Real Estate Information

What are second lienholders doing?

Just when first lienholders had gotten very good about agreeing to give them 1,000-5,000 at closing without a big hassle, the second lienholders changed the game. 

The fact that the first  lienholder is willing to give the second lienholder a token amount although they will not be entitled to anything at closing?

That isn't good enough for many second lienholders today.  They want more.

The biggest challenge we see in our Jacksonville short sales is the demands of a second lienholder.

Many times they are sneaky!  We have seen second lienholders change the demand amount daily.  Sometimes they will give you a number, then when you find a way to make it happen the number changes.  It is not unusual for them to refuse to put it in writing.  They are even known to suggest payments off HUD when the first disallows them getting a large cash payment.  The tricks seem to be endless when it comes to seconds these days.

We have seen sellers end up with a foreclosure or bankruptcy because of the second lienholder not being willing to take a small amount that the first lienholder agreed to give.  THIS SHOULD NEVER HAPPEN.

In my most recent case USAA is demanding 75% of the balance of the second note at closing.  This is when they are only underwater around $50,000 and the first lienholder is underwater $100,000.   We will challenge this number and try to arrive at a workable solution for the seller and both lienholders.  Without doubt, this 75% demand is only workable for one of the three parties.

• So what are second lienholders up to?
• Do they have insurance that will pay them more upon a foreclosure than if they accept a small short sale payoff? 
• Are they really just making decisions that appear to be this poor?
• Do the investors and shareholders of these banks and loans prefer to make 3,000 on a bad loan...or NOTHING at foreclosure? 
• Are they really MAKING MONEY at foreclosure although they are not receiving any of the proceeds? 

The real estate business is hard.  Short sales are hard.  But we chose to do them as Jacksonville short sale specialists because we see that as a place where we can really make the difference in the lives of people that desperately need help. 

If you are a prospective real estate buyer or seller, do you want the truth?  Do you want a "head in the clouds" version of the truth?  Or would you prefer to be lied to so you feel better about your situation?

I know these seem like silly questions, right?

Well they are not, because we witness human behavior mixed with real estate every day.  We are big at watching the stats and dealing with the reality of the Jacksonville Real Estate market, no matter what that reality may be.  We can not change the current Jacksonville real estate market by spinning it into a story that would be prettier to tell or a story that will massage someone's feelings.  We decided a while ago, despite an industry push to always spin pretty, to always tell the truth whether it makes the prospective buyer or seller feel good or not. 

When we talk to a seller, we do not tell the seller what they want to hear unless it coincides with reality.  If we lie to make a seller feel good, who are we helping?  If we tell you that your home is worth $300,000 when the reality is that the comparable sales indicate it is only worth $250,000...are we helping you?  What can you anticipate happening in that type of situation?  Do you think you will sell your home in this market for $300,000 when the other sales show that $250,000 is what it is worth?  Then why would you try?  Yet some sellers will chose the agent that says they can sell it for $300,000 (and there will always be somebody who will)  when there are no sales even close to that price in recent history. 

If you don't have to sell your home right now, then you should not.  That is the truth.  That being said, we can not predict when it might get better for sellers.  We would like to think that the market is going to turn around dramatically next week...but we would not be honest if we made you any type of promise that this is the case.

If you have to sell your home, please be sure you chose a great, honest agent to do the job.  Otherwise, the job may never be done and you may end up in worse circumstances than you are in right now.

Buyers--do not buy a home anticipating instant appreciation.  There are no guarantees.  A bargain today could be grossly overpaid for tomorrow.  Or it may not.  Buy your home to live in, and make sure it is something you can afford. Ignore industry reports.  Be realistic.  No one can predict the real estate market.  Don't listen to some one who tells you they can.  Demand comps before you put in an offer.  Educate yourself and make your decisions for the right reasons.

So we've been following a new trend for the past few months.  HOAs and Condo Associations in the Jacksonville real estate market have been moving to foreclose on properties for past due association fees.  Most homeowners are clueless, never suspecting that they can actually DO that.  We have seen several short sale sellers who are in the midst of a HOA foreclosure.  In our business we have seen that more often than not, homeowners quit paying their HOA or Condo Association dues before they quit paying their lender.  They figure that the association is the lesser of the evils.  Well...maybe not.

