If a real estate broker is negotiating with the seller’s lender then they will need to comply with the Mortgage Assistance Relief Act (“MARS”) rules, even if he or she is the buyer’s agent.  Additionally, real estate brokers who make referrals to MARS providers (such as MH Solutions Inc) will be subject to penalties when the realtor knows, or consciously avoids knowing, that the MARS provider is engaged in any act or practice that violates the MARS rules.

Real estate brokers who market themselves as providing, or who actually provide MARS services will need to provide the MARS Disclosures, and comply with all other aspects of the MARS rules including, but not limited to, not accepting any fees in advance of services being provided, not misrepresenting material aspects of their services including guaranteeing specific results, not counseling clients to cease making payments to their lender, maintain records for at least 2 years, etc.  They should also be licensed under Maine’s Debt Management Services Act in the same manner that MH Solutions Inc is.   And, they are required to provide an additional disclosure which states that (a) they are a for-profit business which is not affiliated with the clients’ lender or the government; (b) that the clients’ lender or servicer may not agree to change their loans; (c) that the clients’ could lose their homes and damage their credit ratings if they stop making their mortgage payments; and (d) that the clients’ are not required to stay in the service or accept the results delivered, and the total cost of the service if they do not accept the results will not be due.

There are three MARS disclosures that an agent will need to present at specific periods during the short sale process.

The first disclosure titled “MARS SHORT SALE DISCLOSURE CONSUMER SPECIFIC COMMERCIAL COMMUNICATION” must be presented to the seller at the first point in time that the agent realizes that the property will be sold via short sale. 

The second disclosure titled “MARS SHORT SALE DISCLOSURE SHORT SALE OFFER” is to be presented at the time the seller’s lender issues the short sale approval letter.

The third disclosure titled “MARS SHORT SALE DISCLOSURE NOTICE OF MATERIAL DIFFERENCES”

 is to be presented at the time the seller’s lender provides a notice of material differences between the sellers current loan and the short sale approval. 

This third disclosure is bound to cause some confusion.  The Mortgage Assistance Relief Act was initially intended to protect consumers from real estate professionals marketing to help them do loan modifications.  For detailed information you can read The Final FTC Rule for Mortgage Assistance Relief Service. Short sales, by default, have been looped into the Act, where they really don’t apply.  Since the lender is most likely not going to provide a notice of material differences in a short sale, they are the ones that are not performing under the Act, and therefore they should be the ones to assume the liability. It is our opinion, however, that an agent should still provide the seller with the third disclosure attaching it to a brief notice that indicates the lender has not provided a notice of material defects.  Your notice should also outline the difference between the seller’s current loan and the terms of the short sale approval (i.e. – “current loan with fixed interest rate of 6.2% and term of 30yrs and a principal balance of $186,000 to be paid off through a short sale.  Resulting principal balance will be $0.”)   In short, you are being asked to provide a notice from a lender that will not provide one, and then compare apples to oranges, but it can never hurt for real estate agents to over disclose.

Real estate agents that wish to use MH Solutions to handle their short sales will still want to use the disclosure forms that MARS has produced even though MH Solutions’ Disclosure Forms already contain the necessary disclosure information and in most cases should adequately cover the real estate agent.

The MARS act has implemented more rules on companies and individuals who negotiate mortgage debt and assist with short sales or loan modifications. Companies and real estate agents must be licensed, and they cannot tell you to stop communicating with your bank, or charge you an up-front fee. Companies must also let the client know that they can stop using their service at any time and they have the right to reject or accept the offer from the lender.  

Other important guidelines MARS requires debt relief companies to disclose up front and throughout the process:

• They are not associated with the government, and their services have not been approved by the government or the consumer’s lender.
• The lender may not agree to change the consumer’s loan.
• If companies tell consumers to stop paying their mortgage, they must also tell them that they could lose their home and damage their credit rating.

MH Solutions Inc. has been licensed and bonded in the state of Maine for debt relief services since March 2009. If you or someone you know is struggling to pay their mortgage or facing foreclosure please check out our website www.mhsolutionsme.com for information about short sales, loan modifications and what your options are. You don’t have to face foreclosure and you shouldn’t be taken advantage of. Our negotiation services are free to sellers, it is the buyers that pay once closing takes place. That’s right no money is exchanged until the transaction has closed, and the seller who is in distress does not pay us a penny.

