Livinglies's Weblog

 

Mortgage Meltdown: Strategies for Defense and Settlement: Short Sales

 

Borrowers, whether they are in foreclosure or not, are advised to write letters to their lenders claiming violations of law and their closing documents. The various causes of action and the advice to get an “audit” done of your loan have been detailed here for several months and are available by scrolling, search, or find commands. 

 

I would add to the list a demand and potentially an offer for pre-approval of a short-sale based again on the lender’s participation to defraud you by collaborating in a plan wherein it abrogated its fiduciary responsibilities to you, actually acted against your interests and in so doing mislead you into thinking that the Fair market value of your home, your financial condition, or both were sufficient to justify the loan and loan terms.

Keep in mind that short-sales are coming into increasing favor with regulators even while the lenders and investors in CMOs/CDOs are balking. The dam will break in your favor.

A short sale is simply a sale of property that would carry a price less than the amount owed on the property. It is used mostly in cases where there was little or no down-payment, or where negative amortization was employed that resulted in a higher mortgage balance than the borrower started with.

However it can be used in other setting as well. The problem has been that real estate brokers now won’t touch short sales and neither will most buyers because of the ornate and and frustrating “approval” process from the lender, who has its own problem: the lenders have in nearly all cases, sold off the obligation to investment banks or in turn re-marketed them to government purchasers, pension funds etc., under the guise of AAA ratings that were procured by forming personal relationships with the people working for rating agencies and by providing financial incentives to the rating agencies coupled with economic duress of losing a “client” if the rating agency did not bend.

 

Thus the lender is frequently without leverage to or even authority to offer approval or permission regardless of its own assessment, because the true owner of the obligation is either not returning calls or is actually unknown to the lender. It is the fact that the true owner is unknown that is enabling borrowers to (a) challenge standing in foreclosures thus dismissing the foreclosure or stopping the judicial sale of the property and (b) sometimes getting the house for nothing. 

 

It is suggested that you demand pre-approval for a short sale that amounts to the cumulative total of the following list — and keep in mind that by combining this with allegations of TILA violations and the other claims we have suggested on livinglies.wordpress.com, you are threatening them with TOTAL loss of the loan and investment so you are more likely to get their attention:

 

1. Your down payment
2. Additional money you spent on the house as a result of taking ownership or re-financing
3. Points paid on the loan
4. All interest paid on the loan
5. The loss in fair market value measured by the the appraised value at the top, minus the current value on sale, after a 6% real estate commission and various other seller expenses.

Example: 

• You bought a house for $630,000 and you made a down payment of $130,000. (Fill in your own figures to figure this out for yourself). 
• The house was appraised at $650,000. 
• You took a loan for $500,000, paying 
• $15,000 in points and thus far you have paid 
• $35,000 in interest. 
• You also made improvements to the house that you can’t take with you of another $25,000. 
• If you sell the house now you can’t get more than $480,000, which after commissions and other costs will net $450,000 (loss of $200,000 from “benefit of the bargain”). 
• In your letter or pleading defending or foreclosure or challenging the lender without foreclosure pending, you will ask for pre-approval for a short sale discounting their loan to you to $95,000. 
• This will enable you to sell the house for a net of $450,000 if you choose to, give the lender $95,000, who will give the investing pool the $95,000 less servicing fees with a “sorry Charlie” letter. 
• You will net $355,000 on the deal, which pretty much makes you whole after the entire sorry affair.

 

The lender will do one of three things: They MUST answer you within 20 days under Truth in Lending laws. They will deny your request and offer you something else assuming you cite specific violations of the  truth in lending laws and make the allegations we have recommended here. They will agree to your proposal. Or they will negotiate with you. If they start negotiating, realize that you hit a nerve and you are sitting in the driver’s seat. You might be very pleasantly surprised by the outcome. 

 

Filed under: bubble, CDO, currency, Eviction, foreclosure, GTC | Honor, interest rates, Mortgage, Obama, politics | Tagged: audit, borrowers, fair market value, lenders, loan, short sales, TILA |