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Short Sale - Information and links For A List Of Short Sale Homes - Click Here Top 5 Reasons Why this is happening 1) Credit crunch. Now even prime borrowers are having a hard time getting loans. No more 100% loans of any sort. Sub-prime is more or less non-existent. No loans=no sales. 2) Massive depreciation. In most of the US, homes have gone down in value. In some cases they have depreciated by over 20%. More depreciation projected... 3) Mortgage interest rates are adjusting. Millions of homeowners have no chance of affording their new adjusted house payment. 4) Foreclosures. Banks across the US are taking in record numbers of foreclosures. Its projected that up to 50% of all homes for sale will soon be in some stage of foreclosure. 5) Builders. All the major builders are stuck with massive levels of unsold inventory. These builders have to sell these homes and will slash prices and offer other concessions. Re-sale homes can't compete. Daily Real Estate News | March 21, 2007 Short Sale Might Help US Housing Slump - A growing number of lenders are approving short sales as an alternative to foreclosure, says Doug Duncan, Mortgage Bankers Association chief economist.
The move is a way for lenders to avoid having to take over and manage property.
The way banks see it, it's better than if the house goes into foreclosure, stands empty, and sees its value spiral downward before it's auctioned on the courthouse steps," says Duncan, who expects rising delinquencies to spark an increase in pre-foreclosure sales.
Though short sales put additional downward pressure on the national median home price, Fannie Mae chief economist David Berson says they also lower the number of foreclosures and can help ease the housing downturn. Short sales are hard to track, though, because they're not counted, making it impossible to know exactly how many occur. Source: Bloomberg, Kathleen Howley (03/21/07) SHORT SALE BASICS - Unfortunately, some homeowners today owe more on their home than what the property is worth. Some programs that were intended to make it easier to obtain financing and increase homeownership resulted in loans that required small or no down payment, interest-only loans that do not build equity, and other loan programs that require such small payments that the loan amount actually increases rather than decreases. As a result, some homeowners have negative equity in their homes. Stagnant or decreasing property values add to the problem. Homeowners who financed their homes with loan programs with low initial rates of one percent to two percent will experience dramatic increases in their monthly payments when the loan resets to the market rate. These and other factors have contributed to a striking increase in home loan defaults and foreclosures.
Short Sales - A homeowner in default who owes for example, $300,000 on a property that is worth $250,000, may be able to convince the lender to allow the home to be sold for less than the loan amount, or even accept less than the amount owed as payment in full. This is known as a short sale. A lender may agree to a short sale to save the costs associated with a trustee’s sale, such as attorney’s and trustee’s fees, eviction, and resale costs. Additionally, a lender may agree to a short sale because if the property is foreclosed upon, the loan becomes a "non-performing" loan on the accounting books, which may affect the funds that the lender can obtain from the Federal Reserve for other loans.
Seller Considerations - When considering a short sale, the seller must first determine how much is owed on the property. For example, in addition to the delinquent loan, there may be a home equity loan, past due homeowner’s association fees or unpaid property taxes. Then, the seller must add the costs of a sale, such as closing costs, escrow fees and brokerage commissions. All of the seller’s debt and costs must be factored in before determining whether a short sale is feasible.
The seller should also be aware of some of the downsides to a short sale. A short sale could affect the seller’s credit score. Further, even if a lender agrees to a short sale, the lender, the VA, or the FHA may require the seller to pay the difference as a personal obligation. The outstanding debt could result in a subsequent collection action. Therefore, the seller should be certain of the terms of any short sale before making a decision and obtain any debt forgiveness agreement in writing.
Also, a short sale is a relief of and may be treated as income for tax purposes. A lender who forgives a debt must submit a 1099 form to the IRS indicating the amount the borrower has been forgiven. (Note: The NATIONAL ASSOCIATION OF REALTORS® supports proposed legislation that would change this tax law.)
