Short Sales: Know Your Options
February 26th, 2010 categories: Finances, Foreclosures, Home Selling, Loan Modifications, Real Estate, Short Sales
With the recent decline in foreclosures due to banks holding back some REO (real estate owned) inventory, agents have begun to re-tool their marketing to target short sales. Clear guidance is the key to getting your home sold via a short sale so when hiring a broker to sell your home ask if they will be personally handling the transaction. It’s imperative to let the broker know the date of the last payment made or how many payments you are behind. These details will determine the success of your short sale so providing as much information up front will help speed the process. Below are some of the pitfalls facing sellers as their broker attempts to negotiate with the banks to sell short.
Each lender has its own criteria and level of tolerance for short sales. Multiple levels of approvals with varying conditions are common in short sale transactions. Once a sale is submitted and uploaded to the system, it must fit the pre-determined criteria dictated by the banks loss mitigation dept. Loss mitigation is the first department that grants approval. The initial package typically takes about 3 weeks to be uploaded to most banks systems. Recently banks have begun to streamline the process and are utilizing online software which is supposed to speed response time. This is relatively new so we hope to see time frames shrink as new requests are processed.
Every short sale is unique and the amount of time it takes to get the home closed will depend on how many liens are attached to the property. There are so many possibilities when it comes to lien holders but here are a few that hold sway. Home equity lines of credit (HELOC), Home Owners Associations (HOA) that can have multiple assessments attached, tax liens (income, estate or corporate franchise tax) real property taxes and mechanic’s lien holders. Additionally, any unpaid utilities will need to be paid and if maintenance has been neglected and the city has to mow the lawn there will be a lien for that service attached.
There are additional pitfalls that can also prevent the short sale by way of lender required mortgage insurance on the loan. The way this works is that the bank is obligated to allow the mortgage insurer to be party to negotiations. This is part of the servicing agreement initially set up by the mortgage insurer with the bank. The reason being that the insurer will have to pay out a claim to offset the lender’s loss in the short sale. Some mortgage insurers require a side note to be executed in order to transfer title. This is another item of negotiation that can halt the transaction so knowing upfront if there is mortgage insurance certainly helps.
The failure rate of short sales is relatively high due to the complexity of the processes involved. Numerous parties to the transaction, fickle buyers unable to perform or worse walking away from the purchase complicate an already frustrating experience. Inexperienced agents who do not understand basic procedure can jeopardize the sale because time is of the essence. Auctions do happen and most of them are for homes that failed to sell short.
Short sales do adversely affect a person’s credit score although the negative impact is typically less than a foreclosure. Short sales are a type of settlement and remain on a credit report for seven years. Some lenders are designing loans for those customers who have experienced a short sale with some buyers able to re-purchase in as little as 13 months. The determining factors are keeping your other credit obligations under control and no late payments exceeding 90 days. Of course, you have to qualify your income and work history but the banks realize that there is a distinct need for these loan products and it will grow as we get out from under this current market.
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Folsom’s Inventory Status
October 23rd, 2009 categories: Folsom CA, Foreclosures, Home Auctions, Short Sales
Current Statistics for Oct 2009
As Halloween approaches it appears that some of the homes on the block will have the porch light out for reasons other than avoiding tricker treaters.
Inventory is down in Folsom CA and short sales and foreclosures currently represent just under one half of all residential home sales. The spookiest information I found was the amount of bank owned homes (REO’s) in Folsom which currently stands at 896! According to Realist there are currently 232 pre-foreclosures in Folsom which means that the homeowners are behind in their mortgage payments and a Notice of Default (NOD) has been filed. Their are also 192 homes that are set to go to auction. I usually see most of these homes go back to the bank because buyers are leery of purchasing a home without full disclosures available on the condition of title.
The latest numbers for Sept. 2009 show that there were 64 homes sold in Folsom CA, of which 14 were bank owned. Short sales accounted for 12 homes sold which is encouraging because most likely those homes were still occupied and maintained up to the sale. The rest of the properties were fair market sales which include investors selling previous bank foreclosures.
There is some positive news on the horizon which includes a possible extension of the $8000 tax credit for buyers. The discussion includes allowing all buyers to participate so that could help those move up buyers re-examine their options. One other piece of good news are the current interest rates which are still hovering at the 4 3/4% to 5 1/2 % range. These are not the frightening rates that were available when I purchased my first home…they were around 11%…now that’s scary!
