No doubt, Holmes was an extreme case--three deeds of trust created a total debt of $1,141,000 with a sale price of $749,000--but the seller's real estate brokers were still held to answer for not disclosing this information to the buyer, despite the fact that this information was available on the preliminary title report and was a matter of public record.

The court found that real estate agents have the same responsibility as sellers to disclose information they have that affects the "value and desirability of the property."

In Holmes, the seller and the listing associate withheld from potential buyers knowledge of three mortgages against the property totaling $1.141 million. The sellers accepted a buyer's offer of $749,000, but the deal fell through when the sellers couldn't deliver clear title. So the buyers sued the real estate firm and the court found that the real estate practitioner had a greater duty to disclose facts affecting the desirability and marketability of the property than he did to protect the privacy of the seller.

It is my customary practice to make immediate inquiry with Sellers and in the public records to try to ascertain the status of a seller's mortgage liens at the outset of every short sale transaction that I work on. Buyers certainly want to know information like this as they determine how much (or whether) to make an offer in a short sale situation. Why bother putting up earnest money or wasting time, if the short sale is not viable?

Analysts say this decision makes it incumbent on practitioners with short sale listings to provide specific information about circumstances surrounding the sales, including approvals required for the sales to close. Admittedly, Holmes is a California case and not Washington law, but it certainly seems like good advice to listing agents out there.

In light of this recent ruling and the movement of the courts towards finding brokers liable for the damages of buyers who cannot complete a sale, real estate brokers should pay careful attention to their listings and be fully aware of potential liability for failure to disclose these types of issues.

So the question for Listing Brokers with short sales in Washington: is it really enough to just check the box "Yes" to short sale and "3rd Party Approval Required" on the NWMLS Form 1 Listing Input Sheet?

To read Holmes v. Summer in its entirety: http://www.courtinfo.ca.gov/opinions/documents/G041906.PDF

Strategic Defaulting and Credit Scores: A Recipe for Change

Mon, 08 Nov 2010 13:54:26 -0800

Are you applying for a loan? You'd better know your FICO 8!

Question: What happens when you add soaring foreclosures--288,345 homes seized by banks in 2010 Q3, up 22% from a year earlier, according to RealtyTrac--to an unprecedented number of homeowners just walking away ("Strategic Defaulting")?

Answer: Both Fair Isaac (the FICO people) and VantageScore Solutions--the two major producers of credit scores-have begun changing how they evaluate consumers' risks of default. New scoring systems (the FICO 8 and VantageScore 2.0) are expected to be rolled out nationwide to lenders shortly to handle the vast credit-disruptions caused by the housing bust, the recession, high unemployment and behavioral changes by consumers. These revisions focus on the subtle warning signs of credit stress that might have been missed earlier--and penalizes or rewards consumers with higher or lower risk scores than they would have received before.

Consumer creditworthiness has deteriorated in the United States since 2006--especially among the "super-prime" borrowers. These strategic defaulters ("walk-aways") have been an unexpected and shocking development to the credit industry. For example, many homeowners are defying long-standing industry assumptions by going delinquent on their first mortgage payments while continuing to pay their credit-card balances and second mortgages on time.

In response to this abnormality, Joanne Gaskin, director of mortgage-scoring solutions for Fair Isaac, says that the new FICO 8 Mortgage Score is likely to be anywhere from 15 to 25 percent more accurate in detecting signs of future default compared with the standard FICO model when used by a lender to rate the risk of new applicants or existing mortgage customers.

Experts in the credit industry say the new scoring efforts by Fair Isaac and VantageScore should prove to be a net positive for housing and the mortgage industries if they can do what they claim: spot subtle risk patterns and nascent hints of improvement.

But buyer beware: these new changes could affect you personally the next time you apply for a loan because as a mortgage applicant you need to know that your next score might not look anything like the score you thought you had--it could be better or it could be worse.

FOR NOW THE FORECLOSURE CRISIS MEANS BUSINESS AS USUAL

Fri, 29 Oct 2010 16:20:25 -0700

For now the Foreclosure Crisis means business as usual.

This week Wells Fargo, the second largest mortgage servicer, admitted making "mistakes" in 55,000 foreclosures but is not halting the foreclosure process.

Wasn't it only two weeks ago that Wells Fargo had stated that the Foreclosure Crisis is overblown and that it wasn't like other services because it ran a tight shop and hadn't engaged in bad practices such as improper affidavits, aka "robo-signers"?

