Hi Everyone,
Here’s the follow up from today’s class.
There was a question about whether or not the short sale debt is considered a taxable event when the lender forgives the shortfall. Here’s a link to the IRS website explaining the Mortgage Forgiveness Debt Relief Act; who is and is not exempt. By the way this was going to sunset in 2012 and has been extended through 2014 as part of the recently passed Wall St Reform Act.
There was a question about third party short sale negotiators that we did not get to. Here are two articles I recently wrote about these guys:
Predatory Short Sale Negotiators
and
21 Questions to Ask Short Sale Negotiators Before Hiring Them
There was a question about community property:
A borrower acquired real property as a single person and then gets married (in a community property state), moves into a home owned by her new husband, and now wants to short sale the real property acquired as a single person. Can the lender demand to see all community assets in order to determine whether or not the borrower qualifies for debt forgiveness?
There is no “financial distress event” that triggered the need to sell short. The borrower is still gainfully employed and was making mortgage payments as agreed. She just no longer needs the home acquired as a single person.
I have sent the above question to several attorneys and will post the answer when I receive it.
I am having a hard time visualizing how she will answer the question on the lender’s short sale paperwork: “Reason for hardship” seeing how there is no hardship and her financial situation is actually improved.
There was also lots of questions about HAFA, the government’s Home Affordable Foreclosure Alternative program for homeowners who do not qualify for a loan mod and now need to sell short. Here is a link to the HAFA website. The main question we need to answer tonight is as follows: Is the HAFA program ONLY for loans held in Fannie Mae and Freddie Mac’s portfolios or is HAFA something that is available for all mortgage loans?
The answer is as follows: All loans held in Fannie Mae and Freddie Mac’s portfolio are eligible for consideration for any program within the “Making Home Affordable” government program. Here’s how to determine if a loan is held by F or F.
Part of the confusion surrounding who is/is not eligible for HAFA is because the homeowner must first have been turned down for a loan mod under HAMP (Home Affordable Modification Program.) People who qualify to try for a HAMP loan mod are people whose loans are held in F&F’s portfolio. So they try to get a loan mod and are TURNED DOWN for the mod probably because they do not have sufficient income to qualify to repay the modified loan. People are turned down for a loan mod because their debt-to-income ratios are so out of line that they really should be selling the home; chance of a re-default is very high. From the website:
“These options are available for homeowners who: 1. do not qualify for a trial mortgage modification under the Making Home Affordable Program; 2. do not successfully complete the trial period for their modification; 3. miss at least two consecutive payments during their modification period; or 4. request a short sale…”
Here’s a list of loan servicers that are participating in the HAMP program. This is DIFFERENT from HAFA. HAMP is the Home Affordable Modification Program. Just because a homeowner makes payments to this loan servicer doesn’t necessarily mean that the servicer will participate in HAFA should the homeowner be denied a loan mod. What we do know is that if a homeowner’s loan is held in Fannie or Freddie’s portfolio, the homeowner can pursue a HAFA short sale….yet the lender is under no obligation to approve the HAFA short sale. The final decision is still up to the lender/servicer.
Remember, your client is better off going for HAFA if they qualify because the lender/servicer is required to not pursue the homeowner for the short sale deficiency. This is good outcome for your client.
Also…there’s been FORTY policy changes to the Making Home Affordable program since its inception a year ago. MHA is a moving target and I’m sure more changes are in its future. Stay tuned.
Thanks for a fun class today and I hope to see you all again next Monday!