Undisclosed payments in short sale transactions, especially those paid outside of escrow, may violate the law, including RESPA, laws against loan fraud, and licensing laws. Short sale agents have increasingly reported to C.A.R. about requests for agents and their clients to pay junior lienholders and others, oftentimes outside of escrow.
One common scenario is when a short sale seller’s senior lender authorizes a payment of $3,000, for example, to extinguish a junior lien, but the junior lender demands that the buyer pays an additional $9,000 outside of escrow. Not only would it be risky for a buyer to pay outside of escrow, but concealing this additional payment from a federally-insured senior lender may constitute loan fraud, which is a crime punishable by 30 years imprisonment plus a $1 million fine (18 U.S.C. section 1014). Furthermore, omitting from the HUD-1 Statement any charges paid at settlement by either a buyer or seller may violate the Real Estate Settlement Procedures Act (RESPA) (Appendix A to 24 C.F.R. Part 3500). Depending on the specific circumstances, carrying out these payment requests may also violate other laws and regulations, and an agent’s participation in the scheme may be subject to license revocation by the Department of Real Estate or other disciplinary action.” -sent by California Association of Realtors

I’ve been getting this email from everyone this week. I think this is one of the dumbest things I’ve read professionally in a LONG time. It seems to be an insult to people who actually READ and have been trained.

Do any real estate professionals who take their business seriously really not know you DON’T:
#1 pay money outside escrow when dealing with short sales
#2 Not fully disclose changes or additional contracts to all parties signing them

So yes of course its ILLEGAL to not disclose payments NOT shown on the HUD to a Jr lien or ANYONE else for that matter.

Does this mean you can’t get a fee approved that IS disclosed to both BUYER and SELLER and shown on the final HUD and thereby approved by the lender? Obviously that is LEGAL.

Check back next week I am going to share THE MAGIC BULLET to fresh collections… I still don’t know exactly why it works so well but it does!

We have all been hearing about HAFA the last while and how its here to save homeowners and get banks to play nice.

Maybe I’m biased but I don’t think banks needed the monetary incentive, but they will certainly take it when it suits them.

You see, a lot the insiders I talk to are skeptical that this program will actually work on a broad scale.

The 2 big things HAFA promises:

1-Cash incentive for sellers
2-Banks commit to NOT pursue deficiency

Those in the trenches are thinking that the HAFA program won’t be effective because it is a suggestion with incentives for banks IF they follow it and NOT an obligation.

But when we lay out the 2 main options for defaulting mortgages and their consequences it looks like this:

Foreclosure(F) Vs Short Sale(SS)

F= 1099-A or slim chance to pursue deficiency
SS= 1099-C or the option to pursue deficiency if included in the short sale agreement

Many states are not allowing homeowners to be exempt from taxes owed on the 1099′s like the MFDRA allows with the IRS and so the homeowner MUST look at the reality of selling a home versus foreclosing and ALL the consequences.

Foreclosures are typically sold for less money than short sales, the loss incurred by the lender is GREATER and therefore the 1099 will be LARGER in a foreclosure than in a short sale. Banks average COST is $60,000-$70,000 on a foreclosure, it is far reduced when sold as a short sale.

Banks will naturally select Short Sale instead of Foreclosure ALL DAY LONG IF (and its admittedly a HUGE if) the agents would present the deals to the short sale lenders in a way that clearly shows the advantage of the short sale with good numbers. Then the agent and buyers NEED to CLOSE the deal in a timely fashion.

The other obvious factor is that banks are really interested in the option of pursuing deficiency judgments / collections on as many short sales and foreclosures as possible.

This will be an interesting next few years…

Some of my clients don’t realize that whether they short sale or foreclose there is potential tax liability.

(People who complain about paying their taxes can be divided into two types: Men and Women.)

I encourage my clients to speak with their tax professional or CPA to determine their risk of owing taxes after short sale or foreclosure. Before I send them to their CPA (who may not really understand how it works) I give them the following links and resources so they can have an educated conversation with the CPA.

Here are the 8 crucial points to discuss:

1-The lender will issue a 1099-C in a short sale (unless they pursue a deficiency judgment)

2-The lender will issue a 1099-A in a foreclosure (unless they pursue a deficiency judgment)

3-The 1099 issued is for the amount of the lenders loss from the short sale or foreclosure.

4-The loss is almost ALWAYS less in a short sale- there is less cost associated with short sales and they are preferred because they typically yield a higher purchase price and greater NET to the lender.

5-The homeowner may not be liable to pay taxes owed the IRS on the 1099 in either case with IRS Tax Form 982 (http://www.irs.gov/irs/article/0,,id=179073,00.html).

