New Jersey's tax sale law; city wins; property owner cannot get back his property

Tax foreclosure causes owner to lose title to real estate.

Municipalities earn most of their income through the collection of real estate taxes. In New Jersey, when taxes aren't paid, the municipality has the right, indeed the obligation, to collect those taxes by selling the lien representing those unpaid taxes. If the lien is not sold, the municipality becomes its owner. (The lien is represented by a tax sale certificate that is recorded in the land records.) If the lien remains unpaid, then the municipality has the ability to foreclose on that lien, take title to the property, and then sell it n order to recoup the unpaid taxes.

Sometimes, after the title has been acquired by the municipality, the owner "wakes up" and tries to reclaim the property. In a recent case involving Newark, New Jersey property, the former property owner gets it in the neck for a) not paying the taxes, and b) trying to bamboozle the court into reopening the case after title was acquired by foreclosure.

As discussed in the Court's Opinion involving an investment property, none of the foreclosed owner's arguments were persuasive and the Court would not set aside the foreclosure.

Our office deals with tax liens on a daily basis. Our advice, pay taxes when they are due!

We deal with municipal tax liens on a daily basis and over the past 40+ years.  If you think we can help you, or if you have a question regarding unpaid municipal liens in New Jersey, let us know.

We are the New Jersey title insurance agent that does it all for you. For your next commercial real estate transaction, house purchase, mortgage refinance, reverse mortgage, or home equity loan, contact us, Vested Land Services LLC. We can help!

For your real estate purchase or mortgage refinance or

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Stephen M. Flatow, Esq.

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Fairfield, NJ 07004

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New Jersey Fair Foreclosure Act interpreted in case of "first impression"

Notice to tenant pursuant to the Fair Foreclosure Act must be given as set forth in the statute.

New Jersey tenants are protected from predatory landlords by the provisions of the New Jersey's Anti-Eviction statute.  So what happens to a tenant when a property is foreclosed?

A tenant cannot be evicted unless there is a violation of the lease, or a non-payment of rent.  A newly decided case looks at the provisions of the Anti-Eviction statute and the New Jersey Foreclosure Fairness Act.

UTS BECHMAN, LLC v. LIZA WOODARD (SUPERIOR COURT OF NEW JERSEY ESSEX COUNTY LAW DIVISION, SPECIAL CIVIL PART, DOCKET NO. LT-17399-19) begins in a divorce case where the wife was made the tenant of the former marital residence.  The mortgage that the former couple made on the property went into default and the plaintiff became owner of the property and attempted to evict the tenant.  She fought back.

In its ruling, the appellate court says:

This case, one of first impression, involves the rights of a tenant under the New Jersey Foreclosure Fairness Act, N.J.S.A. 2A:50-69 to -71. This is New Jersey’s version of foreclosure reform legislation that swept the country following the 2008 “Great Recession.” Defendant, pro se, essentially argues that the statute shields her from eviction in this summary dispossess non-payment action because the new property owner did not strictly comply with the notice requirements of the statute. This court agrees.

The decision analyzes the Anti-Eviction law and the Foreclosure Fairness Act.  In holding for the tenant, the court says:

The language of the statute is plain and clear. The New Jersey Foreclosure Fairness Act was intended as remedial legislation designed to fully inform residential tenants of their rights after a foreclosure. The language used evidences a clear legislative intent that the statute be strictly construed. The legislation is designed to protect tenants from what, in some cases, may be predatory landlords who seek to wrongfully evict a tenant. In the present matter, the notices provided by plaintiff do not comply with the strict requirements of the New Jersey Foreclosure Fairness Act. 

The notice introduced at trial merely notifies the tenant where to pay the rent. It did not include any of the language required by the statute. Further, the notice was not properly served, in that it was not sent by regular and certified mail to defendant.

The moral to the story: Investors buying tenant occupied residential property at foreclosure sale must adhere to the provisions of both statutes before attempting an eviction.

