Federal aid has offered various programs via Making Home Affordable (MHA) to help American citizens all across our nation who are struggling through the recession. Although it has been helpful, foreclosures are still increasing leaving many in difficult situations. Acknowledging this widespread dilemma, several state governments have implemented a “Foreclosure Mediation” program that allows homeowners to speak directly with their lender to formulate an agreement on the issue of their delinquent mortgage payments. Is this a remedy option worth pursuing? Studies in Washington State have shown improvement in halted foreclosures.

This bill that the Washington State Legislature passed is called the Foreclosure Fairness Act of 2011. Seeing the staggering statistics of foreclosures in Washington which was over 132,000 foreclosed homes between 2009 and 2012, Washington decided to aid its citizens by funding HUD counselors to help distressed homeowners all throughout Washington. Through the HUD counselor or an attorney, the homeowner is able to request a foreclosure mediation where they are able to speak directly with their lender, with a mediator’s assistance (HUD counselor or attorney), to reach a “fair, voluntary, and negotiated agreement.”

Who qualifies for this program?

*For Washington Residence

Homeowners are covered if they are in owner-occupied properties and have either: (1) received a Notice of Default on or before the effective date of the Act and their house has not yet been sold at foreclosure sale; or (2) after the effective date, have not yet received the Notice of Trustee’s Sale. Any lender or servicer who did 250 or more foreclosure sales in Washington during the previous year is covered. The Act is effective on July 22, 201 1. The Department of Commerce will administer the Mediation Program.

Benefits to the Mediation Program

The main benefit of this program is reaching a consensus between the homeowner and the lender. The possible outcome may grant the homeowner:

• A loan modification which will reduce the interest rate and extend the mortgage period.
• An agreement to conduct a Short Sale which is selling the property for less than what the homeowner owes.
• A Deed-in-Lieu of foreclosure which is a voluntary transference of the deed to the mortgage company that has the homeowner’s loan.
• Cash for keys program which may provide monetary incentives for homeowners to vacate the home.

The other important benefit of this mediation program is if the lender agrees to participate, the homeowner is able to obtain an extra 45-60 days after the 15 days for the meeting to be approved and scheduled once requested. This act gives homeowners more time to figure out what the best move is to make when in danger of foreclosure.

How do I utilize the foreclosure mediation program?

The cost of using the mediation program is $200. If the homeowner qualifies, it can be obtained by speaking with a HUD approved counselor or an attorney who will send a request for mediation to the lender.

Will the foreclosure mediation program ACTUALLY be beneficial for me?

Click here to see if your state is participating in the foreclosure mediation program.

This mediation program has the potential to be beneficial. Lenders typically try to forgo the foreclosure process and are willing to work out a solution with homeowners. However, the results have been variable from state to state. Some states such as Florida have brought dismal results bringing only 4% of the referrals to the program ending in an agreement. The State of Washington have had better results having halted over 600 foreclosures in just 3 months after the program started in July.

If anything, the real incentive to use this program is the delay of the foreclosure process. It gives the homeowner more time to plan and make an informative decision for their home rather than being foreclosed on and evicted which could be emotionally and financially detrimental.

If you are in a position where you received a notice of default or are already in foreclosure, this may be an extremely helpful tool for you. I suggest you call a HUD counselor in your area immediately, even if you aren’t in default but struggling to keep up with your mortgage payments. If you live in Washington, I highly suggest you contact our short sale specialists to learn more about the process and consult with our certified distressed property experts as a short sale is in most cases, the best option for homeowners. Submit your information here and I will have our experts contact you within 24-48 hours.

Hope this helps

Peter

By now, we’ve reached a consensus that a short sale is the best alternative to a foreclosure and that lenders/servicers are giving more approvals than ever before as it is deemed to be, in most cases, the better financial decision for them as well. Short sale approvals are now issued frequently. However, I have been receiving multiple inquiries regarding post short sale deficiency situations. Their stories are similar in that they all are having unexpected negative consequences after short selling their home. Just because you’re granted an approval letter and are able to close the short sale, does not mean you are necessarily off the hook!

