The number of U.S. homes that received an initial default notice — the first step in the foreclosure process — jumped 33% in August from July, foreclosure listing firm RealtyTrac said Thursday.

The rise represents a nine-month high and the biggest monthly gain in four years. The spike signals banks are starting to take swifter action against homeowners, nearly a year after processing issues led to a sharp slowdown in foreclosures.

“This is really the first time we’ve seen a significant increase in the number of new foreclosure actions,” said Rick Sharga, a senior vice president at RealtyTrac. “It’s still possible this is a blip, but I think it’s much more likely we’re seeing the beginning of a trend.” Foreclosure activity began to slow last fall after problems surfaced with how many lenders were handling foreclosure paperwork, namely several shortcuts known as robo-signing.

Many of the nation’s largest banks reacted by temporarily ceasing all foreclosures, re-filing previously filed foreclosure cases and revisiting pending cases to prevent errors.

Other factors have also worked to stall the pace of new foreclosures this year. The process has been held up by court delays in states where judges play a role in the foreclosure process, a possible settlement of government probes into the industry’s mortgage-lending practices, and lender reluctance to take back properties amid slowing home sales.

A pickup in foreclosure activity also means a potentially faster turnaround for the U.S. housing market. Experts say a revival isn’t likely as long as a glut of potential foreclosures hovers over the market.

Foreclosures weigh down home values and create uncertainty among would-be buyers who fret that prices may fall as more foreclosures hit the market. There are about 3.7 million more homes in some stage of foreclosure now than in a normal housing market, according to Citi analyst Josh Levin.

“This bloated foreclosure pipeline now presents the greatest obstacle to a housing market recovery,” Levin said in a client note this week.

Banks have been working through a backlog of properties that first entered the foreclosure process months, if not years ago. But the August increase in homes entering that process sets the stage for a host of new properties being targeted for foreclosure.

That’s bad news for homeowners accustomed to missing payments for months without the threat of foreclosure. In states such as New York and Florida, for instance, processing delays have helped some stay in their homes more than two years before banks got around to taking back their properties.

In all, 78,880 properties received a default notice in August. Despite the sharp rise from July, last month was still down 18% versus August last year and 44% below the peak set in April 2009, RealtyTrac said.

Some states, however, saw a much larger increase.

California saw a 55% jump in homes receiving a default notice last month. In Indiana they climbed 46%. In New Jersey, where last month a judged ruled that four major banks could resume uncontested foreclosure actions under court monitoring, homes getting a default notice rose 42%.

Despite the increase in new defaults, the number of homes scheduled for auction and those repossessed by banks slowed in August.

Lenders repossessed 64,813 properties last month, a drop of 4% from July and down 32% from a year earlier. Home repossessions peaked September last year at 102,134.

Banks are now on track to repossess some 800,000 homes this year, down from more than 1 million last year, Sharga said.

In all, 228,098 U.S. homes got a foreclosure-related notice last month, up 7% from July but down nearly 33% from a year ago. That’s one in every 570 U.S. households.

Nevada leads, with one in every 118 households receiving a foreclosure-related notice last month. Rounding out the top 10 states with the highest foreclosure rate in August are California, Arizona, Georgia, Idaho, Michigan, Florida, Illinois, Colorado and Utah.

Source=Investors.com

HAFA was designed to provide an incentive to servicers for completing short sales and deeds-in-lieu of foreclosure for loans that fail out of the larger Home Affordable Modification Program. Through June, servicers started 21,412 short sales and DILs, up 20% from the month before. A total of 10,754 were completed, up 25%.

JPMorgan Chase (JPM: 36.03 0.00%) is the programs leading performer, completing nearly 3,600 through the program, including nearly 1,000 in June alone.

Wells Fargo (WFC: 24.55 0.00%) was second, completing more than 3,100 since the program launched and roughly 700 in June.

Bank of America (BAC: 7.40 0.00%) completed 1,873 HAFA transactions, an increase of roughly 200 in the month.

