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Foreclosure Laws in Maryland

Foreclosure Laws in Maryland

After the subprime mortgage crisis, which began to surface in 2008, the Maryland Legislature passed The Real Property-Maryland Mortgage Fraud Protection Act. Here are some basic changes to foreclosure laws in Maryland over the last few years.

Foreclosure Laws in Maryland

The Maryland Legislature passed several laws to help homeowners who are at risk of losing their homes, and to prevent future homeowners from moving closer to the risk of losing their homes.

From a Realtor’s point of view, the most notable issues are the changes to the lending industry:

* Lenders are now be required to be licensed, and all mortgages must contain the license number of a mortgage originator or mortgage lender. This would allow regulators to track which mortgage providers have the highest foreclosure and default rates.

* Changes in the number of days until several steps of the process take place: closing datesThe foreclosure sale cannot occur sooner than 135 days after default. The average time it takes to foreclose on a home in Maryland is actually 270. Banks are not in a hurry to foreclose these days…they don’t want a glut of bad assets on their books.

* SB218/HB 361 establishes requirements for a foreclosure consultant. All of the details of this professional will be fleshed out in the future. The foreclosure consultant must be trained and licensed, not a real estate agent or bank representative. The consultant will have a fiduciary responsibility to the homeowner, similar to a real estate agent, and will counsel the homeowner in all the aspects of the process.

* The third bill passed establishes stricter penalties for anyone engaged or intending to engage in mortgage fraud.

Overall, I think these are some great steps toward preventing further fraud and helping homeowners in trouble. The licensing of lenders will make it possible to track fraud and actually find the people who are initially responsible. The inability to hold lenders accountable has been a huge hole in the ability to prosecute fraud.

No More Stated Income Loans

Shortly after this law was passed, The Maryland General Assembly passed House Bill 363, outlawing stated income loans in the state of Maryland. Any loan applications made after June 1st, 2008 cannot be stated-income, or reduced documentation, or no-doc loans. A stated income loan is a mortgage where the lender does not verify the borrower’s income by looking at their pay stubs, W-2 (employee income) forms, income tax returns, or other records. Instead, borrowers are asked to state their income, and taken at their word, as they are required to put down a larger percentage on the house.

Many people might not be aware of the reason for this sweeping decision…there were too many cases of loan fraud in the recent past, involving “No-Doc” loans. For example: Someone claims to work at McDonald’s and make $150,000 and because they have a 20% down payment, no documentation is required. This kind of thing happened, and we’ve unfortunately seen too many short sales and foreclosures as a result.

This is actually unfortunate for self-employed people who have historically used stated income loans with large downpayments. They have always worked well with the particular tax structures that some business owners use.

appraisal changesThe purpose, as I understand it, in the low-doc and no-doc loans was originally to help self-employed people (like me!) get loans they otherwise couldn’t. When you’re self-employed, your accountant will advise you to write off all that you legally can so that you have less net income to be taxable. You can make a hundred thousand and end up with 50 thousand to call income.

The problem with that is that it’s hard to get a mortgage. Stated-income loans were originally designed for self-employed people with 700+ credit scores, and they usually had to put 20% down. Most borrowers were over age 40. These are not the people who are at risk of foreclosure. So the stated-income program really works for these self-employed. The problem, of course, is that abuse took place. Trouble came when the required downpayments kept shrinking over the years, to the point where very little was required.

There does need to be some kind of reform. But I have to say, over-reacting by making an entire portion of lending products illegal is not what I call reform. No more no-doc loans, period.

The Evil ARMs – Adjusted Rate Mortgage

The bulk of the subprime loans that caused the horrendous meltdown were Adjusted Rate Mortgages, or ARM’s. ARMs come in many varieties, including the commonplace one-year and 5/1 ARMs. With a one-year ARM, you pay a fixed interest rate for the first year and then the current interest rate each year after. With a 5/1 ARM, you pay a fixed rate for the first five years and then the mortgage rate is set for one year terms until it’s paid off.

