Debt/Recovery


Short Sale Tax Issues 2014Tax Exclusion on Short Sales, extended to end of 2014. As in two weeks!

My original post on this matter is here: Income Taxes & Foreclosures/Shortsales 12.21.2007.

See also January 2013’s, Income Taxes & Foreclosure/Short Sales 2013 Update

As you know the tax code had an “Exclusion from gross income of discharge of qualified principal residence indebtedness (Sec. 108)”

…in other words many home owners were not taxed for 1099C income received as a result of foreclosure/short sale.  This exclusion expired 12.31.2103, well, it has been reinstated and extended to 12.31.2014. Good news for the short sale market.

UPDATE 12.24.2014 – Many questions as to when a real estate transaction must close. It must close in the year of 2014 to take advantage of this tax break.   But see these other posts from the I.R.S. which are helpful for non-owner occupied short sale/foreclosure tax concerns.

Ten Facts about Mortgage Debt Forgiveness

IRS publication on how 1099 taxes are calculated, exempt, etc.

IRS explanation as to taxes resulting from Foreclosure and Debt Cancellation.

OTHER SHORT SALE POSTS

7 Tips for Short Sale

Addendum to Short Sale Listing 1.26.2010

Advance Fees Continued and the FTC 1.6.2011

Advance Fees – Short Sales – FTC II 5.4.2011

Charging for negotiating short sales/Negotiators 10.1.2010

Deficiency Judgments Nevada 4.27.2007

Foreclosure and the One Action Rule in Nevada 4.10.2007

HAMP the Federal Shortsale Program coming April 2010

Income Taxes & Foreclosures/Shortsales 12.21.2007

IRS PUBLICATIONS shortsales/foreclosures:

Ten Facts about Mortgage Debt Forgiveness

IRS publication on how 1099 taxes are calculated, exempt, etc.

IRS explanation as to taxes resulting from Foreclosure and Debt Cancellation.

Judicial Foreclosures (Short sales are looking more attractive..) 3.23.2012

Lender Short Sale Approval Addendum

Nevada Home Owner’s Bill of Rights (Foreclosure/Short Sale/Judicial Foreclosure)

Nevada Supreme Court Mandatory Mediation Program and How it Affects Shortsale

Nevada Short Sale Documents

Seller Being Released From Liability Language in Shortsale

Seller Liability After Short Sale 4.20.2007

Short Sale Advanced Fees

Short Sale Addendum to Purchase Agreement October 2010

Short Sales and Bankruptcy and Waiting Periods 10.5.2012

Short Sale – “Dual Tracking” and the Homeowner’s Bill of Rights in Nevada May 2013

Short Sale Junior Lien/Senior Liens Rights To Sue & Other Changes

Short Sale Wallet Size Answer Sheet

Questions? email me darren@dwelshlaw.com

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Happy Birthday Webster The Nevada Supreme Court issued a ruling concerning MERS on Thursday September 27, 2012. Edelstein v. Bank Of New York Mellon, the Las Vegas Review Journal reported it was a “win” for the banks in foreclosure?

What does it mean?  The banks that relied on MERS are allowed to foreclose.  What is MERS?  See below.

  SHORT ANSWER  – MERS (Mortgage Electronic Registration System, Inc.), was confirmed as a proper player in the foreclosure process, and the assignments to and from MERS were upheld. The Court clarified however that the holder of the note and the holder of the deed must be the same. So, to say it is a win for the banks?  I guess you could look at it that way.  Mostly it clarified that at the time of foreclosure, the note holder (lender) and the deed holder (usually MERS) must be the same.  So MERS must assign the deed to the note holder (lender) for foreclosure to proceed.  In this case the note and deed were held by the foreclosing bank, so the Court allowed the foreclosure.

LONG ANSWER – It is obviously more complicated than that, Bank of New York Mellon’s trustee ReconTrust, BNY Mellon’s trustee, physically possessed the note a the time of the Nevada Supreme Court Mediation and used their servicer Bank of America as their representative in the Nevada Supreme Court Mediation Program.  But at the end of the day, the note and deed were held by the same bank and that bank was allowed to foreclose. So, a win for the banks? Not really, another way to look at it is that the banks must, yet again, clean up their paper work and hold both the note and deed at the time of foreclosure. This is not going to cause a landslide of foreclosures. It was not the impediment per se. It will make some mediations in the Nevada Supreme Court program perhaps go smoother.

