The Right Loan Modification Help

     Imagine for a moment that your wallet, purse, or handbag was stolen from your car. All of your personal and credit information was included in the “transfer” of ownership: your multiple IDs, social security card, home address, credit cards, spare house and car keys; everything. Now, you have some work to do. You need to cancel your credit and membership cards and get new ones, set up a credit monitoring or credit security service to lock credit activity, change the locks on your doors, go to the DMV and get a new license, dig through family photos for replacements, get a new cell phone and replace all your contacts, programs, music, etc. Getting your life back together is going to take awhile. You’ll be on hold for hours, talking with hapless bureaucrats, minimum-wage-earning call center human robots, jumping through hoops, providing documents to people who either don’t get them or lose them, and standing in line at the DMV.

     Processing a loan modification is a lot like this, only much worse. Whereas a dedicated and persistent person could recover from stolen personal effects in a few weeks at most, negotiating with a lender on a loan mod, short sale, or deed in lieu of foreclosure routinely takes months, and can take over a year. Real estate attorneys, agents, and short sale processors who have experience in dealing with lenders and negotiations on behalf of homeowners are not surprised by this; they expect it. They spend their days on hold, taking copious notes, demanding to speak to supervisors, “expediting” the process, verifying paperwork, and pushing through to the ubiquitous “next level” in the process. This is their job, and in most cases, they are paid well for it.

     There are now hundreds of businesses and “servicers” clamoring for the distressed homeowner’s attention, offering “help” with their foreclosure troubles. I get many of them myself, and I’m not even “distressed,” at least not about real estate! Needless to say, there are many scams being perpetrated on homeowners, and care should be taken. Selecting the right company, attorney, or agent to help you can be daunting and anxiety producing. The following are some tips when shopping for loan mod help:

Be Wary of Paying Money Up Front

     If possible, look for an agreement that provides payment if, and only if, the loan modification is completed on a permanent basis. It should be understood however, that this is a very labor intensive process, and there is no real guarantee of success. The company that worked on your behalf for all those months will likely want compensation if, in spite of all their best efforts, your modification is denied. Remember, there is risk involved for both the homeowner and the processor, and that risk can and should be negotiated, or shared. Perhaps you could work out a deal where only half the fee is due up front? Be very cautious about paying in full up front, with a promise of “your money back,” if the loan mod fails. Some suggest that you insist on paying with a credit card, so that charges may later be disputed if something goes wrong.

Make Sure the Processing Charges Appear on the HUD-1

     When and if the lender agrees to a permanent modification, new loan documents will have to be generated and executed by the borrower, the lender, and the Trustee (in AZ). This will usually happen at a title company, where the documents will be notarized, filed with the county recorder, and distributed to all parties. A regular HUD-1 or “Closing Settlement Statement” will be issued for the transaction. The party who processed your loan modification should be listed on the HUD-1, along with their attendant processing fees. You would then bring that fee to the closing table to as your cost for “settlement charges”.

Make Sure the Processor Understands the Process, and Can Explain

     Make sure that whoever you choose has a plan or strategy in place for fully educating you on the process. Whether this means they meet with you in person or on the phone, or send you a flow chart, graph, or handbook, you should be aware of milestones, what is coming up next, and where you stand with the over-all process. Someone with a good “bedside manner” is what you’re looking for here, as you are in trouble, and you need to feel confident that the process is under control by a competent professional.

Make Sure Communication Lines Are Clear

     You will need to have open lines of communication with your processor. They will have questions for you, and will need you to deliver documents to them periodically. The best practice is email communication, as it is an excellent way to keep records of who said what when, and what documents were sent and when. If you have the ability to scan and email documents through email, you should also do this. The documents will be attached to their original emails, and saved in the system. This is record that you have complied with all pertinent information and data requests. If you have to, use a fax machine for documents, and keep the “Transmission Record” of your having sent it. Only hand-deliver or mail documents as a last resort, and only if they are certified (i.e., someone has to sign for them on the other end). Bottom line: keep neat records of communication and documentation sent.

     Your communication lines will also keep you up to date on the progress on your file. You should receive weekly updates, in writing. This should be a log of all activity on your file. Good processors keep notes on a “transaction” or “processing” form of some kind. Any time they have a conversation with your lender, send some document, or make a call to any third party, the conversation is recorded in this log. You want an updated copy of this log each week. The log should show that the processor is contacting your lender at least once per week, what your lender said, what your lender wants, what the hold up is, etc. Depending upon your level of comfort, you may ask for this document, along with a call to discuss it, on a designated day and time each week.

Make Sure You Check for Experience and References

     You should ask any potential processor what type, and how much, experience they have with loan modifications, how many of their loan mods have been successful versus unsuccessful, and whether they can provide a list of potential references for you to call. You might also visit your local BBB web site to look up the company’s history. Sometimes, a simple Google search with “[Company Name] Scam” is sufficient to root out trouble makers. If there are several Web sites, Blogs, or news stories connecting the word “scam” with the company or person you have selected, well. . . I’ll leave you to your own judgment.

Moving Forward

     If you decide to hire someone to help modify your mortgage, follow the above guidelines to minimize your exposure to scams and ensure the best professional selection. Also remember, there are no guarantees that your loan modification will be successful. If you would rather complete the process yourself, in our next installment we’ll provide guidance and best practices for going it alone.

Free Loan Counsel Available Now!

By Phone: (602) 499-4798

or by Email: therealtybutler@gmail.com

*Disclaimer: We DO provide loan counseling services to our clients, but we NEVER charge the homeowner money. Please also remember: I am NOT an attorney, and neither do I play one on TV or the Internet. None of these pontifications should be construed as specific legal advice. If you need specific legal advice regarding your personal situation, give us a call. We can help you ourselves, or provide a list of housing counselors that are free! 

