Foreclosure / Short Sales
REO / Short Sale / Foreclosure / HUD Homes
How and Why You Should BUY or NOT Buy a Short Sale?
What is a Short Sale and What's Involved?
How To Buy HUD Homes?
Click Here To See Foreclosure Properties Foreclosure Properties Nationwide
Betting on Financial Armageddon Next foreclosure wave sparked by walkaway homeowners?
Alternatives to Filing Bankruptcy Some foreclosures not worth buying
How To Buy a Hud Home Bring on the short sales, foreclosures Deed In Lieu Of Foreclosure Despite deed in lieu of foreclosure, worst not over
Denied Short Sale, Struggling Homeowners Look For Way Out The Short Sale A Viable Alternative to Foreclosure How The Foreclosure Crisis Could Be Fixed Why Needless Foreclosures Happen Anyway Selling a Home 'As Is' Isn't So Simple Why Lenders Are Leery of Short Sales
Next foreclosure wave sparked by walkaway homeowners?
Next foreclosure wave sparked by walkaway homeowners?
Some believe housing recovery is still years away
By Tom Kelly, Wednesday, July 23, 2008.
Inman News
Where's the bottom? Are Phoenix, Denver, Sacramento, South Florida and Las Vegas still in a tailspin? Is it time to make a run at a second home you felt you could never afford?
Perhaps we have been too driven and proud of the fact that 70 percent of all families in this country own their homes. In order to get there, lenders, real estate agents and consumers dipped into a "too easy" bucket where the value of ownership sunk to the same level of the cost of getting in the door -- zero.
Sadly, greed became confused with privilege. We are now feeling the results of too much credit being offered to poor or borderline borrowers, overeager investors betting on dreams of continued double-digit appreciation, and impassioned move-ups wanting more housing than they could realistically afford.
The housing specialist first to label and predict a "foreclosure tsunami" for several areas of the country now predicts another round of foreclosures by homeowners who can afford to make their payments yet choose to walk away from their homes. When and if they do in any significant volume, it could lead to a housing meltdown.
"Virtually everyone missed the fact that housing appreciation is far more powerful to keep people paying than the legal consequences of default," said Tom DiMercurio, a veteran of 38 years in the foreclosure business and former president of Fidelity National Asset Management Solutions. "For many folks in different states and different stages in their life, defaulting on their home loan makes economic sense."
DiMercurio was the brains behind BuyBankHomes, a site that provides foreclosure information to interested parties such as consumers, investors and real estate agents. He also started Denver-based The Mercury Alliance, which offers conventional REO sales, management services, plus Internet auctions, and Paradigm Default Services, an operational platform for lenders and real estate brokers.
A decade of cheap money and incredibly flexible loan programs offered by many lenders sparked overbuilding by lenders, a flip-and-run mindset for speculators, and unrealistic expectations for first-time home buyers blinded by the low payments of a short-term loan. While the equity gained by rising home prices can cover many ill-conceived loan mistakes, a flat or sinking market only compounds problems for lenders and owners.
Credit is now tighter and borrowers are being screened and actually scrutinized for the first time in years. Yet, given the developments of the past 15 months, the key to getting a critical flow back into the housing picture may mean revamping the entire once-conservative loan-qualifying process.
"I also believe, that given the size of the growing number of people that have been and are continuing to be foreclosed, there will be no growth in the number of home buyers/borrowers -- unless a foreclosure will be looked upon as a 'late,'" DiMercurio said. "In order to have any kind of loan growth in the future residential market, something less than even subprime credit must be made satisfactory to lenders.
And it won't be easily substituted with down payment since values are also in the tank."
Values are not in the tank everywhere, but homes certainly are not rising quickly in value and they are taking longer to sell. Multiple listing service figures that show a drop in new listings must be filtered with the number of would-be sellers not wanting to compete in a slow or flat market.
Some sellers, especially those in some select second-home markets, continue to believe that they are in the driver's seat. A recent offer on a $739,000 home with three bedrooms and two baths in 1,440 square feet near Lake Tahoe did not even draw a counter from the seller when a potential buyer offered $669,000.
The buyer did his homework and made what he felt to be a generous offer. In seven sales in the immediate area from May 2007 through March 2008, the highest paid was $453 per square foot and the lowest price was approximately $370 per square foot. The buyer truly wanted the home and offered more than the highest price per square foot.
All real estate is regional. Blips and dips in one neighborhood can resemble a flat line just a few blocks away. But a return to a national "feel good" housing atmosphere likely is years away, not months. The components are varied and complex and certainly will not be sorted out this year. How is that even possible anyway when some people believe defaulting on your home loan makes economic sense?
To get even more valuable advice from Tom, visit his Second Home Center.
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Alternatives to Filing Bankruptcy
Alternatives to Filing Bankruptcy
There is just no easy way to get out of debt, you have to face up to the consequences. A bankruptcy is not always the answer, as the effects are long lasting. There are four ways to handle debts that are out of control, listed in best to worst in regards to the effect it will have on your credit:
If your credit isn't in terrible shape, can you reduce your other expenses, even if it means making hard choices or just change your lifestyle to fit your income? Some ways to do this:
• Selling the second car
• Pulling equity out of your home
• Applying for a non secured signature loan
• Obtaining a loan from a relative
• Selling your home and paying off your debts with the proceeds and then renting
• Cashing out your 401K/retirement benefits
• Selling family heirlooms, jewelry, etc…
If your credit is already gone or one of the above isn't an option, go through Consumer Credit Counseling Services (CCCS). Check your yellow pages for the local number. In this way you're paying off your debts as if you were in a Chapter 13 bankruptcy, but you don't file a bankruptcy.