The decision can be found at New Jersey Courts.  If you cannot access the decision, please contact us for a full copy.

We are the New Jersey title insurance agent that does it all for you. For your next commercial real estate transaction, house purchase, mortgage refinance, reverse mortgage, or home equity loan, contact us, Vested Land Services LLC. We can help!

For your real estate purchase or mortgage refinance, or

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Towns making money off of tax foreclosures?

DS News reports on a Michigan case where a property was foreclosed upon by the town for unpaid taxes, and then sold at a "profit."  A comment caught our eye, [our comments in brackets.]

A study from Quicken Loans revealed that as of 2018, 21% of Michigan homeowners were unaware their property was behind on property taxes, and another 61% of renters in tax-delinquent properties were unaware of the home’s tax status.  ["Unaware" sounds ludicrous to us.  Could a homeowner be that foolish?]

Here's the full story written by Seth Welborn.

Tax Foreclosures Under Scrutiny

The Michigan Supreme Court is being urged by Pacific Legal Foundation to halt a state law which allows counties to “profit” from the sale of foreclosed properties, after a home in Oakland County was sold for $24,500 after being foreclosed on for $8.41 in unpaid taxes.

“It is akin to stealing,” said Pacific Legal Foundation attorney Larry Salzman, in Bridge Magazine. “The government shouldn’t be taking more than is owed to them to cure the tax deficiency. I understand states are under [budget] pressure but government should not use citizens  as a bank teller or an ATM machine.”

According to Bridge Magazine, county tax foreclosure is a common practice in Michigan, and counties have foreclosed on over 177,000 properties in the state since 2012. Oakland County, the state’s second largest in population, foreclosed on over 5,500 properties between 2012 and 2017 according to state records, but 65% of county foreclosures took place in Wayne County (Detroit).

A study from Quicken Loans revealed that as of 2018, 21% of Michigan homeowners were unaware their property was behind on property taxes, and another 61% of renters in tax-delinquent properties were unaware of the home’s tax status. However, property tax foreclosures in Detroit are at a 14-year low. In 2018, 2,920 properties faced property tax foreclosure auction, down from 6,052 in 2017, and far below the peak of 15,000 in 2015.

“As Detroit comes back, we need to do everything we can to make sure those who stayed in our city through good times and bad are able to stay in their homes,” Mayor Mike Duggan told Quicken Loans. “We are seeing real progress in tax foreclosure reductions that impact all of our neighborhoods, and through programs like Neighbor to Neighbor, we will continue this important work in close partnership with the community.”

Although outreach programs have helped improve Detroit's tax foreclosure issues, the city still faces other foreclosure-related challenges. According to GOBankingRates and data from Zillow, 34.4% of homes are currently underwater, and the median home value at the Detroit-Warren-Dearborn metro-area level is $161,300, far below the national median of $226,300. GOBankingRates puts Detroit second on its list of U.S. cities most likely to enter a housing crisis.

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For your next commercial real estate transaction, house purchase, mortgage refinance, reverse mortgage, or home equity loan, contact us, Vested Land Services LLC. We can help!

For your real estate purchase or mortgage refinance or

if you have questions about what you see here, contact

Stephen M. Flatow, Esq.

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Fairfield, NJ 07004

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Foreclosures and the greedy speculator

We are the New Jersey title insurance agent that does it all for you. For your next commercial real estate transaction, house purchase, mortgage refinance, reverse mortgage, or home equity loan, contact us, Vested Land Services LLC. We can help!

Foreclosure grab blows up in face of investor

New Jersey's foreclosure market is hot.  Not in a good way.  There are still many homeowners who cannot maintain their mortgage payments.  The result is a foreclosure action and loss of home.

This case, Wells v. Walker, involved a speculator who knew more than he let on.  He convinced the foreclosed owner to deed the property to him knowing there was a lot of money to be obtained through surplus money proceedings.

The investor loses.

The moral, in the marketplace the bears sometime eat, sometimes it's the bulls. But the pigs, they get nothing.