6-The homeowner may not be liable to pay taxes owed the IRS per the MDRA (http://www.irs.gov/individuals/article/0,,id=179414,00.html).

7-The homeowner should check state tax law regarding 1099′s on short sales and foreclosures, the above links deal with IRS/Federal Taxes.

8-Generally speaking if you purchased the home and never refi’d you won’t owe the IRS taxes on the 1099-C

I recently did a call with a very astute CPA and let him explain the details of tax liability and short sales. At $400 it was not a cheap call but the info was worth it and now maybe you won’t need to pay a CPA to decide if you are liable for taxes.

Listen in and take notes.

CPA interview with Sean Chapman

Sean Chapman

He came up with a brilliant approach:

“Ok, so we know that when it is a purchase money loan (first or second) on a primary residence in CA, that the bank cannot obtain a deficiency judgment, even if they decide to do a ‘judicial foreclosure’. Also, if the foreclosing lender on any residential property (second home, investment) or loan type (cash out or rate/term refi) elects to use a Trustee Sale instead of a Judicial Foreclosure, that foreclosing lien position CANNOT seek a deficiency judgment. Period.

If the second lien is NOT the same lender as the first lien and they did not foreclose (which is most common, the first is typically the foreclosing lender) that second lien DOES have recourse capabilities. In most foreclosures, what usually happens is that when both the first and the second liens are in negative equity positions, the second will follow the path of NOT seeking to foreclose, allowing its security interest in the property to be wiped out through the foreclosure by the first lien.

As a result the second lien will proceed as though they are an unsecured lender, seeking to collect via a lawsuit. This isn’t a ‘deficiency judgment’, but simply a suit on an unsecured promissory note.

It’s rare, but in cases where the second lien IS the foreclosing lien and the first is being paid in full, if the second forecloses via Trustee Sale (again, this is for those of us in CA), they have NO RECOURSE, unless they were to proceed with a Judicial Foreclosure in which case they would obtain the deficiency judgment through the judicial foreclosure sale. It doesn’t matter that it was a cash out refi, second home, investment property, etc, if the foreclosing lender elects to proceed with a non-judicial foreclosure, they cannot obtain a judgment per CA law.

BUT, what about your cases where both liens are with the SAME LENDER and both liens are negative in their equity positions and the first lien is foreclosing??? Well, in 1992 we had a case in CA that set the precedent for future foreclosure case law regarding the ‘one action’ rule. If the first and the second are both with the same lender, when the first forecloses (via a Trustee Sale), the second CANNOT sue the seller for the balance. Remember, this is ONLY in CA where both liens are with the same lender i.e. Chase/Chase or BofA/BofA, etc.

(Simon v. Superior Court) http://law.scu.edu/FacWebPage/Neustadter/sdbook/main/commentary/48.html

So, what does this all mean to the homeowner and their short sale negotiator/agent/attorney? When you are fighting to remove the ‘we reserve the right to seek a deficiency judgment’ verbiage on your short sale approval letters, use your knowledge of the CA state law as ammo to leverage the deal.”

Of course thats easier said than done, but fortunately we have put together a potent letter that does a good job of this. When used correctly it can yield powerful results. Contact me for private consulting and I’ll hook you up with the letter.

SeanP.S. My wife and I had our 3rd child in January, so my posts have been less frequent as I have given more time to the family. The jump from 2 to 3 has been noticeable, but we are loving it!

Help homeowners facing foreclosure, build a legitimate real estate business or grow the one you have, I have put together a video training suite that will do the hard work for you!

(Not really, but pretty close…)

You see, I have been teaching powerful real estate strategies for years now- some people have paid me thousands to learn them, others have paid me to do it for them.

The interesting thing is that 80% of all the people I help have something in common, they are too busy to learn something new. They know they need to change their business or add a service, but they struggle finding time to LEARN and IMPLEMENT moneymaking or time saving methods.

So I have taken all of the fluff out and compressed the information I share into easy to apply lessons with brief action plans. I also have full courses you can get into if you see a video you want more of. This is like youtube with a PHD. You’ll get useful information that you can use immediately to improve your life and your business.

Because you’re on my list, here’s what I did for you: I created a Basic Membership area of Mass Credit Control, It’ll help you improve consumer credit (for yourself or your clients) and your real estate business.