Pam Marron, a senior loan officer with Gold Start Mortgage Financial Group in Tampa Bay, Fla., said more and more homeowners in negative equity view a short sale as their only way out. Many, she said, are defaulting because banks require them to do so in order to qualify for a short sale.

“The growing problem in Florida is the alarming increase in the number of short sale listings that are coming onto the market. These people are still employed but severely underwater and are having to short sale because they are not able to pay the vast difference owed between the mortgage amount and the value of these homes,” Marron said. “Banks are requiring homeowners to default in order to qualify for the short sale.”

In 22% of the HAFA agreements started — equal to roughly 4,700 mortgages — the homeowner began a HAMP trial but later requested a HAFA agreement or was disqualified from HAMP.

Source – HousingWire.com

I have heard a lot of talk about what to do when we get a 1099c.  What about if we *don’t* get a 1099c?

I am currently in the process of negotiating a shortslae with my lender, CHASE.  I am using a very qualified third party negotiator (law firm) to help me.  So far, we have gotten acceptance of our offer and all of the terms we wanted *except* the release.  In other words, the “investor” who owns my loan says they will not sign a release for the debt amount if I go through with the short sale which means there is a very good chance I will *not* get a 1099c and therefore my debt is not “cancelled”. 

So, my question is, if my first mortgage debt is still hanging out there and is not cancelled, what effect will that have on my credit??  I happen to know that lenders are not currently pursuing borrowers for outstanding debt…YET.  If they were, they would start sending me letters and asking for payments and eventually, if I don’t pay, send the whole thing to collections where it could potentially be “charged off”.  However, lenders aren’t doing that…and my lender has said they won’t cancel my debt either.  So, without a cancellation or charge off, what do I have?  What happens to my credit?  Do I just have this open credit line hanging out there with no payments against it?  By the way, we are talking about nearly $100K in debt in the state of Florida.  And this is not my primary residence.  Supposedly, the “investor” is Wells Fargo…even though the loan is serviced by CHASE.

I may still have some negotiating room with the lender because nothing has been officially signed yet.
THANKS!
Greg

————–
Hello Greg,

Based on what you’ve written, Chase will be treating the proceeds of the sale the same as if you made a payment on the account and the remaining deficiency balance will be reported as owed.  This is referred to as a lien release only and is far from the desired full release solution.  Bear in mind that Florida’s statute of limitations is five years and if at any time in the next half decade following a lien release in Florida, the debtor appears collectible, a separate lawsuit may be brought to recover the remaining balance plus interest.

Overall, this does not sound like much of a solution to the problem and I would recommend clicking on the ‘short sale’ category on the right hand side of the blog to become familiar with the difference between lien release and full release and ways to defeat the sneaky tricks and games that lenders play when negotiating short sales.

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.

JPMorgan Chase & Co. and Wells Fargo & Co. say they give select borrowers behind on their mortgage payments $10,000 to $20,000 for agreeing to short sales, which means the homes are sold for less than what’s owed on the mortgages.

Most banks figure they’re doing homeowners a favor simply by signing off on short sales and forgiving the amount owed. But in some cases, Chase and Wells Fargo borrowers receive that and cash at the closing.

Lenders routinely hand homeowners a few thousand dollars if they leave the properties in good shape after foreclosure. That’s known as “cash for keys.” Also, homeowners are entitled to $3,000 of government money if they complete short sales through the Home Affordable Foreclosure Alternative program.

But real estate agents and other industry observers say they aren’t aware of other major lenders offering such sizable incentives for successful short sales.

“It looked, to me, like it was a come-on,” said Allison Adler, an agent for the Keyes Co. in Weston.

But Adler checked and discovered it was legitimate. Her client, Sara Horowitz, received $10,000 last week from Chase when she completed a short sale of her Davie townhouse.

“I have to say, this extra bonus from Chase was a lifesaver for me,” Horowitz, 39, said Monday. “I used it to help me get into a rental unit. It was perfect.”

Wells Fargo and Chase don’t specifically address why they offer the money for short sales. Rather, they explain they’re cutting their losses in choosing to forgo the potentially lengthy process of foreclosure.

