San Diego Short Sales, Orange County Short Sales

Three take aways

1. Unless you are an attorney, no advance fees for upside down home owners

2. Watch out before you tell someone not to speak with the bank

3. Be very careful about claim you will be able to stop a foreclosure.

Short Sale Attorney

" From the FTC website

The FTC is issuing the Mortgage Assistance Relief Services (MARS) Rule to protect distressed homeowners from mortgage relief scams that have sprung up during the mortgage crisis. Bogus operations falsely claim that, for a fee, they will negotiate with the consumer’s mortgage lender or servicer to obtain a loan modification, a short sale, or other relief from foreclosure. Many of these operations pretend to be affiliated with the government and government housing assistance programs. The FTC has brought more than 30 cases against operations like these, and state and federal law enforcement partners have brought hundreds more.

Advance fee ban

The most significant consumer protection under the FTC’s new rule is the advance fee ban. Under this provision, mortgage relief companies may not collect any fees until they have provided consumers with a written offer from their lender or servicer that the consumer decides is acceptable, and a written document from the lender or servicer describing the key changes to the mortgage that would result if the consumer accepts the offer. The companies also must remind consumers of their right to reject the offer without any charge.

Disclosures

The Rule requires mortgage relief companies to disclose key information to consumers to protect them from being misled and to help them make better informed purchasing decisions. In their advertising and in communications directed at individual consumers (such as telemarketing calls), the companies must disclose that:

• they are not associated with the government, and their services have not been approved by the government or the consumer’s lender;
• the lender may not agree to change the consumer’s loan; and
• if companies tell consumers to stop paying their mortgage, they must also tell them that they could lose their home and damage their credit rating.

Companies also must explain in their communications to consumers that they can stop doing business with the company at any time, can accept or reject any offer the company obtains from the lender or servicer, and, if they reject the offer, they don’t have to pay the company’s fee. The companies also must disclose the amount of the fee.

Prohibited claims

The MARS Rule prohibits mortgage relief companies from making any false or misleading claims about their services, including claims about:

• the likelihood of consumers getting the results they seek;
• the company’s affiliation with government or private entities;
• the consumer’s payment and other mortgage obligations;
• the company’s refund and cancellation policies;
• whether the company has performed the services it promised;
• whether the company will provide legal representation to consumers;
• the availability or cost of any alternative to for-profit mortgage assistance relief services;
• the amount of money a consumer will save by using their services; or
• the cost of the services.

In addition, the rule bars mortgage relief companies from telling consumers to stop communicating with their lenders or servicers. Companies also must have reliable evidence to back up any claims they make about the benefits, performance, or effectiveness of the services they provide."

One of the highlighted threads on Active Rain discusses the issues related to third party negotiators.

On that thread attorney Richard Zaretsky from Florida made and short but powerful post. (he has made a lot of good posts on his Active Rain blog as well.)....

"Title companies do short sales to retain business (the closing). They are not negotiators and their vested interest is to get it closed - period.

Sellers need advice on what they got themselves into. Few banks give clear cut short sale approval letters, and if you have a 2nd lender involved or mortage insurance, the transaction and seller issues usually mount.

Knowlegeable brokers and the advice of an attorney should be in every short seller's team bag when undertaking a short sale / deed in lieu."

As an attorney and brokerage owner I would like to examine his post sentence by sentence. Mr. Zaretsky's post will be in quotes. My comments follow. Note.... I have not contacted him about this post... so these are my opinions... he is invited to post his own if he wishes.

"1. Title companies do short sales to retain business (the closing). They are not negotiators and their vested interest is to get it closed - period."

A consumer or non experienced Realtor would say, sounds good to me. Why would an attorney post such an unusal sentence. This sentence is similar to the NFL coach who critiqued a receiver by saying all he does is catch touchdowns. Correct?

"2. Sellers need advice on what they got themselves into. Few banks give clear cut short sale approval letters, and if you have a 2nd lender involved or mortage insurance, the transaction and seller issues usually mount."

Experienced short sale negotiators know that many banks provide vague short sale approval letters --or worse -- approval letters which reserve the lenders right to collect on the deficiency.

In my legal and licensed Broker opinion as well as the opinion of the California Association of Realtors the first order of business for a seller should be to consider other loan workout options or bankruptcy before agreeing to do a short sale. It is highly advisable that a seller speak with an experienced loan workout attorney so that they can pick a strategy which has the best chance of minimizing financial, tax and credit damage.

