So I think I'm Mr. Smarty Pants when I convey all of my wonderful mortgage knowledge about exiating programs and loans available to clients, family, & friends. Oh yeah, I tell them confidently, the only 100% mortgage program available to buyers right now is Veterans Administration (VA) loans. Those loans are GUARANTEED by the VA and other lenders offer them to VA-qualified buyers.

But back up a minute...is it really the ONLY 100% mortgage loan available to buyers at the present time. I ate way too much on Turkey Day so I have no room to eat "crow", but I was wrong (and my wife tells me I can never accept being wrong ;-)...

I'll give you 5 seconds to guess ANOTHER 100% mortgage being offered to EVERY buyer right this minute...1...2...ok, you give up, right? Check this out - USDA loans.

Yes, you read that right - the same people that certify beef. Let's cut to meat (excuse the pun) of this article. In short, the Federal Gov't has set up two 100% loan programs for lower-income buyers of RURAL property - a "direct" and a "guaranteed" program. It's the coolest thing since sliced bread - all you have to do is find a home in their desginated "rural" area and you are on your way...

Here's the info straight from their site, http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do?pageAction=pageLoad&requestInfo=GuaranteedProgramInfo&NavKey=loan@21

Section 502 loans are primarily used to help low-income individuals or households purchase homes in rural areas. Funds can be used to build, repair, renovate or relocate a home, or to purchase and prepare sites, including providing water and sewage facilities.

Eligibility: Applicants for loans may have an income of up to 115% of the median income for the area. Area income limits for this program are here. Families must be without adequate housing, but be able to afford the mortgage payments, including taxes and insurance. In addition, applicants must have reasonable credit histories.

Approved lenders under the Single Family Housing Guaranteed Loan program include:

1. Any State housing agency;
2. Lenders approved by:
HUD for submission of applications for Federal Housing Mortgage Insurance or as an issuer of Ginnie Mae mortgage backed securities;
3. the U.S. Veterans Administration as a qualified mortgagee;
4. Fannie Mae for participation in family mortgage loans;
5. Freddie Mac for participation in family mortgage loans;
6. Any FCS (Farm Credit System) institution with direct lending authority;
7. Any lender participating in other USDA Rural Development and/or Farm Service Agency guaranteed loan programs.

Terms: Loans are for 30 years. The promissory note interest rate is set by the lender.

There is no required down payment. The lender must also determine repayment feasibility, using ratios of repayment (gross) income to PITI and to total family debt.

Standards: Under the Section 502 program, housing must be modest in size, design, and cost. Houses constructed, purchased, or rehabilitated must meet the voluntary national model building code adopted by the state and HCFP thermal and site standards. New Manufactured housing must be permanently installed and meet the HUD Manufactured Housing Construction and Safety Standards and HCFP thermal and site standards. Existing manufactured housing will not be guaranteed unless it is already financed with an HCFP direct or guaranteed loan or it is Real Estate Owned (REO) formerly secured by an HCFP direct or guaranteed loan.

Approval: Rural Development officials have the authority to approve most Section 502 loan guarantee requests.

BUYERS AND SELLERS!

If you have a closing this week, Ida may have just put a damper on your plans.

Although it has been a quiet hurricane season for Floridians, there is a staanding rule that insurers will NOT bind homeowners insurance when a tropical system moves within a certain proximity to our area. Without insurance, mortgage companies will NOT underwrite their loan, which ultimately means buyers can't pay for the house at closing time.

Our standard Florida Association of Realtor contracts have a stipulation that covers rare instances like this and I urge buyers, sellers, and realtors to review the contract language. It's non-jeopardy for all parties, which is good.

The only problem I forsee is if a seller is consummating a short sale and the short sale deadling is the closing date this week. Hopefully the Loss Mitigation/Short Sale closer will be understanding, but that is not always the case.

Let's talk about a topic near and dear to my heart - short sales. Yes, this "dance with the devil" as I like to call them is full of twists and turns, highs and lows, yes's and no's...some may liken it to marriage ;-)

I digress. Short sales have become a common occurrence, with some areas seeing just a few and other places seeing 30%, 50%, and even 75% of homes in a short sale status. To recap for those not paying attention, short sales are when the home's fair market value is EXCEEDED by the mortgaged amount, leading to a deficiency or "short" on the mortgage. To head off these homes going back to banks as foreclosures, banks will accept less than what is owed while sometimes sticking the owner with the difference...and sometimes not.

That is what we will discuss today:

the relationship between a 1099C and a deficiency judgment!

A deficiency judgment (DJ) CAN be pursued on the amount of the mortgage "forgiven" by the lender. EXAMPLE: Joe has a $150k mortgage and short sells it, with bank approval, to Jan for $100k. That leaves a $50,000 DEFICIENT AMOUNT.

In foreclosure or a short sale, lenders are allowed to, but rarely do, pursue deficiency judgments against the former owners. The reasons lenders normally DON'T file for deficiency judgments are:

1) Practically impossible to collect as most owners foreclosed on don't have much money
2) Cost of litigation to achieve the deficiency judgment is costly
3) DJ's can be discharged in bankruptcy as unsecured debts.

Banks will routinely issue 1099c's instead. When issuing a 1099C (cancellation of debt), banks take the paper loss and pass it on to the former owner as "income" in the eyes of the IRS. Pls consult an accountant for what to do with a 1099c.

If you are issued a 1099C, one would think that the deficient amount is history and a DJ is out of the question, as the debt is being transferred as "income" to the homeowner. A reasonable assumption. However, according to Carolyn Secor, a Clearwater-based attorney who specializes in foreclosure defense and bankruptcy, the 2 are apples and oranges. A DJ is a civil litigation action and a 1099C is simply an IRS function. The 2, when held at arms length, are not truly related. HENCE, ONE CANNOT ASSUME THAT THE ISSUANCE OF A 1099C WILL PREVENT A DJ.

Short sale sellers will find the language in their approval letter. Banks will state they are releasing the lien so the sale will go through but ALSO accepting the proceeds as payment in full. Some banks go as far as telling you how it will be recorded with the credit bureaus. Unless you see the above language, or "satisfaction of mortgage", or something similar, do NOT assume you are being released from the note (mortgage).

Unfortunately, sellers are taking a chance when they are told they will receive a 1099C at the end of the year AND they don't see any written language releasing them from the obligations of the note. And sometimes that's all the sellers get. Only that seller can determine whether its worth completing the short sale and dealing with future ramifications.