Distressed sales remain source of potential fraud riskShort sale transactions on the rise since 2006Megan HopkinsSeptember 13, 2013 5:27PM0 CommentsForeclosureShort saleCoreLogicDistressed SalesShort Sale FraudEd GerdingEmailPrintReprintsShare on facebookShare on twitterShare on linkedin MoreAAARelated ArticlesInterthinx Fraud Report Links Mortgage Fraud, Foreclosure: DBRSSuspected Mortgage Fraud Reports to FBI Grew 5% in 2009Mortgage fraud greater in areas riddled with foreclosures: InterthinxRelated CompaniesHubzuThe volume of the nations shadow inventory is on the decline, but remains high as lenders and servicers continue to work through a backlog of properties, CoreLogic CLGX said. The research firm said during a webinar on fraud risk that distressed asset sales, such as short sales, remain a potential source of fraud.Unrealized recoveries on suspicious short sale transactions can cost lenders as much as hundreds of millions per year.”The trend that we’re seeing is that the overall short sale volume has dropped slightly, but that the combined suspicious rate has been static so far from 2012 to 2013 at 83%,” said Ed Gerding, fraud and risk strategist at CoreLogic.
Like 2012, 2013 may just continue to be the perfect storm for doing a Short Sale:
- Sonoma County’s available inventory of homes for sale continues to be the lowest in years.
- Competition for what inventory does exist has pushed up prices and turned the tables, making it a Sellers Market.
- Bank and Government programs are getting more and more favorable for the Distressed Homeowner who needs to sell.
- Lenders have too many foreclosures on their books, making Short Sales a better alternative for them.
- Short Sales are getting, well, shorter because of improved operating standards by the banks and programs by the government.
- The option to Short Sale is easier on your credit than a foreclosure, making it possible to buy another home sooner.
And the Number One Reason: The Forgiveness of Debt Tax Relief Act has been extended to the end of 2013 saving you literally tens of thousands of dollars you would otherwise owe the IRS in Federal Income Tax after a Short Sale.
If you fit this description:
- Have low to moderate income
- Owe more than your house is worth
- Live in your home
- Are delinquent, or have a hardship that puts you at risk of default
- Have a mortgage balance of less than $729,750
Read this article….
Principal relief for stressed homeowners
A limited number of underwater homeowners in California will soon be able to get principal reductions of up to $100,000 apiece on Fannie Mae and Freddie Mac loans through the federally funded Keep Your Home California program.
The federal agency that oversees Fannie and Freddie has steadfastly refused to allow permanent principal reduction on loans they own or guarantee on the grounds it would cost taxpayers money. But in mid-September, Fannie and Freddie told servicers they could immediately begin accepting money for principal reductions from programs financed by the U.S. Treasury’s Hardest Hit Fund, including Keep Your Home California.
Fannie’s and Freddie’s willingness to accept money from Hardest Hit Funds does not signal a change of heart on the part of their regulator, the Federal Housing Finance Agency. Lest anyone get the wrong idea, Freddie says it will allow funds to be used for “principal curtailment.”
Read the rest here…
Like a lot of difficult things in life, the first step is the hardest.
When you’ve come to the inescapable conclusion that there is just no way to keep up with your mortgage payments and that the longer you put off finding out what your options are, the worst things will be and the fewer avenues you will have open, you’re ready to do something, but what?
As a CDPE (Certified Distressed Property Expert), I know where to start and how to proceed and that is one of the biggest advantages I bring to the table on your behalf. Everyone’s time frame is different and my approach will be different depending on how much time you have.
CDPEs enjoy a 80% rate of success in Short Sales.
I’d like to see everyone exploring their options the day after they miss the first payment. Sadly, this hardly ever happens because we go into denial over our circumstances. It’s a common human reaction, but don’t let it stop you from taking a step forward. Really, there should be no foreclosures hitting the market before a loan modification, and if that did not work, a Short Sale was attempted.
Unfortunately we see foreclosures hit the market every day where the home owner gave up because they just didn’t know there was any other way.
Picture a large flow chart with your house at the beginning. On this chart there are connecting “routes” to the best outcome for you. What route is taken depends on the amount of time you have, the number of lenders to negotiate with, and even the condition of the property.
The foremost goal is to save your home. If that can’t be done, then to save your credit by Short Selling your home. So, where do you start? By getting in touch with me by email or phone. Let’s talk about what you are facing and what options are open to you.