If CCCS won't take you, you may want to consider bankruptcy. Filing a Chapter 13 takes longer, but your credit is in a little better standing than if you file a Chapter 7. In Chapter 13 you are given up to 5 years to pay off your debts. The disadvantage is that you're in bankruptcy for up to 5 years plus your credit report shows your bankruptcy for 7 more years after you have finished paying off your debts.
If you are so far in debt that you can never repay it, then the best solution may be a Chapter 7 bankruptcy. Chapter 7 is the least desirable credit wise, but you are typically out of bankruptcy in 6 months and you don't have to repay any debt. The disadvantage is that this shows on your credit report for 10 years from the date of filing your bankruptcy, and creditors are starting to tighten their credit requirements, and you may have a tough time getting future financing.
There is no magic solution. Don't believe anyone who tells you otherwise.
Disclaimer:
This information deals with Chapter 7 consumer bankruptcy. Each state has its own bankruptcy laws, so you need to check with your state for details. Information dealing with Chapter 13 bankruptcy and consumer debt restructuring is not discussed in the above FAQs. The information contained in the following FAQs is provided for general information purposes only and is not intended to be a legal opinion nor legal advice nor is it intended to be a complete discussion of all the issues related to the area of Chapter 7 consumer bankruptcy. Every individual's factual situation is different and you should seek independent legal advice regarding specific information.
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Some foreclosures not worth buying
Some foreclosures not worth buying
Backyard burial ground sure to affect resale value
By Ilyce Glink, Wednesday, June 11, 2008.
Inman News
While I was hosting a local radio show in Atlanta recently, a call came in about a buying a house that was in foreclosure.
The house, which had previously sold for $425,000 (and is valued around $700,000 by the county tax assessor), had been foreclosed upon by the bank. The radio show caller was shopping for a foreclosure and was wondering if he should make an offer for the property.
The house was big and undervalued, the caller said. He really liked the house and grounds, which were on several acres. However, as he walked out the backyard and into the forest that surrounded the home, he stumbled on a grave.
The grave was for "Mother Mary," he said, and was dated 1901. After exploring further, he came across other grave markers. It turned out that the land on which his house was built originally belonged to a nearby church. This was a small graveyard for parishioners.
(Later, I received an e-mail from someone who had lived in that very same house for a year and saw the blog entry (www.thinkglink.com/blog) I posted about the call. He said there were 33 bodies buried there and that they couldn't be moved -- and the state required that there needed to be free and open access to the gravestones.)
The caller wanted to know if I thought he should buy the house. Or, would the idea of having a cemetery in your backyard scare away prospective buyers?
I asked him how he felt walking out the back door of the house and into a cemetery. He said that it was a little eerie when he first walked among the graves, but that after awhile he got used to it. His seven children think it's neat and it might work well for Halloween.
"Or, Day of the Dead," I added.
But thinking about the problems associated with this house for sale made me think about other kinds of serious issues sellers deal with every day. Problems like having a nearby dump, dry cleaners or gas station are tough. I once heard from a seller who lived next door to railroad tracks. When the train rumbled by, as it did from time to time during the night, the whole building rattled. House for sale or depot for sale?
Most houses have some problems. But when you have a house for sale with a big issue like a cemetery in your backyard, it can hinder your ability to sell your property -- particularly in a tough housing market.
Of course, the time to think about how tough it will be to sell a house is before you buy it. Here are some ways to frame the issue:
Can the defect be fixed, reversed, reinvented or resolved? When you list your house for sale, your job is to overcome any potential objection a buyer might have. Whether you have an oil tank buried in your yard, your deck needs to be replaced, or your grass has bald spots, buyers will use these problems to take a pass on making an offer. But if the problem can be fixed, reversed, reinvented as a positive or resolved, you may be able to buy the property on the cheap and profit later.
Can you live with the defect? You may not like the fact that there is a four-lane highway in front of your house or a cemetery in your backyard, but if you can live with it, you may be able to make your house dollars go a lot further. Your property may not appreciate as much over the year, but you may be able to afford an otherwise out-of-reach neighborhood in the school district of your choice.
Can you buy the property at a price that will compensate for the defect? If you can purchase the property at a price that accounts for the defect, you may be able to live in a much nicer community at a price that remains affordable. But you may have to live with a lower sales price when you decide to sell the same property later on.
Are there other redeeming qualities about the property? Is the house in a great neighborhood, with a good school system? Does it come with a big parcel of land? Is the house beautiful and filled with amenities? All of these qualities will come into play when it comes time for you to list the house for sale. If you can sell the property on its merits and aren't picky about the price, you should be able to sell it down the line.
Just remember, a house with a defect may not appreciate as rapidly as a home that doesn't have a serious issue. The old saying still applies to all of these properties: location, location, location. The home with the better location, on a better lot and a better block, will generally appreciate faster and will be easier to sell than a home with location issues.
