Obama Short Sale Program kicks off April 5th

The Obama Administration’s new short sale plan, which begins April 5, calls for banks to agree to not pursue borrowers for any deficiency judgments after a short sale, requires second lien holders to accept a maximum of $3000 to settle their debt, allots $1000 to mortgage servicers for a successful short sale, and allows for up to $1,500 in “relocation” assistance to borrowers.

The plan – Home Affordable Foreclosure Alternatives, or HAFA – is for borrowers who qualify for or have participated in the Home Affordable Modification Program, or HAMP, but have not been able to make their new reduced mortgage payments through the trial period. It is also for any borrower who has tried to modify their loan through HAMP and now requests a short sale in order to avoid foreclosure.

The program calls for banks to decide what they are willing to take $ wise in the short sale before the property goes on the market, so that the buyer, real estate broker and seller know what price the property needs to sell for in order for the bank to approve the short sale. It also requires lenders and servicers to use uniform documentation and short sale terms, prevents them from reducing the real estate agent’s commissions in a short sale and greatly expedites the lender’s short sale approval process to ten business days after receipt of an offer.

HAFA also allows lenders to offer a deed in lieu of foreclosure to borrowers with government insured loans without requiring borrowers to first put the property on the market for 90 days, which is the typical protocol for a deed in lieu of foreclosure.

With all of this said, the glaring, overwhelming problem with HAFA, like all government programs to date geared toward preventing foreclosures, (starting with the Bush Administration’s Housing Economic Recovery Act), is that bank participation will be voluntary and on the individual lender’s terms.

HAMP, which set out to help 3.4 million borrowers, to date has modified less than 120,000 borrowers’ loans, and even for the loans that have been modified, the lasting impact is questionable.

The good news with short sales is that, at least in my experience thus far in 2010, the nation’s lenders, simply by virtue of the fact that they have had the past 3 years to practice, are starting to move faster on short sales and issue approvals with less stringent qualifying criteria. This means that, without regard to government programs, the average homeowner has a better chance doing a successful short sale than ever before.

What’s the Deal with a Deed in Lieu of Foreclosure?

A deed in lieu of foreclosure is basically a voluntary foreclosure, where the homeowner agrees to surrender the property to the bank, and the bank, in exchange for not having to incur the legal expenses of going through the foreclosure process, in some cases agrees to not pursue any deficiency against the seller.

In past real estate downturns, banks were willing to take properties back in a deed in lieu of foreclosure. Today, however, most banks are not interested in doing deeds in lieu of foreclosure because they are already overwhelmed with foreclosed properties and do not want to take any more properties back.

For this reason, typically, when a seller calls their lender to request a deed in lieu, they are told that the bank does not want it, and to short sale the property.

The other major obstacle in most cases to a deed in lieu is that there can only be one loan on the property. If a homeowner has a first and a second lien on the property, they cannot do a deed in lieu of foreclosure.

Finally, a deed in lieu shows up as a foreclosure on a borrowers credit report.

Chase Bank Short Sale Update

Chase Bank will no longer accept offers on short sales from any investor/corporate/trust entities i.e. any offer from an LLC, Corporation, Trust etc. This is becoming increasingly common among the nation’s large lenders as more and more short sale investors attempt to purchase short sales at below market prices in order to immediately flip them for a profit.

Sound Familiar? Morgan Stanley walks away from $2 Billion in Commercial Real Estate

Giant Wall Street securities firm Morgan Stanley has announced the “orderly transfer” (read “strategic foreclosure”) of five commercial San Francisco buildings back to their lender, Barclays Capital. Morgan Stanley bought the buildings at the peak of the market and since then, the properties have lost as much as 50% of their value. Like any business, they made the “business decision” to rid themselves of the assets to better their bottom line. They just don’t like to call it what it is, lest the millions of homeowners in the same situation decide to do the same thing.

And of course herein lies the irony. Morgan Stanley spokesperson Alyson Barnes, who apparently has no sense of shame whatsoever, was quick to point out that this is completely different from a homeowner strategically walking away from a home they are upside down on: ““This isn’t a default or foreclosure situation, we are going to give them the properties to get out of the loan obligation.” No, it’s not a default or a foreclosure situation, of course not.

Banks and corporations, and the media they control, continue to take great pains to report instances like this in a completely different light than the way they portray homeowners doing precisely the same thing. For banks and corporations, it’s an “orderly transfer” based on sound business principles, while for homeowners it’s a “foreclosure” as the result of irresponsible behavior.

Bottom line, if you’re a homeowner who is upside down on your home, make the best business decision for you and your family and don’t allow yourself to be swayed by the propaganda put out by the banks and the media about your moral obligation to hang onto an asset that makes no economic sense for you to keep.

Beware: All lender short sale policies include a “waiver of funds” clause

Beware: Lender short sale policies include a “waiver of funds” clause that prohibits sellers from receiving any compensation from a short sale, including kickbacks from a real estate agent. Violations of this clause are a federal offense and constitute loan fraud on the part of both the real estate agent AND the seller. The CA DRE & US Attorney’s office strongly urge all consumers to report any such instances to their offices immediately.

Short Sale: Ethical Dilemma or Business Decision?

Not a day goes by that I do not get a call from a San Diego homeowner who is struggling with the moral dilemma of whether or not they should short sale their home.

I say “moral dilemma” because that’s how they perceive it, but the truth is that morals and ethics have nothing to do with it – it’s a business decision, plain and simple.

The banks would like the public to believe that they have a moral obligation to pay their mortgage (“you signed on the dotted line” they say), but the reality is that when you signed, you signed a contract that specified the real estate as collateral for the loan you were taking out. If you defaulted, willingly or not, the bank could take back the property. Period.

