HAFA Policy Changes for Servicers
Lenders’ inconsistent eligibility requirements seem to be the most consistent thing we have seen with respect to the Federal Government’s HAFA (Home Affordable Foreclosure Alternatives) Program. The Federal Government seems to have taken notice.
On August 9, 2011, the Home Affordable Foreclosure Alternatives Program adopted certain policy guideline changes. The changes, we presume, are in response to concerns raised with respect to the unwillingness of lenders to publish their respective HAFA guidelines and requirements. Indeed, we have seen that each lender’s HAFA guidelines amounted to no more than a moving target, a target which changed frequently. That could now be a thing of the past.
The attached HAFA Update states that a servicer must now complete and post to its website a matrix that indentifies the servicer’s unique HAFA eligibility criteria and program rules. This matrix must be consistent with the lender’s HAFA Policy and any specific investor requirements.
All lenders are required to have their matrices posted no later than October 15, 2011. During this time period, we will keep abreast of each lender’s specific program rules and guidelines as they become available. It is our belief that in forcing lenders to publish these guidelines, lenders will be less able to make arbitrary changes to their HAFA guidelines. That could eventually lead to more reliability and certainty in the short sale approval process.
Foreclosure Filings Affecting the Number of Short Sales
A recent article in the Herald Tribune discusses the increase in foreclosure filings and the expected increase in foreclosure filings.
We have seen a substantial increase in the number of short sales we have been asked to handle for borrowers over the same period last year. Whether or not that is related to the increase in mortgage foreclosure filings is subject to debate.
However, it is not uncommon for borrowers to consider a short sale as the better “exit strategy” once foreclosure proceedings have been initiated. One might reasonably surmise that the foreclosure filing becomes the catalyst for the consideration of a short sale. If true, the increase in foreclosure filings could lead to a substantial increase in short sales.
Berlin Patten Welcomes Donetta Sanchez
Berlin Patten is pleased to announce the addition of Donetta Sanchez to its expanding team of short sale negotiators. With the addition of Ms. Sanchez, Berlin Patten adds to one of the largest and most experienced short sale negotiation teams in Southwest Florida. Ms. Sanchez comes to us directly from commercial real estate management in Sarasota and Bradenton. Her previous experience of 14 years in the mortgage industry, by way of Hawaii and Michigan, is consistent with Berlin Patten’s core philosophy of bringing in seasoned mortgage lenders who have substantial behind the scenes lender experience. We welcome Donetta to our growing short sale group. Her years of experience and organizational skills will be an asset to the Berlin Patten team.
The Importance of a Municipal Lien Search
Performing a municipal lien search is crucial when purchasing property in this day and age. In many cases there are unknown or undisclosed fees, costs or other issues that will impact a buyer post-closing. In addition a municipal lien search generally will assist a seller in complying with contractual terms to avoid a default. Examples of issues that have been discovered include pending code enforcement liens in excess of $3,000.00, unpaid utility balances in excess of $5,000.00, and open permits that have not been “closed out” and ultimately fail their final inspection. Ignoring these potential problems by not performing a municipal lien search will result in the buyer having to pay these fees themselves, or worse yet, require the buyer to resolve expensive code enforcement issues or permit issues to bring the property into compliance. This could be very costly and time consuming, and in some cases, could render the property unmarketable.
A common misconception is that municipal liens searches are part of a normal title search. This is not the case. Title underwriters do not perform municipal lien searches and specifically exclude these matters from title coverage. Performing a municipal lien search will aid title agents in removing the standard exception for special assessments, service charges and waste fees from the title insurance policy thereby providing better insurable coverage.
We have used several municipal lien search companies in the past to perform our searches. Our recommendation is to use a company that is adequately insured (i.e., at least $500,000 E & O coverage), understands the hierarchy of various governmental departments, provides a quick (48-72 hours) and easy order process (e.g., online orders), and produces a well-organized report for distribution to the parties at a reasonable cost (e.g., $100 – $150).
Short Sales – Working with Second Lenders
Anyone who works with short sales knows that it can be very difficult to get short sales approved when there is a second (or even third lender). To successfully complete a short sale, ALL lenders (among others) must agree. The problem is that in many instances, they do not. In fact, we have seen situations where the same bank holds the first and second mortgages, but cannot agree with itself.
There are some second lenders who routinely demand more than what the first lender will permit. We document such instances, and will do our best to keep you and your clients advised of those second lenders who routinely demand more than what first lenders will permit so that an appropriate strategy can be devised early on to address the matter head on.
A New Buyer Can Be Substituted for One Who Walked
We have learned of a very interesting development with respect to Bank of America. Bank of America has advised that it will permit a new buyer to step into the shoes of a buyer who has walked away from a transaction. Furthermore, Bank of America has advised that the process will not have to begin anew. This change will potentially save a great deal of time during the short sale process as your Berlin Patten negotiator will no longer have to initiate a new short sale if a file cancels and a new buyer is found. As with all lenders, please keep in mind the following caveats/disclaimers:
1.You must have a backup offer ready to be submitted:
Contact your Berlin Patten negotiator immediately if you discover that the original buyer is no longer interested in the property, and you have a backup offer waiting. The negotiator will then work with the Bank of America short sale specialist to submit your backup offer without having to repeat the short sale initiation steps.
