Thursday, August 25, 2011

Fighting Short Sale Fraud

Those entrenched in nefarious thinking can find many ways to cheat the system for personal gains. That makes it all the more important to involve yourself with a reputable Realtor to represent your interests in not only Short Sales but all real estate related activities; in addition, testamonials from past clients say a lot more than just the Realtors description of their own advertising. Now speaking of short sales, here's some interesting information about fraud from the Freddie Mac perspective.

In a short sale, Freddie Mac agrees to accept less than a full payoff of a mortgage when the borrower is unable to sell their home for enough to pay off their entire loan. Freddie Mac short sales have risen from about 4 percent of completed workouts in 2000 to nearly 14 percent in 2010.

Short sale fraud, also on the rise, enters the picture when real estate professionals fail to disclose affiliations with other parties involved in the transaction to rig sales at a low price and hide better offers from Freddie Mac and the distressed home seller. Then, after the house is sold, the fraudster can flip it a few hours later for the better price and walk away with the profitable difference.

By concealing the higher offer, short sale fraud worsens losses to home sellers, Freddie Mac, and taxpayers. It also throws another wrench into the housing recovery by undermining the trust and transparency at the core of any real estate transaction.

Today, short sale fraud is the top priority for their fraud investigation unit. By working closely with real estate professionals and law enforcement agencies, their fraud unit has identified and stopped a number of fraudulent deals before closing. They have also added the perpetrators to our Exclusionary List – firms and individuals barred from conducting business with Freddie Mac – and worked with law enforcement agencies to prosecute them.

Since short sale fraud requires the cooperation of one or more real estate professionals involved in the transactions, they have begun reaching out to Realtor associations in target markets to educate them about the latest trends in short sale fraud, the red flags to watch for, and what actions they can take to stop it. We strongly believe responsible Realtors are America’s natural first line of defense against such scams.

Trends Freddie Mac has been alerting Realtors about include:

Falsely indicating on a new short sale listing that there is an offer on a property in order to discourage legitimate offers and protect an accomplice’s planned low bid.
Manipulating the short sale listing price by making the house look more distressed than it really is (“reverse staging”), inflating repair estimates, or using similar tactics designed to obtain an artificially low home value on the Broker Price Opinion. (Our requirements prohibit the buyer, buyer’s agent, buyer’s attorney, or a third-party short sale negotiator to be the contact point for the agents preparing the BPO.)
“Flipping” schemes where the fraudster “buys” a house at a short sale without putting down any of his own money and then sells it a few hours (or days) later to a legitimate buyer at a much higher price. These are complex multi-step schemes that use falsified title and/or loan documents to fool a lender into approving the ultimate buyer’s mortgage, which the fraudster uses to settle the earlier closing on the house he “acquired” at the short sale for a much lower price.
Manipulating the HUD-1 settlement statement so the fraudster can skim away net proceeds from the sale for himself or other parties in the transaction without the seller’s or investor’s knowledge. (The HUD-1 is the document that itemizes all fees, charges, and other funds involved in a home sale.)
As a result of the uptick in short sale issues, Freddie Mac now requires all of the parties involved to sign an affidavit attesting that it is a true arms-length transaction. These affidavits not only deter individual participation but also give us a stronger legal path to enforce our rights.

Fortunately, Freddie mac has allies in this fight. There are many conscientious real estate professionals who want to do the right thing. We often receive calls in our servicing, quality control, fraud investigation, outreach, and HomeSteps divisions from real estate agents who know they’ve seen something inappropriate and won’t look the other way. They understand that real estate fraud turns a shortsighted profit at the cost of the public’s long-term confidence in homeownership and the housing industry.

That’s why Freddie Mac reaching out to educate real estate associations through special seminars and Freddie Mac’s web site, where they post the latest fraud prevention information and best practices. If you see fraud being committed – or aren’t sure and want clarification – you aer encouraged to call the Freddie Mac Fraud Hotline at 1-800-4FRAUD-8 or 1-800-437-2838, as well as your local FBI office, state attorney general, and Real Estate Board.

Thursday, August 11, 2011

Bank of America distressed loan borrowers get second chance at loan mods, etc...

