By Dina ElBoghdady
Washington Post Staff Writer
Wednesday, June 16, 2010

After the bank foreclosed on Fernando Palacios’s Gainesville home in March, he thought he was done with what he described as the most stressful financial situation of his life.

The bank sold the home for far less than Palacios owed on it, as often happens with foreclosures. What Palacios did not see coming was the letter from his lender demanding that he pay the shortfall: $148,064.02. “I really thought I was through with this house,” said Palacios, who fell behind on payments when the economy soured and his cleaning business stumbled.

Over the past year, lenders have become much more aggressive in trying to recoup money lost in foreclosures and other distressed sales, creating more grief for people who thought their real estate headaches were far behind.

In many localities — including Virginia, Maryland and the District — lenders have the right to pursue borrowers whose homes have sold at a loss to collect the difference between what the property sold for and what the borrower owed on it, also called a deficiency.

Before the housing bust, when the volume of foreclosures was relatively low, lenders seldom bothered to chase after deficiencies because borrowers had few remaining assets to claim and doing so involved hassles and costs. But with foreclosures soaring, lenders are more determined to get their money back, especially if they suspect borrowers are skipping out on loan they could afford, an increasingly common practice in areas where home values have tanked.

Palacios said he was committed to staying in his house, which he bought in 2005. He sunk $20,000 into improving it and hoped to raise his children there. But his lender refused to modify his loan, he said. To avoid personal liability for the deficiency, Palacios is filing for bankruptcy protection, as many people do who are in similar situations, said Nancy Ryan, his bankruptcy attorney.

“I am definitely seeing more people come through my door who walked away from houses a year or two ago and thought they were as free as the dead,” Ryan said. “They’re stunned when they realize they’re not.”
Several lenders contacted for this story declined to say how often they pursue deficiencies. But many said they try to collect the debt if they conclude the borrower can repay all or part of it.

“Lenders are not going after people who face a hardship,” said John Mechem, a spokesman for the Mortgage Bankers Association. “If they can’t pay their mortgage because they have a loss of income, there is no point in going after them.”

Those who had a second mortgage, such as a home-equity line of credit, in addition to their primary mortgage may find themselves particularly vulnerable, especially if they tapped into the equity line for cash.

Second lenders are last in line to get paid when a distressed property is sold. There’s usually little or no money left over for them, making it more likely that they will pursue large deficiencies, several attorneys said.

Gretchen Somers said she and her husband understood the risks last year when they completed a “short sale,” a transaction that allowed them to sell their Manassas home for about $150,000 less than they owed on it. But they felt they had no other options.

Somers said her family hung onto the house as long as possible. They tried but failed to sell it when her husband was transferred to Arizona for his job in early 2006, just as home prices were softening. They moved back into the house then tried to sell it again in 2008, after their adjustable-rate mortgage reset and their monthly mortgage payment nearly doubled. But home prices had plunged further by then, making it even tougher to sell.

Last year, their first lender and their home-equity line lender granted permission for the short sale. But the second lender reserved the right to come after the couple. Six months later, a collection agency called demanding $85,000 for related losses.

In hindsight, Somers said she and her husband should have just walked away from the house. “We took care of the house because we wanted it to sell,” Somers said. “If they were going to come after us anyway, we shouldn’t have done them the favor of making sure it looked good and cutting the grass even after we moved out, We should have mailed them the key and said: ‘Here you go.’ ”

Carlos Cortez and his wife managed to escape that fate after their second lender came after them for $70,000 when their short sale was completed on his Manassas Park townhouse in 2008.

Cortez knew that was a possibility, but he went through with the sale because his real estate agent said the lender was engaging in scare tactics.

James Scruggs, an attorney at Legal Services of Northern Virginia, said the lender appears to have backed off after Cortez argued that that the loan officer falsely qualified him and his wife for a home-equity line by fabricating key details about their finances.

A handful of states do not allow lenders to pursue deficiencies, nor does a federal program that took effect April 10. Lenders participating in that initiative are paid for approving short sales and as a condition, they cannot go after outstanding debt.