Arizona Short Sale Process

TRANSCRIPT:

PART II: Pre-foreclosure Options (SS Overview)

Hello Again, and welcome to The Butler Blog. As always, I am your intrepid host, Allen Butler, managing director of TRBLLC and agent of West USA Premier Properties.

Today we’ll continue with our series on pre-foreclosure help for Arizona families. Last time, we talked about loan modifications and the problem with negative equity. Let’s review that for just a moment:

Remember, if you want to stay in your home, you can either bring your account current, or you can modify your loan to make it more affordable. Loan modifications are a personal choice that should be taken cautiously, and with an eye to the future. Also remember, the payments will go up again, and you may be in the home for quite awhile.

Now, for those who can’t keep their homes there are other options to minimize foreclosure damage. Today, we’ll deal with one option, and that’s a short sale.

A short sale is nothing more than selling your home for less than you owe the lender. You are asking the lender to allow you to do a “short payoff” or short sale on the home.  Here is an example.

If you owe $250,000 to your lender on your home, and you can no longer pay, you can get permission from your lender to place your home on the market at the current fair market value and find a buyer.

In Arizona, negative equity is tremendous, and it’s not uncommon for a home like this home to be listed on the open market for $120,000. Once an offer is secured, this offer is submitted to the borrower’s lender, and the lender agrees. They’ll allow you to sell it for $120,000.

However, there is still $130,000 left on the loan balance. What will happen to this “extra debt” you owe the lender? Many times, the debt is simply forgiven and written off by the lender. Of course, there is more to this, as there are lots of legal, credit, and tax pitfalls to look out for. We’ll deal with those in future episodes, but remember, these are serious topics for qualified professionals.

The question begs itself at this point: why would a lender do that? Why wouldn’t they just foreclose on the home and sell it themselves? It’s a good question, and one that we’ll answer in a moment, but first: why would a HOMEOWNER do a short sale? What are the benefits to THEM?

First, for homeowners facing foreclosure, a short sale can

1.) Minimize credit damage resulting from foreclosure

2.) Avoid a foreclosure on credit and/or public records.

3.) Make the foreclosure process less disruptive to personal life.

4.) May allow the borrower to make a new home purchase much quicker.

Now, as to why a lender would do a short sale, it helps to understand the inner workings of the foreclosure process from the lender’s perspective, and it’s ALL about money and finance.

1.) First a lender has to spend LOTS of money to remove a homeowner from their home.

2.) Second, lenders will have to spend thousands on maintenance and holding costs.

3.) Third, lenders can SEE what a home is worth TODAY, but cannot know what the home will be worth later. If prices continue to fall, lenders will lose even more money.

4.) Finally, every time a lender forecloses on a family, it causes further depreciation of the market and THEIR OWN loan portfolios.

A short sale actually benefits both homeowners AND lenders, and is probably the best idea if you simply can’t stay in your home. Let’s take a look at eligibility requirements.

1.) First, any homeowner who has a verifiable hardship can pursue a short sale.

2.) Second, the home has to have negative equity to pursue a short sale.

These really are the ONLY two requirements to pursue a short sale. However, how a short sale is processed and how it works is considerably more complex. One of the most serious complexities is the tax, legal, and credit considerations. Let’s look at those briefly.

1.) Sometimes, due to special circumstances with second lien-holders, insurance companies, or a HELOC, the homeowner may be asked to contribute to the loss, either up front, or with a promissory note.

2.) For some, the Mortgage Debt Forgiveness Act of 2007 may not protect them from having to pay taxes on the discharged debt from the lender.

3.) In rare cases, the lender may demand that the homeowner waive their rights under the Arizona Anti-Deficiency Statutes.

4.) The credit damage arising from mortgage default can also be substantial in cases where short sale processing is anything but “short,” and drags on for almost a year.

These are SERIOUS potential consequences, and you absolutely MUST protect yourself.
1.) First, always talk to trained, certified, professionals about your specific circumstances.

2.) Seek a real estate agent with short sale experience, and at least 3 short sale references from clients with completed short sales.

3.) Know and understand the tax and deficiency laws in your state.

4.) Never pay anyone for help. Almost ALL reputable loan counselors and short sale agents DO NOT charge ANY fees to the client, ever.
Now, this has been a brief overview of the short sale, and in our next installments, we’ll break down short sales even further. Next time, we’ll deal with verifiable hardship, and the immediate actions to take when hardship comes.
Please, if you have questions or concerns about loan modifications, I encourage you to call our offices, or simply send an email. We are always here to help. Also, remember, these broadcasts are just my own personal opinions. The things I say should NEVER be construed as specific legal, credit, or tax advice. If you have questions regarding your specific set of circumstances, I encouraged you to call my offices, and also to seek the appropriate professional counsel.
Until Next time, this is Allen Butler, Managing Director of The Realty Butler LLC, and agent of West USA Premier Properties, signing out.

Arizona Loan Modifications vs Negative Equity

TRANSCRIPT: PART II: Pre-foreclosure Options (Modification)

Hello again, and thank you for joining us today at the Butler Blog. As always, I am your host, Allen Butler, Managing Director of The Realty Butler LLC and agent of West USA Premier Properties.

Before we get started, let me remind our audience again regarding pre-foreclosure options: there are really only two; you can work it out so you can stay, or work it out so you can leave. Today, we’ll discuss your options for STAYING in the home, and there are two: either rectify the loan, or modify the loan.

