2nd Lien Hold-Out on Short Sale

Q: We have been trying to sell our house as a short sale since we owe more than the home is worth today. We have a second mortgage and we were just told that they have the ability to reject an offer for a short sale. Is this true? We thought only the first had the right to approve a short sale offer.

A: Short answer with a long explanation. The answer to the question, as you phrased it is no, they can not reject an offer for a short sale. But they can prevent you from being able to get a short sale approved and closed.

A second mortgage holder does NOT have the power to approve or reject a short sale offer. However, because you must get their cooperation to either wipe out their lien or at least “lift the lien” for the purpose of closing, they can successfully BLOCK a short sale from moving forward by refusing to do either one of those things.

When there is an attempt to short sale a property which involves a second lien holder, there cannot be a closing unless the second receives the full amount which they are due or a lesser amount which they have agreed is sufficient for them to release the lien which they hold against the property. By releasing the lien, they would be acknowledging that they have no further claim against the home, or the borrower, in exchange for a stipulated amount. It has been commonplace for several years for second lien holders to release the lien for a tiny fraction of the amount owed when it appeared that foreclosure was imminent. This is especially true in a judicial foreclosure state where the second will receive absolutely nothing if there is a foreclosure.

In the past year it has become more common for the second lien holder to try to play hardball and agree to “lift the lien” for the closing on a short sale BUT not to release it. That means that while it is no longer secured by the real estate it remains a collectable debt against the borrower. With such an agreement signed, the borrower has, in fact, re-obligated themselves to the debt. It is possible that such a document, acknowledging the validity of the debt, could be used to secure a judgment. With a valid judgment a lender can request a wage assignment (garnishment).

I always advise borrowers to seek legal advice when it comes to this sort of situation. An attorney might be able to negotiate for a lower amount on the unsecured debt, if, in fact, it is necessary to agree to that in order to avoid foreclosure. Foreclosure should be avoided at all costs.

* Failure to use an attorney could cost you dearly down the road.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

Q&A: 2nd Lien Hold-out on Short Sale

Q: We have been trying to sell our house as a short sale since we owe more than the home is worth today. We have a second mortgage and we were just told that they have the ability to reject an offer for a short sale. Is this true? We thought only the first had the right to approve a short sale offer.

A: Short answer with a long explanation. The answer to the question, as you phrased it is no, they can not reject an offer for a short sale. But they can prevent you from being able to get a short sale approved and closed.

A second mortgage holder does NOT have the power to approve or reject a short sale offer. However, because you must get their cooperation to either wipe out their lien or at least “lift the lien” for the purpose of closing, they can successfully BLOCK a short sale from moving forward by refusing to do either one of those things.

When there is an attempt to short sale a property which involves a second lien holder, there cannot be a closing unless the second receives the full amount which they are due or a lesser amount which they have agreed is sufficient for them to release the lien which they hold against the property. By releasing the lien, they would be acknowledging that they have no further claim against the home, or the borrower, in exchange for a stipulated amount. It has been commonplace for several years for second lien holders to release the lien for a tiny fraction of the amount owed when it appeared that foreclosure was imminent. This is especially true in a judicial foreclosure state where the second will receive absolutely nothing if there is a foreclosure.

In the past year it has become more common for the second lien holder to try to play hardball and agree to “lift the lien” for the closing on a short sale BUT not to release it.

That means that while it is no longer secured by the real estate it remains a collectable debt against the borrower. With such an agreement signed, the borrower has, in fact, re-obligated themselves to the debt. It is possible that such a document, acknowledging the validity of the debt, could be used to secure a judgment. With a valid judgment a lender can request a wage assignment (garnishment).

I always advise borrowers to seek legal advice when it comes to this sort of situation. An attorney might be able to negotiate for a lower amount on the unsecured debt, if, in fact, it is necessary to agree to that in order to avoid foreclosure. Foreclosure should be avoided at all costs.* Failure to use an attorney could cost you dearly down the road.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

WORD: Involuntary Lien

The WORD for Today is:

Involuntary Lien—any lien, such as a tax lien, judgment lien, etc which attaches to property without the consent of the owner. Such a lien is unlike a mortgage lien, which a borrower voluntarily agrees to have placed against a property.

