Foreclosure Help – Page 4

Why the Appraisal Is So Important In Short Sales

At some point in your short sale process the bank will want to know what the property is worth. They do this by ordering an appraisal, Broker Price Opinion (BPO) or both.

Whether the bank sends out an appraiser or a broker to do a BPO the result of their evaluation will make or break your short sales success. Most banks won’t consider selling the property for less than 85% of the appraised value, some will ask for 90% or above. With that said, it’s critical that the appraisal or BPO comes in at a price that a buyer is willing to pay.

There are a few things that you can do to make sure the appraiser does not give an inflated opinion of value. First meet the appraiser at the property, and walk through the property. This gives you an opportunity to talk to the appraiser and point out any defects of the property. It is also a good idea to bring a few comparable properties they can use for their appraisal. This will save them work and will make sure that they are using realistic comparable properties.

You should also provide the appraiser with a copy of the purchase agreement. Appraisers are used to working backwards. Most appraisals are done for purchases or refinancing, in both of these instances the appraiser will have a target number, they then try and prove that the property is worth that amount. This is why most appraisals come in at the purchase price or very close to it, even if the property is worth more. With that said, the appraiser is more likely to value the property close to the short sale offer if they are aware of the offer.

The most important thing is communicate with whoever is doing the evaluation. Your short sale is almost sure to fail if the bank gets an appraisal much higher than your offer.

Hope for Homeowners: FHA to Provide Additional Mortgage Assistance to Struggling Homeowners.

The President has signed into law legislation that will allow HUD’s Federal Housing Administration (FHA) to continue providing targeted mortgage assistance to homeowners. The Hope for Homeowners program will continue FHA’s existing and successful efforts to provide aid to struggling families trapped in mortgages they currently cannot afford. Under the program, certain borrowers facing difficulty with their mortgage will be eligible to refinance into FHA-insured mortgages they can afford. The program will be implemented on October 1, 2008.

Hope for Homeowners maintains FHA’s long-standing requirement that new loans be based on a family’s long-term ability to repay the mortgage. FHA only allows owner-occupants to be eligible for FHA-insured mortgages. Borrowers must also meet the following eligibility criteria:

Their mortgage must have originated on or before January 1, 2008;
Their mortgage debt-to-income must be at least 31 percent;
They cannot afford their current loan;
They did not intentionally miss mortgage payments; and
They do not own second homes.

Features of FHA-insured loans under the new program include:

30-year, fixed rate mortgage;
Maximum 90 percent loan-to-value ratio;
No prepayment penalties;
$550,440 maximum mortgage amount;
Extinguishment of any subordinate liens; and
New home appraisals from FHA-approved appraisers.

HUD, Treasury, FDIC and the Federal Reserve will form the Congressionally-mandated Board of Directors and work together to establish additional program standards.

Voluntary Lender Participation

FHA will continue to offer lenders an alternative to foreclosing on borrowers. Similar to FHASecure’s recent expansion, lenders will be encouraged to write-down the outstanding mortgage principal balances to 90 percent of the new value of the property. In many cases, reductions in principle will cost lenders less than the losses associated with foreclosure.

Market Stability and Liquidity

By continuing to slow the rate of foreclosures, this program will support FHA’s existing effort to stabilize local housing markets. From September 2007 to June 2008, FHA has guaranteed more than $93 billion of mortgage capital.

Funding

FHA will insure up to $300 billion in new loans. Borrowers will pay an upfront premium of 3 percent of the original mortgage amount and an annual premium of 1.5 percent of the outstanding mortgage amount. Any additional costs incurred by FHA will be reimbursed by Fannie Mae and Freddie Mac.

Program Timeline

The program will last from October 1, 2008 through September 30, 2011. Since September 2007, FHASecure has helped more than 290,000 families obtain safer, more affordable mortgages. FHASecure is on pace to help 500,000 families by the end of the year.

More information at https://www.hud.gov/hopeforhomeowners/index.cfm

Deed-in-lieu of Foreclosure, How Does It Work?

A Deed-in-lieu of Foreclosure is basically giving the house back to the lender. In most cases this will only work if the borrower does not have a second loan on the property. The reason is, you can only give the property to one lien holder and the other lender would not agree to release the lien unless they were to receive some sort of compensation.

There are some advantages for both the lender and the borrower and well as some disadvantages. The benefits to the borrower are you can escape the public notoriety and embarrassment of a foreclosure. In most cases it will release you of the debt from your loan. The benefits to the lender are they get the house back quicker and cheaper than if they were to foreclose.

There are several considerations the lender will go through to determine whether or not they will be willing to take the property back. One is the value of your property. They are going to get an appraisal or a Broker Price Opinion (BPO) to determine the value of the property. If the lender feels that they can sell the home for what you owe then they will consider taking it back. However if the lender is feels the value of the property is less than what they can sell it for then they may ask the borrower to sign a promissory note. Typically there will be no interest on the note and the payments are very low.

Another consideration is how far in default the borrower is. If they have filed a notice of default and they are within 90 days of the scheduled sale date then they are less likely to take the house back. The deed-in-lieu process can take 4-6 weeks for them to approve, at this point they will have incurred legal fees to foreclose and they will be close enough to the sale date so they might as well sell it at auction.

The lender is also going to look at how many non performing loans & REO properties (real estate owned) they have on their books. If the lender is already overloaded with REO properties then they will be less likely to agree to take the property back. In cases like this the lender will encourage the borrower to sell the property either through a short sale or full payoff.

A deed-in-lieu foreclosure is still going to negatively affect the borrower’s credit, but it will be less damaging than a foreclosure, especially if they were not behind on their payments. It could also prevent any further collection attempts from the lender.

For other solutions to foreclosure download our Free ebook “Avoid Foreclosure” written by Bill Parsons & Josh Deknoblough.

Taxation Of Short Sales And Foreclosures

We receive lots of questions about tax liability of short sales and foreclosures. As real estate brokers we are not licensed to give advice on this topic however we can lead you to the information that may answer your questions.

On December 20, 2007 the Mortgage Forgiveness Debt Relief Act of 2007 was enacted. Usually, debt that is forgiven or cancelled by a lender must be included as income on your tax return and is taxable. The Mortgage Forgiveness Debt Relief Act of 2007 allows you to exclude certain cancelled debt on your principal residence from income. More information regarding the Mortgage Debt Relief Act can be found on the IRS website:

https://www.irs.gov/individuals/article/0,,id=179414,00.html

Or the California Association of Realtors has put together an FAQ regarding the taxation of Foreclosures, Deeds in Lieu of Foreclosure, and Short Sales. This is more detailed information and specific to California.

https://www.parsonsrealty.com/parsons_realty/taxes/car_faq.pdf

How Long Do I Have Once I Stop Making Payments?

I get asked this question on a regular basis, and it depends on the lender and your situation. In most cases the lender will not start foreclosure proceedings until you are at least three months delinquent. There are specific steps your lender will have to take in order to foreclose. The first step is the lender records a Notice of Default. This starts the timeline and triggers a number of other steps in sequence. We’ve put together a California foreclosure timeline that explains each step and when it happens.

https://www.parsonsrealty.com/parsons_realty/timeline.pdf

If you are facing foreclosure and have questions about possible options please download our FREE e-book “Avoid Foreclosure”.

https://www.parsonsrealty.com/parsons_realty/avoid_foreclosure/avoid.html

You need to know all your options, so you can make the best decision for you.