Posts Tagged ‘short sales’
Friday, September 8th, 2017
Believe it or not, there are MANY homeowners who are underwater, still, years after the mortgage meltdown. According to Core Logic, 6.1% – 3.1 millions homes – of all mortgaged CA homes have negative equity, as of the first quarter of 2017. Short sales are also increasing recently as many variable mortgages that were obtained back in the heyday before the crash recently reset.
If you are underwater, delinquent with your mortgage payments, or about to be, or if you are making payment on a loan(s) that reset and the increased payments or rates are a struggle, you need to be proactive, and act sooner rather than later.
Here are some options to help you start thinking and researching:
1. Call your lender(s). If you are late on payments or are about to be, you need to call your lender asap. They can help you figure out a plan. They likely will start with the possibility of a loan modification, where your payments can be reduced if you qualify.
Note here that depending on how much your payments are and how deeply underwater you may be, a loan modification may not make sense, but it is still important to go through the motions as a first step to try options.
2. Refinance. This is great in theory but if you are underwater and there is no equity in your home it is not possible. If there is at least 10% equity in your home then definitely find a good mortgage professional (call me if you need a referral) and go this route.
3. Sell the house if you have enough equity. This will allow you to move on and make a smart purchase that fits into your budget, or rent. Of course if you are underwater chances are you do not have equity in your home so this would not be an option for you. But if you can sell your home and make a little money to pay down some debt and get into a rental or inexpensive replacement property, it is best to do that sooner rather than later.
4. Short sale. This is a great option if you are underwater and the loan modification does not work or provide enough financial relief. It will effect your credit but not as badly as a foreclosure. Make sure you speak with a real estate agent who is familiar with short sales and knows how to negotiate with the bank(s), and that you really understand the process and consequences – click here for more information on short sales. There is a timeline for short sales that can help you figure out how long it might take before you would have to move out – click here to access the timeline for California.
4. Other options. If a short sale is not right for you for whatever reason, there may be other options (such as a deed in lieu of foreclosure and possible lender or government programs – there are also specific programs for military members and possibly others so you need to do thorough research) that could work depending on your circumstances. Again, it is important to find an expert who can provide appropriate counsel that will allow you to make informed decisions.
4. Foreclosure. This is a final option if you have exhausted others and there is no relief in sight for getting out of your mortgage obligations. Make sure that before you go down this road you have investigated other options that may apply to you. Foreclosures can seriously affect your credit scores for years.
6. Credit counseling. If your debt issues extend to other areas or credit, such as high credit card balances or trouble paying bills, you should seek counseling to help you get back on track so you can pay down your debt and move on. Don’t focus on the trouble you have, but on improving it so you can be sure not to make the same mistakes again down the road. There are some amazing credit counseling programs and helpers out there – I know of a wonderful attorney who handles this so let me know if you need the referral.
The bottom line is that if you are in trouble with your mortgage and other debt, do not wait until it is too late. The door for other options could close on you, forcing you to foreclose on your home. If you act early you can usually come to a better solution that will allow you to move on without taking such a hard hit to your credit score.
Monday, August 14th, 2017
Here we go again…short sales seem to be hitting the market once again, due to rates resetting on adjustable interest rate loans. Back in the heyday of the housing market meltdown these types of properties were often times great buys, so long as a buyer had the patience to wait.
For those not familiar with short sales, they occur when a home is valued for less than what is owed on the mortgage. As a condition of the sale the lender must approve the contract and terms in order for the sale to proceed.
The bad news is that short sales are still anything but “short” in so far as timing is concerned – I still have not figured out why this is the case, but if I were the bank I would try to get through them a lot quicker in order to avoid losing more money. But I digress.
Aside from taking a long time, in most cases, to be approved, short sales are not quite the bargain they once were. Lenders used to accept lowball offers in order to get the short loans off their books, rather than face foreclosure (which typically costs a lender about $20,000). Faced with so many short sales it was easier for the lenders to accept low offers.
Once the supply ran out, the housing market started to recover, and short sales were fewer and farther between, most lenders wised up and refused low offers. Now, although most of them would rather save the money and approve a short sale over a foreclosure, they tend to be tougher when it comes to offers.
Lenders want to see that an offer is close to comparable value. So if the homes in the neighborhood are all selling for $1M and a buyer offers $950k on a short sale, chances are the lender will counter the price as a condition of acceptance. The best way to get a “deal” is to make an offer that is slightly under comparable values in order to avoid a lender counter offer.
If you are a buyer contemplating a short sale purchase, make sure your agent really does his/her homework on comparables and talks to the listing agent. I do believe you can get a decent price on a short sale, but they are not the “deal” they used to be.
