Charlotte Short Sale, Loan Modification and Foreclosure Blog

In order to provide a better user experience, especially for homeowners needing assistance and facing foreclosure, I have expanded the CharlotteHouseHunter network of blogs to the following topics.   This is the last fresh content that will be added to http://charlottehousehunter.featuredblog.com.   I would encourage you to check out the new look as well as fresh content.

Short Sale, Mortgage Modification, and Foreclosure: CarolinaForeclosureResource.com

Charlotte Real Estate News, Stats, and Housing Trends: CharlotteRealEstateUpdate.com

Charlotte NC Condos and Townhouses: QueenCityCondos.com

Indian Trail News, Events, and Real Estate: LiveInIndianTrail.com

coming soon: Charlotte Green Real Estate: CharlotteEcoHomes.com

Charlotte NC Homes For Sale: CharlotteHouseHunter.com

I missed a mortgage payment two months back.   Last month, I was able to pay my mortgage but for only 1 month’s worth but I sent it in.   Today, the mortgage company sent my check back.   What? – Rod

Your Deed of Trust “mortgage” has an acceleration clause built into it where the mortgage company demands every payment to be made once you are delinquent.   To your specific situation, you will need to make the two months of missed payments and the current payment due (three payments) at one time in order to get caught up.   Most servicers will send back partial payments as a result of this.   Eventually if the mortgage isn’t caught up, your lender will begin foreclosing on you.

If you cannot make all of the back payments, contact your lender and ask for a forebearance agreement, loan modification, or short sale if you wish to sell.   Also, seek out the help of a HUD-counselor (a free service) who can assist you with this process.

Charlotte NC Short Sale

This question comes up a lot in my consultations.  Often, a homeowner has missed a payment or two and is concerned no longer want to dwell in their home, fearing the foreclosure process.  However, moving out is one of the WORST things you can do.

First off, most people don’t realize how long a foreclosure actually takes.  In North Carolina, the average homeowner facing foreclosure has been delinquent for more than a year before the home is sold at a foreclosure auction.  One study of recent foreclosure filings in North Carolina concluded that the average delinquent homeowner had been late for more than 550 days.  If you do nothing but let your home foreclose, why move out when you can live rent free for a year or more.  We’ve had clients that hadn’t made a payment in 2-5 years!!!

Next, moving out allows your lender to break into your house and “secure it” prior to foreclosure.  This is a BIG problem only made worse by low-paid low-skill people and good communication with common sense.  After you stop missing payments, your lender will start sending people by your home to leave notes telling you to call your bank.  They are also there to see signs if the home is occupied.  If they report that it is not, your lender will break in, change the locks, and may not give you the key.  Additionally, they will continue coming in to your home throughout the pre-foreclosure period.  I DETEST THIS but homeowners: you’re doing this to yourself.  Don’t move out until foreclosure and if the bank tries this: call 9-1-1 and then call the local media.  This MUST stop.

Finally, if you move out of your home prior to foreclosure, you may lose some of your rights.  If you move out and then decide to sell your home as a short sale, you may be viewed as an investor instead of an owner-occupant.  Also, you may not be eligible for certain programs and protections if you move out before or shortly after you apply.  In states where the lender cannot pursue a deficiency judgment, often (like in North Carolina) the provision is tied to an owner residing in the home.

So, in most cases, don’t move out of your home if you’re facing foreclosure.  Instead, list your home for sale as a short sale and move out when your home closes from a sale or when it hits the foreclosure steps.

Charlotte NC Short Sale

Q. Will the banks give a pre-approval letter for short sale without a offer on the house. Please let me know what is the procedure to apply. Thanks!

A.   It all depends on your lender and the type of loan that you have.  If you have a FHA loan, the FHA pre-foreclosure sale program will “pre-approve” you to sell the home for 90 days at a price determined by an appraiser.  After 90 days, the lender accepts a Deed-in-Lieu of foreclosure.  For conditional loans, you may be eligible for a HAFA short sale, which provides a pre-approval.  They’ll tell you to hire a Realtor if you haven’t done so, the price they want to start at and the term of the listing.  

Bank of America has a Cooperative Short Sale program that  is very similar  to HAFA for  conventional mortgages.  

