Please advise - Covid-19 partial claim, Preforeclosure auction and home sale

[Sahara Faughn]

I am currently in Preforeclosure with a scheduled auction on August 20th, and I am under a special forebearance due to medical issues and having 2 small children under the age of 7. I found a buyer for my home, got a payoff statement from the mortgage company stating the payoff was $247,000 (principal at $233,000 + fees and charges), the buyer was willing to pay $271,000. I signed a commitment to sell based off of those figures. I also found somewhere to relocate my family, the seller has taken the property off market and agreed to wait for cash until I receive the funds from the sale, with a post possession 5 days out from closing. The issue presented itself about 30 minutes before we were scheduled to sign and closed the sale yesterday, HUD showed up with a partial claim that I received during the COVID-19 pandemic which brought the closing amount to $289,000, thus putting everything upside down, no cash from the sale and I would owe money. I have reached out to the mortgage company, the agent I spoke with said that the payoff is non-negotiable, I asked to speak with a supervisor and am waiting on a call back. I have contacted a HUD counseling representative and am also waiting on a response from them. From everything that I have been able to find, HUD does not forgive or back down, my mortgage company so far appears to be unwilling to back off the price, I doubt the buyer is willing to come up on their offer and I feel I am faced with 3 options: 1) I let the sale proceed and end up with no money, owing money, and no where to go, 2) The buyer proceeds to sue for the property because I signed a commitment to sell, I will end up with no way to relocate my family and nowhere to go, or 3) the home goes to auction and again, no way to relocate and nowhere to go. Is there any way to get PennyMac to lower the payoff amount, at least to just the principal amount, enough to cover the partial claim, satisfy the mortgage lender and be able to afford to relocate my family (I only need $7,000 to $10,000 to get a vehicle/uhual and move my family, and that includes the new place)? Is there a way to defer or waive the HUD partial claim? Is there anything I can do, the home is valued at $356,000 however it needs some repairs so personally, I'd put it closer to $290,000 to $300,000. I've considered a short sale, but am under contract, I think, with a buyer already due to the commitment to sell document I signed... And I've considered a deed in luie of foreclosure, but that would leave me under to relocate as well. Please any help or advise would be greatly appreciated!

Thank you 

[Ty Coutts]

Hey Sahara,

Given your situation, there are a few immediate actions you can take:

Continue Negotiating with PennyMac: Request an urgent escalation of your case. Explain your medical and family situation and ask if they can reconsider the payoff amount or provide any temporary assistance or delay in foreclosure to facilitate the sale. Persistence in reaching a supervisor or someone with decision-making authority can sometimes yield better results.

Contact HUD and Explore Options: Immediately follow up with the HUD counseling representative. Explain the urgency and seek advice on any potential waivers or deferrals for the partial claim. HUD might have programs or options for individuals facing pre-foreclosure due to COVID-19 related hardships.

Communicate with Your Buyer: Discuss the situation with your buyer transparently. See if they might be willing to increase their offer slightly or cover some closing costs. This might be a long shot, but open communication can sometimes lead to unexpected solutions.

While these steps may not guarantee a resolution, they could help you find a path that avoids foreclosure and allows you to relocate your family. I am a loan officer so I could be able to help you navigate this. Please contact me if you need further assistance or if you just want to chat. Feel free to DM me at any time. 

[Bill B.]

Did you receive the $40k in Covid assistance they are asking you to repay? If so do you still have it? 

Personally I’d let it go to auction. Buyer can’t make you sell if you don’t have the funds needed to close. Worst case with auction you get to live in it for 2 more months and don’t have to pay to sell. Best case is they get more than this buyer was willing to pay. Hopefully that “buyer” was a flipper and the property is worth closer to what you think it is. But it’s all upside no downside to let it go to auction. 

Tell buyer, 1) I don’t have funds required to close. 2) you can raise your offer to the amount needed to pay off both debts or walk away. 3) it’s going to auction in 2 months. You can buy it then if you think thsi price is too high. 

Meanwhile I assume you have been and will continue to live “rent free” for 2 more months. Use that savings to move your family to a much more affordable situation. Hopefully with relatives that have spare room to rent affordable. But zero chance I would pay the extra to sell to this one buyer or expect debt to be forgiven. Good luck. 

[David Randolph]

NEVER let it go to Foreclosure (auction) That hits your credit for 7 years and 300 pts and depending what state you live in the bank can come after you for the deficiency.

There are many options and way to many to type out here and explain so feel free to call me at 636 685 2990. I have negotiated short sales for myself as the buyer with the banks for 14 years and have seen this quite often. The silent second had no interest and no monthly payments but you signed a 2nd deed of trust. This amount MUST be paid back even if the bank/FHA has to take a hit on their payoff. The bank will NOT work with you just because you ask them to, especially if they think the value of the house is high.