“Our goal is to help as many people avoid foreclosure as possible,” Chase spokeswoman Nancy Norris said, pointing out that the bank has completed more than 110,000 short sales nationwide since early 2009.

Wells Fargo offers the cash to homeowners in Florida and other states “where the foreclosure process is lengthening,” spokesman Tom Goyda said.

The average foreclosure in Florida took 619 days for cases completed in the first three months of 2011, according to RealtyTrac Inc., a foreclosure listing firm. That’s more than 30 percent longer than cases completed a year ago.

The lenders decide whether to make payments after considering individual circumstances, and they don’t disclose what those are. The banks won’t say how many people have been offered the cash.

Wells Fargo and Chase are the nation’s second- and third-largest lenders, respectively, behind Bank of America. A spokeswoman for Bank of America said she couldn’t provide any information on incentives for short sales.

Chase and Wells Fargo don’t say how many home loans they own in Florida.

Wells Fargo has 700 offices and $66.1 billion in deposits statewide, according to Federal Deposit Insurance Corp. data as of June 2010, the most recent period for which statistics are available. Chase has 247 offices and $10.4 billion in deposits in Florida.

In 2008, Chase acquired Washington Mutual, and Wells Fargo took over Wachovia Corp.

The money for short sales is an effort by the lenders to be viewed as good corporate citizens as they expand aggressively in Florida after the banking takeovers, Miami-based banking analyst Ken Thomas said.

Ward Kellogg, chairman of Paradise Bank in Boca Raton, said his community bank occasionally has offered money to homeowners who cooperate in short sales. He figures Chase and Wells Fargo are agreeing to the incentives so that they can write off the bad loans as soon as possible.

“Without cooperation, it’s going to take a year and half,” Kellogg said. “With cooperation, it could be 30 to 60 days.”

Source=SunSentinel.com

King is among a rising number of borrowers who are learning that they can be on the hook for years after losing their homes. Amid a crisis that stripped $6.4 trillion, or 28 percent, from the value of U.S. residential real estate since the 2006 peak, lenders are exercising their rights to pursue unpaid mortgage balances. To get their money, they can seize wages, tap bank accounts and put liens on other assets held by debtors.

“The big dogs get a bailout, and the little man gets no mercy,” said King, 39, referring to the U.S. government’s rescue of banks and other financial institutions.

While there are no statistics on the number of deficiency judgments approved by courts, the Federal Deposit Insurance Corp. tracks the amount banks collect after defaulted loans were written off.

These mortgage recoveries rose 48 percent to a record $1.01 billion in the first nine months of last year compared with the year-earlier period, according to the Washington-based regulator. Recoveries on defaulted home-equity loans almost doubled to $392 million, the FDIC data shows.

The figures don’t include money retrieved by trusts overseeing mortgage-backed securities, such as the one that holds the loan on King’s former home, or efforts by distressed- asset funds and companies that buy bad loans to profit from collection rights. Judgments such as the one levied against King usually tack on court fees, fines and interest.

‘Next Big Crisis’

Deficiency judgments were rare in the 15 years since the last real estate slump, said Ben Hillard, a former investment banker who now is a real estate and corporate attorney at Hillard & Rogers in Largo, Florida.

“The banks have been too underwater with foreclosures to spend much time on deficiency judgments, but that’s beginning to change,” Hillard said in an interview. “This is going to be the next big crisis.”

Almost 4.5 percent of mortgaged U.S. homes were in foreclosure during the third quarter, the highest rate in the 37 years of tracking the data, the Mortgage Bankers Association said Nov. 19. A record one in every 10 mortgages was at least one payment overdue in the same period, the Washington-based trade group reported.

The Obama administration is seeking to modify as many as 4 million loans by 2012 to prevent foreclosures through the Home Affordable Modification Program, which cuts monthly payments to about a third of borrowers’ income. By the end of December, the program was responsible for more than 850,000 modifications, the Treasury Department said in a Jan. 15 report.

20-Year Window

The federal government spent $230 billion in the year ended in September to support homeowners, according to the Congressional Budget Office in Washington. Those efforts didn’t help people who had already walked away from their houses.