You lender may have one as well so I would recommending calling your lenders short sale department and inquiring.  If you need assistance, contact the 1-888-895-HOPE and they can get you in contact with your lender for free.  Their website is  http://hopenow.com/

Hope this helps!

No one likes to take a job, expecting to earn compensation, and then learning that it isn’t so.   In the real estate world, it happens all the time.   When representing a buyer, it’s a few days from closing when the buyer learns they lost their job or that they’re being transferred.   Sorry for your hard work real estate agent but there’s no pay day resulting from that.

One gripe that real estate agents have / had with short sales is that often when negotiating a short sale, the lender will come back and ask for a reduction in commission earned by the real estate agents.   Some have fought to the death with the lender in the hopes of defending their income.   At times, they were successful however on the other side, there have been real estate agents who have stood in the way of a short sale over compensation.   On five occasions last year, sellers called into our office looking to switch agents after their current / former agent cost them a short sale approval because they weren’t making enough money.  

For 95% of real estate agents, the commissions earned  is the only source of compensation.   We’re not reimbursed for gas, insurance, marketing…you name it as the list goes on and on.   So compensation is a touchy subject and I totally get why some fight so hard.   However, beware of fighting so hard as it may land you in a lawsuit.  

Apparently, some lawyers are contacting homeowners who were foreclosed upon looking for a lawsuit.   By examining the documents and issuing sopeanas to the lenders for recorded conversations and emails, they are getting a sense of what went on in the transactions and why it didn’t go through.

The belief among some real estate commissions and local  Realtor boards  (including the Charlotte Regional Realtor Association) is that the listing agent and selling agent are taking on a short sale knowing the homeowner is in financial distress.   As the fiduciary duty is to the seller, if the commission is reduced, they feel it is appropriate to split the balance among the two firms.   An example of this would be an agent who took a short sale listing at 8% commission (where their firm paid the buyer agent firm 4%) but the seller’s bank said they would only pay 3% total commission, they would each earn 1.5%.   Most real estate compensation models for agents would result in that agent earning about .75% or less  of the sales price before taxes.

Ultimately, in a tough market such as we are in currently, that means that the buyer’s agent can (and they do) steer their client away from short sale properties out of the fear of being paid a reduced fee.   The thought is that with so many opportunities on the market, why risk being compensated less?   Buyers too tend to agree with their agent as they are faced, through a Buyer Agency Agreement, of paying any unearned income themselves should their agent choose to enforce the agreement.

The good news is that that vast majority of lenders have at least made the effort to at least pay up-to a 6% real estate commission without a fight….kinda.   The latest trend among lenders is to hire a third-party to act as their loss mitigation team and pay them from the real estate compensation.   I closed a HAFA short sale with Saxon in November 2010 where Saxon agreed to pay our fee of 6% provided that we pay 1% (or 16% of our income) to Zenta realty.   Zenta isn’t a real estate firm but rather a third-party hired by Saxon.  

Commissions are cheaper than foreclosures.

The average foreclosure costs a lender $60,000 and that doesn’t include the amount lost by the poor property condition, vandalism, etc.   Therefore the argument from the real estate community to lenders is that by not paying up now, they are costing themselves money in the long run.   However, I would recommend that agents take a different approach, which is the approach I follow:

No amount of compensation is worth a foreclosure…period.  

While no one wants to work for months and earn nothing (and certainly my family and the family of the other agent would agree), putting ourselves ahead of the situation is out of place in every situation.  

Short Sale Charlotte NC

In 2009, 63,283 homes received a foreclosure notice in North Carolina

Through November 2010, 63,589 homeowners received a foreclosure notice.

North and South Carolina are the Top 10 Foreclosure Hot Spots in the United States

You Hold The Keys to Reversing This Trend

Learn How You Can Help Stop This Epidemic!

What CE Class Didn’t Tell You About Short Sales

Presented by Attorney Jaime Kosofsky and Realtor Jonathan Osman

You will learn:

• Foreclosure stats you need to know
• Options for homeowners facing foreclosure
• Implications for homeowners
• How to Write your Short Sale Contract to Protect Buyer & Seller
• Questions to ask Short Sale Listing Agents
• Behind the Scenes of a Short Sale file
• The Unauthorized Practice of Law
• Dumb Stuff Agents Do
• How to Pre-qualify your Buyer for a Short Sale
• How to Treat Multiple Offers & Backup Contracts

Special Guests Gwen Oberg and Leah Gamble from Wells Fargo Home Mortgage to provide insights as to Wells Fargo’s Short Sale Process, Tips to Improve Your Files, and so much more!Seating is limited so register today.