On a short sale they will only give you $3000 so forget $7K. I suggest you call me about one of the following options:

1. Tell the buyer you have no financial means to close and the contract will end on the expiration date.  Most Realtor board documents have clauses and you should have filled out a Short sale rider when you listed the property.

2. Immediately get the RMA form (Request for Mortgage Assistance) and select "Sell the house" (Short Sale). Banks do NOT do a DIL (Deed in Lieu) because they do not want to accept any under lying 2nd lien positions. This could get you 4-6 months in the house while you save money and $3000 at closing paid by the bank. 

3. File Bankruptcy and fix your house up and sell it or sell it as is for the amount you said it was worth vs what you have it under contract for now.  

4. There is a possibility that you could keep this buyer under contract (for example if he tries to cause you legal trouble) if he is willing to wait (which he will if he is an investor who was underpaying you what you think itis worth As Is.  I have a ninja trick (that sounds cool doesn't it) to where the bank will accept alot less than the appraised value. For example, if it appraises for the $290K you think, I know how to get the bank to accept a little over $255K. Would that make life easier?

5.  I have a developed a way to snap my fingers and could easily help you get your foreclosure postponed so feel free to reach out to me at 636 685 2990 IF you just want more time to think about it. 

6. 14 years helping families out as an investor NOT a Realtor.

[Minna Reid]

I handle a ton of sales with HUD partial claims. Over the last 4 years they have been giving out these claims like candy to make their Covid workouts possible, and sellers are always surprised at the amounts owed. You can never get the partial claim reduced or forgiven. They must be paid in full.

You have two options: Pay the partial claim off out of pocket or do a short sale. In a short sale with a partial claim, your first lien position with the FHA loan takes the loss so the claim can be paid in full. Currently FHA is offering no doc short sales through 4/2025, so you wont even have to provide any financials to get your short sale approved. Just a standard borrower hardship form. Pennymac is one of the better lenders to work short sales with right now. I have done a few FHA shorts with Pennymac over the last year, and you are looking at maybe a month or two from application to approval, if the person handling the sale knows what they are doing.

However, you would have to rework your current contract to be subject to SS approval  (which the buyer may or may not be into),or sell to another party, and if you are getting financing for the new house, that will likely fall apart as well. 

If you have the cash to complete the transaction as is, I would recommend simply paying the balance. 

[Sahara Faughn]

Thank you all for your advice. 

Newest update is that the buyer is threatening to sue and place a lien on the property. They are insisting we sell and be out within 24 hours.

[David Randolph]

Quote from @Minna Reid:

I handle a ton of sales with HUD partial claims. Over the last 4 years they have been giving out these claims like candy to make their Covid workouts possible, and sellers are always surprised at the amounts owed. You can never get the partial claim reduced or forgiven. They must be paid in full.

You have two options: Pay the partial claim off out of pocket or do a short sale. In a short sale with a partial claim, your first lien position with the FHA loan takes the loss so the claim can be paid in full. Currently FHA is offering no doc short sales through 4/2025, so you wont even have to provide any financials to get your short sale approved. Just a standard borrower hardship form. Pennymac is one of the better lenders to work short sales with right now. I have done a few FHA shorts with Pennymac over the last year, and you are looking at maybe a month or two from application to approval, if the person handling the sale knows what they are doing.

However, you would have to rework your current contract to be subject to SS approval  (which the buyer may or may not be into),or sell to another party, and if you are getting financing for the new house, that will likely fall apart as well. 

If you have the cash to complete the transaction as is, I would recommend simply paying the balance. 

Great reply. I agree with everything except the very last statement about paying cash to pay it off. The whole reason FHA developed a short sale method is to reduce the loan balance down to reality, down to what the home is worth, down to the value of the collateral at the bank accepted. if they had the cash, they wouldn't be behind on their monthly payments.

[David Randolph]

Quote from @Sahara Faughn:

Thank you all for your advice. 

Newest update is that the buyer is threatening to sue and place a lien on the property. They are insisting we sell and be out within 24 hours.

I don’t know what threaten means. They either sue you or they don’t. The contract comes to the closing date and it passes then there is no more contract. Also you can’t squeeze blood out of a rock or water or whatever it is you squeeze.   I suggest that you get a written statement that says you do not have the cash for the funds to be able to close, and that you’re going to proceed with a short sale and you’d like to offer them the opportunity to be the buyer for that otherwise you’ll find another buyer.

 This is not legal advice. This is just me reacting to what they’re doing. 