 

For your real estate purchase or mortgage refinance or

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Stephen M. Flatow, Esq.

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Fairfield, NJ 07004

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Good news for troubled borrowers from FHA as it Trims Waiting Period for Borrowers Who Experienced Foreclosure

The Federal Housing Administration (FHA) is allowing borrowers who went through a bankruptcy, foreclosure, deed-in-lieu, or short sale to reenter the market in as little as 12 months, according to a mortgage letter released Friday.

Borrowers who experienced a foreclosure must wait at least three years before getting a chance to get approved for an FHA loan, but with the new guideline, certain borrowers who lost their home as a result of an economic hardship may be considered even earlier.

For borrowers who went through a recession-related financial event, FHA stated it realizes “their credit histories may not fully reflect their true ability or propensity to repay a mortgage."

In order to be eligible for the more lenient approval process, provided documents must show “certain credit impairments” were from loss of employment or loss of income that was beyond the borrower’s control. The lender also needs to verify the income loss was at least 20 percent for a period lasting for at least six months.

Additionally, borrowers must demonstrate they have fully recovered from the event that caused the hardship and complete housing counseling.

According to the letter, recovery from an economic event involves reestablishing “satisfactory credit” for at least 12 months. Criteria for satisfactory credit include 12 months of good payment history on payments such as a mortgage, rent, or credit account.

The new guidance is for case numbers assigned on or after August 15, 2013, and is effective through September 30, 2016.

FHA Trims Waiting Period for Borrowers Who Experienced Foreclosure

For your next commercial real estate transaction, house purchase, mortgage refinance, reverse mortgage, or home equity loan, contact us. We can help. Located in Fairfield, NJ, we are the title insurance agent that does it all for you.

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Facing foreclosure? 4 tips for homeowners

For your next commercial real estate transaction, house purchase, mortgage refinance, reverse mortgage, or home equity loan, contact us. We can help. Located in Fairfield, NJ, we are the title insurance agent that does it all for you.

Foreclosure is defined as the "process of taking possession of a mortgaged property as a result of someone's failure to keep up mortgage payment." This is a simple definition for a very complicated and overwhelming process. Consumers facing the possibility of foreclosure suffer both financially and emotionally from losing their homes.

So, what is to be done? Arm yourself with knowledge that will help increase your chance of a loan workout or "amicable walk-away."

Here are 4 tips from Realty Times:

1) State Programs For Homeowners
2) Deed in Lieu of Foreclosure
3) Short Sale
4) Cash for Keys

None of this is actually for the faint-hearted but it does pay to know your options.  Read the full article Four Tips for Homeowners Facing Foreclosure.

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Foreclosure prevention seminars - do they work?

An article making its way around the Internet through MCT News Service poses this question on Sun-Sentinel.com-

I saw a notice for a foreclosure prevention workshop sponsored by my lender. Do these really help or is it just public relations for the bank? — Anonymous

I guess the answer is "yes and no."

Whether it's calling your bank's 800 number, working with an attorney or going to a workshop, you will get out of it what you put into it. Be completely prepared. Make sure you have two years of tax returns, six months of bank statements, a copy of your budget and bills, pay stubs and any other paperwork that might be relevant.

The point to remember is that you have to start somewhere, and a workshop may be just the right place to do it.

Read the full story here.

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FDIC sells bank, new owner puts squeeze on borrowers

The FDIC closes a bank, offers that bank for sale, finds a buyer and agrees to cover some of the losses that the buyer incurs. That's how it works when your bank goes under.

But, what happens after you become a loan customer of the new bank? Is it all peaches and cream? Not necessarily so.

  

According to a report on CharlotteObserver.com, banks often put roadblocks in front of their borrowers and either hound them to pay off  their loans or face foreclosure.  One borrower wouldn't roll over and took the bank to court.  It WON!

Read the full story here.

