Delaware Business Lawyer Blog

In Delaware, we have a mediation program that applies to mortgage foreclosures. The idea is that with the help of a trained mediator, the homeowner and the mortgage company might be able to work out an alternative to foreclosure. The mediation program applies only to the primary residence of the homeowner.

When the attorney for the mortgage company starts a foreclosure lawsuit in the Court, he must also send to the homeowner the following things:
(1) a document called “Special Notice Hotline Flyer”
(2) a hotline number
(3) a Universal Intake Form, and
(4) a Foreclosure Intervention Counseling Client’s Checklist

The Special Notice Hotline Flyer informs the homeowner that they should seek counseling with a HUD certified counseling agency by calling the hotline number. The Flyer also gives the homeowner information about the mediation program.

If a homeowner wants to enter the mediation program, they should meet with a HUD certified counseling agency and submit a completed Universal Intake Form to the mortgage company’s attorney and Delaware Volunteer Legal Services. In order to qualify for the mediation program, the homeowner and the counselor have to prepare a good faith proposal for making monthly mortgage payments. The monthly payment includes principal and interest, as well as escrows for taxes and insurance. These payments cannot exceed 38% of the homeowner’s gross monthly income, the repayment term cannot be more than 40 years, and the interest rate cannot be less than 2%.

There are other steps to follow, and any homeowner who has questions about this mediation program should contact an attorney to get all of the details.

In my last article, I explained some basics about a short sale in Delaware. Here, I will list some of the steps that are followed in a short sale.

#1 - contact an experienced attorney who will guide you through the entire transaction all the way to the day of the closing.

#2 - list your property with a real estate agent. It’s best to find an agent who has done short sales before.

#3 - The real estate agent finds a buyer who is prepared to pay the fair market value for your home

#4 - your attorney should become involved with you and your real estate agent in the negotiations with the buyer, and your attorney should prepare the agreement of sale

#5 - your attorney will then contact your lender and arrange to submit all the documentation they require to consider approving a short sale. This documentation includes the agreement of sale, a draft HUD-1 settlement statement, and more.

#6 - before your mortgage company approves the request for a short sale, they will want proof that you can’t afford to pay the “cash due from seller” at closing.

When a mortgage company approves a short sale, they sometimes try to get you to sign documents that are not in your best interest. It is important that you have your attorney review each and every document before you sign it.

We’ve all been reading about the declining value of homes and short sales, but what exactly is a short sale? Let’s assume you bought your home 10 years ago for $250,000. You put 10% down and got a mortgage for $225,000. Now you’re trying to sell your home, and your real estate agent tells you that the most you could get for your home is $199,000. The problem with this is that even assuming you got an interest rate of 5% when you bought your home, you still owe your mortgage company over $206,000. When you add on $15,000 in closing costs for such things as the real estate commission and transfer tax, in order to sell your home you’d have to come up with over $20,000 in cash at the closing.

One solution could be a short sale. Using the example above, a short sale means you sell your home to a buyer for $199,000, and your mortgage company agrees to accept less than the $206,0000 you owe so that you won’t have to come up with the cash at closing.

This is the first in a series of articles about short sales. As we will see in future articles, short sales can be complicated, and you should get the help of an experienced attorney to handle it for you.