Is a Short Sale Right for You?
The best way to sell a property that is more than 15-30% under water, without having to pay off the shortage, is to negotiate a short sale. This is also one of the most common ways to sell a property in which the owner is already many months behind in payments, has little or no equity, and wishes to avoid a foreclosure. A short sale involves an investor or buyer and a realtor working with the property owner to negotiate with the property owner’s lender. The goal of the negotiations is to postpone and/or prevent a foreclosure auction and negotiate a discounted payoff on the loan. Using this method, the property can be purchased at a reduced price (less than what’s owed) and a foreclosure can be avoided. Short Sale Example Let’s look at a standard sales scenario … Current property value: $185,000 Existing loan(s) payoff: $210,000 Sales price needed to break even: $231,000 (assumes ~10% closing costs and commissions, etc.) This property would have to be sold for approximately $231,000 to cover all loans, taxes, closing costs, commissions, etc. Unfortunately, the property is only worth $185,000 in the current market, so the property owner would have to come up with $46,000 to cover the difference. Now, let’s look at a short sale scenario … Property value: $185,000 Negotiated loan(s) payoff: $165,000 Sales price needed to break even: $181,500 In this scenario, after the loan is negotiated, the property can be sold for anywhere from $181,500 to $185,000 with no foreclosure and no additional cost to the property owner. Advantages The advantage to a short sale is that it may be the only way to actually sell a property where the loan(s) add up to more than the property is worth and the property owner cannot make up the difference. And, starting a short sale can both postpone a foreclosure and, if successful, avoid a foreclosure altogether. A short sale will eliminate the negative equity burden, may enable the homeowner to qualify for a new mortgage sooner than with a foreclosure or bankruptcy on their credit file, and allows homeowners to repair their finances by reducing their housing payments. Disadvantages The disadvantage to a short sale is that, like everything, it does affect a property owner’s credit. In addition, it typically takes many, many months to negotiate with the seller’s lender. A successful short sale is simply better than a bankruptcy and much, much better than a foreclosure (the “atomic bomb” of credit scars). It is also worth noting that about half of short sales are either denied by the lenders or never negotiated to a price that a buyer will accept, meaning that about half still end in foreclosure. Finally, a short sale may result in a deficiency judgment (in the event that the lender sues you for their loss, which is rare), a negative impact on a person’s security clearance (for some government employees), and a 1099 for phantom income that may have tax ramifications. Common Questions About Short Sales Short sales are highly complex negotiations that take significant time, paperwork, and expertise. They are among the most complex transactions in real estate. If you would like to discuss a short sale, and all of your other options for avoiding foreclosure, we can help! Please give us a call if you would like to explore this further. Question: Can I do a short sale myself? Answer: No. A lender will need a purchase offer before they will even consider negotiating a short sale. The offer must be real and be accompanied by a “Proof of Funds” letter from the investor and/or buyer. Additionally, the lender will want a great deal of documentation from the property owner. Our network of investors and Realtors has a great deal of experience and expertise in this area. Question: Will a short sale hurt my credit? Answer: Yes. Everything you do affects your credit to different degrees. In order for a lender to consider approving a short sale on a loan, the loan will generally have to be non-performing. In other words, the property owner must be behind in payments – thus credit damage is already occurring. Once the short sale is approved, the lender will “charge off” a portion of the loan, which also affects the property owner’s credit. The benefit is that the property can be sold and that a foreclosure and its legal ramifications can be avoided. Most experts acknowledge that a foreclosure is the worst thing that can happen to your credit. Question: Do I have to bring money to the closing with a short sale? Answer: Not usually. The bank will pay for all of the closings costs, commission, taxes, and fees on behalf of the property owner out of the proceeds to facilitate the transaction. Beware of companies that charge fees for foreclosure avoidance, loan modifications, and credit repair – many of these services are not reputable, and possibly not legal.
