Mind the P&L, as in Payoffs and Liens

Understanding your seller’s complete financial picture has long been a best practice of top producing REALTORS but that task has become more important and more complicated.  It’s not just declining home values and hard financial times that have forced many homeowners into positions where they owe considerably more than their home is worth.  Many homeowners thought they were improving their financial health with a loan modification only to find they are further underwater than when they started.

Has your seller modified their loan, taken a HomeSaver Advance or participated in HAMP?  If so, there are likely balances owed that are not reflected on the mortgage statement or payoff because these modifications likely created special liens.  These special liens require additional research to determine what is owed and to whom.  These situations as well as negative escrows are common and can quickly change a retail sale into a short sale.  Most mortgage companies are willing to accept a short payoff but the process can be time consuming and mentally taxing for both the seller and buyer.  REALTORS should approach these short sale situations with extreme caution as completing a short sale involves additional risk for the REALTOR and in most cases a lawyer may be required to protect both the seller and the REALTOR.

In a short sale situation, the mortgage company may try to keep your seller on the hook for the shortfall.  If your seller is not prepared for this they may attempt to hold their REALTOR accountable in a breach of fiduciary responsibility claim.  Complete debt forgiveness should always be the objective in a short sale.  The IRS has ruled that debt forgiveness on a homestead does not have to be treated as income even if the mortgage company issues the homeowner a 1099, this has been the case since 2007.

Additional common stumbling blocks are credit card judgments, child support deficiencies, delinquent property taxes, 3^rd part liens, HOAs, IRS liens, probate and divorce decrees can all prevent the sale if the seller doesn’t have enough cash to bring to the closing table.  Many of these issues can be set aside or negotiated down with the proper techniques and legal assistance.

Resolving these issues well in advance of taking your deal to title is the only way to ensure your deal closes.  When your retail deal becomes a short sale, find a local expert who not only has experience in negotiating with mortgage companies and other creditors but one who will seek to protect both you and your seller from future legal liabilities.

- The Bank Slayer

The second nasty title cloud appears when homeowners have modified their loan or taken the dreaded “HomeSaver Advance” which was rampant the last few years.

Let’s examine the result of a typical HomeSaver Advanced deal.  Imagine falling several payments behind and now you owe the bank $8,000 in past due payments.  We know most of these payments are mainly interest with a tad of principle tossed in (in the early stages of the loan).  So now you have roughly $7,999 in past due interest.  The bank rolls out the HomeSaver Advance.  You sign on the dotted line, mail it back and “POOF” you are now current again.   What happened?  You just agreed to take the past due payments and convert it all to principle and add it to your loan balance.  It will now show up a second or third lien on your home which will need to be paid off when selling or refinancing the home.  This can quickly erode equity.

What about loan mod?  Ok, let’s see…you borrower the money for the purchase from AmeriQuest, made payments to Countrywide, refinanced with Chase and now make payments to AHMSI.   You fall behind and want a loan modification.  AHMSI rolls out the red carpet for a HAMP loan modification.  You sign away and make your trial payments.  You decide you can’t make the payments and you need to sell.  You get an offer and are ready to go to closing…but wait the Deed of Trust recorded on your home has one of the three previous banks and not AHMSI.   Tack on a new “loan modification agreement” signed by you and recorded by AHMSI saying you agree you owe a huge amount and that it is all owed to AHMSI.

Can you see where this is going?  Did AHMSI deliver to you a copy of the assignment of your Note from your previous lender?  Did Chase release the refinance Note?  These situations can be deal killers for selling the home.

-       The Bank Slayer

1. “Ops!  I Changed My Mind I Don’t Want Your Home” and the
2. “How Did This Extra Lien Get On My Home”.

In this article we’ll cover the first one…

Federal Reserve Board Governor, Elizabeth Duke, tackled this in a recent speech according to Housing Wire.  She detailed a disturbing trend: Banks abandoning properties in severely troubled markets even before completing the foreclosure process, leaving the cities stuck with “toxic titles” and trashed vacant homes.   “In the most devastated neighborhoods, some lenders do not even complete the foreclosure process or record the outcome of foreclosure sales because the cost of foreclosing exceeds the value of the property,” Duke said.   These “toxic titles,” she added, have placed a large number of properties in legal limbo.

This is made even worse by the fact that the homeowners facing the foreclosure has moved out while the bank continues to seek payment indefinitely since they never took possession of the home, which in theory should offset some of the outstanding balance.  Tack on the HOA bills plus delinquent taxes and the bill keeps climbing.  This makes a bad situation worse for both the homeowner and local community.

As Neil Garfield mentions, “The reason banks can walk away is that they don’t really own it anyway, even if they received a certificate of title from a foreclosure sale. These banks are merely picking the low hanging fruit and taking property where they can get away with it.”

Next up “Mystery Liens”

-          The Bank Slayer