Seattle Real Estate Blog by David Monroe

At this time last year, Bank of America was on my black list for short sales.  I would still work with short sale clients that had Bank of America loans, but I had to make an extra effort to mentally and emotionally prepare sellers for a process that could take six months to a year from signing the listing to signing closing papers.

Several months ago, Bank of America started using the Equator system (formerly REOTrans).  Equator is the technology platform used by many of the top lenders nationwide for handling bank-owned property transactions.  Equator built a short sale portal to be used by Bank of America (and eventually other lenders) to help streamline the short sale process.

While the transition to the Equator system had its challenges, Bank of America’s implementation of this online system for processing short sales has been one of the biggest steps in the right direction that I’ve seen from a large bank in the short sale industry.  That doesn’t mean there aren’t still a lot of problems with Bank of America short sales, but it is a massive improvement from where they were a year ago. 

Short sales that would have previously taken 6-8 months to negotiate with Bank of America can usually be completed within 60-90 days now when processed through the Equator system.  It can still be a painful experience at times, but it’s kind of like pulling a bandage off your arm:  It’s going to hurt whether you pull it off slowly or quickly, but isn’t it better to get the pain over with quicker?


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Authored by David Monroe, Real Estate Agent and Short Sale Specialist
Access Seattle area short sale help and foreclosure resources including selling in foreclosure, and 8 Ways to Avoid or Stop Foreclosure.
Considering a short sale?  Check out this Short Sale FAQ first.

Copyright (c) 2010 by David Monroe (Keller Williams Seattle Metro West)

Have you stopped making your mortgage payments?  Are you considering it?  If you’re just considering it and haven’t already stopped, read the post, Should You Stop Making Your Mortgage Payments?

If you have stopped making your mortgage payments, either because you can no longer afford to pay or for some other reason, here’s what you can expect:

First Mortgage
First mortgage lenders are typically much easier to deal with if you fall behind on your payments.  They typically won’t harass you by phone, but they’re likely to fill up your mailbox with letters reminding you that have haven’t made your payment. 

If you speak to your first mortgage lender on the phone, they usually won’t use high-pressure collection tactics.  That doesn’t mean they won’t ask for a payment, but the collection effort over the phone is not likely to go past that level.  They will make a lot of effort to determine if there’s a way to bring the loan out of default status by offering a loan modification, payment moratorium, or some other workout solution.  However, these workout solutions are rarely successful, since most borrowers just get lost in the system.

This low-pressure collection strategy may not apply if your loan was sold off to someone that specializes in purchasing loans that are in default for pennies on the dollar.

Second Mortgage
If you stop making payments on your second mortgage, this can create a bit more of a challenge.  Not only will the second mortgage lender fill up your mailbox with threatening letters, your phone is likely to ring off the hook as well. 

I put second mortgage lenders in the same collection category as credit card collectors.  Second mortgage lenders have a lot more to lose, especially if the first mortgage lender forecloses.  Therefore, they tend to use high-pressure, threatening, and sometimes unethical collection practices.  They may try to contact you at work or they may try to contact your relatives, although you can request in writing that they not do this. 

They may lie to you.  They may tell you that they won’t approve a short sale or loan modification if you’re behind on your payments.  This is not true.  If you challenge something that they tell you and they offer to have you talk to their supervisor to confirm, don’t take the bait.  Their “supervisor” is most likely just the collector in the cubicle next to them.

Letters In The Mail
During the first 90 days or so, your mailbox is going to fill up with letters from your lender.  They may start out friendly, offering lots of options and telling you how much they want to help you, then they will start getting more threatening.  Usually around the 60 day mark, they’ll send letters by certified mail as well.  They’ll use terms like “Acceleration Warning”, “Notice of Intent to Foreclose”, “accelerate the maturity of the loan”, “declare all sums immediately due and payable”, “commence foreclosure proceedings”, “take legal action”, etc.  They're trying to get your attention.  Just remember that no matter what they say, there are specific procedures and timelines that they must follow (see Foreclosure Process and Timelines in Washington State).