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Widows losing homes in foreclosure

I must admit, I'm a bit jaundiced about these types of stories that come across portraying banks as evil incarnate.  Here, the headline in the New York Times says it all, "Widows pushed into foreclosure."

Geraldine Bates lost her husband to kidney failure last year. Now, she has fallen behind on her mortgage payments and is terrified that she will lose her home in Jacksonville, Fla.

In the latest chapter of the foreclosure crisis, homeowners over 50 are falling into foreclosure at the fastest pace of any age group, according to nationwide data, in part because women are outliving their spouses and are unable to cope with cuts in their pensions, ballooning medical costs — and the fine print on their mortgages.

At first glance, the issue seems little more than a logistical headache. To stay in the home, the surviving spouse needs to take over the mortgage. But to do that, most banks require that the borrower assuming the mortgage be up-to-date on payments. Housing advocates say that their clients, especially if one spouse experienced a prolonged illness, often find they are already thousands of dollars behind.

The solution, ask the Federal government to create a nationwide solution.  Egad, this would be a nightmare as we have courts situated to adequately protect folks in this situation.

In my opinion, we don't have all the facts as I've yet to come across a bank that will not accept payments from the executor or administrator of an estate after the death of the owner of record.  As for modification of an existing mortgage, here, too, the executor or administrator is empowered under state law to act in the place and stead of the deceased owner. 

Finally, there's more than one way to skin a cat because if there's equity in the property, the surviving spouse should be eligible for a reverse mortgage that would pay off the existing first mortgage and provide a continuing cash flow to the survivor if that is desired.

Read the full report here.

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The Rental Alternative to Foreclosure

refinance New Jersey mortgages title agency
The New York Times reports

FOR homeowners who have been buffeted about by the foreclosure process, the suggestion that they willingly hand their deed to the lender and rent the home instead may only add insult to injury.

But such an alternative to foreclosure — variously called “deed for lease” or “mortgage to lease” — is an option for a select few. Fannie Mae introduced a rent-back program in 2009, and this year, both Bank of America and CitiMortgage announced that they would try a similar approach in a handful of markets.

The programs are basically an extension of what’s known as “deed in lieu of foreclosure.” In this process, the lender agrees not to foreclose if the homeowners simply hand over the deed to their property.

An interesting idea and in some markets it might work very well if homeowners can rebuild their income.

There is a scam similar to this legitimate program.  In the scam, the "buyer" or "investor" gives you money for your home, usually enough to pay off your mortgage, and then agrees to rent you the house back at $X.  The problem is that the monthly payment is too steep for the former owner to maintain payments.

In the meantime, the investor has borrowed against the home, ceases to make payments and the former owner is on the street.

 

Read the full article here.

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if you have questions about what you see here, contact

Stephen M. Flatow, Esq.

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Foreclosed? How long before the new mortgage?

The New York Times writes about “The Post-Foreclosure Wait.” The good news is that, “mortgage troubles won’t necessarily shut you out of the housing market forever.”

As the economy and real estate market continue to struggle, millions of Americans have lost their homes through foreclosure, short sale (when a property is sold for less than is owed) or a deed in lieu of foreclosure (when the bank takes ownership without foreclosure).

Even if you think you never want to own a home again, clean credit is important. Bad credit can make it more expensive to rent. In some fields, especially financial services, it can make it difficult to find or keep a job.

What affects recovery speed?

In a short sale where the balance is forgiven and no deficiency is recorded in public records, recovery can be quick.

A foreclosure or bankruptcy can weigh you down for years.

As long as 7 years.

But if someone has gone through foreclosure and still has a mountain of debt and not enough income, bankruptcy is worth considering, said Tracy Becker, the founder of North Shore Advisory, a credit-restoration company based in Tarrytown, N.Y. Sure, it will be another hard blow to your credit rating — but your credit most likely is already “wrecked,” at least for now, she said.

OK, so you have pushed the plunger,

And what about a future mortgage? Fannie Mae, Freddie Mac and the Federal Housing Administration set guidelines for how long a borrower must wait after a “significant derogatory event.”

