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Real Estate at a glance, by Kent Richards
Kent Richards

Wednesday, July 28, 2010

Real Estate at a glance
By Kent Richards, GRI, SRES, SFR

Maricopa, like most other cities in America has experienced an influx of bank owned homes on the market. This has been a direct result of the recent downturn in the economy. Unfortunately, many of our homeowners have been forced into relocating to other cities, where jobs are more plentiful. Most cannot suffer the loss of equity in their homes, and if they are not able to obtain a loan modification, they may end up attempting to sell through what is known as a short sale.

Loan modification is a process where the terms of a mortgage are modified through consent of the lender and the borrower. Any change to the original mortgage is considered to be a modification. The balance owed, and/or the interest charged can be adjusted, resulting in new agreed upon payments that are usually lower than the original mortgage. Monthly payments must be made until the lender is paid in full.

Short Sale
A short sale is the sale of real estate in which the sale proceeds are less than the balance owed on the loan. This happens when a borrower cannot pay the mortgage loan and the lender agrees to sell the property at a loss. Both parties consent to the short sale process, allowing them to avoid foreclosure, which would involve a loss for the bank and poor credit for the borrowers. This agreement does not necessarily release the borrower from the obligation to pay the remaining balance of the loan, known as the deficiency. The short sale process as we have seen, is often a difficult route to navigate, and takes patience for the real estate agent, the buyer, and the seller. Although, the listing agent may have priced the home according to the recent comparables in the neighborhood, the price, as well as the new buyer must still be approved through the current lender. If this cannot be attained by the buyer within a certain period of time, the lender may choose to extend the short sale listing period in the hope that the buyer may qualify, find another buyer, or take the property into foreclosure. A large percentage of the homes sold in Maricopa, are what is referred to as; lender owned, or distressed properties, and sold in short sales.

Foreclosure is the process that applies to a mortgage, wherein a lender repossesses the home after the owner has failed to make the necessary payments as agreed. When the process is complete, the lender can sell the property and keep the proceeds to pay off the mortgage along with any legal costs incurred. If the sale does not bring enough to pay the existing balance, the lender can then file a claim for deficiency judgment.

Deficiency Judgment is an unsecured money judgment against a borrower whose mortgage foreclosure sale did not produce sufficient funds to pay the lender in full. The deficiency judgment depends on whether the lender has a recourse or non recourse loan. In some states, such as Arizona, first mortgages are non-recourse loans, but second and subsequent loans are recourse loans.

HAMP a government; Making Home Affordable Program came out in 2009 to help stop foreclosures, and allow people to keep their homes. Another program was created, called, HARP, Home Affordable Refinance Program. Neither program dealt with foreclosures, although the amount of foreclosures and short sales continued to grow across the country. It was the National Association of Realtors that helped to bring about the US Treasury’s assistance program; HAFA, Home Affordable Foreclosure Alternative Program.

HAFA took effect April 5th, 2010, and includes loans through servicing companies who had signed onto the HAMP program, which at that time only included non-Government entities. On August 1st, 2010, Fannie Mae and Freddie Mac (Government Service Entities), who hold approximately half of the residential loans in the United States, will come onboard with HAFA, Home Affordable Foreclosure Alternative. Under the HAFA program, short sales can be pre-approved, paperwork became standardized, and the time periods for determining eligibility, and approval were stepped up. It is important to note, that in this program:
+Sellers can receive $3,000.00 relocation assistance.
+The foreclosure sale must be suspended while eligibility is determined, the property is marketed, or a closing is pending.

+ Sellers are released of all liability on 1st and subordinate liens.
+ Sellers cannot be required to sign a note or pay any additional amounts to satisfy liens.
+ Negotiations with subordinate lien holders may be easier because they may receive more money as compared to a non-HAFA short sale.
+ The short sale is pre-approved. This takes more time on the front end of the transaction, but much less time after a purchase contract is accepted by the seller.
+ Purchase agreements are approved or denied within ten business days. If the purchase agreement meets the pre-approved terms, it must be accepted.
+ If a short sale is not successful, a deed-in-lieu of foreclosure may be possible with the seller receiving $3,000.00 relocation assistance.

On the flip side of things, this US Treasury program is new to both Realtors, as well as lenders, and requires patience on the side of all parties.