Yes, I do short sales, but what I am after first is the best solution for YOU. I layout the options you may have after the facts of you particular situation are evaluated: loan modification, re-finance, non-profit services, federal programs,… A short sale is one solution, but you may find a better one.
Foreclosures last approximately 7 years on credit ratings. For most families that is almost half the number of years their children live at home with them.
Important Federal tax break for some homeowners set to expire this year
For the last five years, the federal government has given tax breaks to distressed homeowners who work out a deal with their lender to reduce or release mortgage debt. But unless members of Congress agree to an extension, starting next year any break you get on your mortgage debt will be considered taxable income.
In distressed mortgage situations like we’re seeing across the country, the lender’s financial loss is considered a financial benefit to the homeowner who gets out of paying their full debt. In a short sale for example, where your mortgage balance is $300,000 and your home sells for $240,000, the outstanding balance of $60,000 is considered forgiven debt and would ordinarily be ruled taxable income.
But since 2007, under the Mortgage Forgiveness Debt Relief Act, forgiven debt has been tax free. That’s set to change after the end of this year.
“As it stands, mortgage debt that’s forgiven is not going to be treated as taxable income here in 2012,” said Greg McBride of Bankrate.com. “But, it remains to be seen whether that’s going to be continued into 2013 or not.”
McBride advises anyone facing a distressed mortgage situation to get things worked out before the end of the year, in case the federal tax break is not extended so you’re not caught by surprise.
What qualifies for the income tax break? Short sales, loan modifications, deed in lieu transactions — where you turn your home over to the bank — and in many cases, foreclosure. Just keep in mind the Debt Relief Act only applies to principle residences. No rental property or second homes.
And don’t even think about getting a break on canceled credit card debt or other consumer loans.
“For somebody who is currently going through some sort of program where they’re having debt that’s forgiven, if it’s not real estate debt, there’s a real good chance you’re going to get a 1099 form at the end of the year that says you now have to pay taxes on whatever debt was forgiven, because it’s treated as income,” McBride explained.
The U.S. Treasury Department is urging mortgage services to put pressure on Congress to extend the tax break. President Obama’s proposal calls for an extension into 2015, but right now, there’s no guarantee.
Think you may not make it in time? Read this post.
RealtyTrac: Foreclosures Set to Rise in 2012
January 18th, 2012 in CDPE by cdpe
There’s both good news and bad news on the foreclosure front.
The good news? According to RealtyTrac’s Year-End 2011 U.S. Foreclosure Market Report™, total U.S. foreclosure activity and the foreclosure rate were both at their lowest annual level since 2007.
The bad news? Foreclosure levels were artificially lowered due to delays following the robo-signing scandal. However, those delayed foreclosures will likely reappear in 2012. Fortunately, both the financial and government sectors are more committed than ever to finding alternatives to foreclosure, including short sales.
In fact, Bank of America expects a 60-70% increase in short sale closings this year.
“There were strong signs in the second half of 2011 that lenders are finally beginning to push through some of the delayed foreclosures in select local markets. We expect that trend to continue this year, boosting foreclosure activity for 2012 higher than it was in 2011,” said Brandon Moore, chief executive officer of RealtyTrac.
Why Would a Bank Accept a Short Sale?
The easiest way to demonstrate why a bank will negotiate a short sale is to break down the costs of a foreclosure on a hypothetical property, one a short sale and the other a foreclosure.
The average cost of processing a foreclosure is between $40,000 & $50,000 for the bank before they ever bring the house to the market and pay the additional costs listed here. That is why banks are moving increasingly towards Short Sales.
Say the property has a current value of $200K and the owner owes the bank $225K. But, the best offer to come in is for $190K. The bank would be foolish to accept it, won’t they? Maybe not. Let’s go through the numbers.
|Closing Costs @ 2.25%||-$4,275|
|Commissions @ 6%||-$11,400|
|Proceeds from sale||$175,325|
|Short Sale Lender Loss||$49,675|
Foreclosure on the Same Property:
|6 Months Utilities||-$400|
|6 Months Maintenance||-$800|
|6 Months Interest Loss||-$6,650|
|Staffing Costs (Servicing Dept.)||-$2,000|
|Closing Costs @ 2.25%||-$4,275|
|Commissions @ 6%||-$11,400|
|Proceeds from sale||$139,775|
|Foreclosure Lender Loss||$85,225|
HARP 2.0: What it is; What it isn’t
October 26th, 2011 in CDPE by Alex Charfen
When the Obama Administration announced a series of changes to the Home Affordable Refinance Program (HARP) early this week, our phones started ringing with inquiries from the media for our input concerning the impact. And we had even more questions about HARP during our CDPE Advanced Broadcast yesterday afternoon.