A legal claim against property that must be satisfied when the property is sold. A judgment affecting all the property an owner has or acquires during the legal life of the lien. Statutory and involuntary liens fall into four categories:

1. Property tax liens—These are placed against a property when the property taxes are not paid on time; they are given precedence over all other claims; if they continue to be delinquent for five years, the property will be sold off to pay the taxes; whenever a property is foreclosed upon, taxes are always the first debts paid.
2. Judgment liens—These are general liens resulting when a person suing another person wins a judgment from a court for the sums owing and records an abstract of that judgment
3. Mechanics liens—These are recorded with the county by contractors, subcontractors, materials suppliers, or workers who wish to be paid for their delinquent bills covering labor or materials on new construction, land improvements, or remodeling projects
4. Federal or State liens—These result from unpaid federal or state taxes, personal and inheritance taxes being the most common.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

You can find more helpful definitions of WORDS like these in Your Real Estate Advisor which can be purchased at www.DovePublishingHouse.com.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

Short Sale Fast Facts for Consumers

Short Sale Fast FACTS for Consumers

1. Short Sale could be your solution—but it has some pitfalls

Get informed and Get started

2. Short Sale is an Option Not a RIGHT

You will need to “qualify” for the option to dispose of the house by using a short sale.

Most lenders use the same basic criteria—what I call the “Universal Hardship Test”

• Was the default ‘trigger’ something beyond your control
• Did the trigger lead to an increase in expenses or a decrease in income?
• Are you still an occupant in the home secured by the loan?
• Have you depleted all of your assets available to make mortgage payments?
• Are you willing to pull together the documents required by the lender/guarantor to determine if they believe you qualify for a workout?
• If there is a co-borrower, are both parties committed to this workout attempt?

3. Finding a competent REALTOR could be difficult

A short sale is a Speciality transaction. You need to find a

REALTOR who:

• Works full-time—yes, even in today’s climate
• Is experienced in short sales (means they closed)
• Is familiar with your area and price point
• Whom you feel comfortable with
• Who is able to demonstrate to you what the value of your home is compared to similar homes in the neighborhood
• Has the ability to effectively market your home
• Is pleased to share with you that they have had specialized training in Short Sales (I mentioned this last, because if they haven’t mentioned by now, it is because they don’t have any—Not a good sign)

4. You can list the home for short sale—BEFORE the lender approves the

short sale—

**As long as you indicate that “all offers are subject to lender approval” This should be included on your listing contract, on the seller disclosure form and within the comments on the MLS sheet

**You can’t ACCEPT and CLOSE without the lender’s approval but you don’t have to wait to get started. Why not start today? Is your house ready? Do you have the documents needed for the hardship package?

5. Might leave you with a deficiency—which could be used to get a judgment against you

Negotiate to get the lender to agree to “waive their right to a deficiency judgment” as part of the short sale approval letter.

You should NEVER assume that because the lender agreed to the short sale that they have waived their right to pursue you for the shortage.

If it’s not in writing—signed by an authority—you should expect them to pursue you for the shortage.

6. Foreclosure process—will most likely continue, even while you have the house on the market for sale

FHA loans which are subject to HUD regulations—require that the foreclosure process STOP while the home is marketed for short sale

Foreclosure action continues on ALL other loan types

7. Listing Termination—can be mandated by your lender when you are in default

The Lender is not a party to the listing contract and you might logically assume that therefore they had no say so about what does or does not happen with the attempt to sell your home.

Unfortunately, you would be mistaken.

Government guarantors, HUD, VA, USDA, Fannie Mae, Freddie Mac, and Rural Development have the right under Federal regulations to compel you to withdraw the listing IF:

You are cooperating with showing the property as a show of ‘good faith’

Title issues are uncovered which would prevent the transfer to a new buyer

The condition of the property is such that a sale is unlikely

You have failed to comply with request for information to determine your eligibility for a workout. Remember: This is an Option, not a RIGHT.

8. Second Liens can present a challenge—also known as a ‘stumbling block’

Second lien holders seldom initiate foreclosure; they block short sales all the time with their obstinacy. You cannot transfer real estate to a new buyer when there is a second lien holder without their cooperation.

