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    FDIC LOSS SHARE

    IF YOU DON’T KNOW THE RULES – YOU CAN’T NEGOTIATE

     

                Wouldn’t you like to engage from a fair playing field?  I always say, if you don’t know the rules and the players, you can’t play the game.  I’ve had lots of experience with FDIC Loss Share Agreements and bank abuses due the public lack of understanding. With that said, if you are contemplating a short sale, loan modification, or other loss mitigation, you must understand if your loan is subject to a loss share agreement.  Even if your loan is held in an assumed bank does not automatically mean they acquired the loan.  Many small banks securitized the loans or pledged them to the Federal Home Loan Banks.  Recently I had a case where the FDIC specifically admitted the bank did not acquire the loan.  An investor was the true party in interest.   If you are unsure of what party holds your loan, or feel that the bank has been unfair in their dealing with you, contact the ombudsman@fdic.gov.  

     

    There are substantial risk for banks who don’t comply with the Loss Share Agreements requirements including the right of the FDIC to take the assets back and sell them again.  The following information is taken from an FDIC Risk Sharing Asset Management Guidance memo sent to the banks which acquired banks with assistance of the FDIC. If you are interested in getting your short sale approved, use the rules found in the Loss Share Agreement specific to your bank to force them to assist you.

     

    RSAM Policy & Loss Mitigation

    Date: May 13,2011

    Subject: Covered Expenses – Facilitating Short Sales

     

                NOTE: The FDIC will reimburse the bank for CASH INCENTIVE PAYMENTS!

     

    Summary: This Risk Sharing Asset Management (“RSAM”) Guidance 2011-013 addresses

    credits and/or cash incentive payments made in connection with short sales that may be

    included as expenses in the calculation of losses.

     

    The guidance contained herein is limited to the Calculation of Short Sale Loss methodology in applicable Exhibits to the Single Family Shared-Loss Agreements. The FDIC will review in December 2011 the effectiveness of this guidance in increasing the number of short sales versus foreclosures.

     

    Guidance:

    This FDIC guidance provides Assuming Institutions with clarification regarding covered credits

    and/or cash incentive payments to elicit short sales as an alternative to foreclosure. Short sale incentives may be included in the loss calculation only if (l) the net recovery (sales price minus incentives) as a percent of property value on short sales effected within six months of a loan modification disqualification decision or re-default is at least 80 percent of property value, using at a minimum a brokers price opinion (BPO)* to determine value, or (2) the net recovery is at least 90 percent of property value (using at least a BPO to determine value) if the short sale is

    closed after six months of a loan modification disqualification decision or re-default.

     

    Loss claims for expenses paid to elicit a short sale are subject to certain limitations and

    conditions. Loss claims for expenses paid to non-borrower third parties should be based on the

    reasonable value of the services provided by the third parties.

     

    A short sale must be publicly marketed and an arm’s length transaction by all parties. Permissible short sale incentives are:

     

    1. Payments to borrowers to offset relocation costs. The FDIC recommends a payment

    substantial enough (for example, four percent of property value) to engage the borrower

    quickly, based upon the Assuming Institution’s determination of reasonableness;

     

    2. Payments of the purchaser’s closing costs as long as the payments are consistent with

    bank policy and permissible under applicable law;

    3. Real estate broker commissions in addition to the customary broker commission paid by

    the Assuming Institution for any additional services provided by the real estate broker

    and permissible under applicable law to effectuate a short sale transaction;

    4. Payments to second mortgagees to release a junior mortgage lien, as long as the

    incentive is reasonable, prudent, and within the Assuming Institution’s policy; and

     

    5. Non-profit coordinator (for example, community assistance groups and housing

    counselors such as those mandated by HUD) payments.

     

    NOTE: The bank must first determine whether a borrower qualifies for a loan modification. This also states particularly when owner occupied, but does not say a non owner occupied property is exempt.

     

    Before pursuing a short sale solution, Assuming Institutions must always first determine

    whether a borrower qualifies for a loan modification, particularly in cases where the collateral is owner-occupied.  

     

    NOTE: The FDIC requires the bank to be fair and communicate option to the borrower.

