Blog Lynn Arends

Lynn is going to be on the radio!

Lynn Arends — Fri, 11 May 2012 17:21:00 GMT

I’m excited to announce that I will be on the Tina & Drew Radio Show this weekend! You can tune in to AM 1090 or listen online at this link this Saturday, May 12^that 3 PM. I’ll be talking with Tina and Drew about short sales…. including the new changes made by FHFA to the way Fannie and Freddie servicers handle short sales, short sale vs. foreclosure or strategic default, and how I work with clients during my initial consultation.

We will be offering a special deal to listeners of the Tina & Drew Show, so tune in to find out more!

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Help may be on the way...

Lynn Arends — Mon, 09 Apr 2012 17:16:00 GMT

The National Mortgage Servicing Settlement that was reached in February has now been finalized by a court order. The Settlement provides direct relief and new protections for Washington consumers.

Washington’s share of the record $25 billion dollar settlement over alleged widespread mortgage fraud is about $648 million, to be used in a few different ways.

Here are the highlights of WA’s settlement share:

-$483 million will go to loan modifications, including principal reduction, for borrowers who are at risk of default.

-$24 million is set aside for restitution payments to borrowers who lost their homes to foreclosure between Jan 1, 2008 and Dec 31, 2011

-$84 million is designated for helping borrowers who are current but underwater refinance their loans.

-$45 million will go to state foreclosure relief and housing programs distributed through the AG’s office.

The full press release can be found here.

More information will be made available as settlement programs are implemented, and consumers may need to wait before seeing any direct benefits from the settlement. The mortgage servicers are required to complete 75% of their consumer relief obligations within two years and 100% within three years.

Borrowers who are currently behind on their monthly mortgage payment, or may soon experience financial trouble, are urged to call their mortgage servicer for more information.

Contact our office to set up a time to talk with Lynn about the options available to you, and how this settlement might affect you!

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Short Sale or Foreclosure? Now, Please!

Lynn Arends — Sat, 10 Mar 2012 12:14:00 GMT

The Mortgage Forgiveness Debt Relief Act is set to sunset on December 31, 2012 and it may not get extended. The law, first enacted in 2007, allows homeowners who have received principal reductions on their mortgages as the result of loan modifications, short sales or foreclosures to avoid income taxation on the amounts forgiven.

Here's a little history and how it works. Before 2007, all cancellations of debt by creditors (i.e., mortgage, personal or auto) were considered taxable events under the federal tax code. If you owed $500,000, but paid off only $350,000 through an agreement with the lender, the $150,000 difference would be treated as ordinary income and taxed at regular rates. The Act was due to expire on December 31, 2010 but was extended through 2012. Under this Act, you can avoid taxation on forgiven mortgage debt amounts up to $1 million for single filers, or $2 million if married filing jointly. To be eligible, the debt must be cancelled by a lender in connection with a mortgage restructuring, short sale, deed-in-lieu of foreclosure or foreclosure. But the transaction must be completed no later than Dec. 31, 2012.

Loss of this tax help will endanger huge numbers of distressed mortgage arrangements in the months (and years) ahead including those qualifying under the recent $25 billion mortgage settlement (see my previous blog post for more details on the settlement). Any borrower receiving any principal reduction or debt forgiveness may face hefty and ill-timed taxable income hits in the event this law is not extended.

The clock is ticking and that impending deadline has real estate and tax professionals on edge. Bottom line - if you are thinking about a short sale or foreclosure, do it now!

And if you are considering a short sale, some benefits to a seller instead of foreclosure might be:

1. A slight benefit in the credit score.

This is especially true if short sale is approved while the borrower is current (it can and does happen and is also a significant benefit in terms of ability to get a new home mortgage (in as little as 2 years).

2. If the seller has two mortgages.

A short sale provides a vehicle for resolving both debts at once, and a quality short sale negotiator will in most instances be able to settle the second for less than if the borrower let the first foreclose and then circled back to negotiate and settle the second.

3. A borrower still has a reasonable shot at getting a short sale completed before 12/31/12, when the principal residence exemption to Cancellation of Debt (COD) income is still in effect, versus a foreclosure, which will probably not happen until 2013 at this point, thus increasing the chances of income tax liability, particularly if there is a second lien that must be settled too.

