Thursday, February 23, 2012

Short Sales and Foreclosures - "The Comeback Trail"

The following is a reproduction of an article from today's Desert Sun. In my opinion, it's very informative and provides some good tips. After reading through this, please check out my posting on my Short Sale blog: for some important tips. If you have suffered through one of these situations, you've already had the setback ... make note and avail your self of all the little things necessary to make your 'comeback" simpler and succcessful. Here's the story from Alex Veiga

Next to filing for bankruptcy protection, nothing wrecks your chances of qualifying for a home loan like a foreclosure.

And if you got out from under an oppressive mortgage through a short sale — when the bank agrees to accept less than what the homeowner owes — lenders can look upon you just as unfavorably.

It's a reality that the former owners of the more than 4 million homes lost to foreclosure in the six years since the housing bubble burst will have to confront if they want to own again. But the passage of time makes all the difference.

That's because mortgage-lending guidelines that most banks follow prohibit them from making loans to people with foreclosure or a short sale in their credit history, often for years. Never mind the hit that one's credit score takes.

Still, some of the homeowners who were foreclosed upon when the market first started to skid are now looking to buy and getting loans.

“They're probably going to pay a little higher interest rate, but with rates so low, a higher interest rate of 4 percent is not a big deal,” said Rosa Herwick, a broker and owner of Century 21 JR Realty in Henderson, Nev.

So how likely are banks to approve your mortgage application if you have a real estate-related blemish on your record? And can you do anything to spring yourself from the mortgage penalty box?

It depends on several factors, but largely on whether you had a foreclosure or a short sale.


Generally, borrowers who have a foreclosure in their credit history can expect to wait two to seven years before a lender will even accept their loan application.

The waiting periods stem from guidelines most banks must follow in order to be able to sell their home loans. That's because potential purchasers, such as Fannie Mae and Freddie Mac, each have a different set of guidelines for the loans they will buy and criteria for whom they deem a qualified borrower.

The fact is, a person's credit score, employment history and other factors that make up one's creditworthiness will take a back seat to these resale guidelines.

If a buyer with a past foreclosure is seeking a government-backed mortgage, the waiting period can vary before they can qualify.

Take the Federal Housing Administration, which insures roughly 30 percent of new loans. Under its guidelines, former homeowners must wait three years from the date of their foreclosure before they can qualify for backing by the agency.

Compare the U.S. Department of Agriculture's housing program, which requires three years, while the time penalty for a VA loan is two years. Fannie Mae and Freddie Mac, which own or guarantee about half of all mortgages, require the longest stretch: seven years after a foreclosure.

In some cases, the waiting periods for a foreclosure can be reduced.

Fannie Mae, for example, allows a three-year waiting period in the event the foreclosure was due to an extenuating circumstance. The company defines this as an event that was beyond the homeowner's control and resulted in a sudden reduction in income or catastrophic increase in financial obligations. Think job layoff, medical bills or divorce.

FHA may grant an exception to its waiting period in the event a wage-earner becomes seriously ill or dies. A divorce may qualify for an exception, but only in certain cases.

Short Sales

The roadblocks for having a short sale in your credit history can be less severe, and in some cases, waived altogether.

FHA requires borrowers who weren't paying their mortgage when they sold their house to wait three years before they can qualify for a home loan. That time penalty may be waived in certain cases, including long-term job loss.

There is no FHA time penalty for homeowners who made their house payments in the 12 months before their short sale.

The size of a down payment can also shorten the waiting period.

A down payment of 20 percent or more will cut Fannie Mae's time penalty on a borrower with a short sale down to two years from seven. Buyers who put down 10 percent can qualify after four years.

Credit scores

It's no longer just a waiting game for homeowners caught up in the earliest stages of the foreclosure crisis in 2007 and 2008.

There's still the impact a foreclosure or short sale has on one's credit score - still very much a factor in qualifying for a loan.

Like most blemishes, foreclosures and short sales will remain in your credit history for seven years.

As a general rule, the higher your credit score, the more it will drop as a result of a bad debt, said Barry Paperno, consumer affairs manager for, the consumer website for FICO.

FICO credit scores range from 300 to 850. In simulations, a foreclosure sent a FICO score of about 720 down to as low as 570 and took about seven years to recover fully, assuming everything else being equal.

Still, there are steps one can take to burnish one's tarnished credit rating.

While in the foreclosure penalty box, make sure to pay all your bills on time.

Get more credit. This may sound counterintuitive after a foreclosure, but beefing up your track record of good credit accounts can help boost one's credit score. A car loan or a credit card will do. But if you get a credit card, pay it off every month.

