In the “agreement” it has a checkmark next to “full satisfaction” and not “partial satisfaction” of loan.

Under “Value of Property” heading it reads:
Borrower and Lender hereby agree that as of the date of this agreement, the fair market value of the property is estimated at approx the amount owed to the lender, and said value shall be used in all closing and settlement statements for the conveyance of the property to lender.”

We had no HUD statement, we had no closing docs other than the deed and misc filings that ever had an actual amount. How do I know how much was forgiven? Is it silly for to think that they did a straight across trade – our house for full satisfacation and we will not get a 1099 or deficiency judgement in the future?

We have just received a “Release and Satisfaction of Mortgage” filed with the beuearu of conveyances from MERS that boilerplates the “full payment and satisfaction”.

I have the feeling that this is just a document that allows them to get free title and doesn’t actually mean we have been “released” of payment and/or forgiven debt and/or deficiency judgement? Am I correct on this?

This was a deed in lieu, not a shortsale or foreclosure – do I still need to worry about what they sold the house for? Will that decide a figure for me?

What in the world am I really looking for in the way of documents that lets me know where I stand with forgiven debt or deficiency judgement? What are the magical words you want to see in this case?

Lot’s of questions… sorry… I can’t seem to find an answer from anyone… including a 300.00 per hour “real estate” attorney who started taking notes from ME! Ugh.

Thank you for your help…

Monica

———–

Hi Monica,

It looks to me like you won’t receive a 1099 and won’t be pursued for a deficiency.  Additionally, the balance on the credit report should be zero. 

A DIL generates a 1099-A for the difference between the principal balance on the loan less the value of the property at time of conveyance.  Since the agreement states ‘the fair market value of the property is estimated at approx the amount owed to the lender’, then yes it was a straight trade.

Thanks for the questions and hope this helps.

Paul

This author is not an attorney and this information should not be considered legal advice.  Please consult an attorney for legal advice.

That flaw is that the program requires the borrower exhaust the Making Home Affordable Modification Program (HAMP) before proceeding to a HAFA short sale. That strategy takes borrowers who are committed to staying in their homes and transfers the loss mitigation strategies from a workout plan to vacancy, said Robert Hunter, a vice president of Amherst Securities.

“I think HAFA is a lot of press about nothing at the end of the day,” he said.

Average borrowers trying to save their homes aren’t going to call a real estate agent the day after they’re told no. They’re going to try to wait it out, especially if they’re unemployed and trying to get a new job, said Bryan Bolton, senior vice president of loss mitigation at the mortgage division of Citigroup (C [1]: 4.62 +1.54%).

HAMP is seeing some success in helping borrowers, Bolton told the audience, adding it’s made the public more aware of alternatives to foreclosure.

“HAMP gets a bad rap,” Bolton said, adding at a high level, the program works because it puts some standardization on modifications for the industry.

The panel session, titled “How to Stop the Bleeding — Or What to do About Defaults” also covered the topic of principle forgiveness. Barbara Peterson, assistant vice president and assistant manager of default servicing at M&I Corp. (MI [2]: 9.06 +1.68%), is vehemently opposed to principle forgiveness, especially for borrowers who are underwater on their mortgages, but can still afford their monthly payments.

“Loss of equity is not a hardship. It’s unfortunate, but it’s not a hardship,” Peterson said. “You’re just going to have to ride it out. You can afford the payment.”

M&I does not participate in HAMP, and as such, will not participate in HAFA. The bank instead uses its own in-house modification program for borrowers with true, documented hardships. So far, the program’s resulted in a recidivism rate that’s less than 20%. That rate includes not just owner-occupied properties, but also rental homes and pieces of undeveloped land, as long as the borrower has a hardship the bank can verify.

For those looking for a modification with the threat of strategic default, Peterson has no sympathy.

“If you want to default and ruin your credit, there’s nothing I can do to stop you, but if you don’t have a hardship, I can’t help you,” she said.

A change in the modification environment is the source of borrower hardship. Previously, borrowers with exotic mortgage products were the first wave to default, now lenders are seeing more borrowers that are unemployed looking for mortgage assistance.

