HELOC Mortgages

HELOC Mortgage: Friend or Foe

2015 was a big year for HELOC mortgages coming due. These home equity line of credit mortgages went through a popular spree back in 2005 – 2007 where homeowners were using them for their first or second mortgages. These lines of credit have begun to reach the end of their terms (usually 10 years) and will require repayment; meaning a larger monthly payment for the homeowner. This could lead to more short sales involving HELOC loans.

So what does having a HELOC loan mean for the underwater homeowner?

Depending on whether the homeowner used the funds from the line of credit to buy the house originally or not is going to affect how willing the bank is going to be in considering the short sale.

Recently we had a file that had a conventional first mortgage and a HELOC as their second. They were trying to get approved by both lien holders for a short sale of their home. The first loan was HAFA eligible and going smoothly toward being approved. It was the second mortgage (the HELOC loan) lien holder that indicated that due to the fact that the loan was not used to buy the home that they would not participate in the HAFA program and would require money at closing or a loan installment plan to cover the rest of the amount owed. It came to our attention in this case after more research that the HELOC loan was actually used in the purchase of the home. The lien holder was then willing to participate. It is entirely discretionary for any second lien holder to participate in the HAFA program. But, for the most part, they will participate which secures receiving substantial funds from the program .... but they must release any deficiency (or shortfall) and cannot collect against the balance.

In general, this is better than taking their chances against what is usually an insolvent borrower. 

The choice of a lawyer is an important decision and should not be based solely upon advertisements This web site is designed for general information only. The information presented at this site should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.

Full Waiver of Deficiency: Why It's Important

Negotiating and selling an underwater home via short sale is not something a homeowner should do alone. Having a seasoned real estate agent and short sale attorney to work with is a must for the most successful and beneficial outcome for the homeowner.

A key element to this success is the status of the deficiency.

During the process, the difference in the amount from the sale and the amount owed is referred to as the deficiency. During the negotiation, if approved, there are specific terms with which the approval is contingent upon. These terms are specified in the bank’s approval letter to the homeowner. There is a minimum sale value that will be accepted by the lender; any money over this amount in the sale contract goes directly to the bank to satisfy what was borrowed. A good negotiator works with the lender to ensure that this value is reasonable given the underwater status of the home.

The complexity of this area in the short sale process is one of the many reasons why a homeowner wants to make sure the firm who is negotiating their deal has experience, professionalism and success with past clients. Getting the full deficiency waived and the loan settled in full is crucial. Once the bank approval letter includes that the balance will be settled in full with a full waiver of deficiency, the lender can no longer come after the homeowner for the deficient amount, even after the sale of the home goes through.

Prior to the Mortgage Debt Forgiveness Act, another area of importance that had homeowners shying away from short sales was the potential taxes they may owe on the amount they were deficient. In some cases, the forgiven amount could be considered taxable income and the homeowner may have to pay taxes on that amount. However, the act has been extended through the year 2016 and protects homeowners from having to pay this tax when they have completed a short sale or foreclosure during that year. The act is readdressed each year and has been extended by the government since it was originally approved in 2007. 

The choice of a lawyer is an important decision and should not be based solely upon advertisements This web site is designed for general information only. The information presented at this site should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.

Why Agents Shouldn't Shy Away from Short Sales

Taking on a Short Sale File: Why Agents Shouldn’t Shy Away

Many real estate agents would say that they try to avoid taking on short sale listings due to the time, energy and potential denial of approval from the lender. They are afraid that their commission from the sale would be lowered or denied after the hard work they put in. Due to the uncertainty in the time frame of a short sale file to get qualified, approved and buyer offers in, an agents time can become consumed if working alone.

One thing that these agents don’t consider; why are you taking it on alone?

The answer is: they shouldn’t.

Kayser works with agents (buyer & seller) on a daily basis to ensure that homeowners in short sale situations are covered completely from beginning to end. Starting with getting qualified, approved and finally closed, our file managers work with the lenders directly to make sure that this process goes smoothly and that any issues during are resolved as soon as possible. The agent in this situation does exactly what they do on their regular listings; they get an offer on the property. During this process, Kayser does not take any fees out of the agent’s commission at closing and agents are recording full commissions on closed files.

Working as a team instead of shying away from these files, agents can be a homeowner’s hero and help them gracefully out of a difficult situation.