But if you can fix the problem and redeem the property, you may reap a significant profit when the time comes for you to list the house for sale.
To get even more valuable advice from Ilyce, visit her Personal Finance and Real Estate Center.
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by Janet Wickell
for About.com
How To Buy a HUD Home
HUD Foreclosures For Sale
Department of Housing and Urban Development (HUD) residential foreclosures are available throughout the United States. The sales process for purchasing a HUD home isn't quite the same as you'll encounter when buying a home from an individual, so take a few notes before you go home shopping.
What is a HUD home?
The Federal Housing Administration (FHA) is a part of HUD--the part that provides federal mortgage insurance. If a foreclosed home was purchased with a loan insured by the FHA, the lender can file a claim for the balance due on the mortgage. FHA pays the lender's claim, then transfers ownership of the property to HUD, which sells the home.
How much do HUD homes cost?
HUD homes are appraised, then priced at fair market value for their location. The price of a home in need of repairs is adjusted downwards to reflect the investment the new owner must make to improve the home.
Will HUD make the repairs?
HUD homes are sold as-is. The new owner is responsible for all repairs and improvements.
How do I find a HUD home?
You can view HUD listings by following state links on HUD's Web site. Each state's Internet destination is set up a little differently, so take some time to browse the search engines and layout.
When you've located a home you would like to see, any HUD-approved real estate office can show you the property. They are listed on the WEb site. HUD employees do not work with home buyers--you must use an agent.
Do I simply make an offer to purchase a home?
HUD foreclosures are sold using a bidding process. There's an Offer Period, during which sealed bids are accepted from your agent. At the end of that period, all offers are opened. HUD will generally accept the highest bid, or the bid that brings them the highest net.
If the home remains unsold after the initial period, bids are opened as received.
If your bid is accepted, your agent will be notified within a day or two. You will be given a settlement date, usually 30-60 days from the date of your accepted contract.
HUD will pay real estate agencies a commission of up to 6% for the sale of the home. Be aware that to get paid, the selling agent must insert wording in the contract that verifies HUD will pay his or her commission.
Will HUD finance the home?
HUD does not finance homes. You'll need to arrange for conventional or other financing. Be sure your financing is in order before you make an offer. If your bid is accepted, and you do not close on the house, you maylose the earnest money deposit you submitted with the offer.
Should I have a professional home inspection?
Home inspections are recommended for any home purchase. You should inspect a HUD foreclosure before you make the offer to purchase. It will help you determine a bidding price, especially if repairs are required.
Homes build prior to 1978 may contain lead paint, so learn more lead paint hazards before making an offer. Other items to consider are asbestos content, buried storage tanks, and other environmental hazards.
Can I buy a HUD foreclosure for investment purposes?
During the initial offering, HUD homes are usually available only to those who wish to live in the home. If an owner-occupant does not bid on the home, investors are allowed to enter the bidding process.
Does HUD offer other programs?
If foreclosures are not sold within six months, HUD will sell them for $1 each to approved nonprofit organizations and government agencies. Homes must then be used create housing for families in need or to benefit neighborhoods.
HUD offers special home purchase programs for teachers and full time law enforcement officers.
For Additional Help In Finding A HUD Property
Bring on the short sales, foreclosures
Bring on the short sales, foreclosures
Commentary: Tough love is what housing market needs
By Lou Barnes, Friday, May 9, 2008.
Inman News
Mortgage rates are sliding below 6 percent on a stock market fade, that in turn caused by credit crunch reality: Fear of big-firm dominoes is past, but credit will be scarce and expensive for another year or more. No dominoes, but many, many shoes yet to drop.
Now $125 oil and resulting inflation has everybody rattled, blowing ultimate-top forecasts to $150-$200 (which means nobody knows). Central bankers worldwide are linked by euphemism: "We are prepared to deal with inflation as necessary." However, they can't deal with it by issuing rules, enforcing regulation, passing legislation, or spraying Raid! or Agent Orange.
There are only two ways out. The first, underway: Exert monetary restraint and hope to blazes that a gentle global slowdown leads to a collapse of overshot commodity prices. Despite rate cuts and lending-of-last-resort, even our Fed is on the tight side. If that doesn't work, turn to the Grim Reaper of economics: Central banks must "destroy demand." Not since Paul Volcker stood on the brakes from '79-'82.
A third way: Politicians can undercut the central bankers. A good start: Suggest that gasoline prices are too high. Our leaders may not be willing to tell the people the truth, but markets will. American energy imports fell by about 2 percent last year, but consumption in the China/India/Russia/Middle East bloc (same-size market) rose by 4 percent. U.S. coal was $45/ton last year and is now $99; natural gas is up 45 percent, and it's spring, not winter.
Congress, federal agencies, including the Fed, and local governments agree on the need for a big, new effort to prevent foreclosures, with White House opposition more on fine points of style than purpose. I fear that these measures -- any measures -- will fail and distract from effective means to soften the housing landing.
The elephant in the room, who cannot be mentioned in polite company: We gave mortgages to a few million households with deficient long-term financial behaviors, hopelessly incompatible with home ownership.
That's a hell of a thing to say about fellow citizens, but it is the case. "Subprime" by definition meant below the minimum standards of the FHA. Roughly $1.5 trillion will default: half of subprime and a like amount of the worst of alt-A.
