Short Sale Blog

The homeowners in Renton were under severe financial pressure. One had been laid off, and the other had been diagnosed with cancer.

They owed $377,000 on their first mortgage with PHH, and $125,000 on their second mortgage with Sound Credit Union. (Read the entire Case Study here).

While owing over $500,000, the best offer on their home only came in at $349,000. This would only allow them to pay $308,000 to PHH and $6,350 to Sound Credit.

PHH issued an approval letter for the short sale - but that short sale approval letter did not explicitly waive the sellers of having to repay the $69,000 deficiency balance. And that’s where our lawyer came in.

Our attorney wrote a letter to PHH’s short sale negotiator, requesting that they reissue the short sale approval with a full written deficiency waiver. She informed them that if the deficiency waiver was not issued, there were only three possible outcomes:

• the sellers would file for bankruptcy, and PHH would end up with the property and nothing else,
• the sellers and PHH would move into mediation pursuant to WA’s Foreclosure Fairness Act, where PHH would have to either show that the beneficiary of the promissory note would have a higher financial return owning the home in foreclosure with no right to collect the deficiency rather than accept the short sale proceeds currently being offered, or
• the sellers would terminate the short sale, and PHH would own the home in foreclosure with no right to collect the deficiency balance

Since Washington is a non-recourse state, a foreclosing first lien-holder can only take title to the property; they may not collect on the promissory note. So any of the three outcomes above would end up with PHH owning the property (and then taking on all of the costs associated with foreclosure, and marketing and selling the property) and with no right to collect the deficiency balance.

PHH saw the light. As more and more lenders are realizing, in most cases lenders make more money from a short sale (and they make it more quickly) than they do from foreclosing. PHH reissued the short sale approval letter, clearly stating “deficiency waived” (page 1, point #3) - not only a better solution for our Renton homeowner, but also a better solution for PHH.

If you are a homeowner, and would like to learn more about short selling your home, please go to: http://seattleshortsales.com/homeowners/

If you are a real estate agent, and would like to learn about our no-fee short sale service, please go to: http://seattleshortsales.com/agents/

This Everett, WA, homeowner avoided foreclosure through a short sale. She owed over $294,000 on her Seterus mortgage. But the purchase offer on her home was for only $125,800 - not even half of what she owed.

Seterus has issued their approval letter for the short sale, accepting $111,500 net proceeds on the sale - for a discount of $182,500.

This means that this Everett homeowner paid off only 38% of the amount due on her Seterus mortgage - and the best news is that the short sale approval letter waived her of ever having to repay that deficiency balance!

You can read the Seterus short sale approval letter here: 4.19.12_Seterus_1st_Lien_183k_Deficiency_Debt_Settled_Short_Sale_Approval.pdf

If you are a homeowner, and would like to learn more about short selling your home, please go to: http://seattleshortsales.com/homeowners/

Good news on the national front regarding mortgage payment delinquencies - but, as usual, the Seattle area and Washington state seem to be lagging behind the national trends.

According to a new report by TransUnion, as published in the Silicon Valley Mercury News, the percentage of homeowners who are 60 or more days delinquent on their mortgage payments dropped in the first quarter of 2012. The nation-wide delinquency rate is now at its lowest level since 2009.

But that drop is small. The national delinquency rate was 5.78% for the first three months of this year - down from 6.19% a year ago. Before the housing crash, the delinquency rate was about 2%, and it peaked at nearly 7% in late 2009.

Throughout this housing crisis, though, Washington state seems to lag behind national trends. As the national delinquency rate declines, there are only eight states where the delinquency rate is still increasing: we in Washington are one of those eight.

The regions that were hit hardest and earliest by the financial crisis and high foreclosure rates are showing very strong signs of recovery. A report published this week by HousingWire, using figures published by Move Inc., lists the regions that show the “top turnarounds.” These are the towns showing the highest level of housing market recovery, as reflected by declining inventory and increasing house prices. Those top turnaround towns include Phoenix-Mesa in Arizona; Orlando, Florida; and Oakland and San Jose in California - all of which have already been hit hard by foreclosures.

We are confident that Washington state and the Seattle real estate market will also follow those same trends and see recovery in the housing market. We just seem to continue to be a year or two behind the national trend.

As delinquency rates are still on the rise here, homeowners who are struggling to make their mortgage payments will continue to look for solutions such as short sales, in order to avoid foreclosure and the negative affects that mortgage payment delinquency will have on their credit rating.

If you are a homeowner, and would like to learn more about short selling your home, please go to: http://seattleshortsales.com/homeowners/

If you are a real estate agent, and would like to learn about our no-fee short sale service, please go to: http://seattleshortsales.com/agents/

Two different groups that compile data on the housing market have released reports this week that indicate that short sales have now surpassed foreclosure sales in America.