The choice of a lawyer is an important decision and should not be based solely upon advertisements This web site is designed for general information only. The information presented at this site should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.

The Counter Offer

Be ready for counter-offers and respond with caution

Although lender counter-offers are not part of every short sale, they do come into play and must be handled properly. There are four main possibilities in most lenders’ counter-offers:

•      Lender may counter for a higher offer from the buyer
•     Lender may request the seller make a cash contribution at closing
•     Lender may request the seller to sign a promissory note at closing
•     Lender may counter to have the closing costs adjusted

The fourth of these will be non-negotiable in many cases as lenders generally have set limits on closing costs.

However, the first three are crucial and be negotiated carefully to ensure the best outcome for the seller.

If the lender counters the offer from the buyer, there are two crucial steps that the seller’s side must take:

• The seller must first go back to the buyer and request a higher offer…any increase in the buyer’s offer improves the chance of approval, even if it does not fully meet the counter from the bank.
• If the buyer is not willing to increase the offer to the full counter made by the bank, then the seller’s side will have to bridge the gap by challenging the lender’s value.

If the lender counters with a request for a cash contribution and promissory note, there are two crucial steps that the seller’s side must take:

• The seller must not panic and accept the counter just to get the deal done – the lender’s request for a cash contribution or a promissory note is very rarely a “take-it-or-leave-it” proposition
• The seller must then craft a sound response explaining that the cash contribution or payments on a promissory note are simply unaffordable. The response should be supplemented with supporting documentation (such as pay-stubs and list of monthly expenses).

Since 2013, requests for cash and/or promissory notes have become far more common, but remember it does NOT necessarily have to be accepted to complete the short sale. These requests from the lender are simply a counter-offer and your short sale can be approved even if you reject their request to pay any cash and sign a promissory note. However, please remember that this needs to be skillfully negotiated for the most favorable outcome for you as the seller. And as always, each case is different, so make sure you are represented by an experienced professional.

The choice of a lawyer is an important decision and should not be based solely upon advertisements This web site is designed for general information only. The information presented at this site should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.

Kayser Case Studies Video Blog #2

The choice of a lawyer is an important decision and should not be based solely upon advertisementsThis web site is designed for general information only. The information presented at this site should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.

Kayser Case Studies Video Blog #1

The choice of a lawyer is an important decision and should not be based solely upon advertisementsThis web site is designed for general information only. The information presented at this site should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.

Short Sales: Why knowing the benefits over Foreclosure may help your future.

Distressed homeowners are overwhelmed, so it is important to ensure that they are well informed. Many people don’t know that there are options when they’re behind on their mortgage. The assumption in the past has been to walk away from the property and let the bank foreclose, as many homeowners were unaware of the short sale and its benefits. 

There are two primary benefits to a homeowner in opting for a short sale rather than letting the bank foreclose.

First, a foreclosure significantly damages the homeowner’s credit. Credit has become an even more powerful factor in different facets of life. A foreclosure can impede one’s ability to simply obtain a credit card or finance a piece of furniture. However, the impact can be as drastic as compromising one’s employment or security clearance. In addition, homeowners who have foreclosure on their record will generally not qualify for a new mortgage for at least 7 years. Although ones FICO score rebuilds over time, this DOES NOT remove the Foreclosure on your credit report for up to 10 years.

Second, banks may pursue homeowner for any deficiency owed after a foreclosure. The deficiency is the difference between what the bank was owed at the time of the foreclosure and the amount the property was sold for at the foreclosure. For example, if the homeowner owes $250,000 on the mortgage at the time of the foreclosure and the property sells in foreclosure for $125,000, then the banks could sue that homeowner for $125,000 (the difference between the amount owed of $250,000 and the foreclosure sale price of $125,000).

So why do people continue to only consider this option? The answer is simple, they just don’t know.

Short sales, reported as, “settled for less than full balance,” have a completely different impact on homeowners’ credit reports. The likelihood of them being able to qualify for another home loan is high after just 2-3 years and protect their employment, credit score, etc. In many cases, the deficiency of the mortgage is “waived,” by the lender and will not be pursued after the short sale is closed.  

The benefits of working with a short sale negotiation attorney and real estate agent will make this process for distressed homeowners graceful and lift many of the overwhelming feelings off their shoulders. 

The choice of a lawyer is an important decision and should not be based solely upon advertisements This web site is designed for general information only. The information presented at this site should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.