Posts Tagged ‘Pre-Foreclosure’
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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Hiring a Realtor or Broker to Short Sell Your Property
What you need to know when hiring a Realtor or Real Estate Broker to do a short sale of your property:
Hiring the right realtor or real estate broker to conduct a short sale may be one of the largest challenges facing short sellers today. Messing this step up could devastate your chances of avoiding a deficiency judgment.
Your Realtor or real estate broker may not have your best interest in mind. Your goal is to avoid the potential for the lender to seek a deficiency judgment. The Realtor or real estate broker’s goal is to sell the property and collect a commission, regardless of whether the Lender agrees to refrain from pursuing a deficiency judgment. This is one of the most important reasons to be represented by an attorney. Be certain that your interests are being protected throughout the short sale process.
Many Realtors only look out for the commission and do not care whether or not the homeowner avoids a deficiency judgment, and their brokerage agreements read accordingly. In fact, it has become prevalent for real estate brokers to include a short sale addendum in the real estate brokerage agreement that could have a negative impact on your best interest. For example, many short sale addenda to real estate brokerage agreements require that the client provide “ALL” information the Lender may request to evaluate whether on not the Lender with “approve” the short sale. The problem is that the Lender’s request for financial information is a fishing expedition to determine whether or not the Lender will pursue a deficiency judgment. You don’t want your agreement with your real estate broker to have a negative impact on your end goal of avoiding a deficiency judgment.
Therefore, it is important to have an attorney review the agreement between you and your real estate agent or broker before you sign a real estate brokerage agreement.
Likewise, it is also important to have an attorney review the offer to purchase or real estate purchase and sale agreement prior to signing. Many real estate brokers include a short sale addendum that doesn’t include a provision that makes “closing” contingent upon the Lender’s agreement to refrain from pursuing a deficiency judgment and cancel the promissory note. This is important because without such a provision, the short sale buyer/purchaser could sue to force the short sale seller to “close” where the Lender approves the short sale, but will not agree to refrain from pursuing a deficiency judgment and canceling the promissory note, the ultimate goal of many of our clients.
Every short sale situation is different. Therefore, you need advice that is specifically tailored to your individual situation. Because real estate brokerage agreements come in as many shapes and sizes as there are brokers, a thorough review of the proposed brokerage agreement is mandatory to ensure a consistent strategy to avoid a deficiency judgment. Castle Law Group typically recommends the use of one of our addendums to the brokerage agreement, and one of our addendums to the purchase and sale contract.
The advantage in having Castle Law Represent ONLY YOUR BEST INTERESTS in a Short Sale:
Our addendums typically include the following: (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.
634,000 Americans 50+ years old facing foreclosure
According to AARP Magazine (March/April 2009), there are 634,000 Americans aged 50+ who are 30-180 days past due on their first mortgages.
A study done in September, 2008 by AARP indicates that, at that time, Americans 50+ years old represented 28% of those who were delinquent, in foreclosure or who had been foreclosed. The study titled “A First Look at Older Americans and the Mortgage Crisis” is available by clicking HERE.
The assumption that they are in good shape during this crisis, based on equity and low fixed interest rates, has not proven true. Unlike younger homeowners, who may eventually be able to recover from such a loss, homeowners in this age group may never recover, and may suffer significant financial reprecussions into older age.
WHY THE BANK DOES NOT WANT YOUR PROPERTY
If you have been served with a foreclosure suit or foreclosure complaint, it is important to know that you have options, and that your lender doesn’t want your property.
The information below is for demonstrative purposes only and does not reflect the actual percentages, values or numbers concerning any particular bank.
Lending Guidelines & Regulation: What happens when you are 45 days late
While bank or lenders have different capital structures, banks that are regulated by the FDIC have certain guidelines they must adhere to. For example, XYZ Bank makes a $200,000 loan for an investor to purchase a residential property in 2005. In 2007, the borrower goes 45-days delinquent. The FDIC knocks on the bank’s door and says, “I see this loan is 45-days delinquent, please put $2,000 of your equity capital into a loss reserve account. This $2,000 of equity capital actually represents $20,000 of XYZ Bank’s lending power.
Leverage:
Most bank use LEVERAGE when making loans. When XYZ Bank makes a loan, it puts 10% of its equity capital into the loan, and uses other peoples money to fund the remaining 90% of the loan. The borrowed money could be your own deposits, certificates of deposit (“CDs”), or money borrowed from other banks.
Lending Guidelines & Regulation: What happens when you are 90 days late
When the loan goes 90-days delinquent, XYZ Bank puts the loan into foreclosure. The FDIC knocks on the door again and asks XYZ Bank if it has an appraisal or Brokers Price Opinion (“BPO”) more recent than 12-months. If the bank doesn’t have a recent BPO or appraisal, the FDIC says, “go get one”. If the BPO comes back at $180,000, the FDIC instructs XYZ Bank to put another $18,000 of its equity capital into the loss reserve account because the bank is likely facing a $20,000 loss.
Why/When the Bank takes action:
This doesn’t have to happen too often before the bank is out of equity capital.
Banks have historically put loans into foreclosure after the loan goes 90-days delinquent. However, in this market, many banks cannot afford the FDIC knock on the door and are therefore delaying putting loans into foreclosure.
Why a Deed-in-Lieu of Foreclosure is not a great option for the bank:
Historically, banks would also accept a deed-in-lieu of foreclosure. In other words, an investor could say to XYZ Bank, don’t file a foreclosure suit against me. I will simply deed the property to you, the bank, then the bank would sell the property to repay the loan. However, under such a scenario, if the property value doesn’t significantly exceed the loan amount, the FDIC also requires the bank to set aside reserves because it has an asset that is not generating a return, and more particularly, in case it experiences a loss.
Today, many banks cannot afford to maintain a large portfolio of Real Estate Owned by the bank (“REO”).
Why Banks prefer a “Short Sale”
Therefore, often the best solution is for the owner to list the sell the property, for a loss, with the permission and blessing of the bank … a “short sale”. This puts cash back into the hands of the bank.
Castle Law Group specializes in actively defending mortgage foreclosure lawsuits with the litigation goals of preventing deficiency judgments and 1099′s.