The Department of Housing and Urban Development has reached a settlement with Bank of America that releases the company from liability for failing to adequately provide alternatives to foreclosure on 57,000 delinquent government-insured mortgages.
The agreement, a draft of which was obtained by American Banker, was previously undisclosed. It has been forged on a separate but parallel track from continuing settlement talks between Bank of America, state attorneys general and other regulators over alleged mortgage origination and servicing failures.
B of A's pact with HUD requires it to waive a minimum of $10 million in unpaid mortgage payments and vet each of the 57,000 delinquent borrowers for a possible loan modification, short sale or other foreclosure alternative.
"Our total costs for the program will be multiples of that" $10 million minimum, B of A spokesman Dan Frahm said. The deal calls for measures to "ensure these customers have every opportunity to stay in their homes," he added.
After such outreach, the settlement paves the way for B of A to foreclose on homes that borrowers could not afford even after a mortgage modification and those that have been left vacant by owners.
In forging the agreement, HUD decided to forgo steep monetary damages or admissions of error from the bank.
Instead, it pushed for the lender to implement steps that in most cases it was supposed to have already taken under the terms of its FHA-guaranteed loans, with the apparent aim of minimizing foreclosures and related insurance claims.
"We took the borrowers into account first," said HUD general counsel Helen Kanovsky. "We think that that's really the best thing for the FHA [insurance] fund as well."
The agreement is HUD's first involving settlement of claims in which a servicer failed to offer loss mitigation to borrowers. It does not, however, prevent HUD from seeking damages from B of A for unrelated origination and servicing failures.
"We fought for as narrow a [legal] release as possible and as much money as possible," Kanovsky said.
Under HUD's standard terms, borrowers must be less than 12 months delinquent to qualify for loan modifications. With the B of A settlement, the minimum of $10 million the bank agreed to pay will go to covering past-due arrearages and giving borrowers who are more than a year behind the possibility of qualifying for foreclosure alternatives.
The agreement was signed July 11 by B of A senior vice president Robert Gaither, who directed queries to a company spokesman.
All of the 57,000 borrowers covered by the agreement are 12 to 24 months delinquent. They account for only 4% of the total 1.5 million FHA loans that B of A services but a substantial portion of the company's seriously delinquent loans. B of A holds $19.8 billion in FHA-insured loans that are 90 days or more delinquent, and another $3.1 billion in FHA loans 31 to 89 days delinquent, the bank said in its second-quarter earnings release.
Under its terms with HUD, B of A will have to pay an independent monitor to review its modification work and report to HUD. It is also obligated to seek borrowers through database searches, letters, phone queries and visits to properties. Borrowers who fail to qualify for loan modifications, will receive from B of A $4,000 for a short sale and $7,500 for a deed-in-lieu of foreclosure.
The deal reflects the high levels of financial uncertainty surrounding such negotiations. In May, B of A agreed to pay $20 million, or double the minimum for the latest settlement, for improperly foreclosing on a relatively few 160 homes of military service members.
The settlement is "not a lot of money for the potential losses that the federal government may have to make good on," said Diane Thompson, an attorney for the National Consumer Law Center.
The minimum $10 million payment of borrowers' arrearages is unlikely to defray the FHA's losses on foreclosures, she said.
But if Bank of America is "able to identify the loans, and if people are still in the homes, and if they waive payments over past 12 months, then that's more valuable than a big fine for Bank of America," Thompson said. "But there are a lot of ifs there."
The largest banks hold billions of dollars of delinquent FHA loans on their balance sheets for which they have not yet filed claims. This may be because of concerns that they may have violated stringent HUD servicer requirements and could be held liable for treble damages related to false claims. One sticking point in settling such claims is that the FHA requires all servicers to have employees conduct face-to-face interviews with FHA borrowers once they become 60 days delinquent, a procedure most servicers either did not undertake or cannot document.
As part of the deal HUD has also agreed to pay any mortgage insurance claims and waive any pending administrative actions against B of A, its officers, directors or employees "in connection with servicing or loss mitigation deficiencies." The only exclusion is for allegations involving improper transfers of titles.
B of A also has agreed not to claim expenses on any FHA insurance claims for taxes, liens or property preservation incurred from November 2010 through July 2011.

Friday, August 5, 2011

Is your loan with BofA - read this before requesting a Short Sale

If you're a cash-strapped homeowner in California with a mortgage serviced by Bank of America, you may have a chance at getting your principal lowered through a state program that helps people stay in their homes.

The California Housing Finance Agency said earlier this week that Bank of America is now part of Keep Your Home California’s principal-reduction program, making it the largest loan servicer involved in lowering loan balances for those with economic hardships.

A servicer is a company homeowners make their mortgage payments to every month. Bank of America serves more than two million home loans in the state, agency officials said.

Other servicers involved are the California Department of Veterans Affairs, the California Housing Finance Agency, Community Trust/Self Help, GMAC, Guild Mortgage Company and Vericrest Financial.

Agency officials hope that list continues to grow.

"We believe principal reduction can be an appropriate tool for helping qualified homeowners obtain an affordable and sustainable modification," said Claudia Cappio, California Housing Finance Agency's executive director, in a statement.

Keep Your Home California’s principal-reduction program is one slice of a $2 billion effort to help struggling homeowners avoid foreclosure.