     

    It is prudent to institute loss mitigation processes that move efficiently with clear, timely communication to borrowers (refer to RSAM Guidance 2010-006 Loan Modification Guide, 4.1 FDIC Expectations about Borrower Notices, page 10). Assuming Institutions must inform borrowers within 10 business days of their decision that a modification has been approved, or, if denied, provide the reason for the denial along with foreclosure alternative options. Assuming Institutions must have sufficient designated loss mitigation staff, policies, and procedures so that (A) borrowers are apprised timely of loss mitigation options, (B) each borrower who is being considered for a loan modification or other loss mitigation solution will have a single point of contact with the Assuming Institution to respond to their questions regarding the process, and

     

    NOTE: The bank MAY NOT foreclose while the borrower is under consideration for a loan mod.

     

    (C) foreclosure actions are not taken while a borrower’s request for a loan modification or other loss mitigation solution is pending, or if the borrower is current on a trial or permanent modification.

     

    NOTE: The bank has to answer to the FDIC. If you are having difficulty with the bank, contact the FDIC at ombudsman@fdic.gov

     

    In addition, the Assuming Institutions must document their consideration of loan restructuring, short-sale, and any other loss mitigation methods. They should always select the solution that they determine will result in the least loss.

     

    NOTE: Be careful what you say in your hardship affidavit as it can help you or hurt you, including a release from a deficiency judgment.

     

    The financial documentation and hardship affidavit which a borrower is required to submit in connection with a modification application should be used by the Assuming Institution to determine alternatives to foreclosure when a modification is denied or the borrower re-defaults after a modification. If the least loss alternative is a short sale, the Assuming Institution should release borrowers who have a financial hardship documented with a signed Hardship Affidavit (as defined in RSAM Guidance 2010-006 Loan Modification Guide, page 6) from any deficiency balance remaining on the borrower’s mortgage loan as applicable law permits.

     

    NOTE: The bank must have established practices and the FDIC frowns upon inconsistent policies.  If you feel you are receiving disparate treatment contact the ombudsman@fdic.gov

     

    Experience has shown that established short sale programs are more effective than ad hoc

    approaches to individual requests for short sales. Assuming Institutions are encouraged to

    establish policies and procedures to implement short sale programs. Short sale programs should

    include the following features:

     

    . listing prices based on current valuations established at arm’s-length by third parties;

    . timely borrower and other party response time goals and measurement;

    . written procedures to identify minimum acceptable sales prices and criteria for waiving

    deficiencies;

    . monthly loan payment forbearance for borrowers with a hardship during the short sale

    process;

    . pre-foreclosure counseling especially regarding the tax implications of the

    extinguishment of the unpaid mortgage debt under applicable state and federal law;

    . deed-in-lieu of foreclosure option if the short sale cannot be effected (see RSAM

    Guidance 2011-01 OR – Covered Expenses – Deeds-in-Lieu of Foreclosure);

    . foreclosure proceedings not initiated during the short sale transaction unless required by

    state law;

    . short sale agreements stipulate that the purchaser may not sell the property within 90 calendar days of closing;

    . standardized letters, forms and agreements to communicate specifics of the short sale

    arrangement to the borrower and designated parties; and

    . documentation of each stage of the transaction.

     

    NOTE: The bank is being monitored to achieve the best result and minimize losses to the FDIC. If you feel the bank is running up covered fees such as legal costs while ignoring your requests for assistance, contact the ombudsman@fdic.gov

     

    The FDIC and/or its contractors monitor the number of each Assuming Institution’s loss

    mitigation resolutions. The FDIC expects the number of short sales to increase relative to

    foreclosures when short sale programs with the above characteristics are implemented.

     

    Assuming Institutions should set internal goals to improve the number of short sales versus

    foreclosures and are encouraged to review the establishment and progress of their short sale

    programs with their assigned Loss Share Specialist.

     

    NOTE: Appraisal values determine incentives offered.

     

    *Minimum acceptable valuation methods when offering incentives or credits are a BPO and/or

    a full appraisal. The BPO or full appraisal cannot be more than 90 days old as of the date the

    Assuming Institution evaluates the borrower for a short sale. Listing prices must be 1) disclosed

    in a timely manner to the borrower and its designated parties to the transaction, and 2) not more

    than 100 percent of property value.

     

    Contact: Assuming Institutions should contact their Loss Share Specialist with any questions

    regarding this guidance.

     

    This information is provided for general guidance

    Assuming Institutions with a Single Family Shared-Loss Agreement

    RSAM-2011-013

    Federal Deposit Insurance Corporation

    Division of Resolutions and Receiverships

    550 17th Street, NW, Washington, DC 20429-9990

     

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