Lender Processing Services (LPS), as reported by Bloomberg on Tuesday, indicates that in January, short sales accounted for 23.9% of home purchases. By comparison, 19.7% of sales were foreclosures that month. A year ago, only 16.3% of home sales were short sales, and 24.9% were foreclosures.

And Realtor Mag reports similar numbers released by RealtyTrac, which indicate that short sales increased by 33% from January 2011 to January 2012. Short sales increased over that period in 32 states.

These numbers reflect the reality that a short sale is often the best solution for both homeowner and lender, when the homeowner finds himself or herself “under water” - where they owe more on the mortgage than their home is currently worth, and are struggling to make their monthly mortgage payments.

Daren Blomquist, vice president at RealtyTrac, told Realtor Mag that he believes that 2012 could be a record year for short sales. With short sales on the upswing, and lenders working at shortening their response time for short sale requests, we think so too!

If you are a homeowner, and would like to learn more about short selling your home, please go to: http://seattleshortsales.com/homeowners/

If you are a real estate agent, and would like to learn about our no-fee short sale service, please go to: http://seattleshortsales.com/agents/

Under direction from the Federal Housing Finance Agency (FHFA), Freddie Mac and Fannie Mae have issued new guidelines to their loan servicers about minimum response times for short sales. Starting June 15th, servicers will be required to provide a response to a short sale request within 30 days of receiving a completed Borrower Response Package requesting short sale consideration, or of receiving a purchase offer.

In cases where a decision has not been reached within 30 days, the servicer may take an additional 30 days to reach a decision - but they must notify the borrower within the initial 30-day time limit that the case is still under review. They must also then provide weekly status updates that include an explanation of why the decision is still pending.

These guidelines apply regardless of whether the short sale is being processed through HAFA or through Freddie’s or Fannie’s own short sale program.

Servicers also must promptly acknowledge receipt of documents. They must acknowledge to the borrower that they have received the Borrower Response Package within 3 days. If any items are missing from that package, they must inform the borrower of that within 5 days of receiving it.

These guidelines are similar to those proposed in Senate Bill 2120, which, if passed, would require lenders to make a decision on a short sale request within 75 days, with a possible extension of a further 21 days. Senate Bill 2120 has so far been read twice and referred to the Committee on Banking, Housing, and Urban Affairs.

The majority of conventional mortgages are backed by Freddie and Fannie, so their stricter guidelines (of 30 to 60 days) will apply to most short sales. Although the guidelines come into effect on June 15, servicers are encouraged to start implementing them as soon as possible.

If you are a homeowner, and would like to learn more about short selling your home, please go to: http://seattleshortsales.com/homeowners/

If you are a real estate agent, and would like to learn about our no-fee short sale service, please go to: http://seattleshortsales.com/agents/

A revision of Senate Bill 6337 (companion to House Bill 2718) was passed last month. The aim of the bill is to protect homeowners who short-sale their homes from being pursued by their lender for the deficiency.

The deficiency is the shortfall owed to the lender after a home is sold short. For example, if a homeowner owes $200,000 on their mortgage but, following the short sale, can pay the lender back $120,000 on the loan, the difference - $80,000 - is the deficiency.

This bill sounds great in theory. But, for the majority of homeowners who process their short sale here through Seattle Short Sales, Inc., this bill will make no difference at all.

Why? Because the majority of our approvals - in fact 93% of all short sale approvals we negotiated last month - already come with a clear wording that waives the homeowner of ever having to pay back the deficiency. Our homeowners already have the protection that this bill would offer.

The new bill applies only to short sales for which the lender has issued a Form 1099 to the borrower: the homeowner to whom the debt was forgiven. Lenders are required to issue a 1099 any time that they forgive a debt of over $600. This means that the borrower must declare the forgiven debt, and they may have to pay tax on it as if it were income. It also means that the lender may write off the bad debt as a loss, which means that they may get a tax break on that loss.

So, really, what Bill 6337 does is prevent a lender from both writing off the bad debt as a loss, and also pursuing the borrower to pay back that debt. They must choose one option or the other. (Which - really - should be the case for whenever a 1099 is issued, not only in the case of short sale deficiencies).

And that seems only fair.

But, as we pointed out, 90% or more of our recent approval letters already specify that the lender will not pursue the deficiency. Here are some sample stats showing how our track record of obtaining deficiency waivers with short sale approvals has increased over the past two years:

 

(A quick point here, in case you were wondering why we’ve only shown stats for a few months over the past two years: We could not afford the time to go through all of the hundreds of short sale approvals we have negotiated over that time period. So we used the March 2010 and March 2011 stats, which we had already gone through for our blog post on deficiency waivers. And then, starting last July, we changed our file-naming system so that whether the deficiency was waived (“Debt Settled”) or not waived (“Lien Release” only) is in the file title, so we selected the two months at the beginning of that period as well as the last two months. You can review our complete short sale approval letter database here).