They must either:

a. Release the lien

b. ‘Lift’ the lien and permit the closing

Usually they can be enticed to do one of these things, preferably the first. Many will accept a token payment as a settlement for the obligation if foreclosure is imminent and they stand to get nothing after the lien is wiped out. Other they may agree to an unsecured loan in exchange for

their cooperation.

Your lender may make a contribution toward getting this second released, especially if you have a government backed loan. Their regulations have a stipulated amount set aside for this purpose. Get your facts and get going.

9. Tax Implications—Didn’t Your REALTOR mention that?

When there is a deficiency (difference between what you owe on the house and what the new buyer is willing to pay for it) you are taxed on that amount as though you received it as a gift.

IRS rules require that the lender provide this information directly to IRS for tax purposes.

You should NEVER assume that because the lender agreed to the short sale that they have waived their right

10. Now about signing those papers…….WAIT

I believe strongly that the seller of a property which is upside down would do well to pretend their fingers are broken once they have signed the listing contract and seller disclosure form until Mr. Smitherman, the supervisor at the bank, has:

a. Approved their short sale, with all continguences

b. Given them permission in writing to sign something

As a trainer, I take the position that ‘lender approval’ means getting the lender’s approval before you agree to anything with a potential buyer.

That means do not sign a purchase agreement, no matter what contingency clauses have been included by a so-called sharp REALTOR. Do not sign a counter offer. I said, ‘pretend your fingers are broken until the supervisor at the bank tells you to sign something.

If you sign BEFORE he tells you to, you are agreeing to terms which he has not yet agreed to. You cannot perform (or deliver the deed to the house) without his agreement. He may:

a. Select a difference ‘potential purchaser’

b. Counter and ask for a lot more money

c. Go ahead and foreclose, then you have nothing to sell.

Don’t get ahead of the bank. “Lender approval required” means the bank gets to decide everything: to whom we will sell, and for what amount, on what terms. Don’t allow yourself to be lulled into thinking it’s okay to make an agreement and then get his approval. That is risky business. Remember, your fingers are broken.

Please share today’s blog with someone you know who is struggling and not sure what steps to take next.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

Fast Fact: Short Sale Denial

Too many folks have unrealistic expectations concerning a possible short sale. While it is now pretty common knowledge that lots of homes are “upside down” or “under water” most consumers (and too many REALTORS) don’t really understand how a short sale listing works.

FACT: The lender must approve a short sale in order for there to be a “closing”. Frequently the lender DOES NOT approve a short sale attempt and the homeowner eventually loses the home to foreclosure.

REALITY: When an agent lists a home for ‘possible short sale’ that listing is always based upon getting the approval of the lender to accept a shortfall if the new buyer will not pay enough to pay off the mortgage in full and pay all related expenses (commission, taxes, etc). All parties need to understand that it is a possible real estate transaction where the homeowner does not have the final say so about whether or not the offer being presented is or will be acceptable to the bank. There are numerous reasons why a lender may ultimately choose not to approve a possible short sale. Some are connected to the seller but the issue could just as easily be a second lien holder who refuses to budge on the amount needed to lift or satisfy their lien again the home. Or the lender could decide that they are not willing to accept the terms of the offer, as written. The possibilities could fill a rubix cube.


Several precautions are advised for sellers who are upside down:

a. All offers submitted to your agent should first be forwarded to your lender for their consideration. (That’s what “lender approval” means.)
b. Sellers would be ill-advised to sign a purchase agreement to sell the home to Mr./Mrs. Smith PRIOR to receiving, in writing, approval to do so.
c. Sellers should be aware that if you ignore item #b above (because your agent said you had to) and you agree to sell for $159,00 and your bank eventually says that you can close for $$175,000, you have a few thousand dollars to find real quick. (I suggest you get your agent to help you FIND the money since they gave you the advice).

The point is this; if you sign a legally binding contract which the bank later declines; you still signed a contract agreeing to sell your home for a specific amount. You can be sued by the potential buyer for “failure to perform”.

You were warned!