Like the no-doc loans, ARMs have a purpose and are a good product for certain buyers. Buyers who don’t plan to stay in their homes for a long time may find an adjustable-rate mortgage better suits their needs than a fixed-rate loan. And like no-doc loans, these ARMs were abused, causing many homeowners to face higher adjusting rates at a time when their home values were plummeting, making it impossible to refinance.

Apart from the American Housing Rescue and Foreclosure Prevention Act of 2008, passed by Congress in July of that year, the Maryland General Assembly passed 2 laws in 2009, H.B. 1535 and 1036, stating that lenders must give due regard to the borrower’s ability to repay the loan, and establishes more protections for consumers.

I think the best solution for the abuses of Adjusted Rate Mortgages is the natural pendulum swing that happens after a market meltdown… lending guidelines tighten. It is next to impossible to get a mortgage these days without qualifying. Credit scores are more important than ever, and common sense guidelines are once again a big part of the lending process.

See the Maryland Attorney General website for Foreclosure Counseling Services in Maryland.

Chris Highland is a Certified Distressed Property Specialist. If you, or someone you know is having trouble making their mortgage payment due to a financial hardship, you may be eligible for a short sale. Contact us for a conversation. 301-401-5119. Chris@ChrisHighland.com

How Soon Can I Buy A Home After A Short Sale? A Foreclosure?

How Soon Can I Buy A Home After A Short Sale? A Foreclosure?

Many people are finding themselves in a tough situation after a job loss or income loss, and have ended up short selling their home, or worse, going through a foreclosure.

There is hope after a distress sale; with some credit repair and some time, most people can buy a home again. However, there are many factors that will affect your ability to qualify for a loan. Here are some general guidelines for buying a home after a distress sale:

After A Short Sale: the best-case scenario:

VA: You can buy a home with a VA loan two years after a short sale on a prior VA loan, with a zero down payment. It can be less if you have NOT been late on a payment and have a minimum credit score of 660.

With a clear CAIVRS, a report pulled by lenders for government loans (FHA, VA, and USDA) your time may be less than 2 years. You also must document the hardship.

FHA:

After a short sale, a buyer can get another mortgage in 1 day…if they had no late payments on the previous mortgage or any credit lines. Or, you may be eligible under the FHA Back to Work Economic Event Extenuating Circumstance Program**. If they were late on a payment, FHA looks at the short sale as if it was a deed-in-lieu of foreclosure and the new loan will be manually approved, given the best-case.

In a Short Sale, if the buyer was never late on a payment, they can buy another home immediately, as long as their credit scores are good and as long as they don’t buy a superior house. They have to have good extenuating circumstances, like a job relocation, which has to be outside a 100 mile radius. Again, this is a best-case scenario. Most of the time, there will be some credit repair necessary.

Conventional Financing: Fannie Mae has just announced a change in the guidelines for the waiting period to qualify and buy using a conventional loan. Until August 16, 2014, buyers can get another loan after 2 years post-short sale, with a 20% down payment. After that date, the waiting period has been extended to

  • 4 years, with a 5% downpayment.  credit score must be a minimum of 680. A larger down payment doesn’t help get a loan sooner.
  • If a buyer has acceptable extenuating circumstances and they are documented, they may be able to get a conventional loan in 2 years with a 10% down payment.

What are acceptable extenuating circumstances?  This is a non-recurring event that was out of the homeowner’s control. It had to cause a significant loss of income or significant increase in expenses so that they were unable to pay their mortgage. These events had to be temporary, not likely to happen again. This can be loss income, unemployment, serious illness or large medical bills. It must be documented and you must write a letter explaining the events. Divorce is not an extenuating circumstance according to FHA, it is considered “financial mismanagement”.

VA and USDA will consider these previous events as hardships, as well as delay or reduction of government benefits. They all give local lenders some leeway to grant exceptions to home buyers with extenuating circumstances.

