What is the Lender’s Incentive for Agreeing to a Short Sale?

by David Altman, Attorney & Counselor at Law

What is the Lender's Incentive for Agreeing to a Short Sale?

California & Utah Attorney Lawyer

 

 If the lender cooperates
with the home owner and
allows a short sale,
many foreclosure costs and repair expenses can be
entirely avoided.

 

The  foreclosure process is both time consuming (the average foreclosure process can take up to a year or more to complete) and expensive. The lender incurs substantial costs in retaining its own attorney to foreclose on the property and even after the foreclosure sale the lender may incur additional costs to evict hold over former owners and repair the property.

If the lender instead cooperates with the home owner and allows a short sale, many foreclosure costs and repair expenses can be entirely avoided.  Short sale homeowners almost always maintain their homes while the short sale is pending. Lenders often save tens of thousands of dollars by agreeing to a short sale because the short sale allows the home owner to keep his dignity, the homeowner leaves his home in good condition on closing of the short sale, instead of creating a situation with an angry or distressed home owner who leaves his home in a state of disrepair or destruction.

Information in this blog is not intended as legal advice for any specific facts that may apply to your individual situation.  Feel free to send your questions to us. We will try to answer promptly.  If you have an urgent matter, we can be reached at (323) 951-9999;CA  or (435) 688-9999; UT or filling out our online form.   Initial consultation is always FREE.

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How Do St George Utah Short Sales, Los Angeles California Foreclosures or Bankruptcy Impact Your Credit Score?

by David Altman, Attorney & Counselor at Law

Short Sales or Foreclosures Impact Your Credit Score

California & Utah Attorney Lawyer

 

Many of these home sellers have been told by their Realtors or real estate agents that a short sale will cause far less damage to their credit rating than a foreclosure.

This is both false and misleading!

I am frequently asked by Utah Homeowners about what happens after a short sale.  In particular, homeowners want to know what impact a short sale will have on their credit score.  Many of these home sellers have been told by their Realtors or real estate agents that a short sale will cause far less damage to their credit rating than a foreclosure. This is  both false and misleading!

The potential impact of a short sale or foreclosure on your credit score may be just about the same in most cases.  Both a short sale and foreclosure are treated as loans that were not paid as agreed.  In a short sale, foreclosure or deed in lieu, the average credit score may drop as much as 105-160 points and in some cases may drop as much as 200-300 points.

 

California & Utah Attorney Lawyer

Credit Score Impact after -Foreclosure-Short Sale-Bankruptcy

California & Utah Attorney Lawyer

California & Utah Attorney Lawyer

 

While the credit reporting agencies do recognize foreclosures, they do not have a specific category for short sales. This has lead some Realtors, agents and so called real estate advisers to claim that there is a significant credit advantage for short sales over foreclosures. However, short sales will often hurt your credit as much as a foreclosure because in virtually all short sales the short sale homeowner is more than sixty(60) days delinquent on their mortgage payments, and as we all know, credit reporting agencies do have very specific categories for loan delinquency and defaults.

A credit score will go down by 40 to 110 points after being 30 days late and, 70 to 135 points after 90 days late on a mortgage payment, according to Fair Issac; a company that provides analytic, credit decision making, and credit scoring services for financial service companies.

When deciding whether a short sale is right for you don’t be mislead into making the decision under false belief that impact to your credit will be substantially less with a short sale than a foreclosure.  The difference between a short sale and a foreclosure on your credit report may be only marginal.

The biggest advantage in a short sale is the shortened time periods that lenders impose before allowing you to qualify for financing to purchase a home in the future.  Another advantage of a short sale is anonymity.  In a foreclosure the homeowners’ name is published in the local newspaper in conjunction with the notice of trustee’s sale.  No similar public notice is published in a short sale.

Information in this blog is not intended as legal advice for any specific facts that may apply to your individual situation.  Feel free to send your questions to us. We will try to answer promptly.  If you have an urgent matter, we can be reached at (323) 951-9999;CA  or (435) 688-9999; UT or filling out our online form.   Initial consultation is always FREE.

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What About Deficiency After a Short Sale Home in St George Utah or Beverly Hills California?

by David Altman, Attorney & Counselor at Law

mortgage deficiency after a short sale

California & Utah Attorney Lawyer


Short Sale Home Sellers
Must Be Aware that lenders may
take aggressive action
to collect any deficiency and
may file a lawsuit
against you after
the short sale is completed.