The company described the mistakes as technical and the documents are being refiled in the 23 states where a judge's approval is needed to complete a foreclosure.

According to the Financial Times, a Wells Fargo employee said in a deposition that she signed as many as 500 foreclosure-related papers a day on behalf of the bank and that the only information she verified was whether her name and title appeared correctly. Although she signed affidavits that said she had "personal knowledge of the facts regarding the sums of money which are due and owing to Wells Fargo", and those affidavits were used by the bank in foreclosure proceedings, when asked whether she checked the accuracy of the principal and interest that Wells claimed the borrower owed, a crucial step in banks' legal actions to repossess homes, she responded " I do not".

And what is Bank of America really doing here in Washington? Auctions are being postponed but only until after the election and all foreclosure timelines are still running. So what does that mean? The clock is still ticking, the process is still taking place-only the actual auction is being postponed for several weeks.

In other words, it's (almost) business as usual.

CAN WE STOP THE FORECLOSURE PROCESS - PART 2?

Thu, 21 Oct 2010 17:53:04 -0700

Just to keep it interesting, last Monday BOA announced that it would resume foreclosures in 23 states. BOA said it plans to resubmit documents with new signatures in the 23 states that require judicial authorization to restart the foreclosure process. These 23 states are those that have judicial foreclosures only and require a court process to foreclose.

By contrast, WA has both Judicial and non-judicial foreclosure remedies. Almost all of the residential foreclosures here are non-judicial and require no court intervention. Thus, WA is not affected by this latest BOA announcement.

However, I have still counseled my clients that it is "business as usual" with respect to foreclosure in WA--and why not? Even with a supposed self-imposed BOA moratorium still in place in WA state, BOA can still take the foreclosure process right up to auction and then not proceed. It is important to understand that the foreclosure clock is still ticking. Homeowners must still prepare for foreclosure or plan for a legal defense against it.

Can we Stop the Foreclosure Crisis?

Fri, 15 Oct 2010 22:55:45 -0700

Can we Stop the Foreclosure Crisis?

According to CNN and RealtyTrac, foreclosures hit record numbers. In the last quarter of 2010, there have been 930,437 foreclosure filings, a 4% increase from the previous quarter. One in every 139 homeowners had received a foreclosure filing during those three months!

Two weeks ago, four major lenders halted foreclosures in 23 judicial foreclosure states. Washington State was not affected by this directly. However, last Friday, Bank of America announced that it was suspending the sale of its foreclosed home inventory in all 50 states.

Wednesday, agent Rob McKenna announced in a press conference that his office has uncovered evidence that suggests foreclosure trustees are ignoring consumer protection laws in Washington. He sent letters today to 52 trustees outlining his concerns and calling on them to suspend any questionable foreclosures in the state. Washington is a "non-judicial foreclosure" state, which means that a lender can proceed directly to selling a home at public auction without first filing a lawsuit. This lender-driven process was created by the state Legislature in better times. Although lenders may foreclose in court in Washington, they almost always choose non-judicial foreclosure which is quicker and less costly.

From the McKenna Letter: "I ask you to suspend all foreclosures in which you have not yet confirmed that all foreclosure-related documents were lawfully signed, that the chain of ownership is clear and has been revealed to you in full, and that state consumer protection requirements have been followed."

As a third party trustee, they are responsible for conducting non-judicial foreclosures, they have a statutory duty to perform all foreclosures in good faith and owe that duty to both the homeowner and the lender.

Some of the issues raised in the AG's letter are:

•· "Robo-signers": who is actually signing the foreclosed documents and in what capacity?

•· Is there really a clear chain of title or have the lenders "reverse-engineered" that chain of title (back dated)?

•· Are default notices given out advising borrowers of their mediation rights (loans originated in 2003-2007) and with the actual loan owner and servicer identified (beginning July 26, 2009)?

This was the topic of yesterday's radio show and I'll be back again next week for an in-depth review and update of this issue.

Following the news this week, it seems like there have been announcements almost every day on this issue. On October 13^th, GMAC announced that it too was expanding its review of foreclosures to all 50 states.

Attorneys general in all 50 states have pledged a coordinated investigation into chaotic foreclosure practices by some of the nation's largest banks. The Department of Justice is also looking into what happened, while some lawmakers are now calling for a nationwide moratorium on all foreclosures until the legal questions are settled. The Obama administration is insisting such a broad delay would hurt the economy. And title companies are weighing in on what these all means to the buyers of REO's and purchasers at auctions. What does this all really mean? Stay tuned for next week's broadcast and any further developments.

