Keep Paying Mortgage Payments Or Walk Away From Your Home?

For the majority of homeowners, many often made on-time mortgage payments. With the ballooning unemployment rate or the shrinking of US jobs together with the undesirable event of home prices fallen off a cliff, many homeowners find themselves trapped for the first time after realizing a severe hit on the equity of their homes.

Anonymous homeowner named Brian, has never been late on a mortgage payment and always believed that paying off his mortgage was the right thing to do. However, as he witnessed his home value falling off the cliff, he is wondering if paying off his mortgage makes anymore logical sense.

Brian who works with the police force jointly bought a 4 bedroom property with his mortgage broker wife situated in the upper class neighborhood of Phoenix, Arizona in 2005 for around $650,000. They offered a twenty percent down payment and obtained a 30 year fix-rate loan. As they were expecting expensive fees for their daughter’s higher education, home construction together with a scheduled wedding, they applied for a second mortgage against their property. Today, they jointly owe their bank $647,000 for the first and second mortgage.

Average home prices in Phoenix have fallen 48% after peaking in the summer of 2006 as indicated by the First American CoreLogic Index. As a result, Brian estimates his home to be worth between $375,000 and $425,000 although it has a 4 car garage, a 1.2 acre lot that includes a swimming pool. Zillow.com, a web resource that estimates national home values based on the number of sales within its neighborhoods, estimated the house to be worth $374,000.

They are one of many millions of American homeowners who are underwater on their mortgage or owe more than their homes are actually worth. They are all faced with the common question. Should they keep making payments and hope things will get better or give-up and walk away with the consequences of a 7 year foreclosure scar on their credit records.

Luckily, they have not been evicted as they had the power to utilize some of their savings so as to continue paying their mortgage. With the remaining American homeowners who owe more than their homes are worth, there is simply inadequate equity in their properties to provide them security in the event of a medical emergency or an unexpected loss of wages such as job loss. Most of them are not able to rid their homes for enough money to pay back the bank as a result of severe fall in property prices. This notion makes them to be very likely victims of foreclosure.

An event that could save many is an incredible recovery in housing values therefore increasing the equity of their property. To be realistic, this is not going to occur in the short term.

Few of the families living in their area have abandoned their houses. It is easy for Brian and his family to do the same as they have the option of renting another property at a much more affordable rate relative to their mortgage payment combined with property taxes, insurance and maintenance costs.

Brian is reluctant to hope for a miraculous boost in property prices that will rid his problem. He said that if the emergency fund fell below a determined figure, they will think about a short-sale.

The definition of a short-sale is when the property is bought by someone for less than the mortgage amount owed and the difference forgiven by the bank. Brian stated that they have always made their mortgage payments. They are frustrated as they are depleting their funds so as to continue making mortgage payments. He urged that at some stage, you will need to know when to stop before hurting yourself and losing all your money.

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CitiMortgage Released Its Foreclosure Alternatives Program To Aid Homeowners By Allowing Them To Remain In Homes

CitiMortgage yielded a new program to aid homeowners by allowing them to stay in their properties for an extra 6 months as long as they hand in their property deeds when the six months expire. The new program termed Foreclosure Alternatives Program is deemed to attract 1,000 home participants and is open to the states of Illinois, Michigan, Texas, Florida, New Jersey and Ohio. CitiMortgage may implement the program in all states.

During a foreclosure, the financial institution will recover the property while the ex-homeowner will have to abandon the premise. Citibank’s Foreclosure Alternative Program combines the provisions of a Deed In Lieu of Foreclosure thus permitting borrowers to not experience a typical foreclosure. Its purpose is to provide relief to families by allowing them to reside for an extra 6 months as long as they return the deed to the financial institution.

Normally, a conventional foreclosure takes a more severe damage on the borrower’s credit score. Citi’s program, an expansion of the ‘Deed in Lieu of Foreclosure’ will not severely impact borrowers’ credit scores even if they have to vacate after 6 months.

Citibank’s new solution is a method of alleviating the risk of more borrowers abandoning their houses via a popular method termed walking-away. Economy.com announced that close to a third of all U.S. mortgages are underwater. The definition of underwater means the amount of mortgage owed exceeds the current worth of the property.

Property researchers are afraid that borrowers who are in debt with 20% or more than their properties are worth are likely to abandon their properties through strategic default or walking away. Majority feel that there is a narrow opportunity for property values to make a come back to previous lofty levels in the foreseeable future.