For more information about MARS visit:

http://business.ftc.gov/blog/2010/11/life-mars-new-rule-protects-homeowners-mortgage-relief-scams
or
http://www.ftc.gov/opa/2010/11/mars.shtm

Despite the rise in the median sales price of homes in Maine, overall there are fewer being sold. In 2010 the number of home sales dropped by 2.5% nationwide when compared with 2009. The Northeast saw a decrease of home sales by 5.4%, in December 2010 compared to December 2009. Maine’s percentage of home sales dropped even more with a decline of 10.68% over this same time period.

Click here to read the full report.

Before foreclosures, short sales, loan modifications and subprime mortgages became a hot dinner table topic, the real estate climate was very different. Real Estate agents were overwhelmed with business, and people were urged to “buy now,” and advised that the market could only go up. It became easy to buy a home, and a new pool of people who previously would not qualify for a loan, could easily purchase a house. People who already owned, refinanced, and there was a flurry of people renovating and flipping properties. It didn’t matter what you paid, you just had to get into the market. Most everyone believed that the value would just continually increase, that was until 2007.

In 2007 risky mortgages were defaulting, major banks and investment firms were going under, and the real estate market started to plummet. Things only got worse in 2008. More banks were filing bankruptcy, more people fell behind in payments and realized they owed more than the house was even worth.

Today, there are more than Five Million homes in foreclosure and finding buyers to purchase these homes is not easy. It is a buyers market, with low interest rates and even lower prices. Listen to the piece by NPR and you will to truly understand how we got here as a country.

Typically there are tax implications for anyone who has been foreclosed on, been through a short sale, or been issued a deed in lieu. If the lender forgives more than $600 of the principal loan they are required to issue a 1099 C to the borrower. The lender will send a 1099 C Form to you and the IRS. The IRS requires this because when you took out the loan you were not taxed, since it was assumed you would pay it back. When a portion of that loan is cancelled by your lender so you will no longer be paying it back, the IRS views that as income. That income must be taxed.

When you receive the 1099 C the first thing you should do is check to make sure all the figures are accurate. Take it to your accountant or CPA if you want to double check it.

The good news for you is that if the property has been your primary residence you may not have any tax liability. Homeowners are allowed to write off 1099 C income from cancelled debt up to two million dollars or one million if you are married and filing separately. The reason for your tax liability being waived is because of the Mortgage Debt Relieft Act of 2007. As long as you used the loan proceeds to purchase, refinance or fix the home, you most likely won’t have to pay taxes on the deficiency amount. If you refinanced and used the money for something other than home repairs you may be liable for so or all of the taxes.

Once you have received the 1099 C and checked it for accuracy the next step is to obtain an IRS Form 982 whether through your accountant, CPA or by clicking selecting the link in this post.

If the property was an investment property and not your primary residence then you will most likely have a tax liability unless you can prove insolvency.  We recommend consulting with an accountant or CPA about this so you are sure to file correctly.

Disclaimer: The content represented here is our opinion only. We are not lawyers or accountants and we recommend you seek appropriate professional guidance for your legal and financial questions.

The process starts when the lender decides to move forward with foreclosure after non-payment. Typically they wait 90 days, however they can begin foreclosure after just 30 days of non-payment. Once the lender’s attorney gathers all the title information and formal complaint, you will be served, meaning a sheriff will show up at your door and give you the notice.

You must reply to the notice, and this is when you want to act quickly. You only have 20 days from the date you are served for your reply to reach the court house. It is important to respond to this notice, as this is your chance to take action against foreclosure. A possible reply would be to request mediation.