In conclusion, every situation is unique and your mileage may vary, but short sale can be an excellent alternative to foreclosure, and something you may want to consider.

Come meet with me to discuss if you are a good candidate for a short sale, and how to take advantage of The Mortgage Forgiveness Debt Relief Act while it still exists!

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Federal Mortgage Settlement = Good news/Bad news

Lynn Arends — Thu, 16 Feb 2012 08:51:00 GMT

By now, we all know that federal and state officials have announced a $26 billion foreclosure settlement with five of the largest home lenders (Bank of America, Citigroup, Ally Financial/GMAC, JP Morgan Chase and Wells Fargo).

The deal is supposed to protect consumers from unsound practices in mortgage servicing and foreclosure processing, and requires banks to give money back to borrowers who have been foreclosed on, and principal reduction to homeowners who are currently underwater. It also sets aside funds to help borrowers refinance or modify their loans.

While this sounds like great news for homeowners, there are some caveats…

Good news: Homeowners who are current, but “underwater”, may have their principal reduced.

Bad news: But only by an average of $20,000.

Good news: The settlement bars lenders from foreclosing on a homeowner who is under consideration for a loan modification. (Isn’t that the way it is supposed to be now?)

Bad news: This only works if assiduously and tirelessly enforced.

Good news: Eligibility.

Bad news: Borrowers whose loans are held by Fannie Mae or Freddie Mac need not apply.

Already foreclosed on?

Good news: You are eligible for restitution if you lost your home in 2008—2011 due to “robo-signing”.

Bad news: $2,000 max—not much help for families who have lost their homes.

Conclusion? I am cautiously…(un)optimistic about this settlement!

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For more information, check out the Legal Resources page at my website for a summary of the settlement, who is affected by it, and the projected timeline.

All of the details, including FAQs and further links can be found at www.nationalmortgagesettlement.com.

Contact my office today and set up an appointment to discuss your options and how this settlement could affect you.

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Foreclosure Mediation - New alternative for homeowners in distress!

Lynn Arends — Tue, 23 Aug 2011 11:56:00 GMT

The Foreclosure Mediation Program

New alternatives for homeowners in distress

Details

As of Friday, July 22 The Washington State Foreclosure Fairness Act Mediation Program began. Washington is the third non-judicial foreclosure process state in the country with a program designed to help homeowners resolve and find solutions to foreclosure proceedings with their lender or servicer. To read the actual law, click here.

Funding

The Foreclosure Fairness Act requires lenders and servicers conducting more than 250 foreclosures in Washington State in the previous year to pay $250 for each Notice of Default issued. The fee provides funding for free homeownership counseling, attorneys to prosecute violations of the Washington Consumer Protection Act and foreclosure prevention outreach.

Exempt Lenders

Some lender are exempt from The Foreclosure Fairness Act because they have certified under penalty of perjury that they were not the beneficiary of deeds of trust in more than 250 trustee sales of owner-occupied residential real property between January 1, 2010 and December 31, 2010. To see a list of exempt lender click here.

Foreclosure Mediation Timeline

1. Lender must notify homeowner by letter and telephone of the right to a 60-day window of opportunity for an in-person meeting before lender issues a Notice of Default. The notice must also indicate the homeownerï¿½s right to request mediation through a housing counselor or attorney. Mediation may be requested up until the Notice of Trustee Sale is issued.

2. Mediation is requested ONLY by a housing counselor or attorney sending a request for mediation to the Department of Commerce. The homeowner does not have to establish or prove reasons for the request. Once mediation is requested, the foreclosure process stops until mediation is completed.

3.. Within 10 days of receiving the request for mediation, Commerce will notify all parties that mediation has been requested, select a mediator, and notify the parties of documents that are required for the mediation.

4. The mediation will be scheduled no later than 45 days after the mediator is selected, unless otherwise agreed. The mediator will set a time, date and place for the mediation 15 days before the mediation session. The homeowner may be represented by an attorney or other advocate such as a housing counselor. The lender must have a person with authority to modify the loan or negotiate an agreement either at the mediation or available by telephone.