In states such as Florida, courts give mortgage holders as long as five years to seek a deficiency judgment and, if granted, up to 20 years to collect. Usually, they have the option of renewing the judgment if it’s not paid off within 20 years.

About a third of U.S. states, including California and Arizona, prohibit collection efforts on primary residences after foreclosure. In some cases, homeowners waive that protection if they refinance. Most states allow collection on unpaid home equity loans.

Depression-Era Protections

The laws in states that protect some borrowers stem from the Great Depression in the 1930s, when a lack of bidders at foreclosure auctions caused deficiencies that, with added fees and interest, sometimes were bigger than the original loan amount, according to a 1934 Virginia Law Review article by Sol Phillips Perlman. Today, many courts measure the shortfall using a property’s market value at the time of foreclosure rather than auction results.

The likeliest candidates for deficiency judgments are so- called rational defaults, said Larry Tolchinsky, a real estate attorney in Hallandale Beach, Florida. In those cases, people who are current on their mortgages decide to walk away from a property because its value has sunk so far below their loan balance they have no hope of recouping the loss.

About 21 percent of American homeowners owe more on their mortgages than their properties are worth, according to Zillow.com, a Seattle-based real estate data firm.

“Walking away from a property comes with a cost, especially for people who otherwise have good credit,” Tolchinsky said in an interview. “The bank is going to pull your credit report, and if you’re current on your other bills they are going to come after you and potentially ruin you.”

Fine Print

It’s not just foreclosures that can trigger debt collections. Short sales also may lead to deficiency judgments years after former homeowners have moved on, according to Hillard, the attorney in Largo. In a short sale, lenders agree to let borrowers sell a home for less than the mortgage balance.

“Banks are being very careful to preserve their rights, either outright in the short sale agreement or by using vague language that leaves that door open,” Hillard said. About 90 percent of people who do a short sale think they are “off the hook.”

That was the case when two of his clients, Brigitte and John Howard, sold their home in New Port Richey, Florida, almost two years ago without using a lawyer to check the bank’s short- sale agreement.

$20,000 Shock

“We got a call out of the blue saying we owed $20,000,” said Brigitte Howard, 45. “It was a shock. There was no mention in the short-sale contract that the bank might come after us for the difference.”

The money King owes to the Soundview Home Loan asset-backed security that holds the mortgage on his former Coral Gables condominium consists of $38,000 for unpaid principal and almost $6,000 in legal fees and interest accrued prior to the ruling. According to the judgment, the security can charge 8 percent interest until he pays off the debt.

King, who said his default was caused by a reduction in his income, now rents near Fort Lauderdale, Florida, where he teaches ballroom dancing.

“I thought the foreclosure was the worst of a bad situation, but it’s not,” said King. “The people who got sucked into the real estate bubble are still paying for it, even after they’ve taken our homes.”

I’m just beginning the process of short sale, and have a buyer and contract, with verbal agreement of interest of both primary and secondary lenders to proceed. But now I’m looking into the whole “full release of liability” issue. I’m in Florida, which I understand is NOT a non-recourse state. So, I’m online searching for advise, and hopefully, some worded examples how to proceed.

I’ve learned a lot from what I’ve seen here (negotiation the “full release” and perhaps the credit agency “settled” language; but the concepts are still at a general level to me. Any (non-attorney) council for me? Or better yet, a resource where I can find the language for the “full release.”

My broker, who is a bit of specialist in short sales doesn’t seem to think this is necessary (which tells me he’s not the full specialist that I had hoped.) My deficiency amount will be $183k short of the $393k purchase price; and I don’t want this coming back on me.

Thanks for all your help

Don

———–

Hello Don,

Just make sure you get the estoppel letter in advance of closing and read it carefully.  And make sure you avoid this situation.

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.

Me: Hi Mary

I saw your ad in the (redacted) and wanted to know if any of your clients liquidate their property through the bk?

I purchase short sales and am able to get $900 of attorney fees approved on each HUD1 to be paid at settlement. 

