Southern New Hampshire Real Estate and Short Sales: Bank Bungling Short Sale or Mod Request? Don't Ask HUD For Help

Bank Bungling Short Sale or Mod Request? Don't Ask HUD For Help

UPDATE:  TIME TO 'FESS UP!  If you've read my blog before, you know that rants are not my style (sarcastic posts about the general absurdities the real estate industry is fraught with, yes.  Straight up rants about specific files, no) .  So, I have to confess that I had an ulterior motive for writing and posting this rant.   My thought process was that since I was already dealing with the Director of Loss Mitigation at HUD and getting nowhere, clearly I needed to go over his head.  And, since Julian Castro was the relatively newly appointed Secretary of HUD and he was making the rounds at the time talking about how HUD was helping to end the foreclosure crisis, he seemed the likely candidate.  Oh, but how to reach him and his staff?  Enter social media.  I wrote this post specifically so I could tweet it out and tag his office.  I believe it worked.    Although the tweet was never acknowledged, within a week of the tweet an eight month impasse came to an end and the short sale was suddenly approved. 


One does what one has to do.



 According to a top HUD Executive, "It's between US Bank and us".  This was the response upon, once again, being presented with documentation of US Bank's repeated mishandling of, first, the modification application and then, much later,  the short sale request on the FHA loan for distressed homeowners in Salem, New Hampshire.

That statement, which came at the end of an eight month attempt to obtain the cooperation of FHA in righting the wrongs heaped upon these borrowers by US Bank, completely dismisses and devalues the distressed and wronged borrowers who will, in all likelihood,  suffer a foreclosure in addition to all of the previous mistreatment at the hands of both US Bank and HUD.

This is disturbing but not surprising as it mirrors the issues that have been uncovered again and again throughout the entire mortgage crisis - homeowners being misled; a lack of transparency on the part of the servicer (and, I would add, the entities charged with overseeing them) and servicers, in essence, being allowed to investigate themselves.

To be fair, after that conversation, I sent an email version of this post to the HUD Exec in question and he did call me and told me that, of course, they would look into things.  However, he still clearly misses the point that investigating and confirming that something was mishandled does absolutely no good if it does not serve to help the party that was wronged.

He also chooses not to acknowledge the salient points, which are as follows:

HUD guidelines state that an FHA borrower is eligible for a Streamline Pre-Foreclosure Sales Option (which means they do not have to resubmit the entire financial package (yet again) under the following circumstances:

The mortgagor has defaulted on a trial plan. Well, the mortgagor did not default on the trial plan but US Bank certainly did by offering them a trial plan for $995.54 and then reneging on it. (Trial plan was offered and agreed to in writing, appropriate payments were made on time, letter acknowledging successful payments and indicating permanent mod paperwork was being prepared was sent to homeowners BUT instead of permanent mod paperwork they got another letter from US Bank telling them they were in default and offering them a trial plan with a much higher payment.)  No explanation despite repeated requests for one.  (All the supporting documentation for these assertions was provided to both US Bank and HUD in June of 2014 but HUD is just now considering looking in to this).  THE BORROWERS SHOULD BE OFFERED A STREAMLINE.

The mortgagor has defaulted on a trial plan.  After being jerked around for a year or so after the first Trial Plan fiasco, the homeowners did sign an offer for another Trial Plan but never made payments.  A copy of this letter has been provided to US Bank and HUD but depending upon the day, US Bank either says that they never received it or that they received it too late.  HUD does not seem to think it is strange that US Bank cannot decide which it is.  THE BORROWERS SHOULD BE OFFERED A STREAMLINE.

FHA Guidelines further state that the mortgagor is also eligible for a Streamline even if they have been offered a modification but can opt out of it because they are more than 90 days delinquent (no one is arguing this point) and their credit score is below 580.

So, if they want to ignore items 1 and 2, we come to item 3:  We have provided full credit reports to HUD three times since June of 2014.  They have consistently and clearly shown that both mortgagors scores are below 580 with all three major credit repositories - Equifax, Experian and Transunion.  THE BORROWERS SHOULD BE OFFERED A STREAMLINE.

Once a mortgagor has been determined to be eligible for a Streamline PreForeclosure Sale an FHA appraisal should be ordered and an Approval To Participate should be generated indicating the FHA appraised value and giving the homeowner 120 days to produce an acceptable Purchase and Sale.  After we sent the homeowner's full credit reports directly to Matt Martin, the Director of Loss Mitigation for HUD, US Bank suddenly and miraculously pulled credit scores on the homeowners that agreed with ours and they acknowledged that they were, in fact, eligible for the Streamline Pre-Foreclosure Sales Option.  THE BORROWERS WERE FINALLY DETERMINED TO BE ELIGIBLE FOR A STREAMLINE SO AN APPRAISAL SHOULD HAVE BEEN ORDERED AND AN ATP GENERATED.