Qualified homeowners could be eligible for up to $50,000 in assistance from the Keep Your Home California program, which requires the mortgage investor to match dollar-for-dollar the amount provided by the program.

For instance, if the program agrees to reduce the principal by $50,000, then the mortgage investor must match that $50,000 reduction, resulting in a total $100,000 reduction.

Bank of America borrowers who don't qualify for the principal-reduction program will be evaluated by bank representatives to explore other options, including a loan modification.

Keep Your Home California is funded by the U.S. Treasury Department.

If you have questions, call 888.954.KEEP (5337) or visit

Wednesday, August 3, 2011

Short Sale Lenders performance worsens

More REALTORS® characterized closing short-sale transactions as “difficult” or “extremely difficult” than late last year, indicating that lenders’ and servicers’ short-sale procedures have shown little improvement in the past six months, according to the latest Lender Satisfaction Survey conducted by the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.).

More than three-fourths (77 percent) of California REALTORS® reported closing short-sale transactions as “difficult” or “extremely difficult,” up from 70 percent in December, according to the C.A.R. survey. The survey, a follow-up to a survey conducted in December 2010, gauges REALTORS®’ experience working with lenders in their most recent transaction. The majority of those surveyed dealt with short-sale transactions – transactions in which a homeowner with a demonstrated hardship negotiates with the lender or lenders to accept less than the balance owed on the mortgage.

“Despite promises by lenders to improve their short-sale processes, clearly, they are not doing enough,” said C.A.R. President Beth L. Peerce. “Instead of helping struggling homeowners who need to sell and willing home buyers who want to buy, lenders have created man-made roadblocks that have caused real estate gridlock and hindered a desperately needed housing recovery.”

REALTORS® continued to cite communication issues as the most frequent obstacles in working with lenders and servicers during the short-sale process. These communication issues include lenders’ slow response time to a short-sale package (cited by 66 percent of REALTORS®), poor communication with lender representatives (cited by 55 percent of REALTORS®), and repeated requests for documentation (cited by 51 percent of REALTORS®). More than 15 percent of REALTORS® indicated that the lender foreclosed on the home before the short-sale transaction could be completed.

Two-thirds (67 percent) of REALTORS® said it took more than 60 days for lenders or servicers to return a written response on the approval or disapproval of the short-sale agreement submitted. Additionally, 43 percent of REALTORS® said it took the lender more than five days to return any form of communication. Less than 20 percent said lenders responded “within one business day” or less.

Overall satisfaction with the lenders REALTORS® worked with in their most recent short-sale transaction remained extremely poor, with 75 percent saying they were “not satisfied” or “not at all satisfied,” up from 67 percent in December. Moreover, nearly eight in 10 REALTORS® (78 percent) said they were “not likely” or “not at all likely” to refer buyers to the lender for future home purchases.

“With short sales accounting for a fifth of all transactions in California, it’s crucial that lenders improve their short-sale process so that a meaningful recovery in the housing market and overall economy can occur,” Peerce added.

In an effort to educate consumers and its members about short sales, C.A.R. created a website ( earlier this spring to help clarify the process. The association recently polled its members via the website and asked them to rate which lender was the easiest to work with. Of the top four lenders, 40 percent said Wells Fargo was the easiest, while 23 percent cited Bank of America; 17 percent said JP Morgan Chase; and 11 percent said Citi.

C.A.R.’s Lender Satisfaction Survey was conducted in June 2011 to gauge REALTORS®’ experience in working with lenders or servicers during their most recent transaction, the majority of which were short sales. Most of the REALTORS® surveyed dealt with Bank of America, Wells Fargo, and JP Morgan Chase in their most recent transaction. The latest survey findings show that the situation has not materially improved in the six months since C.A.R. first surveyed its members.

As always - Keep the faith!

Tuesday, August 2, 2011

Debt Forgiveness on Short Sales in California

HAFA (Home Affordable Foreclosure Alternative) is a national short sale program adopted by major lenders and servicers that requires subordinate liens to fully forgive borrowers of their debt along with other requirements. Full debt forgiveness is now also required under SB458
for lenders of one-to-four residential unit properties doing short sales in California (unless an exception applies).

"The signing of this bill is a victory for California homeowners who have been forced to short sell their home only to find that the lender will pursue them after the short sale closes, and demand an additional payment subsidize the difference," said C.A.R. President Beth L. Peerce.

Just as in the HAFA guidelines, SB 458 brings closure and certainty to
the Short Sale process and ensures that once a lender has agreed to accept a short sale payment on a property, all lienholders - those in first and in junior positions - will consider the outstanding balance as paid in
full and the homeowner will not be held responsible for any additional payments on the property. HAFA is also the only short sale that helps
the homeowner with moving assistance funds.

Good luck and as always - Keep the faith!