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Distressed Property Solutions for Folsom Lake Homes
June 11th, 2009 categories: Folsom Lake Homes, Foreclosures, Loan Modifications, Short Sales
Seven Myths of Short Sales Exposed
Having just completed my designation for the Certified Distressed Property Expert (CDPE) I wanted to share more about short sales and expose some myths that you might have heard. The Distressed Property Institute recognized the need to train real estate agents to handle the current crisis and has received overwhelming approval by the National Association of Realtors in endorsing this certification. The president of Remax currently sits on their board and encourages all agents to obtain this designation.
Myth #1 -Foreclosing is easier than a Short Sale
The reality is that banks do not want to foreclose on your property because the foreclosure process is incredibly costly. Banks have all publicly stated that if a person is qualified for a short sale, the deal needs to be considered. Overwhelmingly, banks receive more on their investment through a short sale than a foreclosure. There are three pre-requisites needed to qualify for a short sale:
- 1. Financial Hardship – There is a situation causing you to have trouble affording your mortgage.
- 2. Monthly Income Shortfall – “You have more month than money.” A lender will want to see that you cannot afford, or soon will not be able to afford your mortgage.
- 3. Insolvency – The lender will want to see that you do not have significant liquid assets that would allow you to pay down your mortgage.
Myth #2 – You Need to Miss Payments to Negotiate a Short Sale
This was the way it used to be but today lenders are looking for a verifiable hardship. If you have a monthly cash flow shortfall, a pending shortfall and show you are insolvent you meet these three requirements. If you believe that you soon may be unable to afford your mortgage, act immediately. Any delay could limit your options.
Myth #3 – There is Not Enough Time to Negotiate a Short Sale Before My Foreclosure
This probably hurts homeowners the most. Many people do not realize that foreclosure is a process, and that there is time to make decisions. The foreclosing party-in most cases a lender-can stall a foreclosure up to the final day of the process. Today, many lenders will stall a foreclosure with as little as a phone call from you explaining that you are trying to sell, and almost all lenders will stall a foreclosure with a legitimate contract.
Myth #4 – Listing a Short Sale is Embarrassing
Recent estimates show one out of five homeowners in the U.S. is in the same situation. You are to be congratulated for admitting you need help, taking action, and finding a professional who can work with you toward a solution. In our area we are seeing up to 70% of all listings on the MLS in a short sale status.
Myth #5 – Short Sales Never Get Approved
This is a complete falsehood. Are short sales more difficult to execute? Yes. Do you, as a homeowner, need to learn about a new process? Yes. Are they impossible? Absolutely not. While there are no guarantees in any transaction, more and more short sales are being approved regularly. This is far from an impossible process. Professionals who have the CDPE Designation are fully trainied in methods to help homeowners in distress and process short sales.
Myth #6 – Banks are Waiting on a Bailout and Not Approving Short Sales
The reality is that banks (and the U.S. government) are trying to do anything they can, within reason, to avoid foreclosing on properties. Denying a short sale in the hope that some future legislation would pass and pay them for losses is preposterous. Freddie Mac recently hosted a national training Webinar for real estate agents where they expressly stated the organizational goal of “eliminating distressed assets through modification or short sale.”
Myth #7 – Buyers Agents Are Not Showing Short Sale Properties
This is a myth that potential sellers hear all the time. Smart agents are getting calls from buyers who say they only want to look at foreclosure and short sales. For buyers, short sales and foreclosures have become synonymous with “good deals.” Listing with an experienced agent who is educated in the short sale process will provide you with a great chance of quickly seeing a contract on your property.
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Related articles:
http://folsomlakehomes.com/2009/05/06/foreclosures-fixer-scams/
http://folsomlakehomes.com/2009/04/28/short-sales-impact-on-credit-scores/
http://folsomlakehomes.com/2009/04/14/california-prevention-act/
http://folsomlakehomes.com/2009/02/16/loan-modifications-vs-short-sales/
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Buying Foreclosures Basics
June 4th, 2009 categories: California Property Taxes, Finances, Foreclosures, Home buying
Tips to protect your interests in real estate
Now is a great time to take advantage of buying foreclosures, bank owned homes and even short sales. But how do you lessen the risk of liens and judgments attached to a home? That is one of the many fears buyers have when shopping for a home and another good reason to have a seasoned real estate broker representing you at the table. I’m going to outline the process and highlight some ways you can protect yourself from absorbing the previous homeowners bills.