Thursday, March 26th, 2015
The latest case on the Supreme Court docket could affect the number and difficulty of future short sales, so if you are short selling, purchasing/planning to purchase a short sale, or if you are an agent who may be selling one, please read on.
In Bank of America v. Caulkett, the Supreme Court will soon rule as to whether a borrower has the right to void a second lien through bankruptcy when his home is not worth the value of the first mortgage. In simpler terms, if you have two loans and file bankruptcy, and your home is not worth the amount of the first mortgage (say you owe $500,000 on the first loan and $100,000 on a second loan, and your home is worth $450,000), filing Chapter 7 bankruptcy would allow you to void the second loan. The home could then be sold via short sale and the second lienholder would get nothing and have no rights to intervene.
Back during the short sale wave of 2008-2011 many second lienholders were successfully able to block negotiated bankruptcy settlements that benefitted the borrowers and first mortgage holders; thus many short sales fell through, and those homes eventually ended up going into foreclosure. When the economy worsened many of these foreclosure proceedings got pushed to the back burner and homeowners stayed in their homes for long periods of time, even years, without paying anything. This led to damaged and neglected homes, and in some parts of the U.S. entire neighborhoods deteriorated. This of course resulted in cost increases for taxpayers and the bank bailout.
Not long after this all started many first lienholders began to offer small sums to the second lienholders (usually about $10,000) in exchange for their blessing on the short sales, and this became standard practice. But not all second lienholders acquiesce. If they are now given the legal right to block these agreements in bankruptcy it could create problems that would be passed along to taxpayers.
Two of the Justices – Kennedy and Sotomayor – have indicated that they do not think it fair that a second lienholder would be able to hold hostage a bankruptcy settlement reached by the borrower and first lienholder.
Keep an eye on this case and the outcome, which should be decided in June, especially if you are a homeowner in this situation, a short sale buyer or an agent who sells short sales. The decision could affect short sales as we know them…stay tuned.
Friday, July 11th, 2014
If you are thinking of buying a homeÂ with a conventional loan, and you had a short sale, deed-in-lieu of foreclosure or mortgage loan write-off less than 4 years ago, you better be aware of some changes that will take effect in August (yes, next month). What this may mean is that you have to get into contract within the next few weeks or may risk having to possibly wait another year or two to make a home purchase.
Fannie Mae and Freddie Mac, the largest financers for the majority of loans in the U.S., announced earlier this week that they are extending guidelines for purchases after short sales, deeds-in-lieu or mortgage write offs. Starting August 16, 2014, a buyer with a past short sale (or the others) must have closed escrow on that sale 4 years before the date of purchase of a new home. The current rule is two years if the borrower is putting 20% down – see below). If there are extenuating circumstances (a death in the family or accident that affected the ability to pay the mortgage – divorce or job loss do not count as extenuating circumstances, and each lender may have different rules as to what does qualify so make sure to check), then the time period could be lessened to three years upon approval.
This rule, which has surprised many mortgage and real estate professionals, could create problems for those currently looking for homes in a market with low inventory. Note that the new purchase does not have to close by August 16, but the must be fully approved by that time. So long as you get into contract with a few weeks to spare for approval you should be fine.
Here is how the current seasoning requirements look:
- 7 years with less than 10% down
- 4 years with 10% – 19.99% down
- 2 Years with 20%+ down
Here is how the new requirements will look:
- 7 years with less than 10% down (no extenuating circumstances allowed for this program)
- 4 years with 10% down or more (2 year seasoning requirement is allowed if we can document extenuating circumstances that caused the short sale. Taking advantage of a declining market is an unacceptable hardship. Iâ€™ve written more about this subject below.)
Personally I have clients who will be affected by this new change if they do not find a home very soon. I am surprised that such a rule would be instituted in the middle of the housing recovery, when there is little inventory and the market is turning from a seller’s market to a buyer’s market. I feel this is a very bad call and that it will have negative effects on the housing market.
If you are in the process of looking for a new home and had a short sale within the last 4 years, you need to discuss this with your mortgage professional and your real estate agent.
Monday, December 9th, 2013
Franchise Tax Board Will Not Tax California Short Sellers on Non-Recourse Loans: The FTB has announced that short sellers will not be taxed on non-recourse loans, following the lead of the IRS. This decision seems obvious, given that a short sale does not have debt forgiveness. Good news for those who need to sell their homes short.
FHA Lowers Loan Limits for 2014: The FHA recently announced that maximum loan limits for 1-4 unit dwellings will be reduced in the coming year, from $725,750 to $625,500 for a single unit. (Check the limits for 2-4 units, as they vary). This could limit borrowers’ pool of available properties, so if you are looking for properties with an FHA loan, it is imperative to speak with your mortgage professional and make a plan. The revised limits also vary by county, so make sure you get all the facts. If you can find something and get an FHA case number before the end of the month you will be fine, if not, find out whether you need to revise your maximum searching limits after the first of the year so you can make adjustments.