5. At least 10 days prior to mediation session: Homeowner will prepare and exchange with the lender: a financial statement with current and future income information, debts and obligations, and last two years of tax returns. Lender will prepare and exchange with the homeowner: loan balance, an itemized list of fees and charges, payment history, net present value and loan modification inputs, and other required documents.

6. At the mediation, both the homeowner and the lender must participate in good faith. The mediator will encourage the parties to examine all options, including loan modification, to avoid foreclosure. Within seven days after mediation, the mediator will make a written certification of the results of the mediation and whether the parties participated in good faith.

7. The parties either come to an agreement (a loan modification or other alternative) or the parties do not come to an agreement, and the foreclosure process will proceed. If the lender does not mediate in good faith, the homeowner may be able to stop the foreclosure sale in court.

Eligibility

Homeowners who received a Notice of Default on or before July 22, 2011 and their owner occupied house has not yet been sold at foreclosure sale.

Homeowners who received the Notice of Pre-Foreclosure Options and requested mediation before the Notice of Trustee Sale has been recorded.

Cost

The homeowner is responsible to pay a $200 fee and the lender will pay a $200 fee for the mediation. The fee must be paid prior to mediation.

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Help is on the Way!

Lynn Arends — Mon, 18 Apr 2011 11:46:00 GMT

Foreclosure Fairness Act: New Law to Help Washington Homeowners

Last Thursday Gov. Chris Gregoire signed into law a new bill giving homeowners the statutory right to sit down with their lenders and discuss modifying their loan.

In an effort to protect WA homeowners from foreclosure, under the new WA Foreclosure Fairness Act, lenders must now send to homeowners in default a letter explaining their right to a sit-down to discuss alternatives to foreclosure. If that letter goes unanswered, the bank must make three attempts by phone, and then send a certified letter before proceeding with the foreclosure process.

Lenders must conduct ï¿½a good faith reviewï¿½ of the homeownerï¿½s financial situation and offer loan modifications, if possible. The new law allows a mediator to handle a negotiated agreement between the lender and homeowner.

The problem, as I see it, is that many homeowners will simply ignore these communications. After all, homeowners behind on their payments are already overwhelmed with harassing collection calls and letters and may simply view these as just another collection attempt by their lender and not their statutory right to mediate.

Some parts of the law are effective immediately and the entire House Bill 1362, aka the Foreclosure Fairness Act can be found here.

Click here to find out more about the Second Substitute House Bill 1362

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King County Bar Association (Reprinted): Bar Bulletin, Volume 29, Issue 7, March 2011

Lynn Arends — Tue, 12 Apr 2011 13:05:00 GMT

Is a Short Sale Really an Alternative to Foreclosure?

By: Lynn Arends

I am both an attorney and managing broker. Most of my law practice involves negotiating debt and advising borrowers on foreclosure, deed-in-lieu, bankruptcy, short sales, and loan modifications. As a Managing Broker, I am predominantly a listing agent and most of my listings are short sales. I start with a thorough, two-hour consultation. No one gets to see me as a real estate agent until they first see me as a lawyer. This is very important because more often than not, a short sale is not the answer.

Short Sale Basics

A short sale occurs when a bank agrees to accept less than what is owed on a mortgage or deed of trust to release its lien. Negotiated correctly, a short sale can be an excellent alternative to foreclosure to both sellers and buyers. And banks will consider a short sale because it allows them to recoup some of their investment without the work and expense of selling the home themselves.

New Obama administration initiatives, such as the Home Affordable Foreclosure Alternatives Program (HAFA) and recent changes to HUD's Pre-Foreclosure Sales Program (PFS) for FHA loans, have made short sales an ever more viable option in today's current economic state. But before signing up for a short sale, here are some issues to consider:

Who Qualifies?

Assuming the property is underwater (more is owed than what it's worth), here are the necessary criteria to be considered for a short sale.

The mortgage is in default or default is foreseeable.
Yes, borrowers can be current on their payments and still be considered for a short sale.

The seller has experienced a true hardship.
Basically, this is the "what has changed since you took out the loan that you could afford it then but can't now" testt. Examples of a hardship are unemployment, job relocation, divorce, bankruptcy, illness, or disability.

