I’ve just received the following email from one of my local lender contacts. This is an interesting development regarding FHA underwriting guidelines. Check it out…
If your buyer had a short sale 3 years ago, and can document that the short sale was the result of a verifiable financial hardship (death of a spouse, loss of a job that forced a move, a divorce, etc..), then FHA is allowing for this buyer to obtain financing for a new home, on a case by case basis. Using this 3 year rule they would also be eligible for the 1st time home buyer credit.
I do not believe that an increase in interest rate would be an acceptable financial hardship.
This is the first indication that I have seen that there maybe some leeway being given to those people who found themselves losing their home to circumstances beyond their control. The challenge here is the fact that this is going to be decided on a case by case basis so until a file is underwritten we will not know whether the loan can be approved.
12 comments
Not surprising. They’re willing to do almost anything to create debt slaves. In the future, we’ll likely start seeing them cater to those with foreclosures on their record, desperate as they are to peddle their poison.
I really hope we figure this mess out in Reno and all over Nevada, furthermore I hope the banks realize they screwed millions of people and that we all need to learn from our mistakes - even major corporations.
BB,
I have no doubt you are correct. As this cataclysm continues, the feds will grow increasingly desperate. Foreclosures/bad credit will be ignored in a futile attempt to revive the economy. If not, there will be no one left to qualify…
Related issue, interesting article in the NYT yesterday regarding propensity of underwater homeowners to strategically default:
http://www.nytimes.com/2010/02/03/business/03walk.html
“New research suggests that when a home’s value falls below 75 percent of the amount owed on the mortgage, the owner starts to think hard about walking away, even if he or she has the money to keep paying.”
How many in Reno have a home value of 75% of their loan (aka LTV 133%)? I would bet that it’s a very large amount. My prediction is that 2010 foreclosures will surpass 2009. FWIW.
There’s been a lot of talk on this blog about no lenders pursuing deficiencies against defaulting mortgagors. For another view, you might want to read this CNN Money article on Yahoo: http://finance.yahoo.com/news/Mortgage-lenders-pursue-cnnm-3107909798.html?x=0&.v=3 .
Apparently quite a few banks are assigning their deficiency claims to collection agencies. These agencies wouldn’t be purchasing unless they had a pretty good idea they’d collect.
“What can be scary is that the judgments don’t have to be obtained immediately. Lenders or collection agencies may wait until debtors have recovered financially before they swoop in. In Florida, the bank can wait up to five years to file. Once the court grants a judgment, the lender has 20 years there to collect, with interest. [And] it doesn’t have to be a large amount of debt for a lender or collection agency to come after borrowers.”
RE: “These agencies wouldn’t be purchasing unless they had a pretty good idea they’d collect.”
“Pretty good idea” depends on the price. If they’re paying 5c on the dollar, they expect to collect on very few.
To the collectors, I say: Good luck!
“Allowing for this buyer to obtain financing for a new home, on a case by case basis. Using this 3 year rule they would also be eligible for the 1st time home buyer credit.” - FHA
“It is true that liberty is precious; so precious that it must be carefully rationed. The best way to destroy the capitalist system is to debauch the currency…The way to crush the bourgeoisie is to grind them between the millstones of taxation and inflation…There are no morals in politics; there is only expedience…Sometimes - history needs a push.” - VLADIMIR LENIN
The NRS requires lenders to apply for a deficiency judgment within 6 months of the foreclosure action:
http://leg.state.nv.us/nrs/NRS-040.html#NRS040Sec455
If multiple parcels are securing the debt, the six month window begins after the last parcel has been foreclosed upon, but no later than 2 years after the first one.
So here in NV, we’ve got some legislative protection.
Absolutely correct billd,
Nevada law is clear that the deficiency action MUST be filed within 6 months of the trustee’s sale. A deficiency trial is complicated with expert testimony required to establish the necessary values. I would be astounded if any collection agency in Washoe County was willing to take this on. I await word of the first case filed by a collection agency in Washoe County. If anybody hears, let me know.
It ain’t gonna happen.
Is there a half-way situation possible throught the Justice Court System? Maximum award is $10,000, but the filing requirements looks an awful lot easier. Anyone able to look at case RTC 2009-060511 and see what is going on?
Having some experience with defending clients in debt collection issues, I will agree with MikeZ. Collection agencies will buy debts that have no supporting documentation; debts on which the statute of limitations has tolled; debts that are discharged under BK; etc. Often these uncollectable debts are packaged in bundles with debts that are collectable and the collection agencies factor in these uncollectable debts as a cost of doing business.
However, some collection agencies purposely buy debts that are uncollectable. They buy them very cheap — fractions of a cent on the dollar — and if they can recover on even a few of the thousands of debts they buy, they will make money. Such collection agencies use fear to strong-arm debtors into paying debts upon which the collection agency would be barred from taking legal action. Many of these types of debt collectors violate the FDCPA on a regular basis, but enforcement of the FDCPA is very difficult.
When I was practicing, I found that one of the sure signs that a debt was uncollectable was if the collection agency would not return my calls when I contacted them on behalf of my client.
As for bringing deficiency actions under Justice Court jurisdiction, I have never seen one. I will ask some folks I know who are working in foreclosure defense and find out what they may know. However, given the current situation, I suspect most deficiencies will exceed the $10k jurisdictional limit; further, it should be noted that the Justice Court may find that it does not have jurisdiction over the case if the defendant can show that the plaintiff has brought suit for a lower amount for the purpose of bypassing the District Court. And while typically I would find problematic a strategy of arguing that my client may owe more money than the plaintiff claims, the additional cost and time for a District Court action might be enough to discourage the plaintiff form pursuing a deficiency case, as RI pointed out above.
Something I should add is that there are lawyers/law firms that make a living by filing cases in Nevada Justice Court and hoping for default judgments (I know of a couple such firms that will ignore the cases they have filed if the defendant files an answer, especially if the defendant has lawyered up). Given the lower fees for filing and the higher default rate in Justice Court, and given that fees and costs are awarded to the prevailing party in Justice Court, filing hundreds of deficiency cases in Justice Court might be profitable. If the defendant answers, just move on to the next case. Several $10k+costs judgments can create quite a bit of cash flow through garnishment of the judgment debtors.
I thought you could get FHA financing 2 years after a short sale and 3 years after foreclosure? Heard it in a seminar Academy Mortgage put on in the fall.