Be patient. A foreclosure's drag on your credit score will decline over time.

Dispute any mistakes on your credit report, which can lower your score.

Don't close your oldest credit accounts. Your score gets a boost from older credit lines.

Scale back your lifestyle, and pocket the savings toward a future down payment.

So I hope you took notes and here's a few tips to add to the list:

1) Keep copies of the checks for any/all payments made in the last 2 years of time you had made payments on the loan (even if they were partial payments) and keep these in a safe spot;

2) If you bank online, print out and keep the monthly statements;

3) Make it a habit to keep all pages of your bank statements (even if it's a blank). When a statement given to a Lender says it's one of 8 pages, they want to see all 8 pages. Just keep these with your tax data after filing yearly and recycle when your purge your tax files.

4) Start the same habit with your paystubs. Down the line this will be crucial;

5) Introduce yourself to This is a free service to order copies of your credit report (you must pay if you want scores but why bother for a few years). You can order one from each of the three companies but if you get in the habit of ordering one every 4 months, you have a rotating means of checking your credit and making sure there are no unexpected reports; and if so, you'll have time to deal with it.

As always ... Keep the faith!!!

Are you stuck in your underwater home?

Your home has lost value but you are still making the payments. The problem is that you owe more than your home is worth and so you've made the decision to stay right where you are. Well, HEY!, you haven't lost anything until you sell so if you have made the decision to stay put - let's do it the right way - maximize your quality of life

In Staying Put: Remodel Your House to Get the Home You Want, architect Duo Dickinson gives new meaning to the term ‘housebound.’ He uses the term to refer to homeowners who have decided to stay put instead of moving up to a larger home, including those who made that decision because they are upside down on their mortgages: they owe more than the place is worth.

The premise of Dickinson’s book is that staying in even an underwater home can be a smart move - and it doesn’t have to involve making do with a home that no longer works for your needs. Blinging out an upside down home with every gadget and doodad known to man can constitute throwing good money after bad, but there are a handful of upgrades that might make sense for homeowners facing negative equity. For the most part, sensible upgrades to upside-down homes can all be described as things that either:

•make life in the place much more comfortable for the long term - alleviating the want or need to move

•boost the home’s sagging value or saleability for a relatively small investment, and/or

•begin saving the homeowners money - or even earn tax credits - immediately.

Here's five upgrades that might have upside for your lifestyle or bottom line, if you own an underwater home:

1. Cosmetics that boost curb appeal. When your home is mired in negative equity, chances are good that you might have been investing your dollars and cents into keeping your head above water and the property in sound functioning condition - not necessarily keeping the exterior at its most pristine. But if you are looking to boost your home’s value to hit an appraisal mark for refinancing, or even just trying to lure in a buyer to purchase the place as a short sale, primping your home’s exterior cosmetics can be a smart investment. Keep costs down by doing it yourself, or even hiring a reputable handyman to tackle small, but impactful tasks like:

•painting the shutters, eaves, doors and other trims - if you can paint the whole house, great - but if you can’t afford all that, painting the trims and accents can make a massive visual difference in the look and feel of your home, very inexpensively;

•adding fresh, new hardware like a mailbox, house numbers, and a front door or door knockers and kick plates; and

•landscaping - planting lush or fragrant flowers or trees, trimming up overgrown shrubs and even installing low maintenance ground cover can also transform the entire look of your home from the curb.

And while curb appeal is priority number one if you are trying to get your home sold, interior design projects of a similarly small scale can also create massive benefits for your emotions and comfort level for the buck if you’re planning to stay put for the long haul. It’s amazing what a basic paint job in your bedroom, opening (or ditching) your window coverings or installing lighting or shelves can do to make your family happier at home!

2. Economical expansion. If you crave more space and your home can be expanded within its existing footprint, consider an economical expansion - having a professional convert your garage or basement into a rental or mother-in-law type unit can be an especially good investment if you can house more family members or bring in some income within the new living space.
In a similar vein, consider adding a prefab unit in your large backyard or even building on additional square footage, if you can afford it and truly need the space. Before you do, though, make sure you get permits and check in with your local real estate pro to be sure that you’re not just overimproving the place vis-a-vis the neighborhood, digging your negative equity hole beyond your financial or emotional tolerance level or even an extended timeline you might have in mind for selling the place.

3. Greening it up. Upgrades that improve your home’s energy efficiency have inherent value in terms of scoring you points as a good citizen of the planet. But they can also improve your day-to-day living comfort - and decrease your utility bills. Buying solar panels can eliminate your electric bill entirely with an upfront investment; leasing the panels can cost you nothing upfront and keep your energy bills fixed for as long as 20 years!