A year of all-out foreclosure prevention by traditional means has failed: recasting, forbearing, capitalizing interest, refinancing, canceling adjustment ... all. The new measures include writing down loans to the level of fallen market value and refinancing the remainder. Fairness aside (deeply unfair to families who tough out this cycle), two realities will defy the new efforts. First, write-down/recast will leave these households still with no equity, no upside to defend, and new monthly payments still higher than rent on equivalent housing. That ownership-rent gap has gaped throughout the cycle. The good news for a foreclosed family: Replacement housing is cheap and plentiful.
Those in authority demanding foreclosure rescue, Barney Frank and most of Congress, joined by compassionate Americans, cannot conceive the financials of a 575 FICO subprime applicant: a dozen or more late payments, several defaulted loans, and a large mass of consumer debt outstanding; poor job stability (temporary, seasonal, intermittent, commissioned sales); also no money, no savings, retirement or otherwise, often tens of thousands in consumer debt, huge negative net worth ... before purchase.
"But, you bailed out Wall Street -- why can't you do the same for these people facing foreclosure?"
Bear Stearns was not "bailed out." It was liquidated in an orderly manner.
Wise, tough-love policies would encourage rapid recycling of foreclosures, enabling quick acceptance of short-sale offers by servicers terrified of value second-guessing, and above all, making financing available for strong households to buy the foreclosures. The marketplace can absorb the volume, but it needs help. Orderly liquidation.
(Before you come after me with tar and feathers, know that my mother lost her Ada, Okla., home as a teenager in the 1930s. I know what foreclosure means.)
Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colo. He can be reached at lbarnes@boulderwest.com.
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Back To The Top....
What is a Deed In Lieu Of Foreclosure
Deed In Lieu Of Foreclosure
A potential option taken by a mortgagor (a borrower) to avoid foreclosure under which the mortgagor deeds the collateral property (the home) back to the mortgagee (the lender) in exchange for the release of all obligations under the mortgage. Both sides must enter into the agreement voluntarily and in good faith.
A deed in lieu of foreclosure has advantages for both a borrower and a lender; mainly the avoidance of time consuming and costly foreclosure proceedings. In addition, the borrower avoids some public notoriety, and may even be able to lease the property back from the lender.
The lender needs to assess certain risks which include, among other things, the risk that the property is not worth more than the remaining balance on the mortgage and that junior creditors might hold liens on the property.
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Despite deed in lieu of foreclosure, worst not over
Despite deed in lieu of foreclosure, worst not over
For homeowners with PMI, expect to cover insurer's loss
By Ilyce Glink, Friday, May 23, 2008.
Co-written by Samuel J. Tamkin
Inman News
Q: I had a loan that was greater than 80 percent of the value of my home. My loan required me to purchase private mortgage insurance (PMI).
But I recently had to do a deed in lieu of foreclosure because I could no longer afford the increases in the adjustable-rate mortgage. Now the PMI company has come after me for the $43,000 it paid the lender due to the deed in lieu.
Is the PMI company allowed to subrogate and go after me for its loss? Isn't the reason you buy premiums for this coverage and insurance is a calculated risk on their part, so that I wouldn't have to pay?
A: Your question is quite right on target, given the current turmoil in the housing market.
If you obtained a loan and that loan was greater than 80 percent of the value of the home, your lender would have required you to obtain and pay for private mortgage insurance or PMI.
If you obtained two loans when you bought your property, where one loan was for 80 percent of the value of the home and the other was for an additional amount, perhaps another 10 or 15 percent of the purchase price of the home, you would not have had to pay for PMI.
During the last several years, the method of choice to buy homes and avoid PMI was to obtain a first mortgage loan for 80 percent of the home's value and any additional money needed was obtained through a home equity line of credit or second mortgage. These loans were often called "piggyback" mortgages.
Historically, one lender never would loan more than 80 percent loan to value to any borrower. It was too risky. They wanted to make sure they had a cushion of at least 20 percent equity just in case something went wrong financially with the borrower. If the home went down in value, the borrower would suffer the loss first. Property prices would have to fall more than 20 percent before the lender would be affected.
But as housing became more expensive, and saving up a 20 percent down payment became more difficult, borrowers wanted a way to buy a house with less of a down payment. Lenders came up with the concept of having a mortgage insurance company insure the lender for any losses they might sustain for any loans that were greater than the 80 percent loan to value.
But the mortgage insurance company needed to get paid for that risk. That payment came in the form of PMI. The more you borrow above the 80 percent mark, the greater the amount you pay in PMI.
What most borrowers don't realize is this: PMI is for the lender's benefit only. Your benefit (and the reason you paid the premium) was that without buying a PMI policy, you would not have been able to get a loan to buy the property.
Since PMI is for the lender's benefit, if you default on your loan and the property is sold off for less than the loan amount but greater than the original loan-to-value ratio -- even if it's a deed in lieu -- your lender gets paid money from the PMI company. The PMI company is on the hook to your lender for the difference between the 80 percent mark and the amount you borrowed.
When you presented the lender with the deed in lieu, you effectively said to the lender, "Here are the keys to my property; take the keys and let me out of my loan." When the lender accepted the keys, it became the owner of the property.