There are plenty of asterisks and conditions. But to generalize, the wait is longest after a foreclosure. Extenuating circumstances like a job loss, illness or divorce reduce the wait.

With such circumstances, Fannie and Freddie specify a two-year wait after a short sale, deed in lieu, or discharge or dismissal of bankruptcy, and three years after foreclosure. Without extenuating circumstances, waits can extend to four years after bankruptcy and seven years after foreclosure.

Read the full report.

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Stephen M. Flatow, Esq.

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Tel 973-808-6130 - Fax 201-656-4506

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Misunderstandings in foreclosure and bankruptcy- how to protect your home

Bankrate.com has an excellent article on keeping your home in the pending face of a foreclosure. It asked its expert Justin Harelik to address this question:

“I'm filing bankruptcy. I am behind on my mortgage payments but not in foreclosure. I plan on reaffirming the loan but can they still choose to foreclose instead of reaffirming with me? If that happens, I was also going to hire a foreclosure defense attorney to challenge their ownership of the note, but don't know if I can do this through the bankruptcy process or wait until I reaffirm the loan?”

The expert’s answer-

"Unfortunately, I don't think you are getting correct information. You are discussing one thing that is not an option and another that is highly speculative."

To get a handle on what’s wrong with these two approaches and a suggested approach to the writer’s problem read the full article “Preforeclosure options to keep a home.”

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Stephen M. Flatow, Esq.

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Foreclosure properties are not always a bargain

We get a lot of phone calls from potential buyers. They usually go like this, “What can you tell me about buying a property at a foreclosure sale?”  My answer, “Don’t unless you have done it before and you were successful.”

The New York Times ran a story, “Avoid Foreclosure Market Until the Dust Settles” by Ron Lieber. He writes,

“Are you out of your mind to even consider buying a foreclosed property right now?”

He tells the tale of Todd Phelps and Paul Whitehead “thought they had won the lottery” when they bought a property at a foreclosure sale.

“Several days later, however, they realized that what they had really bought was a second mortgage from Wachovia on a house that still had an enormous, unpaid primary loan. In other words, they did not own the home free and clear, and the auction company wouldn’t give back their $137,000 check.”

Admittedly, these homes are “tempting for scores of first-time homebuyers, second-home seekers and people looking to get an early jump on buying a retirement home while prices and interest rates are low.”

Bidding on a foreclosed home does have its pitfalls but it’s a way to get a start in the real estate market. And we have many clients who make a living buying at foreclosure sales, fixing up the property and selling it. Yet, the Phelps and Whitehead story is a cautionary one and you are invited to read the full report here.

For your next title order or

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Stephen M. Flatow, Esq.

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Fairfield, NJ 07004

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Foreclosure freeze may have grim future

The slow-down in foreclosures by several of the big lenders is not all good news. As reported in the Star-Ledger:

“A halt in home foreclosures at the largest mortgage firms may sideline buyers worried about legal issues, further depressing sales at a time when distressed properties account for almost a quarter of all transactions.”

Why? Because doubt on the legal sufficiency of the foreclosures will result in those houses not reaching the real estate market.

“Bank of America Corp., the largest U.S. lender, extended a freeze on foreclosures to all 50 states on Friday as concern spread among federal and state officials that homes are being seized based on faulty data. JPMorgan Chase and Ally Financial Inc.’s GMAC Mortgage unit stopped repossession cases in 23 states where courts supervise home seizures — including New Jersey — amid allegations that employees submitted documents with unverified or false information to speed the process.”

Statistics from around the country demonstrate that foreclosure sales play a major role in the rebound of the real estate market.

"’Our preliminary review of September foreclosure activity doesn’t show any obvious or notable impact," said Rick Sharga, senior vice president of RealtyTrac. The effects may show up in the October data, he said.’”