 

States like Utah permit lenders to seek deficiency judgments against you, the Seller.  The risk of a deficiency judgment, which typically includes substantial court costs and attorney fees, is a compelling reason to employ an attorney to handle and negotiate your short sale.

Because our office is licensed to both practice law and engage in real estate sales transactions, in most cases, there is no additional cost for the legal assistance provided by our office in connection with your short sale;  the real estate sales commission paid by the lender will usually cover such additional legal assistance at no out of pocket cost to you.

California & Utah Attorney Lawyer

Lender’s Options after Short Sale

 1.   The lender would give you a 1099 for the negative balance. 

For example, if you owed $500,000 and you sold your home for $350,000, the lender would give you a 1099 for the negative balance of $150,000.  Ordinarily you would have been liable to pay income taxes on that amount.

However, under The Mortgage Forgiveness Debt Relief Act and Debt Cancellation of 2007, taxpayers are generally allowed to exclude income from the discharge of their debt on principle residence.

Limitations apply so be certain to consult your financial advisor or CPA with any questions concerning your specific circumstance.

2.  The lender could require you to sign a promissory note for a reduced amount.

For example, if you owe $500,000 and you sell the home for $350,000 the lender may require that you sign a promissory note for an amount less than the $150,000 deficiency balance. The lender could offer you a promissory note for $15,000 and may give you five years to payoff at a low or zero percent interest.

3.  The lender may pursue the full amount.

For example, if you owed $500,000 and you sold your home for $350,000 the lender could require that you sign a note at closing for the negative balance of $150,000.

In that event, you would pay back the $150,000 over new terms of the promissory note.  This is not common, because most people involved in short sales are experiencing a financial hardship and would not have the ability to pay a promissory note for the full amount on a home they no longer own.

4. Many Short Sale Sellers have been misadvised by non lawyers that by completing the short sale they have been relieved from any liability to their lenders for deficiency balance. 

Too often we are contacted by sellers who received a deficiency notice ( after completion of the short sale)  from their lender or from a collection agency.  As indicated above, lenders have a right to pursue a judgment for any deficiency balance and frequently do so.

Having Utah and California real estate short sale attorney address the deficiency issue before the short sale is finalized may result in an affordable settlement or waiver of deficiency.  Although no outcome can be guaranteed, utilizing services of an attorney will increase the likelihood of a more favorable result.

 

Information in this blog is not intended as legal advice for any specific facts that may apply to your individual situation.  Feel free to send your questions to us. We will try to answer promptly.  If you have an urgent matter, we can be reached at (323) 951-9999;CA  or (435) 688-9999; UT or filling out our online form.   Initial consultation is always FREE.

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How to Get A Mortgage Loan After a Short Sale or a Foreclosure?

by David Altman, Attorney & Counselor at Law

 

How-to-Get-A-Mortgage-After-St-George-UT-Short-Sale-or-St-George-UT-Foreclosurel

California & Utah Attorney Lawyer


What are the absolute bare minimum requirements to obtain a mortgage after a short sale or  a foreclosure?

 

Given today’s guidelines the question remains what are the absolute bare minimum requirements to obtain a mortgage after Los Angeles California short sale or St George Utah foreclosure?  

The best option may be to obtain a FHA loan:

  1. 3.5 percent down payment; or a gift in that same amount
  2. 3 percent to 6 percent of the purchase price for closing costs on top of the down payment; or a credit from the seller in the same amount
  3. 640 FICO credit score — the middle score of those generated by the three credit bureaus (some banks may lend to borrowers with middle scores lower than 640, but will require more than the minimum down payment).
  4. Lenders will want you to document income, asset and job history documentation, current paycheck stubs, two months’ bank statements and two years of W-2 forms or tax returns
  5. A minimum of four years have passed since the discharge of a bankruptcy
  6. A minimum of three to five years have passed since a foreclosure
  7. Anywhere from zero to three years have passed since a short sale depending on the circumstances surrounding the short sale.

 

Information in this blog is not intended as legal advice for any specific facts that may apply to your individual situation.  Feel free to send your questions to us.  We will try to answer promptly.  If you have an urgent matter, we can be reached at (323) 951-9999;CA  or (435) 688-9999; UT or filling out our online form.   Initial consultation is always FREE.