In many states, lenders can go after deficiencies, though laws vary widely, said John Rao, an attorney at the National Consumer Law Center. Some states limit how long the banks have to file a claim or collect the debt. Others may calculate deficiencies based on the fair-market value of the house, Rao said. For instance, if a home sells for $200,000 yet its fair market value is $250,000, “the borrower who owes $240,000 on the mortgage would not have a deficiency,” he said.

Borrowers should get a waiver in writing from their lenders to protect themselves, said Diane Cipollone, an attorney at the nonprofit Civil Justice. “Nobody should assume the deficiency is forgiven,” she said.

A record number of desperate borrowers have registered for a traveling mortgage relief marathon that “sounds too good to be true.”

The Neighborhood Assistance Corporation of America’s Save the Dream Tour opens 9 a.m. Thursday at the Miami Beach Convention Center, offering thousands of struggling homeowners a chance to modify their loans – at no cost.

The event, which offers free counseling and face-to-face contact with lender representative, runs 24 hours a day. Doors close at 8 p.m. on April 19.

Bruce Marks, CEO of the Boston-based nonprofit, said Wednesday morning that a company record 15,000 had already registered for Thursday’s event.

“We’ve had a huge response,” he said, even though the tour made a stop in West Palm Beach just last February.

Darren Duarte, spokesman for NACA, said the overwhelming number of people who showed up for help in Palm Beach County led the tour, which makes stops around the county, back to South Florida.

“During the last day the crowd was extremely large and we got to see a lot of people but there were a lot of people we didn’t get a chance to see,” Duarte said about the February event. “So we saw there is still a need here and a demand here.”

More than 24,000 applied for mortgage relief at the Palm Beach County event, leading to nearly 11,000 modifications, Duarte said.

Greg Calley said he was among those who benefited. The American Airlines mechanic said he was poised to short-sell his Jupiter townhome after a year of trying unsuccessfully to work with Chase to modify his loan, which he struggled to pay.

Then he heard about Save the Dream.

“I thought it was too good to be true,” he said, echoing a common skepticism about whether the nonprofit really can help mortgage holders receive a free, same-day loan modification.

But Calley said that by the time he left the Palm Beach event, his monthly payment was $1,000 cheaper and his interest rate reduced by 4.5 percentage points.

The tour’s arrival in South Florida comes on the heels of a month that set a new South Florida record for property repossessions in March, with 3,707 in Broward, Miami-Dade and Palm Beach counties, according to a report by real estate consulting firm CondoVultures Realty.

Those who attend the workshop are encouraged to register and are urged to bring pay stubs, tax forms and other financial documents.

More info: http://www.naca.com

If you are like many American’s who purchase or refinanced their home during the heat of the real estate boom this could be the program that was designed to help YOU! Over the past 2 years I’ve been working to help many clients who have found themselves upside down and need financial help to correct their housing situation. It’s been a long and hard road for many of these good people whose lives have changed in one way or another.

Finally it looks like our government has taken a step in the right direction to streamline the process of helping these good hardworking people.

There are two program: The first is called HAMP, and this is how it works:
The Home Affordable Modification Program is designed to help as many as 3 to 4 million financially struggling homeowners avoid foreclosure by modifying loans to a level that is affordable for borrowers now and sustainable over the long term. The program provides clear and consistent loan modification guidelines that the entire mortgage industry can use.

Borrower eligibility is based on meeting specific criteria including:
1) borrower is delinquent on their mortgage or faces imminent risk of default
2) property is occupied as borrower’s primary residence
3) mortgage was originated on or before Jan. 1, 2009 and unpaid principal balance must be no greater than $729,750 for one-unit properties.

