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.

Will My Condo Association Get Anything if They Foreclose On Me?

Seattle Short Sales - Monday, October 01, 2012

What happens when my condominium owners association records a lien against my unit? Can the condo association foreclose on that lien and still expect to recover anything if there are other previously recorded liens?

Before we address these questions, it might be beneficial to briefly review what a lien is, what it does, and how it can impact a homeowner’s ownership rights to his or her property.

Simply put, a lien is a document that memorializes a debt, using the property as collateral for repayment of the debt. In other words, the property acts as a security for money owed. The general rule of lien priority is that once a lien is recorded, it becomes next in line to any previously recorded lien in terms of lien status. So, in most cases, a lien against real property has priority based on the date it is recorded.

The most common kind of lien on a home relates to money borrowed against the home, such as a mortgage taken out to purchase the home, or a Home Equity Line of Credit (HELOC). However, in the context of condo liens in Washington state, if a condo owner fails to pay his/her condo assessments (or fees), a lien will be created automatically for the amount owed.

Under Washington’s Condominium Act, any condominium owner’s association (COA) created after July 1, 1990, will be provided additional protections for condo liens, and such liens are given a “super-priority lien” status. The super-priority lien has priority over mortgages or any other liens, provided that the assessments were due during the six months immediately prior to the date of a trustee/sheriff’s sale. COA’s formed before July 1, 1990 may also avail themselves of the “super-priority lien” protection by amending or modifying the condo declaration to incorporate priority lien language.

Thus, the lien priority hierarchy under the Condo Acts looks something like this:

  1. Government liens for unpaid taxes;

  2. Association lien for the most recent six months’ delinquent assessments prior to trustee/sheriff’s sale;

  3. Mortgages and other liens according to the date they were recorded; and

  4. The remaining amount of the association’s lien.

However, this super-priority lien status only applies if the condo association initiates a judicial foreclosure, i.e. a foreclosure that is processed through the court. If the association forecloses its lien non-judicially, the lien no longer has super-priority over previously recorded liens.

In sum, a condo association can attempt to foreclose on its super-priority lien by filing a judicial foreclosure lawsuit against the homeowner and the beneficiary of the deed of trust (the bank). Usually, the bank will defend the lawsuit and try to arrange to pay the COA’s super-priority lien in effort to reestablish the bank’s senior lien priority.

So, in the context of a short sale, a lien on the condo recorded by the condominium owners association makes the short sale process more complicated. For this reason, we almost always advise our clients to stay current on their COA dues/assessments, to avoid a situation where the COA forecloses on the condo unit.  

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/

More Government Support For Short Sales: FTC Exempts Real Estate Agents from MARS Rule

Seattle Short Sales - Saturday, July 16, 2011

The Federal Trade Commission (FTC) issued a press release yesterday indicating that it will exempt real estate brokers and their agents who are assisting distressed homeowners in negotiating a short sale from most of the provisions in their Mortgage Assistance Relief Services (MARS) Rule.

This is yet another in a string of moves to remove unnecessary steps and unwieldy paperwork, and to streamline the short sale process.

The FTC statement ackowledges the growing role of short sales: “As more and more American homeowners seek short sales, it is especially important that the Rule not inadvertently discourage real estate professionals from helping consumers with these types of transactions.”

The MARS rule was issued by Congress in 2009. It was aimed at protecting consumers from foreclosure fraud, for example from people or companies charging up-front fees to negotiate loan-modifications. The final MARS rule came into effect last November, after over 30 cases had been brought forward against against companies for allegedly making false claims about their ability to negotiate foreclosure relief, such as loan modifications or short sales. The Rule requires companies offering mortgage assistance relief services to disclose certain information to consumers about the services they provide, bans collection of advance fees, and prohibits false or misleading claims.

However, many real estate agents were uncomfortable with the wording of this new ruling. They pointed out that the required disclosures could confuse consumers or could be inaccurate in the context of the services they provide.

The FTC agreed, and the new FTC statement exempts licensed real estate brokers and their agents from most of the provisions of the MARS rule. Agents will be exempt from obligations to make disclosures and from the ban on collecting advance fees, but they will remain subject to a ban on making misrepresentations.

This new FTC exemption is one more move by government to make the short sale process simpler and easier. It represents further recognition that short sales are not only good for individual homeowners who are trying to avoid foreclosure, they are also good for the housing market and a step toward economic recovery.

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/

Short Sale Approved In Spite of IRS Lien for Unpaid Taxes - Here’s How We Did It

Seattle Short Sales - Saturday, June 25, 2011

Our homeowner was struggling financially, following an acrimonious divorce that had him paying the mortgage on the family home, rent for his new residence, and legal fees. With these added expenses, he became delinquent on his mortgage. Due to current economic conditions, the home was worth less than what he owed on the mortgage, and he realized that a short sale would be the best way for him to cut his losses and settle his mortgage debt. Read the full case study here.

In addition to the $674,000 owing on the mortgage, the homeowner also owed money to the Internal Revenue Service (IRS) for unpaid taxes. The IRS had two tax liens on the property: one for $214,987 and another for $4,218 - in total, nearly $220,000. The home could not be sold unless these liens were lifted.

At Seattle Short Sales, Inc., nearly all of the liens that we work with are security for mortgage debt. Our case manager investigated what would have to be done to remove an IRS lien.

His first step was to obtain and fill out IRS Form 8821, which allows an individual other than the taxpayer (a "third party" - in this case, the Seattle Short Sales, Inc., case manager) to communicate with the IRS about the case as the homeowner’s appointee.