The seller has no assets.Before accepting a short sale, a lender will require the seller to submit a short sale package. This includes the seller's tax returns, financial statements, bank and credit card statements, hardship letter, and schedule of assets. If there are assets, the lender may not approve the short sale because the seller has the ability to bring cash to the closing or the seller may still be granted a short sale but be expected to pay back the deficiency.

Deficiency Judgements

A deficiency is the difference between the amount received and the amount owed. Although a promissory note makes the seller personally liable for the debt, whether the bank can pursue a deficiency judgment after a foreclosure or short sale depends in part on the security instrument used and that state's deficiency statute.

Most lenders foreclose through a trustee's sale. In some states, that extinguishes the debt and usually does not give the lender the right to pursue a deficiency judgment. However, when a senior lienholder nonjudicially forecloses and the second lienholder is wiped out during a foreclosure under a trustee's sale, the junior security interest is extinguished but the obligation on the note is not - possibly giving the junior lienholder the right to pursue a judgment on the debt.

And yes, a lender can issue a 1099 to a borrower and still attempt to collect the remaining debt. The mere issuance of the Form 1099 does not alter the creditor's legal right to attempt to collect the debt and it does not act as an admission that the debt is no longer due (although the creditor will need to amend the 1099 issued to the borrower upon collection).

Junior Lienholders

The property may be encumbered by more than one lien. If so, all junior lienholders (and any mortgage insurer) must agree to accept a short sale. This is where good negotiation skills and playing well with others kicks in. In today's typical short sale, it is often the only the first lienholder who is receiving any money. Generally, it is up to that first lender to give some of its proceeds to the junior lienholders. This encourages the junior lienholder to agree to the short sale and release its lien. That amount, whether it is $3,000 or $5,000, is negotiated between the senior and junior lienholders.

But lately some junior lienholders have been demanding outrageous sums of money to approve the short sale and requiring contributions from the buyer, seller, and/or real estate agents. Often, all of this occurs without any disclosure to the first lender. Monies not disclosed or paid outside of closing? That's called mortgage fraud.

To me this is a case of the junior lender cutting off its nose to spite its face. In the event that the short sale fails, the first lender will most likely get the property back in the foreclosure, thus eliminating the second lien entirely.

It's All About the Debt!

Even if a client is a perfect short sale candidate, I spend a lot of time walking people through what nonjudicial foreclosure looks like. To me, this is the "what if I wake up tomorrow and do nothing" option. That's the baseline. Everything else - short sale, deed-in-lieu, loan modification, or bankruptcy - requires some action and needs to yield a better result. What that means is that I need to negotiate a better settlement in a short sale than any of the other options, especially with respect to the remaining debt.

For example, when my office receives the standard short sale letter of consent from a certain lender on a first mortgage, it always says that the lender is not waiving its right to a deficiency. If the client is delinquent in its payments, and facing a nonjudicial foreclosure on the first, given that the Washington Non-Judicial Foreclosure Statute prohibits the lender from obtaining a deficiency (except against a guarantor, which does not apply in virtually all residential sales), the client is better off simply allowing the property to go to foreclosure rather than allowing it to go to short sale. So the question is: Why does the lender not recognize this reality and waive its deficiency in transactions involving a pending nonjudicial foreclosure? Or if the mortgage insurer is calling the shots, why is it not able to convince the mortgage insurer to pay the claim without proceeding to foreclosure?

So who is the perfect short sale candidate? Three scenarios immediately come to mind.

- There is only one loan and there is a program for dealing with the deficiency. HAFA, HUD's PFS, and the VA's Compromise Sale Program are all attempts to waive deficiencies in short sales and deeds-in-lieu.

- Two loans and the first is being fully paid off in the short sale. Foreclosure does not benefit the borrower in any way. It's all about the second lien and I can negotiate that debt as part of the short sale.

- Borrowers who are able and desire to remain current on their payments. Obviously, being current never triggers the foreclosure. And if credit is important, clearly the biggest hit to credit is every month a borrower doesn't make a payment. Again, this is debt I can negotiate.

In the end, it's all about the debt.