What is this MERS you speak of centurion? MERS is often the holder of a deed of trust, and it is shown to that effect on the deed.  However, often the rights to the deed are transferred but not recorded at the county recorder. The Court explained MERS in a pretty succinct manner,

Typically, when a loan is originated, MERS is designated in the deed of trust as a nominee for the lender and the lender’s ‘successors and assigns,’ and as the deed’s ‘beneficiary’ which holds legal title to the security interest conveyed. If the lender sells or [transfers] the … [note] to another MERS member, the change is recorded only in the MERS database, not in county records, because MERS continues to [be the beneficiary of record] on the new lender’s behalf. So long as the sale of the note involves a MERS Member, … [t]he seller of the note does not and need not assign the [deed of trust] because under the terms of that security instrument, MERS remains the holder of title to the [deed of trust], that is, the mortgagee, as the nominee for the purchaser of the note, who is then the lender’s successor and/or assign. According to MERS, this system ‘saves lenders time and money, and reduces paperwork, by eliminating the need to prepare and record assignments when trading loans.

In Nevada to perform a non-judicial foreclosure on an owner-occupied residential property …(in other words not a judicial foreclosure NRS 40.430 nor a non-owner occupied foreclosure) the lender must meet certain requirements…

The Court confirmed that to enforce a foreclosure the deed and note must be held together by the same person/entity.  In this case MERS held the deed and note was held by a number of different lenders.  At the time of foreclosure MERS transferred the deed to the current note holder. The Court concluded, that the temporary separation (when one group held the deed and another held the note) was not irreparable or fatal to either the promissory note or the deed of trust. However, if they are not brought together, it prevents enforcement of the deed of trust through foreclosure. The two documents must ultimately be held by the same party.

The Court concluded that when MERS is the named beneficiary and a different entity holds the promissory note, the note and the deed of trust are split, making nonjudicial foreclosure by either improper. However, any split is cured when the promissory note and deed of trust are reunified. Because the foreclosing bank in this case became both the holder of the promissory note and the beneficiary of the deed of trust, proceeding to foreclosure was proper.

More importantly were the three cases before the Nevada Supreme Court this morning, addressing, statute of limitations on short sales, and junior liens and the right to sue borrowers as passed by the Nevada Legislature in 2011.

 Sandpointe Apartments., LLC vs. Dist. Ct. (CML-NV Sandpointe, LLC) Docket No. 59507

Nielsen vs. Dist. Ct. (Branch Banking and Trust Co.) Docket No. 59823

Lavi vs. Dist. Ct. (Branch Banking) Docket No. 58968.

These upcoming decisions will affect thousands of Nevadans that have been foreclosed upon or sold via a short sale.  I will let you know when I hear more.

Questions:  darren@dwelshlaw.com

   I.    Junior (Seconds) Lien Holders  Right To Sue After Short Sale & Foreclosure –  AB 273

READ the entire bill here ===>http://www.leg.state.nv.us/Session/76th2011/Bills/AB/AB273_EN.pdf

There are changes to debt collection as to short sales in Nevada.  This bill has many points, from Seconds to Guarantors.  For real estate sales the major change is effective July 1, 2011.  There are certain restrictions on the ability to recover deficiency at all by Junior Lien Holders of a secured note created after June 2011.  But the 5 star change, is that as of July 1, 2011  junior lien holders (and perhaps senior) have only six (6) months to file suit against a home owner after the foreclosure.