Two Notices To Take Seriously
If you’re receiving so much correspondence from your lender that you’ve given up even opening your mail, there are two letters (or notices) that you should pay particular attention to.  The first one is the “Notice of Default”.  This will usually be sent by regular mail, certified mail, as well as a hand-delivered copy (usually taped to your front door if you’re not home).  This notice warns you that the bank may start the foreclosure process if you don’t cure the default within 30 days.

The second notice is the “Notice of Trustee's Sale”, which is sent 30 days or more after the Notice of Default.  Like the Notice of Default, this notice is also sent by regular mail, certified mail, and hand-delivered.  This notice means the bank has scheduled the foreclosure auction for your property.  The foreclosure auction will be at least 90 days from the date of the notice.  The bank has the ability to postpone the auction at their discretion if you’re in the process of a short sale, loan modification, or some other workout option.

As always, if you’re concerned about your legal rights or legal implications, you should consult with an attorney. 

This is just a brief overview of what to expect, and it may differ slightly from lender to lender.  Feel free to share your experiences.


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Authored by David Monroe, Real Estate Agent and Short Sale Specialist
Access Seattle area short sale help and foreclosure resources including selling in foreclosure, and 8 Ways to Avoid or Stop Foreclosure.
Considering a short sale?  Check out this Short Sale FAQ first.

Copyright (c) 2010 by David Monroe (Keller Williams Seattle Metro West)

Will HAFA Improve The Short Sale Process?

On April 5th, the government implemented the Home Affordable Foreclosure Alternatives (HAFA) program, designed to standardize and streamline the short sale process.  I'll give a brief overview of the program, along with some additional comments (and opinions).  The information here includes revisions to the program that were released on March 26th.

HAFA is an extension of HAMP (Home Affordable Modification Program).  The HAMP program was a major failure, helping only a very small percentage of eligible borrowers.  Out of 4 million eligible borrowers, the HAMP program has produced less than 70,000 permanent loan modifications to date.  The problem with HAMP is that it was loosely written, so many banks made little effort to implement the program as it was designed.  After reading and studying the 45-page HAFA Supplemental Directive, I think we're likely to see many of the same problems that people experienced with the HAMP program.

The HAFA program provides voluntary guidelines for lenders to streamline the short sale and deed-in-lieu of foreclosure process by offering financial incentives to loan servicers, investors, and borrowers.  It establishes an acceptable sale price for the property prior to listing it for sale, allows up to 120 days to sell the property, sends the borrower off with $3,000 at closing, and pays the loan servicer $1,500 for processing the short sale.  Sounds like a great deal, right?  Well, don't get too excited yet.

To qualify, the loan must be a first lien mortgage originated before January 1, 2009 from a participating lender NOT owned or guaranteed by Fannie Mae or Freddie Mac.  VA and FHA loans are also excluded.  It is estimated that well over 50% of loans will not qualify for the HAFA program.

The HAFA program is effective from April 5, 2010 through December 31, 2012.

The borrower must meet the following eligibility requirements:

• The property is the borrower's principal residence;
• The mortgage is delinquent or default is reasonably foreseeable;
• The current unpaid principal balance is equal to or less than $729,750;
• The borrower's total monthly payment exceeds 31% of the borrower's gross income;
• If there is mortgage insurance on the loan, the mortgage insurer must approve;
• The borrower must be evaluated for a HAMP modification prior to being considered for HAFA.  (In other words, you'll have to spend several months running in circles trying to get the bank to respond to a loan modification request, even if you know you'll be turned down.)
  
  

Prior to approving a borrower to participate in a HAFA short sale, the loan servicer will determine the minimum net sale proceeds that they'll accept.  What's interesting is that there is nothing in the 45-page document that would prevent a loan servicer from establishing an unreasonable amount for the minimum sale proceeds.  For example, the loan servicer can require the property to sell for 10% more than the estimated value and the borrower can't dispute it.  While that is a bit extreme, the minimum sale proceeds through the HAFA program could be higher than what they would accept on a traditional non-HAFA short sale.

