Know Your Options!

The Difference Between a Short Sale and a PreForeclosure

2008-12-17T20:32:00.000-08:00

Is a preforeclosure the same as a short sale?
No, not necessarily, although historically the terms have been used interchangeably. A preforeclosure assumes that the borrower has been delinquent in paying his or her mortgage and the servicer/investor agrees to accept a lesser amount to avoid the time and expense of a foreclosure action. A short-sale, however, can refer to situations in which the servicer/investor of the mortgage agrees to a payoff of a lesser amount than is actually owed, even on a current mortgage, to facilitate the sale of the property to a third party.

Source: Fannie Mae HomeSaverAdvance FAQ

Don't Let Your Credit Be Ruined

2008-12-15T10:31:00.000-08:00

FACT: About 1% of all FHA loans are currently in foreclosure.

FACT: About 12.7% of all FHA loans are currently in default.

In other words, the banks literally have too many properties on their books to take on more and more...

You may not be foreclosed on yet, but the truth is that your credit is still taking major hits each month a payment is not paid.

Call us today and let us help you keep your credit from being ruined!

Think about the Future!

2008-10-01T11:22:00.000-07:00

As very credit-conscious people, my husband and I constantly watch to make sure that our bills are paid on time, we don't have too much available credit, and we are living within our financial limits -- not our credit limits.

We recently found out that we will soon be falling into the "laid off" category with his job, and are now having to weigh the options with our mortgage and finances. Honestly, the housing market in our area has dropped tremendously due to foreclosures, and we will not be able to sell our house for enough to cover our mortgage. AND, we aren't sure if the bank will work with us just yet. But, these are our only options when the time comes....

Foreclosure or Short Sale(because our house is not worth as much as our existing mortgage) or Rent it.

For us, leasing our home is not an option. Too much effort that we won't even be able to enjoy.

Foreclosure, will ruin our credit worthiness FOR LIFE because even after 7 years, we will always have to report it when applying for any loans. It could also affect any jobs that we apply for. Basically, we'll be seen as a liability...

Or, we can short sale. Our credit score will be minorly affected, temporarily, and we will never have to report it, nor will anyone know (unless we tell them).

The reason for the title of this post, is because right now, it seems our life is out of our control, but if I focus on the future, and my husband thinks about the best for our family's future, we know that a short sale will, hands down, be the best alternative if and when we reach the bump in the road.

I'm having a hard time making payments...

2008-09-01T10:01:00.000-07:00

What are my options?

Usually when clients call me regarding my services, they have missed a few payments and they are in various states of the foreclosure process. I will try to explain what can be done to avoid foreclosure.

They are only a few options and here is a quick list:

1. Reinstatement-This where the homeowner reinstates the mortgage by paying up all missed payments and
fees and becomes current with the mortgage. After all the fees have been payed up then the homeowner can
continue to pay the mortgage payments as they had.
2. Forbearance-More commonly known as a re-payment plan. Allows the homeowner to negotiate a re-payment
of missed payments and fees to reinstate the mortgage.
3. Sell The Property-If there is equity in the property then the home can be sold and the foreclosure can be
"cured" thus avoiding the foreclosure.
4. Rent The Property-The property can be rented however the mortgage must be made current. A rental
agreement will not stop the foreclosure process.
5. Refinance-If the credit rating hasn't been too badly damaged, a refinance may help especially if the monthly
payments can be reduced.
6. Deed-in-Lieu of Foreclosure-Commonly known as the friendly foreclosure. This involves for the bank to agree
to foreclose and take the property back without the lengthy process. This is not recommended for properties
with equity because the owner gives up the right to the property and any equity. This option is technically still a
foreclosure and will show up as such on your credit report. Sometimes the bank will forgo any other recourse
but that will also have to be negotiated.
7. Bankruptcy-Can not avoid the foreclosure but may allow the owner to reorganize debt. It rarely stops a
foreclosure it usually only stalls it. Another drawback is that it makes it difficult to sell the property and almost
impossible to negotiate with any third parties.
8. Short Sale-When the homeowner owes more than the property is worth, a sale can be negotiated and
an approval obtained from the bank to accept an amount less than is owed.