The typical escrow begins with a preliminary title report which itemizes all the liens on the property. In our region the escrow officer will order the report and the buyer should receive it within 72 hrs of depositing their check with the title company. This report gives a full disclosure of all the liens and judgements on the property and identifies who holds those liens and how much is owed. I cannot emphasize enough that buyers need to carefully review this information.
It is important to understand that the preliminary title report is only good from the day it was printed which is usually 14-21 days prior to the escrow being opened. In other words if you open escrow May 21st then your preliminary title report will show all the activity on that property up to May 1st. This is to allow time for the recordings against that property to show up in the system. The escrow officer will pull another title search just prior to funding the loan to ensure no additional liens were placed on the property between the time the purchase contract was signed and the transfer of title to you.
On this report you will see everything that is attached to the home and if there are outstanding bills like water, sewer or garbage. Most of the banks that I have worked with paid off the utility bills for the short sales that I have closed but it is never safe to assume that they will. I have seen water bills in the $800 range because some utility companies will not close the account out until the final bill has been paid. Even though the homeowner may have vacated the home the monthly cycle continues until the final bill shows paid in full. The escrow officer should follow up to confirm all utilities are clear prior to funding the loan but it doesn’t hurt to ask at the time your sign your paperwork.
Judgements are another issue that can be resolved at the time of closing so long as they are paid in full. They can range from child support to back taxes. The title officer will do a check against all parties social security number to make sure each party is free of judgements. My recommendation is for the title officer to do this early in the escrow so that no surprises show up at the end. I once had a judgement show up for a buyer of $45,000 for back taxes happen 3 days prior to closing the escrow. Fortunately they had the cash to bring to the table but if they didn’t then the entire deal would have blown up.
After all is said and done there is a title insurance policy that is taken out for the buyers to ensure a free and clear title to the property should anything show up after the escrow has closed. Of course the buyers pay for this but it is money well spent especially if a lien shows up or a judgement from some government agency happens without notice. The bottom line is to work with a realtor who has good relationships with title companies…they are your allies and are there to protect your interests.
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Home Loan Modification Help
May 15th, 2009 categories: Finances, Foreclosures, Loan Modifications, Real Estate
Red Flags To Watch Out For
Yesterday the California Association of Mortgage Brokers (CAMB) held their 5th Annual Expo for the lending industry in Sacramento, CA. The topic of the day was Loan Modifications and how to help consumers obtain a successful loan modification while protecting both consumer and vendor.
One statistic that raised eyebrows was the number of pending cases against attorney’s for fraudulent loan modifications throughout the state of California…117! According to speaker, Jack Williams, past president of CAMB attorney’s getting into the loan modification business when previously they practiced another area of the law is not in the best interest of the consumer. Some were charging up-front fees and not delivering a successful loan modification while others just plain didn’t do a thing for the homeowner. Seems there are always some who take advantage.
This brings up a couple of good questions to ask potential law firms prior to paying a retainer for their services. The first being: How many and how long have they been doing loan modifications and what is there success rate? There is a difference between hiring an attorney and completing the transaction. You certainly don’t want to pay for some attorney’s learning curve.
Another question is: Do they offer to return your money if the loan modification is turned down? Most successful firms will run your numbers up front to determine if you fit the criteria. Gone are the days of no documentation or stated incomes. You will need to prove your income, account for all expenses and back up everything you claim with a paper trail. The bottom line is that the bank wants to see if you make the money to sustain the new loan and can weather the usual bumps of life without defaulting.
For those who don’t qualify for a loan modification and need to consider alternatives you can email me to discuss your situation. For related articles see:
http://folsomlakehomes.com/2009/05/06/foreclosures-fixer-scams/
http://folsomlakehomes.com/2009/04/28/short-sales-impact-on-credit-scores/
http://folsomlakehomes.com/2009/04/14/california-prevention-act/
http://folsomlakehomes.com/2009/02/16/loan-modifications-vs-short-sales/
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Foreclosures Fixer Scams
May 6th, 2009 categories: Foreclosures, Real Estate, Short Sales
FTC Cracks Down On Rescue Scams
A bit late but better than never. Peggy Twohig, the Associate Director (Division of Financial Practices) for the FTC, spoke today before the House and introduced their plan to curb the schemes of fraudulent companies taking advantage of homeowners.