Copyright © 2008, Home Ownership Matters, LLC.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

FYI: Short Sale–Slow Crawl

What they DIDN’T tell you about short sale offers  

The man back at the bank has a few things to take care of before he can respond to the offer you just made to buy a home as a short sale. Did your REALTOR mention?

The Lender must:

• Order an appraisal (could take awhile)
  
• Order title work (won’t take long but has it been ordered)
  
• Get a broker price opinion completed (hopefully the real estate agent knows what they are doing)
  
• Check to be sure there are no unpaid homeowner’s association dues or municipal bills which must be paid (could add to what YOU have to pay)
  
• Check to be sure that the SELLER qualifies for a short sale under the guidelines for the specific insurer for this property—at this time—since those guidelines are  changing pretty rapidly lately
  
• Check all the details of the SELLER’s financials to be sure they have no assets or other reasons why a short sale cannot be approved (did they even send this stuff in yet)
  
• Verify that there are no Federal liens which must be satisfied
  
• Work out a deal with the SELLER’s second lien holder, if there is one
  
• Check with the insurer on the home to be sure that the guidelines for accepting a short sale are being followed
  
• Consider ANY/ALL offers which have been submitted on this home to be sure they respond to the one which will net the lender the most, after expenses (You did know they could consider other offers, right?)
• Negotiate with the SELLER what will be done about the shortage (on certain loan types)
  
• Review a preliminary HUD statement to be sure that the numbers which were provided by the LISTING agent on a net sheet are going to allow the lender to new what is required by their insurer or investor to close
  
• Present a Counter Offer, to the buyer with the BEST, overall offer, if the preliminary HUD reflects that the net will be below the acceptable amount required
• Must not allow a closing which not protect the interest of the insurer/investor

Somebody told you all this, right? If not, maybe your agent doesn’t understand short sales as well as they need to. Sure glad you found the information on this blog. Just a word of caution:  don’t sign a notice to vacate your current residence until AFTER you get a signed approval letter from the lender granting permission for a short sale. This could take a little while. 

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

Q&A: Deed-in-Lieu Dilemna

Q: My wife and I are behind on our first mortgage. The lender has sent us paperwork which says they are willing to consider taking the house back and would like to ask for a deed in lieu of foreclosure. My question is: what would happen to our second mortgage?

A: This is a question which a lot of people who are struggling with their mortgage payments need to consider.

First, the lender will make a decision as to whether or not they will ACCEPT a deed-in lieu (which allows voluntarily relinquishing the house instead of foreclosing on you) based on whether or not you have a second. Most often, when there is a second mortgage involved, they will decline accepting the deed-in-lieu because their claim to ownership of the property would be encumbered by your second. Essentially, they can say, we don’t want your troubles. This is especially likely to be the case if you took out the second during the past few years and paid off credit card and other debt. In such a case, not only did you convert consumer, unsecured debt, into secured, mortgage debt but you also created a scenario where the investor who is actually carrying the risk on your home does not want to be held responsible for the portion of liability which they did not insure.

Why the lender might still choose foreclosure

Let’s discuss the second thing. Most states’ legal process will allow the 1st mortgage holder to be relieved of any responsibility for the second lien holder’s loss IF THE FIRST FORECLOSES. This caveat means your lender may decide, purely as a business decision, that foreclosure against you is their best option.

As a practical matter, even when a lender has sent you paperwork or indicated that a deed-in-lieu might be an option or you decided to request such resolution to your problem, there is no automatic RIGHT to do this. You will still be required to complete an extensive hardship package to determine whether or not you qualify for the ‘option to give back your house’. In addition to the difficulties tied to having a second loan the lender is required to be sure that you have exhausted all efforts and resources to try to meet your obligation to them.

Deed-in Lieu Warning

While the process is very simple (signing and notarizing a single page document) there are significant risks associated with your future LIABILITY if you do not have an attorney to both prepare the deed-in-lieu document and facilitate a transfer of the property.

Specific risks:

1. Documents never reaching the lender
2. Lender’s failure to record the transfer of the deed in a timely fashion (or ever)
   (becoming very common and a major problem for you if it happens)
3. Possible insurance liability if something happens on the property while
   it is still in your name (Nasty possibility)
4. On-going bills for maintenance or citations from the local health and
   hospital board for health hazards, weeds, etc
5. On-going on home owners’ association dues which could be very costly.