After registration, share this event with your colleagues using the Facebook Like, Tweet, and Email buttons on top!

If you have an FHA loan and are possibly facing foreclosure, there’s help for you in the form of the FHA Pre-Foreclosure Sale Program.   Introduced in 1994, this program is one of the best short sale programs available in my opinion.   For more information, you can read the entire program guidelines in HUD Mortgagee Letter 2008-43 however this post has the highlights in plain english.

If you are facing foreclosure, first contact your lender directly by way of the number in your statement.   Do Not Follow any third-party solicitation that advises you to contact them and then requests a fee as that is illegal in North Carolina…but it doesn’t stop people from trying.

How to you know if you have an FHA loan? Ask your lender or check your closing documents.

The FHA Pre-Foreclosure Sale Program allows homeowners with a hardship to sell their home when the fair market value exceeds the current amount owed on the mortgage.   As a homeowner, you must be in default (delinquent more than 30 days) on your mortgage AT THE TIME OF CLOSING however it is the lenders discretion to accept applications from owners that are current but facing imminent default.

Additionally:

• Default must be as a result of adverse or unavoidable financial situation
• Borrower must have only one FHA-insured loan
• Are owner occupants (i.e. primary residence) unless it can be demonstrated that the reason to vacate was related to the cause of default (i.e. left for work in another state, divorce, death and the property in question was not purchased with the intent as a rental or used as a rental for more than the past 18 months.

Once you have fallen behind on your payments, you will receive a pamphlet (How to Avoid Foreclosure HUD-PA-426) which has information on this program.   Remember, you don’t have to fall behind to get into the program.

When the borrower applies for the program, the lender will need to analyze the borrower’s ability to pay which includes examining their monthly income and expenses.   HUD considers all monthly reoccurring expenses so do not forget to include utilities, food, outstanding obligations such as student loans, credit cards, etc.

Who Sets the Value?

The property value is set by an FHA appraisal.   The appraiser will need to complete a full interior inspection for the appraisal and the the value set is for an AS-IS sale.   Distressed sales (foreclosed homes and short sales) may not be considered by the appraiser unless they represent the only comparables within a reasonable proximity of the subject property.   The homeowner and their real estate agent may request a copy of that appraisal.   The appraisal is good for six months however a new appraisal may be ordered to ensure the most current Fair Market Value.

Property Condition

The home must be kept in marketable condition.   That means no excessive damage, no removal of fixtures that should be in place, or additional neglect.   The must remain maintained as normal however sold in as-is condition.   That means, the lawn must remain trim, minor repairs must be completed, etc.

Approval to Participate

When you receive your approval to participate, you will need to hire a real estate agent within 7 days.   The broker cannot be anyone that shares a conflict of interest otherwise they will not receive a commission.   Your agreement must contain the phrase: “Seller may cancel this Agreement prior to the ending date of the listing period without advance notice to the Broker, and without payment of a commission or any other consideration if the property is conveyed to the mortgage insurer or the mortgage holder.   The sale completion is subject to approval by the mortgagee.”

The buyer of the property cannot be a relative or someone you have an arms-length relationship with.

HUD will allow your lender to pay your real estate agent a commission of up to 6%, real estate taxes to the date of closing, typical and reasonable seller real estate fees and will pay you up to $1000 at closing for a successful transaction.

HUD will also allow up to 1% in seller paid closing costs for your buyer provided they are obtaining an FHA mortgage in the purchase.   If more is requested, the lender can request a variance from HUD and it will need to be approved.

You will be given four months to complete the sale of the home and during that period, all foreclosure proceedings will cease.   An extension can be granted for 2 additional months under certain circumstances.

The Sale
If you are able to sell your home within the first 3 months of your Approval to Participate, you will receive $1,000 at closing as a relocation incentive and most importantly, relieved of any mortgage obligation.   If the sale occurs in the last month or later, the amount drops to $750.   This relocation incentive is only available if there are not any additional junior liens (2nd mortgage, past due HOA, past due IRS, past due property tax, etc) that must be paid by the lender in order to close.

