Amos Elroy's New Jersey Real Estate Blog

What is Foreclosure?

Amos Elroy — Thu, 15 Sep 2011 01:13:00 GMT

What is Foreclosure? To different people it means different things, and I realize there is a lot of confusion about this topic even among Realtors.

I am not an attorney, nore a finance guru, but as a residential real estate consultant with foreclosure specific specialization, I will attempt to make a little order in the chaos. The following is a simplified explanation for clarity purposes.

Let us set a scenario. Dave bought a brand new home and moved in. At first he was paying the monthly mortgage payments on time and in full. After the first year however Dave's dog got sick, and he had to deplete his savings in order to pay the veterenary medical expenses. Soon there after his car died, and since his occupation required reliable transportation, he begrudgingly bought a new car through financing. Then, unexpectedly, Dave hurt his back and had to reduce his work load. Naturaly his income shrank significantly. At this point Dave found that he could no longer afford all of the expenses, and out of desperation he started falling behind on the mortgage payment.

The lender (mortgagee), from their end, sent warning after warning, threatening that they would "accelerate" the debt repayment if he did not catch up with his dues. This means that the bank would make the entire balance due immediately, and not according to the regular payment schedule. Unable to sell the house on the one hand, and unable to catch up with the delinquent payments, Dave had no choice but to watch this feared moment arrive. (This is not entirely true, as there often are some other alternatives before that happens, but we will talk about that another time.)

So, Dave receives a letter telling him that the rest of the mortgage balance is due immediately, or else it will be taken away from his possession. This is the point at which the clock starts ticking. At the end of the deadline given to Dave the lender would typically take the matter to court, and the court would start the foreclosure process. The lender hopes to receive some compensation for the debt, through the sale of the property in one way or another, at the end of this process.

Often the lender presents the property for sale at a public auction after the given deadline. People tend to confuse the auction itself, also referred to as the Sheriff's sale,with a foreclosure, but foreclosure is in fact just the legal process by which the lien holder, in most cases the lender or mortgagee, denies the defaulting borrower, ownership of the property. This could take place in many different ways, all of which are still considered to fall under the foreclosure category. The bank (lender) may recoop its losses through a foreclosure auction, a short sale, or repossession of the property and its sale as a bank owned property. To a buyer, foreclosure may present itself in various faces, as an auction property, a short sale, or a bank owned property (REO).

So, the main point I would like for you to take away is that foreclosure is not a type of property or type of sale, but rather the process in which the lien holder obtains the ownership of a real estate property in order to cover the defaulted loan.

OCC Orders Largest Lenders to Review Foreclosure Processes

Amos Elroy — Mon, 04 Oct 2010 19:54:00 GMT

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The Office of the Comptroller of the Currency (OCC), one of the country’s most important banking regulators, issued a directive to some of the largest mortgage servicers, ordering them to reassess their procedures for foreclosing on defaulted debts.

As you may have read or heard in the news, a fiasco exposed administrators at the lenders, who were signing approvals for foreclosure without taking the time to review them at all. The so called “robo-signers” would simply rubber stamp anything on their desk in order to cut through the overwhelming piles of paperwork caused by the groundswell of defaulting loans.

John Walsh, acting chief of the OCC contacted seven institutions the agency supervises, after GMAC Mortgage and JPMorgan Chase both announced a freeze on foreclosures in states, where filings might contain erroneous paperwork, and preparers may have broken the law in cutting corners. The latest bank to halt its foreclosure processing was Bank of America.

The following lenders were on John Walsh’ short list: JPMorgan, Bank of America, Citibank, HSBC, PNC Bank, U.S. Bank, and Wells Fargo.

Reports suggest OCC sent teams to be permanently stationed at each one of these banks, in close contact with senior management, in order to ensure the reviews are completed as mandated.

Walsh said it was clear that some lenders had “deficiencies” in their foreclosure processing. Walsh’s stated goal was to not only to fix any current processing problems, but also to examine what specific damage may have already been caused in individual cases.

Freddie Mac, likewise, expressed deep concern about recent reports. Freddie Mac stated that the alleged practices in these reports were clearly not in compliance with Freddie Mac’s guidelines, and directives, to its servicers. They also said it was essential that the industry work together to protect borrowers’ rights and ensure the integrity of the foreclosure process.