Deed-in-lieu is a slightly better option than foreclosure but should be handled with care and the professional services of an attorney who will address the risks I mentioned above.

FOREWARNED is FOREARMED.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

WORD: Notice of Non-Responsibility

And the WORD for Today is:

Notice of Non-Responsibility – a notice filed by an owner of a property to show that work being done has not been contracted for performance by the owner. This notice should be used when a tenant has ordered work to be done on a property which they are renting. When an owner files a non-responsibility notice properly it may offset or prevent a mechanics lien from being enforceable.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

You can find more helpful definitions of WORDS like these in Your Real Estate Advisor which can be purchased at www.DovePublishingHouse.com.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

Your Real Estate Advisor: Buyer Beware

Buyer Beware!
Be Careful—Don’t Borrow Trouble

1. Regular Banks and Credit Unions are your safest bet to avoid predatory lending practices. Federal regulations prohibit them from charging excessive fees, etc.
2. Choose reputable lenders, established in your city or state. Reputation is a powerful deterrent to unscrupulous practices.
3. If you have decided to use a mortgage broker, do so with care. Be sure you know how much you are borrowing to pay the broker fees, points, and closing costs, and/or other junk fees.
4. Insist that you get a “Good Faith Estimate” of all the costs associated with the loan within 3 days. It’s the law! Do you understand all the costs? Are they reasonable?
5. Remember: all real estate transactions that require a loan (purchase) will result in a lien being placed against your home.
6. Comparison shop at least two or three lenders. Use the “Good Faith Estimate” to determine who is really offering you the best deal. Rate is not the best way to tell. What are the actual costs of the loan? What are you paying in up-front prepaid finance charges? Is there a prepayment penalty?
7. Avoid single premium insurance. It is seldom a good idea.
8. Beware if the loan includes “yield spread premium.” This is actually an additional payment to the broker for getting you to accept a high cost loan.
9. Our economy is fragile. Fixed rate payments which include taxes and insurance will offer you the most stability in your housing budget. Be extremely cautious in considering a variable rate or a 2-1 buydown product. You are only delaying higher payments.
10. Review all the documents before you go the actual closing. Ask questions until you understand what you are signing.
11. Consider having an attorney (cost is very reasonable) to review your closing documents and/or attend closing with you for any real estate transaction: purchases, building, second mortgages, lines of equity, or refinancing.
12. Lastly, study the Disclosures section of the HOM website (www.homeownershipmatters.com), to help understand what the documents you sign at closing actually mean, and what rights you surrender when you sign them.

Copyright © 2009, HOM, LLC. All Rights Reserved.
“Your Real Estate Advisor” the column, by Mildred Wilkins

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

Q&A: Losing Home to Tax Sale

Q. I am behind on my property taxes and wonder can someone just pay my taxes and take my house? Surely that is not possible, but a friend has warned me that it is something I should be worried about.

A. The short answer is YES, you can lose your home because you did not pay the property taxes. However, it is not something which could happen without you receiving notice and having ample time to resolve the problem. Let me explain.

While it is true that a person can lose their home because they failed to pay the property taxes, that usually will not become an issue unless you are at least 2 or more years past due with the taxes. Property taxes are mandated under state or local municipal law and are collected by an office which has the authority to do so. The name of the office may be tax assessor or tax collector or similar. In addition to collecting taxes when due, this same office has the authority to:

1. Place a lien against any property owner who has not paid the appropriate taxes for an extended period of time (and the amount of time will vary from municipality to municipality, set by local law)
2. Notify the owner that the property will be made available for sale due to unpaid taxes, if the problem is not corrected within a specified period of time
3. Proceed to offer the property for sale at an auction specifically for the purpose of collecting unpaid taxes
4. Advertise the availability of the property for past due taxes and complete the sale at the designated time

*Some folks have gotten wealthy by acquiring property in this manner because the prior owner was not aware of their redemption rights.

Many states have a redemption period during which you can reclaim your property by re-paying the amount of the tax bill, court costs and any other applicable costs. This redemption period may be as short as 6 months or as long as 2 years. You will need to check the statutes in your city/state. It is important that you keep abreast of your tax situation, even if you are not able to make the regular mortgage payment.