Freddie Mac’s HAFA

Thu, 08 Jul 2010 23:29:12 -0700

Last week Fannie, this week Freddie!

On June 1, 2010, Fannie Mae and Freddie Mac each released guidelines for implementing the Treasury Department's Home Affordable Foreclosure Alternatives Program (“HAFA”). Servicers are required to implement these policies no later than August 1, 2010. While largely consistent with the HAFA guidelines for non-GSE mortgages, Fannie and Freddie have each made some important differences. Last week we looked at Fannie's interpretation of HAFA. In this post we'll take a look at Freddie.

Overview

Under Freddie Mac’s implementation of HAFA, Servicers must first consider a Borrower for HAMP and then for other home retention workout options before considering the Borrower for HAFA. Once all other home retention workout options have been exhausted, eligible Borrowers must be considered for a HAFA Short Sale. If the Borrower is eligible for and agrees to a HAFA Short Sale, but the Mortgaged Premises do not sell within the HAFA marketing period, the Servicer may offer an eligible Borrower a HAFA Deed-in-Lieu if authorized by Freddie Mac.

Eligibility

Borrower must be more than 60 days delinquent
Borrower’s Cash Reserves must be less than the greater of $5,000 or three times the current monthly payment

Contrast Freddie's eligibility to non-GSE and Fannie:
To be eligible under the non-GSE HAFA program, the borrower must be delinquent or default must be reasonably foreseeable. Fannie allows borrowers to be at imminent risk of default. Fannie also prohibits a borrower from participating in HAFA if the borrower has the ability to continue making the mortgage payments, but chooses not to do so (strategic defaulting); has substantial unencumbered assets or significant cash reserves equal to or exceeding three times the borrower's total monthly mortgage payment or $5,000, whichever is greater; or has high surplus income.

Payoffs

Each subordinate lien holder, in order of priority, may be paid no more than 6% of the unpaid principal balance of their loan, until the $6,000 aggregate cap is reached, in exchange for release of the subordinate liens and satisfaction of the underlying debts
Freddie Mac will accept the short sale minimum acceptable net proceeds in satisfaction of the amount owed under the Note and release of its lien
No cash contributions or promissory notes will be requested or accepted from the Borrower by Freddie Mac. Subordinate lien holders must also agree to release all liens without promissory notes or contributions from the Borrower in order for the Borrower to be eligible for HAFA.

In Freddie Mac’s Publication #846, it states: Borrowers cannot make cash contributions or promissory note obligations to satisfy either the first lien or subordinate liens, and upon completion of the HAFA Short Sale or HAFA Deed-in-Lieu all mortgage debts are extinguished. Supplemental Directive 09-09 and 09-09R for non-GSE loans is fuzzy on this point and Fannie’s HAFA does not have this language.

Incentives

Freddie Mac will pay Servicers $2,200 for every HAFA Short Sale (and $1,500 for every HAFA Deed-in-Lieu). Note that this is in contrast to the $1,500 servicer incentive for both a short sale and a DIL for non-GSE mortgages.
Following the successful closing of a HAFA Short Sale or HAFA Deed-in-Lieu, the Borrower will be entitled to an incentive payment of $3,000 to assist with relocation expenses.

Fannie Mae's New HAFA Program

Fri, 02 Jul 2010 15:46:21 -0700

As you may have heard, by August 1, 2010 Fannie Mae and Freddie Mac, the formerly Home Affordable Foreclosure Alternatives Program (HAFA) exempt mortgage giants, are set to implement their own HAFA programs. For borrowers who are eligible for the Home Affordable Modification Program (HAMP) but were unable to secure a Loan Modification on their Fannie or Freddie loan, this is potentially promising news.