Once a minimum amount is set by the loan servicer, the borrower signs a Short Sale Agreement (SSA), and a real estate agent markets the property and procures a buyer.

A Request for Approval of a Short Sale (RASS) is submitted with the buyer's offer, and within 10 days, the loan servicer must approve or reject the proposed sale.  However, while 10 days may seem like a great timeframe for short sale approval, it could take up to three or four months to get to this point.  Also, if the loan servicer is unable to comply with the 10 day timeline, they can just reject the offer and make up a reason like "insufficient information available".  They're supposed to approve the sale if it meets the minimum net sale proceeds that they had previously set, but they'll find loopholes to get around it.  Trust me, they will.

During the term of the SSA, the borrower may be required to make monthly payments of up to 31% of their gross monthly income.  Since this would be less than the full payment amount, the loan servicer can still report the payments as late on your credit report.

Deed-In-Lieu Of Foreclosure

If a short sale cannot be completed within 120 days, the borrower will be required to transfer the property to the bank via a deed-in-lieu of foreclosure (DIL).  So if the buyer's financing falls through at the last minute and there's not enough time to procure a new buyer, the bank could require the borrower to sign the property over to them without the additional time and legal fees necessary for the standard foreclosure process.  Sounds like a great deal for the bank.

Things start to get complicated is when there is more lienholder involved.  For a short sale to be approved, any subordinate lienholders (like a second mortgage) must agree to a payoff of no more than 6% of the unpaid principal balance (up to an aggregate of $6,000 for all subordinate lienholders) in exchange for a lien release and full release of borrower liability.  In other words, if there's a $30,000 second mortgage, the second lienholder will have to agree to a payoff of $1800 and forgive the borrower of the remaining deficiency according to HAFA.  This could kill a lot of HAFA short sales with second mortgages, as many second lienholders won't agree to those terms.  The HAFA program only applies to first mortgages, so second mortgage lenders are not required to comply with the HAFA guidelines.

While some of the intentions behind the HAFA program may be good, the program is not likely to see much success.  Some borrowers may benefit from doing a short sale through the HAFA program, but most borrowers are likely to see better results through a traditional (non-HAFA) short sale.  The HAFA program doesn't necessarily change the way short sales are done--It just offers another option for those who may qualify.



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Authored by David Monroe, Realtor and Pre-Foreclosure and Short Sale Specialist.
Access Seattle area short sale help and foreclosure resources including selling in foreclosure, and 8 Ways to Avoid or Stop Foreclosure.
Considering a short sale?  Check out this Short Sale FAQ first.

Copyright (c) 2010 by David Monroe (Home4Investment Team at Keller Williams Seattle Metro West).

Townhouse For Sale in Silver Firs - Everett, Washington

13629 56th Ave SE, Everett, WA     MLS # 29062518  $175,000

For more information, contact me at 206-905-8590, or visit my website at www.sellnorthwesthomes.com.

Townhouse for Sale in Everett, Washington - Silver Firs - 3 Bedrooms, 2.5 Baths, 1,738 Square Feet

Great townhouse for sale featuring over 1700 square feet of living space in the desirable Silver Firs community, walking distance to the newly renovated YMCA. Two oversize bedrooms, plus a large master bedroom with walk-in closet and double-sink vanity in the master bath. One bedroom has a slider to a covered balcony overlooking the fenced back yard. Attached one-car garage with additional off-street parking.

This townhouse for sale is in a terrific location, near Willis Tucker Park and walking trails.  Willis Tucker Park features a playground, splash park, dog park, baseball fields, amphitheater, covered picnic area, and community center.

Just east of Mill Creek, many people are discovering the Silver Firs neighborhood, which provides affordable housing in an area surrounded by more expensive neighborhoods.  Silver Firs combines the comfort of being outside the city, with the convenience of being close to amenities.  Silver Firs is a well-planned community, offering a high quality living experience without the price tag that usually goes along with this quality of living.