So two years ago, back when the majority of short sale approvals did not explicitly waive the deficiency, this bill might have made a difference. But now that lenders have realized that short sales are in their best interests, too, and are willing to write into their approval letters that they will waive the homeowner of ever having to repay the deficiency… well, Bill 6337 won’t do anything. They have already said they will not pursue the deficiency.

For the minority of our short sale approval letters where the lender does not explicitly waive the deficiency… well, even then, Bill 6337 will not change much. According to the wording of the bill, the lender is only prevented from pursuing the deficiency if they have issued a 1099. But if they don’t issue that 1099, again, the bill won’t prevent them from chasing borrowers up for that deficiency down the road - or to selling that loan on to debt collectors.

The take-away here is that the protection for homeowners who are considering a short sale is that Bill 6337 will not likely protect you. Your security lies in the wording of your original approval letter. Make sure that the negotiators who are working on your behalf work towards clear and unambiguous wording about waiving the deficiency balance - and then you will know that your future is safe, Bill 6337 or not.

If you are a homeowner, and would like to learn more about short selling your home, please go to: http://seattleshortsales.com/homeowners/

If you are a real estate agent, and would like to learn about our no-fee short sale service, please go to: http://seattleshortsales.com/agents/

Last Thursday, a new Senate Bill was introduced by Sen. Lisa Murkowski (Republican) of Alaska. Senate Bill 2120 would require lenders to make a prompt decision when a borrower makes a written request for a short sale.

We have found that times for loan servicers to process short sales have improved considerably over the past several years. In many of our cases, once we have a purchase offer in hand and have submitted the necessary financial and legal documents to the servicer, we are now receiving decisions from lenders within just a few weeks.

But we also see cases where lenders or servicers drag these cases on and on. They misplace paperwork, or claim that they have never received the paperwork. And they frequently change negotiators on us in the middle of the case - meaning that we must make contact with someone new mid-transaction, and then wait for that person to get up to speed with the file. In these cases, our case managers often end up spending weeks, or longer, making repeated follow-up phone calls to the lender, simply to make sure that someone over there is paying attention to the case!

What Bill 2120 will do is provide limits on lenders’ response time. It will give lenders up to 75 calendar days, following receipt of a request from the borrower (in writing) to short sale the home that secures the loan. Lenders must, within that time period, either approve, or deny, or approve with specified changes, the short sale request. Lenders may also, within that time period, extend their decision date by up to 21 calendar days - but they may only do this once.

An interesting angle to this Bill is that it outlines the compensation a lender must pay a borrower if they fail to respond within that timeline: lenders must pay the borrower $1000 per violation, plus reasonable attorney’s fees, or “such higher amount as may be appropriate in the case of an established pattern or practice of such failures.” Although a homeowner would have to file a court action in order to receive this compensation, hopefully the simple fact that this law exists would be enough to encourage lenders to meet those timelines.

Another bill, which was introduced nearly a year ago to expedite short sale requests, has made it only as far as the committee level. House Bill 1498 proposed that, if a lender did not respond to a short sale request within 45 days, that short sale would automatically be approved.

On the whole, the length of time for approval of short sales is improving. The majority of our short sales are approved in well under the 75 days that this bill specifies. However, Bill 2120 would help in pushing along those few lenders who do still drag their feet when dealing with short sale requests.

If you are a homeowner, and would like to learn more about short selling your home, please go to: http://seattleshortsales.com/homeowners/

If you are a real estate agent, and would like to learn about our no-fee short sale service, please go to: http://seattleshortsales.com/agents/

A report released this week by Lender Processing Services indicates that the delays for lenders to process foreclosures have reached record highs.

As of the end of June, this year, there were 4.1 million home loans across the nation that were either greater than 90 days delinquent, or in some stage of foreclosure.

Of the 2.2 million loans that are in some stage of foreclosure, the average homeowner has not made a payment on that loan in a record 599 days.

And of the 1.9 million loans that were 90 or more days delinquent, 42% of the homeowners had not made a payment on over a year, and the average delinquency was more than 13 months - also a record.

The rate of foreclosure starts is three times the rate of foreclosure sales - which means that the number of homes in some stage of foreclosure is growing.

This backlog, due to lender delays in both initiating and processing foreclosures, does not bode well for the future of the housing market. The high number of homes that have not yet entered foreclosure means that the foreclosure numbers right now are artificially low. And it means that, once lenders catch up on their paperwork, these homes will move into foreclosure and the foreclosure rate will then become even higher.

