LawsonGroupMediation

I reported earlier that Bank of America and others were developing plans to reduce short sale processing to only a week or two. This would necessarily require the SMI’s to speed up their processing as well. To date, I have seen no action that is shortening the process.

If any of you see signs of this occurring, please let everyone know here.

To do this will require the government-owned entities, Fannie Mae and Freddie Mac to radically amend procedures. My contact tells me that there are discussions about this and it may happen before even he is aware of it. Essentially, all this will require is the implementation of a system allowing for lower level approvals of certain specific criteria.

I will stay on top of this and report to when I either get word from Freddie, or when an announcement is made.

Meanwhile, please report signs or announcements when you hear or experience a positive event.

Ken

There are a lot of books and training materials available. However, after attending several short sale training seminars, purchasing expensive courses, and reading several books, I found that most of them were filled with errors?

Why is there so much misinformation and errors? The main reason is that short sales have changed dramatically over the last several months, and servicing lenders are not willing to help agents.

I started out my practice of law 20 years ago representing lenders and sitting with reps in bankruptcy court. Now those friends are in upper management and exectuve level positions. Having such a close connection with lenders has provided me with a more extensive inside look of many entities. We at the TheLawsonGroup keep up with the changes so we can stay on top of the issues.

Because of such widespread misinformation, we published two books for your benefit.

First, Short Sales & Loan Modifications: A Practical Guide For Real Estate Agents and Investors explains the entire process in step by step format, explaining the latest changes in the analysis of short sale proposals, from the comparison analysis to the new minimum threshold analysis. We teach you how to perform a legal and market analysis, along with creating a professionally-drafted proposal designed to reach the SMIs and MI carriers.

This book also teaches the professional skills used by the most skillful attorneys, corporate negotiators, and even the U.S. State Department negotiators. The skills are there for you to learn and practice them to become an efficient negotiator.

At $15.99, this book is a very inexpensive way to learn the entire process from beginning to end.

Plus, if there is anything in it that you do not understand, I am available to guide you.

Secondly, the Short Sale Business Manual contains all of the documents, legal disclosures, and forms referenced in the book. Plus, it contain helpful business documents, along with tips and suggestions for making your short sale business effective and efficient.

At TheLawsonGroup, we provide 3 levels of service to you: Training (book & manual, along with blog instructional entries), Mediation (leverage you resources: you list, we deal with the banks), and Coaching (one on one assistance specifically designed for your needs and budget).

Act today!

Ken Lawson JD

Great news! Representatives Childers (D-MS) and Miller (R-CA) introdced on June 26, a bill numbered HR 3044 which calls for an 18 month moratorium on HVCC, the Home Valuation Code of Conduct that is detrimental to real estate agents everywhere.

If you remember my blog about this practice, the HVCC has a number of features that make it difficult for both agents and their clients.

I encourage you all to contact your representatives now in support of this bill.

To find contact information for your representative, go to www.house.gov, then search for your area congressman/congresswoman.

For this legislation, we are the group who needs to support this legislation. If you have never before contacted your political representative, now is the time to do so for the first time. This affects your livelihood.

Thanks.

Ken

In my 20 years of practicing law, I experienced 3 categories of attorneys who practice bankruptcy law: Those attorneys who will only file chapter 7 discharges. These attorneys do not really focus on the needs of the client, but believe that chapter 7 is the only way to go.

The next category consists of attorneys who will file both chapters, but do not like to spend time deviating from standard customs.

The third category of bankruptcy lawyers are those attorneys who will go to great lengths to take care of the needs of the client. These are the attorneys who are committed to really solving problems for their clients.

It is this third category of attorneys who will gain from this blog article, because most will not have not thought about this solution. Most of the lawyers in this category have little arrogance; rather, they are appreciative of any new or unique solution they can find to help their clients.

Well, here is another one.

