Jim McNinch Short Sale Specialist Houston TX, Spring TX, Woodlands TX

In February 2009, the Government introduced the Making Home Affordable Program — a plan to stabilize the housing market and help struggling homeowners stay in their homes. One of the possible ways to help families stay in their homes is to modify mortgages to make them more affordable through a program called the Home Affordable Modification Program or HAMP.

While many families have received help through HAMP, far too many won’t be able to keep their home even with a loan modification. For these families, the Treasury Department has established a new short sales program called the Home Affordable Foreclosure Alternatives Program or HAFA. HAFA is designed to streamline short sales by providing a uniform process and standard forms, as well as incentives for families and their mortgage servicers to complete the process. It offers homeowners who sell their homes under HAFA $3,000 to help cover their moving costs. HAFA may be able to help you through the difficult process of selling your home and moving to another home.

Who is eligible for HAFA?

The borrower must meet the basic eligibility criteria for HAMP:
– Principal residence
– First lien originated before 2009
– Mortgage delinquent or default is reasonably foreseeable
– Unpaid principal balance no more than $729,750
– Borrower’s total monthly payment exceeds 31% of gross income


The program:

• Complements HAMP by providing a viable alternative for borrowers (the current homeowners) who are HAMP eligible but nevertheless unable to keep their home.
• Uses borrower financial and hardship information already collected under HAMP.
• Allows borrowers to receive pre-approved short sales terms before listing the property (including the minimum acceptable net proceeds).
• Prohibits the servicers from requiring a reduction in the real estate commission agreed upon in the listing agreement (up to 6%).
• Requires borrowers to be fully released from future liability for the fi rst mortgage debt and, if the subordinate lien holder receives an incentive under HAFA, that debt as well (no cash contribution, promissory note or deficiency judgment

What is foreclosure?

Foreclosure involves a lawsuit in which a bank, a mortgage company, or other lien holder seeks to take an owner's property to satisfy a debt. The bank or lender may actually take ownership of the property or have the property sold to pay off the debt. As a result of the foreclosure, the owner loses whatever rights he or she had in the property.

Examples: If a homeowner fails to pay his or her mortgage loan on time, the lender that holds the mortgage on the house can bring a foreclosure action against the homeowner. Similarly, if a homeowner borrows money from a bank using a house as collateral (security) and fails to pay, the homeowner can lose the house to the bank in a foreclosure action.

How are Texas deeds foreclosed?

The primary method of foreclosure in Texas involves what is known asnon-judicial foreclosure. Except for certain notice provisions this type of foreclosure does not involve court action. When the deed of trust is initially signed it will usually contain a provision called apower of sale clause which upon default allows atrustee to sell the property in order to satisfy the underlying defaulted loan. Thetrustee acts as a representative of the lender to effectuate the sale which typically occurs in the form of an auction. Because this is a non-judicial remedy there are very stringent notice requirements and the legal documents are required to contain thepower of sale language in order to use this type of foreclosure method.

Power of Sale Notice Requirements:

Prior to initiating a foreclosure the lender must send a demand letter requesting the payment of past due amounts which gives the borrower twenty (20) days to pay any past due amounts otherwise foreclosure proceedings will begin.

After the twenty day notice above and at least twenty-one (21) days before any foreclosure sale, further notice of the foreclosure must: (a) be filed with the county clerk in the county in which the property is located; (b) mailed to the defaulting borrower (and other creditors whose liens affect the property) and; (c) be posted at the county court where any sale would occur.

Foreclosure sales must take place on the first Tuesday of each month (between 10AM and 4PM) at the courthouse, even if the date falls on a legal holiday. The trustee will auction the property to the highest bidder including the lender who is given credit for the value of the balance of any outstanding indebtedness under the loan.

In Texas, thelenders can also go to court in what is known as ajudicial foreclosure proceeding where the court must issue a final judgment of foreclosure. If the deed of trust does not contain thepower of sale language the lender must seek judicial foreclosure. The property is then sold as part of a publicly noticed sale. A complaint is filed in county court along with what is known alis pendens. A lis pendens is a recorded document that provides public notice that the property is being foreclosed upon.
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What are the legal instruments that establish a Texas mortgage?

The documents are known as thedeed of trust,note, and in a commercial transaction, asecurity agreement. Sometimes the mortgage document is combined with the security agreement. Alternatively, amortgage is filed to evidence the underlying debt and terms of repayment, which is set forth in thenote.
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How long does it take to foreclose a property in Texas?

Depending on the timing of the various required notices, it usually takes approximately 60 days to effectuate an uncontestednon-judicial foreclosure. This process may be delayed if the borrower contests the action in court, seeks delays and adjournments of sales, or files forbankruptcy.

Maybe I'm writing this out of frustration. Or maybe as a "plea" to the agents who are involved in listing properties that have upside-down mortgages or little or no equity and don't understand that you can't list the property for what is owed the lender plus closing costs!

As someone who does a lot of short sales either directly for homeowners, or for other agents as a 3rd party short sale negotiator, I too often find sellers whose agent has listed the property for the current loan value plus closing costs.

