Lenders don't make short sale approval easy. After receiving government financial assistance funded by taxpayers and direct instructions to work with borrowers to avoid foreclosure, they still insist on playing hardball with homeowners who are doing everything in their power to avoid foreclosure. In fact, they try to force home sellers into signing agreements that are contrary to Arizona law!
The Arizona market has experienced two years of declining property values which has been accelerated and multiplied by the practice of lenders foreclosing and then dumping homes back on the market in terrible "as- is" condition at low prices. Rather than working to put these homes in reasonable condition and qualify for government financing for owner occupant buyers, they prefer to take the easy route and sell these homes to investors for lower cash prices. These low priced "as-is" sales then become comparable sales which appraisers are forced to use to set value on home sales that are not distressed and are in good condition. This continues to force market values down and more and more property owners find themselves "upside down" and not able to sell and pay off existing loans and closing costs without bringing cash to closing. The current market situation was in part caused by too many investors purchasing properties on speculation, and now the same lenders who fueled that speculation with unwise lending practices are contributing to further declining values.
If these same lenders would repair these properties so that FHA and VA buyers could purchase them, live in them, care for them and become good neighbors our neighborhoods would become stable and over time values would rise at reasonable, sustainable rates.
Having worked in the Casa Grande Valley real estate market since the early ‘80's I have observed how lending policies stifle or inhibit growth and real estate values. In an effort to help homeowners who need to sell and don't want to walk away from their homes and allow the banks to foreclose, we searched for the best training possible to learn how to become effective at negotiating with lenders and obtain short sale approvals on behalf of our clients. As a result of taking the extensive training we have earned the CDPE designation (Certified Distressed Property Expert) and have been able to successfully negotiate short sale approvals for distressed homeowners in much shorter periods of time.
More and more lenders are beginning to understand the benefit of approving a properly documented and valued short sale rather than foreclosing. Yet we still find unresponsive lenders, and those seem to be the ones with the most well known names who are responsible for the largest number of foreclosures through their earlier lending practices.
Yesterday we received a tentative approval from a well known lender who was not aware of Arizona Revised Statute 33-814, subsection G, which provides that it is illegal for a lender to obtain a deficiency judgment on a home which is the owners primary residence, is a single family home and is on a lot size of 2.5 acres or less. A deficiency judgment is the difference between the outstanding loan balance and the amount the lender receives from a sale when they acquire the property and resell it. There are details involved in the statute that I will not attempt to cover completely here. The bottom line is that the loan was a "purchase money mortgage" and the current market value is less than the first mortgage which was used to purchase the property. After dragging their feet and not wanting to accept the market values in the extensive documentation we provided, the lender finally accepted the second appraisal, which shows that the market value has continued to decline while they have been delaying an approval. The agreement they provided yesterday stated that they would release the mortgage lien from the property in order to close the short sale but they would hold the seller responsible for the difference. This is not consistent with AZ law. This lender is doing everything possible to prevent an approval and sale of this property, despite the fact that the seller is insolvent, has no assets to cover the deficiency, did not participate in fraud when purchasing this property and is a victim of declining neighborhood property values.
If we hadn't taken the CDPE training, we probably wouldn't have known to question this lender and challenge the legality of their proposal. There is also a home equity line for a small amount with a well known lender. Despite being given a portion of the outstanding balance they are refusing to release the second lien without the seller agreeing to be liable for the difference. After consultation with an attorney we know that this home equity line, which was obtained after the purchase of the home is a full recourse note, which means the lender can go after the homeowner for the difference.
Both these lenders refuse to accept that unless they approve this short sale they will receive this property back in foreclosure. The longer they drag their feet the more the value declines and the less money they will receive. The lender with the second mortgage will receive nothing if the first mortgage holder forecloses. If they choose to foreclose the property value will probably decline further as a result of more bank owned as-is sales, plus they'll have months of additional costs, attorney's fees, title fees, lost interest, property taxes, HOA fees and the property will sit abandoned with probable deferred maintenance and possibly vandalism and theft. The property will ultimately sell "as is" to an investor who will do minimal repairs and rent it to a family who just lost their home in foreclosure.
We as taxpayers will ultimately pay the cost for the additional delay, unreimbursed costs and we'll have added another distressed sale at lower values to the neighborhood. Instead, these lenders could verify the financial data provided on the homeowner, verify the property value information and expedite this sale to a qualified, working family who will purchase this property using an FHA or VA loan and live in it, adding to the neighborhood stability.
If you ponder this situation even further, all those loans created just a few years ago as 80/20 loans and 90/10 loans to purchase properties cannot have deficiency judgments, according to Arizona law. When are these lenders going to wise up and contribute to solving the problems of the declining values, rather than contributing to them? And why will my taxes and those of future generations continue to be directed to these major lenders who continue to operate with these incomprehensible policies?
Please don't misunderstand me. We are going to continue to fight for these property owners by negotiating short sales and try to stop the flood of foreclosures, which impact homeowners and neighbors. A recent review of almost 90 expired listings showed the majority are in foreclosure and will wind back up on the market as bank owned listings. As time consuming as these short sale packages and negotiating are, we feel it is the right thing to do, and we have been successful in nearly 90% of them, with approvals in less than 30 days or as long as 60 days. It's hard to listen to news and know that our taxes for the next several generations will go toward solving problems that are still being created by these lenders. Check out ARS 33-814, subsection G and seek legal advice if what the lenders are telling you sounds fishy!
Visit us at www.StopAZForeclosureToday.com or www.YostHomes.com
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