Federal Housing Finance Agency (FHFA), said the deficiencies in foreclosure documentation by GMAC and JPMorgan raise concerns for homeowners and mortgage investors alike. FHFA does support efforts by Fannie and Freddie to remind servicers and other parties engaged in processing foreclosures to do so in accordance with their seller-servicer agreements and applicable laws. FHFA directed Fannie and Freddie to work collectively to develop and implement a consistent approach to address any problems where deficiencies have been identified.

The Treasury Department has asked federal regulators to investigate, what they termed “troubling developments”, in foreclosure processing. Attorneys general in at least six states have launched their own inquiries.

FHA Insurance Rates to Change Soon

Amos Elroy — Mon, 16 Aug 2010 16:09:00 GMT

The Federal Housing Administration (FHA) has previously indicated it was going to change its insurance premium rates in September 2010. Now, due to concerns raised by the industry about readiness, the planned adjustments have been pushed up by a month.

HUD Deputy Assistant Secretary Vicki Bott, stated that the FHA will make the premium fee changes on all new case numbers effective October 4, 2010.

Bott said. “Since these system changes impact regulatory disclosures, lenders expressed they must have the additional time to implement and test systems. FHA took this feedback seriously and has accommodated the need for additional time.”

On August 5th FHA received congressional approval to raise borrowers’ annual premiums for single-family mortgage insurance. Federal mortgage insurers now have enough leeway to jack up annual fees it charges borrowers three-fold, or 1.55%. Bott insists, however, that the annual premium is not going to go that high. She expects the annual mortgage insurance premium to increase from 0.55% to 0.85% - 0.90% of the loan amount.

FHA, however, will also lower the upfront premium charged on the amount borrowed by 100 basis points from the current 2.25%.

The new premium structure is meant to ensure FHA a means of increasing its capital reserve funds. These funds have deteriorated to its lowest level in the agency’s 75-year history at the end of fiscal year 2009, as a result of rising mortgage defaults.

Obama Administration Shifting Focus of Foreclosure Prevention to Local Level

Amos Elroy — Thu, 05 Aug 2010 15:15:00 GMT

North & South Carolina, Oregon, Ohio, and Rohde Island are some of the hardest hit states regarding the housing market. The reason for it is mostly the high unemployment rates in these regions.

To combat the foreclosure rates at these states, the administration decided to change the universal approach, taken previously on a national level with HAFA and HAMP programs, and focus it much more specifically on the hardest suffering regions. As part of this paradigm shift, the local state housing finance agencies (HFAs) in the above states will receive a total of $600 million in federal funding to fund their own developed foreclosure reduction programs.

This grant is in fact the second round of such local funding, following Arizona, California, Florida, Nevada, and Michigan, which received $1.5 billion in total.

A third round of funding is in the works according to Herb Allison, Treasury assistant secretary for financial stability. The Dodd-Frank reform legislation signed into law allocates another $2 billion from the Troubled Asset Relief Program (TARP) to the Hardest Hit Fund.

The local state plans, towards which the funds are allocated, include targeted programs expanding options for homeowners who are struggling with mortgage payments due to unemployment, as well as programs addressing first and second liens, facilitating short sales and deeds-in-lieu, and assisting in the payment of arrearages. It is estimated that approximately 50,000 distressed homeowners will receive aid through the 5 states.

Bill Reversal? Tax Credit Closing Date Extension Approved in Senate After all!?

Amos Elroy — Thu, 01 Jul 2010 14:43:00 GMT

In a stunning reversal of a vote from last week, striking down an extension of the deadline for home purchase closing date, Congress approved a three month extension to qualify for up t0 $8,000 in federal tax credits. Buyers who already have signed contracts will now have until Sept. 30 to complete their purchases. Under the current terms, buyers had until April 30 to get a signed sales contract and until June 30 to complete the sale. The House approved the measure on Tuesday. Legislation in the Senate was approved Wednesday night by unanimous consent.

