Fannie Offers Spur to Avoid Foreclosure

May 12th, 2011

Fannie Mae will make it easier for some struggling homeowners to buy houses in the future if they avoid foreclosure in the present.

Under rules released this month that will take effect in July, some troubled borrowers who give up their homes by voluntarily transferring ownership through a “deed in lieu of foreclosure” or by completing a short sale, where a home is sold for less than the amount owed, will be eligible in two years to apply for a new mortgage backed by Fannie.

Currently, borrowers who complete a deed-in-lieu of foreclosure must wait four years before they can take out a loan that Fannie is willing to purchase.
[FANNIE] Bloomberg News

Foreclosed home in Las Vegas.

The new policies from Fannie, a government-backed mortgage-finance company that together with Freddie Mac backs about half of the U.S. mortgage market, don’t relax waiting periods for borrowers who go through foreclosure.

In 2008, Fannie lengthened that waiting period to five years from four.

To quality for the reduced waiting period, most borrowers will need to make a down payment of at least 20%, although borrowers with extenuating circumstances, such as a job loss, will be required to put down just 10%.

Even if waiting periods are shortened, many borrowers may be unlikely to repair their credit that quickly in order to get a loan in the first place. Foreclosures and short sales generally have the same effect on a borrower’s credit score and can stay on a credit report for up to seven years.

The new rules are designed to make foreclosure alternatives more attractive to borrowers at a time when the Obama administration is ramping up its effort to encourage banks to consider alternatives such as short sales. That program sets pre-approved terms for short sales and offers financial incentives to borrowers and lenders to complete such sales.

Freddie Mac requires borrowers to wait five years after a foreclosure and four years after a short sale or deed-in-lieu.

Those periods can fall to three years for a foreclosure or two years for a short sale when borrowers show extenuating circumstances.

Officials at the Federal Housing Administration, the government mortgage insurer, say they are considering changes to their rules, which require borrowers with a foreclosure to wait at least three years before becoming eligible for an FHA-backed loan.

“We are beginning to think about post-recession, how you address borrowers who became unemployed through no fault of their own … and now deserve the right to re-enter the housing-finance system,” said FHA Commissioner David Stevens.

But some worry that policies enabling defaulted borrowers to more quickly resume homeownership could encourage more people to default.

“We don’t want to say that there’s a ‘get out of jail’ card during recessions to walk away from your house,” Mr. Stevens said.

In December, the FHA unveiled rules for borrowers who completed a short sale.

Those who have missed payments prior to completing a short sale or who didn’t face a hardship and simply took advantage of declining market conditions to buy a new home must wait three years.

New Short Sale Law to Protect Homeowners From Deficiency

February 26th, 2011

SB 931 is a new short sale law created to protect California homeowners from deficiency judgments.
scales of justice2 150×150 New Short Sale Law to Protect Homeowners From Deficiency

New Short Sale Law

I read a good article online from Stephen McMullen, a lender out of California, about the new California short sale law being passed to protect the homeowners from deficiency judgments.
A deficiency judgment is when the bank sues the homeowner for the difference between the mortgage note and the sales price. For example, if a homeowner had a mortgage of $200,000 and the house sold via short sale for $150,000, the bank could sue the distressed, homeless homeowner for the $50,000. Obviously, a new short sale law to protect the homeowner is necessary.
What is the new short sale law?

The new short sale law SB 931 took force January 2011. This short sale law brought protection for homeowners from deficiency on first mortgage’s. This law does not handle second mortgage’s or non-purchase money loans.

What represents a purchase money loan? A purchase money loan constitutes a loan that was drawn out for the original purchase of the residence. This includes both 1st and 2nd mortgages in use for the purchase of the household.

What is a non-purchase money loan? A non-purchase money loan is one that has been taken out after the original purchase of the property. Equity lines of credit would be the most common type of non-purchase money loan.

The following is a different variation of the new short sale law:

580e. (a) No juridical decision shall constitute rendered for any deficiency under a note secured by a

1st deed of trust or 1st mortgage for a home of not more than 4 units, in any

case in which the trustor or mortgagor sells the dwelling for less than the remaining

amount of the liability due at the time of short-sale agreement with the composed consent of the

bearer of the 1st deed of trust or 1st mortgage. Composed consent of the holder of the

first deed of trust or first mortgage to that sale shall obligate that holder to accept the

sale proceeds as full payment and to fully discharge the remaining amount of the

debt on the 1st deed of trust or 1st mortgage.