Investors are Expected to Remain Most Active Buyers Heading into 2014: Despite all the hoopla that investors are out of the real estate market, a new study says that they will still comprise a large part of the buyer pool in the new year. The study by Data Quick points out investor staying power will be a result of tightening credit standards and a lack of affordable properties, which will shrink the buyer pool and possibly keep many first time buyers out of the market.
Foreclosure Inventory Has Decreased, but is Not Going Away: Despite the decrease in foreclosure inventory this year, they still play a role in most housing markets and are expected to do so moving into the new year. CoreLogic reports that foreclosures completed in October dropped 30% year over year from 2o12, but that foreclosure inventory is still four times higher than normal. I think “normal” is no longer a word we should embrace in real estate, at least until our economy stabilizes and people feel less worried. To read the report click here.
Wednesday, November 13th, 2013
I used to love short sales…all it took was great organizational skills, persistence, a thick skin and a big mouth, and it was more or less simple to get a short sale closed. But after what my poor buyers just went through it makes me want to stay away from short sales for a while!
First of all, I have to say that I had the sweetest buyers one couldÂ imagine – kind, honest, and abundantly patient homebuyers who were so excited to buy their first home. They waited SEVEN months to get their home, and during this time saw just about every mistake a lender can make. The list is long, but here are a few of the mistakes either one or both of the short sale lenders made: failure to disclose the loan was being transferred (we could have had it postponed and closed months ago if they had been upfront, instead we had to start ALL over with one of the loans), misplacing the file in the wrong category (the second put it in the “first lender” category, which is a much longer process and thus held things up until it was discovered by the listing agent), granting approval and then not signing off on the paperwork before the deadline to close expired, and failure to sign off on the final HUD until the last minute possible – literally – and even that took multiple calls and threats to obtain.
Something to ponder: if a lender agrees to approve a short sale, and especially if that lender requires closing occur on or before a certain date, why would the lender hold off on getting the right paperwork to the listing agent so that can be accomplished? All parties in the transaction bent over backwards every time one of the lenders asked for something, yet the continued to not hold up their end of the bargain. In fact, it was so bad that we would get one approval, and by the time the other lender send over the approval the first one expired…this happened several times and we were constantly waiting for someone’s approval letter (while the lender whose letter was still valid was threatening to not renew it because we were taking so long!)
The icing on top of the cake came after we finally closed, when one of the lenders demanded original documents (they were sent the copies during escrow and specifically stated they did not need the originals), threatening to refuse to accept the escrow money if they did not receive it. Luckily all the parties – buyers, sellers and both agents – had saved their originals and that crisis was averted (lesson to remember: don’t ever throw anything away!)
Short sales can be horrible, or they can be easy. It is always a gamble to take on a short sale, and one must truly be patient. As a buyer’s agent you have no control over the banks and are not allowed to contact them, which makes me crazy. If you are contemplating a short sale purchase, make sure you understand all possible ramifications so that you are not surprised.
Congratulations to my clients for sticking it out and standing their ground – I know they will enjoy their beautiful new home!
Wednesday, August 14th, 2013
Short sales have received much stigma as of late, and more buyers have been steering clear of them. But for those who are willing to wait them out, can short sales still save you money? In order to answer to this question it is important to dissect the short sale and look at it’s components and ramifications.
Timing: The old school of thought was that if a buyer was not in a hurry, a short sale could be a good investment – the price would be set, usually lower than other non-short sales in the area, and all the buyer had to do was await the lender approval. The problem has always been that awaiting the approval can take a long time – from several months to even (in some extreme cases) closer to a year. With the market changes and price increases, coupled with lower inventory levels in most areas, the waiting game can backfire for buyers. During that period it is possible prices will increase, making it possible that the short sale lender will counter the contract price. Mortgage rates may also go up during that time, making monthly payments higher for the buyers. Timing is thus a big consideration when purchasing a short sale, and has to be considered in light of the specific market, the availability of similar inventory that is not short, and price.
Price: It used to be that if one was willing to hold out for short sale lender approval, one could get a good deal on a home purchase. Most short sale lenders have a magic scale (feel the sarcasm here – I say “magic” because no one knows how these scales are formulated) – generally each lender has had a price range in which they will approve a contracted price, and it seems these ranges used to dip lower than they do at present.
