Attorneys At Law

Attorneys practicing in and around the Chicagoland area. Experienced in the practice areas of Real Estate Law, Mortgage Foreclosure Defense Litigation, Social Security Disability, Business Law, & Estate Law.

Attorneys At Law - Attorneys practicing in and around the Chicagoland area. Experienced in the practice areas of Real Estate Law, Mortgage Foreclosure Defense Litigation, Social Security Disability, Business Law, & Estate Law.

Wells Fargo Limiting Short Sale Extensions

Wells Fargo has announced that the company will stop granting extensions for many distressed homeowners to complete short sales.

The bank has stated it changed its policy on short sales at the behest of investors for whom it services mortgages, including the government-sponsored enterprises.

Mary Berg, a spokeswoman for Wells, confirmed that the story reported in the financial media was true but that it had “caused confusion.” Berg stressed that Wells still grants short sale extensions on loans in its own portfolio and in cases where investors allow it.

Read the full story originally published on American Banker.com…

Wells Fargo Curtailing Short Sale Extensions
October 2010

By Kate Berry

In a move that will expedite some foreclosures, Wells Fargo & Co. has stopped granting extensions for certain distressed homeowners to complete short sales.

The change last month preceded recent revelations of faulty documentation at two major mortgage servicers — JPMorgan Chase & Co. and Ally Financial Inc. — that suspended thousands of foreclosure actions to review their processes. Wells said it does not have the same problems as those servicers.

The company said it changed its policy on short sales at the behest of investors for whom it services mortgages, including the government-sponsored enterprises.

Early last month, Fannie Mae told its servicers to stop unnecessarily delaying foreclosures. The GSE said it would hold servicers responsible for unexplained delays to foreclosures with fines and on-site reviews.

In a memo e-mailed to short sale vendors last month and obtained by American Banker, Wells said it will no longer postpone foreclosure sales for those who do not close short sales by the date in their approval letter from the company. Only extension letters dated Sept. 14 or earlier would be honored, Wells said.

Mary Berg, a spokeswoman for Wells, confirmed that the memo was genuine. But she said it had “caused confusion,” and stressed that Wells still grants extensions on loans in its own portfolio (including those it acquired with Wachovia Corp.) and in cases where investors allow it. For those two categories, Berg said, Wells allows one foreclosure postponement, provided these conditions are met: a short sale has been approved by Wells, by junior lienholders and by mortgage insurers; the buyer has proof of funds or approved financing; and the short sale can close within 30 days of the scheduled foreclosure sale.

Berg would not say how often Wells’ investors allow extensions.

The new policy on short sales was put in place “over the past couple of months … in response to various investor changes,” Berg said. Those investors “would include the GSEs, HUD and those investing in private-label” mortgage-backed securities.

In a short sale, a home is sold for less than the amount owed on the mortgage and the lender accepts a discounted payoff. The transactions are often less costly to the lender than seizing and liquidating the home.

“As long as there is a short sale possibility, the loss will always be less,” said Rayman Mathoda, the president and chief executive of AssetPlan USA, a Long Beach, Calif., provider of short sale training and education. “Basically foreclosure sales should be delayed for any responsible homeowner that has a real buyer available.”

Wells’ decision also follows efforts by the Obama administration to encourage short sales for borrowers who do not qualify for loan modifications.

“It makes no business sense why they are doing this, since it’s wrong for the borrowers and for the government,” said Eli Tene, the CEO of IShortSale Inc., a Woodland Hills, Calif., firm that advises distressed borrowers.

But experts on short sales said that in recent months servicers have been reluctant to approve the transactions out of concern that they will fall through, further prolonging the process.

“There is also a growing issue with the new buyer and financing issues, either losing their jobs ahead of closing or the new lender not being ready to close, which then gives rise to the buyer running out of patience and walking,” said Jim Satterwhite, executive vice president and chief operating officer of Infusion Technologies LLC, a Jacksonville, Fla., provider of short sale services.

Satterwhite said many servicers have reached the point where they know which borrowers do not qualify for a modification and are moving those borrowers through to foreclosure to deal with the backlog of inventory. “A lot of servicers are just falling in line with Fannie,” he said.

Moreover, the expectation that housing prices will fall further is forcing servicers — and the GSEs — to push for a quicker resolution through foreclosure, since short sales can involve further delays. “Values are dropping faster and that also means the losses on short sales are going up,” Satterwhite said.