Now, before we get too far ahead, I want to go back for just a moment here and pull the timeline of foreclosure, and review the “Action Zone” for homeowners. Remember, the quicker you call for help, the more options you’ll have. And, you’ll feel better knowing that a plan is in place for dealing with the problem.

Now, the reason for you loan “delinquency” is very important, because it determines your options in dealing with the foreclosure. There are two reasons for delinquency.

One reason is Hardship. This can be any number of things, from death to divorce to illness to military or job transfer. Notice that these “certifiable hardships” are something over which the homeowner has little or no control.

The other reason for delinquency is Strategic. This is where homeowners CAN pay their mortgage, but simply don’t want to because the house is too far “upside – down.” Whether fortunate or not, there is no help for people who have the money to pay, but choose not to.

Now, if you have a verifiable hardship, you have two options to STAY IN YOUR HOME:

1.) First, you can bring your balance current. If your hardship was temporary, or you have some way to come up with the money to clear the back payments and fees and continue the payments, you CAN get yourself our of foreclosure, right up until the home is sold at auction. Obviously, this will not be an option for many.

2.) Your only other option to stay in the home is to request a loan modification from your lender. Let’s examine these loan mods, and how they work.

Earlier this year, the US Treasury Dept issued the Home Affordable Modification Program or “HAMP” for short. The program has guidelines to determine eligibility for a loan mod, and it identifies four methods of doing loan mods. We’ll deal specifically with HAMP, as 85% of all mortgage servicers in the US use it, or a program like it, to modify loans.

Now, the primary goal of HAMP is to make loans more “affordable,” and it identifies an affordable mortgage as one that is not more than 31% of monthly net income.

It is important to note that all modifications are on a trial bases for 90 days, and if the payments are made in full and on time, and all requested documents are provided to the lender, the modification will be “locked in” for 5 years.

In order to be eligible for HAMP

1.) You have to either already be behind on payments, or in a position where your ability to make payments is about to stop.

2.) You must also have a certifiable hardship, as discussed previously.

3.) The loan must have been written BEFORE January 1st 2009

4.) Second mortgages and Home Equity Lines of Credit are NOT eligible for this program. The Dept of Treasury is currently working with investors and industry trade groups to develop ways to include second lien-holders into the program.

5.) Finally, your loan balance cannot be greater than $729,750

If you are eligible, your loan can be modified in up to 4 ways:

1.) Most loan modifications are done by lowering the interest rate. Rates can go as low as 2%. At the end of 5 years, the rate will go back to either your original rate, or the Freddie Mac 30 year fixed rate at the time of the modification, whichever is lower. If a rate adjustment is NOT sufficient to reach 31% of your monthly income, the lender can next adjust the term of your loan.

2.) HAMP says that lenders can extend and re-amortize loans for up to 40 years. However, many loans are sold in packages to loan servicers using “Pooling and Servicing Agreements”. These agreements usually will not allow servicers to extend the term of only one loan within the pool.

3.) Now, if lowering your mortgage rate and extending your term are not enough, lenders CAN do principle “forbearance.” This means that a portion of the mortgage will be “lopped off” and placed into an insulated “bubble”. You won’t pay any interest or principle on this portion for a while, but that amount is still attached to the mortgage, and the entire amount is still owed.
4.) The final modification is “principle forgiveness”. This means that a portion of your loan is again, lopped off, but this time, it’s entirely forgiven and “disappears”. Of the 1700+ permanent loan modifications made under HAMP so far, only 5 were achieved by principle reduction. In other words, the chances of this happening are SLIM.
Now, this highlights a problem.

Let’s talk about that for a minute.

I mentioned in our first installment that negative equity was a large part of the foreclosure crisis. Now, in comparing the problems of negative equity and unemployment against the programs in place to combat this foreclosure crisis, we see that these programs may simply delay the inevitable.

Let’s do a simple example for an Arizona family in trouble with their mortgage.

So, this family bought a home in 2005 for $250,000, and the monthly payment is $1,887 per month.

Now, hardship comes, the mortgage is modified, and the new payment is only $1025 per month. Now the family can afford their home. Remember, the family still owes $250,000 on the house. The fact of the matter is, right now, the home in question is really only worth $100,000 TOPS.

Now, let’s fast forward. In year 6, the loan interest rate goes back up. Is the family making more money now, so they can afford the re-adjusted payment? If not, they’re in the same boat they were in 5 years ago. But that’s only part of the problem.

Remember, the family still owes close to $250,000 on the home, and it was only really worth $100,000 at the time of the loan modification. If any life change forces a move, you’re in the same place you were in 2007; upside down, in a big way.

What will the real estate market look like in 2017? Who knows, but I’ll ask you, the viewer: how many years do YOU think it will be before home values in Arizona DOUBLE from what they are now, so these people can sell if they need to? My professional instincts say it’ll be PLENTY longer than 5 years. It’s already been 4, and the problem seems to just keep rolling along, impervious to efforts to stop it.

See, the bottom line is, loan modifications are a personal family decision regarding the home, and families should definitely proceed with caution. Also, be sure to keep an eye toward the future when planning your long term strategy. Remember:

1.) Your payment WILL go up again. IF you can afford to make the new adjusted payment, you’ll live happily forever after.