 On the other hand,

“A reduction in foreclosure sales may result in a short-term boost to the nation’s median home price as buyers shy away from distressed properties, said Thomas Lawler, founder and president of Lawler Housing and Economic Consulting in Leesburg, Va.”

 The halt to pending actions by several lenders means that many property owners are living rent free. That would include those who have made so-called “strategic defaults.” Let’s hope the system straightens out sooner rather than later.

Read the full story.

For your next title order or

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Stephen M. Flatow, Esq.

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Obama administration to send $112M to N.J. for mortgage assistance

Some New Jersey residents stand to benefit from mortgage assistance coming out of Washington, D.C.

Staying out of foreclosure in this economy can be tough enough. Try keeping up with the mortgage after losing a paycheck.

To try to help prevent more defaults, the Obama administration today said it will send $112 million to New   Jersey to design a program to help unemployed homeowners stay in their homes while looking for work.


New Jersey is one of 17 states with persistently high unemployment rates to share $2 billion in funding through the program, dubbed the "Hardest Hit Fund."

The state still has to come up with a plan on how the money will be dished and no one is predicting, yet, how many people will actually benefit from the program.  Of course, there’s a risk of abuse—money going to the wrong people—but this is New   Jersey, after all.

In any event, hats off to the folks in Washington for sending this money our way.

Read the full report from the Star-Ledger.


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Tips for getting a mortgage loan modification

Writing on Bankrate.com, Marcie Geffner lays out the best ways to get a mortgage loan modification.

There are three major points:
Getting a loan modification is difficult, but not impossible.
Homeowners need to submit full documentation and be persistent.
A housing counselor can explain the modification rules and terms.

Getting a mortgage loan modification might seem like a quest only a mythic hero could achieve. After all, the ranks of those who've lost homes in foreclosure dwarf the number of homeowners who've received mortgage help.

The seemingly mysterious nature of who qualifies for a loan modification is legendary among housing counselors. But these experts say there are ways homeowners can better their chances.

Following are housing counselors' tips for getting a mortgage loan modification:

Complete the package. Homeowners need to submit paycheck stubs, a hardship letter, a budget and any other documents the loan servicer wants. If even one document is missing or outdated, the entire file will drop to the bottom of the pile.

Ask questions. Make sure you know exactly what to provide to servicers. Servicers often request two paycheck stubs on the assumption that two paychecks represent one month's income. But a homeowner who is paid weekly, bimonthly or monthly may have to submit more or fewer paycheck documents. Similar misunderstandings about other documents can be equally problematic.

Stay in touch. Homeowners should call the servicer at least once a week and check on the status of his or her request. Ask whether the file is complete. Review the documents. Explain any special or changed circumstances.

Be persistent.

On the other side of the table, representatives of loan servicers also offer tips for homeowners seeking a modification. They include:

Loan modifications come in "lots of flavors" and not everyone is qualified for the federal government's Home Affordable Modification Program.

Label your documents. To survive that storm of paperwork, homeowners should submit a complete package, put their names and loan numbers on every document and call to confirm that all the pages were received.

Release your tax return. Homeowners are required to not only submit income documents, but also sign IRS Form 4506-T, which allows the servicer to access the homeowner's federal tax returns.

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Buying a foreclosed home – 5 tips from Bankrate.com

We get many inquiries from prospective real estate investors about buying a home that has come through foreclosure.

Our friends at Bankrate.com have published 5 tips to help a buyer negotiate the sometimes tricky path to buying a foreclosed home.

"Buying a foreclosed home is a little different from buying a typical resale.

"In many cases, only one real estate agent is involved. The seller wants a preapproval letter from a lender before accepting an offer. There often is little, if any, room for negotiation. The home comes as is, and it's up to the buyer to pay for repairs.

"On the upside, most bank-owned homes are vacant, which can speed up the process of moving in."

Here are the tips.

1. Get preapproved for a mortgage.

2. Find an agent specializing in foreclosures.

3. Know how long it takes to sell a home in your price bracket.

4. Study the sale prices of comparable homes in your area.

5. Remember the sale is for the home as is.

Read the full article.