PROPERTY FEATURES:

Interior Features:  Carpet, Laundry Room, Skylights
Heating:  Forced Air Natural Gas
Exterior Finish:  Vinyl
Sewer/Water Systems:  Public
Roof:  Composition
Lot Features:  Fenced Yard, Landscaped, Patio, Trees / Shrubs, Patio
Appliances:  Refrigerator, Dishwasher, Oven Range, Stove, Washer, Dryer, Garbage Disposal
Extra Features:  Cable Available, Balcony, Close to Public Transportation

Additional information on this Silver Firs townhouse for sale and its surroundings can be found at:  13629 56th Ave SE.

Did you find this property using a search engine or a link from another website?

If so, consider this:

• In addition to you, many other buyers are also seeing this property online.
• If you have a home to sell, I will use the same marketing strategies to give your home the best exposure to potential buyers, helping your home sell quickly at the highest possible price.

David Monroe
Home4Investment Team at Keller Williams Seattle Metro West
Website:  www.sellnorthwesthomes.com
Phone:  (206) 905-8590

Should you stop making your mortgage payments?

As short sales are becoming more common, I’m finding that a higher percentage of people who contact me regarding a short sale are still current on their mortgage(s).  Many of them have just made the last mortgage payment that they can afford to make, while others are trying to develop a strategy that will produce the best results for their situation.

While I typically recommend paying for basic necessities like food, shelter, utilities, clothing, and basic transportation first, sometimes it’s just not possible to continue paying a mortgage payment that is well above an affordable level.  While I cannot advise anyone on whether or not they should stop making their mortgage payments, here are ten things to consider:

1. If your mortgage is FHA insured, you’ll typically need to be at least 31 days behind on your mortgage before they’ll consider a short sale.
   
   
2. For other types of loans, some lenders will approve a short sale if your payments are current, and some will not.  It depends on the underlying investor, and some banks service loans for many different investors.
   
   
3. The short sale process may take longer if you’re current on your mortgage payments.  The bank usually won’t feel that there’s a risk of getting the house back if you’re current on your payments, so they may not be as motivated to work on a reasonable timeline.  A good real estate agent with short sale experience may be able to assist you with the wording in a hardship letter so the bank understands that even though your mortgage is current now, default is imminent.
   
   
4. If you stop making your mortgage payments, it will have a negative effect on your credit.  Therefore, you should make sure you handle anything that would be impacted by negative credit before you stop making payments--And that doesn't mean going out and buying a new car or furniture on credit then not make your mortgage payment.  Securing a place to rent could be impacted by negative credit, but this is usually done much later, and you may be able to explain the circumstances to a prospective landlord.
   
   
5. If you have significant liquid assets (cash in the bank, CDs, whole life insurance policies, or other investments), the bank may require you to put up some cash at closing or sign a promissory note as a condition of approving a short sale, regardless of your mortgage payment status.  IRAs and other retirement plans are typically exempt, but that won’t necessarily stop the bank from trying to ask for these funds.  I’ve heard of situations where sellers were tricked into borrowing from their IRAs to pay back mortgage payments or cover deficiencies on a short sale.
   
   
6. If you stop making your mortgage payments, the bank will attempt to collect the back payments.  If you have two mortgages, the second mortgage lender will probably harass you much more than the first mortgage lender will.  The second mortgage lender is also much more likely to use unscrupulous and unethical collection tactics.  Be prepared.  It’s a lot easier to deal with if you know what to expect.
   
   
7. If you have a second mortgage and stop making your mortgage payments, the second mortgage lender may tell you that they won’t approve a short sale if the second mortgage is delinquent.  This is a collection tactic and is not true.  In fact, the exact opposite is often the case.
   
   
8. Borrowing from a credit card to make your mortgage payment is not recommended.  I have yet to come across a situation where this actually ended with a positive outcome.
   