My experience has taught me that the individual most likely to be unaware that their taxes have not been paid is someone who had a mortgage with taxes included as an escrow item and then refinanced.

When they processed the refinancing, no escrow account was set up for the payment of the taxes so the individual who has not been in the habit of paying taxes simply ignores the tax BILLS they have been receiving believing that they are the tax NOTICES/RECEIPTS which they are accustomed to getting. Their taxes fall further and further behind until the appropriate authority utilizes the process outlined above to collect the taxes.

Please take the time immediately to verify your actual tax situation; you may even be able to make partial payments to the taxing authority to avoid losing your home in this manner. Yes, you may have the right to get it back, but better to keep it in the first place.

Good luck!

Copyright © 2009, Home Ownership Matters, LLC. All Rights Reserved.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

WORD: Mortgage, Continued

The WORDS for Today are:

Mortgage Broker-The mortgage broker is a “middle man” who brings together a lender and a consumer who wants a loan. The broker is not an agent for the consumer and therefore has no fiduciary responsibility towards them.

Mortgage Servicer-May be a bank, mortgage company or a similar business that communicates with borrowers concerning their mortgage loan. A servicer usually works for another company that owns the loan. The responsibilities of a servicer include: accepting and recording payments, handling default issues including various workout options, and supervising the foreclosure process if that becomes necessary. In the event the servicer handling these details has changed, then the lender has the responsibility of notifying the borrower of that change. A servicer may have been hired and given servicing rights only or they may have a broader contract, which includes servicing rights with assigns.

Mortgage Servicing-refers to the handling of the necessary duties of a mortgagee, including collecting payments and making sure taxes and insurance are paid when scheduled. Servicing may be done by the lender or a company that charges a fee to provide these services on behalf of the lender. A servicer who has been granted servicing rights with assigns may initiate foreclosure action just as the lender who owns the loan might do. Releasing a lien after a mortgage has been paid in full is also function of loan servicing.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

You can find more helpful definitions of WORDS like these in Your Real Estate Advisor which can be purchased at www.DovePublishingHouse.com.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

Did You Know? Your Most Prized Possession

FYI: Your most prized possession is not your house, your stocks and bonds, your vintage car, your bank account. You, in fact, own just as much as the folks you feel have it all together and are financially secure.

Unfortunately, what most folks do not realize is that the most valuable possession any of us have, (which ALL of us have) is, in fact, our SIGNATURE.

Your SIGNATURE.

If you were asked to name the most valuable possession you have, almost none of you would have thought to say your signature. Most of us fail to realize the significance of our signature and how we alter our lives when we sign documents, totally changing the course which our lives will follow.

Consider: Your signature is required to validate:

• A marriage license
• A divorce decree
• Accepting a mortgage
• Agreement to build a house
• The co-signing of a loan
• A surgical procedure
• An abortion authorization
• A birth certificate
• The authenticity of your will
• The beneficiary on your life insurance policy
• Acceptance of a lien against your home when you refinance/take out an equity line
• Your acknowledgment of baptism
• Accepting a plea agreement
• The truthfulness of your tax returns
• The responsibility for a minor’s actions
• Your willingness to grant an adoption
• Your granting the power of attorney for another to act on your behalf
• Signing documents to authorize Madoff to invest your money
  

I could go on and on but I am sure that you would agree that your signature on any of the above mentioned documents all signify agreement with a life changing activity. It is simply a short step in thought process to see that if you withheld your signature, then the pendulum would have swung in a different direction. Consequently, your power to change the outcome hinges on whether or not you allowed the activity or prevented it: and that power is as simple as whether or not you signed the necessary documents.

How Should This Impact Your Behavior?

First, it should shake you up pretty seriously. Really. Think about how casually most of us sign things without thinking about the long terms implications. My personal commitment, since I realized this several years ago, is that I will NEVER sign important papers which require a signature to be valid the first time I see them. The ONLY reasonable exception in my opinion is in order to get medical attention, in an emergency. Since I have high blood pressure as well as a possibly fatal allergic reaction to bee stings, I would sign papers without even reading them for treatment of either one of those conditions.

