In a gradual and interesting development, Fannie Mae servicers have determined that short sale applicants that are not at least 60 days late WHEN THEIR SHORT SALE APPLICATION (CONTRACT) IS SUBMITTED will be rejected without review of the short sale contract. This is quite different from previous decisions by the loan servicers, whereas the loan (if Fannie Mae is the investor – see Fannie Mae Lookup Tool for your mortgage) needed to be late by 30 days before short sale approval. [Note – the 30 day requirement was later "changed" to 60 days and sometimes even 90 days.]
The February 22, 2012 version of the Loan Workout Hierarchy for Fannie Mae Conventional Loans gives a good indication of the reasons for the change. A borrower should understand however that the promulgated rules of Fannie Mae and their interpretation by the loan servicer that is the go-between and “appears” to be your lender, may be dramatically different than the language you see in the Fannie Mae guidelines.
Fannie Mae guidelines regarding loan modifications and short sales have changed over the years, but more than the Fannie Mae changes of guidelines, the servicer’s interpretations of the guidelines has been a more constant frustration to homeowners seeking financial relief. We have often battled with servicer “interpretation” (I use the word in its loosest term) where the written guideline has little semblance to the servicer application of the guideline.
The government cannot change your mortgage contract with the bank and the bank cannot change it without your agreement. It is important for homeowners to understand that the Fannie Mae guidelines, like the various “Obama Plans” are NOT LAWS. They are guidelines or voluntary programs. You must understand that the government cannot change your contract with the lender by mandate. (Remember the United States Constitution – there shall be no law made ex post facto (that applies to an earlier date) and there shall be no “taking” by the government without just compensation).
There are several reasons that servicers interpret the Fannie Mae guidelines as requiring a late payment status. One of them is that loan workouts through modification or provide various amounts of compensation to the loan servicer if the loan is late. These fees are called “incentive fees” and under current programs in effect, those fees are up to $1600 provided the loan is less than 120 days late. The servicers interpret this to mean that the loan must be late (not current) but it seems the “must be 60 days late” is an arbitrary number created by the loan servicer regarding short sales. It is interesting to note that under new “Obama Plans” currently being worked out, the amount of the incentives will be increasing. Those new guidelines are to go into effect sometime in May 2012.
This development changes the theoretical applications that I noted in my earlier article SHOULD I PAY MY MORTGAGE? WHEN SHOULD I STOP PAYING MY MORTGAGE?
This only goes to prove that the short sale and loan modification process rules and procedures are a dynamic being pushed and pulled by both the loan servicers (without little if any oversight by any government or regulatory entity) and the investors (including but not limited to Fannie Mae and Freddie Mac). With such multiple influences upon the short sale process and loan modification procedures, it is no wonder that no one can seem to keep up with the “rule de jur” – not the attorneys, the borrowers nor the lender employees that are supposed to be uniformly applying these “rules”.
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Copyright 2012 Richard P. Zaretsky, Esq.
Be sure to contact your own attorney for your state laws, and always consult your own attorney on any legal decision you need to make. This article is for information purposes and is not specific advice to any one reader. Richard Zaretsky, Esq., RICHARD P. ZARETSKY P.A. ATTORNEYS AT LAW, 1655 PALM BEACH LAKES BLVD, SUITE 900, WEST PALM BEACH, FLORIDA 33401, PHONE 561 689 6660 RPZ99@Florida-Counsel.com - FLORIDA BAR BOARD CERTIFIED IN REAL ESTATE LAW - We assist Brokers and Sellers with Short Sales and Modifications and Consult with Brokers and Sellers Nationwide! Shortsales@Florida-Counsel.com Website www.Florida-Counsel.com.
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