Roger Herrick 949-365-6585

Underwater? Short Sale Truth and Myths

2011-10-29T08:19:00.000-07:00

Short Sale Truths and Myths

Short Sale Myths

A short sale can be an excellent solution for homeowners who must sell and owe more on their homes than they are worth. Unfortunately, a number of myths about short sales have developed, and it is important to understand the reality of this process should you find it meets your current needs.

Myth #1 - The Bank Would Rather Foreclose than Bother with a Short Sale

This is one of the most common misconceptions. The reality is that banks do not want to foreclose on your property because the foreclosure process is incredibly costly. Banks, investors, and even the federal government have all publicly stated that if a person is qualified for a short sale, the deal needs to be considered. Overwhelmingly, banks receive more on their investment through a short sale than a foreclosure.

The qualifications for a short sale include:

Financial Hardship - There is a situation causing you to have trouble affording your mortgage.
Monthly Income Shortfall - "You have more month than money." A lender will want to see that you cannot afford, or soon will not be able to afford your mortgage.
Insolvency - The lender will want to see that you do not have significant liquid assets that would allow you to pay down your mortgage.

Myth #2 - You Must Be Behind on Your Mortgage to Negotiate a Short Sale

While this may have previously been the case, today lenders are looking for verifiable hardship, monthly cash flow shortfall, or pending shortfall and insolvency.

If you meet these three requirements and believe that you soon may be unable to afford your mortgage, act immediately. Any delay could limit your options. Do not wait until the countdown clock to foreclosure has started and you have even less time left.

Myth #3 - There is Not Enough Time to Negotiate a Short Sale Before My Foreclosure

This is a myth that probably hurts homeowners the most. Many do not realize that foreclosure is a process, and that there is time to make decisions that may result in better outcomes.

The foreclosing party-in most cases a lender-can stall a foreclosure up to the final day of the process. Today, many lenders will stall a foreclosure with as little as a phone call from you explaining that you are trying to sell, and almost all lenders will stall a foreclosure with a legitimate contract. For real estate professionals who understand foreclosures and short sales, there is time available until the foreclosure process is complete.

Myth #4 - Listing My Home as a Short Sale is an Embarrassment

It is understandable to have reservations about letting the world know that you owe more on your home than it is worth. However, according to recent estimates, one out of five homeowners in the U.S. is in the same situation. You are to be congratulated for admitting you need help, taking action, and finding a professional who can work with you toward a solution. With recent estimates showing 40-60% of U.S. sales will be short sales or foreclosures, you are not alone.

Myth #5 - Short Sales are Impossible and Never Get Approved

This is a complete falsehood. Are short sales more difficult to execute? Yes. Do you, as a homeowner, need to learn about a new process? Yes. Are they impossible? Absolutely not. For example, agents with the Certified Distressed Property Expert® (CDPE) Designation receive thousands of short sale approvals on a monthly basis. These professionals have undergone extensive training in methods to help homeowners in distress and process short sales. While there are no guarantees in any transaction, more and more short sales are being approved regularly. This is far from an impossible process.

Myth #6 - Banks are Waiting on a Bailout and Not Accepting Short Sales

You may have heard this, but the reality is that banks (and the U.S. government) are trying to do anything they can, within reason, to avoid foreclosing on properties. It is preposterous to believe they would deny a short sale in hopes that some future legislation would pass and pay them for losses.

Today, more banks are aggressively pursuing short sales and working with agents who understand how to process them. Freddie Mac recently hosted a national training Webinar for real estate agents where they expressly stated the organizational goal of "eliminating distressed assets through modification or short sale."

Myth #7 - Buyers are Not Interested in Short Sale Properties

This is a myth that potential sellers hear all the time. Thankfully, this is just not true. In fact, many agents are getting calls from buyers who say they only want to look at foreclosure and short sales.

For buyers, short sales and foreclosures have become synonymous with "good deals." More specifically, international buyers are targeting these properties. Listing with an experienced agent who is educated in the short sale process will provide you with a great chance of quickly seeing a contract on your property.