A civil action by the junior lien holder against the home owner after a foreclosure sale of the real property or a sale in lieu of a foreclosure sale may only be commenced within 6 months after the date of the foreclosure sale or sale in lieu of a foreclosure.  This six month rule section applies only to an action commenced after a foreclosure sale or sale in lieu of a foreclosure sale that occurs on or after July 1, 2011.  But that is only foreclosures you ask?  Nope.  It is for short sales also.  A “sale in lieu of a foreclosure” is a short sale.  Sale in lieu of a foreclosure means a sale of real property pursuant to an agreement between the seller and lender in which the sales price of the real property is insufficient to pay the full outstanding balance of the obligation and the costs of the sale.  The short sale (close) or foreclosure (trustee sale) must occur after July 1, 2011.  Then, the Second Lien holder has 6 months, NOT SIX YEARS as was previous rule, to file a law suit for debt collection.  Here exactly what the law says,

A civil action not barred by NRS 40.430 or section 3 of this act by a person to whom an obligation secured by a junior mortgage or lien on real property is owed to obtain a money judgment against the debtor after a foreclosure sale of the real property or a sale in lieu of a foreclosure sale may only be commenced within 6 months after the date of the foreclosure sale or sale in lieu of a foreclosure.”

This Section 3.3 this act apply only to an action commenced after a foreclosure sale or sale in lieu of a foreclosure sale that occurs on or after July 1, 2011.

The explanation of this Section from the Legislature is here —-> Existing law authorizes a creditor under an obligation secured by a junior mortgage or deed of trust to bring an action to obtain a personal judgment against the debtor only if the action is commenced within 6 years after the date of the debtor’s default. (NRS 11.190) Under property securing such an obligation is the subject of a foreclosure sale, a trustee’s sale or a sale or deed in lieu of such a sale, the creditor may bring an action to obtain a personal judgment against the debtor only if the action is brought within 6 months after the foreclosure sale, the trustee’s sale or the sale in lieu of a foreclosure sale or trustee’s sale.

WHAT what does it mean?.  Since the complete ban on debt pursuit only applies to loans from here on, a consumer will not be able to rely on that now.  BUT, what is important is that all short sales (close) and foreclosures (trustee sale), after July 1, 2011, now leave the homeowner exposed for a law suit from the Junior Lien Holder for only six months.  This appears to be both owner occupied and investor.

II.  First Deed Rights To Sue On Short Sale –  SB 414

READ the entire bill here ===>    http://www.leg.state.nv.us/Session/76th2011/Bills/SB/SB414_EN.pdf

There are changes to debt collection as to short sales in Nevada.  The blog – TGIF Legal Tip: FORECLOSURE / DEFICIENCY is now outdated.  Effective June 13, 2011.  Pursuant to SB 414,  an owner occupied seller involved in a short sale, is not liable for a deficiency judgment provided 1.) the obligation secured by a mortgage or deed of trust was created on or after October 1, 2009; 2. ) the debt on the property was used to purchase 3.) the seller continuously occupied the home as her principal residence 4.) the lender approved the short sale and either A) did not mention the amount of money still owed or B) the lender specifically waived its right to recover the amount owed.

What does it mean?  The short sale lender approval is more important than ever.  Obviously if the deficiency is waived, great, but now if the approval does not declare exactly what future monies are owed, the lender is barred from seeking these monies (but only on loans issued since 2009 and owner occupied, personally it really does not seem to cover many homeowners.)

But the 6 star (bigger than 5) question is what about investor short sales?  Is the statute of limitations 6 months or 6 years for first on short sales?  Not clear.  NRS 40.455 which states, “the judgment creditor or the beneficiary of the deed of trust within 6 months after the date of the of the foreclosure sale or the trustee’s sale” must file.  It does not appear that this section was modified.  If this section is modified elsewhere in the law to define “foreclosure sale or the trustee’s sale” to include “short sale” as was clearly done when it comes to Junior Liens, this question will be answered.

***

This is part of my short sale series listed below in alphabetical order:

7 Tips for Short Sale

Addendum to Short Sale Listing

Advance Fees Continued and the FTC

Advance Fees – Short Sales – FTC II

Charging for negotiating short sales/Negotiators

Deficiency Judgments Nevada

Foreclosure and the One Action Rule in Nevada

HAMP the Federal Shortsale Program coming April 2010

Income Taxes & Foreclosures/Shortsales

Lender Short Sale Approval Addendum

Nevada Supreme Court Mandatory Mediation Program and How it Affects Shortsale

Nevada Short Sale Documents

Seller Being Released From Liability Language in Shortsale

Seller Liability After Short Sale

Short Sale Advanced Fees

Short Sale Addendum to Purchase Agreement October 2010

Short Sale Wallet Size Answer Sheet

IRS PUBLICATIONS shortsales/foreclosures:

IRS publication on how 1099 taxes are calculated, exempt, etc.