That's fine if there is enough equity in the property and the market supports the listing price, or for an educated seller that understands they may have to pony up some cash at the closing table for the difference between what the property sells for vs. their payoff and closing costs.

What's not fine is the number of properties we encounter, particularly distressed properties, where the homeowner is behind in payments and heading for foreclosure, and the agent lists the property sometimes $10,000s above market value in the hopes that, somehow, someone is going to ignore what the home is worth and buy this house in order to fully payoff the loan and closing costs.

Not all sellers are educated in real estate. That's why they retain the services of a real estate professional (agent) and place their trust in them to sell their property, particularly when they are facing foreclosure.

Even more frustrating is being ignored by either the homeowner, their agent, or both when the unlikelihood of selling the property at that price is explained. Or, how the only probable way to sell their property is through a short sale.

I am totally amazed that licensed agents, even new agents, do not understand this concept. It's one thing for them to lose the sale because the property does not sell. Its another when these actions forces the homeowner into foreclosure.

Hopefully, this scenario will become less of an issue as time goes on. However, with all the information about distressed properties and upside-down loans that have been easily accessible for a long time to both homeowners and agents, we would think this problem would be non-existent.

Sellers. If you need to sell your home and you have an existing mortgage where you owe more than the property is worth, my main advice is to ensure you ask your agent "You want to do what with my upside down listing"?

Bill to Speed Up Short Sale Process and Avoid Foreclosure

This might be one of the few government bills affecting real estate that might work!

To avoid losing homes to foreclosure due to long response times for short sale transactions, three senators introduced legislation to speed up the short sale process.

Senators Lisa Murkowski (R-Arkansas), Scott Brown (R-Massachusetts), and Sherrod Brown (D-Ohio) proposed the bill addressing the issue of short sales timelines on February 17.

"There are neighborhoods across the country full of empty homes and underwater owners that have legitimate offers, but unresponsive banks," said Murkowski. "What we have here is a failure to communicate. Why don't we make it easier for Americans trying to participate in the housing market, regardless of whether the answer is 'yes,' 'no' or 'maybe?'"

The legislation, also known as the Prompt Notification of Short Sales Act, will require a written response from a lender no later than 75 days after receipt of the written request from the buyer.

The lender's response to the buyer must specify acceptance, rejection, a counter offer, need for extension, and provide an estimation for when a decision will be reached.

The servicers will be limited to one extension of no more than 21 days.

The bill will also allow the buyer to be awarded $1000, plus "reasonable" attorney fees if the Act is violated.
According to a recent industry release, short sale homes do not bring down neighboring home values like foreclosed homes do, and 83 percent of short sale buyers are satisfied with their purchase, according to a 2012 Home Ownership Satisfaction Survey conducted by HomeGain.

"The current short sale process can be time consuming and inefficient, and many would-be buyers end up walking away from a sale that could have saved a homeowner from foreclosure," said Moe Veissi, president of the National Association of Realtors. "As the leading advocate for homeownership, realtors are supportive of any effort to improve the process for approving short sales."
Equi-Trax released a survey last year on the issues real estate agents face when completing short sales.

71.9 percent of respondents reported that a short sale can take four to nine months to complete, and they think that is simply too long." The survey also found that 18.2 percent of deals require less than three months to complete, with 10 percent requiring more than 10 months.

Negative equity occurs when the value of an asset used to secure a loan is less than the outstanding balance on the loan.[1] In the United States, assets (particularly real estate, whose loans are mortgages) with negative equity are often referred to as being "underwater", and loans and borrowers with negative equity are said to be "upside down".

In owner-occupied housing market, a fall in the market value of a mortgaged house or condo is the usual cause of negative equity. Negative equity in the owner-occupied market sometimes occurs when the owner obtains second-mortgage home-equity loans, causing the combined loans to exceed the home value. If the borrower defaults, repossession and sale of the property by the lender will not raise enough cash to repay the amount outstanding, and the borrower will both have lost the property and still be in debt.

Negative equity can turn into a curse if something happens unexpectedly that requires that the property be sold. Here is an example.

"I work for a company that is on the decline and decided it was prudent to seek employment in another area. I have accepted a position there but now face a problem. I owe about $20,000 more on my current home than what it can sell for due to declining market values in my area, and I don’t have the assets to make up that difference."

When you sell your house, you must pay off all liens on the house –all mortgages including HELOCs, and any tax or mechanic’s liens. If you don’t retire all existing liens, you can’t convey good title to a buyer, which means you can’t sell.

Negative equity can develop from a decline in local real estate values, as it did in the case of the example above, but that is not the only cause. Home buyers who make no down payment – their loan or loans equal 100% of the purchase price -- have negative equity when they move in. If they had to sell immediately, they could not repay the loans out of the sales proceeds because of the transactions costs. The sales commission alone runs 3-6% of the price.

This is especially troubling when a homeowner defaults or gets behind in their mortgage and needs to sell the property before foreclosure. Then, the only recourse is a short sale.