I’m sure that you’re seeing the need for Documentation with all of these circumstances. 

After a Foreclosure: the best-case scenario:

VA: VA requires a waiting period of 2 years after a Foreclosure. Like short sales, the buyer must have repaired their credit scores.

FHA:  A buyer can get another mortgage in 2 years from the date of completion of the foreclosure, if there is documentation of extenuating circumstances. Without these circumstances, the wait period is 3 years. Credit repair withstanding.

Building the credit score back to health takes more time after a foreclosure than a short sale, because there can be as much as a 300 point difference in the credit score.  It is much easier and takes less time to repair a credit score after a short sale, another good reason to go through the hassle and work to avoid foreclosure.

If you’ve had to sell your home through a short sale, repairing your credit is possible. I you pay all your bills on time, establish credit over time, and save some money for a downpayment, as little as 3.5% for an FHA loan, you will be able to purchase a home again. Remember, you must start to repair your credit on the first day after the distress sale.

This 15 Minute video with our friend and Credit Counselor, Blair Warner, with Upgrade My Credit, has many great tips for those recovering from a short sale or foreclosure:

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Additional Reading:

Chris Highland has a CDPE certification, Certified Distressed Property Specialist.  If you or someone you know is having trouble making their mortgage payment through financial difficulty like job loss or illness, give us a call for a discreet conversation. We may be able to help you avoid foreclosure. 301-401-5119

** For Details on the
FHA Back to Work Extenuating Circumstances Program

For Credit Repair, consider hiring a Credit Repair Specialist

Common Mistakes with Short Sales

Common Mistakes with Short Sales

With the housing crisis behind us, the real estate market in America is experiencing fewer short sales and foreclosures. Short sales, or distressed sales, happen when the seller is upside down on their mortgage and negotiates with their lender(s) to sell the home for “short” of what is owed. We should expect to see short sales for next few years, even as the economy recovers.

We also expect more defaults as the homes that are underwater are many. Banks are getting better at dealing with short sales than they were a few years ago, with new standards and practices to streamline and normalize the process. And, thankfully, real estate professionals are getting smarter and more experienced.

I’ve heard many myths circulating about short sales, so here are some basics on the subject. It is true that distressed sales take longer than traditional sales to complete. The offer must be agreed upon by the lender(s) in what is called a “third-party approval”. The original mortgage has usually been sold on the secondary market to investors, who must be contacted for approval. Imagine if the investor is a retirement fund based in another country. This is what takes time.

short sale basicsIn all short sales, the offer must be “packaged” correctly for the bank to even look at it. The knowledge of the correct packaging has been the learning curve for the real estate industry. After several years of experience, several certifications offered by various organizations including the National Association of Realtors, and hundreds of training sessions from lenders and brokers, the industry is figuring it out. Distressed sales aren’t so distressing as they used to be.

Common Mistakes with Short Sales

  • Incorrect pricing strategy is the most common mistake that Realtors and homeowners make when it comes to selling the home short. The home must begin at market value to prove to the bank that an honest effort was made to sell the home at that price. Of course, the market price is a little volatile at present, especially for anything other than a traditional sale. The home must be lowered in price until it reaches a point that a buyer will pay, all within the amount of time the seller has before the foreclosure date. This takes a strategy and it takes experience.
  • The second most common error made with short sales is not having the proper package of documents the bank requires. Banks are overwhelmed with mortgages in default. The person at the bank receiving the package has a checklist. If things are missing from the package, it usually goes in the trash, instead of on the pile of 3,000 other packages that came in that week. An agent with experience and training will know how to put together the right package.
  • The timeline of the foreclosure is critical in the selling strategy. One of the problems that occur with distress sales happens when the foreclosure laws of the state are not understood by the Realtor. Having an offer in time can stall the foreclosure in most cases.
  • One of the misunderstandings about short sales comes from buyers who think they will get the home at foreclosure prices. This simply won’t happen. Banks have appraisers who will get a number as close to market value as they can. Low ball offers will be put in the trash alongside the unacceptable packages previously mentioned.
  • The other mistake that can be made concerning short sales happens when the seller has not proven they really have a hardship, and the short sale is denied. There are three must-have criteria for a seller to be approved for a short sale: 1. Financial hardship, 2. A monthly shortfall, and 3. Insolvency.