Different lenders have different short sale department names, so contacting the person who has the authority to authorize a short sale on behalf of the lender may require some tenacity. The appropriate department may be called the loss mitigation, work-out, foreclosure, loan modification or loan reinstatement department. To accomplish a short sale, the seller must convince the lender that it will fare better by agreeing to a sale for less than the outstanding loan amount. A short sale may involve more documentation than the original loan application since the seller must “reverse qualify” and prove that the seller is financially incapable of paying the loan. Home Owners Beware If an “angel” investor offers to ‘take over the payments’ and lets you pay rent until you’re back on your feet, and then asks you to sign a quit claim deed, transfering title to the investor, stop everything and go get some legal advice immediately. You might be thinking: I’m in financial distress; how can I afford legal advice? Contact your local bar association for a referral to free legal aid. A quit claim deed transfers interest but not liability. This means you are still liable to make sure the mortgage is paid, and further, transfering yourself out of title means your lender might decide to call your note due and payable. There are many foreclosure rescue scams to be careful of. If the rent is set too high, thus not allowing you to really get caught up at all, this has a name: equity skimming. Go see an attorney. Homeowners, you will be asked to pay back the shortage. That’s right, your lender will ask you to sign a brand new unsecured note in order for you to pay back the difference in monthly installments. If, out of the goodness of their heart, (don’t count on it) the lender “forgives” the debt, then the IRS sees this as a taxable event. Homeowners: Go see your favorite tax attorney or CPA for tax advice if you are in a short sale scenario. Homeowners, the worst mistake you can make is to go into denial and stay in your “happy place” and not make those hard decisions. Let’s review. The best steps you can take are preventative. When you see yourself getting close to needing to sell in order to avoid foreclosure: 1) Decide if you absolutely must sell or if you’re better off riding out the financial tough road. If there’s a light at the end of the tunnel, and you don’t want to sell, perhaps you’re better off not selling. 2) Talk to a HUD-approved housing counseling agency that offers “default” counseling. 3) Don’t ignore letters or calls from your lenders. Talk to your lender. 4) If you’re committed to selling, interview three licensed real estate agents. If one of them offers to purchase the house right there in your living room…..ask the agent if that’s ethical and legal and see what they say. Real estate agents have an obligation to put YOUR interests ahead of their own interests. State agency laws vary, but this is a core concept of agency. 5) Always seek legal counsel if you are a short sale homeowner. There are things attorneys can do that real estate agents cannot do. Short Sale Advantages - Short sales appear on your credit report as "pre-foreclosure in redemption", not as "debt discharged due to foreclosure". Less impact on your credit score. All mortgage debt is fully discharged
Source: Dual upside to foreclosure alternative, (The Early Show (CBS), June 21, 2007). Short-sale Schemes Figure 17: Example of a fraudulent short sale:  Perpetrator of a short-sale scheme;
 Perpetrator recruits a straw buyer to purchase a property.
 Perpetrator has straw buyer secure a mortgage for 100% of the property’s value.
 Perpetrator may have a straw buyer refinance the home and obtain $30,000 for “repairs.”
Perpetrator pockets the $30,000. No repairs are made.
No payments are made so the mortgage will default.
Straw buyer informs the lender that the home will foreclose and recommends the perpetrator as a potential buyer in a short sale.
Perpetrator approaches lender prior to foreclosure and offers to pay less for the home than would otherwise be received in a competitive foreclosure sale.
Lender agrees to the short sale not knowing that the mortgage payments were deliberately not made to create this short-sale situation.
Perpetrator sells the property at actual value for a profit, or has the property artificially inflated to conduct an illegal property flip.
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Short-sale schemes are desirable to mortgage fraud perpetrators because they do not have to competitively bid on the properties they purchase, as they do for foreclosure sales. Perpetrators also use short sales to recycle properties for future mortgage fraud schemes. Short-sale fraud schemes are difficult to detect since the lender agrees to the transaction, and the incident is not reported to internal bank investigators or the authorities. As such, the extent of short sale fraud nationwide is unknown. A real estate short sale is a type of pre-foreclosure sale in which the lender agrees to sell a property for less than the mortgage owed. In a typical short sale scheme, the perpetrator uses a straw buyer to purchase a home for the purpose of defaulting on the mortgage. The mortgage is secured with fraudulent documentation and information regarding the straw buyer. Payments are not made on the property loan so that the mortgage defaults. Prior to the foreclosure sale, the perpetrator offers to purchase the property from the lender in a short-sale agreement. The lender agrees without knowing that the short sale was premeditated. The mortgage owed on the property often equals or exceeds 100 percent of the property’s equity (see figure17).
