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2nd Lien with C&L Service (FHA paid back payments) says they won't short sale?!

Posted by Cheryl dare on January 19, 2012 at 8:18am in Short Sale Discussions

 

I have a Homeowner that fell behind. Bank of America called in FHA for help. FHA paid BOA 18,000 in back payments known as a Partial claim. (C&L Service is the one handling this 2nd). It is a no interest loan.

Since it is FHA loan the first will only pay the second up to 2500. the 2nd is stating they won't negotiate and would need payment in full. Anyone deal with this before.

My only thought would be that the buyer would have to pay the difference?! Any other thoughts?

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  • Michael Schneider January 22, 2012 at 2:26pm

    Cheryl,

    Your problem to be careful about with a large partial claim, is that the only reasonable approach for the seller may be to get admitted into the Pre-Foreclosure Sale Program, then stay in the property for as long as possible, without selling the property.

    You do lots of work and get nothing.  Failure rate is high, in my experience.

    Plus you may have the really annoying experience of presenting an excellent offer, which does not meet the net, so the offer is rejected. We've had at least four properties that fit this description.  We don't take them anymore.  Not worth it.

    And, yes, Kevin I've call my CT senators, and written up a memo, with specific properties.  They referred me to the FHA, where I wasted time reaching out and writing email.  Talked to a senior Asset Manager, who literally said that she had never heard of this problem.  No Servicer has ever said there was a problem with this program.  And, there couldn't be a problem, because this program was developed by HUD.

    Three such FHA properties that we listed in 3Q2010, long since cancelled and vacant, still show as owned by the same sellers.  Amazing.  What a waste of our money.

    The FHA does not care if they blow away the insurance fund, it just rolls back to us.

  • Michael Schneider January 22, 2012 at 5:40am

    Ahhhhm, yes, FHA partial claims.  (Yet another reason, Kevin, to hold the FHA in low-esteem.)  They can be a problem.

    Absent a variance from HUD, isn't the rule on partial claims that the net proceeds must satisfy the standard minimum net, after subtracting out the partial claim?  I would need to consult ML 08-43, or just ask Kevin, the latter being easier.

    Eg. Appraised value = $100,000, minimum net is 84% of $100,000 = $84,000, closing costs of $10,000 (not including partial claim), Partial Claim = $18,000.   Hence, in order to achieve the minimum net, purchase price must be $112,000 (112 - 10 - 18 = 84)

    Big partial claims are a problem, particularly on low priced properties.  In part, because the FHA is unwilling or unable to grant the variance on the 84% minimum net requirement.  Preferring instead to accept a larger loss to the insurance fund than necessary.  I have properties that are sitting vacant through their second CT winter, because the FHA rejected market value offers, and hasn't acquired the property. 

    Four choices, I think:  1. Walk away from the deal, 2. Get a low appraisal, 3. Get a variance from FHA on the 84% requirement, or 4. Have someone, anyone, make a payment.

    • Kevin - Greenville, SC > Michael Schneider January 22, 2012 at 7:56am

      I think if the loss to the FHA Insurance Fund could be smaller some Congressional committees should be made aware of this.  Also remember the FHA is just a Department within HUD 'The Housing and Urban Development (HUD) which oversees the FHA.'

      http://financialservices.house.gov/

      http://portal.hud.gov/hudportal/documents/huddoc?id=FHAMMIFundAnnRp...

    • Kevin - Greenville, SC > Michael Schneider January 22, 2012 at 7:01am

      I keep hammering this into everyone's head - http://www.mortgagenewsdaily.com/532005_HUD_Foreclosures.asp


      On the stick side, HUD published a final rule that dramatically increased the financial damages that HUD can seek against lenders that fail to utilize its mitigation programs. Prior to the release of these rules, HUD could assess fines of $6,500 per occurrence up to a maximum of $1.25 million per year against lenders. The new rules provide for additional damages of triple the amount of any FHA mortgage insurance benefit claimed by a lender.

      Then, three days later, came the carrot in the form of a financial incentive offered to FHA lenders to encourage use of these loss mitigation tools. The new rules will allow lenders to claim up to $750 for completing mortgage modifications and $500 for partial claims. This is an increase of $250 in each case.

      Both the positive and the negative reinforcement techniques are meant to prevent foreclosures or minimize their impact on the FHA insurance funds and homeowners themselves. HUD claims that its loss mitigation techniques helped more than 78,000 homeowners keep their residences in 2004, a larger number than the sum of claims paid by FHA to lenders for completed foreclosures.

  • Kevin - Greenville, SC January 19, 2012 at 9:14pm

    You'll probably run into the situation where BOA will require you to obtain an Approval on the Partial Claim payment before they will review for PFS.  Have you called the the National Servicing Center of HUD?  A variance for an amount over this can be requested.

    Do a google search of partial claim, pre foreclosure sales and see what others have said.

    http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sf...

    This may have been superseded - http://www.operationrest.org/xSites/Agents/OperationRestorationInc/...



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