For those clients who have either had a short sale declined, or the sale date is too close to submit a short sale proposal, a Chapter 13 Plan can be uitlized to resolve the issue.

In the Plan, propose that the property be sold as a short sale, with no secured payments, or in the alternative, interest-only payments. Provide also for the sale to be in full satisfaction of the debt. The bankrutpcy department of the servicing lender will be managing the file for most lenders, and they will review and forward the short sale proposal much faster than loss mitigation personnel.

The filing of the Chapter 13 Plan will stop the foreclosure, and if the proposal is submitted immediately, there will be a quick review of the proposal to determine if the proposal will be accepted. The attorney can find out immediately who the secondary market investor is and what the mininmum threshold percentage is. If the purchase offer is above that minimum threshold, the proposal will be accepted (assuming the elements of “hardship” are established in the letter and financials).

The creditor’s attorney will likely object to the Plan, however, that objection can be overcome if the attorney can show that the proposal meets the conditions of the secondary market investor who actually owns the note. An objection may be filed solely to reserve their standing, with the servicing lender allowing the objection to be continued to future dates allowing time for the proposal to be accepted and the sale to close.

Once the sale closes, if the Plan is still needed, then it can be confirmed. If not, then the Plan could be dismissed, resulting in the debtor not having a bankruptcy.

Remember, (many attorneys do not understand this point) both a deed-in-lieu and a foreclosure have a more devastating effect on the debtor than a bankrutpcy. A DIL and foreclosure are always asked on mortgage loan applications, and could bar the homeowner from owning a home for a long time, perhaps forever. However, a debtor can recover from bankruptcy in just a few years.

One caveat to this, however. If you have a second mortgage, some federal circuits allow for lien-stripping, and some do not. In the circuits that allow lien-stripping, if there is not even $1 to secure the note, then the lien can be stripped and paid with unsecured creditors, with no interest or preferred payment.

Another caveat. Bankruptcy jurisdictions differ in their application of the law. Some judges will gladly help a sincere debtor with a short sale. Some will not. Some trustees will like your using a Chapter 13 Plan to help the debtor in this way, and some will not and will object to the Plan themselves.

The bottom line is that only 30% or so short sales get approved because of mistakes, misinformation, and inadequate proof of hardship. We’ve been seeing agents with a better than 70% success in obtaining approvals. With these agents, the ones that cannot be approved are proposals with purchase contracts that are below the SMI’s minimum threshold (you may not be able to know who the SMI is, so you cannot know the minimum threshold). The only way to eliminate these rejections, is to not take any case with a purchase price lower than the highest minimum threshold. This is not acceptable, because we all have an ethical duty to our clients.

Agents and investors, it is a good idea to get acquainted with the bankruptcy attorneys in your area and observe which category descibes each one. Then discuss with attorneys in that third category the concept of using the Chapter 13 Plan in combination with a short sale.

Another good idea is to learn the mistakes and errors commonly causing short sale rejections with our publications:

Short Sales & Loan Modifications: A Practical Guide For Real Estate Agents and Investors.

Short Sale Business Manual.

Best Wishes

Kenneth R. Lawson, JD

Attorney Keith Saks alerted me to the Protecting Tenants at Foreclosure Act which was signed into law on May 20, 2009.

This law protects tenants from the foreclosure of federally-related mortgage loans, which is most of them. Under the law, a tenant with a lease may remain in the home for up to 90 days following a notice to vacate. They may actually remain in the home for the balance of the lease unless the home is sold by the foreclosing entity to a new owner who will live in the home as their primary residence. In that event the lease will terminate on the date of sale subject to the 90 day notice to vacate.

Tenants at will, or on a month to month rental will be subject to a 90 day eviction notice.

What does this mean for short sales? This law applies to foreclosures, not short sales.

Any of you representing buyers purchasing an REO may find some that are occupied pursuant to this new law. Likewise if you are selling REO’s you may inherit a property to sell that is occupied, unless the bank does not turn it over for sale until it is vacated, which is the likely the scenario.

