1. In this module: Homeowner options Buyer considerations in short sales 1. Homeowners in Jeopardy 1-1

2. Effective service means: Understanding process and parties involved in transaction Knowing what transpires from seller’s side of transaction Providing Effective Service 1-2

3. Missed one mortgage payment Husband laid off Living on credit cards Other reasons why homeowners could be behind in mortgage payments? Case Study #1 1-3

4. Anytime homeowners are behind in mortgage payments Length of pre-foreclosure varies During pre-foreclosure period, homeowners are notified of mortgage payment default Pre-Foreclosure 1-4

5. 1.Refinance 2.Sell and bring $ to closing 3.Lender workout 4.Short sale 5.Deed in lieu of foreclosure 6.Foreclosure 7.Do nothing or walk away Options 1-5

6. Homeowners who are current with mortgage may be able to refinance to 30- or 15-year fixed-rate loan via Home Affordable Refinance Refinance 1-6

7. Eligibility Criteria for Home Affordable Refinance 1-7 Home Existing mortgage Borrower  Owner occupied  Is one- to four-unit home  Owned or backed by Fannie or Freddie  LTV is above 80% but not more than 105%  Current on existing mortgage  Has income to support new mortgage payments

8. Sell and Bring $ to Closing 1-8 Although many homeowners may not have cash to cure deficiencies at closing, they may have liquid assets: >U.S. Treasury bonds >Individual retirement accounts (IRAs)

9. Lender Workout 1-9 Workout options include: >Forbearance >Reinstatement >Repayment plan >Loan modification >Sign over property to lender

10. Lender Workout 1-10 Borrower awareness of available workout options is low Freddie Mac survey in 2008: More than half of borrowers did not know lenders had options to help avoid foreclosure

11. Lender Workout 1-11 For many lenders, loan modification is suitable option

12. Eligibility Criteria for Home Affordable Modification 1-12 Home Existing mortgage Borrower  Owner occupied  Is one- to four-unit property  Unpaid principal balance ≤ $729,750 for one-unit prop.  Originated on/before 1-1-09  Payments exceed 31% gross monthly income  Experiences fin. hardship  At risk of imminent default or in default

13. Home Affordable Modification 1-13 Borrowers put on 3-mo. trial period w/modified interest level and mortgage payment. If borrower is successful in making payments, mortgage servicer executes agreement with new interest rate.

14. Short Sale 1-14 Occurs when (1) seller owes more money on loan than sale of property will likely produce and (2) seller is unable or unwilling to bring money to closing Lender has not yet foreclosed on property

15. Short Sale 1-15 Elements of successful short sale: >Property is worth less than is owed >Seller has hardship and cannot keep property >Seller is cooperative and will work with broker to package short sale >Lender is willing to consider short sale

16. Short Sale 1-16 >Property listed with caveats and protections for seller >Lender presented with contract, accepted, signed and dated by seller, along with completed short sale package and narrative >With lender approval in writing, offer and escrow closes as usual

17. Foreclosure Alternatives 1-17 For borrowers who meet eligibility criteria for Home Affordable Modification, but don’t qualify for modification or complete process Documentation will be standardized and incentives will be offered to borrowers and servicers to facilitate short sales

18. 1-18 Incentives  $1,000 for servicers for successful short sale or deed-in-lieu-of-foreclosure  $1,500 for borrowers/homeowners to help with relocation expenses  Up to $1,000 toward cost of paying junior lien holders to release liens Foreclosure Alternatives

19. 1-19 Features  Depending on market, up to one year to market and sell the property  No foreclosures may occur during marketing period  Servicers may not charge fees to borrowers to participate  Servicers may not negotiate lower commission after offer has been received Foreclosure Alternatives

20. Deed in Lieu of Foreclosure 1-20 Occurs when borrower agrees to trade property to lender in exchange for cancellation of note More likely to work in states where there is long foreclosure timeline In declining markets, lenders less likely to consider deeds in lieu

21. Foreclosure 1-21 If homeowner is facing foreclosure, real estate professionals should instruct homeowner to contact lender immediately

22. Do Nothing or Walk Away 1-22 Walking away from property eventually leads to lawsuit to foreclosure from lender Homeowners who are ready to walk away should contact their attorney for advice

23. Rescue Scams 1-23 Homeowners should watch for foreclosure “rescue” offers in which owners sign quitclaim deed and then lease property In such cases, former owners will still be liable for mortgage payments

24. If Short Sale Is Best Option 1-24 Estimate seller’s equity Determine if there are any liens If seller has 1 st and 2 nd mortgage or a home equity line of credit, all lenders may need to approve short sale

25. If Short Sale Is Best Option 1-25 If mortgage has been securitized, approval may be required from the entity holding pool of loans Check with primary lender on protocol When you have determined that seller owes more than property is worth

26. If Short Sale Is Best Option 1-26 When you have determined that seller owes more than property is worth, advise seller in writing to obtain separate legal, credit, and tax advice

27. If Short Sale Is Best Option 1-27 Contact loss mitigation dept: >Finding decision maker often one of biggest challenges >Varying opinions on when to contact the lender

28. If Short Sale Is Best Option 1-28 Obtain borrower’s authorization to release information in order to contact lender See Figure 7 for sample form

29. If Short Sale Is Best Option 1-29 When listing potential short sales: >No confidential information should be disclosed without written permission of client >All rules and regulations of MLS need to be followed

30. Counseling Buyers on Short Sales 1-30 Can buyers wait for lender’s approval? Do they have to sell their home before purchasing short sale? Will they follow through on your counsel?

31. Counseling Buyers on Short Sales 1-31 Do they understand that lender makes final call on price and terms? Interested in “flipping” the property? If yes, additional due diligence will need to be performed.

32. Counseling Buyers on Short Sales 1-32 How willing are buyers to consult attorney? Is buyer willing to enter into an exclusive buyer representation agreement and be responsible for compensation should it not be paid by seller’s side?

33. 1-33 Can you disclose confidential information that you may know because of your prior meeting with them? Why or why not? Sellers asking for $ at closing (not part of contract) for short-sale fee or to pay for personal property that will be left behind. Okay? Case Study #2

34. 1-34 Short-sale listings under contract appear in MLSs in a variety of ways Include these listings if buyer clients wants to see potential short-sale properties Showing Short-Sale Listings

35. 1-35 Remember: subsequent offers may have an equal chance of being approved by lender if lender has not provided listing agent/broker a written approval of contract Showing Short-Sale Listings

36. Buyer Issues 1-36 There may be multiple lien holders Seller acceptance of short-sale offer does not guarantee bank approval Documentation requirements from each lender may vary

37. Buyer Issues 1-37 Continuing investigation of the property—CMA updates while property is pending lender approval. Time for lenders to review offers may not give most buyers enough time to order property inspection

38. Buyer Issues 1-38 Unless contract stipulates otherwise, earnest money deposit, mortgage application, home inspection and attorney review will take effect upon signature of seller

39. Buyer Issues 1-39 Unless there is way for buyer to cancel contract while lender approval is pending, buyer is committed to transaction If buyer chooses to purchase another home during this time he or she will need to do it “subject to release of prior contract”

40. Discussion Questions 1-40 How would you counsel buyer client on these short-sales issues? >Home inspection >Earnest money >Property condition >Additional lien holders >Mortgage application

41. Don’t Practice Law 1-41 Ability for buyers to nullify original contract if they find another property or realize value has decreased and choose to withdraw will be entirely based on how original contract was written