In conclusion, While these pitfalls may seem troublesome, the right agent can help you navigate your way to a successful closing. Don't endanger your financial future and the potential sale of your home with an agent who does not fully understand the process. Contact me to discuss your specific situation at no charge. Real experience is what this process requires. We understand what you are going through, and are here to serve and help save your family's interests. Remember, 100% of agents will tell you they know everything to know about this process. Reality is that unless you are engaged daily in this process that is the only way to know what is happening regarding these tricky real estate transactions. Mitigations are not traditional real estate sales and there are few real "experts".

Roger W. Herrick

California Real Estate Broker

949-365-6585

Applying for a Mortgage

2010-11-24T08:47:00.000-08:00

Anyone applying for a mortgage should be aware of new, little-publicized federal consumer protection rules that take effect on July 30, 2010.

The new Federal Reserve guidelines require lender to disclose estimated mortgage costs within three business days of receiving your loan application.
Required disclosures included Truth-In-Lending Act calculations (a breakdown of your Mortgage's monthly an overall costs) as well as annual percentage rate (APR) for the loan.

If you don't get this information within three days you can pull the plug on your loan application.

The new rules prohibit lenders from collecting any fees other an reasonable credit-check charges until you've received all initial disclosures.

There is a significant change from the current system. This allows a full review before the client is changed any appraisal or application fees other than a small credit check fee.

The other rule changes mandates a seven-day waiting period before you can close the loan. I other words your have a week to thing about to be sure that the particular mortgage is right for you.

Lenders must give you final Truth-In-Lender Act numbers and a copy of your home's appraisal at leas three business days before your loan closes.

If your Mortgage's APR rises more than 0.125 % above the initially disclosed rate the lender must file to obtain a change of circumstances and the lender must "re disclose" the higher costs-triggering a second seven-day waiting period.

What are the new rules repercussions?

First, mortgage closing dates will depend on lender and settlement agents providing accurate estimates and delivering disclosures and appraisals on time.

Second, the new rules will give consumers better estimates of key mortgage expenses and more time to review these figures. Hopefully, this will lead to fewer cases of dishonest lenders sticking homeowners the questionable last-minute charges.

Roger Herrick
www.ContactHerrick.com
888-474-8022

Annual Credit Report www.Annualcreditreport.com Really Free?

2010-11-14T10:34:00.000-08:00

Annual Credit Report www.AnnualCreditReport.com

The Federal Trade Commission advises that only time, a conscious effort, and a personal debt repayment plan can improve your credit report. The first step is to learn what information is in your credit report. If you find errors or mistakes, federal law gives you the right to have them corrected - free of charge. Federal law requires that the nationwide consumer reporting companies - Equifax, Experian, and TransUnion - provide you with a free copy of your credit report once every 12 months, if you ask for it. To order your free report, visit annualcreditreport.com, call 1-877-322-8228, or complete and mail the Annual Credit Report Request Form. Other credit repair information is available at http://www.ftc.gov.

Roger W. Herrick
California Real Estate Broker

888-474-8022

Mortgage Processing Common Red Flags

2010-11-14T10:23:00.000-08:00

Someone had asked me once to identify all of the reasons that a lender might find to not fund a particular loan. He said review it and tell me what are the issues that would be raised. So here is the good list of those reasons for a potential denial of a loan. This can help borrowers identify what the would assist them in obtaining a loan. I hope it helps those overcome those issues and create successful transactions for true long term homeownership.

Link to Fannie Mae Common Red Flags

Common Red Flags

Resources to Help You Combat Mortgage Fraud

The following is a list of Common Red Flags that may indicate mortgage fraud.

Inconsistencies in the loan file are often a tip off that the file contains misrepresentations. The presence of one or more of these red flags in a file does not necessarily mean that there was fraudulent intent. However, several red flags in a file may signal a fraudulent transaction.