Forbearance Plans and What They Mean for You
The best way to keep a home when a homeowner has a temporary financial hardship is a forbearance plan. A forbearance plan is an agreement made between a lender and the homeowner where the lender allows the homeowner to miss a couple of payments, or even forgives some of the already missed payments, and then requires the homeowner to make up the payments later. In most cases, this is done by making payment-and-a-half payments for several months in a row after the missed payments. The repayment plan can be structured in several ways. Advantages The advantage of pursuing a forbearance plan is that it can help avoid foreclosure and keep a homeowner in a home that they really can afford – if they can just be given time to catch up on their payments. Disadvantages The disadvantage to a forbearance plan is that most people are either not eligible for these plans or those who are eligible are not able to ever catch up once the payment-and-a-half payments period begins. They just cannot afford the new or continued payments. Common Questions About Forbearance Plans Forbearance plans, if approved, usually delay foreclosure but often don’t permanently prevent it. Before exploring this option, make sure you talk to us. Regardless of your situation, income, or equity, we would love to help you! Question: Can anyone get a forbearance plan? Answer: No, in most cases the lender will have to review each homeowner’s individual circumstance to see if they are eligible. If you miss payments causing a hardship due to a temporary situation, such as a one-time rough spot like a temporary job loss that is now over, then you are more likely to be eligible and the program probably makes sense. If, however, your financial hardship is ongoing, such as a loss of income that has not been replaced, a forbearance plan probably won’t be approved and won’t do any good anyway. In these situations, other selling options are often better.
Avoiding Foreclosure – Is Bankruptcy Your Best Option?
The best way to temporarily stop a foreclosure up to the day before an auction, and when a homeowner has unsustainable debt beyond the home mortgage, may be to declare bankruptcy. A home cannot be sold or foreclosed on while in bankruptcy. After you declare bankruptcy, the lender will file a motion with the bankruptcy court to have the bankruptcy stay on the home lifted (because the owner is not paying the loan). At this point, the stay is lifted and the home goes back into foreclosure and to auction. Thus, bankruptcy can be effective, even if it only temporarily delays a foreclosure. Advantages The advantage of declaring bankruptcy is that it can be done at the last minute just before the home is actually auctioned off by the lender. Once the bankruptcy is declared, the auction is stopped or nullified until the lender’s stay is lifted. Disadvantages The disadvantage of declaring bankruptcy is that the vast majority of homeowners that declare bankruptcy to stop a foreclosure end up getting a bankruptcy AND a foreclosure on their credit. This is because a bankruptcy only DELAYS the foreclosure and does not prevent it. Also, fees and missed payments pile up during bankruptcy making foreclosure more likely and less preventable. If a homeowner’s financial problems can be mostly resolved by selling their home, a short sale or other options for the seller are much better than a bankruptcy. Unfortunately, a bankruptcy attorney will rarely tell clients this. Most homeowners that consult only a bankruptcy attorney when looking for solutions to avoid foreclosure will end up concluding they have only one option – declaring bankruptcy and getting a foreclosure even though both might have been avoided. Common Questions About Bankruptcy Bankruptcy is a big decision. Before or in conjunction with exploring this option, make sure you speak with us to go over all of your options! Regardless of your situation, income, or equity, we would love to help you! Question: How and how much? Answer: Generally, you consult with a bankruptcy attorney and complete the paperwork, and they file it with the courts. Attorneys charge different fees for this. We have seen this cost around $2,000 for most people (for a fairly simple bankruptcy). Complex bankruptcies will cost more and are a specialized area of law. Question: Does a bankruptcy stop foreclosure? Answer: Yes, but only temporarily. Bankruptcy delays a foreclosure until the lender files a motion to have the bankruptcy stay lifted. This almost always happens. During this delay, fees and missed payments pile up making foreclosure more likely and less preventable.
What Is a Deed-In-Lieu of Foreclosure?
