You probably could’ve seen this one coming even if you didn’t have a crystal ball. The Mortgage Forgiveness Debt Relief Act of 2007, which was set to expire at the end of this year, may, in fact, be extended. This would definitely be good news for anyone still on the fence about listing their home as a short sale. So, in turn, this would be good for agents scoping out prospective short sale listings as well.

According to dsnews.com, President Obama’s 2013 budget proposal includes an extension of the Mortgage Forgiveness Debt Relief Act of 2007.

As you may recall, the Act was designed by President Bush in order to ensure that homeowners who received principal reductions (or other forms of debt forgiveness on their primary residences) do not have to pay taxes on the amount forgiven—even though they are still subject to a 1099.

Without the Mortgage Forgiveness Debt Relief Act, debt reduced through mortgage modifications or short sales qualifies as income to the borrower and is taxable. Under the Act, up to $2 million in debt elimination can be tax-free.

The budget proposal includes an extension that would apply to any amounts forgiven prior to January 1, 2015. At that point, the government would reassess the market and determine whether another extension is appropriate. This would be the second extension of the original bill. And, given the current state of the real estate market, it may not be a bad thing for homeowners who are underwater to have more time to consider all of their options with respect to their mortgage debt.

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I suppose this article could also be entitled, “How NOT to Stop a Foreclosure.” I received a call recently from an agent who took a short sale listing on a home that was dangerously close to foreclosure. That is, the borrowers had missed upwards of eight payments, and the lender had already filed all of the necessary paperwork in order to proceed to foreclosure auction (bye, bye property on the courthouse steps) in just a few weeks.

I alerted this agent that she would have to be quick and efficient in taking her listing and obtaining a buyer for the property. And, even then, there would be absolutely no guarantee that the seller’s mortgage lenders would want to entertain a short sale so late in the game. But, we could certainly give it the old college try.

So, the agent called back a few days later and sent over her listing agreement and some of the relevant paperwork for the short sale package. And then suddenly, it sunk in. There was no guarantee that the bank would postpone the foreclosure auction date—just because she had taken the listing.

She had been misinformed. Somewhere down the grapevine, this agent had heard or understood that when you take a short sale listing and put it on the MLS, the bank will cease all foreclosure activity.

This is false. As long as the mortgage lender is proceeding according to law, the lender can foreclose at any time. The lender does not have to halt a foreclosure because they have a pile of paperwork.

Short sale is a form of debt settlement. It is entirely up to the lender whether they want to settle the debt or not.

And, while we are on the subject, there seems to be a huge trend in homeowners waiting until the very last minute in order to hire an agent to help them sell their home in a short sale. The best time to list a home as a short sale is NOT after the auction date has been scheduled and definitely not when the sheriff has pulled up in front of the house.

Spread the word: an agent experienced with distressed properties can help a borrower, but needs to be given more than a two-day window in order to do so. Give me a break. Rome was not built in a day.

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It’s always our goal to help you stay on top of the latest and greatest news. Hey… you already are ahead of the game—brave enough to stare short sales in the face and take short sale listings.

Here’s a recap of some of the interesting stuff that went on this past week in the distressed property arena:

Robo-Signing Settlement Has Arrived It sounds like quite a bit of money ($25 billion). But when you look at the numbers, is it really enough? $2000 for every borrower that erroneously lost their home to foreclosure? If it was me, I might take my chances in Small Claims Court; I believe you can get up to 10 grand there.

Generating More Traffic to Your Website thru Facebook  This sounds like a pretty good webinar, brought to you by the folks at Inman and Lowe’s. If you are an information junkie, you can tune in for any of our upcoming short sale webinars. Check out the webinar schedule if you are interested.

Make Your Short Sale Bulletproof  Nobody wants their short sale listing to turn into an REO listing. This article provides a few tips and tools for making your short sale transaction airtight—without even purchasing a bulletproof vest.

And…. it seems that Pinterest is the next latest, greatest thing for Realtors®. Are you pinning yet?

There’s lots going on in the distressed property arena. And, if you are actively working with ‘distressed’ borrowers, it’s important to keep up with all of the changes in the industry. Sometimes that’s hard, which is why we’ve provided you with a weekly recap right here.

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Hindsight is usually 20/20, and it seems that the great robo-signing debacle of 2010 may soon be in our past. You recall the incident, right? When news agencies began reporting that banks were foreclosing willy-nilly without being able to prove that they had the legal right to do so. Well, that’s all gonna be over very soon.

According to dsnews, federal and state officials announced late last week that the government and 49 state attorneys general have reached a $25 billion agreement with the nation’s five largest mortgage servicers to address “loan servicing and foreclosure abuses.”

The settlement agreement with the nation’s top five servicers (Bank of America, JPMorgan Chase, Wells Fargo, Citigroup, and Ally Financial) provides financial relief to homeowners and establishes new homeowner protections. “This historic settlement will provide immediate relief to homeowners – forcing banks to reduce the principal balance on many loans, refinance loans for underwater borrowers, and pay billions of dollars to states and consumers,” said HUD Secretary Shaun Donovan. It is also interesting to note that the settlement will not preclude the government from pursuing criminal or civil, and borrowers and investors can still pursue individual or class action suits against the banks for robo-signing grievances.

Sounds like a lot of money, right? $25 billion dollars. Well, here’s the breakdown:

The $25 billion will be distributed in two ways: $20 billion is designated for financial relief to borrowers, and $5 billion in cash will go directly to federal and state government agencies.

