Citi’s Deed-In-Lieu of Foreclosure Offers Borrowers 6 Months Free Rent

February 19, 2010

On February 11, 2010, Citigroup announced plans to introduce a pilot program that would let homeowners on the verge of foreclosure stay in their homes for six months, provided that they turn over the deed to the property; otherwise, known as a deed-in-lieu (DIL) of foreclosure.

Citi will begin the program, called Foreclosure Alternatives, this week in some states that have been particularly hard-hit by foreclosures: Florida, Illinois, Michigan, New Jersey, Ohio and Texas. About 1,000 homeowners are expected to participate.

For homeowners in financial trouble, there are a few benefits to the program:

  • You get to stay in your home for an extra six months. While you still have to leave, getting the extra six months can help your kids finish their school year and give you time to pack and plan for your next move.
  • Mortgage payment not required. Citigroup won’t require you to make a mortgage payment while you live in the home. That should give you six months to sock away savings – cash you’ll need to pay moving expenses and perhaps to put down a security deposit on a new place to live.
  • A deed-in-lieu of foreclosure will hurt your credit history and credit score less than a straight out foreclosure. While your credit score will drop, it might not drop as much.
  • Citi will pay at least $1,000 in relocation costs and will consider helping with other expenses. It also will offer relocation counseling.

Borrowers in Citi’s program must still pay utility bills. Borrowers will be required to “maintain the property in its current condition,” the bank said.

Something formally needs to be done in addition to the modifications,” said Sanjiv Das, chief executive of CitiMortgage. “We are in a different stage of the housing cycle. Restructuring  mortgage payments was part one of the cycle, making sure that foreclosure glut doesn’t hit the industry is part two of the cycle. Citi is trying to stay ahead of it.”

Sanjiv also said the program is “less painful for our borrowers as well as for us.”

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BREAKING NEWS: FHA Suspends 90-Day Anti-Flipping Rule for 1 Year

January 19, 2010

Effective February 1, 2010, the Federal Housing Administration (FHA) will place a one-year moratorium on its 90-day anti-flipping rule under waiver of  requirements of 24 CFR 203.37a(b)(2). , unless otherwise extended or withdrawn by the Commissioner. This will allow buyers with FHA-backed loans to buy homes that have been held for less than 90 days.

“FHA borrowers, because of the restrictions we are now lifting, have often been shut out from buying affordable properties, ” said FHA Commissioner David H. Stevens. “This action will enable our borrowers, especially first-time buyers, to take advantage of this opportunity.”

The waiver is limited to those sales meeting the following conditions:

  1. All transactions must be arms-length, with no interest between the seller and the buyer or any other parties involved in the sales transaction.
  2. The seller holds title to the property.
  3. LLCs, corporations, or trusts that are serving as sellers were established and operated in accordance with state and Federal laws.
  4. No pattern of previous flipping exists for the property, as shown by multiple title transfers within the last 12 months.
  5. The property was marketed openly and fairly.
  6. Assignment of a contract for sale will trigger a red flag.

In cases where the sales price is 20% or more over and above the seller’s acquisition cost, the waiver will only apply if the lender:

  1. Justifies the increase in value by retaining supporting documentation and/or a second appraisal which verifies the seller has completed legitimate renovation, repair, and rehabilitation to substantiate  the increase in value, or in cases where no work is performed, the appraiser provides sufficient explanation of the increase in value.
  2. Orders a property inspection and provides the inspection report to the purchaser before closing. The lender may charge the borrower for this inspection. The use of FHA-approved inspectors is not required.
  3. At a minimum, the inspection must include: the property structure, including: the foundation, floor, ceiling, walls and roof. The exterior, including: the siding, doors, windows, decks, balconies, walkways, and driveways. All interiors and all insulation and ventilation systems, fireplaces, and fuel-burning appliances.
  4. The waiver is limited to forward mortgages and does not apply to Home Equity Conversion Mortgage (HECM) for Purchase program.

Findings

FHA finds that eliminating the 90-day resale restriction for buyers will permit buyers to use FHA-insured funding to purchase other bank-owned properties, or properties sold through private resale, which will allow homes to resell as quickly as possible.


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