Archive for September 2009
Cutting Deals with the Bank
September 27, 2009 | 
Author Undercapitalized or Upside Down Lenders Provide Greater Opportunities
for Borrowers Facing Foreclosure to Cut Deals
According to an article in the South Florida Business Journal, Florida is tied with Georgia and Illinois for having the most banks in the nation with major capital shortfalls according to a study by The Street.com ratings and SNL Financial.
Where lenders and banks are under capitalized, borrowers have greater opportunities to cut deals with lenders on upside down properties. There are many reasons why undercapitalized banks and lenders present better opportunities for borrowers to cut deals.
First, undercapitalized lenders often do not have sufficient staff or resources to participate in highly structured loan workout programs. In other words, undercapitalized lenders often have more flexibility to consider a wider range of loan workout proposals.
Second, because there is often less formal internal structure, undercapitalized lenders may be more likely to take the borrowers individual circumstances into account when making loan resolution decisions.
Third, Florida foreclosure defense attorneys have an easier time defending foreclosure suits by lenders or banks that have been taken over by the Federal Deposit Insurance Corporation (“FDIC”), the Office of Thrift Supervision (“OTS”), or by another bank in lieu of government takeover. Initially, after a loan is transferred to a new owner/entity, it often takes several months for the new owner/entity to get up to speed on the loan or foreclosure status. Secondarily, after such an acquisition, the risk profile of the assets [loans] should shift in the direction of market value. In other words, if a new entity owns the loan, it should have acquired the loan at a significant discount, giving the new/current owner of the loan more flexibility to cut a deal with the borrower to resolve a contested foreclosure. Finally, Florida foreclosure defense attorneys have an easier time defending foreclosure suits where the loan has changed hands one or more times. Where a loan has changed hands several times, discovery becomes more complex, assignments may be missing, original documents could be lost, authority to foreclose may become unclear.
Therefore, the banks pain becomes the borrower’s gain.
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Short Sales may avert Foreclosure
It is possible to sell your property in a short sale prior to completely ruining your credit with a foreclosure suit or running months and months delinquent.
While most lenders will not approve a short sale if the mortgage is current, selling a property by way of short may be accomplished between the period after missing that first payment and before the lender files a foreclosure suit.
Historically, a lender does not file a foreclosure suit until the borrower is 90 days delinquent. However, in this market, some lenders are waiting 120 days or more before filing and serving a foreclosure suit. Quite often, if a short sale is pending, the lender refrains from filing suit while awaiting a short sale.
It is during this period, from one month delinquent to four months delinquent that it is possible to short sell a property prior to the lender filing and serving the foreclosure suit.
The short sale process starts with (1) engaging a realtor and getting an offer to purchase, (2) a short sale application. However, there are important items to take care of prior to accomplishing these two seemingly simple tasks.
The real first step is meeting with attorney familiar with foreclosure defense and lending /banking.
A foreclosure defense attorney is necessary to look out for your interests when engaging a realtor to list and sell a property by short sale. Many real estate brokerage agreements contain provisions that may be adverse to you in your attempt to short sell a property.
Things you may want to consider,
include: (1) make the real estate broker commission contingent upon actual closing, (2) provide that the Seller has discretion concerning the type and nature of the documents to be provided to the Lender for the Lender to evaluate whether or not to approve the short sale, and (3) that the Seller is not obligated to sell/close unless the Seller is satisfied with the terms of the Lender’s approval letter, contract or settlement with the Lender.
A foreclosure defense attorney may also be necessary to advise the borrower on how best to fill out a short sale application. An attorney may help determine what things to include in the short sale application, and what things to omit and/or tell the lender that your attorney has advised you not to provide certain information because this matter may wind up in litigation.
After engaging a realtor, for a quick short sale, the goal is to list the property at a price that will get noticed.
A lender is often willing to accept an amount less than what the lender believes is the true value because the lender typically evaluates loan resolution scenarios based on the time value of money. In other words, a lender may be better off receiving $175,000 today as proceeds from a short sale, than $225,000 in 12 months after paying a foreclosure attorney thousands of dollars in fees and costs to conduct the foreclosure suit plus real estate broker commissions, carrying costs, property maintenance costs, and the costs of maintaining the lender’s loss reserve accounts.
After getting an offer and completing all or a portion of the short sale package, it is in the lender’s hands.
However, if an offer to purchase can be acquired and short sale package completed prior to the lender filing a foreclosure, chances are that the lender will not file the foreclosure suit while closing is pending.