That said, the panel’s moderator, Diane Pendley, a Fitch Ratings managing director, presented data that showed prime mortgage defaults seem to have capped at 10%. In addition, the most recent data shows that subprime defaults are also down 0.5%.

It could be simply the modifications are starting to happening, or income tax returns showing up and being used for payments, she said. “It’s definitely a good sign and we’ll take it.”

Can I give the house back and not lender come after me for judgements issue. House is Florida and no longer live there.

Kim

———

Hi Kim,

That would be a deed in lieu of foreclosure and if that is the foreclosure avoidance strategy selected then that should be negotiated with the lender.  Simply deeding the property to the lender does not guarantee that the lender will provide a full release to the borrower or even that they will accept the deed.

Deficiency judgments are pursued by lenders in Florida – it’s case by case.  For example, here is an example of a deficiency judgment in Pinellas County Florida.  The lender can either make a motion for deficiency within one-year of the foreclosure sale without having the borrower served again – or bring a separate action for the deficiency after one year.

The deed-in-lieu is treated by lenders as a foreclosure for mortgage underwriting purposes.  I’ll add that another option that is superior to the deed-in-lieu is a short sale.  A successful short sale with full release of liability is preferred to a deed-in-lieu because it can settle the debt with a zero balance and is generally not viewed as a foreclosure by originating lenders.

Thanks for the questions and hope this helps.

Paul

This author is not an attorney and this information should not be considered legal advice.  Please consult an attorney for legal advice.

Maguire, which borrowed heavily during the go-go years to make disastrous top-of-the-market investments, mostly in Orange County, notified the buildings’ mortgage holders Friday that it expected “imminent default” on the loans. The buildings are all worth less then their mortgages and aren’t generating enough cash to pay debt service and finance leasing expenses.

Maguire’s problems are an example of the mounting pain among owners and lenders to office buildings, stores, hotels and other commercial real estate that is causing concern among banks and regulators that the sector may drag down a hoped-for economic recovery just as it is getting started. Initially, a dearth of financing caused the distress. But Maguire’s problems show that falling rents and rising vacancies are causing landlords to run out of cash.

Robert Maguire, the developer who founded the company and took it public as a real-estate investment trust in 2003, bought properties during the years before the bust on the assumption that rents would continue rising. But just the opposite has happened in Orange County, where the vacancy rate hovers around 20%, up from 6% three years ago, according to Maguire.

Chief Executive Nelson Rising, who was brought in by the company’s board last year to succeed Mr. Maguire, said in an interview that restructuring the debt on six of the buildings, located in Orange County and Los Angeles, is one possibility. But he said the most likely scenario is that the mortgage holders will take over the properties and try to sell them. Maguire already has a deal to turn over one of the buildings, Park Place One, in Irvine, Calif., to LBA Realty, a real-estate company that acquired the debt on the property at a discount in the spring. A telephone call placed to LBA’s principal wasn’t returned.

The debt on the other six properties was packaged by Wall Street firms and sold as commercial mortgage backed securities, or CMBS, to dozens of institutional investors. Mr. Rising said that Maguire would work closely with the servicers of that debt to transfer control of the buildings. The seven buildings, with 4.2 million square feet, make up about 20% of Maguire’s portfolio.

Maguire, scheduled to release its second-quarter earnings Monday, will take a $345 million charge on the properties’ loss in value. The company also is set to report a net loss of $380 million for the quarter, compared with a net loss of $110 million a year earlier.

Mr. Rising has succeeded in reducing Maguire’s debt by about $1.6 billion. His plan has been to sell or give back to lenders troubled properties and shore up Maguire’s balance sheet to the point that it is able to raise capital like other real-estate investment trusts have been doing.

But Maguire’s future still looks dicey. The company still has $3.5 billion in debt, and some analysts say that amount exceeds the value of its remaining properties. “Almost every building in [Maguire's] portfolio is under water,” says Michael Knott, an analyst with Green Street Advisors. “I don’t envy some of the choices that they are having to make.”

Maguire’s stock, which traded around $12 a share one year ago, has been trading below $1 a share in recent months, a sign that many investors expect the company to fail.

