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Posts Tagged ‘short sale’

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Short Selling May Not Resolve Your Problems

January 13th, 2010 by Matthew C. Keegan | 4 Comments | Filed in Home Selling, Money Management

Consumers seeking to save their homes from foreclosure and the resultant long term hit to their credit ratings will sometimes put their homes on the market and accept a price for less than what they owe on their mortgage. If the lender agrees to this deal, then the original homeowner can get out from underneath his mortgage and be free of further obligation.

Well, not so fast.

housing crisisTheoretically, a short sell (short sale) should be final, a transaction whereby the lender forgives the loan deficiency, choosing to swallow a comparatively small loss up front, rather then a sizable loss that would probably be incurred had the house passed through foreclosure.

According to The Wall Street Journal (A Short Sale May Not Mean You’re Home Free), that theory isn’t always meeting reality. Sometimes lenders will go after the first homeowner in a bid to recoup some or all of the deficiency.

For example, let’s say you are behind on your mortgage and just a month or two away from foreclosure. You owe $295,000 on your home, but it is worth a bit more even though you have owned it for several years. A crummy real estate market is pushed down home values, yet you believe that you could get close to that amount for your home and pay off your mortgage.

Well, the tough market proves two things: buyers are tough too and are looking for bargains. You listed it for $320,000, but the best offer received was just $280,000 which you accepted pending your lender’s approval which you need in order to be released from your obligation. You see, when you seek to sell for less than what you owe in effect you are putting your lender in a position to take it or leave it. If this lender believes that your short sell is the best deal, then they may reluctantly accept the deal.

This is where things can get complicated.

Whenever performing any real estate transaction, you want to have a lawyer representing your interests. A real estate attorney will ensure that your short sell is up to snuff and includes one important provision: that the bank will not go after you for the deficiency.

If that provision is not in place, then guess what? Your lender can go after you for the loan deficiency, costing you thousands of dollars. And you thought that it was too expensive to get a lawyer!

Oh, by the way, if you think that short selling your home means you can automatically turn around and buy a new home within the coming months or year, think again. On future credit applications you will be required to state whether you have been involved in a short sale which is sometimes also called a deed in lieu of foreclosure.

Lying about it can cause serious legal problems for you. Telling the truth will keep you from getting a home loan. Regardless, a short sale is a serious matter, one that should be done as a last resort.

In fact, some lenders say that there is no credit advantage in a short sale versus a foreclosure, which means that your credit will likely reflect that information. (see MSN Money: Use a short sale to escape foreclosure)


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Your Obligations May Not End With A Short Sale

May 1st, 2009 by Matthew C. Keegan | 1 Comment | Filed in Consumer Tips, Home Financing

For most Americans, these are certainly challenging times.

Specifically, for the majority of people alive today, they have no remembrance of the last major recession, the sharp downturn of 1981-1982 being something they may have read about in their history books.  Having no experience with a deep recession, plenty of Americans are feeling uneasy if not downright worried about their personal financial situations.

Facing Foreclosure, Some Opt For A Short Sale

home loanHomeowners who have fallen behind on their mortgage payments are facing foreclosure, perhaps losing their homes within thirty days of receiving notice from the court that legal action has been taken against them. For some savvy homeowners, they’ve managed to escape foreclosure by arranging a short sale where a buyer comes forth to purchase the property for an amount that is less than what is still owed on the mortgage.

With a short sale, that deal must meet the approval of the lender who stands to lose thousands of dollars on the transaction. For example, if a home is sold for $195,000 and the homeowner still owes $230,000 on the home even though it may now be worth only $215,000, the mortgage company is out $35,000.  In normal times, a lender would likely object to a short sale but these days may accept one if the only alternative is a costly foreclosure.

Still Responsible For The Loan Deficiency

Yet, homeowners need to be careful when going with a short sale because they could still be held responsible for the deficiency. In the example I mentioned, that amount would be $35,000.

Even if the first mortgage is resolved through a short sale, a second mortgage may not be. According to The Wall Street Journal which covered this subject on April 30, 2009, D1 — A Short Sale May Not Mean You’re Home Free — separate negotiation with the secondary lender may still be required.

Check Your Contract, Familiarize Yourself With State Law

Just because a lender is out thousands of dollars in a short sale, they may have no legal right to pursue payment.  Homeowners need to check their mortgage agreement and also familiarize themselves with state law. One or both could forbid the collection of a deficiency.

But what if you are required to make up the difference? Do you have any recourse?  You’ll need to consult an attorney specializing in consumer finance to find out for certain. However, you may be able to negotiate a lower amount or, if you are unable to pay the deficiency, you could file for personal bankruptcy in a bid to discharge your debt.

Investors Lose Big Time With A Short Sale

Inasmuch as homeowners believe that they should be able to walk away from their financial obligations through a short sale, lenders often look at the hit that their organization takes when they accept such a deal. Ultimately, shareholders lose out as the bank or mortgage company must show the loss on their books, a hit that impacts the business’ bottom line and the value of company stocks and bonds.

Lastly, if you’re behind on mortgage payments, seek legal advice to make sure that your rights are preserved. Too many homeowners are falsely conclusion that a short sale ends their financial problems, when in fact they could just be beginning.

Adv. — Need recession coping tips? Visit SayRecession.com to help you manage your finances. Consider paying off your mortgage early too.