IRS explanation as to taxes resulting from Foreclosure and Debt Cancellation.

Ten Facts about Mortgage Debt Forgiveness

Questions?  Call me. Darren Welsh, Esq. 702 245 1787  email me darren@dwelshlaw.com or drop me a TPS by filling out this form

There is a new Short Sale Addendum for purchase agreements.  This form which serves to better define the terms of the Short Sale has some new additions and removed some items.

This is a great tool for short sales.

Here are the changes…

Section 1 – now has this language, “Seller understands and acknowledges that lender approval may be conditioned upon any or all of the following: (a) making a cash payment; (b) signing a new promissory note; (c) continuing to owe the lender the unpaid portion of the loan(s); and (d) other requirements made by lender.”

WHAT IT MEANS – Short sales, unlike any other normal sale can result in the Seller having legal liability in years to come.  This can come in the form of collections or even law suits.  This section serves to better warn the Seller.  See my blog on Seller Liability After Short Sale

Section 2 – the Lender Short Sale Approval Addendum has been incorporated into the Addendum.

WHAT IT MEANS – See my explanation of the Lender Short Sale Approval Addendum form by clicking here.

Section 3 – now has the language, “either Party may, in its sole discretion, reject the amended terms required by Lender.”

WHAT IT MEANS – If the Lender changes the terms, for example refuses to pay closing costs from proceeds, any party may cancel.

 

Section 4 – Time Frames, due diligence commencement has been changed to “(1) calendar day after the Parties’ mutual written approval of the Lender Approval”

WHAT IT MEANS – Due diligence commences upon the Parties agreeing to the terms of the Lender.  This is tricky.  If there was no change by the Lender, then this should be when the listing agent informs the selling agent of Lender approval.  If the Lender changes the terms and the Lender Short Sale Approval Addendum is used, then the due diligence commencement is the date of the final signature of the Parties, not the date it was served upon the selling agent.

 

Section 6 – The first right of refusal has been REMOVED!  All subsequent offers are now “back up offers.”

Section 9 – Legal and Tax Consequences has added, “A Short Sale May Have Serious And Adverse Legal, Tax, Credit And Economic Consequences For The Seller. Seller agrees to seek advice from an attorney, a certified public accountant or other qualified professional regarding the legal effect and meaning of a short sale and any Lender Approval.”

WHAT IT MEANS – Short sales, unlike any other normal sale can result in the Seller having legal liability in years to come.  This can come in the form of collections or even law suits.  This section serves to better warn the Seller.  See my blog on Seller Liability After Short Sale

This is part of my short sale series listed below in alphabetical order:

7 Tips for Short Sale

Addendum to Short Sale Listing

Charging for negotiating short sales/Negotiators

Deficiency Judgments Nevada

Foreclosure and the One Action Rule in Nevada

HAMP the Federal Shortsale Program coming April 2010

Income Taxes & Foreclosures/Shortsales

Lender Short Sale Approval Addendum

Nevada Supreme Court Mandatory Mediation Program and How it Affects Shortsale

Nevada Short Sale Documents

Seller Being Released From Liability Language in Shortsale

Seller Liability After Short Sale

Shortsale Wallet Size Answer Sheet

IRS PUBLICATIONS shortsales/foreclosures:

IRS publication on how 1099 taxes are calculated, exempt, etc.

IRS explanation as to taxes resulting from Foreclosure and Debt Cancellation.

Questions?  Call me Darren Welsh, Esq. 702 245 1787  or drop me a TPS by filling out this form.

As you know, there is a Federal “Home Affordable Foreclosure Alternatives Program” (in other words short sales) which is known as “HAFA”

As of June 1, 2010, Freddie Mac  & Fannie Mae (both government sponsored entities or (GSE)) have issued their HAFA programs.