2.) You may be living in the home well, “forever after”. . .
Now, please listen, and listen carefully: I AM NOT advocating that Arizona homeowners should decide against a loan modification. What I AM saying is: do not jump in blindly, thinking that a loan modification will resolve the underlying issues. And remember that for the remaining 97% of the country where home prices have NOT crashed and burned, a loan modification may be exactly what those families need. They may have a very good expectation that they’ll be able to recover the equity they need to sell their homes again in 5-7 years.
Please, if you have questions or concerns about loan modifications, I encourage you to call our offices, or simply send an email. We are always here to help. Also, remember, these broadcasts are just my personal internet ramblings. The things I say should NEVER be construed as legal, credit, or tax advice. If you have questions regarding your specific set of circumstances, I strongly encouraged you to seek the appropriate professional counsel.

In our next installment, we’ll cover the SHORT SALE, what it is, who can do one, and why they would do one. Until then, if you have questions or concerns regarding your personal pre-foreclosure situation, I encourage you to contact me. My staff of highly trained and certified mortgage default specialists is always ready to take your calls or emails.

Until Next time, this is Allen Butler, Managing Director of The Realty Butler LLC, and agent of West USA Premier Properties, signing out.

Arizona Foreclosure Process

Transcript:

Hello and thank you for joining us today at the Butler Blog.  As always, I am your host, Allen Butler, Managing Director of The Realty Butler LLC and agent of West USA Premier Properties. Today I want to examine some of the issues and strategies involving loan delinquency, mortgage default, and foreclosure affecting Arizona’s families.  

   For nearly everyone being affected by this foreclosure crisis, the foundation is almost always negative equity and financial hardship: If financial hardship comes, and you can’t sell the house because it’s “upside down,” you are likely about to stop, or have already stopped, paying your mortgage. This is when the process of foreclosure begins.

     It is absolutely critical that you know the process and timelines of delinquency, default, and foreclosure, and what your options are in dealing with them. The entire foreclosure process starts with your first missed payment. Let’s take a look at the timeline.

When you miss your first payment, you will likely start getting all kinds of communication from your bank. They want to know where their money is, and if you can’t bring your payments current very quickly (usually within 30-90 days), a “notice of default” will be issued.

The Notice of Default is a legal notice filed by your bank, indicating they have notified the courts that you are seriously delinquent on the loan. This notice also indicates that if you do not clear the delinquency within 90 days, the property will be scheduled for public auction.

When the home is scheduled for public auction, a Notice of Trustees Sale will be posted on the home itself, and filed with the courts. This notice identifies the place and time of the trustees’ sale, the loan servicer and/or legal office pursuing the sale, and the homeowner against whom this action is being taken. The auction date for the trustees’ sale is usually 30 to 90 days after the posted notice date. When and if the property is sold at auction, it now belongs to someone else, usually the lender who filed the action. 

The next step in the process is eviction. Once the home has transferred ownership at the trustees’ sale, the new owner is going to take possession. Sometimes, the lender will contact the occupants of the home, and offer a “Cash for Keys” deal in exchange for leaving the home within 15-30 days. If the occupant is uncooperative or not able to be contacted, a forcible detainer action will be filed, and eviction proceedings will commence.

Now, it is absolutely vital that you understand your “Action Zone.” This is the time during which you can act to contain and mitigate the damage to YOURSELF, your family, your credit, and your future. The Action Zone starts before you even miss a payment, and ends just a few weeks after the Notice of Trustees Sale. It is during this time that you absolutely need to contact someone for help with your situation, as there are several programs in place by lenders, and federal and state governments to help.

In our next installment, I’ll discuss these foreclosure prevention programs, how they work, who can do them, and who should do them. Until then, if you have questions or concerns regarding your personal pre-foreclosure situation, I encourage you to contact me. Both myself and my staff of highly trained and certified mortgage default specialists are always ready to take your calls or emails.

Until Next time, this is Allen Butler, Managing Director of The Realty Butler LLC, and agent of West USA Premier Properties, signing out.

Arizona Loan Modifications: Right for Arizona Families?

In our previous discussion of Arizona Loan Modifications, we discovered what a “loan mod” is, who can do one, and the process of doing one. This time, we’ll look at the pros and cons of actually doing one. Most of the clients who call our offices asking about loan modifications end up not seeking to do one. Why is that? If you can get an affordable new mortgage, and you can stay in your home, why wouldn’t you? Let’s take a look.

 The Case for Loan Modification

     A loan modification will be just right for many Americans, and can indeed save their homes from foreclosure, if “the price is right.”  The key consideration for these people is the level of price declines in their area or city. You see, only about 7 states have foreclosure “crises,” and of those 7, only 4 are causing most of the trouble (AZ, NV, CA, FL). If you live in any of the rest of the 96% of the country, the chances that a loan mod will work for you are pretty good. Let me explain.

    If you live in Cedar Rapids, Iowa, your home has definitely decreased in value over the last 3-5 years, but the price declines were fairly mild, and in fact, home prices INCREASED 1.8% from 2007 to now. Therefore, if you have negative equity in your home, it is likely to be not quite as severe. For example, let us assume that you bought a home Cedar Rapids for $200,000 in 2005. Chances are good that your home is still worth about $175,000 to $185,000. Result: you’re not upside down by a “prohibitive” amount. The loan modification in this case will make your payments more affordable for 5 years. Because of the relatively shallow negative equity, you will likely not have a problem selling your home in 5 years when the loan begins adjusting upward again.

     So, what if you DO live in one of the 7 states where prices have declined up to 54%. Does this mean that you can’t do a loan modification because have too much “negative equity?” Absolutely not, as there are no negative equity restrictions to participation in the program. The question is not whether you CAN, but whether you SHOULD.

The Case Against Loan Modification?

     According to the Congressional Oversight Panel that regulates loan modification programs, loan modifications are probably NOT going to help families with tremendous amounts of negative equity, or families who default because of job loss. For obvious reasons, you can’t modify a loan if you lack sufficient income. But, what about negative equity? Why would this cause a problem for loan modification?

