Loss Mit Services

Short Sale Update 2015

Posted on 20. Mar, 2015 by ctlms in Blog, Foreclosures, My Blog, News, Real Estate, Short Sale, foreclosure

The state of short sales in 2015

It's a whole new world out there.

The loss mitigation industry, policies and procedures, and the general landscape of mortgage servicers is constantly changing.  Keeping track of all these changes can sometimes be a job all in itself.

In the past year the changing landscape of mortgage servicing has been in flux more than usual. Billions of dollars in Mortgage Servicing Rights (MSRs) have been being sold back and forth between mortgage servicers resulting in Servicing Transfers.  This is when the borrower receives notice that a new servicer will be handling their loan.  If you're in an active workout review like a short sale, this means at least a month delay while the loan is ported into the new servicer's systems and likely, you end up starting over from the beginning.  National Servicing Standards were put in place to eliminate these delays, but thus far they have not resulted in much success.

Another big development has been the sale of seriously delinquent loans to hedge funds by FHA, Fannie Mae and Freddie Mac.  All 3 of them have been pooling Billions of dollars in delinquent loans that are either insured by FHA or owned by Fannie or Freddie and putting them up for auction.  These are then bought by hedge funds.  This also results in the same type of servicing transfer as the MSR sales do.  However in these cases, the loans are now owned by a new investor, whereas a MSR sale is just the serving rights, the investor has not changed.

FHA, Fannie Mae, and Freddie Mac all have very details loss mitigation guidelines that the servicer has to follow and many of them have protections for the homeowner.  These guidelines require the servicer to attempt to work things out with the borrower before foreclosing.  Most also include that an approved short sale result in the settlement of the debt so that none of it is left collectible after closing.  This all goes out the window with the Asset sales.  There is talk about enforcing some level of responsibility to attempt a workout with the borrower on future sales, but past sales did not have that.  This has all resulted in some new servicers in the industry that are servicing the loans purchased by these Hedge Funds.  Many of these servicer push to foreclose or push for a deed in lieu of foreclosure rather than a short sale.  That is not to say they will not do a short sale.  But these servicers are more apt to go straight to talking deed in lieu with the borrower and totally skip the short sale option.

One positive result with some of these new servicers and these asset sales has been a shorter decision timeline than with most other short sales.  Not all are faster, but some of these new servicer care less about the financials of the borrower and more about what the offer is and what the market value is.  Remember that these loans are already seriously delinquent.  So this makes more sense since the likelihood of the borrower being able to cure the default on a seriously delinquent loan is pretty low.

HAFA short sale updates.

The HAFA short sale program also got a major update in Feb of 2015.  2 areas of the HAFA guidelines in particular were updated.

The 1st are is the amount of funds allowed to be offered to a junior mortgage.  Previous HAFA guidelines allowed for "up to $8500" to a junior lien.  $8500 was often the highest of any other short sale program, however in recent years many of the servicers have latched onto the "up to" language and have established lower caps.  These caps are typically a percentage of the Unpaid Principal Balance (UPB) of the junior mortgage.  These range to 6-10% of the UPB.  So a junior mortgage owned $30,000 may be offered just 10% or $3,000 rather than the $8500 max allowed.  This can result in the junior lien not accepting since the guidelines also require they forgive the remainder of the balance.

The updated HAFA guidelines allow for a Min of $12,000 to the junior lien.  As has happened with nearly all other HAFA guideline changes, not all of the servicers have correctly implemented the new changes and some are still trying to set a % cap that could be lower than $12,000.  These require escalation to the HAMP Solution Center and the Treasury Dept to get oversight involved.  Unfortunately that ends up causing more delays in the process.

The 2nd guideline that was updated was the Relocation Incentive that Owner Occupied sellers are eligible for on HAFA short sales.  This has been increased to $10,000 from $3,000.  I have seen no idication why this was changed.  But this is great news for those sellers who qualify.

Remember though that HAFA is now a small percentage of short sales.  Fannie Mae and Freddie Mac no longer participate in HAFA and neither do any Government Insured or Guaranteed loans.  So these are only conventional loans not owned by Fannie or Freddie and owned by participating investors and servicers.  So this is a small %.

Current Time-Lines.

Unfortunately time-lines for short sale approvals have not improved and in many cases have regressed.  Revisions to the FHA short sale guidelines in late 2013 added much complication to guidelines already riddled with red tape. So FHA loans take longer than ever to get short sale approval.