Please see my first reporting on HAFA from 12.09.09 by clicking here ==>HAFA

Is your loan Freddie or Fannie? You can…   Look it Up Here

Here is a break down, the entire rules can be read here for Freddie Mac  & here for Fannie Mae

Freddie Mac

Fannie Mae

Fred Brochure…
 GSE Freddie Mac HAFA Brochure   

Fannie Brochure…
GSE Fannie Mac HAFA Brochure
Fred Effective Date…August 1, 2010, expires December 31, 2012. 

Fannie Effective Date…August 1, 2010, expires December 31, 2012. 

Fred Commission

…from the Short Sale Agreement Real Estate Commissions…
We will allow to be paid from sale proceeds, real estate commissions of _____ percent of the contract sales price, to be paid to the listing and selling brokers involved in the transaction. Neither you nor the buyer may receive a commission. Any commission that would otherwise be paid to you or the buyer must be reduced from the commission due on sale. [Optional text:]  Please note:  We have retained a vendor to assist your listing broker with the sale.  The vendor and your listing broker will work together on your behalf to facilitate the sale process. [Choose one and delete unnecessary text.]  [The vendor will be paid from sale proceeds [$ ________] OR [an amount equal to ____% of the sales price].] OR [The vendor will be paid by us outside of the sales transaction.]

 

Fannie Commission…from the Short Sale Agreement Real Estate Commissions…We will allow real estate commissions as stated in the listing agreement between you and your broker, not to exceed six percent (6%) of the contract sales price, to be paid from the gross sale proceeds to the listing and selling brokers involved in the transaction. Neither you nor the buyer may receive a commission. Any commission that would otherwise be paid to you or the buyer must be reduced from the commission due on sale.  Fees of a third party to negotiate a short sale with the servicer (commonly referred to as “short sale negotiation fees” or “short sale processing fees”) may not be paid from the sales proceeds. 

  

Fred Costs“Borrowers cannot make cash contributions or promissory note obligations to satisfy either the first lien or subordinate liens.” Fannie CostsYou may not charge borrowers any fees for participating in HAFA.”
Fred DeficiencyUpon completion of the HAFA Short Sale or HAFA Deed-in-Lieu all mortgage debts are extinguished.  Fannie DeficiencyThe mortgage lienholder determines in advance the minimum acceptable net proceeds it will accept as a short payoff in full satisfaction of the total amount due on the first mortgage loan. 
Fred Borrower Incentives…$3,000 will be paid to the borrower to help with relocation expenses after a completed HAFA Short Sale or HAFA Deed-in-Lieu.   

Fannie Borrower Incentives…Short sale or DIL – $3,000 to assist with relocation expenses. 

Fred Subordinate Lien Holder Incentives…Six percent of the outstanding unpaid principal balance of each subordinate lien in order of lien priority, with an aggregate total of $6,000 to all lien holders, will be offered in exchange for releasing their liens and satisfying the underlying debts. 

Fannie Subordinate Lien Holder Incentives…Not to exceed $6,000 in aggregate. Each lienholder in order of priority may be paid 6% of the unpaid principal balance of its loan, until the $6,000 cap is reached. 

Fred HAFA Short Sale Documents… HAFA Short Sale Agreement  is the Servicer/borrower agreement that authorizes the borrower to sell the mortgaged property to a third party and have Freddie Mac accept the sale proceeds in full satisfaction of the mortgage…. HAFA Approval of Short Sale, must be completed by the Servicer and sent to the borrower when they consent and approve a borrower’s request for approval of a HAFA Short Sale…. 

HAFA Disapproval of Short Sale, must be completed by the Servicer and sent to the borrower when they disapprove a borrower’s request for approval of a HAFA Short Sale.

Fannie HAFA Short Sale Documents…HAFA Short Sale Agreement  
Defines the terms and conditions of a short sale, including the following:
1. listing agreement, maximum real estate commissions and marketing terms;
2. servicer and borrower obligations and duties;
3. acknowledgement of risks, conditions, and contingencies; and
4. conditions for early termination….HAFA Request for Approval of Short Sale (“RASS”)
Defines the terms and conditions of a short sale transaction acceptable to the servicer and, together with the sales contract, provides settlement instructions to the borrower’s settlement agent….