     Let’s use another example, and this time, we’ll apply greater negative equity. If you live in one of the handful of states with the most severe foreclosures, it is likely that your situation looks something like this:

a.)    Bought house for $400,000 (First mortgage balance of $387,000, possible second?)

b.)    Homes just like yours are now worth $197,000.

c.)    You now have approximately $182,600 in “negative equity”.

You now do a loan modification of your interest rate (as occurs in 97% of cases), and as a result:

                                       1.) Old Payment: $2575 p/month

                                      2.) New Payment: $1750 p/month

                                       2.) This modification is in force for five (5) years.

Sounds fabulous, right? Maybe, but this is where practical reality sets in as people contemplate the future:

The Facts:

“I have a new, affordable mortgage payment.”

“I still owe my lender $387,000, plus some late charges, etc.”

“My house is still only worth about $200,000.”

“My loan is going to readjust in five years.”

 The Burning Question:

“Will my home double in value  in 5 years, so I can actually sell it if I have to?”

     This last is what causes many to decide NOT to do a loan modification. They are reasoning, and quite soundly unfortunately, that there is no way their home is going to almost double in value within 5 years. Not only are prices projected to fall for most of 2010, even if they stopped falling and began to rise again (using an optimistic rate of increase of 10% per year), it will still take almost 10 years before the negative equity is wiped out.

     You can see the problem: five years from now, there is a likelihood that you’ll be in exactly the same position you are in now. Your mortgage payments will start to increase again, while the situation at large hasn’t changed much, if at all. To make matters worse, your credit score has likely already taken a hit due to your current troubles. So, just when you’ve got your credit built back up, you’re faced with the negative equity problem again.

     Now, please understand, I am NOT advocating that you dismiss a loan modification as a possible solution to your mortgage troubles. You just need to be fully aware of what your true situation is, and what it needs to be in the future for a loan modification to actually solve your mortgage/housing problem. Many families, when they discover the real situation, decide that a loan modification is simply delaying the inevitable, and it is preferable to just “cut the losses now”. Cutting your losses now is becoming a strong mindset for many borrowers.  These homeowners reason that it is better to get rid of the ridiculously over-valued home (either through foreclosure, a deed in lieu of foreclosure, or a short sale), take a credit hit, and start life over. It’s like pressing the “reset” button.

     These “strategic foreclosures” are absolutely on the rise among many homeowners. Of course there is an ethical and moral consideration to this, but practical economic reality often overtakes the struggling homeowner. Provided that they do not actually go to foreclosure, and instead work with their lender to do a deed in lieu of foreclosure or a short sale, they WILL be better off. Consider: our latest research shows that the average borrower who conducts a short sale or deed in lieu of foreclosure within 5 months of default will suffer a 175 – 225 pt drop in their credit score. These same people are reporting that they are qualified to purchase a home again within 2-3 years.

     The practical reality is that, if you move quickly to expedite the transfer of the home to someone else (the lender or another buyer), your credit damage is fairly manageable. Furthermore, this leads to the positive conclusion that homeowners are much better off dumping their over-priced homes and just buying another home later. Not only will they probably save lots of money on a rental each month, but their credit scores will rebound fairly quickly, enabling them to purchase a newer, cheaper home, WELL BEFORE their old home would have appreciated to the level of the old mortgage. This is hard to argue with, as it makes both economic and common sense. 

     When the Congressional Oversight Panel reviewed the efficacy of the government’s programs to save families from foreclosure, they were extremely concerned. Their skepticism is valid indeed. The foreclosure programs in place now DO NOT address the issue of job loss, or of homeowners who simply decide that staying in the home makes no economic sense. To the extent that these problems continue and increase, well. . .use your imagination. But only for a few minutes; it will lead to anxiety and depression ;>)

Free Loan Counselors Available Now!

By Phone: (602) 499-4798  or by Email: therealtybutler@gmail.com

*Disclaimer: Please always remember: I am NOT an attorney, and neither do I play one on TV or the Internet. None of these pontifications should be construed as specific legal advice. If you need specific legal advice regarding your personal situation, give us a call. We can help you ourselves, or provide a list of housing counselors that are free!

Arizona Loan Modifications: What Are They, and Who Can Do One?

*In this first part in the series, we’ll cover what a loan modification is, and who is eligible. Please keep in mind that if you have lost your job, or have extremely limited income, you probably will not qualify for a loan modification. You must have income in order to pay any loan, even a modified one. If you are in this category, help may be on the horizon. For now, please start with our Help with Arizona Short Sales and Foreclosure series. Next time, we’ll look at the pros and cons of doing a loan modification. 

Part II in this Series: Is a loan mod “right” for Arizona Families?

The Rise of “The Loan Mod”     

 Until just this last March, if you couldn’t afford your home, you had little choice but to allow the lender to foreclose, or try to do a short sale. In other words, you were moving; there were no options to stay in your home. Now, in an effort stop foreclosures and stabilize the economy, the federal government has created some programs to enable you to stay in your home and avoid foreclosure by modifying the terms of your current mortgage. 

     There are currently four federal programs to make mortgage modifications available to the public: HARP (Home Affordable Refinance Program), HAMP (Home Affordable Modification Program) HOPE for Homeowners, and the FDIC’s Mortgage Modification Program for IndyMac.  Of these four programs, only HAMP has made any real progress in modifying mortgages. The other programs do not have broad lender participation, and the guidelines are too strict for many borrowers.