Many of the larger banks such as Chase, Bank of America and Wells Fargo have also reduced the size of their loss mitigation staff.  Over all they are seeing fewer applications for short sales due to recover on some of the country.  However areas of the country like here in CT have not seen price appreciation or job growth.  So we are seeing short sales as busy as every and the reduced staff levels at these servicers is causing delays.

In general the mortgage servicers are as dysfunctional as ever.  It is all too common for the servicers to deny files for incorrect guidelines.  I would say that we have escalate at least 75% of our files that would otherwise be denied if we did not know the correct guidelines and escalated to the appropriate dept or oversight agency.

We here are Loss Mit Services are busier than ever processing short sales.  We have added staff over the past year to help manage our caseload and not compromise our service.  We will continue to do so as needed and as always we strive to get every short sale approved.

Income Taxes

The last topic I want to discuss is the Mortgage Debt Forgiveness Act.  This act allows taxpayers who have had mortgage debt cancelled on a purchase money mortgage on their primary residence to avoid the possibility of being taxed on that debt cancellation.  This act was passed in 2007 and extended several times.  It expired at the end of 2013.  It was not extended until just a couple weeks before the end of 2014 and was retroactive to cover all of 2014.

We find ourselves again without this protection for struggling homeowners in 2015.  There are already bills in congress to extend this yet again.  However this was the same this time last year.  So though we expect that this will likely be extended again, it has yet to be and may not be till much later this year.

Sean Wilder

Short Sales and Title Searching

Posted on 17. Nov, 2011 by ctlms in Blog, Foreclosures, My Blog, News, Real Estate, Short Sale

Should an agent do a search of the title on a listing?

Alright, so it has been way too long since my last post on short sales.  I totally apologize.

Today's topic is going to be on searching title.

In today's real estate environment there are a few things agents should be doing with their listings to cover their own "assets".  Asking the sellers about their mortgages and any liens is one of these.

You do not want to be the agent that takes the word of a seller that they have plenty of equity to sell without a short sale, only to find out a week before closing that it is not true.  This just doesn't look good for you or your brokerage and it can jeopardize your commission if the deal falls through.

Plus, there are many cases where the seller does not know that they have title issues.  Many people do not realize that small claims and collections judgments as well as medical judgments can be, and often are, attached as judgment liens to their property.

It is very important today that you research the title of your listings before taking the listing.  Many agents already go down to the town hall and pull the field card for the property and allot of agents also get a copy of the deed.  Some Broker's actually require this be in the file, as they should.

So while you're there you should be searching the title for mortgages and any other liens that may be on the property.

Many towns now have their land record index right online where you can search the title and get an index of what documents are recorded for that property.  A simple search like this can quickly reveal documents of concern such as; Judgment Liens, Tax Liens, Water or Sewer Liens, Lis Pendens, etc.

Now I am not saying that every Realtor needs to be a title search expert.  But a simple purchase date forward search of the land records can uncover any possible issues to your transaction closing so that they can be addressed long before the 11th hour before closing.

In the case of a short sale this is critical.  Any money judgments against the property need to be negotiated with the lien holders.  If we do not know about them, we can't negotiate them.  It is also very difficult to renegotiate with a mortgage company to pay a judgment after they have already approved a short sale and that judgment was not listed as an expense from the beginning.

On top of that, many judgments for credit card liens and medical liens are very difficult to get released for less than full payoff.  Spending months negotiating a short sale on a property that has unknown judgments on it that will doom the property to foreclosure, or the seller into bankruptcy, is not fair to all parties involved.  These need to be known up front so that if they are unwilling to negotiate, all parties know it sooner rather than later.

One of the most useful resources here in CT is Jud.CT.gov.  Here you can search by the seller's name and find foreclosures and lawsuits.  There are 2 areas to search.

Under the Case Look-up link on the left;

1. Civil/Family will find foreclosures, collections and divorces.  If the plantiff has the same last name as your client, it's probably a divorce

2. Small Claims will find all small claims files.

Any judgments for collections or small claims that do not show as satisfied are more than likely recorded as a lien on the property as well.

In addition to this resource, the town clerk's office will have any and all liens recorded against the property.  When searching though an electronic index the following guide of commonly used document short cuts may be useful.