So, it was finally acknowledged that the homeowners were, in fact, eligible for the Streamline.  Hooray, right?  No so fast! 

We were informed that the HUD Guidelines would not be followed, an Appraisal would not be done and an ATP would not be generated.  When I questioned that I was told HUD guidelines indicate that once a file has been referred to a foreclosure attorney an ATP should not be generated.

Repeated requests to the HUD Representative to point out where in the Guidelines that is stated were met with obfuscation.  That is because the Guidelines do not say that.

What the guidelines do say is this:  "A foreclosure sale that has already been scheduled should not be cancelled to initiate a PFS marketing period for a property of a mortgagor meeting the streamlined PFS eligibility requirements."

A foreclosure sale date HAD NOT BEEN SET so an appraisal SHOULD have been ordered and a PFS Marketing Period SHOULD have been initiated.

Once again these borrowers were harmed,  this time directly by HUD,  particularly since a borrower can obtain a quicker contract at a better price marketing a short sale that is essentially pre-approved (which is the beauty of the FHA PFS program) than they can trying to market a short sale in which both the acceptable price of the property and the eligibility of the borrower are still in question.


I had, at the time of this discussion about the ATP, expressed my concern that the purpose of refusing to generate an ATP (Approval To Participate) was so that US Bank could find a way to foreclose as that is clearly what they wanted to do. 

I was reassured that as soon as an offer was produced, it would be immediately reviewed.

THAT TURNED OUT TO BE UNTRUE.  After almost a month of absolutely no response to the short sale contract package that was submitted through HUD on December 18th (apparently US Bank and HUD do not have to comply with the CFPB Rules regarding communication with a borrower who submits a loss mitigation request package) US Bank is now back to their original story line that the homeowners cannot be considered for a short sale because their FICO scores are too high (over 580) and they do not have a failed Trial Mod. 

This is despite everything previously mentioned and despite the fact that current full credit reports were submitted with the offer and were sent directly to the Director of Loss Mitigation at HUD which validated that all of their scores were well below 580.  Both US Bank and HUD have apparently, conveniently forgotten all of this.

Also disturbing is the fact that when the short sale request package was submitted on December 18th, there was no foreclosure sale date scheduled, yet the homeowners received a foreclosure notice in the mail on January 5th which means that US Bank ordered the foreclosure AFTER they received a request for a Streamlined Short Sale which the borrowers had already been determined to be qualified for.

Apparently US Bank and HUD are exempt from the CFPB Rules prohibiting a Servicer from starting a foreclosure proceeding once a foreclosure alternative request has been submitted for review.

It is more than disappointing that the response of HUD's upper management to all of this is to, in essence, say that none of it matters and to throw it all back on the aggrieved borrower, requiring them to resubmit all of their financial documentation (for the 4th time).   This is a stalling tactic taken in the hope that the borrower will become so disgusted they'll just go away.

Further, HUD adds insult to injury with the statement that when, and if, an investigation is done to determine whether there was any mishandling (I'm being kind here calling it mishandling) on the part of US Bank that it will be between HUD and US Bank.  We all know that this means that HUD will assess a penalty against US Bank which will fatten HUD's coffers but will do nothing to help the mistreated borrowers.

There you have it. Despite all the talk about protecting distressed homeowners from the systemic failures of their banks by numerous entities including the CFPB, the DOJ and even HUD's new Secretary, Julian Castro, it's all lip service. 

None of these entities have any real interest in helping the individual consumer which is why they consistently allow the servicer to investigate themselves,  pretending they will do the right thing, which is never going to happen.  Servicers are not motivated to do the right thing because doing the right thing hurts their bottom line.  So, in the end, all of these entities effectively leave the Fox to Guard The Hen House and the wronged homeowner out in the street.

                                                                              Hidden Servicer Compensation Behind Short Sale Failures












Comment balloon 12 commentsJoy Baker • January 26 2015 12:35PM


First i am sorry to ever hear anyone still having to go through this. I think the key is the servicer. But as you said, there is no one to over see them except themselves. I hope things work out

Posted by Scott Godzyk, One of the Manchester NH's area Leading Agents (Godzyk Real Estate Services) almost 5 years ago

The key is the servicer, Scott, and US Bank wins the prize as the worst.  Usually I am able to obtain the assistance of the investor - Fannie or Freddie - if the servicer is not behaving well but, in this instance, as you can see, HUD/FHA has been singularly unhelpful.

