Can I Buy a House after a Short Sale or Foreclosure?

By Tom Branch, on October 23rd, 2011

Short Sales 101

This is a common question among distressed homeowners we work with. It’s an easy question to ask, but the answer is complicated and constantly changing.

There are many variables involved when trying to figure out when someone will be able to purchase a home after a foreclosure or a short sale; however, the general guidelines that FHA, Fannie Mae and Freddie Mac follow when considering a loan after a short sale or foreclosure are:

Short Sale with FHA loan
• Can purchase right away with no mortgage default/late payments
• 3 year wait if in default or late payments at the closing
• Reduced wait if the borrower has re-established good credit and can show more qualifying circumstances *

Short Sale with Fannie Mae Loan
• 2 year wait if the borrower puts 20 % down
• 4 year wait if the borrower puts between 10% to 20% down
• 7 year wait if the borrower puts less than 10% down
• 2 year wait if the borrower can show extenuating circumstances and puts more than 10% down *

Short Sale with Freddie Mac Loan
• 4 year wait before being able to get a loan
• 2 year wait if the borrower can show extenuating circumstances *

Foreclosure with an FHA Loan
• 3 year wait before being able to get a loan
• Reduced wait if the borrower can show extenuating circumstances and re-establishes good credit *

Foreclosure with a Fannie Mae Loan
• 7 year wait from the completed foreclosure sale date
• 3 year wait if the borrower can show extenuating circumstances. Additional underwriting requirements apply for 4 years after a 3 year waiting period.
• 7 year wait for a 2nd home, cash out re-financing, or an investment property

Foreclosure with a Freddie Mac Loan
• 5 year wait from the completed foreclosure sale date
• 3 year wait if the borrower can show extenuating circumstances *

*Qualifying/Extenuating circumstances are not applicable in most situations

This list does not cover all circumstances so always talk with an experienced mortgage professional about your specific situation.

Tom Branch, Broker, CDPE, SFR

Source: Townsquare Financial

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My Property Taxes Are Delinquent

By Tom Branch, on April 7th, 2011

My Property Taxes Are Delinquent

I was in the office speaking to one of our agents yesterday. He was relating how a client who he had helped to purchase a new home about five years ago had lost the home to foreclosure.

It all started when the home was purchased. The taxes were based on a vacant lot so the lender set up the escrow account to collect the taxes. Typically by the end of the first year, the taxing authority has added an assessment for the dwelling and the homeowners’ escrow account has a shortfall.

This one was worse. Apparently the taxing authority never reassessed the property and caught the mistake four years later. The homeowner was faced with a $16,000 shortfall. They could not pay it, so the lender paid it and set up their escrow account to collect the shortfall and enough to cover the taxes going forward.  This added almost $1700 a month raising their payment from $1800 to $3500 a month. Talk about payment shock!

Knowing they could not make those kinds of payments, they rented an apartment and let the home go into foreclosure. This is truly sad since most lenders are willing to work with homeowners in this situation.

I recently worked a deal with Bank of America (I am an NMLS licensed MLO and Texas Law allows me to work on loan modifications), where the bank paid the taxes and allowed the homeowner to repay the bank over 5 years with no interest. I’ve also worked a deal with another lender to pay the taxes and add the balance to the end of the existing note.

If you’re behind on your property taxes, you really need to call your lender or servicer and ask for help. There’s no need to walk away from your home!  

Tom Branch, Broker, CDPE, SFR

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Short Sale vs. Foreclosure: What’s the Difference?

By Leslie Ebersole, on January 3rd, 2011

If you are a homeowner having trouble making your mortgage payments, you may have considered doing a short sale or letting the home go into foreclosure. You must understand the difference between the two so that you can make the best decisions for your future.

A short sale of real estate happens when the sale proceeds fall short of the balance owed on the property’s loan(s). If a homeowner can’t make the monthly payments and the house can’t be sold for the amount of the loan(s) and other liens, then the lender may agree that selling the property at a loss is better than foreclosing on the loan. A lender may agree to a short sale if the homeowner can show financial hardship such as job loss, high debt from medical bills or business loss, or other financial difficulties that a homeowner will not be able to overcome.