     The Congressional Oversight Panel (who oversees these programs) in their review released in October 2009,  reported that 85% of all servicing lenders are either participating in the HAMP program, or have programs of their own that are comparable. For this reason we will focus exclusively on HAMP, as this is how most people will modify mortgages. HAMP modifications are made on a 3 month trial basis first, and if you make the new payments and provide all documentation that your lender requests, your loan modification will become locked in for five years. After the five years, your loan will gradually revert to either your original loan interest rate, or the Freddie Mac 30-year fixed rate at the time of your modification, whichever is less. (The Freddie Mac rate is currently around 5%.)

How Does A Loan Mod Work? 

     How is a mortgage modified to make it more affordable? First, we have to define “affordable.” For the purposes of this plan, the government has determined that a monthly mortgage payment that is 31% or less of your monthly income is affordable. If your monthly mortgage is more than 31% of your monthly income, it is not. In order to reach this 31% affordability level, lenders can make several changes to your mortgage. Before we get to the actual modifications that can be done, we must first advise of a few key points of the program.:

-Lower your interest rate to as low as 2% for a period of up to 5 years.

           *After 5 years, your loan rate goes up again. This is the method used in almost all modifications. The average modified loan rate goes from 7.58% to 2.92%.

-Extend the term of your loan, or re-amortize, for up to 40 years

          *Most lenders are not doing this for two reasons, 1.) an interest rate reduction will usually work to reach the desired 31%, and 2.)  most lender’s Pooling and Servicing Agreements (PSAs) will usually not allow them to modify  loan lengths.

-Principal Forbearance

     *A portion of your loan is “lopped off” and placed into a “bubble” that you don’t pay any interest or payments on. This portion of your loan is due “later”. This is very rare.

-Principle Forgiveness

     *A portion of your loan is again “lopped off,” but this time, it’s forgiven. It’s gone. This is not only rare, it’s an anomaly: of the 362,348 borrowers placed into HAMP loan mods, only 5 had principal forgiven.

   Who Can Participate in The Loan Mod Program?

   So, does anyone who can prove that their mortgage is more than 31% of their monthly income get a loan modification? How do the government and lenders determine who is eligible? The eligibility requirements for HAMP are fairly simple, but also prohibitive for some:

#1.) You must be in default or be in imminent danger of default.

     *Default is defined as “behind on payments,” and in order to be eligible, you must have either already stopped making payments, or demonstrate that your ability to make payments is about to end.

#2.) You must have a certifiable hardship

     * You must be able to explain why you now CAN’T pay your mortgage, whereas you COULD before. Did you lose a job? Get divorced? Get ill? These reasons and others like them are certifiable hardships.

#3.) Your loan has to have been issued prior to January 1^st, 2009

#4.) Only 1^st Mortgages are eligible under the program’s guidelines

     *2^nd loans or home equity lines are not eligible (Treasury is working to include these.)

#5.) Mortgage balance cannot exceed $729,750

* If a review of your finances indicates that 55% or more of your income is servicing consumer debt (credit card, mortgage, etc), enrollment in a credit counseling program is mandatory for program participation.

 What’s To Come:

While mortgage modifications will be a ray of hope for some homeowners in distress, many more will either not qualify for a modification, or will choose not to do one. Why would an Arizona Homeowner NOT do a loan mod?

Part II in this Series: Is a loan mod “right” for Arizona Families?

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By Phone: (602) 499-4798, or 

By Email: therealtybutler@gmail.com

*I am not an attorney, and neither do I play one on TV or the Internet. This article  should NOT be construed to impart specific legal recommendations or advice to ANYONE. If you have questions regarding your specific set of circumstances, please call our office, or contact an attorney. (Our Office: 602-499-4798)

Arizona Short Sales: Shorty “The Short Sale ‘Expert’”

In Arizona right now, we have two kinds of homes selling. Those that are in the foreclosure process, and those that have already gone through the process.  My own anecdotal evidence suggests that these are really the only two types of listings that are selling. There undoubtedly are a few (very few) homeowners who have both the equity and the stomach to price their homes in line with foreclosures, and are selling. What does this indicate? What it has always indicated: if you price the home to sell, it will sell.  In June (remember June? It was just a few days ago), 5265 homes sold. That means that there ARE people buying homes. And those numbers are actually very good compared to January, where only 2471 homes sold. Literally, home sales have very close to doubled in the last few months.  This great news leads me to my next point: the pricing of short sales in Arizona.

As an agent who handles both short sales and lender owned homes, I see the following scenario played out on a weekly basis.  I get a call from a lender indicating that they want me to sell a home for them that they have just “taken away” from some unfortunate homeowner.  When I go into the data systems to examine the property, about half the time I find the subject property is actively for sale still as a short sale. Needless to say, the short sale didn’t work for those poor people. I immediately find out why though, and it’s not pretty. A ficticious conversation will illustrate nicely:

Me: “Hi. I was calling about your listing at 12345 W. Elm St.”

Shorty the “Short-sale expert”: “Yes! That property is still available. Would you like to see it?”

Me: “Actually, I have seen it. I met your nice homeowner, and informed him that he needs to leave the home. It doesn’t belong to him anymore.”

Shorty: “That’s news to me! Who are you anyway? Do you work for the bank?”

Me: “That’s right. I do work for the bank. It appears that your short sale effort has not paid off. The lender has taken your client’s home away.”

Shorty: “And you are the lender’s new listing agent?”

Me: “That’s correct. I’ll need you to cancel your listing, and remove your sign and lockbox from the property. Also, you may want to help your client find a new place to live.”

Shorty: “The short sale negotiator from XYZ Bank told me that if the home went to foreclosure that they would give me the listing to sell for them.”