According to the Maine Foreclosure Mediation Law all mortgage holders that are filing foreclosure complaints must include a one page notice to the homeowner(s) that informs them that failure to answer the complaint will result in a foreclosure of their property, give a sample answer and envelope in which to mail that answer back to the Court. They will also provide a description of the new mediation program. (1)

It is a good idea to take this opportunity and request mediation because that will pause the foreclosure process while you wait for a mediation date. Upon your request for mediation the lender must provide an individual at the meeting who is authorized to enter into loan modifications. (1)

The first meeting is an informal session which you, the homeowner, must attend. This session is designed to educate you about the mediation process, the new laws and what documentation you will be required to produce for the formal mediation. (1)

After this initial meeting the court will draft a schedule for document submission and determine a mediation date. All parties involved will have three weeks to exchange information and the mediation date is typically scheduled for six to seven weeks after the initial meeting. (1)

Some major points that are addressed at the formal mediation are the present value of the home, hardship of the homeowner, and information about the existing loan. Loan modification will be discussed, however it is not always possible to get a modification. If you cannot get a loan modification another option would be to look into doing a short sale. (Please see our website and other blogs at www.mhsolutionsme.com for more details about short sales.)

Requesting mediation is a great tool for you to use. Not only does this buy you some extra time to think about what you ultimately want to do with the property, but it can also provide you with some important information and options.

(1)http://www.maine.gov/pfr/consumercredit/pre-foreclosure_faq.html

Until recently people who fell behind on their mortgage payments or found themselves with little to no equity in their homes had very few options. Today one option a borrower may have is to participate in the HAFA program and escape the financial and emotional drain of a foreclosure.

Through HAFA there are two alternatives to foreclosure.

The first is a short sale. A short sale will allow you to sell your home for less than you owe. The HAFA short sale process will keep you from having to pay the difference at closing or be pursued for the deficiency by your lender. Selling your home by short sale prevents the financial ruin associated with foreclosure. With the short sale under the HAFA program, a real estate agent must be involved in the process. If you aren’t already working with an agent, we would be happy to refer you to a qualified professional.

The second alternative is a deed-in-lieu. This is where the bank accepts the deed of your home instead of foreclosure. You do not get to keep your home, but your mortgage debt is forgiven.

The HAFA program, was designed to provide real solutions for distressed homeowners to avoid filing bankruptcy to stop foreclosure or simply abandoning the property. In addition the program offers incentives not historically allowed in a typical short sale.

The program offers borrowers $3000 in relocation assistance, to walk away with no deficiency judgment, and no promissory note. Allowing a borrower to walk away with no fear that the lender will pursue them for the remaining loan balance makes HAFA more appealing than the standard short sale.

One thing to consider when looking into the HAFA program is the tax implications. The difference between the remaining amount of principal owed and the amount that the servicer receives from the sale must be reported to the IRS on Form 1099C, as debt forgiveness. In some cases, debt forgiveness could be taxed as income (please watch our the video on the MH Solutions website concerning 1099C C cancellation of Debt for more information on this topic). The $3,000 Borrower Relocation Assistance may also be reported as income. A short sale may have income tax consequences and/or may have a negative impact on your credit score. You should contact the IRS or your tax preparer to determine if you may have any tax liability.

To qualify for the HAFA program borrowers must meet the eligibility requirements. To find out if you qualify for the benefits of the program give us a call or check out our website www.mhsolutionsme.com.

Since government and institutional loan modification programs, have been, for the most part, ineffective at helping people keep their homes, and since refinancing isn’t an option for most folks (since property values have dropped so much over the past few years) the question almost always comes down to, “what benefits does a short sale provide me with over a foreclosure, as I try to make a fresh start?”

So, what I’m going to talk about here are the differences between having a short sale and a foreclosure on your record.

Lets start with your ability to get a new loan. Fannie Mae – the nation’s largest funder of mortgages – says that if you have a foreclosure they aren’t going to lend you money for 5 years to buy a primary residence. However, if you have a short sale they’ll give you a mortgage for a primary residence after only 2 years.

If you’re looking to buy a non-primary residence, like an investment property or a second home, it will take 7 years after a foreclosure before Fannie Mae will lend to you verses 2 years if you do a short sale.

Another important difference between foreclosure and short sale when considering your new loan once you’re eligible again, is that most mortgage companies require you to disclosure if you’ve had a foreclosure in the last 7 years. If you have, then you’ll pay a higher interest rate on your new loan. At this point, mortgage companies don’t ask if you’ve had a short sale.

Let’s move on now to talk about your credit score, as this will affect the type of loans you are able to get once your eligible again. Your credit score will likely drop by 250 to 300 points with a foreclosure. A short sale can affect your credit score by as little as 50 points, although the more late payments you have, the greater the damage with both short sales and foreclosures. The reason for the large difference between foreclosures and short sales when it comes to credit score is that after a short sale most lenders will report that you have “settled” or “paid in full”.