As I have stated before in my previous article on approval letters, deficiency release/terms are defined in the approval letters issued by the lender(s). This letter or letters from your 1^st position lienholder or any subordinate lienholders must be investigated by YOU as the homeowner. Although your agent may be trustworthy, do not simply rely on your realtor or any other party working on your behalf to tell you that everything will be okay after the short sale. Homeowners who are struggling with deficiency judgments after their short sale have come to me saying their agents (realtors, title company, etc) told them that lenders usually won’t pursue for the full amount after closing the short sale. Now they are unfortunately dealing with a judgment of the full amount with minimal leverage as they already sold their home.

You don’t want to take the risk of being liable for deficiency after your short sale so it is absolutely pivotal that you make sure you acknowledge the deficiency verbiage yourself from the lenders before signing the approval letter. If you sign it, you are responsible for it.

What happens if I sign and close without the proper deficiency terms?

Negotiating the deficiency should be done during the short sale. Without the home to use as leverage, negotiating with lenders is more like a plea than a deal. If you are in a situation where you’ve closed your short sale and are facing a judgment or believe you will be soon, we have certified debt settlement experts available that may be able to obtain a reduction of the remaining amount owed but let me be clear in that all will not qualify for this service. Email me at Peter@seattleshortsaleblog.com and I will connect you to our experts.

It is crucial that the homeowner and agents working on behalf of the homeowner know exactly what the deficiency terms are and the expectations are clear prior to signing and closing the sale. Our negotiators have rejected numerous approval letters because they did not agree with the offer in regards to the deficiency. They are extremely vigilant of what the deficiency terms are in closing. Their first priority is to negotiate aggressively to get a full deficiency release but if the situation doesn’t permit, they make sure they receive a reduced promissory note that is communicated very clearly with the homeowner so there are no unexpected outcomes after the sale. This is why our team of expert negotiators have been extremely successful in closing their deals and homeowner’s are never left anxious of any adverse effects of the short sale.

Lastly, as stated in my previous post regarding approval letters, carefully read all the terms and be sure the deficiency verbiage exists. If it does not exist, that is not a good sign. I highly suggest you do not sign the approval letter until you are fully aware of the terms & agreements written on the letter.

Find a negotiator in your area. Our top team of negotiators are only available for Washington residents but if you do not have a negotiator in your area working on your file, find one as soon as possible. It is much easier for realtors to close short sales these days but if it is not in good terms, you may and probably will find yourself in a position you do not want to be in.

Hope this helps

Peter

Will there be a rebound in the housing market for 2012? Many are becoming more optimistic about this year’s housing situation as homes have reached unprecedented lows in interest rates and prices thus increasing demand. Concurrently, rent prices are rising and more people are apt to buy which will decrease the excess of supply in our market (many of which are short sales and REO properties) and ultimately, bring the prices back up. What does this mean for current homeowner’s who are struggling with their mortgage(s) and considering a short sale?

As evidenced from past experiences, the fluctuation in the housing market is so variable that even experts are unable to guarantee which direction it will go. There are expectations of stabilization or possibly a slight shift in the direction of prices in the latter half of 2012. Even then, the expected prices are definitely not 2004 prices but more at the 2008 price levels.

The rebound is largely contingent on various factors such as the strength of employment, builder activity, investor activity, and other changes in the general economy. Experts opposing the optimistic predictions of the housing market say, “Distressed properties have the lowest prices for any category of home sold. To a large extent, that’s why we’ve seen continuous home prices drop over the past three years and why those drops are likely to go on.” – Guy Cecala of Insider Mortgage Finance. An influx of short sales and foreclosures entering the market is not going to slow down soon. Even in the case that these great deals fly off the market and prices halt its decline with a slight rise, should a homeowner stay in their homes or short sell right away?

The important question is, are you able to amply afford your mortgage payments in the upcoming years? If you are struggling with payments, then this year would be the most opportune time for a short sale. Suppose the homeowner stays in the home while barely making it by with the mortgage payments. He/she doesn’t only stay at risk of defaulting and foreclosure but the home will likely build little to no equity, if not stay underwater. If the home falls into foreclosure or the homeowner decides to pursue a short sale later, the homeowner may be liable for income tax from the sale of the home which is currently forgiven via the Mortgage Forgiveness Debt Relief Act set to expire December 31, 2012.