High-level Red Flags

Social Security number discrepancies within the loan file

Address discrepancies within the loan file

Verifications addressed to a specific party's attention

Verifications completed on the same day they were ordered

Verifications completed on weekend or holiday

Documentation includes deletions, correction fluid, or other alteration

Numbers on the documentation appear to be "squeezed" due to alteration

Different handwriting or type styles within a document

Excessive number of AUS submissions

Mortgage Application

Significant or contradictory changes from handwritten to typed application

Unsigned or undated application

Employer's address shown only as a post office box

Loan purpose is cash-out refinance on a recently acquired property

Buyer currently resides in subject property

Same telephone number for applicant and employer

Extreme payment shock may signal straw buyer and/or inflated income

Purchaser of investment property doesn't own residence

Sales Contract

Non arms-length transaction: seller is real estate broker, relative, employer, etc.

Seller is not currently reflected on title

Purchaser is not the applicant

Purchaser(s) deleted from/added to sales contract

No real estate agent is involved

Power of Attorney is used

Second mortgage is indicated, but not disclosed on the application

Earnest money deposit equals the entire down payment, or is an odd amount

Multiple deposit checks have inconsistent dates, i.e., #303 dated 10/1, #299 dated 11/1

Name and/or address on earnest money deposit check differ from buyer

Real estate commission is excessive

Contract dated after credit documents

Contract is "boiler plate" with limited fill-in-the-blank terms, not reflective of a true negotiation

Credit Report

No credit history or "thin" credit files

Invalid Social Security number or variance from that on other documents

Duplicate Social Security number or additional user of Social Security number

Recently issued Social Security number

Liabilities shown on credit report that are not on mortgage application

Length of established credit is not consistent with applicant's age

Credit patterns are inconsistent with income & lifestyle

All trade lines opened at the same time

Authorized user accounts have superior payment histories

Significant differences between original and new or supplemental credit reports

Also Known As (AKA) or Doing Business As (DBA) indicated

Numerous recent inquiries

Missing pages and/or supplements

Employment discrepancies

Social Security alerts

Employment and Income Documentation

Applicant's job title is generic, e.g., "manager," "Vice President"

Employer's address is a post office box, the property address, or applicant's current residence

Applicant's residence is (will be) in location remote from employer

Employer name is similar to a party to the transaction, e.g., utilizes applicant's initials

Employer unable to be contacted

Year-to-date or past-year earnings are even dollar amounts

Withholding not calculated correctly (check FICA tables)

Withholding totals don't foot from pay advice to pay advice

Pay period dates overlap and/or don't correspond with other documentation

Abnormalities in paycheck numbering

Handwritten VOE, pay stubs, or W-2 forms

W-2 form presented is not the employee's copy

Employer's identification number has a format other than 12-3456789

Income appears to be out of line with type of employment

Self-employed applicant does not make estimated tax payments

Real estate taxes or mortgage interest claimed, but no ownership of real property disclosed

Tax returns not signed or dated

High income applicant without paid preparer

Paid preparer signs taxpayer's copy of tax returns

Interest and dividend income don't substantiate assets

Applicant reports substantial income but has no cash in bank

Large increase in housing expense

Reasonableness test: income appears to be out of line with type of employment, applicant age, education and/or lifestyle

Asset Documentation

Down payment source is other than deposits (gift, sale of personal property)

Applicant's salary doesn't support savings on deposit

Applicant doesn't utilize traditional banking institutions

Pattern of loyalty to financial institutions other than the subject lender

Balances are greater than the FDIC, SIPC insured limits

High asset applicant's investments are not diversified

Excessive balance maintained in checking account

Dates of bank statements are unusual or out of sequence

Recently deposited funds without a plausible paper-trail or explanation

Bank account ownership includes unknown parties

Balances verified as even dollar amounts

Two-month average balance is equal to present balance

Source of earnest money is not apparent

Earnest money isn't reflected in account withdrawals

Earnest money is from a bank or account with no relationship to the applicant

Bank statements do not reflect deposits consistent with income

Reasonableness Test: Assets appear to be out of line with type of employment, applicant age, education and/or lifestyle