After determining a borrower’s eligibility, a servicer will take a series of steps to adjust the monthly mortgage payment to 31% of a borrower’s total pretax monthly income:

•First, reduce the interest rate to as low as 2%,
•Next, if necessary, extend the loan term to 40 years,
•Finally, if necessary, forbear (defer) a portion of the principal until the loan is paid off and waive interest on the deferred amount.
Note: Servicers may elect to forgive principal under HAMP on a stand alone basis or before any modification step in order to achieve the target monthly mortgage payment.
The Home Affordable Modification Program includes incentives for borrowers, servicers and investors – For More Info Click Here

If you can’t complete the HAMP program for one or a number of reasons than you maybe (should be able to) go in to the second program call HAFA.

Here is the info on HAFA: How HAFA Can Help

The Home Affordable Foreclosure Alternatives (HAFA) Program was designed to complement the Home Affordable Modification Program (HAMP) by helping current homeowners with mortgage debt who are eligible for HAMP but still cannot keep their home.

When a borrower applies for help from HAMP, not everyone succeeds with the program. Sometimes their lender is unable to approve a loan modification. Other times the borrower declines the terms of the loan modification. Some borrowers are approved and accept the terms of the modification, but fail to complete the program for various reasons. Before HAFA, these borrowers were usually headed for foreclosure.

HAFA gives those borrowers a viable alternative to foreclosure. If they have or want to find a buyer for their home, they may request approval for a short sale with pre-approval short sale terms and minimum acceptable net proceeds. If not, they may request approval for a deed-in-lieu . When a borrower applies for help with one of the HAFA solutions, the program already has their financial and hardship information from their HAMP application.

HAFA also imposes limits on the lender to help the borrower. Under the terms of this program, a lender must release the borrower from all future liability for the first mortgage debt. The lender may not ask the borrower for cash or a promissory note, and the lender may not ask a court for a deficiency judgment. The program also prohibits the lender from asking the listing real estate agent to discount their commission at the closing of a short sale.

All documents have been standardized and procedures, time frames, and deadlines have been streamlined under HAFA to make the process easier for both borrowers and lenders.

HAFA also provides financial incentives for both borrowers and lenders to participate in the program. Borrowers are entitled to receive $1,500 in relocation assistance , to be paid at closing. Lenders or loan servicers may receive up to $1,000 to help with administrative costs. There are also financial incentives for the lender or investor on the first mortgage to allow some of the proceeds from the sale of the property to be paid to subordinate lienholders.

Finally, participation in the HAFA program puts the foreclosure process on hold for the borrower. The lender may initiate the foreclosure process, but if the borrower is in the middle of the application process, or if any approved short sale or deed-in-lieu agreement has not been completed or reached its deadline, the lender may not complete the foreclosure process.

For more information Click Here

There are a lot of people who need this information so please forward to a friend or RT on twitter

There was an article in the Tampa Tribune today called “Default can spur revenge desire”

This is a great article of what we as Realtors are seeing out there today. People destroying they homes as an act of revenge on the banks and financial institutions who loaned money to borrowers to achieve the American dream of home ownership.

I’ve lost count of the number of homes I’ve shown that A/C systems, appliances, doors, locksets etc. have been removed. It’s a disgrace that this type of stuff is going on and it seems that people are getting away with it.

There are some options that the government has just put in place to help homeowners who are behind on their mortgage payments or they are going to end up behind on payments in the near future. The 1st program call HAMP is designed to help people reduce their mortgage payments to a maximum of 31% of their income, here is a link to the program HAMP (Home Affordable Modification Program)

If this program isn’t enough to get you on the right path, after completing the HAMP program you can ask to be enrolled into the HAFA program read about it here (Home Affordable Foreclosure Alternatives)
If you found this information useful please forward to a friend or RT on twitter.

I’m a pleased to announce that in addition to successfully negotiating and closing over 40 short sales in the past 24 months, I’ve also completed the “Short Sale & Foreclosure Resource course” The only course approved by the Board of Realtors. I’m now SFR certified, yes…

Over the past 2 years I have developed a system to help my clients through this changing market, often I’m referred clients from other real estate agents both at Coldwell Banker and other offices because of my proven track record and success in negotiating short sales. There are still many agents who don’t know what they are doing or don’t want to deal with short sales. I didn’t want to pass off my clients to someone else, and I love a challange and wanted to do all I can to help people in need.

