Thursday, December 30, 2010

Making a Short Sale Offer


In reality, short sale transactions are not easy to close.  Some lenders will approve the short sale in as little time as 5-6 weeks, others may take anywhere from 5-9 months to get approved.  Buying a short sale is a good option, if you are in no hurry to sell your present home or you do not have a time frame to move into another home. Just because the property is listed as a short sale, it doesn't mean that it's for sale nor it will sell at the advertised price. Here are some tips to get your short sale offer accepted:

1. Find out the short sale listing agent's track record. He needs to have a wide experience in closing a short sale. That's because it's up to the listing agent to submit the short sale package to the lender and negotiate.   Your buyer's agent can't talk to the bank directly. The listing agent should have the short sale package which consists of:
         - Seller's hardship letter
         - Tax returns
         - W-2s
         - Payroll stubs
         - Financial Statement
         - Bank Statements
Your short sale purchase will not be accepted if you don't have the completed required documents.

2. Hire an experienced Realtor with thorough knowledge and experience when it comes to short sale homes to guide you in every step of the buying process.  Your offer will have a better chance of getting accepted if he/she knows what he/she is doing.

3. Short sale offer should be priced near the market value. When the listing agent submits your offer to the lender, the agent should also include a comparative market analysis that justifies the price in the short sale offer. Submitting a low offer is not recommended because a bank could reject it immediately. If the lender believes that they can take more money through foreclosure proceedings, then they will proceed with the foreclosure. Be prepared to argue with a rejection and show comparable sales that support the short sale offer price.

4. Make a Short Sale Offer with a Strong Earnest Money Deposit.  Many first-time buyers puts down an earnest money deposit of $1,000, but an amount between 1-3% of the sale price gives the impression that the buyer is serious.

Buying a short sale home means that you, as the buyer, will be shouldering for any repairs of the property. Short sale homes are sold in "as is" condition.  Once you have submitted the required documents, then all you have to do is to wait for the lender's approval.

Wednesday, December 29, 2010

How to Avoid Foreclosure


Failure to pay your monthly mortgage payments can lead to foreclosure, but there are ways to avoid that outcome.  Here are some tips to avoid foreclosure:

1. Get in touch with your lender. Do not ignore the letters from your lender.  If you are having problems making your payments, call or write to your lender's Loss Mitigation Department without delay.  Explain your financial situation. Make sure that you prepare the supporting documents to prove that you are having difficulties in making payments i.e. monthly income and expenses. Without the said information, they may not be able to help.

2. Ask your lender if there are some ways you can work out a compromise regarding payments until you recover from your financial difficulty.

3. Contact a Housing and Urban Development or HUD-approved House Counseling Agency.  These agencies are available to provide you with the information and assistance you need to avoid foreclosure. You may be eligible for a special Making Home Affordable loan modification or refinance to reduce your monthly payments and help you keep your home. Foreclosure prevention counseling services are free of charge by non-profit housing counseling agencies in partnership with the Federal Government.

4. Make plans to remedy the situation, either get a second job to have additional income or put your home for sale.

Having a Notice of Default filed against you will show up on your credit report as late payments. This will greatly negatively affect your credit score so please make sure to avoid late payments as possible.

Tuesday, December 28, 2010

Short Sale vs Foreclosure

Many buyers and sellers in today's market are seeing and hearing the words short sale and foreclosure. What is the difference between the two? How does it affect the borrower? And which is the better option?

A short sale occurs when the creditor agrees to accept less than the total amount due of an owner's property, and the owner puts the house up for sale to settle the obligation even if the proceeds are less than the due amount.  While foreclosure takes place, when the creditors take possession of the property because of non-payment for a long period of time or an unapproved short sale.  In this case, the house goes back to the creditor and they will arrange for the property to be sold or to be auctioned off to pay for the due amount.  

Both options affect the borrower's credit score.  A borrower's credit score could drop by as much as 300 points. If the initial credit score is 700, expect the credit score to drop to 400 points.

Another effect of both options is that the borrower will not be able to obtain a new mortgage right away. In foreclosure, the borrower won't be able to buy another home through mortgage until after six to seven years. While a seller who sold his/her home through a short sale will likely be able to buy another home in two years. In essence, if a seller decides to sell his/her property through short sale, it will take him/her a shorter time to obtain a new mortgage as compared to foreclosing his/her previous home.