Apparently over the past year there have been eleven cases brought forth against companies who have defrauded uninformed consumers. What this means to you and me is that you now have somewhere to go to find out what questions to askto verify if someone is legitimate or not. Hope Now Alliance is a good place to start to educate yourself about the process and even offers Free counseling.
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Related articles:
http://folsomlakehomes.com/2009/04/28/short-sales-impact-on-credit-scores/
http://folsomlakehomes.com/2009/04/14/california-prevention-act/
http://folsomlakehomes.com/2009/02/16/loan-modifications-vs-short-sales/
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Short Sales Impact on Credit Scores
April 28th, 2009 categories: Foreclosures, Loan Modifications, Real Estate, Short Sales, Taxes
How the credit agencies are reporting short sales
At today’s realtor tour meeting our speaker, a former owner of the Money Store, offered some information about the impact short sales are having on seller’s credit scores. According to his statistics a short sale affects credit by reducing a seller’s FICO score on average 80-100 points. In contrast a foreclosure or bankruptcy impacts the score between 250-280 negatively. It’s obvious from this information why a homeowner should pursue a short sale but I would caution that getting your home on the market at the first sign of distress is a must for a successful short sale.
Another bit of important information is the impact a short sale will have in terms of taxes. The Mortgage Debt Forgiveness Act of 2007 states that non-recourse money (original purchase money) is a non-taxable event for sellers of homes sold from Jan 2007 until Dec 2012. California has not to my knowledge extended this beyond 2009. This is not so with recourse money IE: equity lines or refinances. However, if you took out a loan to put in a pool or landscape and you find yourself in a situation where you have to short sell you might be able to avoid paying taxes on the borrowed money IF you can produce receipts. Of course talking with a CPA is always one of the first things I recommend to my clients.
Talking with a knowledgeable Realtor is your first line of defence and can offer you a dignified exit during a stressful time in your life. If you would like more information or need to speak with me please call and let me explain your options before things snowball and get out of control.
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California Prevention Act
April 14th, 2009 categories: Foreclosures, Loan Modifications, Real Estate, Short Sales
AKA: Extend the moratorium on Notice of Default filings
There’s been a lot of talk about the extension of the Notice of Default (NOD) filings by the senate bill 1137 passed this February and it’s impact on the housing crisis in California. According to the report it extends the filing of the NOD’s (Notice of defaults)by 90 days so it seems that homeowners will gain an additional 3 months before they hear from their banks.
I’ve heard both sides of this argument and frankly don’t know which side I’m inclined to favor. Some folks claim that it will keep a flood of homes from hitting the market all at once. Others say it will prolong this down market and we should just let the market adjust itself without meddling in it. Given the amount of short sale business that I’ve been doing lately I’m in favor the freeze because it allows us Realtors to get in front of the banks with our listings a bit faster. Short sales and REO’s (bank owned) are driving this marketand with the next wave of adjustments on the horizon it makes sense for the banks not to overload their already overworked loss mitigation depts.
Currently short sales are taking an average of 21-30 days for the bank to respond. Some lenders are so impacted that you cannot get them to answer a phone call. Email is not the typical mode of communication so the result is slow processing and little understanding for the plight of the homeowner, let alone buyer. So what is the solution? I counsel all parties involved to be patient…remember what Mom used to say about it being a virtue? The payoff can be very good for those who are willing to go the distance and with the delay in NOD filings you have plenty of time to get through the process without fear of the house being foreclosed on in the middle of the transaction.
If you are looking for good counsel it pays to talk with a Realtor who has been working in the short sale arena. There are attorney’s advertising for loan modifications who also provide short sale assistance but there is a big difference and that is how they get paid. Typically when you hire a Realtor to represent you in your sale or purchase the commission paid to the agent does not occur until the transaction closes. When you hire an attorney to represent you then you pay them a fee…regardless of the outcome. So be wise and understand that you will still be liable to pay the attorney even if you don’t succeed in getting a loan modification and your home needs to be sold short. It doesn’t make sense to go further into debt when your Realtor can guide you through the process. I’ve been successfully closing shorts sales and would gladly help you get through the process.
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Loan Modifications vs Short Sales
February 16th, 2009 categories: Foreclosures, Real Estate, REO, Short Sales
Does hiring an attorney really help?
