The Law Office of David Rocheford, Jr., P.C. » Short Sales

REOs and Short Sales Are Major Causes of Legal Disputes

David — Tue, 02 Aug 2011 16:38:04 +0000

Short-sale disputes were designated as the most significant legal issue facing real estate professionals, according to therecent National Association of Realtors’. In addition, according to a NAR survey, REO agency issues, property condition and RESPA issues are among the the top issues facing real estate professionals today.

Short sales continue to grow as a challenge.

David — Sun, 17 Jul 2011 19:58:32 +0000

Remember a short sale is a desperate measure in desperate times. Desperate people do desperate things. If you are involved in a short sale transaction in ANY capacity cross your t’s and dot your i’s. If the terms sound remotely shady to you, it probably is and the repercussions can be terrible. Make certain that you have good counsel.

http://money.cnn.com/2011/06/28/real_estate/short_sale_fraud_rising/

Another Problem with Short Sales – The Short Sale Flip.

David — Wed, 13 Oct 2010 15:22:04 +0000

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Title insurance underwriters, concerned about the risk in insuring short sale flips have taken a position of not insuring them. Old Republic Title Insurance announced to it’s agents last month that it would no t authorize the issuance of lender or owner title insurance policies on short sale flip transactions.

So what is a short sale flip?

A short sale flip is when a property is purchased by a real estate “investor” from a seller who has negotiated with the current mortgage holder(s) to release the mortgage(s) for less than what is owed, the purchaser of the property then flips, or resells, the property for a profit.

Often the flip is done without the new buyer doing any repairs or upgrades to the property before selling it to a subsequent buyer. Real estate flips are rather common, what is concerning about the short sale flip is that the lender who has accepted a short payoff does not know that the property is valued for more than what was settled for on the flip.

For example a real estate investor finds a homeowner in distress, upside down on their mortgage. The investor negotiates with the homeowners mortgage holder to accept a short payoff. Let’s say the homeowner owes $170,000.00 on the mortgage and the investor negotiates a payoff of $120,000.00, a $50,000.00 shortage (or “haircut,” so to say). The sale takes place the mortgage is paid off and released for $120,000.00 two weeks later the new owner, the investor, sells the property for $145,000.00, pocketing $25,000.00. Sweet deal right? Maybe too sweet, if the lender who took the haircut discovers the facts they may be able to make a very strong argument that they were defrauded.

If lender wins the argument they may be able to pursue the seller, investor and subsequent buyers on a claim of loan fraud. If successful the parties to the transaction have a lot to lose. Loan fraud is a federal offense and an unwitting homebuyer may be out their new home, or at the least a substantial amount of money in the legal cost of defending against the lender.

Seeing the risk of having a lender that has taken a significant loss on a short pay off file a claim of loan fraud, title insurers are not willing to insure short sale flips.

New Foreclosure Alternative Program May Offer Relief to Homeowners

David — Wed, 21 Apr 2010 23:57:52 +0000

The Home Affordable Foreclosure Alternatives (HAFA) program is a part of the Home Affordable Modification Program (HAMP), and offers a streamlined process for short sales and deeds-in-lieu of foreclosure. HAFA will allow homeowners to discharge their first mortgage debt without the credit-destroying step of foreclosure. The program also offers a $1,000 incentive to banks to permit short sales and a $1,500 bonus to homeowners for the purpose of relocation.

The HAFA program has eligibility guidelines:

• The property must be the owner’s principal residence

• The first mortgage must have originated before 2009

• The unpaid principal must be less than $729,750 for a single-family dwelling

• The borrower’s monthly payment must exceed 31% of their gross income

• The mortgage must either be delinquent or a default be reasonably foreseeable.

If borrowers meet the program requirements they will receive pre-approved short sale terms from their lender, which will include a minimum acceptable proceeds figure for the sale. The homeowner will be required to list the property for sale with a Realtor® and close within 120 day, extensions may be permitted up to a total of 12 months.

Based on the short sale agreement with the lender, HAFA requires property owners to be fully released from any future liability on their first mortgage debt, and in some cases, subordinate debts, so that when the home is sold, the borrower is free and clear of their mortgage.

The program ends on December 31, 2012. HAFA does not apply to FHA or VA loans. There is an extensive amount of paperwork to be completed to participate in the program, Homeowners wishing to take advantage of the relief offered are encouraged to work with a experienced Realtor®.

Short Sale Alternatives

David — Tue, 10 Nov 2009 18:19:37 +0000

I was asked recently what the practical alternatives to doing a real estate short sale were. Although evey individual situation is unique and some other alternative may be available here are some of the more common alternatives:

Loan modification – If you want to keep you home but cannot afford the current mortgage terms, you may be able get the lender to work with you to modify the loan terms. This is not an easy process either. You will need to provide much of the same financial information that you provide for a short sale. The lender must be convinced that the modification will be a long term benefit to them and an option that will also work for you. If the lender determines that modifying the loan will only postpone a short sale or foreclosure, they will not likely work with you.

Foreclosure – Foreclosure is the judicial process that the lender will pursue to take ownership of the property in order to sell to cover the amount due on the promissory note. A foreclosure will also dramatically effect your credit and your future ability to borrow, especial for the purchase of another home. If you do nothing about your current situation foreclosure is the inevitable conclusion. If the lender does foreclose and is able to sell the real estate for more than what you owed to them they are required to return the difference to you (after the payment of all of their costs and expenses).

Depending on the circumstances, you may be subject to pay tax on the amount of the deficiency between the foreclosure sale price and the amount owed on the note.

Deed in lieu of foreclosure – This is the process where you would deed all of your interest in the real estate to the lender. This process may also have financial ramifications, and you lose all legal interest in the property. However, this may be one of the simplest alternatives if the lender agrees to accept the deed. In any event be certain that you know all of the facts and how signing a deed in lieu of foreclosure could effect you.

Bankruptcy – This is often the last resort if you cannot sell the real estate and foreclosure is not an option for you. It is possible file bankruptcy and retain ownership of owning your home, but bankruptcy will severely damage your credit for at least seven years and you will not have control of your finances.

Get Professional Assistance -Even if you think a short sale is the right answer for you, and you think you can negotiate the terms and process on your own, consult with you professional advisers beforehand. Speak with a Certified Public Accountant, a REALTOR, a Real Estate Attorney and a Bankruptcy Attorney. Having the right advice can is key to a successful outcome.