The best way to possibly avoid foreclosure after all else fails is to offer the lender a deed-in-lieu of foreclosure. A deed-in-lieu involves signing your deed over to your lender in exchange for the lender agreeing not to foreclose on the home. Although this sounds ideal for many distressed homeowners, the truth is that lenders typically will not accept a deed-in-lieu until after you’ve tried a short sale. They want you to try and solve the problem first because they don’t want the house back and don’t want to have to resell the property themselves because bank owned properties typically sell for less than what it would sell for with a short sale. In other words, it would take as long to do a deed-in-lieu as it would to do a short sale, and most lenders won’t accept that option until after the short sale has run its course. In addition, from a credit standpoint, most credit reporting agencies treat a deed-in-lieu the same way they treat a short sale. So there’s absolutely no difference between a deed-in-lieu and a short sale from both a time needed standpoint and from a credit standpoint. However, if the short sale doesn’t work and foreclosure is the only option, a seller should definitely explore a deed-in-lieu. Advantages The advantage to a deed-in-lieu is that it may cause less of a credit impact than a foreclosure. Disadvantages The disadvantage of a deed-in-lieu is that most mainstream lenders will not accept a deed-in-lieu unless a homeowner tries to do a short sale first. In other words, the lenders don’t want to get the home back. They really want the seller to solve the problem. Generally, this means they encourage the seller to explore all traditional options (like a short sale), and then only after all else fails, they MAY accept a deed-in-lieu. Or they may at that point decide to simply go ahead and foreclose. Common Questions About a Deed-In-Lieu A deed-in-lieu is usually the very last alternative. Before (or in conjunction with) exploring this option, make sure you talk to us. Regardless of your situation, income, or equity, we would love to help! Question: Can I just give my home back to the lender? Answer: Probably not. The lenders don’t want to take the homes back as the first alternative. They are in the lending business and not the home buying and selling business. They really want the seller to solve the problem, and generally, this means they encourage the seller to explore all traditional options, like a short sale, before they will even consider a deed-in-lieu. Then, only after all else fails, they MAY accept a deed-in-lieu or decide to move forward with a foreclosure. Question: Is a deed-in-lieu better than a foreclosure? Answer: Maybe yes, maybe no. It depends on how the lender reports this to the credit bureaus. You can ask the lender how they are going to report it to see how it will affect your credit. However, before the lender even considers a deed-in-lieu of foreclosure, the homeowner will have had to miss multiple payments. So those missed payments alone will have a negative impact on the homeowner’s credit.
A Guide to Catching-Up on Mortgage Payments
Missed payments on your mortgage usually signal to the lender you may be headed for default. Before you give the lender a reason to start foreclosure proceedings, seek alternatives, such as a payment plan, to catch up the loan. Reinstating your loan means more than just getting current on the principal and interest costs. In many cases, the lender may add on late payment penalty fees and additional interest. After you reinstate, your loan will appear as paid to date in the lender’s records, and you will resume making your original mortgage payments. If you have fallen behind on your mortgage payments and want to reinstate your loan, your first step is to determine whether the lender has initiated the foreclosure process. Reinstating Before the Foreclosure Process Has Started to Avoid Forclosure The moment you think you’ll have problems making mortgage payments on time, it’s time to contact the lender. Missed payments on your mortgage usually signal to the lender you may be headed for default. The earlier you reach out to them, the more options you will have available to you. Once you have worked out a plan to cure the delinquent payments with the bank, they will delay foreclosure. Reinstating After the Foreclosure Process Has Started If you have fallen behind on your mortgage payments and want to pay your arrears but your loan has entered the foreclosure process, a payment plan will not be accepted and you must pay the full amount you are behind to prevent the foreclosure. Once a lender starts foreclosure and hires a trustee, the trustee is in charge of the foreclosure. They are responsible for documenting and holding all reinstatement amounts and quotes. Make sure you pay the full amount listed on the reinstatement quote. Simply adding up missed mortgage payments and sending that amount may not be the actual amount due. Based on the terms you signed in your original note, the lender may add late fees for missed payments. If you don’t pull a reinstatement quote and send only what you believe is owed, the lender may deem this a partial payment. They will likely keep the partial payment but refuse to show the loan as fully