A word of caution though, though there is a very high likelihood this is going to be sealed into law today in the final vote, surprises in congress are not a rare occurrence. We are hoping there will be certainty about this extension by the end of today. (06/01/2010)

Home-Buyers' Tax Credit Extenssion Defeated by Republicans in Senate

Amos Elroy — Mon, 28 Jun 2010 14:55:00 GMT

An amendment that was supposed to extend the closing deadline for the homebuyer tax credit by three months was defeated in Senate.

Senate Majority Leader Democrat Harry Reid (D-Nevada) proposed the extension. While the amendment itself was approved by a large margin last week (as an add-on to H.R. 4213 - the American Jobs and Tax Loopholes Act), Republican senators defeated the full measure on Thursday.

Reid has indicated that after three unsuccessful attempts, he plans to drop the matter altogether.

The amendment was to extend the tax credit deadline for closing on a home purchase to September 30. The current deadline was June 30.

The National Association of Realtors (NAR) indicated that about 180,000 homebuyers who signed contracts in time, based on the given deadline, will still not be able to make the June 30 closing deadline, mainly because of the time it takes for lenders to complete the process. The trade group estimates that 75,000 of those won’t receive the credit are private buyers of distressed properties.

NAR says its members have reported that as many as 33% of qualified applicants have already been notified by lenders that their mortgages will not close before June 30, due to the sheer volume of current applications.

The tax credit amendment was one of several pieces of a bill that was primarily intended to extend unemployment benefits for Americans out of work for more than six months.

NJ Home Buyer Tax Credit Legislation Approved by General Assembly for 2010!

Amos Elroy — Tue, 25 May 2010 16:08:00 GMT

Tax credit on the local lever has been recently approved by NJ State legislature through bill A-1678/S-692. This bill established a NJ Home Buyer Tax Credit Program to credit home-buyers for purchases made within a one year span following the law enactment date. The tax credit will be up to $15,000, or 5% of a home purchase price, whichever is less, for qualified home buyers. Home buyers will receive the credit over 3 years, during which time the home purchased must be used as a primary residence.

Currently funds earmanrked for this purpose have been at a ration of 3:1 favoring new constructions over existing ones, though this may change in the final amendments of the law.

Before this legislation can become law, it must be approved by the full state Senate and be signed by Governor Chris Christie. The full Senate may vote on the bill as early as its next scheduled meeting on June 10, 2010. It is unknown what position Governor Chris Christie holds on this issue.

News-Flash: FHA Will not Increase Downpayment

Amos Elroy — Fri, 07 May 2010 16:08:00 GMT

Recently we have reported on the new FHA changes that raised the mortgage insurance rate to go from 1.75% to 2.25% in order to offset declining reserves caused by high default rates. We also noted that later this year the required minimum downpayment for an FHA backed loan would go up from 3.5% to 5%.

The later was proposed by Rep. Scott Garrett (R-New Jersey) as an amendment before the House Financial Services Committee. The amendment was, however, not approved.

Hoboen Rent Control Letter from Hudson County Taxpayer Association

Amos Elroy — Wed, 14 Apr 2010 18:52:00 GMT

The following letter is a call to action by Hoboken property owners. Please feel free to forward the URL to friends and family in Hoboken.

-------------------------------------------------------------------------

HUDSON COUNTY TAXPAYERS ASSOCIATION
ROBERT G. SACKS, PRESIDENT

Dear Hoboken Homeowner:
Homeowners received good news this month when Hoboken approved a 0.69 percent
tax reduction. The reduction is a good first step, but there’s a devastating “hidden tax”
that’s forcing many Hoboken small homeowners to consider bankruptcy.

Honest owners of single-family homes and condos are being sued for hundreds of
thousands of dollars because of a policy at the Hoboken Rent Leveling Office. Due to
this policy, small homeowners have been forced to rollback rents and refund to tenants
the difference between the current rent and rent charged many years ago. Some
property owners have even paid triple damages.

A Hoboken property owner recently challenged the city’s decision in court to rollback
rents. The administration of the law was ruled “unconstitutional” as applied by NJ
Superior Court Judge Shirley Tolentino. The judge further wrote that the city’s order to
rollback rents was “arbitrary, capricious and unreasonable” as applied in the case
before the court.

