2nd Lien Release prior to ATP for FHA/PFS

I have a FHA Wells first, with a Citi second.

 

I've applied to the FHA Preforeclosure Sale program.  The mortgagors and the property have qualified.  So, after 40 days of deliberation, Wells has completed everything needed to admit them to PFS.  All of this was before the offer was received.

 

Now, Wells is saying that they need a statement from Citi stating that Citi will release their 2nd lien for the $2,500 FHA consideration, BEFORE Wells can admit them into PFS.

 

But, Citi wants the proposal, only after the offer, which we just accepted last week.

 

This effectively nullifies the PFS program, which is suppose to allow the borrowers to get admitted to PFS, together with the minimum net, so they can market their property.

 

Wells is saying, if we can't get the written release from Citi in a few days, then they must cancel the file.

 

I'm thinking, this just can't be Wells policy.  Does anyone have Wells-specific experience on this?  On with another Lender?  And, does anyone have a contact reasonably senior in FHA short sale at Wells I could call?

 

This just seems wacky to me.

 

Thanks, Michael.

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Replies to This Discussion

Permalink Reply by Bryant Tutas on June 17, 2010 at 6:51am
Michael. I'm dealing with WF right now on a PFS and this was NOT a requirement. In fact we can give the 2nd lien holder as much as we want. It's just WF can only give $2,500 because it's FHA.

Check it out: From WF

.....the seller will get up to $2,500.00 to be applied towards the lien. You must contact PNC Bank to see if they are willing to accept a short sale and ask them how much will they accept to release the 2nd lien.

From ME:

I asked before but didn't get a response. Can the seller bring cash to closing to contribute to the 2nd? They are adamant about wanting $6,500. The seller has no money but may be able to contribute $500 or so to the 2nd. Can he do that?

From WF:

Yes, the seller can bring money to the table, but it will have to be out of closing and
not included in the net proceeds. Where will the difference come from?

ME: What this means is the additional funds will be on the HUD as a POC item. No biggie.
Permalink Reply by Michael Schneider on June 17, 2010 at 9:20am
Bryant,

The 1st's seem to be getting more reasonable and realistic with regard to addition payments to the 2nd, beyond the $2,500 or so consideration from the 1st net proceeds.
BofA, Wells, and Citi have each indicated that an additional payment from either the buyer or the seller is fine.
I submitted a preliminary HUD with a payment from the Buyer on Line 104, moved in over to 404 as a credit, and then a debit in the 500 section. So, it is separate and in addition to the sales price. No commission on the additional payment, but it's logical.
In other words, full transparency, no POC.
I think the Bank is fine with this, but it's not final.
(My issue with Wells is that they would not admit to PFS, until after written release from the 2nd, which I seem to have now. And, yes, there is also an addition payment, in this case, from the Sellers.)
Permalink Reply by Rachel Diedrich on June 17, 2010 at 11:29am
that is where I am running into problems too. WF is requiring a lien release and Litton the Jr won't provide until we have an offer. Catch 22!!!!! Any suggestions on how to convince the second to do a lien release?

Michael Schneider said:
Bryant,

The 1st's seem to be getting more reasonable and realistic with regard to addition payments to the 2nd, beyond the $2,500 or so consideration from the 1st net proceeds.
BofA, Wells, and Citi have each indicated that an additional payment from either the buyer or the seller is fine.
I submitted a preliminary HUD with a payment from the Buyer on Line 104, moved in over to 404 as a credit, and then a debit in the 500 section. So, it is separate and in addition to the sales price. No commission on the additional payment, but it's logical.
In other words, full transparency, no POC.
I think the Bank is fine with this, but it's not final.
(My issue with Wells is that they would not admit to PFS, until after written release from the 2nd, which I seem to have now. And, yes, there is also an addition payment, in this case, from the Sellers.)
Permalink Reply by Michael Schneider on June 25, 2010 at 1:40am
Rachel,

IMHO, the 2nd is reasonable when they say "talk to me when you have an offer", and Wells is not being reasonable when they say "you must secure written release of the 2nd, before admission to FHA/PFS".

So, having said that, I applied to PFS through Wells prior to having the offer, but then did get the offer 5 or so weeks later. So, my approach was to provide Wells with updates and assurances that the 2nd would be resolved, thereby keeping the file open, until I received the demand/approval from the 2nd.

The Wells processor was helpful and supportive, but he, reasonably so, would need to stay within the Wells guidelines. Wells has still not admitted the borrowers into PFS, so now I will probably need to ask the 2nd to extend the closing date.

In my view, the Well’s policies for handling PFS with secondary liens significantly reduces the FHA’s opportunity to provide this loss-mitigation alternative to eligible borrower. It also creates a Fair Lending concern for possible disparate treatment, as similarly situated borrowers could receive different offers.

This is why I think the escalation is through Compliance and Fair Lending.
Permalink Reply by Rachel Diedrich on June 25, 2010 at 1:52am
Thanks all for your advice. I sent an email to the Board of Directors at Well Fargo stating "Well’s policies for handling PFS with secondary liens significantly reduces the FHA’s opportunity to provide this loss-mitigation alternative to eligible borrower. It also creates a Fair Lending concern for possible disparate treatment, as similarly situated borrowers could receive different offers." I received a call back within a few days from Greg Duncan with the President's office (direct phone: 515-324-5941, fax 866-972-6026). I told him that this is a systemic problem affecting many people trying to do shorts with Wells. The more people who contact them about this the better, maybe they will change.

The email addess for the board is: [email protected]


Here is a copy of the letter I sent. Let's make them take notice!!! Please feel free to copy and use this letter to send to Wells.

I am writing in regards to Wells Fargo's apparent policy of requiring written release of the Jr.lien holder prior to admitting qualified borrowers/sellers into the PFS program which oversees FHA short sales. The intent of PFS is to avoid foreclosures, but Wells Fargo's policy signifigantly restricts the PFS option for sellers with a second mortgage.

It is in everyone's best interest to facilitate the discharge of secondary liens. With more and more foreclosures occuring and the added expense they add to the process, it seems illogical not to better cooperate with the Jr.Lien holders. Why is Wells Fargo taking this stance and being so difficult when it comes to moving the short sale process forward?

I am having this issue get in the way of a successful short sale with loan xxxxxxxx. Litton Loans holds the Jr. lien and is willing to settle for $2500 (over $40,000 loan) but can't sign a lien release prior to receiving a written offer. Wells is requiring a written release prior to receiving a written offer. Other banks do not require this and it allows many more short sales to go through.

I hope you will do something to stop this practice that only hurts consumers and Wells Fargo.

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