   
9. If you stop making your mortgage payments, it could eventually lead to foreclosure if you are not able work out something with the bank or have a short sale approved.
   
   
10. If the bank determines that you have enough income to make the mortgage payments, they may not approve a loan modification or a short sale.  However, the bank may make an exception in special circumstances like divorce or an out of area job transfer, where staying in the house may not be an option.

If you also have credit card debt, here are some things to keep in mind:

• If you’re unable to continue making your mortgage payments and intend to do a short sale, staying current on other debt outside your mortgage (car payments, credit cards, etc.) will typically make it easier to secure a place to rent after the short sale is complete.  It will show a prospective landlord that although you had stopped making your mortgage payments because the payments were more than you could afford, you are able to make lower rent payments, and the mortgage situation was an isolated incident.  Many people in short sale situations would have sold their house before they fell behind on their mortgage payments if they would have been able to sell their house for enough to pay off their mortgage.
  
  
• Some banks may check your credit before approving a short sale.  If they find out that you stopped making your mortgage payments but have stayed current on your credit card payments, they may reject the short sale offer.  I’ve only heard of this happening once, and it was with Bank of America.  It’s unclear whether it was just a threat or if the underlying investor actually required that.  However, consider this a warning—It could happen.
  

Make sure you understand the foreclosure timelines.  See my blog post, Foreclosure Process and Timelines in Washington State for timelines in Washington State.

In the end, the decision is up to you.  There may be risks and consequences regardless of your decision.  Just make sure you have all the facts so you’re making an educated decision.


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Authored by David Monroe, Realtor and Pre-Foreclosure and Short Sale Specialist.
Access Seattle area short sale help and foreclosure resources including selling in foreclosure, and 8 Ways to Avoid or Stop Foreclosure.

Considering a short sale?  Check out this Short Sale FAQ first.

Copyright (c) 2010 by David Monroe (Home4Investment Team at Keller Williams Seattle Metro West).

Many real estate agents in Washington State use unlicensed third-party negotiators to handle their short sales.  I have always discouraged that practice (see my March, 2009 blog post, Is Your Real Estate Agent Breaking The Law?).

The Washington State Department of Licensing has now taken an official stance on this.  On their website under “New Real Estate Law Frequently Asked Questions”, they state that short sale negotiators must hold active real estate licenses or be appropriately licensed by the Department of Financial Institutions, and work under the authority of their designated broker.  The department of licensing is currently investigating complaints of unlicensed short sale negotiators (see Real Estate Commission Meeting Minutes).  Real estate agents who are using unlicensed short sale negotiators can be charged with aiding or abetting unlicensed activity and are subject to disciplinary action, according to the Department of Licensing.

Unlicensed third-party short sale negotiators are responding by stating that they’re really “facilitators”, not “negotiators”.  That may technically be true, but that doesn’t mean that the state sees it that way.  I certainly wouldn’t want to be standing in front of a judge trying to explain the difference between “facilitating” and “negotiating”.  And as a real estate licensee, I wouldn’t want to risk my license being suspended while my relationship with an unlicensed short sale negotiator is being investigated.

If you're a real estate agent and you prefer to use a third-party negotiator, make sure they're properly licensed.  Washington State doesn't care what they call themselves.  If they're contacting the seller's lender with the intent to get the lender to approve a short sale, they need to be licensed.  As real estate agents, we need to keep our business practices above-board and eliminate opportunities for any bad press relating to real estate agents.  Would you put your license at risk?


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Authored by David Monroe, Realtor and Pre-Foreclosure and Short Sale Specialist.
Access Seattle area short sale help and foreclosure resources including selling in foreclosure, and 8 Ways to Avoid or Stop Foreclosure.

Copyright (c) 2010 by David Monroe (Home4Investment Team at Keller Williams Seattle Metro West).

Consider this scenario:  You paid off your house a few years ago now you’re selling it for $300,000.  You figure that you would make a better return on your money by offering owner financing instead of cashing out and investing the money somewhere else.  This is a big part of your retirement, so it’s a very important investment decision.