So don’t loose your home to foreclosure and suffer the huge credit hit and the inability to purchase a home for 5 years or more, with our holp we can help you keep your credit and put you in a position to purchase a home in just 24 months taking advantage of the low home pricing I feel will still be around.

Don’t hesitate to contact us to schedule a confidential consultation today.

If you are like many home buyers who are trying to break into the real estate market in Tampa Bay, you know there are some amazing deals out there. Homes that sold in 2005 for over $200,000 are now selling for $100,000 or less in some areas! This makes buying a home a lot of fun today, you would think!

Many buyers are frustrated, 70% of the homes sales in recent months in the Tampa Bay area are distressed properties, short sales and pre-foreclosures. Getting these homes closed it just too much for some buyers. Often by the time it takes to get a short sale or pre-foreclosures approved by the seller’s lender, 50% of the buyers have walked before getting lender approval.

Most short sale deals take at least four months or more to get approval from the seller’s bank and if they have a PMI or MI insurance, a second mortgage or HELOC you could be looking six to twelve months or not getting approved at all! After the seller gets the lenders approval, the seller than has to agree to the lenders terms of the short sale. Which could include them signing a note for the balance or bring cash to the closing table. If the seller isn’t willing or able to accept these terms the deal could be dead! The buyer is then out 4-6 months of waiting.

Adding to this, homes under $100,000 are now starting to see bidding wars. Buyers used have been able to think about a home overnight but these days you need to move quickly to snatch up a good deal!

Home sales in the Tampa, St. Petersburg, and Clearwater areas rose 28 percent in the fourth quarter of 2009, and the median sales price hit $138,800. That’s down 42 percent since prices peaked at $239,600 in June 2006.

Time is also running on federal tax credit for 1st time and move up home buyers, putting a short sale under contract at this point and getting it closed in time to meet the dead lines may not be possible. Buyer’s must be under contract by 4-30-10 and close no later than 6-30-10 to get the tax credit. There are other stipulations to the credit, you can get the info at www.irs.gov

I’m telling my buyers at this point they need to make a decision, if the tax credit is the big reason they want to buy a home this year they many need to focus on REO (bank owned properties) or look for homes where the seller has equity so they can close in time. For a list of REO properties check out this link Bank Owned Homes List Click Here

If you don’t care about the tax credit, and you are focused on just getting the right home for you and your family as the market is returning from the bottom then short sales and pre-foreclosures should be on your list.

If you are looking for a newer community, taking the trip across the Skyway Bridge could get you more than you could dream of. I’ve been showing property in Manatee County over the past few weeks, where newer homes that were selling in the $500,000 range that can be purchased at a 50% discount. I’ve shown property built in 2005 with 4 beds 2.5 baths 2 car garage and 2,500 sqft selling for only $180k. Pulte Homes will build you a new 3,000 sqft home for just $212,000 WOW!

Let me know if I can help you with your home search!

http://www.DavidPriceRealtor.com. What are the banks thinking today? Banks are more conservative than ever and are forcing property values down in stable neighborhoods.

I understand banks trying keep their equity position high and prevent further losses, but allowing appraiser to use “Short Sales” as comps in a an arms length transaction is crazy.

Buyer’s who buy short sale homes are looking for a deal and they often get one, discounts as much as 10-30% or more in some cases, I’ve seen banks sell homes to investors who then flip the home and make a profit so I know what is going on. Freddie Mac has a policy that they will accept an offer on a short sale if it’s within 77% of the BPO or appraisal value, which is great for the buyer who has waited 4-9 months to get an answer from the seller’s bank.

Where this breaks down is the poor homeowner next door, who has been paying his mortgage on time for years, and now, his property value just got flushed because appraisers are told to uses these short sales and not make adjustments.