Seven months after the judge’s ruling, neither Mayor Dawn Zimmer nor the City Council
has done anything to fix Hoboken’s rent control law. Without immediate action by the
mayor and council, you could be the next homeowner facing a financially crippling
lawsuit.

Call Mayor Zimmer (201-420-2013) and your Councilman
today. They will not act unless they hear from you. Tell them rent control should apply
only to apartment buildings, not small homeowners. Unless Mayor Zimmer and
Councilman hears from the public, nothing will change. Tell them the city’s
rent control law must be changed to protect honest property owners. Please call them
today!

Sincerely,

Robert G. Sacks
President
Hudson County Taxpayers’ Association

225 ST. PAULS AVE #1F, JERSEY CITY, NJ 07306
HUDSON COUNTY TAXPAYERS ASSOCIATION
ROBERT G. SACKS, PRESIDENT

PROTECT YOUR HOME. PROTECT YOUR SAVINGS.
CALL MAYOR ZIMMER, 201-420-2013.
AND COUNCILMAN

New HAFA Regulations Explained

Amos Elroy — Mon, 12 Apr 2010 20:45:00 GMT

In the beginning of April 2010 the Obama administration has implementing new regulations regarding defaulted FHA backed mortgages. These changes are important for both buyers and sellers to note, as they have significant implications. In this article I will try to present a clear picture of the changes, and highlight how those may effect you.

In the first months of this administration structure and funds have been allocated as part of the Home Affordable Modification Program (HAMP) in order to help people who defaulted on their mortgages to modify their loans for a temporary reprieve. Now the administration has turned to a different tool. Homeowners who owe more on their property than its market value, and who can show hardship (loss of income, serious health issues, divorce, etc.), have had one major option to avoid foreclosure or bankruptcy, the short-sale. This little known transaction has become fairly well known in the last couple of years due to the high rates of loan defaults.

A short sale is a property sale where the offer is being presented to the lender (mortgagee) for approval. If the bank deems the offer as reasonable, taking into account the potential expenses the lender may incur by hanging on to the property, they often will reduce the due amount to correspond to the offer amount, minus the auxiliary transaction costs. (Payoff to Lender = Sale Price - Transactional Costs)

What has always been the problem with short sales, is the fact that there is no certainty that the bank will indeed approve the sale up until the bank has processed it, following the offer submission. This means that the Realtor has to estimate a price the bank would be likely to accept,and the offer has to ultimately come up to that threshold, for the short sale to be approved. If the lender/bank has not accepted the offer, this sets up a benchmark for the sale, and the pricing can be adjusted appropriately for the next round in the hopes of getting it through. The problem with that is that months pass with no guarantee of acceptance. This is bad for the buyer, bad for the seller, and bad for the professionals involved in the process (Realtors, attorneys).

My understanding is that the main reason banks do not provide this information ahead of time, is that they bank does not want to undercut themselves. Publishing the threshold would potentially set a low boundary for the sale, and there would be no incentive for the listing Realtor and the seller to list it any higher than the minimum price that would get it through.

On the 5th of April 2010, the administration's HAFA (Home Affordable Foreclosure Alternatives) program came into effect. This is an expansion of the Make Home Affordable program, and is designed to improve the process of foreclosure alternatives, primarily short sales. In the event the loan does not qualify for a loan modification, loan services will than move to a streamlined short sale strategy.

The idea behind HAFA is to incentivize more homes to be short sold rather than ending as foreclosed. Foreclosed properties are known to lower the value of surrounding properties by up to 9% (based on national statistics), causing a chain reaction of upside down mortgages and foreclosures in the neighborhood. To the lender there is no joy in acquiring foreclosed properties either, as they look bad on the books, and in general allow the lender to recoup on average only 30% of the debt as opposed to 60% in a short sale.

HAFA will aim to improve the process by offering incentives for lenders, as well as defaulting home owners to follow the HAFA process.The lenders and servicers are mandated to come up with a streamlined process that will speed up many short sales and ensure a higher rate of success.

Borrowers will receive pre-approved short-sale terms before listing the property, including either a list price approved by the servicer or the acceptable sale proceeds, according to the U.S. Treasury Department. That way, sellers know what lenders will accept before listing the property.