 

Financial Hardship: The seller must be able to document that they have a financial hardship that makes them unable to pay their mortgage. This could include a mortgage payment adjustment, a job loss, unmanageable debt, divorce, or business failure, or other things. The definition of financial hardship is “A material change in-between the day the mortgage was signed and today that has affected your ability to pay.”

A Monthly shortfall: The lender will want to see proof that you cannot pay your monthly payment on a financial worksheet. Total monthly income less total monthly expense = monthly shortfall.

Insolvency: You must not have the means to make up the shortfall. You don’t have to be completely broke, you just can’t have enough to pay what you owe.

The documentation can be tedious, but you can see why it’s necessary. Without all the right documentation, the sale can be derailed after weeks or months of waiting.

In our Frederick real estate market, less than 10% of the listings are foreclosures or short sales. This has come down from the high of 30% that we saw a couple of years ago. There is one thing that is sure about a distressed sale, eventually it will reach a price that is irresistible to a buyer. It will sell. Having correct information will help the sale go as smoothly as possible.

The Highland Group has an experienced short sale expert on the team. CDPE – Certified Distressed Property Expert. Contact Chris Highland for a discreet conversation to see if you qualify for a short sale.

Contact Us for buyer representation if you are considering purchasing a short sale.

301-401-5119
8923 Fingerboard Rd
Frederick Maryland 21704
Associates at eXp Realty 410-777-5714

 

How to Repair Your Credit After A Short Sale

How to Repair Your Credit After A Short Sale

Credit Repair After A Short Sale

Although a foreclosure will do three times the damage, as much as 300 points worth, a short sale can decrease your score between 50 and 100 points, on average.

The good news – recovering from the short sale is much quicker and much easier than recovering from a foreclosure. Depending on the circumstances, credit repair after a short sale can take as little time as a year.

If you are recovering from a diminished credit score due to a short sale, or because of any other financial hardship you’ve faced, this video interview has some great tips and information. Blair Warner, credit coach and founder of “Upgrade My Credit” was kind enough to answer some questions about the credit process.

Repairing your credit after a short sale is very possible. If you need professional service to help you repair your credit, consider contacting:

Blair Warner, Upgrade My Credit
http://upgrademycredit.com/
888-586-2261

If you are facing a financial hardship and are in danger of foreclosure, contact The Highland Group, we may be able to help you avoid foreclosure. 301-401-5119.

Pros and Cons of Buying A Short Sale

Pros and Cons of Buying A Short Sale

Short Sale Real Estate

I’m sure you’ve heard the term in today’s real estate market. A Short Sale is when a home owner negotiates with their lender(s) to sell their home for an amount that is less than what they owe on it.homes for sale Frederick md Short. The number of short sale homes have decreased throughout this year, a good sign for the economy. But there are still short sales coming on the market, about 10% of the inventory in Frederick County.

There are several issues that buyer’s need to understand about short sales that will help them navigate this specific part of the real estate market. With patience and the right expectations, buying a short sale can be a great benefit

About Short Sales

1. Short Sales take more time.

After a home receives a ratified contract, the short sale requires a “Third Party Approval”. In this case the third party is the lender, or lenders that hold the mortgage. The bank(s) or investors who have loaned the money for the home must give their approval to the contracted price and conditions. This is what makes the process take so much longer than a standard home sale. If there is more than one lender, the process can be longer.

The lender(s) will assign a negotiator for the home sale. The negotiator will investigate the transaction, order an appraisal or BPO to determine the market value, and make a recommendation to the lender.