Check out a few of the screen shots below:

Short Sale Leads in the Members Area

Training Videos in Members Area

Exclusive LIFETIME membership for FREE to Mass Credit Control Basic.
What you get:

1. Short Sale Leads (30-60 day mortgage late leads)
2. Direct Mail Marketing Materials for Short Sales, Loan Mods
3. Forms and Documents essential to Credit Repair
4. Basic Credit Repair Training Videos
5. Special pricing of Mass Credit Control products
6. Exclusive ‘Members ONLY materials’
7. New Mass Credit Control products before the general public
8. Beta testing of our current and future Real Estate products

It’s a cool site and you can get access to it at http://www.deletedforeclosure.com

The Free membership is not currently available. Check back soon

Enjoy,

Sean Chapman

In this post I share the 6 ways to identify a credit repair scam according to the FTC:

There are so many ways to improve your credit on your own, if you want to improve your credit find a game plan that you can follow and then stick to it for at least 90 days. In 90 days I’ve seen consumers increase their FICO scores by 200 points and it can all be done legally!

If you are not that organized or willing to do it yourself, work with a company referred by someone you know that has used them successfully.

Here are 6 ways to identify a credit repair scam:

” 1 * The company wants you to pay for credit repair services before they provide any services. Under the Credit Repair Organizations Act, credit repair companies cannot require you to pay until they have completed the services they have promised.

2 * The company doesn’t tell you your rights and what you can do for yourself for free.

3 * The company recommends that you do not contact any of the three major national credit reporting companies directly.

4 * The company tells you they can get rid of most or all the negative credit information in your credit report, even if that information is accurate and current.

5 * The company suggests that you try to invent a “new” credit identity — and then, a new credit report — by applying for an Employer Identification Number to use instead of your Social Security number.

6 * The company advises you to dispute all the information in your credit report, regardless of its accuracy or timeliness.”

Be wary of credit repair companies in general, my personal opinion is that they are rarely worth dealing with. I prefer working with companies that target specific aspects of credit repair, attorneys can be more effective, but you should always do your due diligence before paying for the service.

I have a very targeted course that outlines a strong game plan for repairing consumer credit for yourself or as a business.

Disclaimer: This post is not meant to sell you anything but if you did buy one of my courses as a result, I would make money from it.

Why would the lender be willing to do this?

1- The lender realizes they will get less money through short sale or foreclosure

2- They now know the homeowner won’t pay them anymore and the loss is greater if the lender tries to collect on a charged off mortgage than if they accept a lump sum payment now.

Do lenders offer to do this for homeowners?

I have never heard of a lender offering this option openly. It doesn’t make sense to publicize their vulnerability as a junior lien. If everyone knew that lenders would do this, why would they pay their 2nd mortgages when faced with a hardship? Why would anyone pay a non-recourse junior lien after they’d missed payments and the junior lien is in a total loss position?

You should be sure that you also get a full release of liability in writing.

In order to be successful at securing a discounted payoff without selling the property you need get the lender to say yes. I have a team in place and can help you to evaluate your situation to see if you qualify for a junior lien discounted payoff, I will only recommend this option if you qualify and if your second mortgage is in a total loss position at foreclosure.

(NOTE: When you get a $100k second mortgage to approve a $25k discounted payoff- you will get a 1099-C for their $75k loss. You should consult a CPA or Tax Attorney with experience in foreclosures to discuss the potential impact or liability to you. Discounted payoffs outside of a sale are not an option some lenders allow, so caution should be taken when attempting this option.)

So yes, you can modify your first and ‘kill’ the second in some but not all cases.

Sean Chapman

Go ahead and try to run your family finances like that:

MAN:”Honey, I am going to borrow $75,000.00 I’m gonna help our 4 kids to keep their homes.”-
WIFE: “Of course dear, lets help them.”

–6 months later–

WIFE: “So what happened with all the kids, did they keep their homes?”,
MAN: “No it didn’t work out, but I think I can help Billy keep his…”
WIFE: “What!?! Where is the money? You couldn’t get all $75k?”
MAN: ” No I got the money, but I gave it to the banks, then they never helped our kids, oh well, maybe we can get the media to ‘name and shame them’?”
WIFE: “Shame them my @$%$, we’re hiring a lawyer to get the banks to do what we paid for!!”

And that is why so many folks are upset with the bailouts and big banks- they do what they want with little to no accountability.
Perhaps thats why according to RASMUSSEN: 71% of americans are Angry at Federal Gov’t, up 5 points since September; 46% VERY angry, up 10 points.

Most real estate professionals have been duped into believing that if a homeowner is current on their mortgage payments, then the bank won’t approve a short sale.

The truth?

You can complete a short sale without ever missing a mortgage payment. The natural question you are asking yourself is:
“Why would a bank approve a short sale if the homeowner is not late or has not missed a payment? “

Top 3 reasons they will approve a short sale w/o being late:

1-Loss of job and living on savings
2-Divorce
3-Forced to move, (job transfer, medical reasons, military transfer)

Banks approve short sales when it’s a better option for them. Don’t be fooled by anything you’ve heard! If the bank knows they will get less money from foreclosure they will almost always approve your short sale.

