Years after Loan Default, Homeowners May Still Owe
Friday, March 26, 2010
Homeowners defaulting on mortgages today may be surprised to learn years from now that they still owe thousands of dollars - and a collection agency is coming after them to get it.
“How is that possible?” you ask. Because lenders have been quietly selling second mortgages and home equity lines left unpaid after foreclosures and short sales. The buyers: collection agencies!
But what makes matters even scarier… these agencies can wait however long the term of the loan is to sue (15 years, 30 years, etc. whatever the term is) plus an additional 6 years after that.
Once obtained, a judgment is good for 7 years and can be renewed twice for up to a total of 21 years. So, if you have 20 years left on a second mortgage, the holder of that note could, theoretically, sue you on it 26 years from now (20 plus 6) in the year 2036. The judgment would then be good for up to 21 years from then, which brings us to the year 2057. (I would be 101 years old by then…)
Now, I don’t know that anyone would wait around that long to do this, but they could per current laws.
People who only had a first mortgage on the house in which they lived generally have little to worry about. But borrowers who defaulted not only on their first mortgage but also on a home equity loan or second mortgage are in peril. So, unless something changes, this may cause an ominous, looming echo of today’s real estate meltdown for decades.
This is a lucrative business and investors are coming out of the woodwork. Real estate insiders and financial players are calling it “scratch and dent.”
Owners are generally, but not always, on the hook for the second loans left over from a foreclosure or short sale. Most investor mortgages, too, leave the borrower liable for potential unpaid debt. In many short sales, experienced short sale specialists who have a mortgage license or attorneys can negotiate away debt obligations for the second mortgage. But many inexperienced borrowers don’t know that, and sign final-hour agreements giving lenders the right to pursue them later.
As you may have heard, currently it is a Federal crime for non-mortgage licensees to negotiate with Lenders. So, it is in an agent’s best interest to refer them to a real estate attorney or a mortgage mitigation specialist for advice and to negotiate with the Seller’s mortgage holders. And let the agent do what we do best - sell homes.
Finally - Government forces have moved to limit potential damage to millions now struggling with home loans. A new short sale program aims to prevent banks that hold second-lien loans from pursuing collections from homeowners after the short sale. It goes into effect April 5, 2010 and works this way: Sellers will receive notice that their servicer has steered part of the sales proceeds to secondary lien holders “in exchange for release and full satisfaction of their liens.” However, this release would apply only to short sales done through the administration’s Home Affordable Foreclosure Alternatives program. Lenders could not seek court judgments to collect from these borrowers in the event of foreclosure or short sales.
- Scott Askew
Posted in: Intown Atlanta Real Estate News
Tax Credits Expire April 30th… No Fooling.
Friday, March 19, 2010
We cannot emphasize enough the importance to seriously consider buying NOW if you think a home purchase is in your plans for 2010. The tax credits currently in place WILL NOT BE EXTENDED. AND, as interest rates and home values, rise, your ‘buying power’ will be diminished.
For the ‘once-in-a-lifetime’ tax credits for buying a home, April 30, 2010 is the deadline for being Under Contract
Question: How much is the credit?
Answer: Up to $8,000 for first time Buyers ($4,000 if married and filing separately), with a $75,000 income limit for a single person and $150,000 for a married couple. For a ‘repeat Buyer’ the credit is up to $6,500 ($3,250 if married and filing separately). Additionally, the income limit is $125,000 for a single person and $225,000 for a married couple. For both, there is a $20,000 ‘phase-out’. (Your actual Tax Credit, as long as income parameters are met can be calculated by taking 10% of the Purchase Price.)
Question: I am an existing homeowner and am looking to move soon. Must the home I buy cost more than the old home I will be selling?
Answer: No.
Question: I am an eligible existing homeowner. I have a fair amount of equity in my home. I have found a home where the Seller will not agree to a price lower than $825,000. Will I be able to use any of the $6500 tax credit?