Appraisal

Appraisal ordered by a party to the transaction

Occupant shown to be tenant or unknown

Owner is someone other than seller shown on sales contract

Appraisal indicates transaction is a refinance, but other documentation reflects a purchase

Purchase price is substantially higher than predominant market value

Purchase price is substantially lower than predominant market value

Subject property obsolescence is minimized

Large positive adjustments made to comparable properties

Comparables' sales prices don't bracket the subject's value

Comparable sales are not similar in style, size and amenity

Dated sales used as comparable sales

New construction / Condo conversion: All comparable sales located in subject development

Comparable properties are a significant distance from the subject, or located across neighborhood boundaries (main arteries, waterways, etc.)

Map scale distorts distance of comparable properties

"For Rent" sign appears in photographs

Photos appear to be taken from an awkward or unusual standpoint

Address reflected in photos does not match property address

Weather conditions in photos inconsistent with average marketing time, date of appraisal

Appraisal dated before sales contract

Significant appreciation in short period of time

Prior sales are listed for subject and/or comparables without adequate explanation

Title

Prepared for and/or mailed to a party other than the lender

Evidence of financial strain may indicate a compromised sale transaction (flip, foreclosure rescue, straw buyer refinance, etc.), or might suggest undisclosed credit problems in the case of a refinance

Income tax, judgments or similar liens recorded

Delinquent property taxes

Notice of default or modification agreement recorded

Seller not on title

Seller owned property for short time

Buyer has pre-existing financial interest in the property

Date and amount of existing encumbrances don't make sense

Chain of title includes an interested party such as realtor or appraiser

Buyer and seller have similar names (property flips often utilize family members as straw buyers)

Owner Occupancy

Purchase Transactions:

Real estate listed on application, yet applicant is a renter

Applicant intends to lease current residence

Significant or unrealistic commute distance

Applicant is downgrading from a larger or more expensive house

Sales contract is subject to an existing lease

Occupancy affidavits reflect applicant does not intend to occupy

New homeowner's insurance is a rental policy (declarations page)

Refinance Transactions:

Rental property listed on application is more expensive than subject property

Different mailing address on applicant's bank statements, pay advices, etc.

Different address reported on credit report

Significant or unrealistic commute distance

Appraisal reflects vacant or tenant occupancy

Occupancy affidavits reflect applicant does not intend to occupy

Homeowner's insurance is a rental policy (declarations page)

Reverse directory does not disclose subject property address

HUD-1 Settlement Statement

Borrower or seller name is different than on sales contract and title

Sales price is inconsistent with contract, loan approval and/or appraisal

Excessive earnest money or builder deposit

Earnest money deposit is inconsistent with sales contract and/or application

Payouts to unknown parties

Refinance pays off previously undisclosed liens

Excessive sales commissions

Excessive fees and/or points

Seller-paid closing costs, especially for purchaser with sufficient assets for down payment

Cash proceeds to borrower are inconsistent with final application and loan approval

Foreclosure Rescue Red Flags

The borrower was advised by a foreclosure assistance consultant that they should avoid contact with their servicer

The borrower has paid someone to negotiate with the servicer on their behalf

The borrower states that they are sending their mortgage payments to a third party

Borrower receives a purchase offer that is greater than the asking price

Borrower states that they will be renting back from new owner

Cash-back at closing to the delinquent borrower, or disbursements that have not been expressly approved by the servicer

The borrower has quit claimed title to a third party at the advice of a foreclosure assistance consultant

Short Sale Fraud Red Flags

Sudden default, no workout discussions, and immediate offer at short sale price

Ambiguous or conflicting reasons for default

Short sale offer is from a related party

Link to Fannie Mae Common Red Flags

Roger W. Herrick
California Real Estate Broker
949-365-6585