Beware of Condominiums and Any Super-Priority Liens

Unless the former owner of the unit files bankruptcy, he or she remains liable for the preforeclosure assessments on the foreclosed unit. But in states such as Washington, the association may also have a six-month preference for association dues owed prior to a foreclosure sale. What that means is that HOAs are a force to be reckoned with in any short sale transaction because if an HOA can collect six months of dues from the lender or new buyer in a foreclosure, they will need to be offered more than that amount to accept a short sale and release its lien. So it's important to do the math when dealing with an HOA. But the good news is that when an HOA approves a short sale, it is usually for satisfaction of debt and the seller is not liable for any additional preforeclosure or short sale assessments.

Buying Again After a Foreclosure or a Short Sale

At the time of this writing, the dust has not yet settled on the requisite waiting period after a short sale or foreclosure. Not long ago, Fannie Mae came out with new guidelines. Unless the foreclosure was the result of documented extenuating circumstances, which only requires a three-year waiting period (with additional requirements), all borrowers will now be required to meet a seven-year waiting period after a prior foreclosure to be eligible for a new mortgage loan eligible for sale to Fannie Mae. Contrast that to the waiting period after a short sale which can be as little as two years depending on the loan-to-value ratio and other factors.

Final Short Sale Thoughts: Seller Beware!

A short sale is nothing more than a voluntary agreement on the part of a lender to release its security interest. Unless an express written term of the short sale approval is the waiver of any right to a deficiency, that lender, or the lender's assignee, will have the right to seek recovery of the deficiency, and may pursue an action up to the expiration of the statute of limitations for collection of a note. In my opinion, any attorney advising a borrower otherwise is committing malpractice. Finally, always seek legal counsel before attempting to pursue a short sale. A real estate agent cannot give legal advice.

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New FTC MARS RULE

Lynn Arends — Mon, 24 Jan 2011 14:44:00 GMT

Attorney's Life on MARS

The FTC has issued a final rule, that gives federal and state authorities a new tool to combat the increase in deceptive mortgage relief practices.

The final rule does not affect attorneys who provide mortgage assistance relief services (MARS) in connection with the practice of law if certain basic requirements are met, but the FTC warns of MARS providers that try to use attorneys as fronts to avoid state laws.

Over the past three years, the FTC noticed a spike in the number of consumers scammed by MARS providers that charge advanced fees in the hundreds or thousands of dollars then disappear or fail to provide the promised service. Often, the delay and the cost combine to leave homeowners in a much worse position.

Many states have responded by passing state laws, commonly known as mortgage rescue statutes, under which MARS providers cannot charge advanced fees. Lawyers often are exempt from these mortgage rescue statutes.

Mortgage assistance relief services

In general, MARS means "any service, plan, or program" that offers or provides assistance in preventing or postponing foreclosure sales, negotiating loan modifications, obtaining forbearances or modifications in the timing of loan payments, or negotiating extensions.

Lawyers often provide these services in connection with representing clients in bankruptcy, foreclosure, or other administrative proceedings. Without an exemption, lawyers would become subject to all the requirements of the new federal rule.

Under the new rule, any for-profit entities providing mortgage assistance relief services are, among other things, prohibited from misrepresenting any material aspect of their services, advising a consumer to cease communication with a lender, or taking advanced fees. The prohibition on advanced fees is not effective until Jan. 31, 2011.

In addition, a person violates the rule by providing substantial assistance to a MARS provider if the person knows (or consciously avoids knowing) the provider is violating the rules.

The rule also is designed to prevent abuses by mandating that MARS providers disclose certain information to the consumer, including their "for-profit" status.

Attorney exemption/client trust accounts

Attorneys who are providing MARS "as part of the practice of law" are partially exempt from the new rule as long as the attorney is licensed in the state in which services are provided (or where the consumer's "dwelling" is located) and the attorney complies with applicable state laws and regulations.

However, to get the full benefit of the exemption, attorneys must comply with certain provisions regarding client trust accounts. In order to be fully exempt, lawyers must place advanced fees in a client trust account before performing legal services and comply with state laws and regulations, including licensing regulations, applicable to client trust accounts.

