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Short Sales Made Easier

If you’re underwater and facing financial distress, Fannie Mae’s and Freddie Mac’s new short-sale-reform policies may provide the help you’ve been looking for.

Even if you are current on your mortgage payments, and never felt that you could qualify for a short sale and principal reduction, you could be in luck.

Short sales allow borrowers and lenders to avoid the crushing costs of foreclosure by bringing in a new purchaser for the house at what is normally a price well below the amount owed to the lender. In a successful sale, the distressed owner receives a write-down of the portion of the principal not covered by the new buyer’s price.

Starting November 1, 2012, owners whose loans have been purchased or guaranteed by Fannie or Freddie may qualify for a short sale if they fit key hardship criteria including:

  • unemployment;
  • divorce;
  • long-term disability;
  • a change of employment that is more than 50 miles from the current home;
  • a business failure;
  • death of the primary or secondary wage earner; or
  • a natural or man-made disaster.

In what could be a far-reaching change, Fannie and Freddie will allow borrowers who are current on their mortgage payments — not seriously delinquent as traditionally required — to qualify for short sales, provided they fit the hardship criteria.

Besides waiving the requirement that borrowers must be behind on their mortgage to qualify for a short sale, borrowers will also be eligible for streamlined processing of short sales, involving reduced documentation and much speedier resolutions than usual.

Under rules that took effect in June, loan servicers already are required to operate on fast timelines for short-sale requests. They are supposed to respond to borrower requests for short sales within 30 days of receipt of an offer by a purchaser, and must give applicants a final decision within 60 days of receipt of a completed short-sale package.

In the past, short sales often have been drawn out and contentious, sometimes taking nine months or more to close. They have also had a high rate of failure and cancellations, when buyers get frustrated and bail out of the transaction after waiting for banks and loan servicers to make decisions and process paperwork.

Banks that hold second mortgages or credit lines secured by the house have been another choke point. As lien holders, they can block the entire transaction if they feel they are not being properly compensated along with the first mortgage holder, and they have frequently blown up deals with their demands. Under the new Fannie-Freddie rules, second lien holders will be entitled to a maximum of $6,000 out of the proceeds of the sale.
The broadening of short sales to those who are current on their mortgage payments but encountering serious hardships could help huge numbers of underwater homeowners. Though the Federal Housing Finance Agency has no estimates of how many borrowers might be assisted by the change, its acting director, Edward J. DeMarco, has said that 4.63 million loans in Fannie’s and Freddie’s combined portfolios are underwater, and that about four-fifths of these are current on payments.

Additional key changes in Fannie and Freddie short sales:
•Members of the armed forces who receive permanent change-of-status orders and are underwater will be automatically eligible for short sales, even if they are current on their loan payments.
•In states where Fannie and Freddie have the legal right to pursue “deficiencies” when short-sale proceeds do not pay off the existing debt, they will waive that right and instead ask borrowers who have sufficient assets or income to make “cash contributions” or execute promissory notes to cover part of the shortfall.

To find out whether your loan is owned by Fannie or Freddie, visit either FannieMae.com/loanlookup or FreddieMac.com/corporate.

Attorney Jared Bellum is a contributing author to this blog.

Eminent Domain – The Government’s Right to Take Your Property

It may be hard to imagine, but that home you worked so hard to obtain can be taken by the government for the benefit of the greater good.  In fact, the power of eminent domain has been a fundamental part our Constitution from the very beginning.  Originally adopted by the American colonies from the common law, James Madison included as part of the Fifth Amendment the premise that “nor shall private property be taken for public use, without just compensation.”  And, if you think about it, there would be no highways, schools, bridges or parks without the ability of our federal, state and local governments to acquire the real estate necessary to make those public projects a reality.  Read more

Do You Know Where Your Real Property Stands?

There are a multitude of strategies to build your wealth, with advice coming from all sides.  Regardless of the strategy you choose to plan your future, like the overwhelming majority of people, the biggest investment you will make in pursuit of your dreams is right under your feet.  If you received legal advice prior to purchasing your home or property, you likely know EXACTLY what you received in exchange for that big mortgage you have been working so hard to pay off (or if you are lucky, have already paid off). Read more

The Sliding Scale that is the Mortgage Crisis

Since the start of the mortgage foreclosure crisis in 2007, the mortgage industry in the U.S. has changed significantly.