HAFA Request for Approval of Short Sale without Short Sale Agreement
Must be used when a borrower submits an executed sales contract before the servicer and borrower have entered into a HAFA Short Sale Agreement.

Fred Eligibility…60 days late and have cash reserves less or $5,000 or 3 times their monthly mortgage.Borrowers must have first been considered for a Freddie Mac HAMP .Borrowers may be in foreclosure, in pending litigation involving the mortgage, or in active bankruptcy.

 
 

 

Fannie Eligibility.It’s a handful….read page 3 here===>Fannie Eligibility  

Fred Credit Bureau Reporting…”Servicers must continue to report a “full-file” status report to the four major credit repositories in accordance with the Fair Credit Reporting Act and credit bureau requirements as provided by the Consumer Data Industry Association (CDIA).” 

Fannie Credit Bureau Reporting…”We will follow standard industry practice and report to the major credit reporting agencies that your mortgage was settled for less than the full payment. 

 

Thank you for reading, this is my 100th blog.

Addendum to Short Sale Listing

 

This is a follow up to my November 13, 2009 publication on Seller Protection in a Short Sale.

We have assisted in drafting and published on Ameriforms the new Addendum To Listing Agreement—Short Sale .

This new form serves to better assist your selling client in understanding short sales.  The document was rearranged to allow for warnings and suggestions to meet the professional of their choice in the first section of the Addendum, in stead of the second page where it was before.

Here is condensed break down of the new first page: 

  • Acknowledgement of Short Sale.  The Short Sale is described and the Seller is warned that the Broker has no control over Lender approval and that Lender’s approval may take several weeks or months to obtain. 

 

  • Seller Options. Seller is warned that there may be disadvantages to a short sale, that they should explore other options with Lender (and other appropriate professionals, such as attorneys, accountants, and qualified housing and credit counselors) such as loan modification or revised repayment plan; refinancing with Lender or another lender; bankruptcy; or voluntary deed-in-lieu of foreclosure.

 

  • Consequences of Short Sale.  The Seller is warned that there are legal, tax and credit consequences.  That a short sale may adversely affect Seller’s credit score.  Seller may be required to pay the difference of the forgiven debt as a personal obligation, they may be sued, and may get a judgment against them.  Where a portion of a debt is forgiven the lender may issue a 1099 form to Seller. 

 

  • Foreclosure.  Seller understands that failure to make loan payments during the short sale process may result in foreclosure of the Property by Lender. 

Short Sales & Federal Loan Modification

HAMP – You have heard of “HAMP” (the Obama Administration’s Home Affordable Modification Program), the details of which canbe read by clicking HERE.  Also see the footnote on HAMP below[i]

HAFA – The HAMP program now has a supplement to address short sales.  The Supplemental Directive 09-09 provides guidance to lenders on the Home Affordable Foreclosure Alternatives Program (in other words short sales) which is known as “HAFA” and its details can be read by clicking HERE.

Effective Date – HAFA is effective April 5, 2010, (but participating lenders may elect to implement HAFA prior to this date)

General Terms: 