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Thinking of Buying an REO Property? Be careful out there.

We are guaranteed to get at least two calls a month asking us about REO properties. These are properties that are still in foreclosure or have been acquired by a bank following foreclosure.

The common theme of these inquiries is this- "I have seen this property and am interested in buying it. I know it's in foreclosure or it just came out of foreclosure. I think it's a good deal for an investment, what should I do?"

When a property is still in foreclosure and there is no chance of negotiating a contract with the owner and a short sale with the lender, we often recommend that the hopeful investor under-stand the market values in the neighborhood before committing to bid. We tell them to not spend a lot of money in searching the title at that point, but to get an idea of the upset price by calling the tax collector and the attorney for the foreclosing lender for amounts owed to them.

Once they bid successfully, we are in a position to search the title thoroughly in order to insure the buyer's title. But this is only one side of the equation when making the plunge into investing in REO.

Realty Times has a timely article written by Kenneth R. Harney that discusses the pitfalls faced by many investors. Harney assessed the situation as follows:

Foreclosures and bank REOs are pulling a new wave of novice investors into the market, some of whom "are just plain clueless, to put it bluntly," says Robert Cain, a long-time rental market and real estate management specialist based near Tucson, Arizona.

"They see the price and they way, wow! I can buy that house and turn it into a rental," says Cain, who lectures around the country and online about investing intelligently.

"But they don't understand the local market, they don't understand landlording, and don't even necessarily visit the property," Cain said in an interview last week with Realty Times.

So, before you leap into the sea of foreclosed and REO properties, read the full Realty Times article, Investor Report: Investment Buying Tips.

For your next title order
or if you have questions about what you see here,

contact Stephen M. Flatow
Vested Title Inc.
648 Newark Avenue, P.O. Box 6453, Jersey City, NJ 07306
Tel 201-656-9220 - Fax 201-656-4506
E-mail vti@vested.com - www.vested.com

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Short Sale, Foreclosure, or Deed in Lieu: Which is Best for the Borrower?

Writing in Realty Times, Bob Hunt, a director of the National Association of Realtors, and Realtor in his own right, addresses the "benefit" to the borrower between a short sale, foreclosure, or deed in lieu transaction. It's an important article, here it is in full:

Short Sale, Foreclosure, or Deed in Lieu: Which is Best for the Borrower?

If only the President’s foreclosure-prevention plan worked as well as “cash for clunkers”. But it hasn’t. When the Administration announced the Making Homes Affordable plan in February of 2009, officials said they hoped it would help 4 million distressed homeowners to stay in their homes. As of this writing (8/2/09), the Administration has acknowledged that there are only 200,000 trial loan modifications under way.

Clearly, lenders have been reluctant to modify loans. (Moreover, there are good reasons for their reluctance according to a recent study by the Boston Federal Reserve.) Also, many borrowers have turned out to be ineligible for the programs or – because they are so far ‘under water’ – uninterested. Whatever the cause, the result is the same: a distressed borrower typically needs to choose between (1) a short sale (where the lender agrees to take less than the amount owed) in which, among other things, a commission (paid by the lender) is generated. (2) a foreclosure, or (3) a deed in lieu of foreclosure (where the borrower ‘gives back’ the property to the lender without a foreclosure proceeding). Which is better for the borrower?

Many real estate agents will say and advertise that a short sale is clearly preferable. In support of this view, two claims are usually asserted. (1) A short sale is less damaging to the borrower’s credit than a foreclosure. (2) A short sale provides the borrower with a shorter ‘waiting period’ until the borrower will be able to purchase a home again.

It is important to note that these are two different claims. For example, in a period of time a borrower could become eligible for a purchase loan under Fannie Mae/Freddie Mac guidelines, but he or she might still not have sufficient credit or income to qualify for the loan.