Mr. Rising acknowledged that Maguire is encumbered with properties that are cash-flow negative, including three recently constructed buildings. But he expressed cautious optimism that the company would be able to dig out of its problems. “With this particular initiative we’ve made a big step,” he said.

Landlords throughout the country are watching the cash flows of their buildings dwindle. Office vacancies nationally hit 15.4% as of June 30, up one percentage point from a year earlier, as businesses dumped 25 million square feet of space on the market, according to Colliers International.

Not only are vacancies rising, but landlords often have to cut rents when tenants renew their leases to keep the tenants. Owners also have to lay out incentive packages to attract tenants by offering them interior build-outs and months of free rent. Mr. Rising estimated that it would have cost Maguire about $31 million a year to keep the seven buildings because they weren’t generating enough money to pay these and other expenses and debt service.

While these trends are clobbering landlords, tenants who have the good fortune to be in the market for space are getting deals. For example, accounting firm Moore Stephens Wurth Frazer & Torbet signed a $3.35 million, seven-year lease a few months ago for 19,000 square feet of space in a Maguire-owned building in Brea, Calif.

Maguire cut its initial rent offer by about 20% to $25 per square foot and offered generous incentives: footing the bill for the space’s renovation and charging only a $10,000 monthly rent for the first year, according to John Metzen, Moore’s administrator. “We got what we thought was an incredible deal,” said Mr. Metzen, whose firm was represented by CB Richard Ellis.

My accountant tells me not to worry about the 1099C as it is business but I need to know if I took the DIL and they mark it as above, will my credit be tarnished. There are no late payments as Im up to date (performing loan). I  am under the impression that a DIL, no matter how it is reported is still a foreclosure as such and the credit companies have specific codes that will be inserted in my report no matter what how the DIL is reported. Am I right?

The lenders atty said they would probably put Disputed but Resolved.

On the other hand, a short sale will give me a 1099C that can be dealt with & probably a hit on my credit report for shorter time period.

Please take into consideration that I’m UP TO DATE ON EVERYTHING.

Steve

———

Hello Steve,

There is a 1099 on both a short sale and a deed-in-lieu.  It’s a 1099-C on a short sale and a 1099-A on a deed-in-lieu.  A deed-in-lieu is treated the same as a foreclosure by Fannie Mae underwriting which would require a five-year wait to obtain another mortgage while a short sale is only a two-year wait.

Thanks for the questions and hope this helps.

Paul

Just having read briefly some of your posts, I am hoping you may have a few words of advice for me.  I recently received a huge paycut (27%) and now am unable to afford my mortgage payments.  As an act of good faith, I contacted my mortgage co (not a bank, the original lender of my 80/20 loan) on June 29 — a few days before the first of the month (July) in which I would not be able to pay, and explained my situation… after a lengthy phone conversation, the Home Retention team member suggested that a deed-in-lieu would probably be the best option for me, especially since I have no issues about giving up my home at this point (I tried in the summer of 2007 to sell, without receiving any offers, and then my mortgage co helped by giving me a LM in September of that year (reducing my interest percentages)).

Now it seems that even though the mortgage co (AHMSI holds both loans — and I specifically asked on June 29th if this would hinder a DIL application, and was told no it would not) lists DIL on their own website as a means of assistance, they are insisting I try to remain in the home and try again for some kind of modification.  My income is now so severely reduced (about $850/mo, and I was only living check-to-check as it was!) that I don’t see how they can modify without losing as much as they would if they just accepted my DIL.  Furthermore, they are beginning to try to pressure me into paying (which I cannot do anyway!) by threatening foreclosure.  I understand they have every right to come after me, especially when I haven’t paid them (though I am only one month behind at this point).  HOWEVER, the reason I went to them first, BEFORE ever missing a payment, was to avoid a “full” or regular foreclosure in the hopes that they too would see the benefit of taking this easier way out (if there is such a thing here).  Either way, they will end up with a very underwater property — why would they rather hire lawyers and come after me the hard way, when I’ve been trying to offer my deed over to them on a silver platter for more 5 weeks now?!!

Any advice you can give would be most appreciated.  Thank you in advance.