For any other situation, I need to see the papers a day or two in advance so I have a chance to read over them. Then I can ask questions, do some research if I feel I need to, seek out the counsel of someone I trust and make an unrushed, educated decision about whether or not this is something I clearly want to do.

This is turning out to be a very long blog but I need to share this.

DON’T DO IT. Several years ago, just out of the blue, I started coughing up blood while on a vacation with my children. They were terrified and I was pretty scared myself. I had not even been sick. I spent a week in isolation in an out-of-state hospital while they checked for everything, including TB.

Since these little coughing spells occurred several times during that week, the consensus of the specialists there was that it was best to remove a lung in order to avoid a possible lung embolism and the likelihood of death. I REFUSED to sign and agree to the surgery because they could not tell me how the blood got into the lung in the first place and it appeared they wanted to remove a LUNG as a precautionary measure. That’s pretty serious, based on a hunch. I steadfastly refused, against their continued pressure to sign and agree to the surgery.

Five months later, two more little blood coughing spells, two exploratory surgeries and lots of tests and X-rays they finally did a thyroid scan. I had previously had thyroid surgery but who would have thought the stupid thing would regenerate and cause havoc again? We didn’t, but it had. Turns out my thyroid was totally out of control and causing bleeding, which pooled in my lung, leading to the coughing fits. Now we had an explanation which made sense.

I quickly granted permission for a second thyroid surgery (this time TOTAL removal of the pesky little gland). My family had not understood my refusal to have the lung surgery, but I will forever be grateful that I made a decision based on my strong conviction that I need to UNDERSTAND why I am doing something before I do it and that it cannot happen until I have signed papers granting permission.

My refusal to agree to the wrong surgery saved my LUNG.

Never forget: your most prized possession is in fact your scraggly signature. If it is significant enough to require a signature then it is significant enough to take some time to consider.

Check out the post for tomorrow to get the "definition" of Signature.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

WORD: Chattel Mortgage

And the WORD for Today is:

Chattel Mortgage—a lien on personal property. A chattel mortgage may also be called a security interest.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

You can find more helpful definitions of WORDS like these in Your Real Estate Advisor which can be purchased at www.DovePublishingHouse.com.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

WORD: Security Agreement

And the WORD for Today is:

Security Agreement—a commonly used “catch-all” term which is used to describe a variety of debtor-creditor relationships. In order to be legally enforceable there must be a written agreement between the party who borrowed money (or contracted for services) and the creditor who loaned money or performed the services. These agreements are then documented in a number of different ways such as a chattel mortgage, a trust receipt, an inventory lien or other security agreement.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

You can find more helpful definitions of WORDS like these in Your Real Estate Advisor which can be purchased at www.DovePublishingHouse.com.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

PS—Happy Easter!!

Assessing HAMP a year later

H A M P—Home Affordable Loan Modification Program was discussed in detail yesterday. If you missed it, it would be valuable to read it before you read today's blog.

First, let’s analyze what has been accomplished under the program. The program was projected to reach over 4 million homeowners with much needed help to sustain home ownership. The end of the year report indicates that fewer than 100,000 have, in fact, been granted permanent (5 year permanent) mortgage modifications since the program was implemented in March, 2009. For those 100,000 or so, they see it as a success (even if they do feel 20 years older because of the process). I feel pretty sure that the other 3,900,000 would consider it a failure. The horror stories of run-arounds, and lost paperwork and so on and so forth defies explanation and even the most mild-mannered person can be pushed too far.

Why Has HAMP failed?

The simple reasons are that it was created without a clear understanding of how the bank world works (the role of the guarantor behind the loan) and some other critical components were just overlooked.

Capacity—The dilluge of consumers instantaneously seeking help totally overwhelmed servicing shops who were already stretched past capacity because of defaults. Without funding for the hiring and training for substantial increases in staff to handle the flood of requests for help, the plan was doomed to be as ineffective as history has shown it to be. Individual lenders have sent PR teams across the country to talk about the way they handle modifications, but I am talking about a massive, organized, on-going effort to train the staff within the lender shops what was expected from the government and how the program was to be implemented. For a simple look at the capacity issue—I have folks tell me all the time, “You should be offering this and you should be doing that and why aren’t you answering questions online from individual borrowers?” I look at them like they’re crazy. HOM is a small company with 3 employees and the company’s income is generated almost exclusively from speaker fees. You want production equilvalent to a large company but you are not offering any funding or staffing just creating more jobs. The NEED for something does not translate into the CAPACITY to provide it without resources which include funding and personnel. HAMP did not adequately address the capacity to get the job done.