Banks are missing the big picture, right now homeowners who maybe upside down with their property values, but are making payments are thinking and being advised to stop making payments, take a hit on their credit and get out why so many others are doing the something!

Appraisers need to not use short sale or make an adjustment anywhere from 10-30% so they don’t bring down values of non short sale homes anymore!

The Story below is something that isn’t just an isolated case, I’ve heard of people’s financial advisors advising clients it makes more sense to walk away and take the hit on their credit than wait 10-15 years to get their home value back to their mortgage amount. Something needs to be done to help more underwater homeowners from feeling this is the only way out.. But before you walk away you need to have all the answers. See below.

WEST PALM BEACH, Fla. – Feb. 24, 2010 – After more than six months of wrangling with her bank to get a reduced mortgage payment through a federal loan modification program, Debra Jacobs has had enough.

The West Palm Beach resident is walking away from her home of 14 years.

“I’m just going to wait here until they put a padlock on the door,” said Jacobs, 58. “I’m so over it, I have to let it go. It’s too painful.”

As homeowners grow increasingly frustrated by the nation’s struggling foreclosure prevention programs, more may consider walking away as a viable alternative.

But there’s more to it than just stopping your mortgage payments and handing over the keys.

Boca Raton real estate attorney Marlyn Wiener says there’s no “right way” to walk away from a home.

Knowing the consequences, however, will at least help the borrower make an informed decision, she said.

“There is an analysis that each homeowner should do to find the best way for them to proceed,” Wiener said. “There isn’t a speed lane.”

The biggest gamble in walking away is whether a lender will try to seize a borrower’s assets to pay for its losses, Wiener said. Lenders have up to 20 years in Florida to collect a deficiency judgment.

But banks are more likely to go after borrowers who strategically default – a term meaning the homeowner can afford the mortgage but decides to stop paying because the home is no longer a good investment.

Moral dilemmas aside, Wiener said it can make financial sense in some situations to “pull the plug and regroup” if the mortgage is underwater.

Scott Haft, who oversees the mortgage modification and foreclosure defense division at the law firm LaBovick & LaBovick, said some lenders are willing to forgive a mortgage debt if a borrower voluntarily turns over the home without going through a lengthy court foreclosure.

“We say, ‘We’ll give you the keys on Monday, but you have to waive your right to pursue my client in the future for deficiencies,’ “ said Haft, whose company has offices in West Palm Beach, Boynton Beach and Palm Beach Gardens. “Many times, the lender is only interested in regaining the property.”

Another concern is whether the homeowner will have to claim forgiveness of debt on tax returns for the amount of money owed the lender.

The Mortgage Debt Relief Act of 2007 temporarily exempts people who lose their primary residence from having to claim the canceled debt, but the act is scheduled to sunset Dec. 31, 2012, and can’t be applied to investment properties.

“Everybody’s relationship with their properties and their loans is different,” Wiener said. “People need to take a look at where they are in life before they decide to walk away.”

One thing Wiener asks clients is whether they will need good credit in the near future to secure a car or student loan. A foreclosure can knock up to 300 points off a credit score – damage that can take years to repair and will stay on your report for seven years.

Lenders have recently stepped up efforts to ease the foreclosure process and avoid the complications when a homeowner walks away.

Citigroup launched a program this month that allows some borrowers to stay in their homes for six months without paying. In return, the homeowner turns in the keys at the end of the time period and keeps the home in good shape.

The federal Home Affordable Foreclosure Alternatives Program, announced in November, gives lenders incentives for offering deed-in-lieu of foreclosure and for approving short sales.

But for Jacobs, the alternatives are “too little too late.”

“Not only do I not know the options, I don’t care anymore,” she said. “It’s really sad it’s come to this.”

About 116,000 homeowners have had their loans modified to reduce their monthly payments, the Treasury Department said Wednesday. Only about $15 million in incentive money has been paid to more than 100 participating mortgage companies. That’s 0.02 percent of the $75 billion available.

Unemployment soared to 10 percent, and home prices continued to fall, especially in some states. 16 million homeowners nationwide now owe more to the bank than their properties are worth, according to Moody’s Economy.com.