A lawyer who does not comply with the client trust account provisions cannot charge advanced fees, or "request or receive payment of any fee or other consideration" until the lawyer executes a written agreement between the consumer and the consumer's loan holder. In addition, the lawyer must make specific disclosures through the written agreement, but is otherwise exempt from other provisions of the final rule.

The proposed rule did not exempt lawyers at all, but several state bar associations, along with the American Association, sought an amendment to the proposed rule that would provide an exemption for lawyers.

Without an exemption, these bar associations feared the rule could undermine the confidential attorney-client relationship and "make it difficult or impossible for many consumer debtors to obtain the legal services that they desperately need to help negotiate changes to their residential mortgages with their lenders and keep their homes."

All in all, it is hoped that the new FTC MARS rule will curb the "mortgage rescue" charlatans who prey on the most vulnerable of our public.

Attorneys are fully exempt if they:

· Provide mortgage assistance relief as part of the practice of law; and

· Are licensed to practice law in the state in which the consumer for whom the attorney is providing mortgage assistance relief services resides or in which the consumerï¿½s dwelling is located; and

· Comply with state laws and regulations that cover the same type of conduct the rule requires; and

· Deposit any funds received from the consumer prior to performing legal services in a client trust account; and

· Comply with all state laws and regulations, including licensing regulations, applicable to client trust accounts.

Click here for more information on the new FTC MARS Rule

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MERRY XMAS FROM FREDDIE MAC!

Lynn Arends — Mon, 24 Jan 2011 14:41:00 GMT

Freddie Mac announced Wednesday it will suspend foreclosure evictions from December 20^th through January 3^rd. This is the third straight year Freddie Mac has suspended evictions during the holiday season. (This move only applies to those homes that have mortgages backed or guaranteed by Freddie Mac). Sibling company, Fannie Mae, also won't evict people over the holidays, but that has not yet been announced via news release regarding their upcoming suspension of holiday foreclosures. Fannie Mae and Freddie Mac purchase home loans from lenders and package them into bonds with a guarantee against default and sell them to investors. Today they own or guarantee about half of all U.S mortgages.

So Happy Holidays from Fannie and Freddie!

However, did you know...

According to RealtyTrac, foreclosure homes accounted for 25% of all U.S. residential sales in the third quarter of 2010 and the average sale price of properties that sold while in some stage of foreclosure was more than 32% below the average sales price of properties not in the foreclosure process--up from a 26% discount in the previous quarter and a 29% discount in the third quarter of 2009.

· REO's sold for an average discount of nearly 41% and accounted for 15% of all sales in the third quarter.

· Pre-foreclosure sales, which are often short sales, sold for an average discount of 19% and accounted for nearly 10% of all sales.

Looking at those statistics, it makes you wonder why investors Fannie and Freddie seem so eager to foreclose.

But at least for the Holidays...Merry Christmas!

For more information and foreclosure statistics visit--www.RealtyTrac.com.

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LISTING AGENTS: BEWARE??

Lynn Arends — Tue, 16 Nov 2010 14:56:00 GMT

Q: In a short sale, do Listing Brokers have a duty to disclose how far underwater the Seller is?

A: If you're in California, the answer may be "yes".

In Holmes v. Summer, G041906 (Cal.App.4th, filed October 6, 2010), a recently decided California appellate case, the court ruled that the sellers' brokers can be held liable for damages and costs incurred by a buyer in a failed transaction when the existing debt on the property exceeded the sale price. The court found that the brokers owed a duty of disclosure to the buyers.

No doubt, Holmes was an extreme case--three deeds of trust created a total debt of $1,141,000 with a sale price of $749,000--but the seller's real estate brokers were still held to answer for not disclosing this information to the buyer, despite the fact that this information was available on the preliminary title report and was a matter of public record.

The court found that real estate agents have the same responsibility as sellers to disclose information they have that affects the "value and desirability of the property."

In Holmes, the seller and the listing associate withheld from potential buyers knowledge of three mortgages against the property totaling $1.141 million. The sellers accepted a buyer's offer of $749,000, but the deal fell through when the sellers couldn't deliver clear title. So the buyers sued the real estate firm and the court found that the real estate practitioner had a greater duty to disclose facts affecting the desirability and marketability of the property than he did to protect the privacy of the seller.

