Foreclosure and Short Sale Alternatives

By | April 27, 2010

There are several options you can pursue when you’re behind on your mortgage and you want to stay in the house. An attorney can help you work through most of these solutions.

Reinstatement – If the reason you’ve missed your payments was temporary and you’re now able to continue paying your mortgage, you may be able to reinstate your mortgage. You’ll probably have to pay all missed fees, late fees, and legal fees due up to the date that you reinstate.

Forebearance If you’d like to reinstate your mortgage but the one-time payment is too high, there is a chance that the lender will allow you to negotiate a repayment plan, or forbearance. The lender will allow you to pay your debt over a specific period of time or will tack the extra debt onto the end of the mortgage.

Rent The PropertyIn some cases a homeowner will have payments low enough to allow him/her to rent the property and pay the excess mortgage payment out-of-pocket.

Refinance – If you have sufficent equity and income, and your credit hasn’t taken too large a hit, you may be able to refinance to a lower rate or better terms – or get enough cash out to cover payments for a while.

Mortgage Modification – In cases where homeowners do have the means to afford their payments, or a payment close to their payment, lenders may qualify the borrower for a mortgage modification.

Short-Refi – The relatively new phenomenon shows just how far some morgage companies are willing to go to avoid foreclosing on properties. This process involves the refinance of a home with reduction in the principal balance and often the interest rate as well. While relatively rare, and attorney can help you negotiate a short-refi.

Deed-in-Lieu – Often called a “friendly foreclosure,” deed-in-lieu occurs when the homeowner gives his deed back to the bank. In exchange for a non-contested repossession the banks will often give up the right to a deficiency judgement; however, in most cases a short sale is more beneficial to the homeowner.  It is still a form of foreclosure and will affect your credit as such.

Bankruptcy – Bankruptcy may allow the homeowner to reorganize his debt and keep his property. An attorney can help you with a bankruptcy.

Read more »

Buying Short Sales Vs. Foreclosures

By | April 22, 2010

It’s an interesting market, to say the least.  A simple internet search will turn up tons of listings that are tagged with ‘foreclosure’ or ‘short sale’ (incidentally, if you’re interested in foreclosure listings, you can sign up here for free Sarasota foreclosure lists delivered right to your e-mail.)  Some of the prices look too good to be true; some of them are.  Here’s a quick comparison of short sale vs. foreclosure transactions.

Short Sales Foreclosures

Making the offer

Short Sales

The beautiful thing about short sale contracts is that they’re fair and straightforward.  Short sales, for all their special needs, are regular transactions – a private buyer purchases a property from a private seller, and the funds from the transaction pay off the remaining mortgage.

The problem is that there aren’t enough funds at closing to pay off the entire mortgage – so the bank needs to release their lien.  This can take some time. Sometimes, it can take a lot of time.


Some Local Foreclosures

[idx-listings linkid=”60978″ count=”5″]

… And Some Local Short Sales

[idx-listings linkid=”80840″ count=”5″]

Read more »

How To Buy A Short Sale – Writing the Offer

By | April 19, 2010

How To Make An Offer On A Short Sale

So you’ve driven around the block a few times, checked out the neighborhood and the schools, done your homework, checked it twice – and you’re ready to make an offer on a short sale.

Here are some simple rules to follow:

Don’t be afraid to ask for a good price, but don’t make a lowball offer.

Banks are a lot of things, but they’re not stupid – and they’re good at math.  If they’ll make more money via foreclosure or letting the house sit on the market a little longer, they will not be afraid to tell you to jump in a lake.

Many banks have standing rules for their negotiators to dismiss offers that are significantly under fair-market value.  That said, it can take months for a bank to figure out what a property is worth on the open market.  Just because you’re able to get a contract signed by the seller (who’s not making any money on the deal in the first place) at an ultra-low price doesn’t mean the bank has to accept it.  They are even likely to counter higher than the list price if they determine it was improperly priced in the first place.

In a depreciating market, it’s important to think ahead.  If you’ve got a house that’s worth $200,000 today, and you think it will be worth $193,000 in six months, then by all means ask for $193,000 – but asking for $165,000 might be a little steep.

Write the contract ‘as-is with right to inspect’.

All short sale contracts need to be as-is.  That means that neither the seller nor the bank will be required to make any repairs to the property, but you have the full ability to inspect the property and cancel the contract if the property needs more work than you anticipated.  See a leaky roof?  Incorporate the cost to repair (NOT replace) into your offer price before it’s sent to the bank in the first place.  Don’t expect the seller to fix anything.

Make sure you leave lots of time for the bank to respond.

I hear the same things from buyers every week:

“I don’t understand what’s taking the bank so long.”

“Don’t they know they’re losing money every day this house is on the market?!?”

“Just call them every day until they HAVE to do something!”

Fact is, banks do know that the faster they respond the more money they’ll make, they do know that buyers are likely to walk away and buy something else if they dally – and they do know that they’re going to make damn sure they’re not able to recuperate more money from the seller or that a short sale is the last, best option on the table before they approve it.  They’re already losing hundreds of thousands of dollars on many of these properties.

Also, there are lots of people who have to approve short sale payoffs – although you make your offer to the servicing or originating bank, that bank probably sold off the mortgage long before the loan went into default.  In lots of cases there are second mortgages that need to be paid off in order to release the lien.  In many cases, people who aren’t paying their mortgages also aren’t paying their taxes or homeowner’s association dues.  These are all parties that need to be willing to sign on the dotted line.  It’s not going to happen in two weeks. In most cases, these aren’t things that are going to happen in two months.