The key question is whether the lender agreed to forgive the balance of the loan. If the lender agreed to forgive the balance of the loan, the PMI company should not have the right to come after you.
You used the term "subrogation." That term is generally used in the context of insurance claims. If you have a claim against somebody and your insurance company makes you whole, your insurance company would have your rights under that claim to recover the payment they made to you.
In your case, the lender lost out and the PMI company paid the lender money. The PMI company is now coming to you and is trying to recoup its loss.
That might work unless the lender agreed to the deed in lieu and forgave the balance of the debt you owe. If you don't owe the lender any money, you shouldn't owe the PMI company any money either.
However, if you simply gave the keys to the lender and the lender didn't have to go through the foreclosure process to get the title to the home, the lender would still have the right to go after you for any amount still owing on the loan. In this instance, the PMI company paid the lender and has the claim that the lender would have had against you.
The bottom line, and it is a point widely misunderstood by home buyers, is that the PMI company can go after you for any amount you still owe the lender and it can settle that claim any way it wants. If the PMI company agrees to have you pay it over time, you can agree to a payment schedule. If it agrees to take a lump sum now for substantially less than the $43,000 that you owe, you could agree to that. The PMI company may under certain hardship cases decide to forego some or all of the amount that you may owe.
The key to the PMI company's claim is its belief that you have the ability and means to pay up. If you do, it will press to get paid. If you don't have the means to pay and go into bankruptcy, it will stand in line with your other creditors and get paid what it can through the bankruptcy proceeding.
To get even more valuable advice from Ilyce, visit her Personal Finance and Real Estate Center.
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Denied Short Sale, Struggling Homeowners Look For Way Out
Denied short sale, struggling homeowners look for way out
Will filing for bankruptcy get lenders off their back?
By Ilyce Glink, Friday, May 16, 2008.
Co-written by Samuel J. Tamkin
Inman News
Q: We have lived in New Jersey for five years, and have been waiting for an opportunity to go back to Florida. My husband recently got offered a job in Florida that will pay $30,000 less than what he makes now. He will start his new job in mid May and I will follow in when our kids get out of school. We signed a rental for a home in Florida but we can't purchase a home at this time.
The house we currently live in (in New Jersey) is about 2 years old. Houses like ours in our development are now selling for $60,000 less than what we paid. We could do a short sale with our lender, but our credit score is close to 800 and we hope not to ruin that.
Another option we explored was filing for bankruptcy. We met with a bankruptcy attorney and now I feel like that may be our only option. We have two loans on our home and our first lender would accept the short sale but the second would not.
We thought about renting out our home but our mortgage is $3,000 a month and we can expect to receive a monthly rental payment of only about $1,800. We can't afford three payments per month (our two loans on our house and the rent for the home in Florida).
We have been advised to stop paying the mortgage payment. We do not want to do that but we really want to move to Florida. On the other hand, we want to make the best financial decisions and rebuild our credit as soon as we can.
A: You have an interesting situation. Unlike many people with mortgage troubles due to job losses, health problems or other financial difficulties, your situation appears to be self-created.
You know your home value has gone down, and you know you will make less money if you move to Florida now, and you know you can't afford to keep your current home and rent a home in Florida. And yet, you've gone ahead, accepted the job in Florida, and signed a lease for a home there.
What are you thinking? Your life in New Jersey must be pretty horrific if you're willing to file for bankruptcy just to get back to Florida.
You have excellent credit -- now. Unfortunately, going through a short sale or filing for bankruptcy will severely hurt your credit, and you can expect your credit score to drop several hundred points.
A short sale is where you sell your home for less than the amount you owe on it to your lenders. Both of your mortgage lenders would have to agree to take less than the full amount that is owed in exchange for allowing the sale to go forward.
When a home has two lenders, the second lender is in a position to lose all of the value of its loan. In some cases, the second lender may not even respond to the request for a short sale with the hope that it may get something later rather than agree to get nothing now.
If either lender fails to agree to the terms of the short sale, your sale with a prospective buyer will fall through. Make sure you are in good contact with each lender if you decide to go down this route. If you have a good line of communication open with each lender and each lender works with you in the short sale, you have a better chance of selling the property to a buyer that comes along.
You mentioned filing for bankruptcy as another option. Bankruptcy will certainly hurt your credit history -- if you even qualify. Your excellent credit will be shot for years to come and you would have to take steps over the next several years to restore your credit.
With a lower score, you may find that you will have to pay more for car and renters insurance and it may be much more difficult to obtain credit-card offers with low interest rates.
Just because you file for bankruptcy may not mean that you're out of the woods with your lenders. If you have other assets, you may find that your current lenders want a piece of those assets. If you have savings that are not in retirement accounts, you may lose those savings. If you sat down with a bankruptcy attorney, you should have gone through what you own, what you have in savings and what you owe to come up with a picture of where you would end up after the bankruptcy.
You do have another option: Sell your home and fund the shortage from savings. For example, if you sell the home for $60,000 less than you owe to the bank, but you can scrape together $60,000 from your savings, retirement accounts (you may have to pay taxes and a penalty on that cash), family or friends, you can close on the property and move on.
For many people, coming up with that kind of money to sell a home is prohibitive, but for others it gives them the option to move on without affecting their credit.
