Last week we asked about your experiences with short sales and Freddie Mac. Minnesota Association of REALTORS® CEO Chris Galler just sent out this update on the situation. We’d love to know what you’re seeing – feel free to leave a comment.
About ten days ago a number of sellers were informed by their loan servicing company that the Investor (Freddie Mac) has made a change in policy, effective immediately, which prohibits short sales during the redemption period. The short comment line then recommends that the seller contact Freddie Mac’s Homesteps Department for further information. Many of these transactions were scheduled to close at the end of the month or over the next 4-6 weeks.
SITUATION – Freddie Mac has loans in all 50 states, with over 550 different laws, rules and regulations. Numerous legislatures and local city/county units of government have been passing extensions, restrictions and complicating regulations geared at extending the occupancy of homeowners who find themselves behind on their housing payments. Servicers – often lenders – are tasked with deciphering these rules and regulations, while trying to understand local customs of how real estate transactions/foreclosures take place.
Minnesota is one of two states – Michigan is the other – that have extremely prolonged redemption periods following the Sheriff Sale. Both states provide the homeowner an additional 6 months to “redeem” the property before being required to vacate the premises. This timing delay between the Sheriff Sale – a change in the official ownership of the property – and final acquisition of the property is at the heart of the current Freddie Mac position.
REO ROLLBACK – Within the process and procedures for handling foreclosed properties, Freddie Mac gives loan servicers an opportunity to correct an errant Sheriff Sale situation. This can occur when a homeowner’s property has improperly gone through a Sheriff Sale triggering new ownership of the property but not possession. Freddie’s policy allows the servicer under certain circumstances to do an “REO Rollback.” This process reverses the Sheriff’s Sale action and allows the homeowner to retain ownership in the property. A number of legal “hoops” need to be maneuvered, which is a costly endeavor to Freddie Mac. It is completed however because Freddie is interested keeping homeowners in their property and understands that from time-to-time an error can occur.
MINNESOTA ROLLBACKS – Because Minnesota provides a homeowner with a 6-month redemption period, a number of Short Sale transactions were being completed after the Sheriff Sale/change of ownership. Because the legal paperwork following the Sheriff Sale has been processed Freddie Mac is now the new owner of the property. During the redemption period a homeowner can reacquire the property if they pay all costs associated with the foreclosure, including the full mortgage amount. This “redeem” number is higher than the loan balance and significantly higher than the agreed to short sale amount.
Servicers working to complete the short sale – and receive a bonus payment – would file for an “REO Rollback” on the property when the closing took place after a Sheriff Sale. When processed, Freddie Mac would reverse the Sheriff Sale action – a costly item – and then sell the home at the lower short sale amount, as well as pay the servicer a bonus. This process occurred for a number years as Freddie Mac and numerous lenders/servicers tried to get a handle on all of the rules and regulations governing foreclosure actions across the country.
MARCH 13, 2012 Freddie Mac Bulletin 2012-7 revised the definition of an REO Rollback, including new compensatory fees and costs for researching or reconstructing Servicer records in connection with REO Rollback situations. A few days after issuing the Bulletin, mortgage servicers began notifying homeowners who were past the Sheriff Sale that the investor would no longer approve short sales during redemption and that the homeowner should contact Freddie Mac.
NOW WHAT? – NAR has been working with Freddie Mac to understand why the Bulletin has caused so much servicer disruption and to determine if there is a way to handle Minnesota and Michigan properties that have these extraordinarily long redemption periods. This will take some time, however we are planning a multistate conference call next week with Freddie Mac, Servicers, Michigan & Minnesota REALTOR® Association Representatives and broker legal representatives. Freddie Mac and all of the parties are sensitive to the difficult circumstances consumers are facing during this difficult period.
SELLERS BEFORE SHERIFF SALE – If you are working with sellers who are behind on their payments and approaching a Sheriff Sale – please utilize the attached forms and review this video with your client. This Minnesota law allows a seller to postpone the Sheriff Sale which make selling through a short sale an easier process for all parties.
We want to thank you for forwarding your information to us, which was then forwarded to NAR who met with Freddie Mac and other parties involved in this situation. We’re working as rapidly as possible to find answers and resolutions to a very complicated situation. Watch for the Minnesota REALTOR® eResource and our website for updates and progress on this issue.
The Minnesota Association of REALTORS® is the largest professional trade association in the state with more than 19,000 members who are active in all aspects of the real estate industry.