The irony here is of course that the banks are notorious for making “business decisions” which are to their benefit and profit, and everyone else’s detriment.

For example, the banks devised stated income, no qualifying, zero down, interest only loan programs that were so easy to qualify for that almost anyone could get them, carved up the mortgages into mortgage backed securities, sold them multiple times, made billions of dollars, and then blamed anybody and everybody else for the real estate crash and mortgage crisis – business decision.

The banks take billions of dollars of government bailout money and in exchange pledge to modify homeowners’ loans, increase lending and make a real effort to stem the tide of foreclosures – and then do none of the above – business decision.

The banks foreclose on homeowners after leading them along for months under the guise of doing loan modifications, take the properties back and then sit on them in order to cook their books and make themselves look more solvent than they actually are so they can pay back the government bailout faster and give themselves huge bonuses – business decision.

Finally, a corporation owns a luxury hotel, say the W Hotel in Downtown San Diego, or the St. Regis Monarch Beach in Dana Point, and after trying unsuccessfully to get its lender to modify its loan, decides to simply walk away and turn the property over to the bank – business decision. And a real life example by the way, as both of these hotels are now in receivership.

In other words, do you think for a moment that the board members of Sunstone Hotel Investors, the corporation that owned the W Hotel, debated giving up the property on moral or ethical grounds? Do you think that even came up? No – it was a business decision.

So, when a homeowner who is $100K, $200K, $300K or more, upside down on their property, makes the decision to give up the property and do a short sale, it is every bit as much of a business decision as it was for the owner of that luxury hotel. Ethics and morals have absolutely nothing to do with it, and it is disingenuous at best for lenders to imply anything different.

Bank of America (BofA) Short Sale Update

Bank of America, via their new Equator software platform, has implemented a requirement that the buyers financial information be input into the system – i.e. buyers Social Security #, address, etc. We speculate that they are requiring this information so they can do checks to make sure the buyer and seller are not related in any way and that it is an arms length transaction.

Wells Fargo / Freddie Mac Short Sale Update

Wells Fargo / Freddie Mac Short Sale Update 2/18/2010: We just closed a Wells Fargo short sale (Wells Fargo 1st & Wells Fargo 2nd) by convincing Freddie Mac, the investor behind the 1st lien, to agree to allow the buyer to bring in extra funds to settle the 2nd lien. This is significant as Freddie Mac has a policy whereby they will not allow any extra funds to go to the 2nd beyond what they are giving them. This took an extra month to negotiate but hopefully will set a precedent for future transactions.

Tax Implications of a Short Sale: 1099C, California Taxes & Federal Taxes

*Note* The question of the tax implications of a short sale came up this morning during my appearance on “These Days” with Maureen Cavanaugh on KPBS radio. As there seems to be quite a bit of confusion and misinformation with regard to this topic, I wanted to address it here on our blog. The following is excerpted from the Short Sale FAQ page of www.battiata.com, which can be accessed in its entirety by clicking here: –

Matt Battiata on “These Days” on 89.5 FM KPBS Radio

**Matt Battiata was a guest on “These Days” with Maureen Cavanaugh this morning – 2/18/2010**

I was a guest this morning on “These Days” with host Maureen Cavanaugh on 89.5 FM KPBS radio, along with San Diego Union Tribune real estate reporter Roger Showley. We will be posting an audio clip of the show on the “In the News” section of Battiata.com shortly.

On the show this morning we discussed the January San Diego sales data that shows a 7.6 % decrease in the median price for San Diego County, and took calls from listeners.

The big debate in the media and among real estate “experts” and pundits continues to be “Are we at the bottom of the market in San Diego?” – and most seem to think we are, pointing to the increase in the median price for the last few months, up until January anyway. Those who maintain this position discount the January sales stats by saying January is always a slow month and that we cannot draw any conclusions from one month, especially January etc.

The irony here is that when we saw a .75% (that’s right, less than 1%) increase in the median price in August 2009, these same real estate experts hailed it as definitive proof that the market had bottomed out and was on the rebound, despite the fact that August is every bit as slow of a month as January.

So where are we really? Why are we seeing fluctuations in the median price? Why are we seeing multiple offers on listings? What is going on?

The reality of the San Diego market, as I explained this morning, is that the current housing inventory is artificially low for 2 reasons –

1) The banks are withholding inventory from the market – homes they have foreclosed on but are not releasing to the market and selling. This is the “shadow” or “phantom” inventory of foreclosed homes that the banks publicly deny exists, but may number as high as 20,000 in San Diego County and higher in Riverside County, and stands to increase dramatically in 2010 and beyond.

2) Four concurrent foreclosure moratoriums in 2009 meant that most people who were in default and would have been foreclosed on in 2009 did not get foreclosed on and therefore their homes have not hit the market.

Finally, as I mentioned on the air this am, historically, the San Diego market has been a roller coaster, with very high peaks and very low bottoms. We had a peak in 1980, a bottom in 1984, a peak in 1990, a bottom in 1996, a peak in 2005 and a bottom…I would say in 2012. Why? Consider this: a tremendous number of people in San Diego either bought at the peak of the market and put very little down (as the banks lending guidelines encouraged them to put as little down as possible), or refinanced at the peak, and pulled out all of their equity. In other words, many, many people owe peak prices on their homes.

In other words, they are upside down, and will continue to be so until prices come back up to peak levels. Until then, If any of these people need to sell for any reason, be it a job transfer, job loss, divorce or any other reason, they are going to be best case, a short sale, and worst case, a foreclosure, which will continue to put downward pressure on prices in San Diego County.