In the wake of the housing bubble, many homeowners have sought various non-foreclosure remedies from their lenders. These range from loan modifications to short sales and deeds in lieu of foreclosure.
In almost all instances, the loss mitigation department of the lender will require, among other things, that the delinquent borrower produce a "hardship letter". Google the term and you will find LOTS of examples. In fact, there is one very common one that seems to be repeated over and over on many sites. Here's an old but excellent article on how "Not to write a Hardship Letter". The article actually picks apart this "common" hardship letter and explains what a bank loss mitigation specialist is looking for when they read a hardship letter.
Showing posts with label short sale. Show all posts
Showing posts with label short sale. Show all posts
Tuesday, September 28, 2010
Wednesday, June 2, 2010
Fannie Mae's new rules for post-shortsale buyers
Many people wonder "what is the effect of a short sale on the ability to get a loan in the future"?
Fannie Mae, the company that securitizes mortgage loans, making them more affordable and the entity largely responsible for the guidelines that regulate most conventional mortgages, has provided a bit of an answer. Fannie Mae has released announcement SEL-2010-05 which sets forth the new requirements for home buyers to obtain a new loan if they have participated in a "pre-foreclosure event" (ie. a pre-foreclosure sale, a short sale, or a deed in lieu of foreclosure). Until now, there was no policy on short-sales. The new regulations go into effect on July 1, 2010.
For borrowers with a pre-foreclosure event in their past, there will be a waiting period before a new loan can be obtained. The amount of downpayment provided by the borrower will affect the length of the waiting period. The periods are as follows:
20% downpayment - 2 years
10% downpayment - 4 years
less than 10% downpayment - 7 years
The waiting period begins upon the completion date of the pre-foreclosure event. In addition, after 2 years with 90% LTV and with extenuating circumstances, a lender may be able to obtain an exception to the waiting period.
Guidelines can change on a regular basis, but for know, property owners considering a short sale or a deed in lieu of foreclosure will at least have an idea of some of the consequences of the pre-foreclosure event.
Fannie Mae, the company that securitizes mortgage loans, making them more affordable and the entity largely responsible for the guidelines that regulate most conventional mortgages, has provided a bit of an answer. Fannie Mae has released announcement SEL-2010-05 which sets forth the new requirements for home buyers to obtain a new loan if they have participated in a "pre-foreclosure event" (ie. a pre-foreclosure sale, a short sale, or a deed in lieu of foreclosure). Until now, there was no policy on short-sales. The new regulations go into effect on July 1, 2010.
For borrowers with a pre-foreclosure event in their past, there will be a waiting period before a new loan can be obtained. The amount of downpayment provided by the borrower will affect the length of the waiting period. The periods are as follows:
20% downpayment - 2 years
10% downpayment - 4 years
less than 10% downpayment - 7 years
The waiting period begins upon the completion date of the pre-foreclosure event. In addition, after 2 years with 90% LTV and with extenuating circumstances, a lender may be able to obtain an exception to the waiting period.
Guidelines can change on a regular basis, but for know, property owners considering a short sale or a deed in lieu of foreclosure will at least have an idea of some of the consequences of the pre-foreclosure event.
Wednesday, February 17, 2010
Hey, Buyer, is a short sale for you?
Short sales get you a house at a big value, but they come at a cost! I would say that, for one reason or another, only about 50% of the short sales that our office handles for Buyers actually close. The reasons they fail to close are many and varied. Most commonly, they fail to close because the Seller's bank does not approve the short sale offer, the buyer can't get financing, the real estate's value changes during the long wait between contract and closing, a new buyer is found, or the buyer gets sick of waiting. This is not to say that short sales do not close, but they are a challenge.
During a short sale transaction, the Buyer has to serve two masters - one who says "wait, we need the Seller's bank to approve this deal" and the other who says "as soon as the Seller's bank is ready, you had better be ready to close at a moment's notice". It can be difficult to serve both masters at once. In a short sale transaction, patience is a virtue. The main question for a short sale buyer is “How long can you wait?” The answer is easier if the property the question is not necessary for immediate residential occupancy. For someone who really needs to move into their new short sale purchased home, a short sale is a disaster waiting to happen. Delays are the norm. A short sale Buyer can't count on the contract closing date. Despite all the waiting, once the Seller's lender approves the sale, all of the parties must act fast to close the deal. Oftentimes, the short sale approval may only have a window of a week or so. A Buyer might feel like a yo-yo with all the waiting and edge of the seat preparedness. When the Buyer requires a loan to complete the purchase, because underwriting takes time, loan programs change, and lenders generally do not act quickly, the Buyer's lender may not be able to meet the Seller's lender's time table for closing.