For those who wish to read this law, the federal statute is Title VII, Sec. 701 et seq. You can simply Google “Protecting Tenants at Foreclosure Act”.

Ken Lawson JD

www.LawsonGroupMediation.com

Need a good short sale book, course, or guide?

We have step by step instruction for handling short sales and loan modifications, including how to run a short sale business, how to perform a complete legal and marketing analysis, creating a professionally-drafted proposal, and even how to negotiate.

We have two publications:

Short Sales & Loan Modifications: A Practical Guide For Real Estate Agents and Investors

and a companion publication containing all of the forms, guides, and checklists, the

Short Sale Business Manual

On May 1st, a new agreement went into effect, called the Home Valuation Code of Conduct, or HVCC, making changes to the way appraisals are obtained. Fannie Mae and Freddie Mac will not be able to provide funding for loans that do not meet the new guidelines.

The agreement prohibits mortgage brokers or loan officers from ordering an appriasal directly from, or having any direct contact with, a real estate appraiser. This includes approaching them to provide the appaiser with relevant information. Brokers and loan officers will be required to request appraisals from “appraisal management” companies that act as appraisal brokers for obtaining appraisals.

The purpose of this agreement is supposed to be the prevention of the appraiser providing a requested value to match the loan. By not being able to influence the appraiser, the appraiser theoretically will come up with an objective value.

The problem with this thinking is that all of you have probably experienced appraisers who are all over the board with values. We all know that the fair market value of any property is a range, rather than a specific dollar amount. Appraisers are accustomed to tailoring the part of the range the value should be to the purpose. In both real estate and in law, I have seen majority of appraisers with whom I’ve had contact do it this way. Even in divorce court cases it is often required to have 3 appraisals and average the 3 values.

It will be important for agents to be the point of contact person to arrange for access for the appraisal, to help the appraiser to understand that it is not helpful to value the property in the low part of the range. In short sales, they need to understand that it is not helpful to value the property in the high part of the range.

It would be much easier if there was a clear cut and universal method by which to come up with an objective, one number value that would be consistent between all professionals who value property. However, that is not our reality. In short sales, I have had to appeal several valuations that were off as much as $20,000, which would have caused the short sale to not attain the minimum threshold and be rejected. Although I have been successful with every appeal so far, the new law will make it more difficult to appeal these values. This difficulty in appealing values will likely affect short sales as well.

So far, it seems that with almost every legislative and government-ordered change has come more problems They seem to be really good at screwing up what needs to be fixed and trying to correct what does not need to be changed. When will it ever end?

Edit: 6/12/09

It is important to emphasize that most appraisers are consummate professionals and of the highest caliber. Just like the bad lawyers and agents hurt damage the reputation of the rest of us, it will be a minority that will create the problems. The criticism of the agreement and new procedures is justified because we all know there are bad lawyers, agents, and appraisers.

That’s my opinion, what is yours?

Ken Lawson JD

There are almost daily press releases concerning different lenders who are making it easier for borrowers to submit requests for a loan modification. The lenders do not want other entities, including lawyers and Realtors processing loan modifications.

It is true that if the modification only requires a reduced interest rate or term of the loan, the lender is the best entity to process the loan mod. As Realtors and attorneys, we should not charge someone for a competent service that would otherwise be free. There are many vultures who prey on borrowers to provide services that they can receive free.

However, it is also a reality that in the past 85% of loan mods were rejected. With the recent changes, that percentage has dropped to about 65% last I heard. So despite all these press releases about making it easier to modify a loan, these entities are really be quite deceptive.

The cases where an attorney or Realtor assists borrowers with loan modification are when the principal balance of the loan needs to be reduced to match the current market value that is now lower. The professional is needed to make certain that the correct market value of the property is obtained. We are all too familiar with how appraisals may be all over the board. We need to keep appraisals accurate for the benefit of the borrowers.