A more reasonable option would be to short sell your current home, negotiate the deficiency owed to lender(s), stay within the mortgage forgiveness debt relief act timeline, and purchase another home that makes sense for your financial situation at the lowered interest rate the market offers. It is a good time to buy but for how long will it last? If the housing market slowly rebounds in the next few years, then promptly short selling would give the homeowner enough time to reestablish their financial situation, rebuild credit, and purchase another home within 2 years (typical after a short sale) that is within their means and at a superb price/rate. It may be delayed gratification but keeping up with the Joneses now will only precede an exacerbated financial situation on your hands.

If you would like more information on short sales or would like to speak to one of our Certified Distressed Property Experts, submit your information here and write a brief description of your home situation.
Hope this helps

Peter

Stop trying to simply increase your income to solve your financial problems. Rather, focus your efforts more on stabilizing your financial situation with the income you are already receiving. We recommend Dave Ramsey’s Babysteps program as we have found Dave Ramsey has been one of the best financial advisors having helped millions of individuals achieve financial freedom. He helps individuals get out of the system of perpetual debt, learn how to budget, save, invest, build wealth, give, and much more.

When should I purchase another home?

We do not recommend purchasing another home until you are financially ready. During this financial rebuilding, there will be the temptation where right after you save enough money for the down payment, you’ll want to buy another home immediately. Although you may enjoy the purchase of the new home momentarily, you will be right back where you were and possibly worse depending on the situation. Make sure you get financial wisdom prior to purchasing your next home and make it a goal to get a 15-year fixed mortgage or do a 100% cash down on your next home.

What is your goal? If it is to purchase another beautiful home, then there needs to be planning or expect to rent for life. Now that you have freed yourself from the costs of homeownership, use that money to work on eliminating your debt, building your assets and savings, and living in a beautiful home financially free. If you haven’t done a short sale yet but are struggling with your mortgage payments, we highly recommend you talk to HUD approved counselors and find out all the options for your home. If short sales are a viable choice for you, submit your information in the short sale tab above and we will provide you with a free consultation with one of our experts.

Hope this helps

Peter

If you pursue a short sale or any other route of letting go of your home, you will inevitably have a ding on your credit score. Although the amount varies depending on which route you take or whether you are late on your mortgage payments in a short sale, having a ding on your credit score will make it difficult for you to utilize your credit especially when purchasing another home. What are mortgage companies looking for in your credit? How quickly can you purchase another home after a short sale? We will review these questions and a solution.

What are mortgage companies looking for in your credit?

As you may have already guessed, the dramatic changes to the housing market due to the subprime mortgage crisis have made lenders and investors much more stringent on their lending practices. The three areas lenders look at when considering financing your mortgage are credit score, income, and your overall ability to repay the mortgage. Large agency investors such as Fannie Mae changed their minimum credit score requirement from 580 to 620. Anything under 620 is considered high risk. Your local bank may require a credit score of up to 660 or higher which shows you how important credit scores are in your ability to obtain another mortgage.

How quickly can you purchase another home after a short sale?

Based on the numerous cases we have seen, homeowner’s are able to purchase another home much quicker in a short sale than after a foreclosure. As far as the time it will take to purchase another home, really depends on each specific situation. Our team has personally seen homeowners purchase another home within the first year if they’ve made all of their payments.  Multiple clients have bought their home within 2 years and more clients inside three years all without missing payments.  If you miss payments (per rumor), it is understood that Freddie and Fannie won’t finance you for 2 years before you are able to start shopping again.  Whether or not they finance will depend on how many missed payments and how good/bad your credit is.  The timeline in which you are able to purchase another home greatly depends on you and your proactive decisions from this point on.

How can I rebuild my credit after a short sale?

Seattleshortsaleblog have been endorsing Lexington law credit repair for some time now. It has proven to be the best credit repair company having removed 1,297,226 negative items from credit reports in 2010 including short sales, foreclosures, and bankruptcies. This company helps individuals rebuild their credit score to good standing which will expedite the process of being able to purchase another home. I suggest all homeowners whether they are thinking about a short sale, currently executing a short sale, or have finished a short sale, to call and get consultation regarding their credit.

Next Post 1/13/12 Friday

Peter

You’ve finally made it through one of the biggest hurdles of your life. You are probably renting or staying with a friend or a relative. You have a ding on your credit score from the short sale and you may be worrying about tax implications from short selling your home. What should you do from here?