And personally my favorite home improvement was a tankless water heater - they eliminate the need to pay to keep that big old tank of water hot, and they produce endless hot water - no matter how many showers you take. Endless hot water! (As a side benefit, if you happen to live in earthquake country like I do, you don’t have to worry about strapping the tank or checking to make sure it’s still secure after every tremor or aftershock.)

In many states, green home improvements like these and dual-paned windows, adding insulation or installing efficient heating and cooling appliances might qualify you for tax credits; check with a local tax pro to see what tax advantages you might earn by going green at home.

4. Combining quarters. A home improvement show would be nothing without someone pointing out how gloriously spacious the kitchen/dining room, master bedroom or even two smallest bedrooms could be if they could just (say it with me, folks): “knock out this wall.” If you’ve uttered those very words about your own home, consult with a contractor - many interior walls are relatively easy and inexpensive to remove, even if you might need to leave in and finish off a support beam if the wall does turn out to be load bearing.

I know it’s anathema to some agents to even think about combining two bedrooms into one; for resale purposes the rule of thumb is the more bedrooms, the better. But, here’s the deal:

(a) two teeny-tiny, unusable bedrooms are not better than one, in the eyes of most homebuyers, and

(b) most walls that are easily taken down can be equally easily put back up when it’s time to sell.

If you’ve decided to stay put in your underwater home for the next 10, 20 or even 30 years, there’s no reason resale considerations should stop you from taking down a wall that is preventing you from fully enjoying your home.

5. Built-ins that make things work. Built-in work and storage spaces in your office, garage, craft rooms, kitchen and even otherwise unusable nooks and crannies are uber-useful and can give you the feel of a highly customized luxury home without moving - and without spending much cash. (And window seats? Don't get me started - who doesn’t love a window seat?!) Similarly, functional furniture like loft beds, Murphy beds, pot racks, pantries and armoires can create a highly customized feel and convenient lifestyle, but you can move them around the house - or even take them with you whenever you do decide to move!

Investing to improve a home that is upside down should be done very carefully, and only once you have your personal endgame firmly in mind. The budget you set to spruce up a home you need to divest of via a short sell might be vastly different from the investment you’re willing to make to enlarge a home you plan to house your family in for the next 20 years. So be intentional: get clear on your finances and plan the future for your family and career before you start spending on home improvements in this market climate. At that point, you’ll be in a position to create a regret-free home improvement plan.

As always, Keep the faith!

Do you believe your foreclosure procedure was completed in error?

If you believe there was an error in the foreclosure procedure that resulted in the loss of your home, you may have some recourse ...

The Federal Reserve and the OCC announced that the deadline for submitting requests for review under the Independent Foreclosure Review has been extended. The new deadline, July 31, 2012, provides an additional three months for borrowers to request a review if they believe they suffered financial injury as a result of errors in foreclosure actions on their homes in 2009 or 2010 by one of the servicers covered by enforcement actions issued in April 2011.

The deadline extension provides more time to increase awareness of how eligible people may request a review through the Independent Foreclosure Review process and to encourage the broadest participation possible.

As part of enforcement actions issued in April 2011, the OCC, Federal Reserve and the OTC required 14 large mortgage servicers to retain independent consultants to conduct a comprehensive review of foreclosure activity in 2009 and 2010 to identify borrowers who may have been financially injured due to errors, misrepresentations, or other deficiencies in the foreclosure process. If the review finds that financial injury occurred, the borrower may receive compensation or other remedy.

Borrowers are eligible for an Independent Foreclosure Review if they meet the following basic criteria:

The mortgage loan was serviced by one of the participating mortgage servicers; the mortgage loan was active in the foreclosure process between January 1, 2009 and December 31, 2010; and the property securing the mortgage loan was the borrower's primary residence.

Participating mortgage servicers include: America's Servicing Company, Aurora Loan Services, BAC Home Loans Servicing, Bank of America, Beneficial, Chase, Citibank, CitiFinancial, CitiMortgage, Countrywide, EMC, Everbank/Everhome Mortgage Company, Financial Freedom, GMAC Mortgage, HFC, HSBC, IndyMac Mortgage Services, MetLife Bank, National City Mortgage, PNC Mortgage, Sovereign Bank, U.S. Bank, Wachovia Mortgage; Washington Mutual, Wells Fargo; and Wilshire Credit Corporation.

There are no costs associated with being included in the review. For more information, borrowers can call 888-952-9105, Monday through Friday, 8 a.m.-10 p.m. ET or Saturday, 8 a.m.-5 p.m. ET or visit one of the following websites or

As always ... keep the faith