Short Sale Blog

Here is the latest short sale news at Seattle Short Sales. We assist hundreds of Seattle area homeowners with short selling their home and avoiding foreclosure.

Dual-Tracking: Can my Lender Continue Foreclosure Proceedings While I Negotiate a Short Sale?

Seattle Short Sales - Thursday, March 07, 2013

The National Mortgage Settlement of February 2012 provides for relief and compensation to borrowers who lost their homes to foreclosure, and for some borrowers who are threatened with foreclosure. However, it does not have provisions to help everyone. One common misunderstanding of what the terms of that mortgage settlement mean is with respect to dual-tracking: where lenders continue with foreclosure proceedings even while a loan modification or short sale is being negotiated.

The National Mortgage Settlement has a provision in it that forbids lenders from dual-tracking - but this provision applies only to loan modifications. Banks may not foreclose on a homeowner while they are under consideration for a loan modification. However, there is no proviso that prohibits banks from proceeding with foreclosure while the homeowner is working on negotiating a short sale.

The wording is confusing - the "no dual-tracking" provision may make it sound like this also applies to short sales - so some lenders have been working to clear up any confusion. In January, Bank of America sent a notice out to short sale agents specifying: “As of January 15, 2013, there will no longer be a temporary foreclosure hold during the Cooperative Short Sale property marketing phase. We may begin or continue the foreclosure process up until a submitted offer to purchase the property is approved by all relevant parties.”

The terms of the Settlement state only that the lender/servicer may not proceed with foreclosure if the short sale has been approved by all parties. Two cautionary notes here are:

  • this means that they may proceed with foreclosure even while a short sale is being negotiated
  • this provision only applies to the five servicers who are party to the National Mortgage Settlement: Ally/GMAC, Bank of America, Citi, JPMorgan Chase, and Wells Fargo.

Other lenders may still continue to dual-track foreclosure proceedings, even though a short sale is being negotiated and is close to approval - or even approved and about to close! For example, this short sale approval that we negotiated in February with Ocwen, a lender that is not party to the National Mortgage Settlement, states in its first paragraph “Ocwen will NOT postpone a scheduled foreclosure sale, even if there is a pending sales contract.”

The take-away is to be efficient with short sale negotiation: do all that you can to make the process move forward quickly. A lender’s foreclosure department may not even be in contact with their short sale department - so pay attention to any foreclosure notices, such as demand letters or Notice of Trustee Sale communications, even if you have a short sale in the works. If there is a Trustee Sale scheduled, make sure that your short sale will close before that sale date.

Seattle Short Sales has a team of experienced and successful real estate specialists dedicated to working with distressed homeowners. We close, on average, 12% of all short sales per month in King County. In the last 24 months, we have negotiated over 756 short sale approvals, and discounted over $81 million of mortgage debt for distressed homeowners.

In addition to our short sales negotiators, our team includes dedicated professionals advising and advocating for homeowners in the fields of: loan modifications, bankruptcy, debt settlement and collection defense. As part of our service, we offer unlimited attorney and CPA consultations.

If you are a homeowner who is struggling to make ends meet, and would like to learn more about the options available to you, please go to: http://seattleshortsales.com/homeowners/
 

New Citi Short Sale Approval Letter: Homeowner in Redmond, WA, Receives $714,000 Loan Discount, Deficiency Waived!

Seattle Short Sales - Tuesday, May 29, 2012
This Redmond, WA, homeowner’s business failed, causing him to get behind on his mortgage payments. He avoided foreclosure through a short sale. He owed over $1.7 million on his Citi first mortgage. But the purchase offer on his home was for only $1.1 million.

Citi has just issued their approval letter for the short sale, accepting $1 million net proceeds on the $1.7 million mortgage balance owing - for a total discount of $714,000. The short sale approval letter waived the Redmond homeowner of ever having to repay that deficiency.

You can read the Citi short sale approval letter here:
3.23.12 - Citi - 1st Lien - 714k Deficiency - Debt Settled- Short Sale Approval

If you are a homeowner, and would like to learn more about short selling your home, please go to: http://seattleshortsales.com/homeowners/

Can’t See The Forest for the Trees: CitiMortgage and HUD Dispute about the Details of Borrower Eligibility for the FHA Preforeclosure Sale Program

Seattle Short Sales - Friday, October 21, 2011

Here is an interesting case, of not being able to see the forest for the trees: the dispute between HUD and CitiMortgage regarding evaluating borrower eligibility for FHA’s Preforeclosure Sale Program (PFS). While HUD focuses on the details of borrower eligibility for the PFS program, CitiMortgage contends that the details of the plan are less important than the overall aim: cutting losses for both borrowers and lenders.

The HUD’s Office of Inspector General has released its new audit report of Citimortgage, Inc. According to the HUD audit report, CitiMortgage did not properly determine borrower eligibility for FHA’s PFS program. Included in the 103-page audit report is CitiMortgage’s response to the HUD claims.

Guidelines for the FHA PFS program are outlined in FHA Mortgagee Letter 2008-43, a letter to all lenders which outlines the aims of the PFS program.

FHA provides mortgage insurance for loans by borrowers who are considered to be “risky” - whose credit history is poor or moderate, or who can only come up with a small deposit.

The FHA PFS program is for borrowers who have an FHA-insured loan, and who find themselves unable to meet their mortgage payments, and unable to sell the home because it is worth less than the balance owing on the mortgage. The PFS program helps borrowers to avoid foreclosure by providing cash incentives to both borrowers and lenders, to encourage them to negotiate a pre-foreclosure sale, rather than let the mortgage proceed to foreclosure.

