Massachusetts Short Sales

Freddie Mac Short Sale Guidelines

by Andrew Coppo on November 9, 2013

The Freddie Mac Standard Short Sale

Massachusetts Short Sales

Freddie Mac recently announced uniform short sale servicing guidelines with the introduction of the “Freddie Mac Standard Short Sale.”  The Freddie Mac Standard Short Sale is the government’s latest attempt to make the short sale process more efficient for loan servicers, buyers, sellers and real estate professionals. The Standard Short Sale means faster approvals, requires the lenders to waive their deficiency rights against the homeowner and, most important, provides uniform guidelines regarding cash contributions, promissory notes and relocation assistance incentives. In short (no pun intended), the Freddie Mac Standard Short Sale effectively takes the guesswork out of all Freddie Mac short sales and clears the way for more distressed homeowners to avoid foreclosure.

The Federal Housing Finance Agency, who acts as Fannie Mae and Freddie Mac’s conservator, issued identical Fannie Mae short sale guidelines in an effort to standardize the short sale approval process for all loans owned or backed by the government sponsored enterprises. Fannie Mae and Freddie Mac own or guarantee a majority of the outstanding mortgages in the United States.

The Fannie Mae and Freddie Mac short sale servicing guidelines remove obstacles on all government backed loans by streamlining the short sale approval process so more homeowners can avoid foreclosure. The short sale servicing guidelines, which went into effect November 1, 2012, are intended to provide lenders and loan servicers with uniform short sale procedures making the short sale transaction faster, easier and more transparent.

Faster Approvals

The Freddie Mac short sale guidelines implement consistent borrower response timeframes to help facilitate faster short sale approvals. Servicers must acknowledge receipt of a purchase offer within three business days. Servicers must also notify the borrower within five business days from receipt of the purchase offer if any additional items are needed to evaluate the offer.

Lenders and loan servicers have 30 days to make a final decision from the time they receive a complete short sale application.  The loan servicer automatically receives an additional 30 day extension if they need to negotiate the approval with third parties, such as mortgage insurance companies. A final decision, however, is required in the first 60 days.

As someone who exclusively negotiates short sales, my experience is mostly positive since the Freddie Mac short sale guidelines went into effect last November . I have found, however, that many servicers are unaware of the new guidelines and fail to abide by the required response timeframes. For the most part, however, written short sale approval letters are obtained much faster and a good short sale professional should be able to get a Freddie Mac short sale approved 60-75 days from the date of submission.

Delegated Authority 

The Freddie Mac short sale guidelines provide lenders and loan servicers with delegated authority to approve short sales for both current or delinquent homeowners. A loan servicer has absolute delegated authority to approve a short sale for homeowners who are 31 days or more delinquent on the mortgage payments. In contrast, the servicer has delegated authority for homeowners who are 31 days or less late on their mortgage payments as long as the homeowner has a qualified hardshipQualified hardships under the Freddie Mac Standard Short Sale program include the following:

  • Divorce or separation;
  • Death of borrower or primary wage earner;
  • Borrower or dependent family member has long term disability;
  • Distant employment transfer or relocation;
  • Permanent Change of Station Orders for members of the military

Non-Delegated Loans

For homeowners who are current on their mortgage (31 days or less delinquent) and don’t have one of the aforementioned qualified hardships, they may still be eligible for the Standard Short Sale. In these situations, the servicer does not have delegated authority to approve the loan and, therefore, must submit the file to Freddie Mac for approval. Borrowers who do not have an eligible hardship may qualify for a short sale if there is a risk of property ownership to Freddie Mac, such as pending litigation or deteriorating property condition that could jeopardize a successful foreclosure sale. Basically, all types of borrowers can qualify for the Freddie Mac Standard Short Sale as long as one can make the argument the a short sale would be in the best interest of all parties. Consequently, the Freddie Mac short sale servicing guidelines make the short sale process easier for all types of loans because loan servicers have delegated approval authority on qualified short sale offers as well as the ability to obtain approval from Freddie Mac for any homeowner who doesn’t have one of the qualified hardships.