While many say that a short sale is less damaging to one’s credit than is a foreclosure, documenting that claim is another story. This writer has looked hard, but can’t find any verification from Fair Issac (the developer of the FICO scoring system) or any of the major credit providers. That is probably no surprise, because their systems are proprietary. Nonetheless, one wonders what might be the source of the claim.

On the other hand, people who apparently should know deny that there is any difference. Greta Guest of the Free Press (Freep.com) quotes John Ulzheimer, president of consumer education for Atlanta-based Credit.com. Ulzheimer spent seven years at Fair Issac. “The credit bureau sees those all as equal,” Ulzheimer said. “They are all essentially in the eyes of FICO a major delinquency.” Elizabeth Razzi wrote in the Washington Post (July 20, 2008), “A foreclosure and short sale inflict equal damage to your FICO score, according to Fair Issac…” though she provides no specific citation.

Moving on from the credit score issue, there is the question of being again eligible to buy. More precisely, it is a question of when, in the future, the defaulting borrower could get a loan that would be purchased by Fannie Mae or Freddie Mac. The issue is dealt with in Fannie Mae Announcement 08-16, released June 25, 2008.

When it comes to foreclosures and deeds in lieu of foreclosure, the policy distinguishes between events that were precipitated by extenuating circumstances (e.g. job loss, major illness) and those that were not (e.g. financial mismanagement). If you’ve had a foreclosure without extenuating circumstances, you can’t purchase with a Fannie Mae – backed loan for five years. However, if there were extenuating circumstances, it drops to three years. Suppose you chose the deed in lieu of foreclosure option. If there were no extenuating circumstances, the period would be four years, but with such circumstances, it drops to two. Fannie Mae doesn’t draw the distinction when it comes to short sales: the period is two years, the same as doing a deed in lieu with extenuating circumstances.

May 15, 2009, the Treasury Department issued an update to the Making Home Affordable plan. Among other things, it provides for financial incentives (e.g. a $1,500 moving allowance) to distressed borrowers who meet the general eligibility requirements for a loan modification and who will engage in an approved short sale or who will give a deed in lieu of foreclosure. Distressed and underwater borrowers face a minefield of options for resolving their problems. Not the least of their problems is the vast amount of misinformation floating around. They need to step very carefully.

For your next title order,
or if you have questions about what you see here,

contact Stephen M. Flatow
Vested Title Inc.
648 Newark Avenue, P.O. Box 6453, Jersey City, NJ 07306
Tel 201-656-9220 - Fax 201-656-4506
E-mail vti@vested.com - www.vested.com

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It's "no money down" that got us into this mess

Professor Stan Liebowitz, a professor of economics and director of the Center for the Analysis of Property Rights and Innovation in the management school at the University of Texas, Dallas, looks at the root cause of the mortgage foreclosure crisis and comes away with a new take on the subject.

[T]he single most important factor is whether the homeowner has negative equity in a house -- that is, the balance of the mortgage is greater than the value of the house. This means that most government policies being discussed to remedy woes in the housing market are misdirected.

Liebowitz believes the statistics puts the lie to the belief that it was sub-prime lending that got us into the foreclosure pickle we are in now. It's not resetting of interest rates, either.

The analysis indicates that, by far, the most important factor related to foreclosures is the extent to which the homeowner now has or ever had positive equity in a home.

News reports over the past year of "jingle mail" where the homeowner mails the keys to the lender and walks away from his home and mortgage are on-line. These mortgages are usually of the 100% kind because the homeowner had no equity in the property, i.e., it's nothing more than a "rental" in the mind of the borrower. Let's face it--would you toss away something in which you had invested hard cash?

A person's home is supposed to be his castle, something we protect when the need arises, not a flop-house room we walk away from when the urge hits us.

Read the full article New Evidence on the Foreclosure Crisis.

Vested Title Inc.
648 Newark Avenue, P.O. Box 6453, Jersey City, NJ 07306
Tel 201-656-9220 - Fax 201-656-4506
E-mail vti@vested.com - www.vested.com

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