Be flexible.

Above all, be flexible.  Banks will totally ignore your timeframes.  They’ll dismiss crazy contract clauses.  They’ll reduce closing costs and commissions.  They’ll nickel and dime you.  Be prepared to go the extra mile in order to get your deal closed.  It’ll be worth it.

Read more »

How To Buy A Short Sale – Things To Know Before You Start

By | April 12, 2010

In my previous article, I talked about what a short sale is and why a bank would accept one. Now I’d like to get a little more in-depth and show you how to successfully buy a short sale.

What You Should Know Before You Start

First of all, let me say that short sales have come a long way.  There was a time when banks were very hesitant to accept short sale offers and, as such, they were pretty unreasonable about the whole deal (wouldn’t you be, if it was you who was losing millions of dollars to bad debts?)

These days, acceptance rates are way up and processing time at the banks is way down.  Lenders, sellers, and buyers alike have embraced the short sale as a legitimate way to do business.

It can still take a while.

Depending on who the bank is, the number of banks who are owed money, and the borrower’s personal financial situation, expect to wait 3-5 months for a response from the bank BEFORE the regular clauses of the contract kick in (those are the mortgage, the inspection, and the title clauses.)  The bank needs to size up the specific situation, get a feel for the value of the property, determine the eligibility of the borrower for a short sale (if the seller has tons of liquid assets, the banks might hold them to their note) and exhaust all their options to try and get the highest payment for themselves that they can.

You have a contract with the seller, not with the bank.

Short sale contracts are regular real estate contracts.  Yep, you read that correctly – they’re absolutely normal in every way.  Like every other real estate contract, there are certain contingencies that must be met for the contract to be finalized: the inspections have to be done to the buyer’s satisfaction, the financing has to go through, and the seller has to provide clear title to the buyer.  Short sales just add another contingency – bank approval.

Banks aren’t bound to accept your contract.  They don’t have to accept your terms, they don’t have to accept your price, and they don’t have to accept you. If you have a solid offer, they still probably will – after all, banks can’t sell it over market value anyway, and they certainly don’t want to spend money they’re already losing  just to maintain a property they own through foreclosure.  If they can turn a profit (or reduced loss) through a short sale they’re likely to accept – but don’t be surprised if your lowball offer gets turned down outright.

The seller’s mistakes don’t follow the property.

I’ve talked to tons of buyers about short sales, and to a one they’re concerned about the liens on the property – the mortgage, the equity line, the delinquent HOA fees.  They don’t want to pay them after closing and they should never have to.

Most standard real estate contracts require the buyer receive clear title to a property.  That means that banks have to either accept an agreed-upon price minus any other liens that they will have to pay (including back taxes and real estate commissions) or foreclose on the property, pay the liens anyway, and then try to sell it.

Also, title is easier to convey if the property hasn’t been foreclosed on (as in a short sale situation.)  In a foreclosure suit, the bank forcibly takes title title from the borrower in default, then passes it on – in a short sale, they simply release the property from the note.

Read more »

What Is A Short Sale?

By | April 7, 2010

Once upon a time, short sales were among the rarest of transactions. Houses tended to appreciate (heavily) over time and mortgages used to come with heavy down payments, leading to lots of equity for sellers. People could wait a few years, get a few tax benefits, and then sell for a profit.

Not anymore.

These days, more and more homes are marketed as short sales (the first step a house takes toward foreclosure.) High loan-to-value mortgages and unsustainable price appreciation led to an unprecedented drop in home values.  Here are some Sarasota, Florida market statistics for the last five years:

Sarasota median sales prices

Homes prices have plummeted to unbelievable lows, but the market has stabilized substantially over the last year (as of April 7, 2010).  Lots of homeowners remain upside down in their mortgages, however, and need to find a way to sell their property.

Enter the short sale.

What is a Short Sale?

A short sale is, simply put, a way for homeowners to sell their properties for less than what they owe.  It’s not a ‘get out of jail free’ card; short sale sellers take big hits to their credit, lose any money they’ve invested in their properties, and in some cases are required to repay some or all of their mortgage after the property has been sold.

For a short sale to work, the bank that owns the note (the instrument that binds the seller to repay the mortgage) has to agree to take less than what they’re owed.  In many cases, this can be hundreds of thousands of dollars less than the original amount.

Why Would a Bank Accept a Short Sale?

Money talks.

From a bank’s perspective, here’s the problem: borrowers owe lots more than their houses are worth and are unwilling or unable to make payments.  Mortgage payments are the bank’s primary sources of income.  When borrowers don’t make payments, banks don’t make money.

Once upon a time, banks would just foreclose on properties when the borrowers went into default.  This didn’t happen often, and when it did, the income from other mortgages more than made up for the loss – and in any event, the newly foreclosed home could be sold at market value and the banks might even be able to turn a quick profit in the resale market.

These days, when banks foreclose, they’re up against heavy competition to get a house sold.  The market values are so far below what the borrower originally paid that the banks will take a loss regardless of their actions.  If they do foreclose on a home they have to sell it at a steep discount and they take over all kinds of other payments – lawn service, taxes, HOA fees, maintenance, pool guys, and more.  These are all red marks on the bank’s balance statement.

On top of that, banks have to pay attorneys to foreclose.  And lawyers ain’t cheap.

A short sale is a way for a bank to trump all of those payments – homeowners will generally maintain their own properties as long as they live in the home, the banks won’t have to pay the courts thousands of dollars in fees and costs, and at the end of the day, the banks will actually net much more by allowing a borrower to walk on their mortgage.

Read more »