Answer: No. The $800,000 cap on the cost of the purchased home is firm at $800,000. Any amount above $800,000 makes the home ineligible for any portion of the credit. The $800,000 is an absolute ceiling.
Question: I owned my home for 10 years, but sold it two years ago and have been renting since. If I buy now, will I be eligible for the $6500 tax credit if I meet the other eligibility tests?
Answer: Yes. Because you lived in the home for more than 5 consecutive years of the previous 8, you will qualify for the $6500 credit. For example, Say John and his wife bought a home in 2000 and lived there until 2007 when they got a divorce. It would not matter if John has been renting since the divorce; he would be eligible for the credit because he owned a home and occupied it as his principal residence for 5 consecutive years out of the last 8 years. The keyword here is “consecutive”.
- Scott Askew
Posted in: Intown Atlanta Real Estate News
It’s Time!.. For Spring Cleaning and Yard Prep!
Friday, March 05, 2010
If you haven’t made a plan for your spring cleaning and fix-up projects already, now’s your chance. Winter is basically over!
* Now is the time to do spring yard clean up. Edge beds and put out fresh mulch before plants sprout through.
* Top dress and reseed lawns. Mow when grass gets to be 4 inches high. Don’t mow it too short as this only encourages weed growth.
* Fertilize almost everything.
* Time to start transplanting cool season veggies to the garden.
* Build arbors and trellises before transplanting or sowing seeds for vines and gourds.
* Cut back herbs.
* Organize your paper life. Root out and recycle old magazines, newspapers, and assorted mementos. Build a new file system or clear out old files that are past being useful.
* Prepare taxes or have them done, if you haven’t already. File electronically this year. But, if you owe, write the check and prepare to mail…on April 15 and not a minute sooner.
* As Spring starts, check your basement for cracks or leaks. If you see moisture, call a professional to check it out. Many homeowner’s insurance policies no longer cover fungus or mildew damage, so sealing basements is more important than ever!
* Clothes dryer vents should be checked at least once a quarter to make sure they are clear of any lint buildup that could cause a fire.
- Scott Askew
Posted in: Intown Atlanta Real Estate News
Seven Questions To Ask The Lender Of Your Choice
Thursday, February 25, 2010
Unless you have enough cash to cover the purchase price of a property you want to buy, you’re going to need to get a mortgage. But how do you select the lender, much less the loan program, that will work best for you?
We suggest you ask the following questions when you talk with (interview) various lenders. If you do not like the answers given, continue shopping until you find a lender whom you feel comfortable. But, also remember to be nice! You may discover your expectations cannot be met and the first lender you spoke with actually is the best fit for you!
1) What kind of loan is best for me?
First of all, know that a lender needs to ask you a lot of questions before they can answer your question of “which loan is best for me?”. Also, don’t be shy! Ask the lender to describe the pros/cons concerning:
Fixed Rate Loans (The principal and interest payment does not change over the amortization period of the loan. The only thing that would alter the payment amount due to the lender might be interest and/or tax escrow amounts and perhaps Private Mortgage Insurance [PMI]. Fixed rate loans will typically charge an interest rate greater than the initial rate offered by Adjustable Rate Mortgages [ARMs].)
Adjustable Rate Mortgages (The initial interest rate is typically lower than a fixed rate, but the interest rate and resulting payment amount will change each, pre-determined, adjustment period. [One-year and three-year are most common.]
Interest-Only Loans (Run like the wind! [in our opinion] This type of loan has gotten a lot of people in trouble over the last few years. Only go here if you have a very good understanding of the financial marketplace.)
2) What is the Interest Rate?
The interest rate quoted will be the ‘simple interest rate’, not the ‘Annual Percentage Rate’ (APR). The APR is a fairly complex calculation that includes the simple interest rate and many of the fees received by the lender in the way of ‘closing costs’. So our recommendation is to focus on the ‘simple interest rate’ and find out about ‘closing costs’ and ‘discounts points’, etc. separately.
Also, make sure you find out the answers to the following when you discuss an Adjustable Rate Mortgage (ARM):
What is the Index? (The basis used to determine the future increases or decreases of your interest rate (Cost of Funds Index and Average of One-Year T-Bills are two of the more common indexes.)