Me: “Uh. . .you might want to call that person back and see what they say now. Sorry about the confusion. Good luck to you. . .”

Now,  what does this conversation illustrate? A few things, actually, none of them good for the poor homeowner who lost his home to the bank. First, the fact that Shorty tried unsuccessfully to complete a short sale over a period of six months strains the bounds of credulity. How does one fail at short sales? By over-pricing. Same as any other failed home-sale attempt.  A home will simply not sell if it’s over-priced. Doesn’t matter if it’s a short sale, foreclosure, builder spec home, or traditional sale. If it’s over-priced it won’t sell.  Period.

Second, it seemed to me that Shorty the short sale expert had more hope of getting the REO listing from the  lender than he did of completing the short sale.  Can you spell F-I-D-U-C-I-A-R-Y? In a nutshell: you place the client’s needs needs above your own. Period. 

Let’s look at the home in question. The short sale was listed at $249,500. When the bank called me to sell the property for them, they asked me what I thought it was worth.  I did my research, and determined that the home was worth $150,000, tops. The lender (not having any emotional attachments, simply wanting the home sold) agreed with my assesment, listed the property at $147,900, and had it sold within two weeks. 

Seems like common sense, doesn’t it? So how did Shorty miss this? The short sale listing sat on the market for 6 months, without having had a price reduction once. Wouldn’t the lack of people going to see the home have been one clue? How about other properties selling all around this one for far less? A second clue perhaps? Or how about the fact that the lender kept calling asking for an offer on the property? Where was Shorty? Did he go on vacation? What was he telling his client this whole time? I don’t know. It was frustrating for me to see. And now, I have to kick this poor guy out of his house!

Bottom line? You MUST price your short sale to actually sell! My own policy? Price it at what you think the market will bear. If you don’t get an offer in the first two weeks, drop the price. Repeat and rinse. Price drops every two weeks until sold. Works every time. See, here’s the thing: if I can’t sell it for a certain price, the lender won’t be able to either. Whatever the price is that someone’s willing to pay, they’ll pay whether its for sale as a short sale, lender owned, or owner sale.

This scenario is further complicated by one salient fact, and the fact that drives the entire short sale process: the only reason to do a short sale is to salvage your client’s credit. Every month that your client misses a payment is another “ding” to their credit. The longer it takes, the more damage your client suffers. You pricing their property above what someone is willing to pay is simply destroying your client’s credit! Don’t do it.

Short Sales For Agents–Multiple Offers?

So,

As the short sales go rumbling along in our various real estate markets, a question has arisen, and the answers are varied and contradictory. The question is: how do I, as the listing agent, handle a multiple offer situation on a short sale?

Make no mistake, however you decide to handle it, people are going to be upset. It’s just like any multiple offer situation. There are winners, and losers. There are essentially two views of how to handle this scenario with short sales. We’ll assume for the sake of clarity, that these multiple offers come in, not all at once, but successively, over a period of a few weeks.  If they all come in at once, it’s a no-brainer. Your seller chooses the highest and best offer, with the most likelihood of passing lender scrutiny. However, even if a bunch of offers come in, and you pick the best one, another one is probably going to come in after this initial flurry, and what are you going to do with that one? Suppose it’s higher than the highest and best you have in hand?

One group of agents will simply take the next offer that comes in, and submit it to the lender also. If any offers come in, each offer is simply passed along for the lender for consideration. Some agents will not even take the highest and best of the bunch of initial offers; they’ll just submit them all. As justification, they say that they are “serving the interests of their client”.

I personally believe that not only is this operating unethically, I also believe it is damaging to the interests of your selling client. Let me explain:

First, when your seller and a buyer sign a contract for purchase, it is LEGALLY BINDING. Just because there is a caviat that indicates the contract is subject to the ultimate purview of the lender does not make it any less valid as a contract. Remember in real estate school when your professors talked about “VOID vs VOIDABLE?” This contract, because it is subject to lender approval is voidable. And, it is not VOID unless the lender, in their ultimate wisdom, deems it such.  You cannot simply take each successive contract and send it to the lender. Why not? Because the first buyer could sue you, your brokerage, and your client, and rightfully so.

So, how do you handle it? You have two options. You can:

a.) have each buyer who submits a contract sign a waiver relinquishing their right to positional heirarchy. This means that each buyer who submits a contract understands that all offers will be submitted to the lender, and that the lender will choose the best one. This, in my opinion, is the coward’s way to handle contracts.  You are going to run into all kinds of disclosure issues. What is each buyer’s question?

“How much are the other offers? I want mine to be the best.”

Unless you have a signed agreement with your seller to disclose the details of offers, you simply can not do this. It is a violation of contract law. You can ONLY disclose the existence of offers, not their respective details. Do YOU want to get into making full disclosure of every offer to every buyer’s agent, and have them simply fight it out? Don’t do it. It’s a recipe for disaster. You can also:

b.) handle multiple offers with honesty and integrity.  If an offer comes in that you think has a chance of getting through the lender’s scrutiny, send it to them. When other agents call to inquire as to availability, simply say what you would in any such circumstance:

“I have an offer on the property at this time. You are more than welcome to submit your offer for consideration in a back-up position.”

Now, that wasn’t so hard, was it? Simple, efficient, to the point. And it’s LEGAL! What are the benefits of doing it this way? You protect your client from a lawsuit by an outraged buyer, and you increase your chances that the lender will approve the sale.  I can hear you scratching your head. How does this help my client’s chances of having the sale approved by the lender? Simple: if you send multiple offers to the lender, you’ll simply confuse them. They’re confused enough already. Don’t help them. Sencond, by sending multiple offers, you might unwittingly be creating the impression that you’ve got a hot little property on your hands that might be worth more money. This is going to make the lender cocky. Their demands for money are going to go up, and worse yet, they may get the impression that it’s a better idea to take the property away from your client and sell it themselves for more money!

