We do a lot of short sales. They are never fun because it means someone is really struggling. Dreams and hopes are being dashed. It is a painfully emotional roller coaster ride.
If you know of anyone who is facing this situation, suggest to them that knowledge can go a long way toward easing the uncertainty. The Knowles Team is ready to share our knowledge without obligation. All someone has to do is ask!
A short sale is a real estate transaction. And it is riddled with legal consequences. That’s why we team up with one of the most experienced law firms in the area. Not only are they good, but they are very cost effective. Over half of the time, they are able to get the seller’s lender to pay their fee. The other part of the time their fee is covered by parties other than the seller.
An extract from recent information provided by the law firm we use, McFerran, Burns & Stovall, is reprinted below.
1. Mortgage Forgiveness Relief Act: First the bad news. As stressed over the last few months, the tax break afforded to homeowners who sell short or whose home is foreclosed is now expired. Forgiven or cancelled debt is taxable income to the borrower unless the borrower falls into another exception like bankruptcy or insolvency. There is legislation pending to extend the relief in the House and Senate with almost 30 co-sponsors, both Democrat and Republican. However, the bills are given little hope of passage
2. Ability-to-Repay Rule: Starting on January 10, 2014, the Consumer Financial Protection Bureau’s Ability-to-Repay Rule goes into effect. The rule sets out guidelines for lenders to follow. Loans within these guidelines are called “Qualified Mortgages” or “QMs”.
To be a QM, the loan:
• Cannot have excessive points and fees. For example, a loan over $100,000 cannot have points and fees in excess of 3% of the loan amount;
• Cannot be longer than 30 years;
• Cannot have risky features, like interest only payments;
• Must be in one of three categories:
1. The monthly payment, plus the borrower’s other debt payments cannot exceed 43% of the borrower’s monthly income; or
2. The loan qualifies for purchase or guarantee by the FHA or a government sponsored enterprise (Fannie or Freddie);
3. The loan is made by a small lender that keeps the loan in its portfolio.
NOTE: Lenders may continue to offer loans that do not meet the requirements for a QM, but they must take steps to verify the borrower’s ability to repay the loan based on income, debt and credit history.
3. Mortgage Servicers: There are also new rules for companies that service mortgage loans.
• Servicers must send a clear monthly statement, showing how payments are being credited.
• Mistakes must be fixed promptly.
• Payments must be credited on the day they are received.
• Early notice must be given before the interest on an Adjustable Rate Mortgage is about to change to give borrowers an opportunity to refinance.
• Servicer employees who take calls from borrowers must be able to answer questions and have access to critical documents.
4. Default: In the event of a default by the homeowner:
• Servicers must call or contact borrowers by the time they are 36 days late on a payment;
• With limited exceptions, servicers cannot initiate foreclosure until the borrower is more than 120 days delinquent;
• Servicers cannot start a foreclosure if the homeowner has submitted a complete loss mitigation application;
• Mortgage servicers must evaluate a loss mitigation application for ALL OPTIONS that may be available. This is intended to eliminate the frustration of requiring multiple applications to be considered for different foreclosure alternatives;
• Servicers are required to give homeowners who ask timely, accurate information about their foreclosure status.
5. Mortgage Steering: Mortgage brokers who assist borrowers in finding a mortgage are not permitted to steer them into more costly loans to earn a higher commission.