However, there is a more important reason Realtors and attorneys should process loan modifications. During the years from 2001 to 2007, approximately 80% of all ARM loans contained TILA or RESPA violations. With the high percentage of rejections of loan mod proposals, if there is a violation, that violation is leverage to encourage the lender to approve the proposal. While ARM loans are the most egregious in violations, other loans contain lesser percentages of violations.

In contrast to short sales where normally it is the secondary market investor and/or MI carrier who must approve the proposal, in loan modifications it is typically the servicing lender with this authority. We all realize that we cannot blindly trust the lenders to protect the interests of borrowers, so loan modifications are a great opportunity for Realtors to market for and process. The beauty of it is that if the proposal is rejected, you then can sell it in a short sale. You get 2 fees.

Real estate agents can process proposals themselves, or you could use a firm like ours to process and deal with the banks.

Our publications were written to help you understand the process and handle everything from marketing for loan modifications and short sales, to drafting the proposal, to performing a legal and marketing analysys, to negotiating with the lenders. …and, it is very low cost.

You can purchase the book at www.LawsonGroupMediation.com or at Amazon.com (search books for “short sales” or “loan modification”)

Best wishes to all,

Ken Lawson JD

From DS News, I found the following article:

Reston, Virginia-based MERSCORP, Inc. (MERS) unveiled a new program on Tuesday that informs borrowers of ownership changes regarding their mortgage. The company says its program supports new federal legislation, which is designed to help homeowners keep their homes by bringing greater transparency and accountability to the mortgage lending process.

The Helping Families Save Their Homes Act of 2009, signed by President Obama on May 20, amends the Truth in Lending Act (TILA) and requires that, when a loan secured by the primary home of the borrower is sold, transferred, or assigned, the new owner of the loan notify the borrower in writing of the transfer of ownership within thirty days.

MERS is a utility launched by the real estate finance industry to streamline lending practices and eliminate time-consuming paperwork. Its repository includes information on over 60 million home loans electronically registered by lenders on the MERS System. The company’s new notification program will inform the borrower of future changes to the investor when the loan is registered on the MERS System. The MERS InvestorID program will automatically send a Mortgage Transfer Notice to the primary borrower when the ownership of their loan changes. The company explained that MERS members who have developed their own notification solution can opt out of using MERS InvestorID.

R.K. Arnold, MERS president and CEO, said, “We are excited to support Congress and the Obama administration’s efforts to help distressed borrowers stay in their homes. This program will be another tool for the real estate finance industry and the administration’s efforts to bring greater transparency and accountability to the mortgage lending process.”

Now, my opinion,

Our firm mediates short sales for agents who desire it, and trains agents to process short sales who wish to do it themselves. We are able to eliminate the mistakes that agents make.

However, there is a certain amount of gambling. Why? Because presently there is no way to know who owns the loan, so we don’t know the minimum threshold percentage of the fair market value that must be netted to the secondary market investor, the owner of the note.

This law change should help change that in the future. Along with the Treasury announcement today, hopefully we will be able to do less gambling and more predictive proposals.

Ken Lawson, JD

From the San Francisco Chronicle & Scripps Howard News Service comes this news:

The federal government and some banks are trying to make it easier for stressed homeowners to sell their home for less than they owe, a transaction known as a short sale.

This month the Treasury Department said it is creating a streamlined, industry-wide process for short sales and will pay bonuses to certain borrowers, loan servicers and second-lien holders to do them.

The Bank of America, the nation’s largest home-mortgage service company, last week announced that it has two programs “in the pilot or planning stages” to expedite the process, mainly by identifying short-sale candidates in advance and setting preapproved prices at which short sales can take place.

Because short sales can have negative tax or legal consequences, homeowners should consult an attorney and accountant experienced in real estate before doing one.