up to date. This could lead to foreclosure. Common Questions About Catching-Up on Payments Are the fees attached to the reinstatement quotes negotiable? Sometimes. It is important to review all late fees and attorney’s fees attached to the reinstatement quote. Some trustees and lenders will take advantage of a reinstatement situation by tacking on fees in excess of work performed. There is little regulation on these fees, so it is important to review the fees carefully. If you see something that looks excessive, request a full accounting of each fee. The trustee should be able to provide you a breakdown of how they arrived at the reported fees. Request a breakdown for excessive late fees sent by the lender to make sure they only reflect legal late fees for missed mortgage payments. Is a partial payment ever acceptable? It may be an option for you to offer a partial payment of the full reinstatement amount in order to get a postponement that will give you time to gather the full funds. Lenders may agree to take a portion of money in exchange for foreclosure postponement. Be careful with this option. Unless you are absolutely, 100 percent certain you will be able to fully reinstate, you shouldn’t send money or you may lose it. Never send money without an agreement in writing that the lender will postpone in exchange for a lump sum received. Because you’re in default, the lender will keep the money you paid regardless of whether you’re able to fully reinstate. Don’t do this unless you know will be able to come up with the rest of the money. Should I accept a verbal reinstatement amount? Don’t accept any verbal reinstatement payoff amount, whether on the phone or in person. Make the lender give you the quote in writing. Verbal reinstatement amounts may be inaccurate and they may change. They are also impossible to verify later. If you send payment based on a verbal quote, the lender could change their mind, and you would have no way to prove what they originally told you.
Sell Your House “Subject-To”
When you sell a house “subject-to,” it means subject-to the existing mortgage on your property. The buyer agrees to make payments on the seller’s mortgage going forward in exchange for ownership of the property. With a “subject-to” sale, your name and the current terms of your mortgage stay the same. In other words, the buyer is not assuming your loan; he or she is simply continuing to pay down your mortgage just as you would. The only difference is the new buyer will own the deed to the house. Although no loans are “assumable,” anyone can make payments on anyone else’s mortgage. And as long as payments are made, the bank will consider the mortgage to be performing. You may have seen signs or heard people say, “We take over payments.” Selling your house subject-to the mortgage is essentially the same thing; it allows the new buyer to take over your payments on the mortgage and reinstate the loan if it is behind. Benefits of Selling Your House “Subject-To” Save and Improve Your Credit Because the loan stays in your name, your credit will actually improve as the mortgage is paid on time each month. Get Instant Debt Relief In cases where you owe more than the home is worth, it can help you get out from under that debt and move on with your life. Earn More Value From Your House Sale It helps the buyer reduce costs when purchasing your home and, as a result, you can get more value out of your house sale. The higher your loan balance, the more money it saves. Avoid a Foreclosure Need to sell your house quickly? Selling subject-to allows the buyer to purchase your house quickly even if it needs repairs or has little to no equity. Full Loan Transparency The buyer will arrange for a loan servicing company to collect payments and send you monthly/annual statements for full loan transparency. Still Able to Purchase Another Home Although dependent on your lender, your debt-to-income ratio won’t be hurt when a contract shows that your legal obligation to the debt was sold subject-to. Considerations for Selling Subject-To Your Name Stays on the Loan The reason you get more value for your house with this option is that it comes with financing! With 65 million people unable to qualify for a home loan, homes that come with financing sell faster and for more money. To make that happen, the existing loan must be left in place. Mortgage Company “Due on Sale Clause” A lender reserves the right to call a loan due on a home in which ownership has changed. When a lender takes back a property either by foreclosing or calling a note due, they are “punished” by the Federal government for having a non-performing loan. That being said, it is extremely unusual for a lender to call a note due on a home for which the payments are being made. If you have an existing loan in place, selling your house “subject-to” is the best way to unlock the most home equity possible while building your credit at the same time. It truly is a win-win for all parties. We are experts in purchasing houses “subject-to,” and it is our preferred method for buying houses. If you have a house that you are interested in selling, we would be grateful for the opportunity to discuss this incredible option with you. Let us show you how easy selling your house can be!