Today we’ll examine Fannie’s recently released HAFA Program Summary. Their stated goal with joining the program is to provide financial incentives for and simplify the process of short sales and deed-in-lieu (DIL) options in the face of foreclosure. For the most part, the Fannie version is in line with the wider HAFA program which includes the following:

Any borrower who wishes to utilize the new program must have already been evaluated for HAMP, which gives them more options in the event of an unsuccessful evaluation and also removes the need for further eligibility investigation as the HAFA program will use the HAMP documentation. In addition, the program standardizes the steps, documents, and timeframes of short sale or DIL approval;
Before the property is even listed, the borrower will be able to get pre-approved short sale terms;
The servicer cannot condition their approval of a short sale on a reduction of the real estate commission outlined in the listing agreement;
Fannie will release those who are successful in a HAFA short sale from future liability for the debt, and;
Servicer and borrower will be entitled to certain incentives:

Servicers will receive a $2,200 fee for a short sale, or a $1,500 fee for DIL
Borrowers will receive $3,000 to assist with relocation expenses

Fannie’s documents and a full Program outline can be found at their website. Given the amount of foreclosures Fannie has been aggressively pursuing across the country (even being known to refuse to postpone a trustee’s sale with a viable short sale offer before them), one might be forgiven for questioning the sincerity of their commitment to providing foreclosure alternatives. Next time we’ll look at Freddie Mac and their HAFA program.

Would you know a red flag if you saw it? My Short Sales Courses Coming in July!

Thu, 01 Jul 2010 19:07:28 -0700

Check out my newest short sale class with Washington REALTORS® Education:

The Short Sales Course

Instructor: Lynn Arends
3.0 Clock Hours towards License Renewal

Short Sales - From Pre-Listing to the Post Closing Celebration

Analyze the types of buyers and sellers who should and should not consider participating in a short sale. Learn to recognize the red flags that signal potential fraud and how you can avoid it. Understand the forms and how to use them to achieve your client's desired outcome. In short, take control of the short sale process by knowing what to do and when to do it to achieve the greatest efficiency for buyers, sellers, lenders, and real estate agents.

Schedule of Classes Below

July 20th in Kirkland from 8:30am to 11:30am @ Commercial Brokers Association

July 20th in Bellevue from 1:30pm to 4:30pm @ Master Builders Association

If you’re interested, you can register via one of the following links:

8:30am Class

1:30pm Class

Hope to see you there!

What's Really Going On With Fannie's New Foreclosure Guidelines

Fri, 25 Jun 2010 13:46:27 -0700

As those of you who saw yesterday's post know, Fannie Mae is extending the waiting period following foreclosure to 7 years. While their spin on it is to say that “blah, blah, blah, it encourages short sales, blah” this is really about targeting those strategic defaulters.

If you do a short sale on an investment property, they are not forgiving the deficiency, so you’d be better taking your chances going to foreclosure and that it would be non-judicial, because I doubt this raises the threshold for them to direct the servicer to foreclose judicially.

What this is really targeting is the Strategic Defaulter. Someone who Fannie won’t negotiate deficiency with anyway (too much income & assets, etc). So, this will just make it harder to get back into the market for that next purchase, but the Strategic Defaulter is often well-poised to get back in anyway (sufficient assets as security, large down payment, etc).

So while it does enter into my short sale vs. foreclosure calculation, I don’t think it changes much yet. The bigger news is that Fannie and Freddie have both announced their own HAFA short sale programs to begin no later than August 1st. For those that qualify, this will be huge (waive deficiencies without a foreclosure). I will post all that info in the next few days.

Fannie Mae To Impose a 7 Year Waiting Period After Foreclosure

Thu, 24 Jun 2010 21:25:57 -0700

Fannie Mae announced on Wednesday that they will be imposing seven year waiting periods in an attempt to limit their losses via strategic defaults. Additionally, they plan to seek deficiency judgments when possible, reaffirming their position in 2008. These new guidelines are part of a strategy to block a new wave of foreclosures that could further disrupt home prices. With this move, Fannie encourages homeowners to try alternatives to foreclosure such as short sales.

Not a First Time Home Buyer? Put an offer on my Short Sale! Now!

Wed, 28 Oct 2009 01:07:50 -0700

Last week Buyer's Agent said that a nice couple I had referred to him was putting off buying now until after the tax credit for first-time home buyers was over. They were tired of competing with all the multiple offers going in on properties right now to get take advantage of the FTHB tax credit. They earn too much money to qualify as FTHBs but they do want a deal! As an attorney and realtor with a constant flow of short sale listings, I (of course) said: "Show them short sales." And so he did, and they were the only offer and it was accepted and off to the lender they go.

A happy ending in an unhappy market.

My First CLE!