Participation in the short sale program will be reported on your credit report as a “short sale” and a 1099 will be issued for the forgiven balance.   If the home was a primary residence, borrowers can find relief in the Mortgage Forgiveness and Debt Relief Act of 2007.

During the first 30 days the home is listed, lenders will only accept contracts that have a net proceed above 88% of the appraised Fair Market Value (FMV).   During the next 30 days, that figure drops to 86%.   For the balance of the program, the lender will only accept contracts above 84% of the FMV.   That figure includes commissions, taxes, etc.

If you are are unsuccessful in selling your home in the time allotted to you, you should request a Deed-in-Lieu of Foreclosure.   So long as you complied with good faith in selling your property and were not kicked out of the program, HUD and your lender will not hold a deficiency against you.

Charlotte NC Short Sale

A few months back, I wrote a post that “inspired” a lot of debate on the topic of short sale fraud.  In short, I cautioned those facing foreclosure to perform a bit of due  diligence  before they just call anybody to help them with their situation.To that end is a new twist on my favorite short sale fraud: “the short sale flip”.Short sale flippers target upper-end homeowners facing foreclosure ($300,000+), offers them a low-ball contract, re-lists the home for more money while negotiating their own sale; with the goal of making profit on the difference.The twist: this one firm, once the home is under contract, places a lien on the property.Why is this an issue?The issue that exists with the short sale flip is that it can be difficult to resell a house that isn’t owned by the seller.The banks are aware of what’s happening and are placing protections in place to prevent the sales – even on the buyer’s end by denying their own.With a lien now on the property, the short sale “investor” now guarantees they will be paid something or the home goes to foreclosure.Here’s a likely scenario:Investor B approaches Seller A with an offer of $600,000 on Seller A’s home facing foreclosure and also offers to negotiate the short sale for Seller A.Investor B then relists the home for sale at a $725,000 while he negotiates his contract with Seller A’s lender.He also places a lien on the property for $600,000.Buyer C makes an offer of $700,000 to Investor B which is accepted.Seller A’s Bank agrees to Investor B’s offer but Buyer C’s lender denies the loan because Investor B doesn’t technically own the property at the time of contract.So Investor B agrees to step aside to allow the sale and prevent the foreclosure BUT Investor B’s lien must still be satisfied or removed to close.Seller A’s bank may pay  Investor B $3000 or even as much as 6% of the sales price which is $36,000 – depending on the investors guidelines.  Investor B could even demand money from the seller or the buyer in order to release from the property altogether.While I’m sure the North Carolina State AG will eventually shut this down, they haven’t yet.  Therefore, as homeowners and real estate agents who are working with short sales: do your due diligence with whom you align yourself with.Short Sales Charlotte NC

When facing foreclosure, the number one issue that homeowners fail to consider is the possibility of a deficiency judgment.   Deficiency Judgments allow your former lender to sue you for the balance of what was owed at the time of the foreclosure, what it eventually sold for, plus legal expenses, penalties, etc.   If a home in the Arboretum area with a primary mortgage of $500,000  nets the lender  after foreclosure  $350,000, the amount of deficiency would be $150,000.

However, for homeowners facing foreclosure in North Carolina, some homeowners can walk away or otherwise foreclosed upon without recourse from their lender.   Granted, their credit is wrecked and buying another home is out of the question for about 7 years but they would escape the possibility of deficiency thanks to North Carolina General Assembly Statute § 45‘21.38A.   Deficiency judgments abolished where mortgage secured by primary residence.  

I am not an attorney so before you consider walking away, I would advise that you meet with one to see if you are eligible to apply (some do).  

Here’s the statute:

(a)               As used in this section, the term “nontraditional mortgage loan” means a loan in which all of the following apply:

(1)               The borrower is a natural person.

(2)               The debt is incurred by the borrower primarily for personal, family, or household purposes.

(3)               The principal amount of the loan does not exceed the conforming loan size for a single family dwelling as established from time to time by Fannie Mae.