Then IRS Form 14135 was obtained, the Application for Certificate of Discharge of Property from Federal Tax Lien. In order to have IRS consider the request, Seattle Short Sales, Inc. had to provide them with information including:

  • the reason for the request (that this is a short sale)
  • a description of the property
  • a copy of the Purchase and Sale Agreement
  • a new appraisal by an independent third party
  • a statement that the seller will receive no proceeds from the sale

IRS Publication 783 provides information on how to complete Form 14135.

The IRS approved the request to remove the liens in order to allow the short sale to go ahead, and issued a letter committing to provide a Certificate of Discharge for the lien. Their conditions for issuing that certificate were: upon receipt of a payment of $1,045, as well of documentation confirming that the short sale had gone ahead. View the IRS approval letter. The Certificate of Discharge does not mean that the homeowner no longer owes the unpaid taxes to the IRS - but it does let him to get a new start in life by removing the liens on his property and allowing him to go ahead with the short sale.

The whole process took just over one month - from the day of our case manager’s initial call to the IRS requesting information on how to proceed, to their issuing of their approval letter.

Read the full case study for this short sale.

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/

HAP Homeowners Assistance Program: An Option for Military Homeowners with Negative Home Equity

Seattle Short Sales - Monday, September 20, 2010

The Department of Defense’s Homeowner’s Assistance Program (HAP) was originally designed for members of the American military who are affected by Base Realignment and Closure (BRAC). Announcement of a base closure could cause a drop in local house prices, forcing military members to take a loss on their home sale. The HAP program is authorized in Section 1013 of the Demonstration Cities and Metropolitan Development Act of 1966 (as amended), to provide financial assistance to eligible federal personnel - including military, Coast Guard, and some civilian - who are faced with losses on the sale of their home as a result of a BRAC move.

The government’s economic stimulus package, through the American Recovery and Reinvestment Act of 2009, modified the plan to what is known as “Expanded HAP”. The new “Expanded HAP” makes more military members and civilians eligible for assistance by including those undergoing a Permanent Change of Station (PCS) move. It also removes the requirement to prove that the house price decline was a result of the BRAC announcement.

The HAP program helps military members to sell their home and make their move, without having to go to their lenders to try to have a short sale approved.

Eligibility:
The new Expanded HAP program is open to:
- Wounded members of the Armed Forces (30% or greater disability) and wounded Department of Defense (DoD) and Coast Guard civilian homeowners reassigned in furtherance of medical treatment or rehabilitation or due to medical retirement in connection with their disability,
- Surviving spouses of the fallen,
- Base Realignment and Closure (BRAC) 2005 impacted homeowners relocating during the mortgage crisis, and
- Service member homeowners undergoing Permanent Change of Station (PCS) moves during the mortgage crisis.

Who can apply:
The HAP program is undergoing on-going amendments, as the government works towards finding ways to help distressed military homeowners in the current unpredictable and changing economic climate. It is best to contact HAP directly (contact details below) to get advice specific to individual situations.

General guidelines to qualify for HAP assistance for those applying as a result of a PCS move are:
- they must be active-duty military personnel
- the PCS move must be greater than 50 miles, with PCS orders dated between February 1, 2006, and September 30, 2010 (closing date is subject to availability of funds)
- the home must have been their primary residence at the time the move was announced
- county, parish and city home values must have dropped by at least 10% between July 1, 2006, and the HAP application date; and the individual home value also must have dropped by 10% between the date of purchase and date of sale.

Current regulations are that the home must have been under contract to purchase prior to July 1, 2006. Many military members purchased their homes just after this cut-off date, and an amendment under discussion may open the program to homeowners who purchased after this date.

Guidelines for applicants eligible as Wounded, Injured or Ill and Surviving Spouses are slightly different, e.g. the requirement to purchase the primary residence prior to July 1, 2006 does not apply.

Benefits:
HAP provides assistance to military homeowners faced with selling their home at a loss in a number of different ways. The exact ways that HAP may help depend upon which eligibilty requirements the homeowner applies under. For those who are applying as a result of a PCS move, HAP may help by:
- if foreclosure is taking place, providing financial assistance after foreclosure by paying some of the expenses,
- if a private sale is taking place at a loss, reimbursing 90% of the difference between the purchase price and the sale price, plus closing costs,
- if a home sale cannot be negotiated within 120 days, purchasing the home directly by paying either 75% of the purchase price or by paying out the mortgage, whichever is greater (HAP will not reimburse or pay out second mortgages).

How to apply:
Contact your nearest HAP office or visit the HAP website from application forms. A complete HAP application package must include:
- Form HUD-1 - proof of home purchase
- Proof of ownership - copy of deed
- proof of occupancy at time of receipt of PCS orders (e.g. utility bill)
- proof of program eligibility

Important things to know when applying for HAP:
1. You must be actively marketing your home, and seeking to sell it at Fair Market Value.
2. HAP does not reimburse the full negative value of your property, but a percentage that ranges between 75% and 95% of that negative value.
3. HAP applications are processed in chronological order that the completed applications are received. Incomplete applications will be ignored until all documents are in order, so it is very important to make sure that your application is complete. Order of processing priority is by eligibility: (1) Wounded Injured Ill and Surviving Spouse, (2) BRAC 05 moves, (3) PCS moves.
4. A member may receive benefits only once through this program.
5. As of November, 2009, HAP benefits are no longer taxable.

Resources:
HAP website: www.hq.usace.army.mil/hap/
DoD HAP National Hotline: 1-888-363-4271
General HAP brochure: http://hap.usace.army.mil/Documents/Conventional_HAP_final.pdf
Expanded HAP info brochure: http://hap.usace.army.mil/Documents/HAP_Expansion_23April2010.pdf
Online discussion forum: http://www.moresam.net/Forum/afv/topic/aff/7/aft/301/afpg/1.aspx

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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