More Transparency

The Freddie Mac short sale guidelines provide more transparency to the short sale transaction by providing standardized cash contribution requirements, making uniform subordinate lien payoff amounts, creating short sale incentives and requiring the underlying investors to waive their deficiency rights against the homeowner following a short sale.

Borrowers who are current or less than 31 days delinquent must make a cash contribution at closing in accordance with the financial means test. The Financial means test measures the homeowner’s expense to income ratio. Servicers must comply with the financial means test to determine whether borrowers who are more than 31 days delinquent are subject to making a cash contribution or signing a promissory note at closing. Borrowers are not required to make a cash contribution at closing if they are 90 days or  more delinquent with a credit score of 620 at the time of the short sale submission.

Subordinate lien holders will be required to accept an aggregate payment of $6,000 in exchange for releasing each subordinate lien, extinguishing the underlying debts, and waiving their rights to pursue a deficiency judgment against the homeowner.  Perhaps most important, the Freddie Mac servicing guidelines explicitly state that the Servicer, for itself and on behalf of Freddie Mac, must waive all rights to pursue payment of the remaining deficiency balance owed by the borrower on the underlying Freddie Mac-owned mortgage. If, however, the borrower agrees to a promissory note as part of the settlement and fails to meet their obligation, Freddie Mac reserves the right to pursue collections for the balance of the promissory note.

Freddie Mac will provide servicers with $2200 upon the completion of a short sale. Servicers also receive credit from the government under the terms of the $8.5 Billion mortgage settlement agreement for completing a short sale and, thus, modifying a homeowner’s mortgage. Eligible borrowers can receive up to $3,000 in relocation assistance at closing. Servicers may, at their discretion, offer the borrower additional financial incentives from their own funds to complete the short sale, but servicers cannot deduct this payment from the short sale proceeds.

Escalation procedures

Freddie Mac requires all servicers to establish an escalation process and to communicate it to borrowers in writing. This includes a dedicated toll free 800 number. Most servicers already include a single point of contact on monthly mortgage statements or foreclosure notices. Fannie Mae similarly has a short sale escalation tool designed for issues such as valuation disputes, servicer delays, or uncooperative subordinate lien holders.  Agents can also use the process to get a recommended list price before putting a property on the market. In practice, one  may still find it difficult to escalate a Freddie Mac short sale because all contact remains with the servicer on behalf of Freddie Mac. It is very common for the servicer to present take it or leave it offers from Freddie Mac as well as unreasonably high property valuations. For this reason, the use of an experienced short sale negotiator or real estate professional is imperative to obtaining short sale approval on Freddie Mac backed loans.

The Freddie Mac Standard Short Sale 

The Freddie Mac Standard Short Sale means faster approvals, requires the lenders to waive their deficiency rights against the homeowner and provides uniform guidelines regarding borrower eligibility, cash contributions, promissory notes and relocation assistance incentives. In effect, the Freddie Mac short sale servicing guidelines have taken the guesswork out short sale transactions for all Freddie Mac backed loans. Similarly, the Fannie Mae Short Sale Guidelines provide transparency for all loans backed by Fannie Mae. Consequently, short sale approvals are much easier to obtain on all government backed loans.

If you are considering a Massachusetts short sale, and would like a free short sale consultation, please call Andrew Coppo to schedule a meeting or a telephone consultation at (617)264-0376.

Related Articles:

Fannie Mae Short Sale Guidelines

How To Qualify For A Short Sale: The Involuntary Hardship

Five Listing Agent Tips To Ensure Short Sale Approval

About the Author: Andrew Coppo of Greater Boston Short Sales, LLC (GBSS) is Massachusetts’ leading short sale negotiator. GBSS assists buyers, sellers, real estate agents and attorneys with getting their short sales closed. Contact us today if you are a homeowner facing foreclosure or a Realtor seeking assistance with a short sale transaction. GBSS is a MARS provider. Please read our disclaimer HERE.