Of course, the recent reports of “robo-signing” at Ally Financial’s GMAC Mortgage and at JPMorgan Chase could gum up the foreclosure works again. For example, on Friday, Connecticut Attorney General Richard Blumenthal asked state courts to freeze all home foreclosures for 60 days to “stop a foreclosure steamroller based on defective documents.” The day before, Acting Comptroller of the Currency John Walsh said he had told seven major servicers, including Wells, to review their foreclosure processes.

Another Wells spokeswoman, Vickee J. Adams, said the company’s “policies, procedures and practices satisfy us that the affidavits we sign are accurate.”

Mortgage Forgiveness Debt Relief Act extended through 2016!

While it is a little known fact, the Mortgage Forgiveness Debt Relief Act was extended through 2016 when President Obama sign a package of “tax extenders” into law in December 2015. This Act had previously expired December 31, 2014. This is important for any clients wishing to short sale property because without this extension any forgiven debt in a short sale would be included in taxable income. The extension of this act provides relief to homeowners who had qualified mortgage interest forgiven by lenders.

Any homeowner who has qualified debt forgiven should be issued a 1099-C. This is extremely important for homeowners because when a lender forgives their debt, their deficiency is waived. This means they no longer owe the balance on their loan.

Call us with any questions.

Short Sale Vs. Deeds in Lieu

There are options out there for many that are facing foreclosure on their homes. Two of them are very similar and often get confused but they are both helpful methods that can help prevent you from going into foreclosure. Those two options are short sales and deeds in lieu.

Short Sale

A short sale is when the homeowner sells their home to a third party for less than the money owed on the mortgage. The lender agrees to accept the proceeds made in the sale, in exchange for releasing the lien on the property.

Short Sale Process

The lender’s loss mitigation department must approve of the short sale before a transaction can occur. The seller must submit a loss mitigation application to be approved for a short sale and this includes:

  • A financial statement, in the form of a questionnaire, that provides details regarding monthly expenses and income
  • Proof of income (if applicable)
  • Most recent tax returns
  • Bank statements (two recent statements for all accounts)
  • A hardship letter

More than likely you will need to provide that there is an offer from a potential purchaser as well on the application. Lender’s usually want there to be an offer before they consider a short sale. An exception to this is with the government’s Home Affordable Foreclosure Alternatives Program (HAFA). This aids the lender in approving of the short sale terms before the home is listed and the lender accepts the short payoff in full satisfaction of the mortgage. HAFA also prevents the lender from coming after the seller with a deficiency judgement.

Deficiency Judgements

The deficiency is the difference between the amount received in the short sale and what is actually owed on the mortgage. Many states prohibit deficiency judgments after foreclosures, but not many do for short sales. Deficiency judgments by state. To avoid a deficiency judgment, the short sale agreement must expressly state that the transaction is in full satisfaction of the debt and that the lender waives its right to the deficiency.

Deeds in Lieu

Deed in lieu is another option to help you avoid foreclosure if you can’t sell your home through a short sale. A deed in lieu of foreclosure is a transaction where the homeowner voluntarily transfers the title to the property lender in exchange for release of mortgage obligation.

Deed in Lieu of Foreclosure Process

Like a short sale, the borrower must request a loss mitigation package from the lender. What you will need to provide the lender with:

  • A financial statement that provides detailed information about your monthly income and expenses
  • Proof of Income (if applicable)
  • Most recent tax returns
  • Bank statements (two recent for all accounts)
  • A hardship letter

If you are approved, you will receive two documents from the lender, one is a deed that transfers ownership of the property to the lender and an estoppel affidavit. The estoppels affidavit sets the terms of the agreement. It will include a provision that you are acting freely and voluntarily. It may include provisions about the transaction and if it’s in full satisfaction or if the lender has the right to a deficiency judgement.

Deficiency Judgments

In the case of a deed in lieu of foreclosure, the deficiency is the difference between the fair market value of the property and the total debt. In most cases, a deed in lieu of foreclosure will release borrowers of all liability and obligations under the mortgage, but not always. Most states do not have a law prohibiting a lender from seeking a deficiency judgment. HAFA deeds in lieu are considered full satisfaction of the debt owed. To avoid a deficiency judgment, the agreement must state that the transaction is in full satisfaction of the debt.