The past couple of years have re-introduced to the real estate community the short sale that has helped many people sell their homes and keep some semblance of credit worthiness, and now attorneys have found a niche with loan modifications.
We last saw the short sale in the mid 1990′s when the market had a similar fall due to the overbuilding and investor inflation created by a rising real estate market. In essence, the seller was able to sell his house without having to satisfy the debt he owed to the lender and the new buyer was able to purchase a home with a clear title even though the previous owner owed more than the new buyer paid.
Now attorneys are introducing their services to help homeowners obtain a loan modification. Real estate loans can be obtained from a variety of sources i.e. banks, mortgage brokers, mortgage bankers, credit unions, investment firms, private funding, etc… so is it necessary to hire an attorney to get a toxic loan re-negotiated? That depends on a couple of factors but most importantly it depends on the reason you are seeking relief from your loan obligation.
How much you owe vs. what you can afford to pay for a mortgage is the primary reason most people find themselves in this situation in the first place. There are exceptions for loan fraud and in those cases an attorney would be a good choice however, the majority of people now seeking relief accepted a loan at a teaser rate knowing it would adjust. They were hoping the market would continue to increase and that they could re-finance at a fixed rate after their minimum period expired. Your ability to qualify for a loan modification is the same criteria lenders use to qualify any buyer for a loan.
In a loan modification the goal is to re-negotiate the loan to something that the homeowner can afford. The best case scenario is to get in touch with your lender and begin the discussion of loan modification prior to missing any payments. The labyrinth of departments make this an intimating situation and can seem overwhelming. Attorneys capitalize on these fears and extract more money from the homeowner which exacerbates their financial situation.
I recently had a conversation with one loss mitigator from a bank I was working out a short sale for one of my sellers. He said his bank requires that the attorney, the loss mitigator and the homeowner have a three-way phone conversation explaining to the homeowner that the hiring of an attorney was not necessary to negotiate a loan modification. He then asks the homeowner why he hired an attorney when he could save himself the money and the usual answer was fear. This was the reason most people were willing to go further into debt with no guarantee that they would get their loan modified. Again, the primary factor in obtaining a loan modification is your ability to qualify for the loan in the first place.
Some law firms specializing in loan modifications have “working relationships” with investors who will purchase your home should you not qualify for a loan modification. Essentially, they are structuring a short sale with the law firm doing the paperwork on behalf of the seller. This is where I have a problem because the seller is being charged for services a Realtor would provide FREE. Since the seller did not qualify for the loan modification they are now forced to sell their home or face foreclosure but they now have attorney fees to pay. Talk about fear!
My suggestion to people who are upside down on their mortgages is to first talk with a Realtor who is familiar with loans and short sales. Find out if you qualify for a new loan and what your home value is in this market. If you suspect loan fraud then get a referral from your Realtor for an attorney who specializes in real estate. Paying for the learning curve of those attorneys who are exploiting people’s fears is not going to help your situation.
For more information see these articles: Now Is The Time To Renegotiate With Banks
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What Is Your Home’s Value?
January 25th, 2009 categories: Folsom CA, Foreclosures, REO
Sacramento Valley Real Estate Market Trends
There’s this great website that a client of mine sent me that shows the market trends over the past 5 years in the Sacramento Valley. It’s put out by the Sacramento Bee and you can select any area and see how much the values have changed.
This past week at the Realtors board meeting there was a presentation complete with charts reflecting the decline of our market in relation to the loans people took out on their homes. The best part was that the numbers show that we’ve been through the first wave of loan re-sets and are starting the second which some say could be the last for this buyers market.
According to the recent stats the Sacramento area has dropped to values last seen in 2001. The Folsom area has been hovering around the 2003 price point which upholds the old adage of keeping location paramount. The percentage of bank owned homes in Folsom is about 63% compared to some areas which are close to 100%.
I recently had a conversation with an agent in the bay area where there have not been any fair market sales for the past 6months. According to DataQuick prices are down 50% there and we usually follow the bay area. The upshot is that the investors are starting to come back. It’s not unusual to hear of agents writing a dozen to 20 offers hoping to get 6 houses for their clients.
Right now we have low interest rates, plenty of property to choose from and little competition…sounds like a good time to go shopping. The real key is trying to guage when & where the bottom of the market will be. There are indications that this year will be the last decline and things will begin to level off but you need to remember that there won’t be anyone who will ring a bell to alert us.
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