Fri, 23 Oct 2009 19:51:49 -0700

Yesterday I was the speaker at a Continuing Legal Education (CLE) class on short sales. Hosted by the Karr Tuttle law firm in Seattle, there were 25 or so, Bankruptcy and Real Estate attorneys present. Phew! Though I had an outlined presentation prepared, you never know what you're going to encounter when you're put in a room full of your peers, who happen to be attorneys. I thought I'd share with the blogosphere some of the hot button issues that were discussed at my class.

As both an attorney and Realtor, I spoke a lot about my particular business model from the initial consultation to the negotiation with the lender. We talked about the short sale process from beginning to end and spent a lot of time discussing the Short Sale Addendum (Form 22SS) and how I think it should be filled out.

Some of the other topics discussed were:

Different strategies for dealing with the 1^st liens vs. the 2^nd liens in negotiations.
When is it better to let the lender foreclose?
Different landscape today as opposed to just six months ago. Last year lender consent routinely waived the deficiency. Today it does not and must be aggressively negotiated for.
How lenders report to credit reporting agencies.What I didn't get to (and may be a topic for another CLE), the tax implications of a short sale, the 1099: does a lender issuing a 1099 really mean they are waiving their right to collect the debt, and HUD's pre-foreclosure Sales Program for FHA loans.

Because I am an attorney and an agent/CDPE, I am often asked to give presentations to other real estate agents on the subject of short sales. It has been a great experience being able to meet and network with many of you. My next speaking engagement is November 4^th at Windermere Alderwood.

If you see my name on a listing, it is probably a short sale...

Tue, 31 Mar 2009 12:13:00 -0700

I'm an attorney and a Realtor, and I specialize in short sales, loan modifications and all kinds of pre-foreclosure workouts. So if you see my name on a listing, it is probably a short sale. After all, I went into this to do short sales. As an attorney closing REOs for the last 2 years, I knew there was a shortage of capable Real Estate agents handling short sales.

But Agents beware! Not everyone who contacts you is a short sale candidate. As an attorney, I can tell you it is more important to look past the sale and look at your client's bigger picture. There are a lot of factors that must be considered. Are your clients problems bigger than the home? By that I mean, is there other debt? (credit card, etc.) They may be better off filing bankruptcy and should be referred to a qualified bankruptcy attorney to assess if a Chapter 7 or Chapter 13 is an appropriate remedy.

Is foreclosure the answer? Aa short sale may not ALWAYS be the best solution for a seller who is facing foreclosure. Every seller's situation is unique and there is no "one size fits all" solution for the difficult financial situation faced by many sellers today. Real Estate Agents need be mindful, when advising a seller to pursue a short sale, that there are pitfalls associated with a short sale, just as there are with foreclosures.

The bad: Many Agents seem to take the approach that a short sale will solve the seller's financial problems associated with the property. However, the short sale may not solve seller's problems. Short sale sellers may be required to carry the released debt in the form of a personal obligation to lender, or, sellers may owe taxes on forgiven debt (notwithstanding the Relief Act), and a short sale along with missed payments, can have a serious negative affect on a seller's credit rating.

The good: It is possible that a seller could negotiate a short sale agreement in which all released debt is truly forgiven and seller has no ongoing liability related to the debt once the property is sold. It is also possible that the forgiven debt will in fact fall under the Relief Act and seller will have no tax liability for the forgiven debt. Finally, it is possible that a shrewd seller could negotiate with the lender for a less damaging report to the credit bureaus. However, none of this is a certainty and in any given transaction this is why agents and brokers must be careful about representing to sellers that a short sale is necessarily the best solution to seller's financial problems related to the property.

The bottom line: Agents and brokers who represent sellers in a short sale transaction need to make certain they advise sellers to seek legal and/or tax advice with respect to the terms of the short sale agreement, tax consequences of the short sale and issues related to the seller's credit rating. Because in the end a short sale is NOT always better than foreclosure.

An AR Newbie!

Wed, 11 Feb 2009 15:13:21 -0800

New to Active Rain...It's like Online Dating!
(A "Humor" Alert)

Well, I've put up my profile, and uploaded my photo. (Did I choose the right one?) I've told you a little bit about myself and what I'm looking for. I've gotten some referrals and I've answered some emails. And then I thought, didn't I just do this? Oh yeah, it was called online dating! Well, here's my first blog post and a toast to many more.

Lynn Arends
Attorney | Realtor | CDPE
HELPING PEOPLE AVOID FORECLOSURE