It may be too late, given the other commitments you've made, sooner rather than later -- but if you could hold off moving back to Florida for another few years, you might find that the real estate market is much better. You might find that you're able to sell your home for what you owe, and then move south without taking a hit on your credit score.
If you feel as though you can't live without whatever is waiting for you in Florida, then move and suffer the financial consequences. But from what you've described, it sounds like you're sticking a dagger through your wallet.
To get even more valuable advice from Ilyce, visit her Personal Finance and Real Estate Center.
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The Short Sale A Viable Alternative to Foreclosure
The Short Sale
A Viable Alternative to Foreclosure
Economic experts have said that the real estate market is not a major factor in the Federal Reserve's true goal of keeping inflation in check – and its recent activity seems to bear this out. By strategically infusing billions of dollars into the banking system and unexpectedly cutting its discount window rate for 30 days, the Fed has clearly attempted to "bail out" the financial and credit markets. The real estate market, however, continues to suffer nearly double the number of foreclosures as it did this time a year ago – one in every 693 US households. In some states, the statistics are even worse, with foreclosures claiming one in every 199 households!
Because of this, YOU Magazine will ignore the media hype surrounding the Fed's financial policies and focus our attention this month on an interesting process known as a short sale. As a realistic "last" alternative to foreclosure, and a great opportunity for potential homebuyers and real estate investors, the short sale will continue to become more and more prevalent as millions of ARMs reset (see YOU Magazine's August issue) over the next 2 to 18 months and trigger newer and bigger waves of foreclosures.
If you or someone you know has an ARM that is scheduled to adjust in 2007 or 2008, please schedule an appointment with a mortgage specialist right away. Don't let a foreclosure or default situation sneak up on you. Remember, even if the Federal Reserve does lower its Fed Funds Rate later this month (which does seem likely), the majority of these ARMs borrowers will not be positively affected or "saved" by this move. For many borrowers, a short sale or a foreclosure will be the only available option.
What is a Short Sale?
A short sale, defined as an "agreement" to allow a home to be sold for less than the amount that is owed, can be a helpful compromise for everyone involved. For debt-ridden homeowners or those who owe more than the house is currently worth, a short sale could save them some of the enormous pain, embarrassment, and major credit challenges associated with bankruptcy and/or foreclosure. For lenders, it helps avoid some of the hassle and expense of seizing and auctioning off delinquent real estate. Lastly, for potential homebuyers and real estate investors, a short sale offers a great opportunity to purchase property at a significant discount in today's tight-fisted credit environment.
And, while short sales are not by any means common or easy, inventory levels of unsold homes are now exceeding a 36-month supply in some parts of the country. Add to that the increasing number of foreclosures, and lenders are much more eager to negotiate with borrowers who are having trouble paying their mortgages.
Short Sale Requirements
It's important to note that short sales occur at the sole discretion of the existing lender or servicing company. This is not like negotiating the price of a home under normal circumstances. Would-be buyers need to accept and understand this concept completely prior to entering into any purchase agreement on a short sale transaction. While a buyer and seller may come to some sort of agreement on their own, the lender in a short sale will ultimately have final approval of this legally-binding arrangement.
Remember, lenders are not looking to bail out borrowers who simply overextended themselves during the recent real estate boom. In most cases, a lender will only consider a short sale if a borrower has clearly suffered a serious financial hardship that directly caused him or her to default on the mortgage. This means the loss of a job, a serious illness, or the death of a loved one – something devastating and "unforeseen" that can justify such a state of financial disrepair. If you're a "flipper" with 2 or 3 homes that you weren't able to unload before the market turned, or if you have other assets or income that could easily cover your mortgage debt, it's not likely that a lender will accept a short sale proposal.
A written declaration and supporting documentation demonstrating financial hardship and an inability to make payments will definitely be required by the lender in order to even consider a short sale. This may include pay stubs, tax returns, and liquid asset statements – including those for retirement accounts – among other documentation. In addition, the borrower must be at least 91-days delinquent before a lender will even discuss a short sale.
In some cases, the lender's hands may be tied, depending on how the borrower's loan was sold into the open market through mortgage-backed securities. If the mortgage in question was not sold by the lender, but rather retained in its own portfolio, the lender may have more flexibility. However, don't expect a lot of help from the lender without first providing a sales contract from a qualified buyer and all the information required by the lender's loss mitigation department. This is where an experienced real estate professional becomes invaluable to your cause. A good real estate agent has not only successfully negotiated short sales in the past, he or she will also have access to qualified investors who are well-versed in the substantial risk and reward involved in this extremely complex and often drawn out process.
Important Additional Considerations:
The lender will likely issue a 1099 to the seller for the difference between what is owed and the final amount the lender collects after the costs of the sale, including real estate commissions and possibly other charges. This means that the "deficiency" (the difference between the short sale price and the original loan amount) can be considered as taxable income to the borrower. Some lenders may even attempt to get the existing homeowner to sign a note for the remaining amount due.
If there are currently multiple liens against the property, all lien holders will have to be involved in the negotiation process, not just the first lien holder. Therefore, communication and patience are essential components of any short sale.
There is no guarantee of success.
