At the end of last year, with homeowners on pins and needles, the government extended the Home Affordable Foreclosure Alternatives (“HAFA“) program through December 31, 2013. This was great news for homeowners that had pending short sales or who were looking to get into a short sale at the beginning of the year. Now, as we approach the middle of 2013, this looming deadline is NOT what is threatening the end of short sales. It is the rise in property values and the shortage of inventory.
While many homeowners are still underwater with their mortgages, and owe more than the properties are worth, this is estimated to be less than 50% nowadays. That means, many homeowners that believe that the home is worth less, are coming to realize once a BPO (appraisal by the short sale lender holding the mortgage) is completed, the value is higher than the homeowner believed, or the price of the contract. This is fine if there is only one mortgage, but if there are two, now the short sale option is no longer a possibility, because the loan with the first lender is not underwater.
Certainly, costs that the short sale lender pays at closing, such as realtor commissions, documentary stamp taxes and other closings costs come into play and reduce the net the lender is receiving, but the short sale is no longer guaranteed. Second mortgages usually always accept ten percent (10%) of the unpaid principal balance and will agree to erase their loan. Specially if the property is owner occupied, the majority of the second mortgages will write off their balance and cancel the deficiency, so the homeowner walks away not owing a penny after closing. The borrower must make sure the short sale approval terms are carefully reviewed and negotiated before signing any document that ties them into a bad deal.
It is now common practice for second lenders to file suits coming after the borrowers post closing for deficiency balances that should have been negotiated and cancelled at closing. This is where the services of a savvy real estate attorney, with significant short sale and negotiation experience comes in.
When values become an issue, the appraisal must be reviewed along with any other mitigating factors such as repairs to the home, insurance issues, permitting, liens, etc. to drive the price down. Then there is the legally binding short sale approval letter with legal terms and consequences, including IRS tax penalties, which again, makes sense to only have a real estate lawyer review and advise.
We are seeing more and more lenders rapidly approve short sales, but one must make sure that the negotiator doing the leg work knows exactly how to submit the package and negotiate the deal through closing. Another important factor on these short sales, is negotiating the incentives. Many borrowers are not aware that even if they have not paid their mortgage in years; even if they are delinquent on their loans; even if they have not paid the association, even if it is not their primary residence, they are entitled to numerous Short Sale Incentives in the form of cash from the lender.
Bank of America, for instance, offers between $2,500.00 and $30,000.00 in relocation and moving assistance to eligible short sellers. They even offer the tenants money to help with relocation when it is not owner occupied.
Chase has offered sellers up to $35,000.00 at closing. This is available on certain loans not only held and owned by Chase but serviced by them as well. Sellers with Fannie Mae or Freddie Mac backed loans are not eligible.
Despite all these numerous incentives, many lenders simply do not give them. It is up to the real estate attorney handling the negotiation on behalf of the seller/borrower to request them and fight for the bank to pay them.
The VA Department of Veterans Affairs also offers a Compromise Sale program that provides up to $1,500.00 in incentives to its veteran borrowers with VA-guaranteed loans. Whether you are a homeowner that is losing your home in foreclosure, or a realtor that has a client that is in the same predicament, we are here to help.
At The Law Offices of Jacqueline A. Salcines, PA, I, Jacqueline A. Salcines, Esq., a real estate attorney and accountant, welcome the opportunity to sit down with you, analyze your situation and provide sound advice. Call us for a free, no obligation consultation. 305 | 669 | 5280
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