I have an office in St Petersburg.  Let me know if we can talk.

Paul

—————–

BK Attorney: I usually don’t advise my clients to do short sales unless the creditor will throw them some money.

—————–

Me:  Hmmm…  The bankruptcy stops the reporting of the tradeline and discharges the debt, but the contractors for Equifax, Experian, and TU pick up the summary judgment and add it to the public records section of the credit report.  A completed short sale can keep the public records section clean of the foreclosure.

—————–

BK Attorney: Their credit is already shot and if we file b4 judgment, no loss.

—————–

Me: Only any negative reporting on the tradeline itself (after the bk case number is issued) is barred by the stay and later the discharge injunction.  The foreclosure is still being reported by Choicepoint to the bureaus in the public records section of the report for all those who experienced a completed foreclosure.  And if a short sale is completed after the judgment but prior to sale, the judgment is vacated and per the FCRA can’t appear on the report.

Anyways, I think I get that you don’t like short sales.  FWIW, you and I would probably get along pretty well.

Paul

—————–

BK Attorney: I like a straightforward person.

—————–

Me: I’m as straightforward as they come.  I turn away more business than I accept, by explaining the HAMP or other options that don’t make Paul any money.

—————–

Bk Attorney: If you can tell me how it helps my client, I would love to talk.

—————–

Me: If the borrower was living in the home and wanted to continue to occupy until the end and didn’t care one iota about the stigma of foreclosure then I’d say we’d pass on that one.  However, I don’t think that characterizes the majority of those debtors who own real estate and seek protection under the bankruptcy code.

As for the benefit – first off, it’s free – regardless of the outcome, it doesn’t cost them anything for me to buy the property as a short sale.  If they have an FHA loan then they can get $1,000 cash on the HUD1 at closing.  The cancellation of indebtedness income is covered by the bankruptcy exclusion to debt forgiveness (if they are smart and file prior to closing).  Fannie Mae requires a five year wait after a foreclosure and only two years for a short sale (although the bankruptcy would also have to be seasoned).  And as I mentioned earlier, the public records section of the report will show any future employer, insurance company, creditor, heck even some hospitals run credit reports prior to admittance.  There are also intangible costs/benefits (i.e. emotional, psychological, self esteem, etc) attached to experiencing an event like foreclosure.  

In sum, considering that bankruptcy is a means for a consumer to obtain a fresh start and gradually enter back into the world to get their life back, it is my belief that a short sale is consistent with this goal.  Of course, I do make money buying/selling short sales, so my opinions may be biased; nevertheless, everything I’ve typed is indisputable.

Mary, let me know when you’ll have 15 minutes to talk this week and I’ll give you a call or if you prefer, stop by to see you.  

Have a good night and thanks for the dialogue.

Paul

If you are a cash buyer in Pinellas County Florida, then email me to buy homes at 20 cents on the dollar.  Paul at brokencredit.com

I also wouldn’t mind if this post showed up in Google for St Petersburg Florida short sales, Pinellas County Foreclosures, preforeclosures, wholesale bargain homes in St Pete, hey you get the idea.

The percentage of “underwater” loans may rise to 48 percent, or 25 million homes, as prices drop through the first quarter of 2011, Karen Weaver and Ying Shen, analysts in New York at Deutsche Bank, wrote in a report today.

As of March 31, the share of homes mortgaged for more than their value was 26 percent, or about 14 million properties, according to Deutsche Bank. Further deterioration will depress consumer spending and boost defaults by borrowers who face unemployment, divorce, disability or other financial challenges, the securitization analysts said.

“Borrowers may also ‘ruthlessly’ or strategically default even without such life events,” they wrote.

Seven markets in states with the fastest appreciation during the five-year housing boom — including Fort Lauderdale and Miami, Florida; Merced and Modesto, California; and Las Vegas — may find 90 percent of borrowers underwater, according to the report.

The share of borrowers owing more than 125 percent of their property’s value will increase to 28 percent from 13 percent, according to Weaver and Shen.

Home prices will decline another 14 percent on average, the analysts wrote.