A buyer is willing to pay your asking price of $300,000.  Here’s a snapshot of the buyer’s situation:

• The buyer can only give you $11,000 down.
• The down payment is part of a $17,000 gift received from the buyer’s parents, the remainder of which will be used to pay closing costs. The buyer has no savings outside of that. 
• The buyer has marginal credit with a credit score of 620 and had a couple 30-day late payments on credit cards just over a year ago when they had some unexpected car repairs.
• Based on conventional lending guidelines, the buyer has just enough monthly income to make the mortgage payments. 
• The buyer has been pre-approved for an FHA loan (assuming a seller contribution toward the buyer’s closing costs), but they figure they can save on some of the closing costs and FHA insurance costs by going with the seller financing.
• The buyer loves the house, wants to live there forever, and assures you that their mortgage payment will always be the first check written every month. 

Based on that information alone, would you do the deal?  FHA would.  I would not.

Let’s look at the statistics.  Edward Pinto, a former Fannie Mae chief credit officer, recently testified before a House panel that that an estimated 20 percent of FHA’s entire portfolio will end up in foreclosure, which was also supported by estimates that FHA provided to Congress.  That’s one in every five loans. 

If you have to foreclose, you could be looking at $15-$20,000 in legal fees and lost interest, not to mention that you may have to make repairs before putting it back on the market, and if the market has declined, you would lose more money in the form of a lower selling price.

Why do we expect our government to take financial risks that we’re not willing to take ourselves?  Is it because it’s not money?  Well, it is our money.  And if we don’t support responsible lending, we’ll end up bailing out the FHA program as well.  Adding to our national debt to bail out FHA will lead to higher taxes, which will lead to less disposable household income, which will lead to less available money for home purchases, which will lead to declining housing prices.

Instead of blaming the government for damaging the housing market because of the more stringent FHA rules that were announced, perhaps we should be thankful that a low down payment program such as FHA exists at all.


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Authored by David Monroe, Realtor and Pre-Foreclosure and Short Sale Specialist.
Access Seattle area short sale help and foreclosure resources including selling in foreclosure, and 8 Ways to Avoid or Stop Foreclosure.

Copyright (c) 2010 by David Monroe (Home4Investment Team at Keller Williams Seattle Metro West).

I specialize in short sales, and I’ve observed many actions by banks that seem to defy logic.  This particular experience is no exception.

A while back, I had a short sale listing that was being negotiated with the bank at $300,000.  The buyer ended up backing out right before we received the short sale approval, because their financial situation changed.  We received the short sale approval letter, and the approval was conditioned upon the seller signing a promissory note for $20,000 or coming up with $10,000 cash at closing.

We managed to quickly find another buyer who was willing to pay $10,000 more, but the bank refused to even consider the offer and asked to have the offer rewritten at $300,000.  They also said that regardless of the price offered, the seller would still be required to sign a promissory note unless the bank was receiving a full payoff.  Since full payoff would have been $450,000, that wasn’t going to happen.

We gave the bank what they asked for -- $300,000 plus an additional $10,000 cash at closing, but the bank said they wouldn’t accept the additional $10,000 from the buyer—It had to come from the seller.  So what was the motive here?  To punish the seller?

In the end, the offer was reduced to $300,000, the seller signed the promissory note (at 0% interest, payable over 10 years), and the deal closed.  I typically don’t like the idea of sellers signing promissory notes in these situations, but this seller’s situation was a bit unique and they felt it was in their best interest to do so.  They’ll most likely file for Chapter 7 Bankruptcy, which will wipe out the note.  The money was on the table and the bank refused it.  Now they’ll end up with nothing.


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Authored by David Monroe, Realtor and Pre-Foreclosure and Short Sale Specialist.
Access Seattle area short sale help and foreclosure resources including selling in foreclosure, and 8 Ways to Avoid or Stop Foreclosure.

Copyright (c) 2010 by David Monroe (Home4Investment Team at Keller Williams Seattle Metro West).