ASN = Assignment, FCL = Foreclosure, IRS = IRS Tax Lien, JDG = Judgment Lien, LN = Lien, LPN = Lis Pendens (foreclosure initiated), MEC = Mechanics Lien, MTG = Mortgage, QTC = Quit Claim, REL = Release, SOJ = Satisfaction of Judgment, TXL = Tax Lien, WAR = Warantee Deed

This is by no means an exhaustive list and the short cuts differ from town to town.  You may also come across others that are less common.

But if you are fortunate, your listing will have 1 War, 1 or more MTG and that is it.

When processing a file for a short sale, we typically try to check any online resources available to us to investigate the status of the title.  But we rely heavily on the listing agent and the seller to inform us of any issues that need to be addressed in the short sale negotiations.  The only other alternative would be to require every single seller that we process a file for to pay for a title search on their property.  Since these issues come up without being presented to us by the agent or seller a small percentage of the time, we feel that would add cost to many sellers unnecessarily.

These issues can be easily discovered by a cursory search of the land records by the listing agent and many brokers already advise or require their agents to do so given the pervasiveness of title issues today.

So if you do not often take this extra step on your listings, I hope these suggestions cause you to consider doing so in the future to save yourself some future headaches.

Sean Wilder

State of CT finally sets it straight for Debt Negotiators.

Posted on 20. Jul, 2011 by ctlms in Blog, Foreclosures, My Blog, News, Real Estate, Short Sale

Clarification is finally here!

So it has been over 2 months since the CT Depts of Banking and Consumer Protection confused the entire real estate community with a joint warning letter regarding Debt Negotiators in CT.

The letter dated 5/10/11 was apparently in response to one or more complaints brought about by the actions of one or more Debt Negotiators.  I do not know the specifics of the issues or complaints but can gather enough from the letter to know the actions indicated were not only bad business, but obvious to result in complaints.  We always strive for 100% transparency and disclosure with all parties involved and all our agreements are in writing.

In general the letter made it appear that all Debt Negotiators in CT may be violating the regulations.  It also suggested that if a debt negotiator were paid more than $500 from any party,the were violating the $500 max fee cap to the mortgagor and that real estate Brokers could not pay for the service.

This letter jeopardized the businesses of all Debt Negotiators in CT and the services they provide to their clients.

It has taken the Debt Negotiator industry over 60 days to get these state agencies to clarify their opinions on what we do.  Over that time we have had several phone and email conversations with both agencies.  This all culminated with a meeting, which I attended, with the Commissioner of the Debt Of Banking and several representatives of the Dept of Consumer Protection who attended on the behalf of their commissioner who could not attend.

This meeting was extremely helpful to all parties in clearing the confusion and both agencies agreed to address our concerns in writing by the end of this week.

On Monday 7/18/11 the Dept of Banking issued it's opinion letter. DOB Opinion Letter 7-18-11 The letter stated clearly that the fee cap of $500 for payments from the Mortgagor DOES NOT prohibit a real estate firm or any other person or entity who is not the Mortgagor from paying for Debt Negotiation services and that the $500 cap does not apply.  The $500 fee applies to payments for Debt Negotiation services paid for by the Mortgagor (seller) directly. So it is perfectly legal for a real estate firm to hire a debt negotiator who is properly licensed in CT to negotiate on their clients behalf in securing a short sale approval.  This service is provided to the real estate firm to accomplish a task that the real estate agent is either not properly equipped to do themselves, or simply does not wish to do.  It is also legal for that Broker to agree in writing to compensate the debt negotiator for this services contingent on the successful sale of the property.

On Wednesday 7/20/11 the Dept of Consumer Protection issued it's own opinion letter. DCP Opinion Letter 7-18-11 In it, the Dept of Consumer Protection states that "It is appropriate for real estate licensees to retain an outside party for the purpose of debt negotiation and those services fall within the scope of the debt negotiator's work." The letter also address how this "fee for ancillary service" should be paid.  1. The fee should be a dollar amount agreed to by the Broker and the Debt Negotiation company in writing and should not be a % of the sales price so as not to be construed as a commission split.  2. The fee should be paid by the Broker after closing.

These two letters finally put to rest the confusion resulting from the letter these agencies issued on 5/10/11.

It also seems that the actions of one or more debt negotiators has tainted the view of the industry by some.  This is very unfortunate for those of us who work within the laws and regulations we are governed by and strive to provide the very best service to the sellers' and real estate agents we serve.

It is unfortunate that it took so long to get these issues addressed but we have done our best during this time to not let this affect our clients.

Please contact Sean Wilder at Loss Mit Services for any questions about what this means for your clients.

Sean Wilder