Fannie Mae Short Sales | Freddie Mac Short Sales | Riverside Short Sale Agents | Brian Bean and Tim Hardin | Short Sale in Riverside

Fannie, Freddie now allow short sales on current loans

Homeowners who are current on their mortgage payments but headed for trouble have new options this week.

Mortgage giants Fannie Mae and Freddie Mac on Thursday launched a revamped and cohesive short sale program that now allows a short sale without missed payments and without requiring repayment of the loan balance.

The new program comes in the wake of years of complaints about fragmented and outdated GSE policies and is designed to put both government-sponsored enterprises on the same page when it comes to short sales, with the same borrower qualifications, timelines and processes.

The Federal Housing Finance Agency, which oversees Fannie and Freddie, announced the new guidelines in September to address the issues that distressed homeowners face in today’s real estate market.

The new program guidelines include:

NO MISSED PAYMENTS: Following in the footsteps of servicers and major lenders, GSEs will now allow homeowners who are current on their mortgages to complete a short sale … if they have a qualified hardship.

What is a valid hardship for a short sale with no missed payments? Imminent default threats such as death of borrower, divorce, disability or a job relocation of at least 50 miles, to name a few.

Some major banks already allow short sales on non-GSE loans with no delinquencies in an attempt to head off future foreclosure and a greater loss.

HEADED FOR FORECLOSURE: Borrowers who are at least 90 days behind and have credit scores below 620 will have their short sales put on a fast track for approval, and they will not have to provide hardship documentation to qualify.

ONE SET OF RULES: Servicers will have one set of clear guidelines to evaluate, process and execute short sales, eliminating the confusion that currently reigns on GSE programs.

JUNIOR LIENHOLDERS: Second lienholders can receive 100 percent of the outstanding lien, up to $6,000, to approve a short sale. In California, the $6,000 cap can be lower than necessary, especially if the junior lien is a home equity line of credit with a balance greater than $100,000. Lenders often want 10 percent to 20 percent of an outstanding HELOC balance, creating situations in which a home buyer may have to contribute extra money toward that lien.

But GSE programs previously allowed only 6 percent, up to $6,000, to junior lienholders.

The HAFA short sale program recently increased its maximum-allowed junior lien payoff to $8,500 to deal with demanding juniors.

ACTIVE MILITARY: Military personnel who have a permanent change of station order can short sale their home without missed payments and without the threat of having to pay the loan balance.

These changes went into effect earlier this year.

CONDENSED TIMELINE: The new guidelines fold in deadline restrictions that took effect in June. Servicers must respond to a short sale request within 30-60 days of receiving a complete package.

If the servicer is unable to respond within 30 days, they will have an additional 30 days to evaluate the short sale, but they also must provide weekly updates during that period.

A response could be an approval, rejection or counter-offer.

NO DEFICIENCIES: Outside California, Fannie and Freddie will waive their rights to pursue homeowners for the balance of the loan after a short sale, though the seller may have to make a cash contribution or sign a promissory note.

In California, state laws prevent lenders from pursuing the deficiency balance after a short sale, in most cases.

Fannie and Freddie own or guarantee more than half of U.S. mortgages. The FHFA now oversees the agencies after a $170 billion government bailout in September 2008.

“These new guidelines demonstrate FHFA’s and Fannie Mae’s and Freddie Mac’s commitment to enhancing and streamlining processes to avoid foreclosure and stabilize communities,” FHFA Acting Director Edward J. DeMarco said in a release.

WHY SHORT SALE?

Fannie and Freddie are putting more emphasis on short sales because they make the most financial sense.

Short sales net banks 12 percent to 25 percent more than they would gain from a foreclosure because of the time and expense to take back, repair, maintain, market and resell a property. And as many as half of loan modifications re-default within the first year, later turning into foreclosures and short sales.

Thus short sales continue to increase, especially in Southern California, as lenders streamline processes and create attractive offers to help distressed homeowners. A short sale allows a homeowner to avoid a financially devastating foreclosure, limit damage to their credit, and re-enter the housing market much more quickly as an able buyer — before home values again shoot through the roof.

More importantly, a short sale allows a homeowner to exit their house on their own terms, with dignity intact.

Want to know if you qualify for the newly updated short sale guidelines? Call us today at 951-778-9700, and we’ll do the research for you.

Brian Bean and Tim Hardin, owners of Dream Big Real Estate in Riverside, are Default Advocates and ambassadors for Helping A Million Homeowners. They can be reached at 951-778-9700, PE@DreamBigRealEstate.com or at www.DreamBigRealEstate.com and www.ShortSaleAndStay.com.