(4)               The loan is secured by: (i) a security interest in a manufactured home, as defined in G.S. 143‘145, in the State that is or will be occupied by the borrower as the borrower’s principal dwelling; (ii) a mortgage or deed of trust on real property in the State upon which there is located an existing structure designed principally for occupancy of from one to four families that is or will be occupied by the borrower as the borrower’s principal dwelling; or (iii) a mortgage or deed of trust on real property in the State upon which there is to be constructed using the loan proceeds a structure or structures designed principally for occupancy of from one to four families that, when completed, will be occupied by the borrower as the borrower’s principal dwelling.

(5)               The terms of the loan: (i) permit the borrower as a matter of right to defer payment of principal or interest; and (ii) allow or provide for the negative amortization of the loan balance.

(b)               Except as provided in subdivision (6) of subsection (c) of this section, this section applies only to the following loans:

(1)               A loan originated on or after January 1, 2005, that was at the time the loan was originated a rate spread home loan as defined in G.S. 24‘1.1F.

(2)               A loan secured by the borrower’s principal dwelling, which loan was modified after January 1, 2005, and became at the time of such modification and as a consequence of such modification a rate spread home loan.

(3)               A loan that was a nontraditional mortgage loan at the time the loan was originated.

(4)               A loan secured by the borrower’s principal dwelling, which loan was modified and became at the time of such modification and as a consequence of such modification a nontraditional mortgage loan.

(c)               This section does not apply to any of the following:

(1)               A home equity line of credit as defined in G.S. 45‘81(a).

(2)               A construction loan as defined in G.S. 24‘10(c).

(3)               A reverse mortgage as defined in G.S. 53‘257 that complies with the provisions of Article 21 of Chapter 53 of the General Statutes.

(4)               A bridge loan with a term of 12 months or less, such as a loan to purchase a new dwelling where the borrower plans to sell his or her current dwelling within 12 months.

(5)               A loan made by a natural person who makes no more than one loan in a 12‘month period and is not in the business of lending.

(6)               A loan secured by a subordinate lien on the borrower’s principal dwelling, unless the loan was made contemporaneously with a rate spread home loan or a nontraditional mortgage loan that is subject to the provisions of this section.

(d)               In addition to any statutory or common law prohibition against deficiency judgments, the following shall apply to the foreclosure of mortgages and deeds of trust that secure loans subject to this section:

(1)               For mortgages and deeds of trust recorded before January 1, 2010, the holder of the obligation secured by the foreclosed mortgage or deed of trust shall not be entitled to any deficiency judgment against the borrower for any balance owing on such obligation if: (i) the real property encumbered by the lien of the mortgage or deed of trust being foreclosed was sold by a mortgagee or trustee under a power of sale contained in the mortgage or deed of trust; and (ii) the real property sold was, at the time the foreclosure proceeding was commenced, occupied by the borrower as the borrower’s principal dwelling.

(2)               For mortgages and deeds of trust recorded on or after January 1, 2010, the holder of the obligation secured by the foreclosed mortgage or deed of trust shall not be entitled to any deficiency judgment against the borrower for any balance owing on such obligation if: (i) the real property encumbered by the lien of the mortgage or deed of trust being foreclosed was sold as a consequence of a judicial proceeding or by a mortgagee or trustee under a power of sale contained in the mortgage or deed of trust; and (ii) the real property sold was, at the time the judicial or foreclosure proceeding was commenced, occupied by the borrower as the borrower’s principal dwelling.

(e)               The court may, in its discretion, award to the borrower the reasonable attorneys’ fees actually incurred by the borrower in the defense of an action for deficiency if: (i) the borrower prevails in an action brought by the holder of the obligation secured by the foreclosed mortgage or deed of trust to recover a deficiency judgment following the foreclosure of a loan to which this section applies; and (ii) the court rules that the holder of the obligation secured by the foreclosed mortgage or deed of trust is not entitled to a deficiency judgment under the provisions of this section. The amount of attorneys’ fees to be awarded shall be determined without regard to the provisions of the loan documents, the provisions of G.S. 6‘21.2, or any statutory presumption as to the amount of such attorneys’ fees.  (2009‘441, s. 1.)

The statute is very specific on who may receive mortgage deficiency forgiveness so that’s why an attorney is so important.   If it is your primary residence, the loan was originated after 2005, it is still your mortgage since 2005, and it isn’t a line of credit, you could be covered. This does not cover the tax implications that may be forgiven by the Mortgage Forgiveness and Debt Relief Act of 2007.

Charlotte NC Short Sale