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Sunday, December 11, 2011

Real Cash Back Available up to $35,000 to the Owner in a Short Sale - Can This Be You Too?

My clients have authorized me to personally confirm that after years of headaches in helping homeowners to process their short sales there are finally two lenders who have offered the homeowners substantials sums of money to help assist in the short sale process.  Citi approved an $14,000 "assistance" payment to one homeowner and Chase allowed another $35,000 "incentive" payment to another seller.  It seems to be true that lenders finally seem to be speeding up their short sale programs – at least for some.  
Banks have long had “cash for keys” programs in place which offer a few thousand dollars to incentivize badly delinquent borrowers to move on and avoid lengthy eviction battles. The federal Home Affordable Foreclosure Alternatives (HAFA) program also offers up to $3,000 in relocation funds for borrowers who complete a short sale.
But these new cash at closing deals are different.
“I have a couple people who are years behind, and they’re generally flagged into these programs where they get a few thousand dollars,” said Minna Reid, an agent in Connecticut who specializes in working with short sale clients. “It’s just to incentivize the people to [complete a] short sale rather than foreclose…Bank of America just seems to never foreclose anymore.”
Other who specialize in short sales report they’ve completed deals where the former homeowner walks away from the closing table with as much as $30,000 in cash.
More To Come
Sometimes banks are sending “solicitation letters” to borrowers, often those who’ve sought and failed to get a loan modification. The loans in question are those held on the bank’s own books. And those who deal in short sales report completing sales with banks like Citi, Bank of America and Chase where borrowers walked away with $12,000, $20,000 or as in my clients case, a whopping $35,000.
Anthony Lamacchia, a real estate broker in Waltham, also completed a sale involving a Chase loan in which the borrower walked away with $35,000 in November.
Gina Braza, a real estate attorney, says she too, has worked on several such deals. “I’ve begun seeing this [type of] money from people over the last year,” she said.
Four years into the foreclosure crisis, it seems banks have finally come up with a way to make this process work. 
Loans which may be in default and yet potentially salvageable through either a private or government sponsored modification aren’t getting the offers.  But for loans which may have been delinquent only a short time, but which the bank determines will be headed straight down the tubes if left to rot, owners are getting cash offers in an effort to address the problem quickly.  
The challenge for the homeowner is to be sure they are offered this kind of "incentive" if their loan is one of the ones that qualify.  The homeowner needs a professional to manage the process if they are to maximize the possibility of receiving a meaningful incentive.
Banks have wised up to the fact that if a homeowner can’t pay their mortgage, it’s very unlikely they’re keeping up with maintenance and repairs – which can cause progressive deterioration in a home’s value. Add the months’ worth of legal fees they’ll have to spend as they go through a lengthy foreclosure process; substantial maintenance fees and management fees required to keep up the properties once the owner does move out; and hefty discounts expected by buyers willing to take on distressed property, and all of a sudden even eye-popping offers of $20,000 and $30,000 cash on the closing table become more reasonable.
Cheaper Alternative
And it’s not necessarily all high-end properties that are receiving such offers. When Chase first came out of this program, it was kind of known, though they wouldn’t admit it, that they were doing them on higher-end properties.  That is no longer the case.  Both of the deals I negotiated incentives of $35,000 and $14,000 were on sales of $225,000 and $240,000, respectively.
A Chase spokesman confirmed the lender has been sending out the letters for about a year, and that it monitors homeowners for eligibility and flags people who appear to be struggling to pay their mortgage, but declined to explain what criteria the company uses to determine eligibility.
I am working on several deal with Bank of America, Citi, and Wells Fargo who so far have made similar offers but, generally in the $10,000 to $20,000 range.
But there’s one big caveat to the bonanza: All the offers seen so far seem to have involved loans being held by the banks themselves, which make up only a small portion of the delinquent loans in the country. Those loans held by Fannie and Freddie or locked in securitized investor pools are NOT eligible, and processing them still often drags on for months.  
If Fannie Mae, Freddie Mac and the securitized trusts were to wake up and recognize the advantages of providing incentives to existing homeowners in a short sale, the housing market would work through the problem loans quicker and cheaper and we may actually see a recovery in our lifetime.
Can you imagine what would happen if some of the politicians found out that borrowers that weren’t paying their mortgage were getting paid $30,000 incentives by Fannie and Freddie? The criticisms would be endless.  The sad thing is when you analyze the numbers fully, and look at the bottom line to Fannie and Freddie, it is far cheaper to offer an incentive through a short sale than be dragged through the foreclosure process.   The questions remains will they ever learn?

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