-Karen

————

Hi Karen,

The first and second may be serviced by the same lender but are probably owned by different lenders.  If the first mortgage accepted a deed-in-lieu then they would be stuck paying off the second mortgage.  This is why the first mortgage would foreclose rather than accepting a deed-in-lieu.

If they want to do a loan modification then I say great.  How about a principal reduction to go along with that? 

Thanks for the questions and hope this helps.

Paul

My wife and I want to file Chapter 13 to help eliminate a lot of unsecured debt that has piled up over the past few years, mainly because of a job layoff I suffered in 2007, and the ongoing housing crisis that has destroyed our house value here in FL.

We have two homes, one in Florida, and one in VA.  If we file Chapter 13, we hope to eliminate our credit card debt, a large amount of hospital bills and two car repossessions.  Until I lost my job, our bills were paid on time every month, but since then, we have found it impossible to catch up. 

Our primary residence is two months behind, and we owe about $75,000.00 more than it is worth on an 80/20 loan.  Our 2nd home in VA is one month behind, but has roughly $40,000.00 in equity.  We are thinking of giving back both homes, and read that you can possibly qualify for an FHA secured mortgage after making 12 payments in a Chapter 13 plan. 

If we relinquish both properties and rent for a year, is this possible, or will we have to wait just as we would if we let both the homes foreclose? 

I read in one of your blogs that the mortgage company can file a motion b/c the 1st mortgage on our primary residence and the mortgage on the second home are both secured, even though the 2nd mortgage on our 1st home can be stripped off.

We have talked to two bankruptcy attorneys, both of whom said to let go of both houses, and apply for an FHA loan after making 12 payments with the bankruptcy trustee.  I would rather keep our primary residence than rent if we will have to wait 3 or 4 years. 

What is your thought on this?  Thanks for the help.

Jason

———–

Hello Jason,

If you let the properties go by way of foreclosure or deed-in-lieu of foreclosure then you will not qualify for financing in twelve months.  It’s true that a borrower who has made twelve on-time payments in a Chapter 13 may qualify for FHA financing; however, that is only one of the criteria for FHA financing and since FHA requires a three year wait after a foreclosure or DIL and FNMA requires a five year wait, you would not qualify for another mortgage in twelve months.

A first mortgage lender will not accept a deed in lieu (i.e. giving back the home) when there is a second mortgage with a significant balance attached to the property.

I didn’t follow your third-to-last paragraph regarding “the 2nd mortgage on our 1st home can be stripped off.”  It is true that a junior lien on a primary residence may be stripped off and treated as unsecured debt in a Chapter 13.  It is also true that a lender can file a motion for relief from stay and continue with a foreclosure even though the borrower has filed bankruptcy.  I didn’t see how the two fit together.

Thanks for the questions and looks like (at least two) bankruptcy attorneys should stick to filing bankruptcy and not providing information on originating new mortgages; however, a bankruptcy attorney would tell me something similar – that’s why at least I include my disclaimer at the end of each post.

Paul

This author is not an attorney and this information should not be considered legal advice.  Please consult an attorney for legal advice.

After almost one year we are upside down in the home (value $150K, owe $210K). We starting to struggle. 2nd mortgage will not subordinate for a refinance, even though they are discharged and have no equity position. We are unable to keep up on badly needed repairs, etc., and definitely will fall behind if rates rise.

We have decided to give back the home (we’ll have no liability due to the BK). Wondering if we should do a short sale to prevent a foreclosure on our credit reports, or if it matters. 1st has not reported to credit reports in a year, but second has been reporting current payments, even though we have had lates (are they allowed to report after BK when not reaffirmed?).

We are going to stop making all payments to 1st and 2nd to save for a new home, possibly starting short sale process soon. Will we be able to buy a more modest home in 1-2 years? We will rent until then.

Casey

——–

Hi Casey,

The second mortgage should not be reporting any payments after the bankruptcy was filed.  The payment history up until that point remains, but not after.  The tradeline should list as ‘included in bankruptcy’.