Whenever the trustor or mortgagor commits either fraud with regard to the short-sale of, or waste

with regard to, the real property that secures the first deed of trust or first mortgage,

this section shall not restrict the ability of the holder of the first deed of trust or first

mortgage and seek damages and use existing rights and remedies against the trustor or

mortgagor or any 3rd party for fraud or waste.

(c) This section shall not apply if the trustor or mortgagor is a corporation or political

subdivision of the state.

Spotlights of the new practice of law:

a. If a lender provides written consent to a short-sale on a first mortgage, the lender must

consent the short-sale proceeds as full payment.

b. Applies to all 1st mortgages



ii. Waste (damage)

d. It cannot be retroactive.

4. New opinion on foreclosure in CA:

a. Lenders are barred from further lender action if they use a non-judicial

foreclosure…regardless of the of loan type (non-recourse or recourse)!

b. Most foreclosure in CA are non-judicial

5. Summary: Commencing Jan. 1, 2011, if a first lien position short-sale lender accepts a short-sale or completes

a non-judicial foreclosure…they are finished!

The short-sale process has come a long way and I conceptualize there will continue to be protection for the homeowner in relation to* anti deficiency laws and tax laws. There is a lot of homeowners that have been confronted with a short-sale on their home that we need to do something. The idea of lenders coming after former homeowners for deficiency judgements would be adverse.
New Short Sale Law Summary

In conclusion, while I don’t believe that homeowners should be rewarded for going through short sales or foreclosures, distressed families that have just lost their houses shouldn’t be subject to short sale deficiency judgments either. There’s only so much blood to squeeze from a turnip, and the banks have been gifted trillions of dollars from taxpayers to help with these deficiencies (that are instead being passed out to bank execs as record breaking bonuses). Therefore, I am happy to see this new short sale law and hope distressed homeowners receive protection from the lawsuits.

Where will the Housing Market Bounce Back the Most?

February 9th, 2011

Where will the Housing Market Bounce Back the Most?

Housing Market Bounce Back Report – Good News!

Vero Real Estate’s VeroForecast ran a study recently on where the strongest housing market bounce back may occur. Want some good news? The housing market bounce back report states that 40% of major metro markets will see a bounce back in home values in 2011. The report also states that smaller cities (cities with under 250,000 people) will make up the majority of those with positive growth statistics.
Housing Market Bounce Back | 5 Strongest: Dec. 2010-Dec. 2011

San Diego, Calif. +3.5%
Kennewick, Wash. +3.4%
Pittsburgh, Pa. +2.7%
Fargo, N.D. +2.6%
Washington, D.C. +2.5%
Housing Market Bounce Back | 5 Weakest: Dec. 2010-Dec. 2011

Reno, Nev. -7.2%
Orlando, Fla. -6.5%
Boise City, Id. -6.4%
Daytona Beach, Fla. -6.3%
Port St. Lucie, Fla. -6.3%

Regionally, the report sees more vigorous recovery in the South, with overall growth rates being the best in Texas, Louisiana and Arkansas. As usual, the weakest regions will be in Florida, Nevada, California, and Arizona.

The housing market bounce back report concludes that around 40% of all major metro areas should see some mild appreciation over the next 12 months, and nearly 60% of all markets will appreciate over the next 12 to 24 month horizon. These projections are much better than last year, when it was projected that there would be a double digit drop in home prices. Right now, any projected growth is good news, and the housing market bounce back report seems to be showing that the real estate market prices may just be finally heading in a direction of positive growth.