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What is QRM Rule and How It May Affect St George Utah or Los Angeles California Real Estate?

by David Altman, Attorney & Counselor at Law

What-are-Proposed-Standards-for-a-QRMQualified-Residential-Mortgage-for-St-George-Utah-Borrowers-for-Residential-Mortgage

California & Utah Attorney Lawyer

 

The New QRM (Qualified Residential Mortgage) Rules Will be in Full Effect in April 2012.  

QRM rules will require minimum down payments to increase to 20%.

 

 

As we continue to deal with the fallout from the housing crisis, regulators working under the Dodd Frank Wall Street Reform and Consumer Protection Act are proposing rules to prevent borrowers from getting into homes they can’t afford.

Provisions in the Dodd Frank Wall Street Reform and Consumer Protection Act would require borrowers seeking to refinance have at least 25 percent in home equity to qualify for a “Qualified Residential Mortgage” (QRM).  FHA and VA Loans are exempt from QRM rule for now.

An analysis of the CoreLogic data by the Coalition for Sensible Housing Policy reveals that more than half of U.S. homeowners would not be eligible for QRMs. Approximately 24.8 million U.S. homeowners have less than 25 percent equity in their homes.

Under the proposed QRM rule, borrowers who do not have a 20 percent down payment do not meet the stringent qualifications and debt ratios; front ratio of 28%(Housing related expenses) and back ratio of 36%(Total monthly household debt) and unable to obtain financing through the FHA will be expected to pay a premium of two percentage points for a loan in the private market to offset the increased risk to lenders.

The new QRM (Qualified Residential Mortgage) rules will be in full effect in April 2012.   QRM rules will require minimum down payments to increase to 20%.  The New QRM Rules provide greater legal protections for creditors who have complied with the general ability to repay standard.  Under the Dodd Frank Wall Street Reform and Consumer Protection Act, a creditor can be challenged for failing to make a reasonable and good faith determination about the borrower’s ability to repay.

If borrowers don’t meet the threshold of a 20% down payment, these loans would be considered risky and characterized as a Non “Qualified Residential Mortgage” (QRM). Congress have decided that lenders who are issuing mortgage back securities will have continuing risk retention in them and hold lenders responsible for a 5% credit risk retention on the loans they put together.

Banks and Wall Street securitizers would need to set aside 5% of loan balances in reserves to cover possible losses from defaults. This extra capital cost inevitably would be passed on to consumer.  Lenders are claiming that without the safe harbor of a 20% required down payment, creditors will have to tighten credit standards to minimize liability.

California & Utah Attorney Lawyer

According to calculations by the Center for Responsible Lending,  if a household earning the median annual income of $47,777(the latest data from the Census Bureau) did nothing but save for a 10 percent down payment plus 5 percent in closing costs, it would take 13 years to accumulate enough money, assuming the borrower had saved about 5 percent of his after tax income to buy a home with a U.S. median sales price of $173,333.

This rule would put homeownership out of the reach for large numbers of first-time and moderate-income buyers who can’t come up with that much cash or afford to pay higher rates.

Information in this blog is not intended as legal advice for any specific facts that may apply to your individual situation.  Feel free to send your questions to us. We will try to answer promptly.  If you have an urgent matter, we can be reached at (323) 951-9999;CA  or (435) 688-9999; UT.   Initial consultation is always FREE.

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What is a Reverse Mortgage? What is a HECM(Home Equity Conversion Mortgage)?

by David Altman, Attorney & Counselor at Law

Reverse Mortgage HECM(Home Equity Conversion Mortgage)

According to the U.S. Department of Housing and Urban Development, about 46,000 reverse mortgages are in default.  Lenders will not let defaults accumulate indefinitely so it’s wise to know about reverse mortgages to see if they are right for you!


A reverse mortgage is a loan that allows a homeowner to convert home equity into cash.


Unlike a traditional home equity loan or second mortgage, a reverse mortgage is a special type of home loan that lets you use the equity in your home to pay you.


No repayment is due until the borrower(s) no longer use the home as their principal residence(as long as you live in the house) or fails to meet the obligations of the mortgage such as property tax and/or insurance, etc.