We have been watching these properties enter the foreclosure funnel and waited to see what happens when they start to emerge on the other side.

We got a call this week from a distraught homeowner.  They had purchased a home for a great deal from a HOA that had foreclosed.  They got a great deal on the property and all was well...until....well the lender still has a legal right to the property that was mortgaged.

Speaking with this unfortunate homeowner, we found out that the bank is now moving to foreclose on their new Jacksonville home.  The bank will not even talk to them since they were not a party to the loan. 

We would have loved to help them with a short sale of this Jacksonville property...but with the bank not cooperating with the current owner...there is nothing we can do to sell their property without having the original homeowner, who has already been foreclosed on, request that the bank talk to us and them.  Even if the current owner is able to track down the previous owner...the likelihood of them cooperating is probably slim to none since they have already been foreclosed on and moved on.

We asked this owner if they had title insurance.  They apparently had been told that you couldn't get title insurance on a foreclosed property.  Not true. However, we are not sure why this buyer was not made aware, during this process, that the bank still had to be paid.  It is apparent that they believed that they owned the home free and clear and got a great deal!

We feel for this Jacksonville homeowner, but all we can do to help is suggest that they contact a competent and knowledgeable real estate attorney regarding this situation.  Buyers of foreclosures should be working with a competent Jacksonville real estate agent to buy their property.  We also suggest a competent closing attorney be used to close the deal.

This is just another nasty part of the fallout of the current real estate market.  Buyer beware!

As of September 30, 2009 there were 817 foreclosure sales scheduled in Duval County through the Duval County Clerk of Courts office.

To put the magnitude of that number in perspective, during the month of September there were only 724 Duval County real estate sales recorded in the MLS (non-condo).  There were only 1,041 (non-condo) real estate sales that took place in the whole Jacksonville real estate market overall.

The number of real estate sales transactions (all statistics quoted are non-condo) in Jacksonville is up a little as of the end of September although definitely not our highest number of sales in a month this year.  Our lowest number of transactions for the Jacksonville area came in January at 541 for the month.  Our highest month this year was July at 1,159 transactions for the month.  September, as of this morning, posted 1,004 closings.  (This number will continue to move up slightly as all agents do not post their sales to the MLS as quickly as required.)

Percentage of sales breakdown between Distressed Properties and Straight Resales

• Over 41% of the sales closed in Jacksonville were distressed properties.  This includes both Jacksonville short sales and Jacksonville foreclosures.
• 47% of the sales closed in Jacksonville in September were straight resale.  (non- distressed properties also not listed as new construction)

Pending-to-Active Ratios for Jacksonville Real Estate Sales

• Pending-to-active ratio for September was 32.3%
• Pending-to-active ratio for distressed properties was a whopping 72.7% although they only accounted for 25.8% of all homes actively for sale in the MLS.
  
• Pending-to-active ratio for straight resale properties was only 14.8% although they account for 64.9% of all active home listings.

As of September 30th the inventory level in the Jacksonville market overall was 10.04 months based on the past 12 months of sales.  Based on the past 30 days of sales, this number was 8.8 months.  Keep in mind the tax credit that is set to expire the end of next month is fueling some sales and might account for the uncharacteristic increase of September sales over August sales and the bump in the related ratios.  (Although September exceeded August last year as well, looking back to data beginning with 1993 August sales exceed September.)

Here is the historical chart of Jacksonville real estate sales (blue line) I created from the data dating back to 12/31/02 through 9/30/09.  I also added a line for straight resales(green line) and distressed property sales (red line) which include Jacksonville foreclosures and short sales...which just recently entered the scene.  You can click on the graph to see the larger version.  Straight resales and distressed sales traded top position for the first time in January of this year.  Since then the sales in each category have been charting relatively close together.  The pursuit of the tax credit has taken the short sale option off of the table, for buyers who hope to qualify, in recent months. 

I like to follow my web traffic and see what they are coming to my blog to learn more about.  It seems a very frequent search I get is people (and even banks!!!)  looking for the HUD rules for the FHA Preforeclosure Sale program.  Because of this I wanted to address the FHA Preforeclosure guidelines here again and give a little more information.