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This past March, Money Magazine claimed that the real estate industry was back. Home Prices had increased in 92 of the country’s largest 100 metropolitan areas, interest rates were in the 3′s and the number of homes for sale was at the lowest level in a decade.

While interest rates have risen more than a point since March, many markets still expect price increases to last well into 2014. As prices increase, the negative equity numbers decrease. More and more people are looking to take advantage of the favorable market conditions and either “trade up” or sell a home they were unable to sell just last year.

In addition, many homeowners who were previously unable to qualify for a mortgage are looking to purchase once again. If you are in the real estate industry, it is time to familiarize yourself below with the term “boomerang buyer” and how soon one can purchase a home following a short sale or foreclosure.


If you didn’t click on the above article, or you simple need a summary, below is a breakdown of the waiting periods for boomerang buyers who are looking to purchase following a short sale or foreclosure:

FORECLOSURE:
-Seven Years for Fannie Mae or Freddie Mac with less than 10% down payment;
-Three Years for a Federal Housing (FHA) loan; and
-One to Two Years for an FHA loan if there were extenuating circumstances (such as illness or death of a wage earner)

SHORT SALE:
-Seven Years for Fannie Mae or Freddie Mac loan with less than 10% down payment;
-Four Years for Fannie Mae or Freddie Mac loan with 10% down payment
-Two Years for Fannie Mae or Freddie Mac loan with 20% down payment;and
-Three Years for an FHA loan.

DEED IN LIEU OF FORECLOSURE:
-Seven Years for Fannie Mae or Freddie Mac with less than 10% down payment;
-Four Years for Fannie Mae or Freddie Mac loan with 10% down payment;
-Two Years for Fannie Mae or Freddie Mac loan with 20% down payment;and
-One to Two Years for an FHA loan if there were extenuating circumstances

Source:Fannie Mae Department of Housing and Urban Development

Conclusion:

Homeowners can now purchase a home following a short sale or foreclosure in as little as 12 months. The majority of these boomerang buyers, however, won’t qualify for financing for two to four years depending on your credit score and down payment amount. The important take away from the new financing requirements is that Boomerang buyers are going to account for a large portion of buyers in the near future. So prevalent, that real estate professionals cannot afford to ignore this segment of the market.

If you are considering a Massachusetts short sale, and would like a free short sale consultation, please call Andrew Coppo at 617-264-0376 to schedule a free short sale consultation.

About the Author: Andrew Coppo of Greater Boston Short Sales, LLC (GBSS) is Massachusetts’ leading short sale negotiator. GBSS assists buyers, sellers, real estate agents and attorneys with getting their short sales closed. Contact us today if you are a homeowner facing foreclosure or a Realtor seeking assistance with a short sale transaction. GBSS is a MARS provider. Please read our disclaimer HERE.

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Massachusetts Requires Attorney’s Substantial Involvement in Real Estate Closings 

According to Massachusetts Lawyers Weekly, real estate attorneys who perform “witness-only” closings on behalf of settlement services companies may avail themselves to a Board of Bar Overseers complaint. The Real Estate Bar Association (REBA) said it plans to begin filing BBO complaints this fall, the latest in a series of continued and diverse tactics the group has employed over the years to combat the alleged unauthorized practice of law in the course of real estate transactions.

Massachusetts is one of a handful of states that requires an attorney’s presence and substantial involvement in real estate closings,settlements and refinance closings. For years, REBA has fought against companies that use non-lawyers to conduct such work and/or limit the attorney’s role to that of a witness or notary public at closings.

While critics claim REBA’s sole interest is to maintain and protect business for its members, the association contends it is shielding the public from shoddy work, the unauthorized practice of law, and the potential execution of invalid legal instruments.