It is my customary practice to make immediate inquiry with Sellers and in the public records to try to ascertain the status of a seller's mortgage liens at the outset of every short sale transaction that I work on. Buyers certainly want to know information like this as they determine how much (or whether) to make an offer in a short sale situation. Why bother putting up earnest money or wasting time, if the short sale is not viable?

Analysts say this decision makes it incumbent on practitioners with short sale listings to provide specific information about circumstances surrounding the sales, including approvals required for the sales to close. Admittedly, Holmes is a California case and not Washington law, but it certainly seems like good advice to listing agents out there.

In light of this recent ruling and the movement of the courts towards finding brokers liable for the damages of buyers who cannot complete a sale, real estate brokers should pay careful attention to their listings and be fully aware of potential liability for failure to disclose these types of issues.

So the question for Listing Brokers with short sales in Washington: is it really enough to just check the box "Yes" to short sale and "3rd Party Approval Required" on the NWMLS Form 1 Listing Input Sheet?

To read Holmes v. Summer in its entirety:
http://www.courtinfo.ca.gov/opinions/documents/G041906.PDF

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STRATEGIC DEFAULTING AND CREDIT SCORES: A RECIPE FOR CHANGE

Lynn Arends — Mon, 08 Nov 2010 11:34:00 GMT

Are you applying for a loan? You'd better know your FICO 8!

Question: What happens when you add soaring foreclosures--288,345 homes seized by banks in 2010 Q3, up 22% from a year earlier, according to RealtyTrac--to an unprecedented number of homeowners just walking away ("Strategic Defaulting")?

Answer: Both Fair Isaac (the FICO people) and VantageScore Solutions--the two major producers of credit scores--have begun changing how they evaluate consumers' risks of default. New scoring systems (the FICO 8 and VantageScore 2.0) are expected to be rolled out nationwide to lenders shortly to handle the vast credit-disruptions caused by the housing bust, the recession, high unemployment and behavioral changes by consumers. These revisions focus on the subtle warning signs of credit stress that might have been missed earlier--and penalizes or rewards consumers with higher or lower risk scores than they would have received before.

Consumer creditworthiness has deteriorated in the United States since 2006--especially among the "super-prime" borrowers. These strategic defaulters ("walk-aways") have been an unexpected and shocking development to the credit industry. For example, many homeowners are defying long-standing industry assumptions by going delinquent on their first mortgage payments while continuing to pay their credit-card balances and second mortgages on time.

In response to this abnormality, Joanne Gaskin, director of mortgage-scoring solutions for Fair Isaac, says that the new FICO 8 Mortgage Score is likely to be anywhere from 15 to 25 percent more accurate in detecting signs of future default compared with the standard FICO model when used by a lender to rate the risk of new applicants or existing mortgage customers.

Experts in the credit industry say the new scoring efforts by Fair Isaac and VantageScore should prove to be a net positive for housing and the mortgage industries if they can do what they claim: spot subtle risk patterns and nascent hints of improvement.

But buyer beware: these new changes could affect you personally the next time you apply for a loan because as a mortgage applicant you need to know that your next score might not look anything like the score you thought you had--it could be better or it could be worse.
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FOR NOW THE FORECLOSURE CRISIS MEANS BUSINESS AS USUAL

Lynn Arends — Fri, 29 Oct 2010 13:15:00 GMT

For now the Foreclosure Crisis means business as usual.

This week Wells Fargo, the second largest mortgage servicer, admitted making mistakes in 55,000 foreclosures but is not halting the foreclosure process.

Wasn't it only two weeks ago that Wells Fargo had stated that the Foreclosure Crisis is overblown and that it wasn't like other services because it ran a tight shop and hadn't engaged in bad practices such as improper affidavits, aka robo-signers?

The company described the mistakes as technical and the documents are being refiled in the 23 states where a judge's approval is needed to complete a foreclosure.

According to the Financial Times, a Wells Fargo employee said in a deposition that she signed as many as 500 foreclosure-related papers a day on behalf of the bank and that the only information she verified was whether her name and title appeared correctly. Although she signed affidavits that said she had personal knowledge of the facts regarding the sums of money which are due and owing to Wells Fargo, and those affidavits were used by the bank in foreclosure proceedings, when asked whether she checked the accuracy of the principal and interest that Wells claimed the borrower owed, a crucial step in banks legal actions to repossess homes, she responded I do not.