Frankly, unless your seller client is going to be liable for taxes and/or definciencies, they could care less how much the property sells for. They’re off the hook if the property sells, period.  By “accepting” multiple offers, you are violating contract law, and doing your clients a disservice.

Caution and Disclaimer: I am NOT an authority on contract law, although I like to pretend that I am.  All questions about such issues should be addressed to and by your individual broker or firm’s legal counsel. This is their job, along with taking a hefty cut of your money.

The Latest on Arizona Short Sales

Hello Again, Folks,

I know it’s been a few weeks since I’ve been able to post anything about short sales and the like, and I wanted to keep you up-to-date on the current state of this aspect of the Arizona market. The reason I have been unable to post? I’m up to my eyeballs in short sales and foreclosure homes! So, what’s been going on?  I have determined a few things that may be helpful to both homeowners and real estate agents dealing with these nasty bits of real estate practice:

a.) If you can help it at all, stay the heck away from Countrywide if pursuing a short sale! I have written about the Blundering Nincompoopery of Countrywide before, and nothing has changed. These guys are the most inept bunch in the industry. For example, I have a short sale that was just accepted by Countrywide, in which the offer on the home was sent to Countrywide on February 19th, 2008. By the time this file closes escrow, it will have taken . . .uh. . .too long. WAY to long!

Interesting side-note: The last two short sales I completed with Countrywide were of a very interesting nature, and probably shouldn’t have been accepted in the first place.  On the first one, the homeowner never missed a single mortgage payment, and on the second, the homeowner never sent in any financials. No bank statements, W-2s, tax filings, income statements, not even a financial worksheet. Just a hardship letter. Do not try this at home. It will not work for you; I am simply THE MAN ;>)

Really though, and this brings me to point b:

b.) Short sales are won, or lost, on the tenacity of the listing real estate agent.  If you EVER take “No” for an answer, you are sunk.  I don’t know why, but I have always enjoyed having my way with bureaucrats. Some fun and pleasant memories: The power company calls to say that the power is being turned off for non-payment. By the end of the hour-long conversation, it is their fault, they are apologizing, waiving all fees, and I have a credit balance of $278.  Calling the credit card company, and demanding that they lower my rate from 13% to 6%.  Leasing an Infinity G35 for $187 per month, with no money down, and a full maintenance package thrown in, for uttering the magic words: “Oh. . .I thought you guys were a LUXURY car dealership!” 

Ass-holish? Maybe. Love to parlay? Absolutely! Maybe I should have been an attorney. In any event, don’t give up!

Allen

Making The Case For Blundering Nincompoopery.

Did I spell that right? Hope so. . .

So anyway, I’m back with more “tales from the dark side.” I am going to continue on my  Saga, while throwing Papa John’s Pizza into the mix. Let me just state flat out, in as clear a way as I know how, that CountryWide’s loss mitigation department is the most incompetent group of blundering nincompoops that I have ever seen.

Case #1: I have a certain short sale that Countrywide has had in their possession since February 19th. Two loss mitigators later, and they just ordered the appraisal yesterday.

Case #2: On another active file, newly minted, fresh outta loss mitigation school comes Paul Romero (the name has NOT been changed, so as to shame the guilty) . Now Paul, bless his little heart, indicates that he’s gonna “send the file to the investor” to get their response. Uh. . .Paul? Countrywide owns the loan.  He calls me back two days later to indicate that he was wrong. Problem? He’s suddenly discovered that there is PMI on the loan, and he’s “sending the file to them immediately.” That’s great Paul, but their is no PMI on this loan. He argues with me for awhile and says he’s gonna send it to the PMI company to get their response. In the meanwhile, I’m off to demonstrate conclusively that there IS NO PMI on this loan. Within about 3 hours, I have written confirmation that there is indeed NO PMI on this loan. Fast forward 24 hrs. Here’s Paul on the phone again: “Uh. . .the PMI company has denied the short sale. They think the property is worth more than the offer you have given them”. Ok. Paul, let me explain this to you again, real slow. . .: There is no pmi on this loan. He proceeds to tell me that he’s sorry, but the short has been denied. Okay Paul. Give me the policy number, inception date, & contact information for the person handling the case at the PMI company. “Uh. . .I don’t have that information.” Well then how did you send them our offer? “Uh. . .I’ll have to get back with you. Click.

So, I call today. The case has indeed been rejected. Case closed. The peons at the loss mitigation department can’t seem to figure out why, based on Paul’s notes. About an hour or 6 later, I get a call from Paul’s boss:

“We’re sorry Mr. Butler; there was a mistake. There is no PMI on this loan. We’ll have this file ready for you in a few days”.

Huh. I’m speechless.

Then there’s Papa John’s. My wife has unfortunately fallen in love with this new pizza they have. So I ordered some . . . . . . . . . .and waited for almost 2 full hours to receive it. When I did receive it, it was cold. THAT’S FABULOUS! So I call. They offer to deliver a new one. “When? A couple of hours from now?” No sir, it’ll be there in 30 minutes. Great. How about you throw in a little 2.99 desert thingy to make it up to me and my family? Sorry sir. The manager says no. FABULOUS.

I guess my point is this: when someone actually gives even adequate customer service, they are heralded as “amazing” and people marvel. What has the world come to?
Allen