Click here to download the Mortgagee Letter 08-43-- FHA  Preforeclosure Sale Program guidelines these short sale guidelines can also be found directly on the HUD website Loss Mitigation Policy & Guidance page along with other useful information about selling your home short when it has an FHA loan.

A couple of the important things to take note of:

1. You need to get the process started at the time, or before, the time you list the property with a real estate agent who is a short sale specialist.  You really should hire someone who is familiar with the FHA Preforeclosure Program process.
2. This new process gets you an approved price at the beginning so you know what the lender will accept.  This, hopefully, will allow you to get a contract on your home for what you know the lender will accept and will make it easier to get a contract since the buyer will not have the usual uncertainty of a short sale.  The net required proceeds actually went UP with the issuance of these new guidelines.  It used to be 82%.  Now it starts at 88% with the floor being at 84%.
   
3. On the downside. if the lienholder's appraisal comes in unrealistically high, it can become very hard to find a buyer since the bank is dealing with a less than accurate value.  Since the appraisal is good for six months, according to the guidelines, this can be devastating.  Trying to convince the bank to reappraise can be very hard.
   
4. Keep in mind...the marketing periods outlined below concerning the net proceeds required...begin from the time you get your approval to participate from the lender...not from the time you apply or put your home on the market.
5. The rules of allowable closing cost amounts and details are not the same for a FHA short sale seller and a buyer who may be purchasing with an FHA loan. 
   

Below is an excerpt from the Preforeclosure Sale letter that addresses the biggest questions sellers, and short sale agents seem to have.  It deals with the net sale proceeds percentages, allowable closing costs, closing costs not allowed and the time frame:

Net Sale Proceeds – Regardless of the property’s sale price, a mortgagee may not approve a PFS contract if the net sale proceeds fall below the minimum allowable thresholds stated herein.  HUD has established guidelines for varying minimum net sales proceeds based on the length of time a property has been competitively marketed for sale.

• For the first 30 days of marketing, mortgagees may only approve offers that will result in minimum net sale proceeds of 88% of the “as-is” appraised FMV.
• During the next 30 days of marketing, mortgagees may only approve offers that will result in minimum net sale proceeds of 86% of the “as-is” appraised FMV.
• For the duration of the PFS marketing period, mortgagees may only approve offers that will result in minimum net sale proceeds of 84% of the “as-is” appraised FMV.

Mortgagees have the discretion to deny or delay sales where an offer may meet or exceed the 84%, if it is presumed that continued marketing would likely produce a higher sale amount.  However, the mortgagee is still limited to 4 to 6 months after the date of the mortgagor’s approval to participate in the PFS Program. Allowable Settlement Costs – The term “Net Sale Proceeds” is defined as the sales price minus closing/settlement costs (i.e., reasonable and customary costs per jurisdiction that are deducted at settlement).  Allowable settlement costs include:

• Sales commission consistent with the prevailing rate but, not to exceed 6%;
• Real estate taxes prorated to the date of closing;
• Local/state transfer tax stamps and other closing costs customarily paid by the seller including the seller’s costs for a title search and owner’s title insurance;
• Consideration payable to seller of $750 or $1,000 (i.e., if such consideration is not used to discharge junior liens);
• Up to $2,500 to be used for the discharge of junior liens if closing occurs within 90 days.  Within 90 days, the first $1,000 represents the mortgagor’s consideration and the additional $1,500 represents FHA’s consideration for a total of $2,500.  If settlement occurs after 90 days, the first $750 represents the mortgagor’s consideration and the additional $1,500 represents FHA’s consideration for a total of $2,250;
• Outstanding partial claim amount. This entire amount must be paid when calculating the net sales proceeds.  The seller, buyer, or other interested party may contribute the difference if the net sales proceeds’ amount falls below the allowable threshold; and
• Up to 1% of the buyer’s first mortgage amount if the sale includes FHA financing.

Unacceptable Settlement Costs – The following costs may not be included in the net sales proceeds calculation, however, the seller may use their consideration of $750 or $1,000 for these settlement costs.

• Repair reimbursements or allowances;
• Home Warranty fees;
• Discount points or loan fees for non FHA-financing; and
• Lender’s Title Insurance fee.