And, according to a recent piece in the Wall Street Journal, one of the latest changes being noted is a push by banks for larger down payments on mortgage loans. So the question becomes, does the requirement of more money down equal fewer people buying homes?

Down payments in 2010 are at an all-time high. An online real estate information base, Zillow.com, has been keeping track of median down payments required by lenders since 1997. This year’s median (22 percent of the home’s value) is the highest that number has been since the tracking began. The steep rise in required down payments has been especially rapid within the last five years. Sources report, that the 22 percent figure marks a doubling of the median down payment required from just three years ago. In other words, banks have reacted swiftly and decisively to the turmoil in the housing market.
It seems that lenders have largely driven the push for higher down payments as a reaction to findings that homeowners with more of their money on the line (i.e. those who make larger down payments up front) are less likely to default on payments or go into foreclosure than those with less money at stake. The Journal notes that, because many potential homebuyers cannot afford a 22 percent down payment, there’s been an uptick in applications for mortgage assistance programs designed to help select groups of people.

While owning a home has long been considered part of the “American Dream,” the real estate bubble’s devastating effects on the housing market has left some people questioning whether homeownership is in fact for everyone. In reality, when making the decision to buy a home you must be candid and honest with yourself. The consequence could be dire not only for you, but could have a ripple effect on the rest of your family as well.

Basil Ward is a contributing author to this blog and is currently serving as an intern for the Law Offices of Richard D. Seward.  Basil has been admitted to practice law as a Rule 9 Legal Intern in Washington State.

The New Economy and the Mortgage Crisis

The trouble with paying off the mortgage.

I recently learned of some friends who had paid off their mortgage on their home. In years past, that is not something that I would ever consider to be a risky transaction, but in today’s new economy, you cannot routinely expect that your money will be forwarded to the actual holder of your note, and you cannot expect to routinely receive the original note marked “paid in full” and you cannot routinely expect to receive a Release or Reconveyance of the Deed of Trust.

The problem is that the “note” on your home was likely sold by the originator that retained the servicing rights [1] then assigned to a Sponsor for securities underwriting, [2] and then ultimately to a New York Trust. In this process there was a lot of “double booking” of loans because these transactions were recorded by Mortgage Electronic Recording System (known as “MERS”) which relied on a “person” entering “info” into the system with no checks and balances to make sure the input data was accurate. People have been sued multiple times on single notes and other similar irregularities have occurred. Lastly, there is LPS or Lender Processing Services which is an intermediary between the loan Servicers and the lawyers who bring the legal action on defaults whether by non-judicial foreclosure or suit on the note. [3] One LPS employee recently testified in court that he signed “tens of thousands” of Notices of Default on properties where he had no knowledge that the debtor was actually in default. This is called “robo signing” which is just one factor that has destroyed the credibility of the process.

The lesson in all this is that in this New Economy it is more important than ever to be proactive in protecting your assets.You should not take the advice of a loan servicing employee that recommends that you stop or reduce your mortgage payments while your modification request is pending. The default will trigger late fees and other charges to the Servicer and your payments will be diverted to a suspense account held by the servicer and charged for these fees. They also are able to lend these funds in what are called “overnight loans” for huge profits. The lender will never see the money.


[1] Which is highly profitable and an industry which has come under considerable criticism for its questionable tactics which many say amount to fraud.  Expect more disclosures to surface in this area of the industry.
[2] The assignments were generally not legal under most jurisdictions as these notes are negotiable instruments and need to be endorsed and physically delivered to the endorsee to transfer ownership.  Most of these notes ended up in New York trusts which were used as bankruptcy remote entities to securitize the notes as mortgage backed securities.
[3] The legal process has been sloppy at best as large volumes of cases are handled by a few overworked lawyers that share legal fees (questionable ethics practice) with LPS for the case referrals.  The sloppiness is cause by the system that rates that lawyers based on the volume of documents filed with the courts.

Community property and marriage: who owns what?

Marriage has many implications both personal and financial that should be considered.  One important, yet often ignored consideration is what happens to your personal and real property after you tie the knot.  Most couples operate under the old adage “what’s yours is mine.”  While this may be a good rule-of-thumb for property acquired after you are married with money that was earned after you said “I do,” it doesn’t necessarily apply to ALL property purchased before and after you exchange vows. Read more