Once a borrower falls behind on his/her mortgage payments, he may want to consider doing a short sale vs foreclosure. First, it can help him save their credit history and future purchasing power; Second, it is a way out of a difficult situation both financially and socially; Third, it could reduce the stress of finding funds to answer a certain financial obligation; Fourth, it is realistic alternative to a mortgage foreclosure process.

Short sales actually benefit all parties involved. Through it, the lender gets the money owed from the sale of the property and the homeowner can walk away from the property he couldn't pay for anymore. The buyer ends up buying a good property at a discounted price.

If the borrower couldn't keep up with the monthly mortgage payments anymore, it is important to check with the lender if there are other options one could take to avoid losing their home. But if it's inevitable, consider short sale. Avoid foreclosure at all cost! Hire an experienced Realtor in this situation. He would know who to talk to, when to talk to them and how to handle all the paperwork to get the deal done.

Thursday, December 16, 2010

Short Sale

Short Sale occurs when a property is sold and the creditor agrees to accept less than the total amount due. This means that the creditor will release the legal claim against a property used to secure the loan in exchange of the proceeds from the short sale.  However, not all creditors will accept short sales or discounted payoffs, especially, if foreclosure will be more profitable for them. And not all sellers nor all properties qualify for short sales.
 
Sometimes, when a lender wants to avoid going through the costs of foreclosure, they will allow a home buyer to purchase the home for less than the mortgage balance while the home is in pre-foreclosure stage.

Creditors grant short sales for 2 reasons: the seller is experiencing hardship and the seller owes more on the mortgage than the home is worth.  Examples of hardships are: Unemployment/reduced income; divorce; medical emergency; job transfer; bankruptcy; and death.

How to conduct a Short Sale:

1. Get in touch with a Realtor to get Comparative Market Analysis of your home's value. That way, you'll have an idea of how much your home is worth. 
2. Contact your present mortgage company and request for short sale paperwork.
3. List your home with a Realtor.
4. Complete short sale paperwork and return it to the mortgage company for review. It usually requires information regarding how much interested buyers would pay and information about the home listing with the Realtor, such as MLS number.
5. Wait for the mortgage company to review and approve the submitted paperwork.
6. If short sale paperwork is approved by the creditor, contact the Realtor where the property is listed and have them process the sale of the home.

Just a word of advice, try to request for a "Short Sale without Recourse." This allows the borrower to pay off less than the amount owed without the mortgage company suing for the difference in price.  If the borrower does not get a "Short Sale without Recourse", he/she will still be required to settle the difference between the sale price and the payoff amount.

Wednesday, December 15, 2010

Foreclosure

Foreclosure is a legal process through which lenders reclaim properties from borrowers who can no longer afford to meet their monthly mortgage obligations. It takes away the ownership rights an owner has over a property and gives it to the lender in order to sell the property for the purpose of paying a debt.

The time line for the foreclosure process is usually 3-4 months, it varies depending on the state where the property is located.  The property isn't foreclosed on until it is sold at an auction and as per state's procedure.  Being in foreclosure means that the lender has initiated legal proceedings to foreclose a property.

Usually, on the first month of default, the lender initiates collection process by contacting the borrower over the phone or through mail. On the third month, if the borrower still has not responded to the repeated notices of the lender, a Demand letter or Notice to Accelerate which states the total amount of monthly due that the borrower needs to pay will be sent. If on by fourth month, the borrower still refuses to fulfill his obligations, the lender will then schedule a date for a Sheriff's or Public Trustee's Sale.  A Sheriff's or Public Trustee's Sale is a public auction that is open to all bidders and the property is usually awarded to the highest bidder who meets all the criteria set by the Trustee. The auction date signals the date for the borrower to move out of the property is nearing.  The borrower will be notified of the sale through mail, notice tape on the door or an advertisement in the local paper beforehand. During the transition from the Demand Letter to the Date of Sale, the borrower still has a chance to work out a deal with the lender. He/she can apply for refinancing, pay the debt in full plus attorney's fees or sell the property. If none of the above takes place by the auction date, the property will then be sold to the highest bidder. The proceeds from the sale are used to pay the creditors. Anything in excess will go to the owner of the property that was auctioned.

In the event that the borrower still wants to reclaim the property even after the sale, all he/she has to do is pay the total amount stated in the Demand letter and the attorney's fees and the total cost incurred in the foreclosure process.

You may refer to www.foreclosurelaw.org to know more about foreclosure process specific to your state. Asking for an expert advice from a housing counselor at the earliest possible time is greatly suggested so that the borrower will be properly assisted. It is also important to have an open communication between the creditor and the borrower so that they can work out an arrangement to avoid foreclosure of the property.