Duration of the Pre-Foreclosure Sale Period Unless an extension has been approved by NSC, mortgagees have 4 months from the date of the mortgagor’s approval to participate in the PFS Program. Mortgagees have a pre-approved extension of 2 additional months to complete the PFS if one of the following exists: The mortgagee is in the Tier 1 category under the Department’s Tier Ranking System (TRS); or

There is a signed Contract of Sale, but settlement has not occurred by the end of the fourth month following the date of the mortgagor’s approval to participate in the PFS Program. Mortgagees are reminded that, on a monthly basis, they must review a property’s marketing status with the mortgagor and/or real estate broker.

The guidelines also only give a lender five business days after receipt of a sales contract on a property that has been accepted into the FHA Preforeclosure Sale program to respond to the executed contract.  (Note: This confirms that they do not want "offers" but contracts.) While this is the new criteria, so far I have not seen a lender keep to the five day time frame.  Hopefully this will improve as they become accustomed to the new process.

First I'd like to say that I'm at the beginning of my research into this whole world of shared-loss agreements.  I am not an attorney.  I am a short sale specialist trying to be the best short sale specialist that I can be. But I have so many questions these days about what is going on behind the scenes.  Many things have stopped making sense in the world of short sales and foreclosures over the past few months. 

I have spent quite a bit of time looking on the FDIC website and pulling documents regarding this issue.  I've also read a lot of commentary and articles for or against shared-loss agreements.  The shared loss agreement that is the subject of this post is, by no means, an isolated agreement.  The shared-loss agreements also seem to have a pretty sizable group of fans.  But should they?

Recently I've been reading posts by other agents involved in short sales with Indymac where approvals were withheld that should have been no-brainers.  While I have had great luck with my Indymac / One West Bank short sales...it seems that increasingly others are not.  

I talked to one agent who had a sales contract at fair market value in to OneWest bank twelve days before the foreclosure sale.  OneWest told her they couldn't act on anything they received less than 15 days before the foreclosure sale. That property went to foreclosure sale this week.   In the past I've had IndyMac/OneWest foreclosure sales delayed a day or two before the scheduled sale date. 

Last week I had my first OneWest bank short sale denial (for my buyer so another agent was processing the short sale with the lender, not me.) in which OneWest was demanding far more than what the home was worth.   I  decided to look into the deal between OneWest bank and the FDIC myself...and see what the agreement was with the shared loss loans and how this might contribute, if at all.

I never expected to find what I found.  I kept hearing that there was a loss share arrangement with the FDIC in which the FDIC was covering 80% of the losses.  In truth, I heard it back when the whole thing was going on, but for some reason it didn't seem to concern me then.  The 80% loss share agreement between OneWest bank and the FDIC is just the tip of the iceberg.

All of the information I got directly off of the FDIC website.  The pictures you see are screenshots of the actual agreement from the FDIC site.  There you can find the Shared-Loss Agreement the Master Purchase Agreement AND the Loan Sale Agreement for the deal between the FDIC and OneWest bank.

Sales/Purchase Price of Loans from FDIC to OneWest Bank

Paragraph 2.02 from the Loan Sale Agreement:

Schedule 2.02 from the Loan Sale Agreement:

So, if I'm understanding this correctly, the amount paid by OneWest for the loans from the failed Indymac was anywhere between 37.75 cents on the dollar (for 60+ day late HELOCS) to 70 cents on the dollar (for current whole loans). 

Homeowners?  How would you like to buy your loan back at this type of discount?

Shared-Loss Agreement between the FDIC as receiver for Indymac and OneWest Bank

First, the definitions in the agreement for foreclosure loss, short sale loss, stated threshold  and loan sale loss:

 Calculation of Foreclosure Loss Summary (Shared-Loss Agreement Exhibit 2a):

LOAN PRINCIPAL BALANCE after last paid installment

Adjusted for:  Accrued Interest, Attorney's Fees, Foreclosure Costs, Property Protection Costs, Maintenance and Repairs, Tax and insurance advances, Appraisal fees, Broker Price Opinion Fees, Inspections, Other

Equals:  Gross Balance Recoverable by Purchaser (OWB)

Less:  Net Proceeds from Foreclosure Sale (adjusted for insurance proceeds (if any), taxes and insurance escrow account balance (if positive) and any other credits)

Equals:  Loss Amount

Loss Amount to be multiplied by either 80% or 95% for amount that the FDIC owes OneWest Bank.