Low interest rates and tax incentives have boosted home sales, but are ending soon. The $1.25 trillion program created by the Federal Reserve that has helped keep rates low is scheduled to end next month. The tax credits run out on April 30.

Obama’s plan had two main strategies: The government would channel $75 billion to banks to prod them into modifying the terms of mortgages for up to 4 million borrowers by the end of 2012. It would also relax rules to let up to 5 million homeowners refinance at lower interest rates.

Under the modification plan, borrowers can get their mortgage rates reduced to as low as 2 percent for five years and have the term of their loan extended to as long as 40 years. Borrowers must make three payments on time before the modification becomes permanent. Monthly payments for borrowers in the program have fallen to a median of about $835, down by about $520 a month.

Since the program started in March:

• 1 million people have entered the modification program, and almost 12 percent, or 116,000, have completed the process.

• A third of homeowners who made the three monthly trial payments on time have now fallen behind.

• More than 61,000 homeowners have dropped out, and hundreds of thousands more are expected to do so in the coming months.

• About 220,000 homeowners whose homes have plummeted in value have refinanced.

The process has been time-consuming, bureaucratic and fraught with communication mistakes. Borrowers often feel lost in a maze. When denied by their bank, they often don’t get a clear explanation of why.

To qualify, borrowers need to provide two pay stubs and a letter describing the reason for their hardship. They must give the Internal Revenue Service permission to give out their tax returns to their mortgage company.

Faced with poor results last summer, the Obama administration pressured mortgage companies. Treasury officials summoned key executives from lenders, including Bank of America, Wells Fargo and JP Morgan Chase, to Washington. The industry was given strict orders: Sign up at least 500,000 borrowers by Nov. 1.

To meet that goal, most companies allowed homeowners to enroll in the program without proof of income. That was the same low standard that lenders used when they made some of the riskiest loans that fueled the housing frenzy.

Getting the documents in advance would have been a better idea, Heid said. That’s because lenders have struggled to get homeowners to complete all the required documentation. Many don’t comply, despite repeated phone calls, mailings and even in-person visits by notaries.

It’s a problem that has perplexed and frustrated industry executives. “Borrowers didn’t understand that if they didn’t send the documents in, they would fail to qualify,” said Sanjiv Das, Citigroup’s top mortgage executive.

Last month, the Obama administration made key changes. It reduced the paperwork requirements and announcing that homeowners will be required to provide proof of their incomes upfront starting June 1.

The Problem:►
►Wall street got too greedy.
►ARM, Alt-A ARM, Option ARM, Prime ARM, Sub-prime ARM, these adjustable rate
mortgages will continue reset to higher monthly payments which many homeowners will
not be unable to afford.
►Millions of mortgage brokers originated these types of loans across the nation.
►Now the banks are literally overwhelmed and don’t have enough people to clean up
the mess.

The Numbers:
►More than $250 billion in 2008 another 350 billions in 2009 and another $700 billion
will reset in 2010 and beyond, this is according to a First American study.
►Now here is the recipe for disaster.
►It’s estimated that 60% of all arms borrowers pay only the minimum payment and can
not afford a higher payment.
►According to Freddie Mac 62% of all loan modifications become delinquent within 60
days after a modification takes place.
►Loan modification is a disaster; it’s PROVEN it doesn’t work without principal
reduction.
►Right now according to credit Suisse banks have approximately 900 thousands
properties in their books. Not listed for sale with an agent.
►As per Credit Suisse banks and GSE’s must avoid foreclosure in 4.2 million loans
until the end of 2010 in order to have a recovery.
►Highest unemployment rate in over 30 years.

The FDIC is selling off failed Bank and making crazy deals with the new owners, like this deal with failed IndyMac Bank to OneWest Click to Watch This Video Why would these banks want to help the average homeowners who is fighting to keep their homes when they can make more money doing short sales. Does this seem right to you?

Let me know your thoughts..