The Truth About Loan Modifications
The best way to stay in a home that you want to keep long-term may be a loan modification. This involves a lender modifying your payments so that you can afford to keep making them. The modification could include lowering the interest rate so that the payment is lower or even adjusting the principle balance on the loan. In a typical scenario, a homeowner will hire an expert to negotiate the modification. Usually, the homeowner will be told to stop making payments during the negotiation, and the lender will tell the homeowner that a modification is being considered. Advantages The advantage of a loan modification is that it can make an unaffordable loan affordable. The types of modifications that have a higher success rate involve converting an adjustable rate loan to a fixed rate loan or pushing out the interest rate adjustment for a couple of years. Disadvantages The disadvantage of a loan modification is that, based on our observations, most of the time when the homeowner pursues these, they are ultimately not approved or almost certainly not approved in a way in which it is helpful enough for the homeowner to stay in the home. In other words, most of the time it does not work, and and the homeowner is not able to make up all of the late payments, interest, penalties, and legal fees, and thus the result is a foreclosure. We call this the “loan modification merry-go round.” The types of modifications that have a lower success rate involve reducing the principal balance on the loan. Loan modifications rarely work. Before exploring this option, make sure you talk to us. Regardless of your situation, income, or equity, we would like to help you!
8 Ways You Can Avoid Foreclosure
The worst way to lose a house is through a foreclosure. We call foreclosure “the atomic bomb of credit scars.” It cuts the deepest and lasts the longest. When something affects your credit negatively, it lowers your credit score, and the effects last for varying periods of time. Foreclosure lowers your score the most and for the longest period of time – up to seven or more years. Some distressed homeowners reach the end of their patience and decide they simply want to “walk away” from a house believing that foreclosure will be the end of their problems. The truth is that foreclosure is the beginning of an 8- to 10-year nightmare that can involve everything from an eviction by the sheriff, embarrassment, battling creditors for years, deficiency judgments and lawsuits, possible tax ramifications that can even lead to garnished wages, and difficulty getting credit cards, car loans, or even many types of employment for up to a decade. Homeowners facing foreclosure have many options in today’s market. Individual Realtors, attorneys, and financial planners do not know ALL of the options available, so we have created a comprehensive list of strategies for your reference Sell your house Short sale Catch-up payments Loan modification Deed-in-lieu of foreclosure Temporary restraining orders Forbearance plans Bankruptcy If you are facing foreclosure or in a house that you cannot afford to keep and want to sell, please give us a call so that we can contact you and give you all of your options for selling your house and avoiding foreclosure. Note: We are house buyers. We do not offer for-fee foreclosure avoidance services, such as loan modification services. Please be warned that these services can be very expensive and, based on our observed experience, rarely work.
Coronavirus: Effects on Foreclosures, Evictions, and Loan Forbearance
Like many others, the coronavirus, also known as COVID-19, may have caused you to lose your job or suffer a loss of income. If you’re a homeowner, this loss can be devastating. It may prevent you from being able to pay your mortgage as you try to use the money you do have to care for your family. Fortunately, many programs are being developed to help you during this challenging time. Here are a few things to know if you’re facing uncertainty with your mortgage. Foreclosure and Eviction Relief To provide immediate relief to homeowners and renters, the Department of Housing and Urban Development suspended all foreclosures and evictions through May 17, 2020. Single-family homeowners with Federal Housing Administration-insured mortgages will benefit from the suspensions. A recent article by CNN highlighted a statement by Secretary of Housing and Urban Development Ben Carson about the suspensions. According to Carson, “Today’s actions will allow households who have an FHA-insured mortgage to meet the challenges of COVID-19 without fear of losing their homes and help steady market concerns.” He added that this “will provide homeowners with some peace of mind during these trying times.” Forbearance Plans If the coronavirus has caused a homeowner to lose income, efforts are currently underway through the federal government to lower or suspend the homeowner’s mortgage payments. Federal regulators recently ordered mortgage lenders to give homeowners more flexibility through Fannie Mae and Freddie Mac, which are two government-sponsored organizations that provide funding in the mortgage market. This order covers home loans that are guaranteed by Fannie and Freddie—or about half of the