Landmark REBA vs NREIS Ruling

REBA’s biggest victory in the struggle came two years ago in its lawsuit against National Real Estate Information Services, a Pennsylvania-based company that offered services related to real estate closings nationwide. According to REBA, while NREIS hired Massachusetts lawyers to attend closings, notarize documents and get them recorded, the attorneys had no control over the activities necessary to ensure that the real estate was properly conveyed.

REBA initially lost the suit in U.S. District Court, but on appeal the 1st U.S. Circuit Court of Appeals certified two questions to the Supreme Judicial Court. While the SJC declined to rule on whether NREIS had engaged in the unauthorized practice of law, claiming it lacked enough information to make a determination, the justices affirmed that the conveyance of real property constitutes the practice of law and requires more than the mere presence of an attorney.

While tasks such as performing a title examination, preparing a title abstract, preparing “mortgage-related forms,” and issuing title insurance do not constitute the practice of law, according to the SJC, other steps, such as drafting a deed and determining the marketability of title, do. The court ruled that a real estate closing “requires the substantive participation of an attorney” and that “a closing attorney’s professional and ethical responsibilities require actions not only at the closing but before and after it as well.” Consequently, REBA has seized on the 2011 SJC ruling to justify its stance on attorney-involvement in real estate closings and used it to convince other alleged wrongdoers to modify their practices.

The Future of ‘Witness Only’ Closings in Massachusetts

The professional responsibility questions that arise in conjunction with real estate closings, and particularly those relating to unauthorized practice, can be thorny and difficult. A number of national title insurance underwriters — including Old Republic Title, Stewart Title, Fidelity National, Chicago Title and Commonwealth Land Title — have instructed their agents to adhere to the SJC’s decision. REBA even filed additional state lawsuits against settlement services companies that resist and, for the first time, started naming local attorneys that work with them in lawsuits filed last year. Many large out-of-state title companies have already ceased doing business in Massachusetts and the recent news regarding witness closings will undoubtedly cause large real estate ‘closing firms’ to conform their closing practices in accordance with Board of Bar Overseers’ caution against witness closings.

As a service to the Bar, the Office of the Bar Counsel operates an ethics helpline to discuss ethical questions that confront attorneys. An attorney who wishes to discuss an ethical question with an Assistant Bar Counsel can call (617) 728-8750 between the hours of 2:00 and 4:00 on Monday, Wednesday, and Friday. 

About the Author: Andrew Coppo of Greater Boston Short Sales, LLC (GBSS) is Massachusetts’ leading short sale negotiator. GBSS assists buyers, sellers, real estate agents and attorneys with getting their short sales closed. If you are a homeowner facing foreclosure, or a Realtor seeking assistance with a short sale transaction, contact us today at 617-264-0376 for a free short sale consultation. GBSS is a MARS provider. Please read our disclaimer HERE

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November 12, 2011

A Buyer’s Agent Can Take Proactive Steps To Ensure Short Sale Approval. Five Things Buyer’s Agents Must Do On All Massachusetts Short Sales.

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September 17, 2011

Tweet According to a recent report by California based RealtyTrac, distressed properties accounted for one third of all US housing sales in the second quarter of 2011. The glut of inventory is only going to increase as lenders slowly bounce back from the robosigning crisis and foreclosure filings begin to pick up around the country. [...]

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FTC MARS Exemption:Good Or Bad For Short Sale Agents?

July 28, 2011

Tweet FTC Issues Stay On Enforcement Of Certain MARS Provisions The Federal Trade Commission (FTC) recently issued a statement that it would no longer enforce several provisions of the widely scrutinized Mortgage Assistance Relief Services (MARS) Rule. The MARS Rule required all real estate agents working on short sales to make certain disclosures to homeowners [...]

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Five Things To Avoid When Writing Your Short Sale Hardship Letter

June 25, 2011

Tweet When working with Massachusetts short sale candidates, the most daunting task always seems to be writing the hardship letter. All homeowners requesting a short sale are required to provide the lender with a hardship letter. The hardship letter is your best, and only, opportunity to explain to the lender why you are no longer [...]

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