There's a set time line, with deadlines for lenders and sellers to keep the short-sale process moving

At the completion of a sale, borrowers may get up to $3,000* for relocation expenses, and servicers may receive compensation of up to $1,000. Up to $3,000 of proceeds are available to distribute to subordinate lien holders, making it possible to compensate the lenders of second mortgages.(* note that the relocation reimbursement may be taxable)

In addition the lender will pay many of the upfront expenses associated with the short sale process.

The following are triggers that should initiate a HAFA short sale:

The borrower (homeowner) doesn't qualify for HAMP loan modification plan
The Borrower was unable to successfully complete HAMP trial
The borrower was delinquent on the HAMP modification plan
The homeowner needs to move to follow a new job and wants a short sale

Not everyone will be eligible for a streamlined short sale under HAFA however. For example the borrower will need to live in the property as a primary residence, or would have had to move out in the last 90 days before applying before relocating for a new job. It is therefore important to contact the lender to examine qualification.

Please note that I write this for your educational benefit. I am not an attorney, nor a Mortgage broker, and thus I am not attempting to present legal or financial council. If you have questions please contact me and I will be happy to direct you to the appropriate competent expert.

NJ State Wide Open House Date Coming Up!

Amos Elroy — Thu, 08 Apr 2010 03:03:00 GMT

Please call (888) 462-6573 to get a list of Hudson County open houses for the official state wide open house weekend (Apr. 10-11, 2010).

Click on thumbnail on left to watch video

New HUD Definitions for Forclosed Properties

Amos Elroy — Mon, 05 Apr 2010 20:06:00 GMT

Effective immediately any properties that are at least 60 days behind on mortgage payment or 90 days late on tax payment will be now classified as a ‘foreclosed’ property.

Previously HUD (Housing and Urban Development) defined only properties where the foreclosure process was completed, as ‘foreclosed’, which caused a lot of deteriorating properties to linger before they were eligible for Neighborhood Stabilization Program (NSP) assistance.

The idea behind this semantic change is to encourage communities to acquire, rehabilitate, and than re-sell distressed properties quicker under NSP. The hope is it will help prevent further decline of depressed neighborhoods.

This move is seen as a response to the new reports indicating that states have so far used only about 39% of the $4 billion which were made available through the NSP to buy distressed properties in hard hit neighborhoods. These funds will be lost unless local and state governments commit them by September 2010.

An additional change HUD has made, is to classify houses as ‘abandoned’ after their owners have skipped payment of mortgage or taxes for over 90 day, or as a result of a determination by a code inspection that the property is not in habitable state, and the owner has not taken any corrective steps.

This is also an adjustment to the previous condition that a property be foreclosed upon and vacant for at least 90 days. This meant that properties where the owners have abandoned, yet there were inhabited by tenants, were not considered abandoned and thus ineligible for NSP monies as well.

What is Foreclosure?

Amos Elroy — Tue, 09 Mar 2010 03:11:00 GMT

Though I am neither an attorney nor a mortgage broker, and I do not intend to offer any legal or financial advice, I find that there is a lot of confusion and misunderstanding of issues that revolve around foreclosures. I decided therefore to demystify some things and clear some misconceptions. I will be creating a full resource on the HubNJRE.com site, which you are welcome to visit and bookmark.

What is Foreclosure?

There is a confusion about what foreclosure means. Foreclosure is in fact the process a real estate property goes through after default on the mortgage. It is not a type of sale, or the auction itself, although auctions are often referred to popularly as foreclosure auctions rather than Sheriff's Sales. If a borrower fails to pay their mortgage dues for a length of time, they are moved to a Notice of Default list (NOD), also referred to as Lis-Pendis. This signals that the foreclosure process started. A lender will than commonly accelerate the loan, which means it will require the full payment of the reminder of the mortgage all at once. Since this is an unattainable goal for most people reeling under the burden of month to month payment, let alone a full repayment, this often leads to a reclaiming of their property by the lender. Normally, unless there is some action by the owner, the property will end up at a Sheriff's Sale auction. Those auctions are publicly advertised, and buyers can purchase the properties on the auction block. However if the bank can not obtain, what they consider the minimum value for the property at the auction, the house is taken off of the auction and returned to the lender's asset inventory. Later this property would be sold as a REO (Real Estate Owned) or as a HUD property. (More about those in a separate article)

The reason owners do not sell their property at this point, aside from a common emotional attachment to their home, is the fact that often the value of the house in the market is lower than the reminder of the liens against the house. At times the property was bought at a higher value than the current one (particularly common in a declining real estate market), or the owner may have acquired additional secondary loans and charges after purchase of the home. In these cases even the sale of the house would not cover the amount due.