In a short sale, a homeowner who is underwater on a mortgage finds a buyer for his house and sells it for less than the debt owed. The seller turns the sales proceeds over to the lender, which agrees to release its lien on the property.

At closing, the lender might require the seller to sign a note for or contribute to the difference between the sales proceeds and the loan balance. This usually depends on whether the lender thinks the homeowner has the financial wherewithal to make up the difference.

“In most of these short sales, you will see a very abbreviated document from the lender. It essentially says, ‘We agree to let this short sale go through,’ with an asterisk. The asterisk says, ‘We reserve our right to obtain the balance of the funds we didn’t get from the short sale from you personally after the sale,’ ” says William Purdy, a real estate attorney in Soquel, Calif.

In some cases, short sales are better than foreclosures for homeowners, neighborhoods and lenders.

Homeowners avoid an eviction, and the impact on their credit report might be somewhat less onerous than a foreclosure. Neighborhoods benefit because there are fewer vacant houses falling into disrepair. Lenders avoid the legal fees, maintenance costs and sales commissions associated with foreclosure.

But handling a short sell is arduous, time-consuming and usually unsuccessful.

Historically, only 30 to 35 percent of short-sale offers get approved, usually because the lender thinks the offer is below market value or the homeowner has not submitted the required documentation, says David Sunlin, a senior vice president with Bank of America.

Of those that are approved, about 60 percent fall apart before closing, often because the buyer has given up or can’t get financing, Sunlin says.

At Bank of America, it typically takes 45 days to get a short-sale offer approved or denied. If there is more than one mortgage on the property, the process is more difficult because all lenders must agree.

Given the time, complexity and low success rate, many real estate agents won’t handle short sales, especially because lenders often want them to discount their commissions.

Zillow.com estimates that short sales accounted for 11.9 percent of all U.S. home sales in the 12 months ending March 31, up from 10.9 percent in the 12 months ending Dec. 31.

On May 14 the Treasury Department announced a plan to “provide incentives for servicers and borrowers to pursue short sales” in cases where the borrower is generally eligible for a modification under the federal government’s Making Home Affordable plan, but either can’t qualify or gets the modification but can’t keep up the payments.

In these cases, Treasury will pay a servicer $1,000 for completing a successful short sale, it will pay the borrower $1,500 to assist with relocation expenses and it will pay second-lien holders who release their claims up to $1,000.

Bank of America also is trying to streamline and shorten the short-sale process. It has increased staffing and created a dedicated short sale call center at (866) 880-1232.

Wells Fargo also says it has improved its short-sale approval process in the past year.

“We strongly recommend that our customers who wish to consider a short sale contact us before or shortly after they sign a listing agreement with a real estate agent,” says David Knight, senior vice president for default and retention operations.

Consumers should know exactly what they’re getting into before doing a short sale. In California, if the lender wants to come after you for the unpaid balance and you have never refinanced your loan, you might be better off going into foreclosure, Purdy says.

That’s because a loan used to buy a primary residence that has never been refinanced is non-recourse debt in California. If the lender forecloses, it cannot come after your other assets for the unpaid balance. If a lender agrees to forgive some of your debt, you could — in certain situations — be liable for income tax on the amount forgiven.

Borrowers should try to find out how the short sale will affect their credit report and score. There is no code for reporting short sales on a credit report like there is for foreclosures or bankruptcies. Lenders and credit bureaus may report it differently.

The industry standard “is to report a special comment, which indicates that an agreement was reached between the lender and the consumer to accept an amount less than the full balance,” Equifax says.

A prospective lender looking at your credit report might decide a short sale is less negative than a foreclosure.

But a short sale will have the same impact on your FICO credit score as a foreclosure, says FICO spokesman Craig Watts. The FICO scoring formula treats any account that is closed and not paid as agreed “as a serious delinquency,” he says.

We will continue to watch this developing news.

OK, Here are my opinions:

1. Treasury stating they are making industry-wide changes… actually, they now own most of the secondary market investors, so certainly they are making changes, but not all for the better.