 

Reverse mortgages were originally created to help cash poor older people as a loan of last resort to stay in their homes.  According to MetLife Mature Market Institute, nearly half the people considering a reverse mortgage today are under 70 years old.  Due to current recession  baby boomers are turning to reverse mortgages to pay bills or replace a traditional mortgage they can’t afford.  These so called “safe” loans can lead you straight to foreclosure in your later years.

When you leave(usually at death or move to assisted living) the house is usually sold.  The sale proceeds go toward covering the loan plus all the substantial fees and interest that have accrued over the years.

If the house sells for less than what you owe(which is not likely due to equity requirements), you will pay nothing more because bank’s insurer(the federal government) absorbs the loss.

 

California & Utah Attorney Lawyer

HECM(Home Equity Conversion Mortgage) is a FHA’s reverse mortgage program which enables you to withdraw some of the equity in your home.

The reverse mortgage program may be a safe plan that can give older Americans greater financial security to purchase a primary residence if they are able to use cash on hand to pay the difference between the HECM proceeds(loan amount) and the sales price plus closing costs for the property you are purchasing.

Downloading free booklet, “Use Your Home to Stay at Home” a guide for older homeowners.

To be eligible for a FHA HECM, the FHA requires that:

  1. You are a homeowner 62 years of age or older.
  2. Own your home outright, or have a low mortgage balance that can be paid off at closing with proceeds from the reverse loan.
  3. You must live in the home.
  4. You are required to receive consumer information free or at very low cost from a HECM counselor prior to obtaining the loan.
  5. Home must be a single family home or a 1-4 unit home with one unit occupied by the borrower.
  6. HUD-approved condominiums and manufactured homes that meet FHA requirements are also eligible.

 

California & Utah Attorney Lawyer
Even though all these guarantees make the loan sound safe please keep in mind that:

  1. You can keep the house only as long as you can pay your property taxes and homeowners insurance.
  2. If married couples decide to take a reverse mortgage, be sure you both are on the loan so that either one of you can remain in the house without having to repay the loan if the other spouse demise or enters assisted care.
  3. Under current HUD policy, spouses who are not on the loan are forced to repay if the remaining spouse wants to keep the house.
  4. If the remaining spouse or other heirs want to buy the house, they owe the lesser of either (a) the total loan amount or (b) 95% of the home’s current market value; some unscrupulous lenders have tried to charges the full amount of the mortgage balance including all fees, even if the loan balance is more than the house’s worth.

 

When you leave(usually at death or move to assisted living) the house is usually sold.  The sale proceeds go toward covering the loan plus all the substantial fees and interest that have accrued over the years.

If the house sells for less than what you owe, you pay nothing more because bank’s insurer(the federal government) absorbs the loss.

Information in this blog is not intended as legal advice for any specific facts that may apply to your individual situation.  Feel free to send your questions to us. We will try to answer promptly.  If you have an urgent matter, we can be reached at (323) 951-9999;CA  or (435) 688-9999; UT or filling out our online form.   Initial consultation is always FREE.

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VIDEO: St George Utah Real Estate 101 Relocation Part 2

by David Altman, Attorney & Counselor at Law

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VIDEO: St George Utah Real Estate 101 Relocation Part 1

by David Altman, Attorney & Counselor at Law

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Bank of America (BOA), the Nation’s Largest Mortgage Servicer Announced that it is Offering Homeowners up to $20,000 to Short Sale Their Homes

by David Altman, Attorney & Counselor at Law

Bank of America (BOA) Logo

California & Utah Attorney Lawyer

Mortgage lenders have long known that foreclosures cost the lenders far more than short sales.

Despite that knowledge, many lenders have dragged their feet in approving short sales and have often made the short sale process so difficult and lengthy that short sale buyers have dropped out or walked away before the short sale could close.

After years of ignoring financial realities, mortgage lenders are now finally waking up and taking action to help themselves and help homeowners.  In fact some of these lenders are now so anxious to approve shorts sales as an alternative to foreclosures that they are offering cash incentives to homeowners who will list their homes as short sales rather than simply default on their mortgage and walk away after a foreclosure.

Bank of America (BOA), the nation’s largest mortgage servicer, announced that it is offering Florida homeowners up to $20,000 to short sale their homes rather than letting them linger in foreclosure.   BOA’s plan excludes Ginnie Mae, Federal Housing Administration and VA loans.