After you have finally completed your short sale, it’s time now to set yourself up for a healthy financial future. There are steps that Seattleshortsaleblog highly recommends for those who have completed their short sale and want to rebuild their financial situation and move toward their financial future and a new home.

Part 1 “I’ve completed my short sale. Won’t my short sale be taxable?”

Normally, yes. However, in response to the housing crisis we faced in the last 5 years and are still in, the government produced laws that allow homeowners to exclude discharged debt on their principal residence. This act is called: Mortgage Forgiveness Debt Relief Act of 2007.
How do you utilize this Debt relief act?
In January of the year following the mortgage termination, you will receive a 1099c. Be vigilant for any misinformation on the 1099-C and be especially attentive to the amount of debt forgiven in Box 2 as well as the value listed for your home in Box 7. Attach IRS Form 982 (Reduction of Tax Attributes Due to Discharge of Indebtedness) to your tax return to exclude the debt from taxation.

The Mortgage Forgiveness Debt Relief Act has a Deadline!
The Mortgage Forgiveness Debt Relief Act is set to expire at the end of this year (12/31/12). We are hoping that this act will be extended as short sales and foreclosures are expected to remain at high levels through this year. I have recently called the IRS who notified me of some rumors that there may be an extension to this act. However, the risk is not to be taken lightly. If the act expires and you sell your home after January 1^st 2013, as of now, you will have to pay a substantial amount of taxes after the sale of your home.

If you haven’t began your short sale yet and are still deciding whether you should go through with it or not, be proactive and plan fast because the longer you wait, the worse your situation may become. If you are located in Washington, contact our certified distressed property experts today for more information on options for your home situation. Short sales take approximately 3 to 9 months or more to close. This year would be a prime time to start the process and close the short sale to avoid being taxed on income from the debt forgiven (they deem the debt amount forgiven as income) from your lender.

Next Post 1/11/12 Wednesday

Peter

Once the seller and all other parties agree to the terms on the approval letter, the lender typically gives 30-45 days to close. This is a deadline, not a suggestion although in some cases, you may be able to request extensions.  If it is a HAFA file, the approvals are usually around 60 days and the banks state that there are no extensions (yet to be verified as we have always closed within the deadline).

During these 30 days the parties complete the purchase and sales contract and ownership of the title is transferred to the buyer.

Here are some things to look out for:

• Approvals should be sent to escrow so that the numbers can be verified.  Often, extra money is needed as banks are known to cut fees. For example, they will only pay for $750 of a $1200 title and/or do the same action for escrow.
• Taxes can be prorated. HOA’s can be owed more than allowed (as we submit a number for the HOA in the beginning and months later, more can be owed) – we advise HOA’s to be paid at all times even if mortgages are not.
• Also, sewage capacity charges are rarely paid and are often asked to be paid by buyers.  For these reasons and more you want to be sure Escrow reviews the Approvals for the numbers which will let you know what else may be needed.

Then timelines start from buyer’s receipt of the approval.  Timelines are dictated by the form 22ss. This form includes the agreement that the timelines for items such as the inspections and financing, will begin upon mutual acceptance.  After that, it’s a normal deal and closes as usual.

Short sales may be a long and difficult process to execute. However, once you have finally completed the sale, the financial burden lifted from your life will be worth it at the end. Assuming that you will be renting in the future, you will be cutting a plethora of expenses that come with owning a home which will thus allow you to begin saving and rebuilding credit to purchase your new home. Many who are still in their homes are in a financial rut of perpetual liabilities, debt, and interest. You however will have made a wise move in adjusting to the recession and building yourself up for financial victory in the future.

In my next post, I will provide tips and advice on vital steps to take after completing the short sale.

Next post: 1/9/12 – I completed a short sale. What should I do from here?

Peter

A short sale approval letter is issued by the lender approving the terms of agreement in order to close the short sale transaction. This letter supersedes language written on any other documents. If you have two lienholders, a 1st and a 2nd Mortgage/HELOC, then you will receive two separate approval letters. If the letter is agreeable to the seller, it would be the final agreement between all parties and the short sale transaction may initiate its closing process. Be very vigilant for the verbiage used on the approval letter regarding deficiency.