For many people and many lenders in CA, the seller should consider a short payoff strategy for the junior loan before beginning a short sale. Owners might also consider loan modification, bankruptcy or perhaps consider challenging the validity of the loan or the servicer before beginning a short sale.

I wonder how many Realtors worry they are not serving their clients well when they are come back with an approval letter which reserves the lenders right or the M.I. company's right to collect the deficiency. Would it not be far better to have an attorney advising the selling of thier options? Many times a short sale is the best strategy, but not always.

I do wonder about Bank of America short sales and Real Estate Brokerages.

I wonder how the larger brokerage chains can allow their Realtors to keep doing short sales on behalf of owners with assets, when they know BofA reserves the right to collect the deficiency in Realtor negotiator short sales. Attorneys can get BofA to change the language. I just do not get why larger brokers do not care about the public or their agents. Don't they have the profits and resources to protect the public and their Realtor's future?

I note that Breach of Fiducary duty, is consider fraud under CA law. One lawsuit for breach and a Realtor is looking for a new non licensed career. My advice to Realtors... search for a broker who cares about you and your sellers. Get an attorney on your team.

3. Knowlegeable brokers and the advice of an attorney should be in every short seller's team bag when undertaking a short sale / deed in lieu."

Agreed. In my opinion it is the only way to properly discharge your fiduciary duty to the seller.

If your Real Estate brokerage does not have a short sale attorney on staff to help you and your sellers, find another broker.

The first 20% of the short sale is setting up loan workout strategy and the short sale package. .

The next 50% of the short sale is submitting the package and getting it to the negotiators desk.

The last 30% is negotiating the proper releases and properly counseling the sellers on the legal consequences of those releases.

the middle 50% seems like it can be done by any diligent professional.

However, I always wonder, who tells the sellers they should close on the terms presented, who is negotiating the wording of those releases?

In the last few days I have spoken with third part negotiatiors, an active agent in my office and few agents outside of my office about HAFA short sales. Banks are setting up BPO's and appraisals more rapidly but other than that the banks/servicers are not really all that concerned about following HAFA guidelines. I would say they are making it up as they go along.

Different departments for the same servicer give completely opposite pronouncements on procedures and requirements. If I do not like what I hear one day, I call another number the next day and hear opposite. For instance...One day BofA said we can't go through HAFA if there is a Notice of Sale... then the next day we were told we have to go through HAFA if there is a Notice of Sale.

Our take so far:

1. Watch out for high pre approvals. (this is likely to be a permanent problem in my opinion unless prices start to double dip.)

2. Watch out for non negotiable prices. Some lenders have said if we do not get an offer which meets their pre approved price they will not consider the short sale. Other banks do not really give a substantive response when asked the same question.

3. Watch for non compromising seconds. If the second lender is unwilling to release the deficiency, you may get stuck with a foreclosure. So watch out. Until seconds have a track record of releasing the deficiency, sellers may wish to opt out of HAFA.

4. Watch out for B.S. relocation cash. The banks have been misleading un represented homeowners about how much money they will receive to relocate and so have many Realtors. Borrowers get pissed when the cash they were promised disappears.

A Strategic Default may not be very Strategic if you have not created what we call an upside down analysis (tm).

Now that Fannie Mae and other lenders are pursuing deficiency judgments it should be clear to most people that it is important to Put the Strategy in Strategic Default (Tm).

Checklist of Strategic Default considerations

1. Release from the remaining loan balance.

a. Read your loan to see if it is a non recourse loan -- it is rare to find a loan which says it is non recourse on it face… but I have seen two.

b. see if you are protected from the deficiency by operation of state law.

(i) In some western states like CA, some loans become “non recourse” (to the borrower) after a foreclosure. Other loans in carry personal recourse after a foreclosure. (Note: CA has recourse and non recourse loans.)

(ii) other states like FL do not have laws which operate to automatically protect the consumers from personal liability after a foreclosure… so states like Florida a so called “strategic default” runs a high risk of not being strategic.