What is the Margin? (The lender’s Profit Margin or ‘spread’ that is added to the ‘index’ to determine the resulting simple interest rate charged.)
What are the ‘Caps’? (The maximum amount your interest rate can fluctuate each adjustment period AND during the life-time of the loan. [ You will hear “1 and 3” for example; which means your rate can change, up or down, a maximum of one percent each adjustment period, and a total of three percent, up or down, over the lifetime of the loan.)
What is the interest rate the Caps are based upon? (Sometimes we hear of a lender who bases Caps on an interest rate different [usually higher] than the initial rate quoted. So ask this question just to be on the safe side.)
3) What are the Discount Points and Closing Costs?
“Discount Points” are an optional, up-front, expense that is used to lower the interest rate charged. (Many refer to Discount Points as ‘interest paid up front’.) Each ‘point’ is the equivalent of 1% of the loan amount and will ‘buy down’ the mortgage’s interest rate anywhere from 1/8 of a percent to 1/4 of a percent, dependant on the type of loan and amortization period. Currently, with interest rates so low, it is rare that we see someone willing to pay cash up front to lower their interest rate. However, if you do pay Discount Points, they are fully tax deductable.
“Closing Costs” is a term we use to lump in many additional fees that go to the lender and other closing-related services such as the appraisal, credit report, recording fees, escrow establishment charges, the Lender’s Title Policy, closing attorney fee. The lender’s commission, or ‘origination fee’, accounts for a majority of the closing costs.
Do not be shy to ask for explanations of some fees that will show up that we often refer to as ‘junk’ or ‘garbage’ fees. A lender may be willing to waive a few fees in order to keep your business!
An estimate of these fees is duly noted on the “Good Faith Estimate”, which federal law requires lenders give you.
4) If I make a loan application, how long will it take for me to receive my Good Faith Estimate?
The Real Estate Settlement and Procedures Act (RESPA) requires lenders to give you a “Good Faith Estimate” which shows all the costs associated with the loan for which you are applying. Currently, lenders are not required to guarantee the Good Faith Estimate. However most reputable lenders do tend to honor what they give you unless there are changes to the loan, who the third-party vendors are (for example - closing attorney and the appraiser), or changes were made to the Purchase Agreement after the initial estimate was calculated. (It is a good idea to hold on to the Good Faith Estimate and have it with you at the closing table in case there are discrepancies. This heightens the chances the lender will adjust charges to come closer to, or meet, the original estimate.)
5) Is there a pre-payment penalty for the loans being quoted?
It is rare that we see a pre-payment penalty. If the lender says there is a pre-payment penalty, we suggest you look for another lender.
6) Can I lock in my loan interest rate at time of application?
Interest rates do fluctuate. If you think rates will get higher after you make your full loan application, you may want to lock in your rate. However, lenders are not required to allow you to lock in your rate, and, if you do lock in your rate then interest rates move downward, do not expect lenders to also allow you to receive the lower rate, although some lenders will allow you to have a ‘one-time-drop privilege’.
Most lenders will require you to have negotiated a binding Purchase and Sale Agreement before they will lock in your rate
Also, when interviewing lenders, ask if the lender charges a fee for locking in rates, how long a lock-in is good for, and to give you the lock-in in writing.
7) How long will it take to get loan approval after I make loan application?
Today, we are finding lenders can process a loan in 30 to 45 days on average.
YOU control a lot of this aspect of getting a loan. You must be organized and able to get to records needed by the lender (two years tax returns; current pay stub; all account numbers and mailing addresses for ALL credit cards held in you name regardless if these are rarely, if ever, used accounts; etc.) Also, notify your employer that you are making a loan application and you sure would appreciate them turning around the VOE (Verification of Employment) quickly!
Ask the lender what potholes might be lying in wait and how can we avoid these problem areas!
- Scott Askew
Posted in: Intown Atlanta Real Estate News
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