Calculation of Short Sale Loss Summary (Shared-Loss Agreement Exhibit 2c):

LOAN UNPAID PRINCIPAL BALANCE

Adjusted for:  Accrued Interest, Attorneys' Fees, Tax and insurance advances, 3rd party fees due

Equals:  Gross balance recoverable by Purchaser (OWB)

Less:  Amount Accepted in Short-Sale

Equals:  Short Sale Loss

Short Sale Loss to be multiplied by either 80% or 95% depending on whether losses have exceeded the threshold for losses.

Loss Share Reimbursement Percentage

• For the first 30% of losses the  reimbursement percentage is 80/20 (FDIC reimbursing 80% of the losses)
• For the remainder of losses the reimbursement percentage is 95/5 (FDIC reimbursing 95% of the losses)

Simplified Sample Calculation applying the information in the purchase agreement and shared-loss agreement:

• Amount owed on note  $500,000
• Short Sale Net Proceeds $290,000
• Note 30 days past due at purchase date

Amount paid for the note calculation:

$500,000 x 60% =  300,000  Amount paid upon purchase/transfer of the note

Loss Recovery Amount Calculation:

$500,000  Amount due on note

- 290,000  Short Sale or Foreclosure Proceeds

$210,000  Short Sale or Foreclosure Loss

       80%  Receiver Loss Share Percentage

$168,000  Amount due to OWB by FDIC

Putting it all together:

$290,000  Short Sale or Foreclosure Proceeds

  168,000   Proceeds from FDIC for Loss Share

$458,000   Proceeds received by OWB

(300,000)  Amount OneWest Bank paid for the loan

$158,000   PROFIT by OneWest Bank on SHORT SALE or FORECLOSURE LOSS

OneWest Bank has to cover the first 20% of the losses?  Really?  Is that what this is called?

Let's see what happens after the Loss Share Percentage hits 95%:

$210,000   N/C               Short Sale Loss

       80%    95%              Receiver Loss Share Percentage

$168,000     $199,500  Amount due to OWB by FDIC  

This increases the profit by OneWest Bank on the SHORT SALE LOSS to $189,500 on a loan they only paid $300,000 for?

Please say it isn't so!  Please tell me I have misunderstood or miscalculated something. If my math is wrong, I want to know.

This is coming out of the pocket of the FDIC and into the pockets of a Billionaire investment group (George Soros, Michael Dell, JC Flowers, John Paulson, etc are reportedly a few of the investors behind OneWest).

But this is only ONE shared-loss agreement....of many....

How did this happen? 

WHY is the FDIC making decisions like this?   Here is the FDIC's explanation of Shared-Loss Agreements from their website.  I really think they believe they are doing the right thing.  But is it just a vicious cycle that is growing bigger and bigger?

How many other agreements like this exist, where after applying the discount the loans were purchased at, the covering of the top 20% of losses appears to be a sham?

The supposed good news for the people who have loans with these failed institutions is that the FDIC is asking the institutions that entered into loss share agreements with the FDIC to consider temporarily reducing the payments of those who are unemployed or underemployed.  Really???  Isn't that like me leaving my house overnight, placing the car keys in the hands of my teenaged son, giving him a hundred bucks and asking him to please consider staying at the house all night by himself?

OneWest bank just announced a second quarter profit of a meager $182 MILLION. 

...and now the FDIC is running out of money and is proposing that banks prepay their premium for the next three years to replenish the fund.  Well the big banks can handle it (and if not, won't they just get more bailout funds?), but what about the smaller banks? 

Will this lead to the FDIC shutting down more regional and local banks and placing them in the hands of investor groups or other larger banks with more costly loss share agreements that will continue to deplete the fund?

And what happens when the FDIC well runs dry?  Another bailout?

What would happen if homeowners/borrowers had the first right of refusal to purchase their own loan back at a discount before it was sold to another party at the same discount?  

Is this type of agreement interfering with the short sale process?  I think it has to be.