According to Sanjiv Das of Citi Mortgage, avoiding foreclosure can be mutually less painful for both the homeowner and lender. He said that the goal of the program is to help homeowners make a smooth transition into the next chapter of their lives. Under Citi’s Foreclosure Alternative program, borrowers are still required to pay their utility bills. Citi is committed to paying a minimum of $1,000 per homeowner for relocation costs and will consider helping out in other expenses including the provision of relocation counseling by trained professionals. Other related costs such as homeowner’s association and escrow fees will be determined on a case-by-case basis depending on the borrowers’ unique financial standing.

As part of the program, homeowners agree to sustain the well being of their residential premises and encouraged to meet with certified relocation professionals twice every thirty days as they plan to move on with their new lives after moving out of their homes.

How To Qualify?

The program was enacted to aid those who could not obtain a loan modification or a short-sale. To meet the requirements of this program, the homeowner must first be considered for a permanent modification. If the borrower fails to meet the requirements for a permanent modification, CitiMortgage will determine if the short-sale solution will work. A short-sale is when the bank accepts the purchase offer from a buyer which is often less than the mortgage amount owed. If the short-sale arrangement is now possible, then the borrower may be regarded as an applicant to Citi’s Deed in Lieu program or better known as the Foreclosure Alternatives program.

To meet the requirements of this program: 1. Required to have first mortgages with a transparent title owned by Citibank. 2. Required to be presently occupy the property. 3. Required to be above 3 months late in mortgage payments.

Citi’s Foreclosure Alternative program was announced 3 months after Fannie Mae’s November 2009 announcement of their ‘Deed For Lease Initiative’.

Fannie Mae’s ‘Deed For Lease’ program allows homeowners to return the property deed back to the lender and in exchange, allow the homeowner to rent the home for up to 12 months. Fannie Mae’s recently announced program literally converts homeowners into renters after they have returned the property deed.

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How To Prevent A Deficiency Judgment After A Short-Sale?

As horrible it is to lose your home to foreclosure, ex-homeowners may still be on the bait for the deficiency amount. This is simply the difference of what is owed on the mortgage and what the bank could sell at an auction. “Deficiency judgments” can haunt borrowers, years after they have lost their home.

It can be an unpleasant shock for borrowers who have sold their home via a short sale arrangement where the bank approved selling the property for an amount less than the mortgage debt.

Vanessa Corey who made a short-sale on her Fredericksburg, VA home in April of 2008 is a real life example. After building her house in 2004, unforeseen setbacks which led to a bitter divorce coupled with the economic housing crisis forced her to sell the house through a short-sale arrangement.

As a property agent, she assumed the lender had agreed to disregard the difference in amount owed after the short-sale. Late last year, her legal representative produced a letter from her lender with a demand to pay an owed amount of $65,000. As she didn’t have the money, she declared bankruptcy.

There are a lot of financial institutions who decline to discuss the topic of ‘deficiency judgments’. Correy’s financial institution who lent her the money stated that they were targeting more people with deficiencies.

How Do You Avoid A Deficiency Judgment? It depends on which state the homeowner resides in. Other things include if the borrower has a second mortgage or other liens. It can definitely hurt homeowners if they disregarded the issue altogether.

Real-estate attorney, Mr. Zaretsky mentioned that if your financial lender has achieved a judgment on the borrower, they can target you despite of your location. They have the power to ask for your financial records, hold your wages and put you in jail if you continued to turn away from their requests.

In reference to home foreclosures, lenders can pursue deficiency judgments in more than 30 states. According to the U.S. Foreclosure Network, an organization of mortgage firms, this includes states such as Florida, New York and Texas.

Fortunately in places like Arizona and California, they do not permit ‘deficiency judgments’. The other ten states that do not allow such judgments are Iowa, Alaska, North Dakota, Montana, Pennsylvania, Oregon, Washington, Wisconsin and South Carolina.

Although lenders are willing to forgive the deficiency amount, many borrowers are not aware that they are required to request for a release. To avoid any unforeseen surprises, ensure that your attorney requests the bank to release you of any future obligations.

Zaretsky says that homeowners should not take things for granted assuming that a deficiency judgment will not return and hit them. He believes that many of these judgments will be pursued over several years to come. It is important to note that these accounts were sold at a loss to various collection firms and third-party investors. These firms would not have purchased these loans if they weren’t eager in recovering the amount they paid for them.