mortgages in the country. However, it’s expected that other mortgage companies will soon follow the policy as well. If you have experienced a loss of income, you may be able to request lowered payments or postpone making payments for a time. Mark Calabria, director of the Federal Housing Finance Agency, was recently quoted in an article by NPR as saying, “That forbearance is up to 12 months, depending on their particular situation.” Mortgage Help Options In addition to the forbearance being offered for home loans guaranteed through Fannie Mae and Freddie Mac, some major lenders are also offering a temporary pause on payments if you have been furloughed or lost your job. In a recent article in the Dallas Morning News, Robert Broeksmit, president and CEO of the Mortgage Bankers Association explained the options for homeowners. “If they have been laid off or had a drop in work hours, are ill or affected, there will be a program available to them to forbear mortgage payments,” he said. “Generally, it would be up to six months. If the hardship endures beyond that, there could be another conversation that could extend it up to another six.” These delays have been compared to those used in the event of a natural disaster. However, Broeksmit said, “But this is a lot more complex.” Here for you We want to provide you with information and resources that help you better understand the steps that are being taken and how you can find help through this challenging time with your home. If the coronavirus has caused a hardship for you, your first step should be to contact your mortgage company and discuss all of your options with them. If you are interested in selling your house during this time, we are still buying. Please let us know how we can help!
6 Benefits of Doing a Short Sale
Are you having trouble making your monthly mortgage payments and owe close to or more on your house than it’s worth? A short sale can be a great option for you! With a short sale, the lender agrees to accept less money for the house than what you owe. Banks are willing to do a short sale because they can usually sell the property for more through a short sale than at the foreclosure auction. But a short sale isn’t just a better option for the bank. It has many benefits for you, the homeowner, as well. 1) Get more time in the house, FREE. The short sale process can take anywhere from 2-6 months to complete, or even longer in some cases, depending on your lender and how fast they work. During this time, you can stay in the house completely free of charge. If you’re in a tough financial situation, this can be a great time to get back on track and start saving money! 2) Prevent foreclosure and save your credit. A short sale has much less of an impact on your credit score than a bankruptcy or foreclosure. Additionally, you can potentially qualify to buy a new house 1 year later, although 2 years is more typical. The wait time is usually 7 years or longer with a foreclosure. It is also much easier to rebuild your credit, buy a car, rent another home, and much more with a short sale than a foreclosure. 3) Wipe out unnecessary debt. If your house sells for less than it’s worth with a foreclosure, the bank can come after you for the difference. With a short sale, the deficiency is almost always waived. You can walk away free and clear, assuming it’s a first lien only mortgage. Your mortgage will show a balance of $0, and the bank can’t seek any recourse. If there is a second lien, it will depend on your situation and the amount owed. 4) Get great service at no cost to you. The short sale process is completely free to you. All of the costs are paid for by the bank, including commissions, home repairs, our fee, and any other fees. We don’t make money unless the short sale goes through, so we are more than motivated to put our very best foot forward to get the best outcome for you. 5) We do all the work. Once you decide a short sale is right for you, we will take care of all the rest. You’ll have one of our agents representing you and serving as an intermediary between you and the bank, so you no longer have to worry about dealing with them. While there is no guarantee the bank will accept the short sale agreement, you can have peace of mind knowing that you are in good hands. We have a lot of experience with short sales and a proven track record of success. 6) Have the potential to receive some money. You won’t receive any money as part of the short sale, but you may qualify for a government relocation program. The amount of proceeds you qualify for can vary in amount between $1,500-$3,000. VA loans can typically qualify for $1,500, and FHA loans can usually qualify for $3,000. Conventional liens, HUD liens, and other liens vary depending on a variety of factors. The bank will make the final determination. Restrictions apply. Time is of the essence. The consequences of foreclosure are severe, and you should do everything in your power to avoid it. Most banks only allow a certain amount of time before the foreclosure date to enter into a short sale agreement. If you think a short sale could be a good option for you, please reach out to us as soon as possible. We will evaluate your situation, answer all your questions, and help you find the best solution.