Foreclosure Rescue Scams As in 2006, foreclosure rescue scams continued to be problematic in 2007. Escalating foreclosures provide criminals with the opportunity to exploit and defraud vulnerable homeowners seeking financial guidance. The perpetrators convince homeowners that they can save their homes from foreclosure through deed transfers and the payment of up-front fees. This “foreclosure rescue” often involves a manipulated deed process that results in the preparation of forged deeds. In extreme instances, perpetrators may sell the home or secure a second loan without the homeowners’ knowledge, stripping the property’s equity for personal enrichment. Identity Theft Used to Drain Home Equity Lines of Credit HELOC Vulnerabilities HELOCs differ from standard home equity loans because the homeowner may borrow against the line of credit over a period of time using a checkbook or credit card. They are aggressively marketed by lenders as an easy, fast, and inexpensive means to obtain funds. As such, an individual may open a HELOC account much like they do a credit card. The funds may not be accessed for an extended period of time, and the account balance may not be regularly verified. |
Stolen customer identification information is being used to compromise Home Equity Lines of Credit (HELOC) accounts. To facilitate this scheme, perpetrators pose as customers to establish HELOC Internet account services and manipulate customer account verification processes, including rerouting telephone calls, forging signatures, using passwords, and reciting recent account history. For example, a perpetrator uses the account holder identification information to contact a financial institution and request an advance of funds on a HELOC account. Once the advance is granted, the perpetrator sends a facsimile to the financial institution requesting that the funds be wire transferred to another account. On receipt of the facsimile request, the financial institution contacts the account holder using the telephone number on record to verify the transaction. However, the call is unknowingly forwarded to the perpetrator who verifies the account holder’s information to complete the wire transfer. FBI Response As mortgage fraud crimes escalate, the burden on federal law enforcement increases. With the anticipated upsurge in mortgage fraud cases, the FBI employed additional strategies to proactively address the crime problem. The FBI works with the Department of Justice (DOJ)-Mortgage Fraud Working Group on a number of mortgage fraud related issues, including the creation and finalization of standard loss valuation criteria associated with mortgage fraud violations, and assisting the banking industry with the construction of a centralized repository of mortgage-related documentation. The FBI also held a mortgage fraud summit with FBI Supervisory Special Agents to address the most severe mortgage fraud problems nationally. Currently the FBI has mortgage fraud working groups or task forces in 32 field divisions, including Anchorage, Albuquerque, Atlanta, Buffalo, Charlotte, Chicago, Cincinnati, Cleveland, Detroit, Dallas, Denver, El Paso, Honolulu, Houston, Indianapolis, Jackson, Kansas City, Louisville, Memphis, Miami, Minneapolis, Milwaukee, Portland, Pittsburgh, Philadelphia, Phoenix, Sacramento, San Diego, San Francisco, Salt Lake City, Tampa, and Washington, DC. The FBI continues to encourage the use of undercover operations as an effective technique to address mortgage fraud. The FBI continues to work closely with its government and industry partners to ensure that pertinent data is shared in a timely fashion. Efforts are ongoing to educate the American public regarding mortgage fraud crimes and perpetrators. Analytical products are routinely disseminated to a wide audience. Working groups and task forces remain ideal forms from which to coordinate multi-agency, multi-jurisdictional investigations into mortgage fraud matters.
SHORT SALE LINKS Short Sale information from Bank Rate
About Short Sales Short sales set sail again, (Realty Times, Apr. 9, 2007).
Short sales might cure U.S. housing slump, (REALTOR® Magazine Daily News, Mar. 21, 2007).
The new exit strategy: A short sale, (Business Week, Mar. 5, 2007).
Short sale may be an option when mortgage debt looms too large, (Real Estate Journal, Feb. 19, 2007).
Short sales and foreclosures make way into market, (Realty Times, Feb. 14, 2007).
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