Most of these options involve negotiation with the bank and a decent credit rating. If the credit has been affected already, then the only real option that can help is the short sale. In my experience when homeowners use the other options available, they wind up in the same predicament a fews months down the road because the underlying cause of their situation was never resolved.

Also important to note-they are only two things that follow you for the rest of your life, a felony conviction and a foreclosure. True after 10 years it will drop off your credit report, however almost every lending institution has the magic question-Have you ever had a foreclosure? If you've had one you must answer yes, answering no could be considered fraud and that would open you up to a host of other legal problems.

2008-08-22T20:17:00.000-07:00

What is a Certified Distressed Property Expert?

2008-08-22T10:25:00.000-07:00

Before we can define what a Certified Distressed Property Expert is, we need to define what a distressed property is. A property can become distressed for a variety of reasons but the most common is a foreclosure. Any situation that has caused a property owner to have difficulty making mortgage payments or even selling the property is said to be in a distressed state. Basically any property which has foreclosure looming.

Now that we have defined a distressed property, what is a Certified Distressed Property Expert (CDPE)? This is not only a designation earned by a licensed Realtor but it is also an acronym that signals to the public that the person displaying it has gone through extensive training to successfully mitigate a foreclosure. This can be done by negotiating mortgage terms, helping to negotiate a refinance or the most likely-help sell the property.

Sometimes these properties have lost significant value either by physical damage, changes in the zoning, lack of curb appeal or host of other factors one of which occurring today is market conditions. If the value of the property drops below what one could sell the property for then the property is said to be short and any sale would be considered a "Short Sale", which has become very common lately. Negotiating a short sale is where a CDPE really shines.

These transactions are extensively time consuming and tedious. They require diligent follow-up, tons of paperwork and detailed analysis. Not to mention all the work that goes into drafting market reports and gathering all the information to convince the bank to accept a sales amount that will net them less. Not an easy task. Some of these sales can take anywhere from 6 to 12 months to close.

All this is done in addition to the normal marketing efforts required to sell the property. You can see why less than 1% of Realtors nationwide have the training and knowledge to successfully negotiate a short sale. I am one of those in the less than 1% that has dedicated my time, effort and finances to educate myself in this sector of the market.

In March of 2008 50% of all homes sold were in some sort of distressed state.......Half! If you have a distressed property you can't chance your home sale on someone who doesn't have the tools to get things done. This market is going to be here for sometime. Experts predict 2 to 3 years, I predict closer to 10 years which began in 2006 so we are 2 years in to the 10 year cycle.

Buyers are not immune to the phenomenon. They are getting great deals on these distressed properties but guess what, if they are dealing with someone who doesn't know the mechanics of a short sale, the deal will fall apart after waiting months. It is equally important to buyers and sellers of distressed property to use a person who can get these transactions to the closing table.

What is a short sale?

2008-08-22T10:24:00.001-07:00

The recent rave in the real estate community seems to be the infamous 'Short Sale'. I want to take a little time and briefly explain what a short sale is how it is being used in the real estate community to liquidate distressed properties.

A short sale is a phrase used to described a sale in which the cost of the product or service being sold is actually more than the sales price of the product or service in question. Another common term to describe a short sale is being 'upside down'. The term short sale has become synonymous with any real estate transaction where the lender is agreeing to accept an amount less than is owed. Short sale has other definitions in the financial sector such as when a financial instrument is sold before it is actually owned. There are other variations of the meaning of short sale but for our purposes we will only discuss real estate transactions.

Short Sale Process
In real estate, a short sale is a rather lengthy process in which an agreement is made between the bank and seller for the bank to accept a lesser amount than owed. The steps in the process are as follows.

1. The seller needs to be in a distressed state, most of the time the property is in foreclosure. If a homeowner is
current on mortgage payments the bank will not approve a short sale. The loan is said to be 'performing'.

2. A lengthly package of documents needs to be assembled to prove to the bank that the seller can no longer
make payments. Most of these documents are the same ones used to qualify for the loan. You are basically
disqualifying the property owner. In addition to those financial documents a hardship letter needs to be
drafted explaining what caused the financial hardship. Also market trend reports, recent sales, market
analysis, news clippings and other information that can help the bank make a better determination as to why
they should accept a short sale.