With several parties involved, it's difficult to please all sides all of the time. Short sales require expert advisors who know precisely what is to happen at every stage.
A number of scams resembling short sales currently exist and, because of the obvious intensity of emotion involved with this process, borrowers can quickly become vulnerable to new scams.
In other words, be proactive. If you have an ARM that is scheduled to reset in the near future, or if you're facing foreclosure because of unexpected life events, don't wait until a short sale is your last viable option – and don't count on the Fed to "bail out" the real estate market any time soon.
How The Foreclosure Crisis Could Be Fixed
How The Foreclosure Crisis Could Be Fixed
By Inman News, Monday, February 4, 2008
Two million homeowners are at risk of losing their homes to foreclosure this year. John H. Vogel, a professor of real estate at the Tuck School of Business at Dartmouth, explains who these people are and why we need to help. Vogel also gives a glimpse at possible solutions to the foreclosure crisis.
http://www.inman.com/tv/2008/02/4/how-foreclosure-crisis-could-be-fixed
Click on the above link. Watch and Listen John H. Vogel explain his concept.
Why Needless Foreclosures Happen Anyway
Why Needless Foreclosures Happen Anyway
Burrower Denial, Restrictions on Servicers Take Toll
By Jack Guttentag, Monday, April 21, 2008.
John X had his home foreclosed this year. It cost the investor who held the mortgage about $40,000 to foreclose. It would have cost only $25,000 to make the mortgage affordable to the borrower through a reduction in the interest rate. Modifying the loan contract in this way would have kept X in his home and saved the investor money. This is not an isolated case; preventable foreclosures are happening all around us.
Note that I am using a cold-blooded business, not a bleeding-heart definition of "needless foreclosure." Under my definition, if it costs an investor more to foreclose a mortgage than to make it viable, it is a needless foreclosure. I am not counting the additional human toll exacted by foreclosures, which can be very high.
Mortgage contracts are modified, at some cost to the investor, in order to prevent the larger cost of a foreclosure later on. Loan modifications include adding the unpaid interest to the loan balance, called "interest capitalization," and calculating a new payment. To make the payment more affordable, the term may be lengthened or the interest rate reduced. In cases where the property is worth less than the loan balance, the balance may be reduced.
The problem is that there are major impediments to loan modifications, including:
- Borrower denial. Developing a new loan contract that a distressed borrower can live with requires the full participation of the borrower. But many borrowers in trouble practice denial -- they don't contact their servicer, and may not even respond if the servicer contacts them.
- Moral hazard. Investors are very concerned that if modifications are offered too easily or too early, some borrowers will pretend to need one who really don't. This is a major reason investors restrict the discretion of servicers to modify contracts.
- Restrictions on servicers. Today, third-party servicing where the firm servicing the loan does not own it, is more often the rule than the exception. In the case of loans that have been securitized, it is always the case.
Investors restrict the discretion of servicers to modify loan contracts because their interests are different. Investors want modification only if the alternative is a more costly liquidation or foreclosure. They want to avoid early modifications that would later prove unnecessary, and they want to avoid encouraging borrowers to default who might not otherwise. Servicers, in contrast, want to protect their servicing fees, which they receive only from loans in good standing. Their general preference, therefore, is for early intervention.
A common contractual restriction on servicers is that modifications are permitted only for loans in default or for which default is imminent or reasonably foreseeable. Another is that any modification must be in the best interest of the investor. These create potential legal liability for the servicer. To be safe, some servicers limit modifications to loans already in default, which means 90 days delinquent or more.
Other impediments to loan modifications include:
- Scarcity of critically needed staff. Most interactions between mortgage borrowers and servicers are handled by computers and relatively unskilled employees. Borrowers in serious trouble are referred to a smaller number of more skilled and specialized employees. With the onset of the mortgage crisis, servicers were caught short of this critical but costly resource. While they now claim to have expanded their staffs to handle the workflow, a financial disincentive to adequate staffing remains.
- Mortgage insurance. On mortgages carrying mortgage insurance that go to foreclosure, investors are protected up to the maximum coverage of the policy, which is usually enough to cover all or most of the loss. This discourages modifications. Why do a modification for $15,000 if the $40,000 foreclosure cost is going to be paid by the mortgage insurer? Even if the insurance coverage falls short of the foreclose cost, the shortfall has to exceed the modification cost before modification becomes financially more attractive.
- Second mortgages. Many of the borrowers in trouble have two mortgages with different lenders, which complicates matters. The servicer looking to modify the first mortgage must make sure the borrower can afford both mortgages, and that the second mortgage lender does not upset the apple-cart by foreclosing. My mail from borrowers in trouble suggests that some servicers are prepared to invest some effort in working with second-mortgage lenders, and some are not.
- Lack of public disclosure. Nothing in connection with modifications is publicly disclosed except what servicers wish to disclose, which invariably is whatever presents them in a favorable light. There is no way for the public to know who is doing a good job and who isn't.
Because of these impediments, modifications are making only a modest dent in the foreclosure problem. Other remedies will be discussed in a future article.
The writer is professor of finance emeritus at the Wharton School of the University of Pennsylvania. Comments and questions can be left at www.mtgprofessor.com.