And what is Bank of America really doing here in Washington? Auctions are being postponed but only until after the election and all foreclosure timelines are still running. So what does that mean? The clock is still ticking, the process is still taking place only the actual auction is being postponed for several weeks.

In other words, it's (almost) business as usual.

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CAN WE STOP THE FORECLOSURE CRISIS - PART 2?

Lynn Arends — Thu, 21 Oct 2010 14:37:00 GMT

Just to keep it interesting, last Monday BOA announced that it would resume foreclosures in 23 states. BOA said it plans to resubmit documents with new signatures in the 23 states that require judicial authorization to restart the foreclosure process. These 23 states are those that have judicial foreclosures only and require a court process to foreclose.

By contrast, WA has both Judicial and non-judicial foreclosure remedies. Almost all of the residential foreclosures here are non-judicial and require no court intervention. Thus, WA is not affected by this latest BOA announcement.

However, I have still counseled my clients that it is "business as usual" with respect to foreclosure in WA--and why not? Even with a supposed self-imposed BOA moratorium still in place in WA state, BOA can still take the foreclosure process right up to auction and then not proceed. It is important to understand that the foreclosure clock is still ticking. Homeowners must still prepare for foreclosure or plan for a legal defense against it.

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CAN WE STOP THE FORECLOSURE CRISIS?

Lynn Arends — Fri, 15 Oct 2010 20:01:00 GMT

According to CNN and RealtyTrac, foreclosures hit record numbers. In the last quarter of 2010, there have been 930,437 foreclosure filings, a 4% increase from the previous quarter. One in every 139 homeowners had received a foreclosure filing during those three months!

Two weeks ago, four major lenders halted foreclosures in 23 judicial foreclosure states. Washington State was not affected by this directly. However, last Friday, Bank of America announced that it was suspending the sale of its foreclosed home inventory in all 50 states.

Wednesday, agent Rob McKenna announced in a press conference that his office has uncovered evidence that suggests foreclosure trustees are ignoring consumer protection laws in Washington. He sent letters today to 52 trustees outlining his concerns and calling on them to suspend any questionable foreclosures in the state. Washington is a "non-judicial foreclosure" state, which means that a lender can proceed directly to selling a home at public auction without first filing a lawsuit. This lender-driven process was created by the state Legislature in better times. Although lenders may foreclose in court in Washington, they almost always choose non-judicial foreclosure which is quicker and less costly.

From the McKenna Letter: "I ask you to suspend all foreclosures in which you have not yet confirmed that all foreclosure-related documents were lawfully signed, that the chain of ownership is clear and has been revealed to you in full, and that state consumer protection requirements have been followed."

As a third party trustee, they are responsible for conducting non-judicial foreclosures, they have a statutory duty to perform all foreclosures in good faith and owe that duty to both the homeowner and the lender.

Some of the issues raised in the AG's letter are:

"Robo-signers": who is actually signing the foreclosed documents and in what capacity?
Is there really a clear chain of title or have the lenders "reverse-engineered" that chain of title (back dated)?
Are default notices given out advising borrowers of their mediation rights (loans originated in 2003-2007) and with the actual loan owner and servicer identified (beginning July 26, 2009)?

This was the topic of yesterday's radio show and I'll be back again next week for an in-depth review and update of this issue.

Following the news this week, it seems like there have been announcements almost every day on this issue. On October 13^th, GMAC announced that it too was expanding its review of foreclosures to all 50 states.

Attorneys general in all 50 states have pledged a coordinated investigation into chaotic foreclosure practices by some of the nation's largest banks. The Department of Justice is also looking into what happened, while some lawmakers are now calling for a nationwide moratorium on all foreclosures until the legal questions are settled. The Obama administration is insisting such a broad delay would hurt the economy. And title companies are weighing in on what these all means to the buyers of REO's and purchasers at auctions. Read Dwight Bickel's Blog: New Uncertainty about Foreclosure Sales.

What does this all really mean? Stay tuned for next week's broadcast and any further developments.

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