Resources—The expectation that only HUD approved housing agencies or similar non-profits should be the ONLY endorsed sources for help totally belies the fact that the program was designed for borrowers with mortgage balances up to $725,000 and non-profits primarily restrict their services to folks who earn less than middle income. Hence, no provision for a referral to anyone if you are not at the lowest end of the income spectrum. Worse, a condemnation (by our President no less) of any organization which offers help for a fee (to middle and upper income borrowers who are looking for such help). This major oversight means there were no guidelines, training, or criteria established for this needed service and YES, some vultures stepped in to fill the gap. California now has some pretty strong anti-vulture legislation which pushed most of the loan modification businesses there out of business, and not a day too soon for many of borrowers who have found that un-trained and un-regulated help can lead to a diastrous outcome.

Non-Profit Push Back

I understand that I am inviting non-profits to yell at me but before you start yelling to defend your position as the only people who care—What is your current back log? How many more people could you see? Is your staff already maxed out? Have all of your counselors received substantial modification and foreclosure law education in your state? Do you offer a sliding scale so any homeowner, any income level has access to your services? What is your success rate with completed modifications? Are borrowers re-defaulting within a few months? If the answer to any of those questions is yes, this indicate you are already serving your maximum capacity (and I am informed enough to know that most are). Stop arguing that help should ONLY be available to those whom you serve and embrace the idea that all borrowers, all income levels deserve to have representation to help them with the crazy world of banking. Businesses which have trained staff, operated ethically, with sufficient government regulations and appropriate bonds in place could go a long way to easing the foreclosure problem which continues to plague this county and will for the next several years. The time has come for the creation of Foreclosure Intervention Services—For Hire, as respectable businesses, listed in the phone book right next to non-profits as a resource for struggling borrowers. Repeat after me—Prohibition did not stop folks from getting alcohol—it just made the bootleg market prosper. When are we going to learn? Where there is a need—a provider will emerge.

Program Lacked Basic Understanding of the Bank World

It was a VOLUNTARY program. Lenders were not required to participate. In fact, they could NOT be forced to participate. It is not possible to force someone to alter the terms of a contractual agreement AFTER the fact. It doesn’t matter that the entity trying to compel cooperation was the US government. Mortgages are legally binding contracts. Lenders already had not only the contract with the borrower, but contracts with the investor, the guarantor, the hedge fund, and so on. The performance of one contract impacted several other contracts and therefore made it nearly impossible to make a significant change to the original contract (the mortgage) because of the cascading impact on all the other contracts which had grown out of the securitization of the underlying contract. Formulating a plan without a clearcut understanding of the securitization process was a major misstep in trying to implement HAMP.

Motivation Insufficient

Beyond the securitization problem, the issue of sufficient motivation to modify made the challenge almost insurmountable. While many would argue that the lenders were paid for their cooperation, that argument fails to address what they would receive by NOT cooperating. Now lenders are going to be mad when I state emphatically that they receive MORE to foreclose than they do to modify. How could that be you ask. Lenders lose money DURING the default process: they must pay the investor as agreed, incur expenses associated with the servicing of the loan, work to avoid having a lien placed against the property for failure to pay homeowners’ association dues, cover the cost of insurance to avoid an uninsured loss, etc, etc. All of these are out-of-pocket expenses—UNTIL a foreclosure is completed. Then, on ALL insured loans, which is MOST of them, the lender recoups many of the expenses which they have put out and collect the amount of the insurance on the loan. It is true that they will seldom get back the missed payments (that remains a loss to them) but the other expenses are usually reimbursable expenses. If you’ve wondered why it seems that the lender is not really trying to work with you, simply consider they need the process to be over, so a claim can be filed.

HAFA—A New Program announced on November 30, 2009 will be addressed next week.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)