Many Buyers do not want to waste money on their short sale transaction until they know that the deal will “happen”. If a lender does not approve a short sale, the Buyer could be out real money spent on appraisals, inspections, lender fees, rate locks, and attorneys fees. Thus, they try to hold off on obtaining an appraisal or inspection until they know the Seller's lender approves the deal. Oftentimes, the Seller will not agree to delay these items. From the Seller's perspective, the Seller does not want to spend months obtaining a short sale approval only to see the Buyer pull out because of inspection issues. As for the Buyer who wants to wait to get the lending process started, they might find that their lender is unable to close in time.
Even if costly items can be delayed, the delay may make the deal more difficult. If an inspection is performed after the Seller's lender's has approved the short sale, the buyer should not expect any inspection credits (to get those would require going back to square one in the Seller’s short sale approval process) and short sale sellers usually have no money of their own to put into the deal!
The short sale Buyer trades a great price for any right to complain about much of anything, including legal rights. The Seller's lender controls the game. Any short sale seller represented by a competent attorney will work to reduce the Buyer’s right to require a closing absent the approval of all third parties who are owed money. The Buyer generally has to play along. Again, this is part of the trade off for a “great” price, as the lender is normally swallowing a big loss. If the price is not great, the Buyer should not do the deal. After all, there are lots of properties for sale on the market these days.
After overcoming all of tribulations of getting to the closing closing table, the majority of short sale closings that do close usually require more than one day to close! A short sale closing begins like most others. However, the title companies usually need the seller’s lender to sign off on the sale or their payoff letter. This process usually causes delays. I have personally witnessed a seller's lender take a week to approve their already approved short sale payoff letter. Short sale closings can take a full day. They can be re-scheduled several times. They can take multiple days to close. All of these are possible in a short sale.
A short sale Buyer who is flexible, patient, and willing to "play the game" can find a real bargain in the real estate market. They just have to be willing to do what it takes to get that bargain.
During a short sale transaction, the Buyer has to serve two masters - one who says "wait, we need the Seller's bank to approve this deal" and the other who says "as soon as the Seller's bank is ready, you had better be ready to close at a moment's notice". It can be difficult to serve both masters at once. In a short sale transaction, patience is a virtue. The main question for a short sale buyer is “How long can you wait?” The answer is easier if the property the question is not necessary for immediate residential occupancy. For someone who really needs to move into their new short sale purchased home, a short sale is a disaster waiting to happen. Delays are the norm. A short sale Buyer can't count on the contract closing date. Despite all the waiting, once the Seller's lender approves the sale, all of the parties must act fast to close the deal. Oftentimes, the short sale approval may only have a window of a week or so. A Buyer might feel like a yo-yo with all the waiting and edge of the seat preparedness. When the Buyer requires a loan to complete the purchase, because underwriting takes time, loan programs change, and lenders generally do not act quickly, the Buyer's lender may not be able to meet the Seller's lender's time table for closing.
Many Buyers do not want to waste money on their short sale transaction until they know that the deal will “happen”. If a lender does not approve a short sale, the Buyer could be out real money spent on appraisals, inspections, lender fees, rate locks, and attorneys fees. Thus, they try to hold off on obtaining an appraisal or inspection until they know the Seller's lender approves the deal. Oftentimes, the Seller will not agree to delay these items. From the Seller's perspective, the Seller does not want to spend months obtaining a short sale approval only to see the Buyer pull out because of inspection issues. As for the Buyer who wants to wait to get the lending process started, they might find that their lender is unable to close in time.
Even if costly items can be delayed, the delay may make the deal more difficult. If an inspection is performed after the Seller's lender's has approved the short sale, the buyer should not expect any inspection credits (to get those would require going back to square one in the Seller’s short sale approval process) and short sale sellers usually have no money of their own to put into the deal!
The short sale Buyer trades a great price for any right to complain about much of anything, including legal rights. The Seller's lender controls the game. Any short sale seller represented by a competent attorney will work to reduce the Buyer’s right to require a closing absent the approval of all third parties who are owed money. The Buyer generally has to play along. Again, this is part of the trade off for a “great” price, as the lender is normally swallowing a big loss. If the price is not great, the Buyer should not do the deal. After all, there are lots of properties for sale on the market these days.
After overcoming all of tribulations of getting to the closing closing table, the majority of short sale closings that do close usually require more than one day to close! A short sale closing begins like most others. However, the title companies usually need the seller’s lender to sign off on the sale or their payoff letter. This process usually causes delays. I have personally witnessed a seller's lender take a week to approve their already approved short sale payoff letter. Short sale closings can take a full day. They can be re-scheduled several times. They can take multiple days to close. All of these are possible in a short sale.
A short sale Buyer who is flexible, patient, and willing to "play the game" can find a real bargain in the real estate market. They just have to be willing to do what it takes to get that bargain.
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