(The trick is making sure the bank knows you are helping them lose less money with the short sale.)

The problem is that most people hear a story in the news or from a friend or co-worker and that’s how they form their opinion. When it comes to something as vital as your family and finances you don’t want to guess at reducing your liability- you need to be sure.
When you complete the short sale while staying current on payments you will reduce the damage to your credit report and at worst see a 40 point drop to your FICO score.

I have seen over a hundred short sales approved when the homeowner never missed a payment.

Things to consider

If the seller has substantial assets and the short sale lender knows about it, they will likely ask for one or more of the following:

A) a cash contribution at closing
B) a promissory note
C) or they may pursue a deficiency judgment after close

If the seller is not released of substantial liability by doing the short sale, they should consider the liability they’d face from foreclosure and compare, perhaps foreclosure is a better option.

If you are not sure what liability you’d face you should also research or discuss the following 5 topics with a real estate attorney who specializes in foreclosure/short sale law:

1-Recourse Loans Vs. Non-Recourse Loans
2-One action rules if applicable in your state
3-The Mortgage Debt Relief Act and its updates
4-Deficiency judgment law
5-Non-Deficiency Judgment law

You can short sale without missing a payment, but you should explore your options and be sure that it’s the best way to reduce your liability and exposure when getting rid of an over-leveraged property.

Sean

P.S. If you are tired of a short sale and need help, send me an email- I have the ability to work with you personally, I also have trained professionals nationwide ready to work with you to get your short sale listed,approved and sold quickly and with the least liability possible.

P.P.S. Have you ever wondered if its possible to get your second mortgage to settle for pennies on the dollar and go away— FOREVER??? One of my friends has done this for his clients, I’ll be interviewing him soon.

So you worked your butt off to do a short sale and then the bank still reported it as a foreclosure on your credit report?!?!

As crazy as this sounds its more common than you’d think; banks have and will report short sales as foreclosures on consumer credit reports. It’s most likely a slothful mistake but mistake or not you deserve to have it report properly. If its not reported correctly- then the entire account should be DELETED from your report per the Fair Credit Reporting Act.

When you go through a short sale, its true that its LESS damaging to your credit than FORECLOSURE. Because in reality the words ‘short sale’ aren’t reported beside the account on your credit report, it will usually say, “paid in full for less than full balance”, “satisfied in full”, “paid as agreed”(if you’re lucky) or, “settled in full”. But remember, that’s not what destroys your FICO scores, its the mortgage lates most homeowners have when they do a short sale that hurts the credit. A 90-120 day late on a mortgage account is almost as bad as a foreclosure to your FICO scores and to the opinion of an underwriter evaluating you for new credit. I have helped a lot of clients do short sales without ever missing a mortgage payment and their credit looked great after the ‘short sale’ was reported to the bureaus- one client saw his score go up! (Most see a slight dip of around 20-40 points)

Foreclosure typically stays on your report for 7 years, a short sale usually reports for 5 years but can remain for 7 years. Most mortgage lenders won’t lend to you if you have a foreclosure on your credit report for 5 years or more. A short sale keeps most lenders from lending to you for 2 years or more.

What if you completed the short sale without paying late?

*You can avoid most of the credit damage by paying your mortgage while you short sale*

If you have the ability to pay your mortgage while you short sale and it won’t keep you from feeding your family and getting into a rental after you sell, I’d say you should pay. This can make the process less painful to credit and potentially help you avoid getting the rest of your accounts trashed. You see, when you miss a mortgage payment your credit card companies can see the delinquency when they peek at your report every couple months. When creditors see you are missing payments on other accounts, they start cutting your limit and raising your interest rates. A good amount of the time your credit card co’s will do this and some of the people I know who were carrying balances on their cards were caught in a pickle.

I refer my clients to a very reputable debt settlement attorney at that stage- if they are not willing or unable to keep paying their debt with an interest rate that has tripled.

So, what can you do when your short sale is reported as a foreclosure?

1- Contact the creditor directly and ask them to fix it so you don’t have to get your attorney involved.
If you get any resistance, then you should:

2- Send a formal written dispute to the creditor.

If that doesn’t work you should look into more advanced methods used to get creditors to cooperate.

3- Go here> It can be complicated to explain in a short post here but I have explained it better at this page www.DeletedForeclosure.com. There are great sections of the law you can read on that page and hopefully you will get what you need there if you do have a creditor who won’t fix the mistake.

If you get completely ignored and you know they are reporting information inaccurately you can:

4- File a complaint with the FTC on their website

5- Seek professional counsel if needed

Good luck and check back for more updates, I will get some samples up here soon.

Sean Chapman