An important note is that a foreclosure remains on your credit report for 10 years and in the public record forever.

Some other issues to consider that people often overlook, but that are truly important concern employment. An employer that checks up on your credit and finds foreclosure, may consider that a condition for reassignment or termination. Short sales, on the other hand will typically show up as “settled” and are not generally viewed negatively.

This is especially important to military personnel or if you are in a high security clearance job.

Similarly, future employers may see foreclosure as objectionable since it is one of the most serious offenses, like bankruptcy, that can appear on a credit report.

Naturally, you can see that there are numerous advantages to doing a short sale verses letting a property go to foreclosure. Your credit score can be better off by doing a short sale. You’ll be able to get a better quality loan quicker with a short sale, and you’re employment will be more secure by doing a short sale.

View video explanation of time line here.

All too many times we have seen people struggle unnecessarily because of a lack of understanding about the foreclosure process here in Maine. We have seen homeowners move out of their homes after receiving the initial Complaint for Foreclosure only to struggle to pay rent in a nearby apartment. We have seen real estate agents fail to market the property aggressively enough for a short sale and lose the property to foreclosure auction. MH Solutions hopes that this foreclosure time frame for civil action foreclosure in the State of Maine can act as a reference for people making important decisions about their property.

FORECLOSURE TIME LINE FOR CIVIL ACTION FORECLOSURE IN MAINE

(Typically the foreclosure process starts when a borrower is 90 days late on payments. Note, that most mortgages allow the lender to start a foreclosure after 30 days of non-payment)

This is an optimistic foreclosure time line for the lender and the days are only estimates. Time frames do vary and there are ways to prolong the foreclosure process.

Day 1 The lender decides to start a foreclosure for non-payment
Day 14 The lender’s attorney completes title work and complaint
Day 21 The borrower is served the notice of the foreclosure
Day 41 The borrower’s reply to the summons is due
Day 72 The lender can file motion for summary judgment
Day 93 The borrower’s reply to the motion is due
Day 128 Summary judgment enters
Day 218 Redemption period ends
Day 239 Advertising in a paper of general distribution for an auction completed
Day 254 Auction Held

Disclosure: we are not attorneys and the information contained here is our opinion only. We recommend you consult with an attorney for definitive answers about foreclosure.

Over the past few months we’ve had a couple of instances where title companies really dropped the ball and nearly jeopardized the closing. Luckily we were able to pick up the pieces and the transactions went through, but not without a lot of hard work and stress.

When it comes to short sales there are four important steps (on top of the regular duties) that a title company must perform. It seems simple, but it’s out of the box from what they’re used too, and if forgotten, could result in the lender returning funds from the closing.

Step 1. 48 hours prior to closing, most lenders want to review a final copy of the HUD created by the title company. As a loss mitigation company, we negotiate a preliminary HUD with the lender. Once that preliminary HUD is approved the title company then modifies it as needed (being sure to remain in compliance with the terms of the approval letter). Sometimes, inexperienced title companies will amend the preliminary HUD in a way that is not in compliance with the terms of the approval letter. This is why we always request to review the final HUD before the lender sees it.

Step 2. The funds must be received by the lender in accordance with the terms of the approval letter. If the approval letter states that the funds must be wired no later than the 16th of the month but they are wired on the 17th, the closing may be jeopardized.

Step 3. A copy of the fully executed Settlement Statement is almost always required by the lender. Typically they will want a faxed copy the day of closing and a hard copy overnight delivered.

Step 4. A copy of the fully executed approval letter is also usually required by the lender. Again, they will typically want a faxed copy the day of closing and a hard copy overnight delivered.

Failure to follow these simple steps (in addition to any other stipulations required in the approval letter) may result in the closing being deemed invalid and funds being returned. Naturally, this poses a huge liability for the parties involved as buyers will typically have started moving in by the time funds are reversed.

We strongly recommend making sure that your title company follows the approval letter carefully. In Maine, there are several title companies that we have worked with which do a great job and which we would be happy to recommend.

Contact us via the web at www.mhsolutionsme.com