Foreclosure vs. Short Sale Pros…Cons

July 24th, 2010

With today’s reduced property values and increased unemployment, it’s tempting for some homeowners to just throw their hands up in defeat, allow the bank to take their home in foreclosure and rid themselves of the monthly mortgage burden.
Even suffering through the paperwork and stress of a short sale may seem too much for an overwhelmed borrower to handle.
But Florida homeowners should be aware of unique rules in the state that make the benefits of a short sale typically outweigh the ease of walking away in a foreclosure.
The biggest difference between Florida and many other states when it comes to losing a home is the deficiency judgment.
While some states ban lenders from collecting the remainder owed on a loan after a foreclosure or short sale is completed, Florida law allows banks to go after borrowers for up to 20 years. That can lead to a garnishment of wages long after the home is gone.
In a short sale, where the bank agrees to take a lesser amount for the home than what is owed on a loan, lenders sometimes are willing to write off the deficiency on the front end.
90 percent of the cases the are handled, the bank has waived its right to seek a deficiency.
That was the case with Jupiter resident Kathryn Lorello, who in 2008 found herself in a home she couldn’t afford.
Following a divorce, and with three children, Lorello bought a $408,000 home that she lived in comfortably for a year. But then she lost her job as a manager of a real estate company.
She remembers the day the bank served the notice of foreclosure.
“I cried my eyes out,” Lorello said. “That’s when I panicked because I really didn’t want it to happen.”
Lorello got advice from on doing a short sale.
Her bank, Wells Fargo, waived its right to seek a deficiency even though it ended up taking $200,000 less than what was owed on the loan.
Also, if a bank refuses to waive the deficiency in a short sale, it still would have to go back to court to seek a judgment.
In a foreclosure, at the end of the proceeding, a deficiency judgment is automatically awarded by the courts and the bank is free to seek a claim.
“In the past, people just wanted to move from the property and get on with their lives and didn’t understand what the lenders’ rights were in terms of pursuing a deficiency claim,” said Paul Baltrun, director of loss mitigation at the LaBovick & La¬Bovick law firm.
“I think people are more aware now about what can happen after the fact and that their nightmare can continue.”
Another consideration is the effect of a foreclosure or short sale on credit.
According to the Fair Isaac Corp., which developed the widely used measurement of credit risk called a FICO score, the negative effect of a foreclosure is only marginally worse than a short sale.
But in Florida, a deficiency judgment from a foreclosure is likely to have a much larger impact that will prohibit your ability to buy another home for many years.
Daniel Poulos, a mortgage broker with Elite Lending in North Palm Beach who has studied the effect of foreclosures and short sales on credit, said unless a borrower pays off the deficiency, it may be 20 years before someone is eligible for another mortgage.
“That’s the kind of information that’s not getting out in Florida,” Poulos said.
There are a few situations where some experts believe it is better for someone to go to foreclosure rather than do a short sale.
To do a short sale, a borrower must give all of his or her financial information to the bank before it will decide whether to allow the short sale. The idea is that if a person can afford to pay the mortgage, the short sale may be denied.
“Now the lender knows everything about your finances and they can better decide whether they will go after you or not,”.
If a lender doesn’t know your finances, it reduces the chances it will go after you following a foreclosure.
“You might fly under the radar,”.With the millions of people going through this, they are probably going to go after the low-hanging fruit.”
Is it ever better to do a foreclosure over a short sale?
People who can easily afford their home may be better off allowing it to go into foreclosure. After giving all their financial information to the bank to qualify for a short sale, they could be denied. Now the bank knows all their assets, but they’re in the same situation as before.

Time Running Out for First-Time Homebuyer Tax Credit

March 17th, 2010

If you’re thinking about buying a home and you haven’t researched the benefits of a first-time homebuyer tax credit through the American Recovery and Reinvestment Act, time is running out.

There’s been a lot of buzz about the up to $8,000 tax credit first-time homebuyers can cash in on, but some people are still having a hard time believing it’s really true.

“Hmmm. The government giving away free money? What’s the catch?”

The strings are really quite minimal and thousands have already taken advantage of this program that makes it easier for some — at least possible for others — to buy their first home in a sagging economy. Like all things government, there are some guidelines and frankly, the guidelines make perfect sense.

We have been helping people buy and sell homes in the area and educated them about this new tax credit for a while. We keep our clients up to date on programs that will benefit homebuyers and sellers. So, here goes. If you’re looking for a home in the area, you won’t find a better tax credit, rebate, discount — whatever you want to call it — than this one.

Basics of the 2009 American Recovery and Reinvestment Act First-Time Homebuyer’s Tax Credit

Let me reiterate, if ever you were thinking about buying real estate, now is the time. Prices are low, sellers are motivated and the American Recovery and Reinvestment Act of 2009 and its First-Time Homebuyer Tax Credit makes this an historic opportunity to buy your piece of the American Dream.

In some cases this option can be coupled with other local incentives to buy or build a home. We’ll be happy to tell you all about the help available for you in our area.

Frequently Asked Questions

Q. How much of a tax credit will I get if I buy a home?

A. The amount of the 2009 First-Time Homebuyer Tax Credit equals 10 percent of the cost of the home. The credit caps at $8,000.

* If a home costs $75,000, the allowable credit would be $7,500
* If a home costs $200,000, then the allowable credit would be $8,000.

Real Estate Investing Blog

December 9th, 2009

This is our new Real Estate Investing Blog.

We will keep you updated about information in real estate investing, buying and selling houses, and how we can help you with your house needs.

We will also keep you up-to-date with the real estate market as it continues to change.