Posted by Joy Baker, So NH RE & Short Sale Specialist (RE/MAX Insight) almost 5 years ago

I worked in Loss Mit at a major national bank for a year and a half.  It's all I could handle.  I despised not being able to fix problems that were obvious and all of the red tape that was involved.  One of my accounts story was enough to make me leave. I had picked it up after two years in default.  It's a long story but the gist of it was that they were talked by a rep into attempting a mod instead of a short sale.  Their home was on the market when they started but rather than remove it their agent let the listing expire (I guess it only had a couple of weeks left) they made 9 trial payments on an MHA mod and were informed that because they went back and saw that the house had been listed during the mod process they were declined. They even provided a written statement from their agent stating that they had requested to remove the listing before applying for the modification and she failed to do it.  It wasn't enough and these people were in the system for three years.  The programs were sold to the general public as help for homeowners by both the government and the banks but really it was to cut the losses for the banks, which is fine.  If it were truly a help for homeowoners program the net present value test would not be in place.  (Sorry for the long comment)

Posted by Mike Tizzano, Protect Your Transaction Certified Lender (Amerifirst Financial, Inc Equal Housing Oppurtinity Lender AZ BK0013635 NMLS 145368 LO:1015837) almost 5 years ago

Don't apologize Mike.  I appreciate the comment.  Speaking of NPV, I'm sure this won't be telling you anything you don't already know but if you have a minute and want a giggle, check this out:


Posted by Joy Baker, So NH RE & Short Sale Specialist (RE/MAX Insight) almost 5 years ago

I had the displeasure of dealing with US Bank once in a Short Sale.  I reported them to the Consumer Financing Protection Bureau and they straightened right up.

Posted by Chris Ann Cleland, Associate Broker, Bristow, VA (Long and Foster REALTORS®, Gainesville, VA) almost 5 years ago

This is my fourth (and I SWEAR my last) dealing with US Bank.  They are in a class of their own.  People love to hate Bank of America but I will deal with them any day.   Wells Fargo, Citi, Chase, etc., etc., etc.  no problem.  US Bank makes me want to jump out a window.  But, the really disturbing story here is the attitude of the HUD Executive.  As far as he is concerned, the wronged borrower is completely immaterial and unimportant.

Posted by Joy Baker, So NH RE & Short Sale Specialist (RE/MAX Insight) almost 5 years ago

It is really sad to read these stories about the abuse of consumers who are trying to do the right things.

Posted by Roy Kelley (Realty Group Referrals) almost 5 years ago

It is both sad and frustrating, Roy.  Thank you for taking the time to read and comment!

Posted by Joy Baker, So NH RE & Short Sale Specialist (RE/MAX Insight) almost 5 years ago

I am working one now with US Bank and they just informed me that HUD will NOT allow them to take less than 84% of appraised value!?    THey even included the rejection letter from Hud, stating that length of time on market  does not matter.  It has been on maket over 180 days and this will be the second failed contract.  Has any one heard of this 84% rule?  I have closed others that were less than 50% of value but NOT Us Bank

Posted by Bill Dean, William Dean - Broker, Salesperson (Haggerty Team St. Louis, Mo.) over 4 years ago

Unfortunately, Bill, they're telling the truth on this one.  FHA has very specific guidelines regarding the net they'll accept. 

FHA Guidelines Regarding Acceptable Net Proceeds On A Short SaleI assume, since you are saying that they rejected because the offer would not net 84% of the appraised value, that they have had an FHA "AS IS" Appraisal done and have shared it with you and your seller client, correct?  If you believe that the "As Is" Appraisal value is incorrect you can fight to have another appraisal done.  I have successfully done that in the past.  You do have to have valid reasoning such as an appraiser that lacked geographic competence and therefore used inappropriate comps to arrive at value.

Posted by Joy Baker, So NH RE & Short Sale Specialist (RE/MAX Insight) over 4 years ago

I have a short sale that has been dragging on for almost 5 (FIVE) years! First it was owned by BofA, and in the middle of negotiations of a REPC, they sold the loan to M&T. It has been a nightmare as well and very similar to your story.
I have had HUD involved as well to no avail. Tells me they can't make the bank do anything (even though it's an FHA loan). What a bunch of bunk!

Posted by Elizabeth Nance over 4 years ago

Oh, so sorry to hear that Elizabeth.  Fortunately, as you probably saw in my update at the top of the post, I was able to bring the 8 month impasse my clients and I were dealing with to a successful conclusion.  I hope you are able to bring your situation to a successful conclusion also!

Posted by Joy Baker, So NH RE & Short Sale Specialist (RE/MAX Insight) over 4 years ago