Banks or collection firms do not act in obtaining judgments right away. As a strategy, they may act patient and allow debtors to financially improve prior to filing with the legal system. For example, banks have up to five years to file in Florida state. Once judgment is obtained, the bank has up to twenty years to pursue the debt with interest.

Financial institutions and debt collection companies can hunt down ex-homeowners in spite of a minor debt. In 2004, Mr. Varno and his spouse achieved a short-sale arrangement with their property after he was laid off from his job. In 2008, to his surprise, the second lien holder demanded 25 K from him. Mr. Varno explained that they had already released the title thus making him not indebted to the 2nd lien holder.

Disappointingly enough, that is far from the truth. Although the title was released, this will not make the debt vanish. As there are differences in state laws, a regular mortgage contract is split into 2 provisions. The first being the collateral exchange where the property is pledged. The 2nd is the contractual guarantee to pay off the loan.

Financial institutions may drop the liens to help allow a short-sale. This however does mean that they will terminate the original contractual agreement for the borrower to repay the loan as stated in the promissory notes. After selling the house, the secured debt can evolve into an unsecured debt.

Mr. Zaretsky explained an example about one of his customer who was so happy in achieving a short-sale that he foolishly signed all the documents his property agent gave him. Not knowing what was happening, he had also signed away a statement indicating that he is still owes and acknowledge the debt.

He was unaware that the financial institution could take that document and transform it into a deficiency judgment through the legal system.

Banks are not always on your side. Zaretsky mentioned of another customer who was wealthy enough to pay off the difference but the lender didn’t care as they had the power to target you for the debt in the foreseeable future.

Mr. Tolchinsky, a Florida state realtor claimed that financial institutions may pursue borrowers who walk-away if they suspect that they may have other listed assets.

Banks will research to see if it was a pure walking-away attempt where the borrower truly could not afford to make his or her mortgage payments. If they find out that the borrower has been making timely payments and is in financially sound status, he or she maybe targeted for the deficiency.

If you are unsure, it is recommendable to obtain the services of an attorney to make sure that the debt in the short-sale or deed-in-lieu agreement is negotiated away.

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CNBC Reporter Uncovers Short Sale Fraud

As lawmakers put new legalities in effect to reduce mortgage fraud, there is a new type of mortgage fraud being done discreetly by agents from larger banks. On Jan fifteenth 2010, CNBC real estate columnist, Diana Olick produced an alarming story about short-sales and mortgage fraud performed by agents working for larger banks.

Before posting her article, Diane was notified by Jeremy Brandt, the CEO of a few organizations such as 1800CashOffer, HomeFlux.com and FastHomeOffer.com. These organizations bring together short-sale agents, investors and sellers so as to allow short-sale transactions. Jeremy Brandt had been getting lots of negative reports revolving second lien holders.

As the real estate crisis worsens with many homeowners underwater or owing more than their houses are valued compounded with the dreadful unemployment problem, short-sales is now a top option for many homeowners who have not managed to obtain a loan modification or a refinance. A short-sale is when a bank agrees to sell the property for an amount lower than the mortgage balance owed. The National Association of Realtors indicated that short-sales was responsible for roughly 12% of all home sales in 2009.

Short-sales can be difficult. They get complex and troublesome whenever there are two loans in the picture. For a short-sale to occur, parties need the authorisation of the second lien holder to release the lien. If the second lien holder rejects the release, then you can forget about the short-sale and the property ends up in foreclosure with the first lien holder keeping the property. The second lien holder will be entitled nothing since its debt is not superior to the 1st debt ( first lien holder ).

Usually, the first lien holder will arrange a partial payment for the second lien holder to drop the lien thus permitting the short-sale to go through. The second lien holder isn’t obliged to agree but more are starting to take payments as they rather receive something instead of nothing. All of this is within the confines of the legal rules.

For majority of the second lien holders, they may either receive little or less. Because of this, many second lien holders are asking real estate brokers or buyers in a short-sale to pay money ‘under the table’. Under the table interprets to it being not divulged in HUD settlement statements. According to Brandt, second lien holders are pretty direct with their demands meaning that if the first lender realises that the second lien holder is receiving payment, the first lender will destroy the short-sale. These second lenders typically demand a cashier’s check before closing while selecting not to divulge in the closing documents and HUD statements. Once the second lender receives the payment, they will permit the short-sale to go through. According to RESPA laws and the attorneys that Diane Olick consulted, the actions are assumed illegal.