Labels: Deficiency Judgment, Fannie Mae Short Sale, Freddie Mac Short Sale, Riverside Short Sale Agents, Short Sale in Riverside, Short Sale Lease Back

Mortgage Forgiveness Expiring | Taxes on Short Sale | Brian Bean and Tim Hardin | Riverside Short Sale Agents 

Time’s up! Homeowners now need good Plan B

With just three months left in 2012, it may be too late for some homeowners to avoid a massive tax bill after a short sale or foreclosure.

Now, it’s time to think about Plan B.

The federal Mortgage Forgiveness Debt Relief Act of 2007 and California’s Conformity Act of 2010 are set to expire at the end of this year. Both laws exempt some homeowners from paying income taxes after a home goes to foreclosure or short sale.

Banks claim their losses to the Internal Revenue Service as debt cancellation and send consumers IRS 1099 forms, which must be reported on tax returns. A taxpayer could owe as much as $15,000 to $35,000 in taxes on a $100,000 loss to the bank.

With lawmakers focused on the presidential election, it’s anyone’s guess if the tax exemptions will be extended. The federal and state governments are running in the red, and legislators differ on how to balance the budget.

If lawmakers fail to extend the federal law or the state law, which essentially mirrors the federal law but applies to California income taxes, homeowners who miss the deadline face crippling tax bills.

Unless they have a Plan B in place.

‘INSOLVENCY’

Some homeowners who don’t qualify for the tax exemptions may fall under the IRS’s definition of “insolvency,” meaning their liabilities are higher than their assets.

Taxpayers who are insolvent may be exempt from paying income taxes on all or part of the debt cancellation from a short sale or foreclosure. The insolvency calculations, and the rules, are complex, and the tax forms must be completed correctly. This is not a task to be handled with TurboTax.

Step 1: Talk to your tax preparer, preferably an expert with lots of experience in this field, or a tax attorney. Despite what you may have been told by friends, family and neighbors, it’s always better to seek advice from a trusted professional.

(Need a referral to local tax professionals? Call us today at 951-778-9700 and we’ll provide you contact information.)

BANKRUPTCY

In some cases, bankruptcy can wipe out consumer debt with no tax liability. But bankruptcy is like dropping an atom bomb on a credit report – it shouldn’t be taken lightly.

Attorneys who specialize in bankruptcy can help a homeowner determine if such an extreme solution is necessary, or helpful.

The type of bankruptcy you file – reorganization vs. a clean slate – can also have a major impact. And the timing is also critical. Talk to a trusted, experienced attorney for guidance on your specific situation, before the bank takes action.

(Need a referral to a local bankruptcy attorney? Call us today at 951-778-9700 for a good contact.)

PLAY THE ODDS

It’s possible that one or both of the expiring laws will be extended.

In August, a Senate bill cleared a committee that would extend the federal legislation through 2013. But as of midweek, it had not made any more progress.

President Obama’s Fiscal Year 2013 budget, unveiled on Feb. 15, includes a provision to extend the federal act through 2014. But U.S. budgets must survive an exhaustive approval process. And thus far, Congress has unanimously blocked that budget plan.

Earlier this year, legislators in the House introduced the Homeowners Tax Fairness Act to coincide with the $25 billion settlement reached in March with major lenders over improper foreclosures. That bill would extend the tax exemption through 2015 to homeowners and service members for debt cancellation on a primary residence. It remains in the Ways and Means Committee.

If the laws are extended, a homeowner would still have to qualify under the terms of the legislation, which include:

• Covers up to $2 million of debt ($1 million if married filing separately) forgiven between Jan. 1, 2007, and Dec. 31, 2012 (or future extended date), possibly through short sale, foreclosure or loan modification.
• The forgiven debt must be on a qualified principal residence. Second homes and income properties do not qualify.
• The debt must have been used to “buy, build or substantially improve” your principal residence. If you refinanced the home and took cash out to remodel the home, it may be covered. Cash out to pay other bills or make purchases would not qualify, however.

And any new extension would surely ease the pressure on distressed homeowners. But it would not eliminate it. An extension ultimately would have another expiration date, probably just one year away.

KNOW YOUR OPTIONS

Loan modifications and short sales can take months, and the timelines are likely to stretch as homeowners rush to beat the deadlines.

Homeowners who already waited too long to take action now face another deadline: They must know their options before the end of the year, or risk massive tax bills.

Are you qualified for the existing tax exemptions? Call us today at 951-778-9700 and we’ll do the research for you.

(Brian Bean and Timothy Hardin are Default Advocates and owners of Dream Big Real Estate. They can be reached directly at Brian@DreamBigRealEstate.com or 951-778-9700.)


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Labels: Bankruptcy, Deficiency Judgment, Foreclosure, Mortgage Forgiveness Debt Relief, Riverside Short Sale Agents, Short Sales