2. Does your lender offer workout options which are useful?

a. will your lender or loan servicer release the deficiency in writing as part of a short sale? Or are there other financial reasons to attempt to negotiate a short sale?

b. will the lender release the deficiency in writing as part of a deed in lieu?... the tough part of negotiating a DIL is getting the lender to accept the offer.

c. is there a short payoff or short refi option which exists outside of a short sale? … there are lots of people hyping short refis—but the funny thing is some of the hype-sters have come to us to see how we get short pays accepted. (we are very selective about the loans and the lenders). So far I have not seen a single short reifi hypester produce a single result on the residential side in a liquid market.

Note… our commercial real estate group has closed commercial refinance’s on commercial properties. In commercial deals, if you can show you have closed multi million dollars deals, the investor does not typically care if you allow the borrower to stay in possession. I am open mined to the idea on the residential side, but so far all I have seen is hype.

d. Other workout options to consider.

3. Is your default part of Bankruptcy planning? Please note Bankruptcy is no nearly as useful as it once was for most people with average or better jobs or other assets

4. Credit rebuilding and repair consequences.

Many people are finding out that poorly executed short sales can leave them with an open unpaid debts. In some circumstances a foreclosure might be better than and open line of credit.

5. Preservation of Asset or Salary Info . If you have recourse loans you might decide it is too risky to give updated asset or salary info to your lender. Remember you may have already given your lender substantial info when you took out the loans. Sometime our clients decide that although a foreclosure will stick them with a deficiency for the junior loan, it is better to not let that lender or senior lender know about their recent income or asset acquistions.

6. Choice of Collection Company. With some lenders it is sometime beneficial to deal with their likely collection arms. With other lenders it is much better to deal with the servicing arm of the lender.It is important to know with whom you may be negotiating.

This list is not complete… feel free to add the strategic considerations which go into a strategic default.

Question: ... there seems to be a variety of responses on the web concerning California law and purchase money HELOC's with no case law. I'm in the same situation as above 80/20 with a purchase money HELOC, it is even checked purchase money on the loan doc for the HELOC. Is there any definative answer regarding this question? I called the state AG office and one of the staff said it should still fall under 580b, but they were interested to know of others in the same situation. I've seen several post with people in the same situation being pursued by the banks, but very little concerning the resolution to what happens when a lender or collector comes after them. Does anyone know? It seems that lenders purposely created such loans during the boom to circumvent 580b, which seems rather weak ground to stand on if brought to court. If however the second becomes unsecured after a foreclosure does this change the nature of the loan? Sorry I have several questions, but I'm not finding any definative answers.

Answer

1. I would say nothing definitive as I still have not seen any case law on

HELOCs and defaults or even 580b and short sales.

But, watch out for interesting 2 part closings. There is a wrinkle with HELOCs. Some deals which were funded in two steps... 80% for the purchase and then the 20% Heloc funded.

2. When the paperwork says purchase money - CA license collection lawyers back off.

All you have to do is mention that you do not understand how in the world

a CA licensed attorney would pursue a collection effort where CCP 580b fits

the facts and the HELOC itself says purchase money. (as some loans say in the header or on the front page)

Between unfair debt collection statutes, unfair business torts and attorney

sanctions... no CA attorney in his right mind would stay on that file.

We have seen some jump off file in less than 12 hours.

3. We have never seen a lender or collection firm continue their pursuit after foreclosure when we inform them of the loan's non recourse status. It may take a few letters to the lender's legal department, but in our experience they back down. 580b and 726 are the foundation of solid strategic defaults... banks know the law.

I also think we see it playing out in the way the banks go after defaults on high end properties.

When recourse loans are involved we are seeing a few judicial foreclosures.

However it seems on non recourse loans the banks would rather let the homeowners be responsible for the maintenance and taxes. I know people in Ranch Santa Fe with non recourse loans who had not paid their lender for 18 months. I hear about friends have friends who have not paid in two years.

4. Contrary to lies which roll off the tongue of collection agents, CCP 580b covered loans do not become “unsecured” debts after a foreclosure – they become loans which were paid in full by the return of the collateral.

The lenders argue they can attempt to collect on a 580b loan right up until the foreclosure. They can be very clear about the law when they have to be. I once ripped a client’s collector for calling me on my cell phone early in the morning. (The call woke my 4 month old.) I told the collection lady these were non recourse loans. I said she broke the law for attempt to collect on a debt which no longer is a debt. She very quickly informed the foreclosure did not go through as scheduled.