Deficiencies and Deficiency Judgements
We spend a great deal of time counseling prospective short sale sellers regarding the advantages of attempting to pursue a short sale rather than allowing their property to go through the foreclosure process. Many people do not realize that the foreclosure process is a two step process. The first step is the sale of the property at auction. The second (more painful step) is the establishment of a deficiency judgment against the borrower for, among other things, the shortfall. Many people are unaware of this second step, and in our opinion, those who quickly allowed their property to go through foreclosure may not understand that they are not out of the woods by a stretch of the imagination.
The linked article corroborates something that we routinely tell all sellers…that under Florida law, lenders have the right to pursue deficiency judgments against delinquent borrowers and will indeed aggressively do so when the first phase of the foreclosure boom begins to subside.
As such, we continue to strongly advocate short sales as the best exit strategy for homeowners who are under water (but are not bankruptcy candidates), and will be more than happy to explain to any potential short sale seller why. This would be in the nature of legal advice, so we would discourage any non-lawyer from performing this type of legal counseling.
Bank of America Realtor/Broker Listing Agent Certification – Questions and Answers
The new Bank of America Realtor/Broker Listing Agent Certification (the “Certification”) has fostered some significant concern among real estate agents. The most common questions and our comments/responses are as follows:
1. Question: Does paragraph 1 of the Certification mean that Bank of America will not pay a commission. Answer: No! Bank of America never paid commissions to realtors. Bank of America merely authorizes Sellers to pay commissions to realtors. That will not change, and indeed Bank of America continues to approve commissions in the range of 5 to 6 percent, generally speaking. The provision is intended to make it clear that it is the Seller that pays commissions (which was always the case), and not bank of America. Yes, we agree that the provision could have been more artfully worded.
2. Question: What does Bank of America mean in Paragraph 3 when it refers to “competitive bids,” or “fair market value”, or “in spirit of seeking to maximize the seller price?” Answer: The provision is clearly designed to curb short term flipping. While this verbiage is subject to interpretation, it is our belief that a realtor should be careful to insure that the transaction is truly an arm’s length transaction, that the property has been marketed in a typical and prudent manner, that any offer be supported by a comparative market analysis, and that the realtor should perform some inquiry of the buyer’s motives for buying the property. If the buyer is acquiring the property with the goal of an immediate sale, that could create issues in connection with the satisfaction of this provision and other provisions in the Certification.
3. Question: Does Paragraph 5 prohibit the buyer from agreeing to sell the property before closing. Answer: No. However, it does require that the arrangement be disclosed to the lender, upon which the lender will obviously make inquiry as to why there is a higher offer for the purchase of the property. Again, this provision is designed to insure that the offer submitted for approval reflects the true value of the property. If the buyer already has plans to sell the property for a higher amount, that will be a problem.
4. Question: Can bank of America really hold a realtor liable criminally for a violation of these provisions. Answer: We are making due inquiry with the state attorney’s office to determine if a breach of the Certification (where it is not notarized and not being made under penalty of perjury), is a criminal act.
Again, we strongly advise any real estate professional to consult with legal counsel before executing this document. And keep in mind that due to the ambiguity of the language used by Bank of America, it is entirely possible that our opinions could differ from those of other real estate attorneys.
Wells Fargo Short Sale Addendum
As expected, Wells Fargo has followed suit with Bank of America and has put out a new Short Sale Affidavit (attached hereto). Similar to the agreements recently published by Bank of America, Wells Fargo appears to be getting more aggressive in trying to curb flips and low offers and is now requiring realtors and closing agents to join in the execution of the instrument.
The Affidavit contains traditional arms length language, but extends the traditional arm’s length representations to now include representations that there are no other or pending contracts. In fact, the Affidavit takes it one step further and forces the parties to agree that they do not even have knowledge of a higher offer for the property. This could be particularly troublesome, as it would seemingly eliminate opportunities to accept lower, but stronger offers.
The Affidavit also requires the Buyer to confirm, under penalty of perjury, that they will not sell the property within 90 days, and that they will not rent the property back to the Seller at any time after closing.
The Affidavit goes on to state that there could be civil and criminal (emphasis added) liability for any misrepresentation. Since all parties to the transaction, including realtors and closing agents, will be expected to sign this Affidavit, we again strongly encourage you to seek the advice of counsel before taking on a Wells Fargo short sale.
Bank of America Document Warning
Please be advised that Bank of America is now requiring the parties to a short sale transaction to execute certain form documents before they will consider your short sale for approval. The buyer and seller will be required to execute a new addendum, and somewhat interestingly, the agents involved in the transaction will also need to sign an acknowledgment. A link to the forms is below. They each contain significant legal representations that you and your clients (including buyers) will need to carefully consider.
Please note that we are being told that these forms are non-negotiable. As such, if you elect to be involved in any short sale in which Bank of America is the lender or servicer, you should expect to have to sign these forms in each instance.
We strongly encourage you to contact our office and/or your in-house legal team if you have any comments or questions about these forms. They implicate very important legal issues, and require representations that were not previously required of realtors, the buyer, or even the seller.
Due to conflict of interest issues, we will be unable to provide any legal advice or guidance to any realtor after a contract has been submitted to us by a seller for approval, so it is imperative that you reach out to us beforehand if you do have any comments, questions, or concerns about the documents you are being asked to sign by Bank of America.
Our belief is that other short sale lenders will follow suit, as they each attempt to find ways to curb flipping and lowball offers. Indeed, the execution of these forms could conceivably make it fraudulent to submit such offers, so we strongly encourage you to take these forms very seriously if you plan to handle Bank of America short sales.
Link to Forms: Short Sale Purchase Contract Addendum