2. How long does the typical short sale take?

In 2007 short sales began to hit the market in numbers, as the first wave of home owners found themselves unable to pay their adjusting mortgages. Banks were overwhelmed and understaffed and there were no unified systems for handling the cumbersome process and the massive amount of paperwork. In Maryland only 1 in 31 short sales actually made it to a closed sale during 2007.

Since then, the process has gotten much more streamlined as banks have built  short sale departments and trained employees. The government has stepped in with legislation and incentives to help banks move along in the process. The Banks  have been motivated when they realized that the loss on a home that is sold in a short sale is much less than the loss they incur due to foreclosure. Today, 90% of homes that are marketed as short sales make it to settlement.

It usually takes an extra 60 to 90 days to negotiate a short sale. Some have been sooner, some later, it really depends on the particular bank involved. Some banks are notorious for being difficult, some are organized and more friendly and cooperative. Some banks are more interested in protecting their investors, some are more interested in getting the home sold.

3. Even if I have the time, should I get involved with a short sale?

That’s a question only you can answer, given the pros and cons.

Pros of a Short Sale:

  • You can get a house for about 15% to 20% below market value
  • Although not perfect, short sales are usually in better condition than foreclosures, because they aren’t sitting empty. The homeowner usually stays in the home until settlement.
  • If your agent and the listing agent are trained and experienced with short sales, they can help set the proper expectations and you shouldn’t find that you’ve wasted time over a home that won’t settle.

Cons of a Short Sale

  • If you are not flexible with the time frame, then a short sale might not be the right choice for you. The settlement date cannot be set in stone, so you need to have a 6 to 8 week window.
  • When a seller is in a short sale situation, they must have experienced a hardship. In our experience, there is usually no money for upgrades and maintenance. Truthfully, a typical short sale home needs a few minor repairs and upgrades, but is usually not in a state of huge neglect. A buyer ought to plan on doing some minor work.
  • The biggest negative about buying a short sale is the unknowns, like not knowing what price and conditions the lender will counter your offer with, or not knowing the exact settlement date until a few weeks before you can settle. Having experienced agents and an experienced Title company can help mitigate against these risks.

Don’t Rule Out A Short Sale

In many real estate markets, short sales are a sizable part of the inventory, so to rule out buying a short sale will very likely limit your choices. In the Frederick Md market the number of distressed sales has decreased.

Chris Highland is a Certified Distressed Property Expert, CDPE, trained and experienced in the process of a short sale. If you are considering a short sale purchase, having a buyers agent who understands the process is a great help. Contact Chris to help you in the process of a purchase.

 

 

Another Successful Short Sale Settlement in September 2013

Another Successful Short Sale Settlement in September 2013

The Highland Group has another successful short sale transaction this month. A single-family Colonial home in Montgomery Village Maryland closed after a total of 123 days, a very good time-frame.Upside Down and Distressed?

The home in the golf-course community of Fairidge, was listed for sale with the Highland Group for 31 days before receiving a contract. The sellers were referred to us by a previous client, and were very pleased with the 21st Century marketing plan that is our specialty; including a professional home video, blogs and optimized visual tours.

A Successful Short Sale

After the contract was ratified, it took a total of 93 days until settlement, in which time the Highland’s team successfully negotiated for a win-win conclusion for the buyers and sellers. The home sold for $420,000, the list price, with $6040 in closing cost help.

Happy Buyers and Happy Sellers

successful short saleThe buyers and their agent were thrilled with the seamless process and the better-than-average time frame in which the entire process took place. The buyers appreciate the value they get in the home and understood the extra time that a short sale transaction takes.

Congratulations to the happy buyers who got a great deal, and to the sellers who are able to move on to the next stage of their lives, with as little damage as possible.

*     *     *Certified Distressed Property Expert

If you are facing possible foreclosure or are unable to pay your mortgage due to hardship, contact Chris Highland, CDPE, Certified Distressed Property Specialist in Central Maryland.

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