RESPA is the housing Settlement Procedures Act, a law that was established in 2008 permitting home purchasers to get disclosures at several stages of a property exchange. It is intended to stop and restrict illegal kickbacks that increase the cost of settlement services. RESPA is a HUD consumer protection law, founded by HUD, built to fortify and protect property buyers during their property buying experience.

Brian Sullivan, a RESPA expert announced it to be breaking the law. Jeremy Brandt commented that he was notified by 200 agents claiming that they’ve had these illegal requests from members of Citi Mortgage, JP Morgan Chase, Bank of America including other larger banks. While many of these transactions remain unseen and hidden, it helps to promote more short-sales which result into more home purchases thus benefiting the U.S. home market. Though there has not been any active investigation into this issue, a study of RESPA laws confirm it to be clearly illegal.

CNBC approached all three heavyweight banks about this issue and below are their following replies. JP Morgan refused to comment when CNBC contacted its media department.

Bank of America denied any practice to CNBC and replied with the following statement: “Bank of America enforces a policy that all disbursements are documented on the settlement statement for short sales. When we are servicing a first mortgage with a second lien held by another investor, if the second lien holder asks for off-HUD payments, we will not approve the transaction (if we have knowledge of it). It is also against Bank of America’s policy to accept off-HUD payments on its second liens.”

Citi Mortgage responded to CNBC with the following statement: “We work very hard to help distressed homeowners find solutions for their financial challenges. In our attempt to amicably resolve the debt, we will generally negotiate a reduced settlement with the homeowner in order to release a second lien. Unlike some lenders who refuse to reduce the payoffs on second liens, we choose to reduce the payoff amounts in some situations to assist the borrower. We do not provide instructions to settlement agents on how to fill out the settlement statement or any other closing documents, and we certainly do not require settlement agents or any other parties to violate applicable laws.

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Are US Home Prices Doomed For Another Fall In 2010?

Towards the end of 2009, we were starting to see a glimmer of light at the end of the tunnel as home sales increased registering its highest levels in more than 2 years. Many thought that we have reached the bottom in home prices with increased interest from home buyers stirring up bidding wars from Florida to Nevada, Silicon Valley and New York.

Not to ruin the party but Mark Zandi, the chief economist of Economy.com thinks not. He predicts that home prices may fall another 5% to 10% in 2010 with some extreme cases of 30% in places like Miami. There is a very slim chance that home prices may recover in 2011 and it is still too premature to tell. Zandi worries that the millions of troubled loans that eventually don’t get modified will pile up and convert into more foreclosures. RealtyTrac estimates that 2 million housing units in the United States are in foreclosure or bank owned. There is a clear danger that many more are likely to pile on to the inventory. Zandi is estimating 2.4 million new foreclosures in 2010. He is anticipating that banks will become more aggressive in listing more of their properties in the first half of the year. The bank’s actions of dumping more properties in the market will cause prices to tumble even more.

Presently, the U.S. housing market is not holding on its own as it is being perked up by the extended first-time-home-buyer tax credit. In addition, the U.S government has been purchasing mortgage-backed-securities or the bundling of home loans since late 2008. The govt. purchases of these instruments have helped keep mortgage rates low and fascinating. Wall St. investors once popularly bought MBS in the hope of earning a good return. This is obviously not true today with the decline of US housing causing the market interest for mortgage-backed stocks to shrink with no investors or speculators. By March of 2010, the US govt. would have finished its acquisition of a huge $1.25 trillion worth of mortgage-backed-securities. There’s debate that the government may end its purchases of mortgage-backed-securities by March 2010. This may lead to mortgage rates to spike by a full point. This can turn away many home purchasers as it raises the price of purchasing a home.

All these factors were incorporated into Economy.com’s housing price forecast for 2010 with the consideration of local figures for income, population, interest rates and foreclosures. The result covers 100 metropolitan areas. Their 2009 projection of a 14.5% decline were quite accurate and not too far off from the actual 13.2%. According to Zandi, the hardest hit areas as he terms the ‘usual suspects’ such as Nevada, Florida, Arizona and California will experience more foreclosures. He indicated Miami was the worst market where the 2009 median home price of $183,530 is predicted to fall another 33% in 2010.

Zandi points out to the less controversial areas such as the Pacific Northwest, New York and Virginia where prices remain inflated relative to rents. The brighter spots are found in the pockets of the Midwest where the agricultural and energy economies are stronger in places like Dakota, Kansas and Nebraska. Pittsburgh which never experienced a housing bubble is the only housing market that is expected to rise by 0.41% in 2010.

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