Approval letters contain the following (and more):

• The acceptable sales price
• Maximum allowable commissions
• Maximum closing costs
• Minimum net proceeds
• Closing date
• Deficiency verbiage (Watch for this. They may omit from letter)

In the approval letter, you want to find verbiage or similar verbiage to, “we release you from all liability and consider this loan paid in full.” However, if the approval letter states “we reserve the right to pursue” then the bank is keeping their right to pursue you for the deficiency.  In the state of Washington, the lender has 6 years to pursue you or they might sell the debt to a 3rd party collection agency.

If there is no verbiage addressing the deficiency, then you could still be liable for the deficiency. This is not good. Make sure you get the proper deficiency release verbiage on the approval letter prior to closing so you may free yourself from future liability completely.

Getting deficiency language removed is not an easy task to do. Depending on various factors such as your agent, the bank, or whether you have a relationship with the decision maker at the bank or not, you may or may not get release of deficiency. Find a great negotiator and you will greatly increase your chances of selling your property on great terms.

Next Post: 1/4/12 Wednesday

Peter

After all the information for the short sale is given to the servicer (short sale package with offer, Brokers price opinion, and all other information) this is when the file is reviewed by the investor. In this period, your negotiator utilizes his/her skills to acquire desirable terms on the approval letter.

The mortgage reduction negotiations period is important because your negotiator will negotiate on your behalf with the lender(s), servicers, and buyer’s agent (essentially the buyer) to obtain a deficiency waiver or a reduced promissory note. This is the most difficult part of a short sale and is a reason why most short sales fall through. As stated in my previous post, there are 5 main reasons why a short sale falls through:

• Impatient Buyers. Inability to maintain a buyer while negotiating with lenders for agreeable terms.
• Sellers lack of quick responses to meet lender’s demands. Banks have stringent rules on all documents being satisfactorily submitted. Organization is a must for your agent.
• 1^st and 2^nd (or 3^rd) lienholder’s not agreeing to terms. All parties must be satisfied before the lenders issue approval letters.
• Inaccurate Brokers Price Opinions. If the lenders expect high compensation for the property, you will lose or will be unable to find buyers.
• Bad negotiators on banks side. Every expert short sale agent has dealt with incompetent servicers who work for the bank. They are underpaid employees that don’t have the motivation or the experience to properly execute a short sale file.

The negotiator must be the best of the best in dealing with these parties involved in a short sale. If you try to execute the short sale with a mediocre agent, it is likely you may not be able to walk away from your property without having unwanted baggage.

If you are located in Washington state and are looking for an agent and negotiator to work with, submit your information here and we will provide you with a free consultation with the best short sale agents in Washington.

Although it is possible to negotiate the deficiency post short sale, negotiating during the short sale would be optimal as you would have your home to use as leverage.

Next Post: 1/2/12 Monday

Peter

As stated in my previous post on the importance of appraisals in short sales, it is pivotal for your property to receive an accurate appraisal for your home. Lenders have rejected short sale offers due to inaccurate short sale appraisals because they believe they deserve more for the property than offered.

After submission of the short sale package, the bank assigns a negotiator to handle your file. The negotiator then orders a broker’s price opinion and/or appraisal for your home to analyze what the fair market value is. This way, your lender can gauge how much they should be compensated for your home.

High appraisals = Not Good

In many cases, the brokers price opinions are inaccurate due to various reasons whether it is an inexperienced BPO agent or shady lenders/investors who try to influence the BPO in their favor (yes, it does exist). If the BPO comes in higher than fmv (fair market value), the lender(s) will expect more $$ from the home. Therefore, you won’t be able to retain any buyers and the short sale file will be open for years and eventually collapse. This is common.

The remedy is contingent upon the agent representing you on your short sale.
It is normal for our team of agents to dispute the value stated by the BPO agent. They not only go on site with the BPO agent with accurate information on home conditions but if the value comes in higher than what it should be, they send in what we call a “Value Dispute Package” which contains several comparable homes in the area as well as a list of reason why the property value should be lower than previously claimed. We have disputed numerous BPO’s which have been one of several determinant factors that has brought much success to our team of agents.

Next Post: 12/30/11 Friday

Peter