Fannie Mae requires a forty-eight month wait after a bankruptcy to obtain a new Fannie Mae loan while FHA requires a borrower wait two years.  There’s also the issue of the deed-in-lieu or short sale.  FNMA differentiates between a short sale and foreclosure or deed-in-lieu and permits a short seller borrower to buy again with another FNMA loan in two years.  FHA, however, does not differentiate between the two and would require a three year wait.  So, given the circumstances, it appears you’ll need to wait three years to obtain another FHA loan.

In my opinion, a short sale with full release is better than a deed-in-lieu any day of the week.  If the bankruptcy was discharged then only a full release is appropriate for a short sale.  Completing a short sale can keep the public records entry of foreclosure off a credit report and in turn be less damaging to the credit score.  When there are two mortgage loans, a deed-in-lieu is generally not an option.

Thanks for the questions and hope this helps.

Paul

This author is not an attorney and this information should not be considered legal advice.  Please consult an attorney for legal advice.

We have a first and second with wells fargo.  Current for now on both, mortgage is in my name only. 

Will they negotiate a deed in lieu of foreclosure or will I still have a deficiency. 

First is 200k and 2nd is 148k.  Value is around 200-225 – nothing in area is selling. 

Should we get an attorney, not sure how to proceed.

Deb

———

Hi Deb,

Whenever anyone asks if they should get an attorney, they’ll never get an objection from this author.  There are legal issues having to do with every aspect of credit/debt and only an attorney can provide legal counsel to a consumer.  And now without further ado my unqualified opinion. 

The deed in lieu would require the cooperation of the second mortgage, so generally speaking, that’s probably not an option with a balance that high.  A deed in lieu is one step above a foreclosure and mortgage lenders consider a DIL to be the same as a foreclosure.

Speaking of foreclosure, if that first mortgage forecloses, then the second mortgage will have its lien extinguished but the promissory note will remain in full force and does not go away.  Florida Statute 702.06 permits lenders to pursue deficiency judgments.  This means the first mortgage lender has that option.  The second, however, may bring a lawsuit based on a cause of action for written contracts which in Florida can extend out five-years from the date the borrower stopped making payments (I don’t believe the world will be around that long but that’s a subject for another post).  Anyways, the ideal situation to handle all of this is with a short sale and hopefully, a short sale with a full release of liability.

Here’s where an attorney is lacking. Every short sale needs a buyer and an attorney is not going to purchase your property.  For many short sellers, I am pleased to be that buyer. 

I enter into a contract to purchase the property as a short sale and my loss mitigation company submits the short sale and negotiates for an approved short payoff.  That generally takes about sixty-days or so.  Once the short sale is approved, the property can be sold either to myself (if a great short sale was negotiated), or to another buyer (if a better than average short sale was negotiated).  If only a so-so short sale is negotiated then, unfortunately, the property will sit and most likely won’t sell.  This is a problem in the market today.  Real estate agents knock $50,000 off a mortgage balance and think they have an ‘approved short sale’.  Don’t get me wrong, they do have an approval from the shorting lender to accept less-than-the full balance; however, this market has sunk like a rock and for a property to sell in this market, it has to be the best value in the neighborhood period.

So, to recap, a deed in lieu generally works when there is only one mortgage and the DIL is only marginally better than a foreclosure.  The short sale with a full release of liability is best.  While only an attorney can provide legal advice, nevertheless it takes a buyer to get to a price.  A sure way to get a property sold in this market is to negotiate a great short sale.  The better than average negotiated short payoff might get the property sold too.  There are some of the issues surrounding a short sale or deed in lieu.

Thanks for the questions and hope this helps.

Paul

This author is not an attorney and this information should not be considered legal advice.  Please consult an attorney for legal advice.

Can we tell the attorney that we would like to give the house back to bank and walk away owing nothing, I am so sick over this I can’t sleep or eat.

Thanks for doing a good job of answering people in need.

Thanks,
Lou

————-

Hello Lou,

What you are referring to is a deed-in-lieu of foreclosure.  Generally, if you have one mortgage on the property then it may be possible to negotiate a deed-in-lieu; however, the bank would prefer a short sale because the banks are insolvent – they don’t want and can’t afford the carrying costs and expense of real estate owned (REO).

Read: Deed in Lieu and Who Said There’s No Buyer For Your Short Sale?

Thanks for the questions and hope this helps.

Paul