3. The property has to be put on the market for sale and one must show a concerted effort to sell the property at
market value. There is misinformation out there where people believe the bank will accept any amount. This is
not true. The bank will only accept market value whatever it may be. A detailed record of activity needs to be
kept and submitted to the bank along with all the other documents.

4. Once a buyer is found, the purchase contract along with all the other documents is submitted to the bank for
approval. Once approved the sales process is continued as any normal real estate transaction would.

Most homeowners don't know that the bank will pay almost all required fees and commissions to all parties on behalf of the seller. Essentially the homeowner walks away paying nothing. The exception being that the bank may require an appraisal in which case the homeowner might be asked to pay for it. Also important to note, in no case may the homeowner walk away with any proceeds from a short sale. In some extreme cases you may negotiate with the bank for the homeowner to receive a small amount (Usually no more than $1500) for moving expenses and help with rent. Again this is rare and not the norm.

Along with the steps above, diligent communication and follow-up is a must in order to successfully negotiate, process and close a short sale. The entire process can take anywhere from 3-6 months to complete depending upon how quickly an offer is received. The bank approval typically adds 30 to 60 days to the normal sales cycle of a property. You can see why it is important to hire a competent Realtor with a knowledgeable team to expedite the process.

Foreclosure ABC's

2008-08-22T10:23:00.000-07:00

Foreclosure is the means that a bank has a legal right to take possession of a property if the mortgagor (owner) has failed to live up to the commitments as outlined in the mortgage agreement. Usually a missed payment will trigger this process.

Foreclosure in itself is pretty straight forward. The process doesn’t start until after the bank has failed to receive payment and has filed suit to foreclose. In Florida the legal term is Lis Pendens. Lis Pendens is the formal notice that starts the legal process. (Note: In Florida formal notice could mean a notice published in a newspaper-it doesn’t have to be actually served or given to the mortgagor in person.)

Once a Lis Pendens is filed, the mortgagor is required to appear in court to answer to the allegations in the suit. At this point, the mortgagor can ask the judge for an extension to buy time. Nowadays the extensions are being granted regularly. If the mortgagor didn’t respond to the suit at the initial hearing, a judgment against the mortgagor will be found and another date is set for a ‘foreclosure sale’ or auction of the property, typically 30 days after the judgment.

Florida laws allow the homeowner to redeem the property at any time before the auction date. This is known as the ‘Redemption Period’. After a certificate of sale is issued, the right to redemption is lost and the homeowner in effect no longer owns the property.

The entire process from the time the mortgagor missed the first payment to the time the property is actually sold at auction typically is 180 days. It is has been taking longer because the mortgage companies have been back logged from the recent rash of foreclosures. The timeline can be extended considerably by asking the court for extensions.

Deficiency judgement

2008-08-22T10:22:00.000-07:00

The amount of money owed to a bank after a short sale can attempt to be recovered through a suit known as a deficiency judgment. Equally important to note, if the bank sells the property for less than what was owed or the foreclosure auction nets them less than what was owed they can also file a deficiency judgment against the former owner.

In terms of a deficiency judgment after foreclosure or short sale, the bank may be able to go after other assets, but any retirement funds the former homeowners have are generally protected. Especially if they invest their retirement savings in an IRA or through work in a 401(k), 403(b), then the bank can not try to seize any of these savings. However, if their retirement funds are "invested" in a second home or a other assets, then the bank may be able to to go after those assets. That is because specifically designated retirement accounts are protected from creditors, while assets simply invested in for the purpose of saving for retirement without the special designation are not protected.

In most cases, the lender rarely pursues the deficiency judgment. They may file suit so it appears on the former homeowners credit report, but little else after that. Mortgage companies know that people in foreclosure do not have the money to pay the monthly mortgage payment, let alone pay the entire foreclosure judgment or a deficiency judgment after foreclosure. Thus, it is just not worth the lenders' time to keep suing homeowners with no expectation of ever collecting anything from the lawsuits.

A CDPE can negotiate with the bank to forgive the balance owed as the result of a short sale. Yet another reason to hire a competent Realtor with the CDPE designation.