2. The agents working with us have much higher rates of closing due to the guidance we provide.

3. My experience has been that FICO scores have been less affected by shorts sales than by foreclosure or deed-in-lieu. I think the guy from FICO is not being honest/accurate.

4. The $1,000 going to the 2nd is down from the 10% up to $3,000 to the 2nd by Freddie Mac.

5. BofA has done little to solve their problems. They still lose documents, they still isolate their negotiators, and very little has changed. But they are trying to change, but keeping the same countrywide people who create the problems. They promise to change, and we will see.

6. The concept of the secondary market investor being willing to disclose to us the minimum threshold is awesome if they do it.

Ken Lawson JD

Ds News reports the following:

“Freddie Mac announced on Friday that it is instituting several changes to its refinance offering under the Obama administration’s Making Home Affordable program. The McLean, Virginia-based GSE explained that the new relaxed guidelines will make the refinancing option available to a wider scope of borrowers looking for mortgage relief from the government program.

Under the new rules, homeowners will be able to refinance a Freddie Mac-owned or guaranteed mortgage with any lender affiliated with the GSE. Previously, borrowers had to work with the lender who currently services their mortgage. Freddie Mac explained that borrowers can continue to work with their existing servicer to refinance, and in the majority of these cases, the current servicer will not have to re-underwrite the loan. However, if the borrower chooses to work with another Freddie Mac-affiliated lender, the mortgage will need to be underwritten by the new servicer.

Freddie Mac’s expansion of approved lenders that can be used for refinancing is now more in line with its sister company Fannie Mae’s guidelines. Under its program, Fannie Mae permits borrowers to choose from a list of more than 1,600 approved lenders to secure a refinanced mortgage. The previous disparity between the two GSEs’ standards drew criticism from mortgage brokers and smaller lenders who argued that Freddie Mac was shutting them out of the federal program.

Freddie Mac said it is also increasing the amount of closing costs that can be rolled into the new refinanced mortgage. The GSE will now allow the lesser of 4 percent of the new refinance amount or $5,000 of closing costs, financing costs, and prepaids/escrows to be rolled into the new refinance mortgage. Freddie Mac’s standard post-settlement delivery fees, up to a maximum of 2 percent, will still apply to mortgages funneled through its refinance program.

Commenting on the new guidelines, Freddie Mac EVP Don Bisenius, said in a press statement, “We are responding to consumers’ desires to have more refinancing options. Freddie Mac is committed to doing everything we can to bring the benefits of the administration’s Making Home Affordable program to as many borrowers as possible.”

Freddie Mac’s Relief Refinance Mortgage offering became available April 1 and applies to those borrowers who are current on their mortgage payments but have been unable to refinance due to declining property values and tightening credit terms. A spokesperson from the company told DS News that servicers should look for a bulletin to be released within the next week, detailing when the new guidelines will take effect.”

My Opinion:

How will this action affect short sales? For a lot of homeowners, this may present an alternative not previously available. Loan Modifications are also the hot deal, but rejections of loan mods only decreased from about 85% to about 65%. Refinancing with relaxed standards for the current homeowners will mitigage a great amount of losses for the lenders, however, there will only be a substantail reduction in savings for the homeowners if the principal balance is modified to the new property value. Thus, the devil will be in the details.

Will this be the end of the short sale? Emphatically NO! The opinion of this author is that these new re-fi’s will only marginally affect short sale cases. The numbers of borrowers, and property, who will actually qualify is likely to be fairly small. The only likely impact will only affect those wanting an option to loan modification. For those borrowers who cannot afford even a modified or refinanced payment due to job loss or transfer, short sales remain the best option.

We will continue to watch this development and report back to you.

Ken Lawson JD

Training agents in short sales

Coaching agents to greater short sale success

Mediation services to process the short sale and deal with banks, so the agent can focus on listings