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What You Should Know About PreForeclosures

March 13th, 2009 by Matthew C. Keegan | 6 Comments | Filed in Consumer Tips, Home Financing, Home Selling

For the homeowner who is behind on house payments, the threat of foreclosure looms large especially as months pass without a payment. foreclosureIn some markets owners may fall behind by two or three months before foreclosure action is taken, while in other markets — particularly those with a high percentage of foreclosures — it could take many more months to occur.

Regardless, if you have fallen behind on payments, then your home loan lender has every right to take back your home.

Notice of Default & a Grace Period

Once legal action has been initiated by the lender, both parties enter a pre-foreclosure period. This means that the days from when the Notice of Default has been received up to the court date, a state-mandated grace period kicks in. Also known as a “default cure” period, this timeframe is designed to give homeowners a remedy before foreclosure sets in.

In most cases, few homeowners will have the means to sufficiently satisfy the legal complaint against them, specifically come up with all of the funds owed to the lender which would prevent foreclosure.

Four Resolutions To A Pre-Foreclosure

Once pre-foreclosure has been started it must be ended in one of four ways:

  • The homeowner reestablishes the loan by paying off the default amount during the grace period set by state law. This grace period is also known as pre-foreclosure or “default cure.”
  • The homeowner sells the property to a third party during the pre-foreclosure period. The sale allows the borrower/owner to pay off the loan, thereby avoiding having a foreclosure included in his credit report.
  • A third party comes to terms to purchase the property at a public auction at the end of the pre-foreclosure period.
  • The lender takes ownership of the property, usually with the intention of selling it on the open market. The lender can take ownership either through an agreement with the borrower/owner during pre-foreclosure, via a short sale foreclosure or by buying back the property at the public auction. Properties repossessed by the lender are also known as bank-owned or REO properties (Real Estate Owned by the lender).

Most homeowners go through a drawn out warning period before they lose their home. Usually, several notices have already been sent by the lender reminding borrowers that funds are due, including phone calls, email messages, perhaps a visit to the home seeking collection.

During the default cure period which averages thirty days in most states, homeowners can still attempt to raise the funds needed to satisfy the lender’s complaint or entertain offers from interested buyers.

Investors make a habit of learning which homes are in pre-foreclosure and will contact owners if interested. Homeowners are urged to retain legal counsel before agreeing to any sale which may also require the approval of the lender especially if their debt isn’t satisfied with the sale.


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Forget The New Home: Short Sale Deals Reign Supreme

March 12th, 2009 by Matthew C. Keegan | 5 Comments | Filed in Home Buying, Home Construction

Home buyers who are interested in new construction may want to skip the second and third stage homes in their favorite housing development. That’s because houses built a year or two earlier in the same development (or similar one nearby) may have been foreclosed on our are on the market at a short sale price.

new homesA “short sale” or “short sell” as some people call them, is where a homeowner attempts to get out from underneath the burden of homeownership by selling his home for less than what it is worth, perhaps even for a price that is less than what is still owed on the mortgage. Of course, their home loan lender must agree to this practice, but in some markets lenders acquiesce because the costly alternative of a foreclosure looms large.

Go West For Bargains

California, Nevada and other states where home development was booming as recently as 2007 are among the places where short sales and cut rate specials are dominant. This is causing a big problem for developers who just a few years ago were able to command market price for whatever they were building. Now, prices have plunged making it a much better deal for home buyers to choose a home that may be just two or three years old while foregoing a similar style but much more expensive home nearby.

Yesterday, The Wall Street Journal published an article detailing the plight of the housing industry, from the vantage point of the housing developer such as KB Home, Pulte Homes, Centex among others. In, Foreclosed Homes Haunt Home Builders, the newspaper shared that bank-owned homes with warranties and low cost mortgages are also impacting their builders’ businesses, forcing them to slash prices or hold up future projects.

Moreover, after hitting an all time high in 2005, sales of new homes plunged to their lowest levels this past January, a resounding declaration that the housing market has collapsed.

Things To Keep In Mind When Buying Short Sale Or Foreclosed Property

While the price deals may be with the newer used home, there are some things consumers need to keep in mind before choosing a foreclosed property or one available as a short sale:

  • What about a warranty? Is the home that you are buying still under warranty? If not, will the seller offer one to you? Builders can generally offer a comprehensive warranty that will cover just about anything that will go wrong within the first year or two, an edge that they are quick to tout.
  • What kind of mortgage is being offered? You may be able to get a deal on a young home, but will your mortgage cancel out your savings? Some builders are offering fixed rate thirty-year mortgages at an extremely attractive interest rate, as low as 4.25% — savings will come over time, perhaps offering a better deal to the new home buyer.
  • Does the home need repairs? If the person who owned the home lost it to foreclosure, do you really think that they cared to keep it up, especially as it became apparent to them that they would lose the home?
  • What other incentives are being offered? Some builders are picking up closing costs while many states are offering tax credits to buyers. Recently, Congress passed and the president approved a bill which will also give first time home buyers a credit of $8000 if they purchase a home before December 2009.

For the person in a position to buy a new home this year, their options are excellent and choices quite good. Clearly, 2009 is the best buyer’s market in a generation, one that savvy consumers will want to take advantage of before market values shift in the seller’s favor.


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