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Losses for “suspicious” transactions on short sales are up 20% from 2010. Suspiciously fraudulent short sales are where a lender may have suffered additional losses due to the short sale transaction quickly being followed by a resale for a higher price. Analysts from CoreLogic found that one in every 52 short sales in 2010 were “suspicious.” These transactions were responsible for $310 million in losses in 2010. CoreLogic believes that by the end of 2011, U.S. banks, as lenders, could face losses of $375 million because of short sales.

States such as California, Florida, Arizona, and Colorado are leading the way with these same day re-sales. On average the resales are $50,000 greater than the lender agreed upon short sale price. The study also pointed out the fact that investors in limited liability companies are the buyers in 2% of all short sale transactions, but in 28% of the suspicious cases, which has been suspected for some time. Craig Focardi, senior research director at The Tower Group said, “Identifying risk and monitoring distressed asset sale trends is absolutely essential for lenders to preempt potential losses.” The study examined more than 450,000 single family home transactions that were completed as short sales in the past three years.

 
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The Federal Trade Commission has a new rule directed mainly towards mortgage relief scammers but as it stands now, it is also unintentionally harming the real estate professionals who represent clients involved in short sale transactions. The FTC’s Mortgage Assistance Relief Services (MARS) rule, which is currently in effect, was created to protect distressed home owners from mortgage relief scams and ensure that people who provide counseling, advice and other services to troubled home owners are indeed providing a benefit for the fees they charge. It bans all upfront fees for renegotiating mortgage terms and mandates that certain disclosures are made to consumers if a short sale is negotiated with a lender on their behalf or when advertising short sales experience.

Currently, the rule states that real estate professionals must make certain disclosures: first in all commercial messages advertising short sale services; second before real estate professionals begin mortgage assistance services on their client’s behalf; third when they present their client with the lender’s short sale approval letter. The National Association of Realtors is working closely with the FTC to correct some of these issues, especially in the second and third disclosure area. FTC’s goal is to help make the rule more applicable to real estate brokerage.

 
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JPMorgan Chase has started a Short Sale Outreach Program which they are offering to mortgagors whose mortgages are owned by Chase. Chase is offering up to $30,000 to people who are behind on their mortgages, to try to convince them to short sale the property, rather than letting the property foreclose. To be offered this deal though, the mortgage must be owned by Chase, not just serviced by them.

Why would they be aggressive with mortgages they own as opposed to ones they service? The answer is money, of course. The holder of the mortgage usually loses a huge amount of money if the property goes into foreclosure because of interest lost, real estate taxes and legal fees that have to be paid and association dues owed. Throw in deterioration to the property and the loss in overall value, and lenders are lucky to get back 50% of the money owed on any foreclosure. The numbers for a short sale are much lower and so they realize that it would be much cheaper to pay the delinquent homeowner to get out, rather than go through the entire foreclosure process.

On the other hand, if they service a loan, the bank doing the servicing actually gets paid a percentage (usually .25%) of the principal balance of the loan, to take in the monthly payments and distribute the money (taxes, insurance, interest, principal). That percentage can actually double when a loan becomes delinquent, meaning the longer a property remains delinquent, the more money they earn. All in all though, if more programs like this were offered, the real estate industry could possibly recover at a much faster rate.

 
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A short sale of your home is not something you look forward to, but might be the only option that you have. If you are on the precipice of losing your home and facing a foreclosure. You may decide that this is the right option for you instead of trying for a loan modification to refinance. There is help available to you. You do not have to face this ordeal by yourself. There are professionals to help you and answer all your questions that you may have. Continue Reading

 
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