  • Help
    If your home owner would like to speak with a counselor about this program, call the Homeowner’s HOPE™ Hotline 1‐888‐995‐HOPE (4673). The Homeowner’s HOPE™ Hotline offers free HUD‐certified counseling services and is available 24/7 in English and Spanish. Other languages are available by appointment.
  • Short Sale Agreement
    The HAFA Short Sale Agreement or” SSA,” Exhibit A, pg. 16 of the Directive  outlines the roles and responsibilities of the servicer and borrower in the short sale listing process and provides key marketing terms, such as a list price or acceptable sale proceeds and the duration of the SSA.
  • Price   
    Allows the borrower to receive pre-approved short sale terms prior to the property being listing.
  • Commission  (Read Carefully)
    Commission is semi-protected.  The Seller cannot earn a commission, nor can a Buyer.  It does prohibit the reduction in the real estate commission agreed upon in the listing agreement, but also allows the Lender to “retain vendors to assist your listing broker with the sale, and this vendor must be paid ____% [or $____] from the commission.”  So ensure you look over the Short Sale Agreement between the Lender and the Seller to know what this cost is.  Supplemental Directive Page A-5.
  • Release of Liability
    Requires that borrowers be fully released from future liability for the debt.
  • Release of 2nd Deed Liability
    This section is called the “Investor Reimbursement for Subordinate Lien Releases,” and declares that lenders may pay up to a total of up to $3,000 in short-sale proceeds to subordinate lien holders (2nds), or allow payment of up to $3,000 to subordinate lien holders.  Subordinate lien holders that receive payment must release their liens and waive all future claims against the borrower.
  • Cash For Keys
    Borrower entitled to an incentive payment of $1,500 to assist with relocation expenses to be reported on the HUD-1 Settlement Statement.
  • Arms Length Transaction
    Home cannot be sold to anyone who is related to the home owner nor to anyone who has a close personal or business relationship with the homeowner.  Seller cannot get any portion of commission (even if home owner is licensed).
  • 90 Day NO Flip
    Any buyer of the home must agree to not sell the home within 90 calendar days of the date it is sold.

HAFA Consideration/Requirements

  • Lenders will create a written policy for when it will offer the HAFA program to borrowers.
  • Borrowers must first apply for HAMP prior to the short sale HAFA being offered.
  • The property must be borrower’s principal residence.
  • Loan must be originated on or before January 1, 2009.
  • The mortgage must be delinquent or default is reasonably foreseeable.
  • Unpaid principal balance may not be more than $729,750 (different for duplexes)
  • The borrower’s total monthly mortgage payment must exceed 31 percent of the borrower’s gross income.

Time Frames:

  • SSA Offer to home owner by Lender.
    Lender to consider borrower for HAFA within 30 calendar days of the date the borrower requests a short sale.  Lender to notify the borrower in writing of the availability of HAFA option and allow the borrower 14 calendar days from the date of the notification to contact the servicer by verbal or written communication and request consideration under HAFA.
  • Days to Close Escrow.
    Home owner has120 calendar days from the date of the offer of HAFA to home owner to close escrow on the short sale.
  • Response Time By Lender.
    Offers submitted at the list price to the Lender (with a letter that the buyer is approved for a mortgage loan) will be responded to within 10 business days of lender’s receipt, provided the these documents are within the terms and conditions of SSA (and any other liens are released) the Lender will approve the sale.

 What Should You Do?

  • Work with your Seller to get the bank’s written policy of HAFA for your client’s particular lender.
  • Work with the 2nd Mortgage (if it exists) to determine if they are on board with HAFA.
  • Gain the pre-approved short sale figure from the Lender.
  • Read the SSA that the lender will be providing borrower,  Exhibit A, pg. 16 of the Directive
  • Ensure the Addendum to Sort Sale dictates that the terms of the Lender within the SSA are agreed to by the Buyer as to the 90 day “no flip rule.”

 


[i] Home Affordable Modification Program: Overview  The Home Affordable Modification Program is designed to help as many as 3 to 4 million financially struggling homeowners avoid foreclosure by modifying loans to a level that is affordable for borrowers now and sustainable over the long term. The program provides clear and consistent loan modification guidelines that the entire mortgage industry can use.

Borrower eligibility is based on meeting specific criteria including:
1) borrower is delinquent on their mortgage or faces imminent risk of default
2) property is occupied as borrower’s primary residence
3) mortgage was originated on or before Jan. 1, 2009 and unpaid principal balance must be no greater than $729,750 for one-unit properties.

After determining a borrower’s eligibility, a servicer will take a series of steps to adjust the monthly mortgage payment to 31% of a borrower’s total pretax monthly income:

  • First, reduce the interest rate to as low as 2%,
  • Next, if necessary, extend the loan term to 40 years,
  • Finally, if necessary, forbear (defer) a portion of the principal until the loan is paid off and waive interest on the deferred amount.

Note: Servicers may elect to forgive principal under HAMP on a stand alone basis or before any modification step in order to achieve the target monthly mortgage payment.

The Home Affordable Modification Program includes incentives for borrowers, servicers and investors.

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