[Sahara Faughn]

I've read through everything everyone has said, as well as carefully reading through the sales agreement and the final closing papers (that I did not sign but requested from the title agency)... I may be wrong in my understanding of the real estate code of ethics outlined in the Arizona state statutes, and everything else I've read regarding real estate transactions, but as far as I understand it the original agreement to sell is null and void due to the nondiscolure committed by the real estate agent/broker first in the fact that he signed the agreement to sell as the buyer, misrepresentating himself as the agent and stating he had a buyer/investor and Secondly because the agent involved should not sign in representation of the buyer but may only accompany the buyer to the signing (it was done through docusign, I signed first and then was notified that the buyer had signed and downloaded a copy, I didn't look at who the buyer was until just last night). Secondly, he again did not fully disclose everything and was pushing for the signature on the final closing documents, in them he has 2 seperate title agencies involved as well as a third party construction company listed as the policy holder for the insurance for the home, and the figures for sale are different from those on the sale agreement document that I did sign, with clauses included that state if the title is not free and clear that the buyer has the right to sue me for insurance purposes and to cover the silent second mortgage that I was only informed of because the title agency called me to say something was up after arranging the notary to come to me to sign the final documents (at which point I said no and had a copy of the closing documents emailed to me), and again the so called real estate agent negotiating the transaction is listed as the buyer (under the guise of being part of ushomebuyers.com, same as the agreement to sell). 

@David Randolph - my use of the word "threatened" is in regards to the statements made by, as at the time I understood it to be, the real estate agent negotiating the sale to inform me that I could be sued and a lien placed because I was refusing to sell, which would mean that either I agree to sell and put my children on the street or I refuse and they will sue to take possession and I would still put my children on the street, I took that as a threat to the well being and safety of my children, legally it may not be a threat, ethically and morally, it is to me. And then to be scolded over how I "mishandled" my mortgage for 4 years during covid-19 and resulting other medical issues, which now looking at it, seems as if it was meant to shame and guilt me into thinking I had no other option. 

As of this morning I have filed a complaint with the attorney generals office and provided both the agreement to sell as well as the closing documents. And informed them of the 453 other real estate related documents that he, his business, has filed with the state in case this is not the first time he has done this. Because honestly, at one point, I considered his offer and was afraid of the possibility that if I didn't accept I'd be taken to court and be responsible for putting my children on the street, and I can see those types of scare tactics and resulting emotions being enough to scare someone into complying with a transaction no matter how laden it is with misrepresentation, non disclosure and fraud it could be.

Again, I don't know if I misunderstood the laws and regulations or not, I could be wrong. And I thank you all for your time and advice. 

[Minna Reid]

Quote from @David Randolph:

Quote from @Minna Reid:

I handle a ton of sales with HUD partial claims. Over the last 4 years they have been giving out these claims like candy to make their Covid workouts possible, and sellers are always surprised at the amounts owed. You can never get the partial claim reduced or forgiven. They must be paid in full.

You have two options: Pay the partial claim off out of pocket or do a short sale. In a short sale with a partial claim, your first lien position with the FHA loan takes the loss so the claim can be paid in full. Currently FHA is offering no doc short sales through 4/2025, so you wont even have to provide any financials to get your short sale approved. Just a standard borrower hardship form. Pennymac is one of the better lenders to work short sales with right now. I have done a few FHA shorts with Pennymac over the last year, and you are looking at maybe a month or two from application to approval, if the person handling the sale knows what they are doing.

However, you would have to rework your current contract to be subject to SS approval  (which the buyer may or may not be into),or sell to another party, and if you are getting financing for the new house, that will likely fall apart as well. 

If you have the cash to complete the transaction as is, I would recommend simply paying the balance. 

Great reply. I agree with everything except the very last statement about paying cash to pay it off. The whole reason FHA developed a short sale method is to reduce the loan balance down to reality, down to what the home is worth, down to the value of the collateral at the bank accepted. if they had the cash, they wouldn't be behind on their monthly payments.

You're right I overlooked that part. OP's only option is to short sell or foreclose. The lender wont approve a DIL wihout OP trying a short sale anyway. 

Threats of suing are baseless, as no one sues people without money. What would be the point. Just ignore these threats and move forward.

With a foreclosure auction less than 2 months way, its time to just start the short sale process now with Pennymac. FHA does not even require a buyer in order to start approving your for the PFS ( Preforeclosure sale program). Start now - call them and tell them you want to short sell. It's one packet, and they will have an appraisal. Once approved they will put the foreclosure on hold for a bit - 4 months minimum to be exact which will give you plenty of time to find a buyer (the existing one, or a new one), and get the sale closed. Extensions are likely granted, if needed.

You will receive $3k relocation assistance at the end ( unless you have other liens, back due water/sewer/HOA etc. ) You can also stay in the home until the sale closes, which gives you at least a few months payment free to be able to figure out where you will relocate.