Archives for March 2014

Short sales of Property on the Rise

Are short sales of property on the rise?  Yest, according to RealtyTrac, short sales of property are on the rise and accounted for 22% of all residential sales in 2012.  (2013 data was not available).  Recent changes on the rules regarding short sales by Fannie Mae and Freddie Mac resulted in many more short sales being approved prior to foreclosure.  The rules require less documentation from the consumer.

There are many driving forces.  For consumers and lenders this is a less traumatic and more controlled event.  Lenders now realize they will sustain smaller losses if they approve a short sale rather than approve a foreclosure. Buyers prefer to purchase from an owner, who can give disclosures and information about the property rather than buy from an anonymous bank who has no information about the property. Another driving force is that the foreclosure process continues to take more and more time due to increase litigation, regulations and delay tactics by consumers.

Is this a positive sign or a sign of more trouble ahead for the housing market?  The answer appears to be Yes and No.   On the positive side, a short sale helps preserve communities.  Besides having a higher price point, it is less disruptive to neighborhoods as the property typically will not be vacant or vandalized.    Short sales create the benefit of having property occupied with a family that is able to buy services, keep up the property and pay real estate taxes.  

On the negative side, large number of short sales also opens the potential for fraud.  Some argue that short sales are actually part of the housing market’s problem as it reflects the negative sentiment about the housing market.  It says that lenders and investors only approve short sales because they do not see a real recovery.   It could mean that properties are still underwater and that recovery is only an investor/cash recovery.   The people who are buying are typically not first time homeowners but investors who are purchasing real estate at discounted prices to use as rental properties.   When the supply gets too tight and the prices rise, the investor will back out of the short sale market and there will be another drop in sales.

Bankruptcy and your Mortgage Lender

If you are in bankruptcy and your mortgage lender wants its money, the law requires increased transparency of mortgage servicing practices during your Chapter 13 bankruptcy cases.  The goal was to stop perceived abuses and organization.  Reality did not rise up to expectations in part due to ambiguity in the rule’s language which brought about implementation of local bankruptcy rules, practices and court cases.

Specifically, Rules 3001 and 3002.1 required for your mortgage lender to file  with the court a “notice” of all payment changes and advances made by your lender on the loan. Toward the end of a Chapter 13 case, the trustee is required to file a “notice of final cure payment” and the lender in turns files a response either agreeing or disagreeing.  Note that we are talking about your principal residence where you planned on paying back the arrearages or missed payments and planned to continue or “maintain” ongoing monthly payments.  But does the rule mean that it is the Trustee or you who are to “maintain” these payments?  Well, it depends on whether these payments are to be paid directly by you or by the Trustee, and it depends on whether the court in your local jurisdiction has set up a local rule dealing with this issue.  Confused enough.  With some of the largest mortgage creditors interpreting their noticing responsibilities as inclusive of these direct pay scenarios, the practice of filing the supplemental claim has caused more confusion with trustees who view these supplemental claims as inappropriate due tot he mortgage lender’s claim not falling within the “maintain” prong of the test.  It has also caused you to pay more as with each notice that is filed your lender is charging a fee.

Just as confusing is the requirement of this notice rule when relief from the automatic stay has been granted to allow for a foreclosure of the property.  It seems like common sense or obvious that when the collateral has been released by the bankruptcy judge to allow for a foreclosure that compliance with the notice rule should stop.  Yet again different courts have interpreted the rule differently.   Uniformity by local rule seems an impossibility.   So, addressing the issue at the time of the relief hearing appears the most direct approach whereby the lender asks the judge for a waiver of the rule after relief has been granted.  Good luck bankruptcy and your mortgage lender.

SHOULD FANNIE MAE DIE?

Should Fannie Mae Die?  First, note that Fannie Mae is not the government.  Yes, it was created by  Congress with its own special charter and regulations.  Yes, our Treasury owns 80% of the stock.  Yes, I did say “stock” because Fannie Mae is a publicly traded shareholder owned corporation.  In 2008 our President, our Congress stepped in and seized the company, ie: saved it from going bankrupt.  The situation was so bad that Fannie Mae was and continues to be under conservatorship being run by the Federal Housing Finance Agency (FHFA) who has all the power, rights and privileges to manage the company.  Well, like all things in the government, the solution is never the cure and often times causes more problems.  The FHFA is so big it needed to delegate specified duties to a board of directors whose only job is to do the bidding of the FHFA.  What fiduciary obligations does the board of directors have to us, the taxpayer?  None.  It is our tax dollars that keep Fannie Mae afloat but the board does not have to listen to us.  The government has spent historically spent or wasted our money. Should this situation be any different?

Our President’s position since 2008 is to let Fannie Mae die; to much risk and burdens on us, the taxpayers.  WOW, he must really care; He must really be listening.  He said at a speech at a high school in Phoenix that, “For too long,Fannie and Freddie were allowed to make big profits buying mortgages, knowing that if their bets went bad, taxpayers would be left holding the bag.”  However, five (5) years later Fannie Mae is still here.  First, the government bailed out Fannie Mae because it was too weak and the economy would collapse.  (Can you say Chicken Little).  Now, Fannie Mae cannot die because Fannie Mae is making too much money.  So, should Fannie Mae die? Well, Hell No, America is capitalism.  America is Big government.  Go USA.

HOW TO VALUE A HOME AFTER FORECLOSURE

How to value a home after foreclosure can be difficult.  Homeowners and realtors say these homes are not part of the market and appraisers are say the opposite as every property sold is in the market. It is generally accepted that a foreclosed house is used as a comparable in deciding the fair market value.  Is it fair?  No, as foreclosures have a stigma in the marketplace, as they are atypical.   Also, most foreclosed homes are sold “as is” (no warranties).   You have no idea how the former owner cared for the house.  There could be concrete poured down the drains, destroyed electrical and HVAC systems.  Say, “Sorry” to the new homeowner.   This “unknown” adds to the negative price attached to a foreclosure.  The condition of property also adds to the low value.  These properties are not maintained and can sit vacant for months or years.    The market area surrounding the foreclosed home is affected.  Foreclosures lead to abandoned homes.  Abandoned homes lead to vandalism. Vandalism leads to boarded up homes which leads to a market area where no one wants to live.

So, how to value a home after foreclosure got even harder.  As more foreclosures occur in an area, the value of other homes is reduced.  An appraiser is going to look at REO (bank property) first as all buyers typically look to the clearance section first.  It is realty that appraisers will use these foreclosed properties with reduced values to appraise surrounding property resulting in lower appraised values of all neighboring property.

Mortgage Fraud Restitution

Mortgage Fraud Restitution, how appealing, but is it happening?  The U.S. Supreme Court is figuring this out in Robers v. U.S. on the question of how much restitution was owed to a victim of mortgage fraud under the Mandatory Victims Restitution Act (MVRA).  Naturally the person who committed the fraud is appealing stating that he should not owe so much. The victims never get a break.  The lower court calculated the restitution as the difference between the loan amount and the resale price at foreclosure.   Robers (and no it is not spelled “Robbers”) thinks the calculation should be based on fair market value at time of foreclosure.  Robers focused on the idea of making the victim whole again.  But what Robers forgot is that the victim lost money.  The victim does not want a piece of property which maybe worthless or maybe the victim does not want to have the liability of being a property owner.  Stay tuned to see what the Supreme Court will do.