The dispute between HUD and CitiMortgage comes from different interpretations of eligibility criteria outlined in FHA Mortgage Letter 2008-43. HUD works with numerous lenders; they identified CitiMortgage for this audit because of “an issue identified
in a prior review and a review conducted by HUD’s quality assurance division.”

HUD reviewed 68 loans that CitiMortgage had submitted claims on. Claims paid out by HUD on these loans included mortgage insurance payments (on the deficiency balances) as well as incentive payments to both borrowers and lenders. According to HUD’s review, though, CitiMortgage did not properly determine borrower eligibility for the FHA PFS program for 63 of these loans. A total of nearly $5 million was paid out by HUD to CitiMortgage for those 63 loans. The auditors have recommended that CitiMortgage reimburse HUD for these claims.

The report details, case-by-case, examples where HUD contends that CitiMortgage did not determine borrower eligibility criteria. According to HUD, CitiMortgage did not follow eligibility guidelines detailed in Mortgage Letter 2008-43, including:

  • borrowers’ reason for default is a result of an “adverse and unavoidable situation”
  • expenses and income claimed by borrowers were not independently verified by CitiMortgage
  • borrowers with assets were not required to repay the indebtedness through a repayment plan
  • borrowers who were still current on their mortgages were accepted into the plan, and HUD disputes CitiMortgage’s determination of borrowers facing “imminent default”

CitiMortgage has responded to the audit (their response is included in the audit report as Appendix B), defending their practices, and indicating that only 7 of the 63 examples that HUD has presented have any merit.

Most significantly, though, CitiMortgage’s Director of Default Servicing, Brian McWhorter, wrote in his response to HUD:
“In our view, if the changes recommended in the draft report are implemented, the PFS process would slow down and negatively impact borrowers by now allwing them to qualify for a short sales treatment, possibly resulting in foreclosure and a higher loss.”

McWhorter goes on to explain that, in all of the sampled cases, the pre-foreclosure sale that was executed represented a lower loss to CitiMortgage than a foreclosure proceeding followed by an REO sale would have.

Avoiding foreclosure, through FHA’s Preforeclosure Sale Program and through numerous other short sale and foreclosure-prevention programs that exist, is in everyone’s best interest. The faster that short sales can be processed, the more foreclosures will be avoided - and the more quickly our housing market will turn towards recovery.

For more information, download The Homeowner's Guide to the U.S. Government Short Sale Programs, our free in-house guide to the FHA PFS program as well as to VA, HAFA, Freddie Mac, and Fannie Mae short sale programs.

If you are a homeowner, and would like to learn more about short selling your home, please go to: http://seattleshortsales.com/homeowners/

If you are a real estate agent, and would like to learn about our no-fee short sale service, please go to: http://seattleshortsales.com/agents/

Big Banks Now Proactive About Short Sales, Even Approaching Homeowners With Cash Incentives

Seattle Short Sales - Friday, July 08, 2011

My, how things have changed in a year or two!

It was not so long ago that struggling homeowners had to beg lenders to approve them for a short sale. But now, some of the major lenders are making the first move - contacting the sellers themselves to propose a short sale, and even offering cash incentives to homeowners!

These short sale incentive programs are not widely publicized, and they are considered to be “by invitation.” As banks realize that they may recover more of their losses by allowing a short sale than by pushing to foreclosure, they are targeting homeowners who are at risk of defaulting - often, before they are even in mortgage trouble.

The lenders proactively contact these homeowners, suggesting that they undertake a short sale, and often offering a hefty cash payment to the homeowner upon completion of the short sale. These cash payments are reported to range from a few thousand dollars to up to $35,000.

Some of the lenders implementing these incentive programs, and the reported incentives, are:

Bank of America Cooperative Sale Program - upon completion of the short sale, the homeowner receives a $2,500 to $3,000 relocation payment, and the real estate agents receives a 6% commission.

Citi Proactive Short Sale Program - according to the HousingWire, the average cash payment to sellers this year was $12,000

Chase - offers cash payments up to $30-$35,000 to sellers

GMAC - there are reports of cash incentive payments to sellers of up to $1,600

Litton - reportedly offers cash incentives to sellers of $3,000 to $5,000

Wachovia/Wells Fargo
- offers cash payments of 1% of the sales price (minimum $2,500) for sellers.

Although these programs are considered “invitation only” - meaning that the lenders contact the homeowners, rather than homeowners applying for them - there are some reports of short sales negotiators successfully requesting that the homeowners they represent be considered for incentive programs.

But the big take-away from this story is that lenders no longer merely consider short sale requests - but that they are now proactively initiating short sales. This means that they are far more likely to consider and approve any short sale offer put to them than they were a year or two ago.

As Citi’s senior vice president of loss mitigation told the HousingWire, "We're not going to turn anybody away if the short sale meets the net requirement we're looking for." This means that the lenders are no longer looking for stories of exceptional hardship in order to approve a short sale. As long as the short sale represents the best way for the lender to maximize their recovery on a distressed asset, they will approve it.

If you are a homeowner, and would like to learn more about short selling your home, please go to: http://seattleshortsales.com/homeowners/

If you are a real estate agent, and would like to learn about our no-fee short sale service, please go to: http://seattleshortsales.com/agents/

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