What is a Loan Modification or Refinancing?

During the Obama administration these options of intervention with a foreclosure have been brought to the foreground. Though the government can not force lenders to modify or re-fi, they can try and facilitate the process. There are a number of initiatives under the Make Home Affordable act. unfortunately only a minority of distressed home owners have been able to make use of these programs so far to save their home, yet it is at times the home owner's best hope. Sadly even in those cases this gives only a temporary reprieve to the indebted home owner, unless the underlying reason for the inability to catch up with the loan is rectified within a short period of time.

What is a Short Sale?

A short sale is an intervention with the foreclosure process in which the home owner (borrower) sells their house for less than the reminder of the debt. This possible if there is a real hardship the home owner can demonstrate to the lender (such as loss of employment and income, death, illness, or divorce, etc.). In these cases the bank may drop the required amount due in order to allow for a sale of the house, and avoidance of the rest of the foreclosure process. The advantages for the owner are mainly that they can avoid bankruptcy, which would cause a far greater damage to their credit rating, needed to purchase anything, or even rent an apartment, for many years to come.

New HAFA rules put in by the Obama administration are about to activate and may allow owners who have sold their home via short sales to buy smaller more affordable homes following the sale. This however applies only to FHA (Federal Housing Authority) backed mortgages, and there are some restrictions that make this transaction tricky, yet not impossible.

SFR Certification and Realtor Specialization

Short Sales are however a lengthy and more involved process than a regular real estate sale, and for this reason it is important a Realtor has the appropriate training and knowledge.

SFR stands for Short-Sale and Foreclosure Resource, and is a relatively new certification for Realtors introduced by NAR (The National Association for Realtors). Sadly the state of the economy and the multitude of properties in foreclosure have made such a specialization certificate essential.

Closing Cost Assistance & Appliance Incentive for Fannie Mae REO Properties

Amos Elroy — Thu, 04 Mar 2010 02:09:00 GMT

Fannie Mae is offers up to 3.5% incentive for purchases of a Fannie Mae owned REO (foreclosed) home. The incentive is provided either as a contribution towards closing costs, new Whirlpool® appliances purchased for the buyer by Fannie Mae, or a combination of both.

To be eligible for this incentive:
Property sales must close before May 1, 2010
Buyers must be owner-occupants, investors are exclud

This information is relayed by aelroy@hobnjre.com

How is my Neighborhood Doing? Real Estate Value in Hudson County

Amos Elroy — Mon, 22 Feb 2010 13:34:00 GMT

The rise of Zillow in popularity, in my humble opinion, has everything to do with providing readily available information to the public at large, however reliable or unreliable that information is, it is most importantly accessible. Realtors used to be the only gateway to this kind of information. Zillow made one important contribution. it leveled the playground by introducing a portal to information everyone should have access to.

Since nothing is standing still in the world of technology, we can acknowledge this contribution and leap a head. The Neighborhood Snapshot app is an interface that does exactly that. The snapshot feeds off of a far more accurate data source than tax records, used by the leading information providers, the MLS (Multiple Listing System) itself.

So what is the difference? Well, the MLS is the ultimate source of information used by the professionals to establish market value of any property. It is the very basis of the Competitive Market Analysis (CMA) Realtors conduct before listing a property, or as reference info for buyers. Tax records are considered inaccurate as they include transfers other than "arms length" sales of property. For example if a mother wishes to transfer a property to their son, this transaction would get thrown into the mix and greatly effect the average prices.

The interface we provide can be used in the following manner:

By sellers wishing to evaluate the comparative values of properties similar to theirs.
By buyers wishing to evaluate the neighborhood they plan to move to in terms of values and other statistics.
By Anyone wishing to evaluate the state of the local real estate for themselves.

To use it simply go to http://www.HudsonCountyRecords.com