A foreclosure is a legal process in which a lender or other lien holder seeks to take back a property if the homeowner stops making the payments or hasn’t met other commitments, like paying real estate taxes or homeowner association fees.

Illinois is a “judicial foreclosure” state. This means that the lender or other lien holder files a lawsuit to show that the borrower has missed payments. If the homeowner doesn’t make up the amount owed in a specific period of time, the lender may ask the court to allow that the property be sold at auction to pay off the debt. In Illinois the County Sheriff conducts an auction in which anyone can purchase the home to pay off the debts. Usually, though, the only “bidder” is the lender who owns the mortgage. The lender takes back the property and after a series of other legal steps is allowed to sell the home to pay off the mortgage.

Other options for distressed homeowners are loan modification programs or deed-in-lieu of foreclosure.

Know your options: consult your lender, a real estate attorney, a government-sponsored counselor, a tax professional and a real estate broker experienced with short sales.

SHORT SALE VS. FORECLOSURE: WHAT’S THE DIFFERENCE?

Item Short Sale Foreclosure
Fannie Mae Guideline (Primary Residence) Eligible for new Fannie Mae insured loan after 2 years, no restrictions. Eligible for a new Fannie Mae loan with restrictions after 5 years, no restrictions after 7 years.
Fannie Mae Guidelines (Non-Primary Residence) An investor who has done a short sale is eligible for a Fannie Mae backed mortgage after 2 years. An investor who has had a property foreclosed cannot get a Fannie Mae backed loan for 7 years.
Credit Score Late payments on a mortgage will appear after completion of a mortgage. The effect can be as short as 12 to 18 months. Credit score affected by 50 to 100 points. Typically will affect credit scores for at least 3 years. Scores may be negatively affected between 200 and 300 points.
New Credit Application Questions (Form 1003) No questions on an application regarding a short sale. Questions: have you had property foreclosed upon or given title or deed in lieu in the last 7 years?
Credit History A short sale may or not be reported by a lender on a credit history. Remains as a public record for 10 years or more.
Security Clearance Usually does not raise red flags regarding security clearance. Security clearance will be questioned.
Deficiency Judgement Negotiable between seller and lender. No negotiations between the home-owner and the lender. It is up to the lender to file a deficiency judgement.

This post was written by Leslie Ebersole and originally published on FoxValleyRealEstate. Use or reproduction without express consent of the author is prohibited.

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The Landlord Stopped Paying the Mortgage

By Tom Branch, on December 15th, 2010

As usual, I found myself in a lively discussion this morning. Having published, The Field Guide to Short Sales, I get asked some really tough questions from time-to-time. 

The Landlord Stopped Paying the Mortgage

Licensed from iStockPhoto

Here’s the situation:

A tenant signed a one-year lease using the Texas Association of REALTORS® residential lease.  They took possession of the property and have been paying the rent on-time for the last 13 months.  The lease was not renewed and is continuing on a month-to-month basis.   About a month ago, they started to receive notices in the mail addressed to the landlord from the mortgage company.

Being concerned, they confronted the landlord. He told them he was going to list the property “for sale” with a local broker and that the tenants could stay while he marketed the property.  When he secured a buyer, he would give them the 30 days notice required under the lease.

The tenants eventually figured out that the landlord was in default on his mortgage and was trying to Short Sell the property.  At that point they quit paying the rent. When confronted, they commented, “If the landlord is not paying the mortgage company, we’re not paying the rent.”

My thoughts:

My initial reaction was that the payment of the mortgage by the landlord and the payment of the rent by the tenant are two separate issues.  I reviewed both the Texas Property Code and the Texas Association of REALTORS® residential lease form. There’s nothing that ties the two issues together.

The tenant defaulted on the lease by not paying the rent and is liable for late fees, court costs, and other relief available in the lease.

The landlord has not defaulted on the lease because the property is still available for the tenant’s use.

Epilogue:

This is a growing problem as foreclosures continue to climb.

If you are a tenant in this situation, you should seek legal advice before you simply stop paying the rent. State Laws vary and each lease may contain different clauses.

If you are a landlord, you should seek legal advice as well. If the property goes into foreclosure during the lease, you may be in default and liable.

Tom Branch, Broker, CDPE, SFR

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