The new HARP is by no means a game changer.
Here’s essentially what we’ve had to say about the revamped government mortgage refinancing program:
HARP 2.0, as the media has started to refer to it, has some merit, but it’s scope is very limited and it will have little or no impact on foreclosures or the estimated 6.4 million homeowners nationwide who are behind on their mortgage payments. The new HARP just expands the net of those who were eligible for help under the original version.
HARP was created in April of 2009 to help borrowers whose loans were backed by Fannie Mae or Freddie Mac, but did not have enough equity or negative equity to refinance. Under the original version of HARP, borrowers who were current on their payments and owed up to 125 percent of the current value of their homes could refinance their mortgage.
The original HARP fell short of expectations. Over the past two and a half years, only 838,000 homeowners have benefited from the program. The new HARP has broadened the base with looser eligibility requirements.
Borrowers with FHA, Fannie Mae or Freddie Mac mortgages that were sold to Fannie or Freddie before May 31, 2009, will be able to refinance, no matter how far underwater they are. Banks will only have to verify that borrowers have made their last six payments, that they’ve haven’t missed more than one payment over the past year, and that they have a job or another source of regular income.
Other key changes:
- Appraisals are no longer required if there is a reliable automated valuation model (AVM)–a significant hurdle in the previous plan.
- Risk-based fees have been eliminated for borrowers who refinance to 15-year mortgages.
- Existing mortgage insurance coverage can be transferred much easier than under the original HARP.
While the new HARP won’t help homeowners who are behind on their payments and at risk for foreclosure, it is a welcome relief for homeowners who have been caught in the Catch-22 of not being able to refinance because they owe more on their mortgage than their home is worth, and at the same time, don’t qualify for a short sale or a loan mod because they are current on their payments and still have income and assets sufficient to cover their costs.
More money into the pockets of this segment will mean more dollars back into the economy, potentially heading off strategic defaults and keeping and stemming the tide of homes entering the foreclosure pipeline.
Source: February 26th, 2012 in CDPE bulletin…
For awhile now, we’ve instructed agents on government incentives available to distressed homeowners who opt to do short sales. Such programs include the Home Affordable Foreclosure Alternatives (HAFA) program, which provides up to $3,000 to assist the borrower with relocation fees.
In recent news, major publications including USA TODAY and CNN Money have spotlighted the incentives provided by banks. These incentive programs, which offer anywhere from around $2,000 to upwards of $35,000, are intended to provide homeowners with the resources and motivation to pursue a short sale.
As banks look to ramp up short sales, such incentives are becoming more frequent. JPMorgan Chase began their incentive program last year, for example, and Bank of America (which plans a 60-70% increase in short sales this year) piloted a program in Florida this past December. Wells Fargo offers incentives as well, though primarily in states where the foreclosure process is particularly lengthy.
We’ve said it before, and we’ll say it again: This year looks to be the year of the short sale.
For banks, short sales can be a cheaper alternative to foreclosure. The foreclosure process is lengthy and costly, so much so that providing up to a $20,000 alternative for a short sale is still a cheaper option.
In USA TODAY’s article “Lenders Paying Borrowers to Do Short Sales”, Jim Gillespie, chief executive of Coldwell Banker, is quoted as saying “It’s a lot cheaper to shell out $10,000 or $20,000 to someone than it is to go through a long foreclosure.”
In addition to the cost of the foreclosure process itself, foreclosed properties sell for less than short sales on average. According to the National Association of REALTORS®, foreclosed properties sold for 22% less than conventional sales, while short sales sold for around 14% less.
Due to expire at the end of 2012, HAFA is now extended to the end of 2013!
This is a huge positive development for a program focused on helping distressed homeowners out of their mortgages while keeping their credit ratings intact.
But, that’s not all; there’s lots more good news…
- Removal of occupancy requirements. (Previously HAFA required homeowners to have lived in the property within the last 12 months.)
- $3,000 cash incentive to the home owner still applies. Now covers either owner OR tenant occupied properties at the time of sale.
- Secondary lien holder may receive up to a maximum of $8,500, up from $6,000 previously. This makes it easier to negotiate with the second who normally gets very little compared to the first.
- Payments can continue to be made to the loan servicer, even if they are over 32% of income, to stay current until sale
- Major Credit Reporting bureaus are changing the way they report a Short Sale to either “13” (Paid in full or closed account, zero balance) or “65” (Account paid in full, a forclosure was started as applicable)