The $20 billion in financial aid to borrowers will further be broken down into three categories: 1) $10 billion has been designated to principal reductions for homeowners currently delinquent or “at imminent risk of default”; 2) $3 billion has been earmarked for the refinancing of loans for underwater homeowners; and 3) $7 billion is to assist homeowners through other means such as short sales, forbearance, relocation assistance, and aid for service members who have taken losses on their homes due to relocation orders.

So, when someone ran the numbers, they figured out that foreclosed homeowners are estimated to receive about $2,000 after losing their homes.

In addition to the $25 billion, the five servicers have agreed to a new set of servicing standards. That is, servicers have agreed to notify borrowers 14 days before referring their loan to a foreclosure attorney; adopt procedures to oversee and ensure proper conduct from all third-party providers; and discontinue dual tracking (the processing of a foreclosure while a homeowner is pursuing a loan modification or bankruptcy). The servicers have also agreed to establish a single point of contact for all borrowers who contact their servicer regarding a difficulty to make monthly mortgage payments.

Just like all of the other attempts to help those that are or were in financial distress, we will have to follow this one in order to see how it plays out.

Source: dsnews

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Remember when it was Colonel Mustard in the dining room with the lead pipe? Well, that would be a much smoother and more efficient death than what you might see in the wacky world of short sales.

If a short sale were like a game of Clue (by Hasbro), instead of a lead pipe you could be wiped out by an abstract of judgment, an HOA lien, or even an IRS tax lien. Weapons such as these will get in the way of closing the short sale transaction.

The principal way to avoid being killed by one of these weapons is to order a Statement of Information (SI).  Have the short sale seller complete a statement of information at the beginning of the short sale process, and have your title company run that statement as soon as possible. Certain liens “stick” to the seller and not to the property. Nevertheless, these same liens do need to be cleared (paid off or released) at or before closing. And, not all short sale lien holders are willing to give up their proceeds in order to liquidate these debts.

1. Abstract of Judgment  If the seller has an abstract of judgment against him (or her), suggest that the seller negotiate for this to be released or settled in order to be able to successfully close the short sale.
2. HOA Liens There’s already been much ado about HOAs as short sale deal killers. In certain parts of California, HOAs are actually foreclosing on the properties and renting them out in the interim. Talk about a deal killer… Work with the HOA to settle the debt at closing.
3. IRS Tax Liens  It takes several weeks to separate an IRS tax lien from a property being sold in short sale. Wouldn’t you like your client to begin working on this early in the short sale process and not after you have short sale approval and are ready to close.

Ordering that statement early and having a good heart-to-heart with your client (especially around Valentine’s Day) can go a long way towards a successful short sale closing. Trust me… you do not want Colonel Mustard anywhere near your next short sale listing.

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It’s always our goal to help you stay on top of the latest and greatest news. Hey… you already are ahead of the game—brave enough to stare short sales in the face and take short sale listings.

Here’s a recap of some of the interesting stuff that went on this past week in the distressed property arena:

Obama’s New Refi Program Similar to HARP 2.0, this new underwater refinance program for responsible borrowers is for non-GSE (and non-jumbo) loans. According to Obama’s speech on Wednesday February 1, all he needs is the approval of Congress (and, of course, a significantly amount of competency and cooperation from the lenders).

Real Estate Professionals Feeling Brunt of Recession  Now here’s an article that nobody needs to read. Is anyone really surprised that many real estate professionals have been having trouble making ends meet? Well, if the property values are chopped in half, then you just got a pay cut. I know that all San Diego based agents took a big pay cut in 2007, for example.

Freddie Mac Betting Against Struggling Homeowners   Does anyone else have a problem with this? Freddie Mac offers loan modification and short sale programs. They are supported by our dollars, and now they are betting against the same homeowners that they are supposed to help. Talk about hedging your bets.

And…. just for fun: Okay… this is a bit weird. But, can anyone please explain this new Internet fad with the inbred/inbread cats? (Check out the Gawker article here.) I’m sure that PETA folks have lots to say about this, but can someone please just explain to me why this is newsworthy?

There’s lots going on in the distressed property arena. And, if you are actively working with ‘distressed’ borrowers, it’s important to keep up with all of the changes in the industry. Sometimes that’s hard, which is why we’ve provided you with a weekly recap right here.

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President Obama last Wednesday outlined a proposal to allow millions of homeowners to refinance at today’s historically low interest rates. 

At a speech in Virginia, the President encouraged Congress to pass legislation to establish a streamlined refinancing program through the Federal Housing Administration (FHA) that would help all non-GSE borrowers who are underwater on their mortgages (but still making their payments on time) to refinance at today’s low rates.

This proposed program is in addition to the HARP 2.0 program that was introduced on November 15,2011 for responsible borrowers with either Fannie Mae or Freddie Mac backed mortgages. While the GSE program has not quite yet taken off, it certainly provides a viable option for those responsible borrowers whose loans would qualify. When HARP 1.0 was introduced in March of 2009, the interest rates were much higher than they are right now. Not to mention, that the underwater cap was much lower. Now the proposed refinance cap is unlimited—just as long as the borrower qualifies for the program.

With Obama spreading the word about all sorts of refinance programs for underwater borrowers, now is a great time to think about changing your marketing tactics for 2012. Lots of locals will be calling their mortgage lenders to see if they might qualify for this program. And… if they don’t, you might have your next short sale prospect. That’s why you should consider partnering up with your local lender in order to work on a joint marketing plan for 2012.

Like this idea? Want more ideas for ways to generate short sale leads? Why not sign up for one of our free short sale webinars? You’ll be glad you did!

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