However, the backlog does present an opportunity for delinquent homeowners who have not yet been foreclosed upon. These processing delays essentially buy them time to find other alternatives for settling their debts - such as negotiating a short sale.

If you are a homeowner, and would like to learn more about short selling your home, please go to: http://seattleshortsales.com/homeowners/

If you are a real estate agent, and would like to learn about our no-fee short sale service, please go to: http://seattleshortsales.com/agents/

California is one of the states that has been most affected by the housing bust and foreclosure crisis. Over the past year, close to one half of home sales state-wide are sales of distressed properties. In some parts of California, the numbers are even worse: last month, in Madera County, 86% of home sales contracts accepted were for distressed-property sales.

A new move by members of the California Association of Realtors (CAR), as reported by DSNews today, may help to streamline short sales for homeowners across the country.

California, like Washington, is a state that implements non-judicial foreclosure. This means that lenders can pursue foreclosure without going through the courts. Foreclosure is initiated by mailing a defaulting borrower a notice of foreclosure.

CAR recognizes that short sales are important to clearing out the inventory of distressed properties, and that short sales will continue to be important in the coming years. But they are concerned that some of the requirements that lenders have in processing short sales may hold up future transactions. So CAR has sent letters to many of the major lenders, including JPMorgan Chase, Citigroup, Bank of America, and Wells Fargo, with recommendations for streamlining the short sale process. These recommendations include:

• asking lenders to disclose whether or not they actually own the original loan
• asking lenders to disclose who has the finally authority to approve a short sale (e.g. the lender or the investor or some third party)
• requesting that lenders implement a standard process to pre-approve a request for a short sales before a property is listed for sale
• asking that lenders increase the amount that junior lenders may receive from a short sale, as second mortgages often hold up short sale approvals.

Although this request is coming from CAR in California, if the lenders approve CAR’s requests, this will help to further speed up the short sale process across the country. The number of short sales continues to grow nationwide. Short sales now account for 25% of residential property sales - up three times from two years ago.

If you are a homeowner, and would like to learn more about short selling your home, please go to: http://seattleshortsales.com/homeowners/

If you are a real estate agent, and would like to learn about our no-fee short sale service, please go to: http://seattleshortsales.com/agents/

Well, we already knew that. But some interesting numbers were published yesterday by the HousingWire, showing that short sales are the best option to cut losses - not only for distressed homeowners, but also for their lenders.

It has been clear for a few years now that short sales are the best option for many underwater homeowners, and we have written about the growth in short sales. In theory, loan modifications will allow homeowners to keep their homes. In reality, however, most loan-mods end in failure. They are either tied up for so long in paperwork that they never become permanent, or the new payments are so high (sometimes even higher than the original payment!) that many homeowners redefault within 12 months of negotiating their loan-mod.

Short sales provide a homeowner permanent way out of a home mortgage that has become unaffordable. What has changed in the last few years, though, is that we used to have to work hard to get a lender to agree to a short sale. However, in the last year or so, lenders and loan servicers have started to realize that short sales are often the best way for them to cut their losses too! In fact, many of the major lenders have actually become proactive about suggesting short sales to their delinquent borrowers, even offering financial incentives to homeowners who complete a short sale.

Yesterday’s report puts some hard numbers to the stunning growth of short sales:

• Two years ago, short sales accounted for 8% of distressed property sales. That number has grown by over three times: today, 25% of distressed property sales are short sales.
• As of the middle of this year, the average time it took to complete an REO property sale was 17 months, while for a short sale it was only 12 months. (By the way, our track record of short sale completion here at Seattle Short Sales, Inc., is much quicker - most of our short sales are approved within 1 to 3 months of submission).
• As of the middle of this year, servicers’ losses on REO sales average 70%, whereas for short sales they average less than 60%.

The HousingWire report also mentions the long-term advantages for homeowners who avoid foreclosure by completing a short sale. Borrowers’ FICO credit score can drop by as much as 400 points following foreclosure, whereas a short sale will typically cost them only 50 to 200 points. And borrowers who complete a short sale may be eligible for a new mortgage in one to two years, whereas those who have been foreclosed upon may have to wait five to seven years.

Additionally, at Seattle Short Sales, Inc, we have a strong track record of negotiating a waiver on the deficiency balance for our homeowners: this means that they are cleared of ever having to pay back the shortfall on their mortgage repayment following the short sale. Currently, well over three quarters of the short sales that we negotiate for our clients are coming with full deficiency waivers.

If you are a homeowner, and would like to learn more about short selling your home, please go to: http://seattleshortsales.com/homeowners/

If you are a real estate agent, and would like to learn about our no-fee short sale service, please go to: http://seattleshortsales.com/agents/