Realtors say the BOA plan, which has a minimum payout amount of $5,000, is a genuine incentive to struggling homeowners. Bank of America is motivated to offer this cash incentive because the current timeline to foreclosure in Florida is an average of 676 days – nearly two years, compared to the national average foreclosure timeline of 318 days.

A spokesman for BOA said the program is being tested in Florida, and if successful, could be expanded to other states.  Wells Fargo and J.P. Morgan Chase have similar short sale programs, sometimes called “cash for keys.”  Wells Fargo spokesman Jason Menke said his company offers up to $20,000 on eligible short sales that are left in “broom swept” condition. Although the program is not advertised, deals are mostly made on homes in states with lengthy foreclosure timelines.  Similar to the federal Home Affordable Foreclosure Alternatives program, or HAFA, which offers $3,000 in relocation assistance, the BOA program may also waive a homeowner’s deficiency judgment at closing.

If successful, these incentive programs could leave to widespread incentive offers from other lenders who belatedly recognize that it makes financial sense to give defaulting homeowners a reason to stay and sell their homes, even if that sale does not fully pay off existing mortgage obligations.

Information in this blog is not intended as legal advice for any specific facts that may apply to your individual situation.  Feel free to send your questions to us. We will try to answer promptly.  If you have an urgent matter, we can be reached at (323) 951-9999;CA  or (435) 688-9999; UT.   Initial consultation is always FREE.

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Buying a Home After Short Sale or Foreclosure in St George Utah or California

by David Altman, Attorney & Counselor at Law

Buying a Home After Short Sale or Foreclosure in Saint George Utah or Los Angeles California

California & Utah Attorney Lawyer

 As an Attorney and REALTOR® who has been heavily involved in short sales, foreclosures, REOs and loan modifications in Utah and California over many years, I am asked by homeowners how long they must wait before they are able to buy a home again after a short sale or foreclosure.

There are no clear cut answers to this question.  There are many variables involved when trying to determine when someone will be able to purchase a home after a short sale or foreclosure.

The primary difference between a short sale or a foreclosure is that the waiting time that lenders require before considering a new home loan is longer for those who have had a foreclosure than a short sale.

What is certain is that having a short sale or a foreclosure on your credit report seriously impacts your credit score.

Government Sponsored Entities(GSE) such as Fannie Mae, Freddie Mac and FHA do not directly make loans but guarantee the loans that lenders offer to homebuyers.

The general guidelines that FHA, Fannie Mae and Freddie Mac follow for loans after a short sale or foreclosure are shown below:

California & Utah Attorney Lawyer

FHA LOAN:  Short Sale vs. Foreclosure

FHA Short Sale
FHA Foreclosure and Deed In  Lieu
  • Can purchase right away with no mortgage default
  • 3 year wait if in default at the closing
  • Reduced wait if the borrower has re-established good credit and can show extenuating circumstances
  • 3 year wait before being able to get a loan
  • Reduced wait if the borrower can show extenuating circumstances and re-establishes good credit

California & Utah Attorney Lawyer

FANNIE MAE LOAN:  Short Sale vs. Foreclosure

Fannie Mae Short Sale and Deed In Lieu
Fannie Mae Foreclosure
  • 2 year wait if the borrower puts 20 % down
  • 4 year wait if the borrower puts between 10% to 20% down
  • 7 year wait if the borrower puts less than 10% down
  • 2 year wait if the borrower can show extenuating circumstances and puts more than 10% down
  • 7 year wait from the completed foreclosure sale date
  • 3 year wait if the borrower can show extenuating circumstances, but, additional underwriting requirements apply for 4 years after the 3 year waiting period.
  • 7 year wait for a 2nd home, cash out re-financing, or an investment property

California & Utah Attorney Lawyer

FREDDIE MAC LOAN:  Short Sale vs. Foreclosure

Freddie Mac Short Sale and
Deed In Lieu
Freddie Mac Foreclosure
  • 4 year wait before being able to get a loan
  • 2 year wait if the borrower can show extenuating circumstances
  • 5 year wait from the completed foreclosure sale date
  • 3 year wait if the borrower can show extenuating circumstances

Information in this blog is not intended as legal advice for any specific facts that may apply to your individual situation.  Feel free to send your questions to us. We will try to answer promptly.  If you have an urgent matter, we can be reached at (323) 951-9999;CA  or (435) 688-9999; UT or filling out our online form.   Initial consultation is always FREE.

 

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