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Selling a Home 'As Is' Isn't So Simple
House Talk
Selling a Home 'As Is' Isn't So Simple
April 17, 2008
Question: I am selling my house "as is" in a short sale, and have an offer that the bank approved. The buyers' inspection came up with $1,000 in wood rot that I paid to fix. An inspection turned up mold, which will cost $1,300 to clean up, and the outdoor air-conditioning unit got struck by lightning, which is going to cost $900 more to fix. I have already paid $1,000 more than I have. Must I pay for this? My real estate agent says so, without even seeing if the bank or buyer would chip in. Is this the sign of an agent who doesn't have my best interests in mind?
-- Ashley McElligott, Orlando, Fla.
Answer: "As is" seems like a clear concept -- what you see is what you get.
But like almost everything else in real estate, it's not that simple. Laws covering real-estate regulations vary by state. For a run-down, check Arello.com, the Web site for the Association for Real Estate License Law Officials. Also, read your contract carefully to see what your responsibilities are.
Typically, sellers who put a house on the market "as is" are merely saying they won't guarantee that all a home's components are in working order. That doesn't stop buyers from including a home inspection clause in their offers, and these days, most do. Since nearly every house, including new ones, have flaws, both parties usually hash out which repairs will be made, and who will pay for them, after the home has been inspected. If they can't reach an agreement, the deal falls through.
You're in a tough situation. Finding a buyer who is willing to do a short sale isn't easy in a weak housing market — and if you're unsuccessful, you'll face foreclosure and a tainted credit record. Getting the bank to agree to accept less than it's owed is difficult and time-consuming.
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The buyers have the upper hand in this situation, and they know it. Undoubtedly, they have other options, and may pursue them if you balk at making repairs needed to make the house habitable (and I would argue that cleaning up mold and fixing a fried air conditioner fall under that category).
As to whether your agent is acting in your best interests, I posed that question to Walt Molony, spokesman for the National Association of Realtors. He said the agent is probably urging you to acquiesce to the buyers' demands to salvage the deal, which is acting in your best interests. Under normal circumstances, a sum of money might be set aside from the proceeds of the sale to pay for additional repairs. Since this is a short sale, however, the agent needs to make the buyer aware that you're having a hard time coming up with money for fixes.
Forget about asking the lender to come up with the money, since they're already agreeing to accept less than they're owed. "That would not be well-received in this current environment," Mr. Molony says.
Why Lenders Are Leery of Short Sales
Why Lenders Are Leery of Short Sales
This Foreclosure Alternative Helps Strapped Homeowners, But It's Not Easy to Pull Off
By RUTH SIMON and JAMES R. HAGERTY
April 17, 2008; Page D1
As more people fall behind on their mortgages, lenders have been slow to take advantage of a longstanding alternative to foreclosure -- a so-called short sale.
At first glance, a short sale might seem like a win-win for everyone involved. In such an arrangement, the borrower sells the home for less than the amount owed, with the lender forgiving the difference. The sale releases borrowers from their obligations. For mortgage holders, it can be less costly than foreclosing -- and could provide protection against future price drops. For buyers, it can be a chance to buy a home at an attractive price.
Short sales -- which were rare when the housing market was booming -- can also be a good way for lenders and investors to minimize losses. They typically result in losses of 19% of the loan amount, compared with an average loss of 40% for homes that are sold after foreclosure, according to a recent analysis by Clayton Holdings Inc., which tracks more than $500 billion in mortgage loans monthly for investors. The costs of foreclosure can include not only legal fees, but also taxes, insurance and the expense of maintaining the home until the property is sold and repairing any property damage.
As the housing market continues to weaken, the number of short sales is edging upward. Short sales currently account for about 18% of home sales, according to the National Association of Realtors. But it can be extremely difficult to get these deals completed. Unlike a traditional real-estate sale, a short sale requires the approval of not only the buyer and the seller, but also the mortgage-servicing company. In many cases, loans have been packaged into securities -- which means that the mortgage servicer must consider the interests of the investors who own the loans.
Deals can fall apart because the mortgage company rejects the price that has been agreed upon by the buyer and seller. Long delays in getting an answer from the mortgage servicer are another obstacle.
The process can be so frustrating that some real-estate agents and home buyers have decided that a short sale isn't worth the effort. Shari Adams, a paralegal, bought a foreclosed three-bedroom house in Stuart, Fla., after she tried twice to buy a home being sold in a short sale. One deal fell through when the mortgage servicer turned down her offer after six weeks and didn't make a counteroffer. Another deal collapsed because it wasn't clear that the seller was truly facing a financial hardship.
"I basically started to run away from any home listed as a short sale," Ms. Adams says.
Low Success Rate
The success rate for short-sale offers is low, real-estate agents say. Molly Kay Hamrick, president of Coldwell Banker Premier Realty in Las Vegas, estimates that 20% of short-sale offers in the area lead to completed sales, compared with 85% for more traditional sales. Redfin, an online real-estate brokerage based in Seattle, says it represented buyers on 65 short-sale offers in the first quarter but expects only two or three to result in a completed sale.
Because so many deals fall through, Jean Manner Schwimmer of Coldwell Banker Gay Dales in Salinas, Calif., advises buyers making an offer on a short sale to put a clause in their contract that says the deposit can't be cashed until it is clear that the sale has been approved by the mortgage company and the contract has been signed.