When a short sale offer is submitted to a lender today, not only does one have to contend with the waiting game, but one also has to be aware that the lender or lenders may counter the contracted price. Some lenders have been countering prices at above comparable market value, since they are aware prices are rising in most areas; thus many lenders don’t seem to be content any longer to approve lower prices. The problem is in the timing – by the time the lender does its appraisal or BPO it can be months since the contract was accepted – thus the buyer may have to pay more to close AND has now missed out on other opportunities while waiting.
Missed Opportunities: In these times where we are seeing market prices escalate, waiting out a short sale could potentially mean a buyer is missing out on other home sales that will be priced higher down the road; in other words, if you make an offer on a short sale home now by the time it is actually approved you may have been able to purchase another, non-short sale home for a lower price. It is a risk each buyer has to consider, and of course depends on their attachment to the home they are waiting on.
Higher mortgage rates: Mortgage rates have increased and are expected to do so further with time. The short sale home you made an offer on months ago may have been affordable at that time, but months down the road your monthly mortgage payments may be higher than anticipated if rates went up during your waiting period. This has happened to clients of mine who have been waiting out a short sale, and it is something to consider when deciding to write that short sale offer.
All in all, a short sale can still be a “good deal,” but there are definitely factors to consider before jumping into waiting one out. Consult with your real estate agent and weigh all the factors – timing, price, other inventory, the possibility of increased mortgage rates effecting your monthly bottom line, and the status of the local market. It may still be worth it for some people, but for others short sales may not really be good deals after all.
Wednesday, April 10th, 2013
Someone called me the other day with a question about short sales and HOA fees. She wanted to know whether a homeowner should continue to pay HOA fees if they are involved in short selling their home, and are awaiting lender approval. The answer is YES.
Unlike other fees which short sale lenders typically agree to pay (such as county transfer fees and certain document fees, escrow and title fees, etc.), lenders normally will NOT pay late HOA fees. In most situations where the homeowner is behind on these fees, the buyer will end up having to pay for them. This obviously could be an issue if the balance is hefty.
The even bigger problem is that the HOA could file a lien on the property for the late fees. This could hold up the closing of the short sale, or even worse: cause the parties to miss the closing deadline that was specified in the lender approval letter.
The best advice to give short sellers (and I always do so right from the start)Â is to stay current with HOA payments, even when they are no longer current with their loan(s). This will assure a much smoother transfer of title and avoid any problems that could lead to a bungled short sale and a foreclosure.
If you have any other questions regarding short sales or questions related to legal ramifications of selling your home, please feel free to contact me at Rachel@LaMarRealEstate.org.
Friday, February 1st, 2013
You have heard the term “shadow inventory.” It was initially coined to refer to the housing inventory that lenders owned, post-foreclosure, but had not yet placed on the market for sale. It has been feared for years and is the subject of much speculation – how much are those lenders really holding back? Since the inception of the term years back, it has been used broadly, as has included inventory that has not yet gone into foreclosure but may. The media has blown the term out of proportion, and the average American thinks it is something to really worry about…but it is NOT.
The tides of the real estate market have really turned in the past year. Lenders have created their own programs, along with federal and state programs, that have actually kept the foreclosure numbers down. Lenders are accepting more short sales and moving forward with less foreclosures, precisely because the lenders do not want to sit on inventory that they have to rehabilitate and sell. They are in the business of lending money, not selling homes.
I’ll put it another way: lenders do not want distressed inventory. In fact, Alex Charfen, founder and CEO of the Charfen Institute and regular commentator for MSNBC and Fox News, agrees that shadow inventory does not exist. He points to the actual bank holdings (which he has seen), and bases this assumption on actual communication with those at the highest levels within the lending institutions. He states flat out that “banks are not holding properties off the market.”
The bottom line is that “shadow inventory” is not a concern. In fact, if you want to be afraid of something real estate related, chew on this:
– It is less expensive to purchase a home then to rent. The last time in history that such was the case was in 1973.
– Housing is more affordable than it has ever been…BUT inventory is very low. Statistics say that inventory will take 3-5 years to shift. In that time, it is safe to say that interest rates will likely rise.
– Standards of getting a loan, while offering more protection for buyers than ever before, have shifted and it is now harder to qualify for a loan.
– Meanwhile, due to the lack of inventory and the greater demand in the housing market, prices continue to rise and competition is fierce – cash investors purchased 30% of homes in 2011 (and that number will likely be higher for 2012).
If you have been considering buying a home, now is the time. I don’t say this because I want to sell more homes, but because it is simply the truth. Many people waited back in 2006/2007 to sell – they saw prices rising like crazy and thought they would wait until they got just a tad higher, so they they could sell and reap bigger profits. Many of those people went into foreclosure or had to short sell their homes after the market plummeted. Don’t get left in the cold.
Sunday, November 4th, 2012
Bank of America issued a notice recently to agents about the possibility of selling off loans in the middle of a short sale, which could drastically affect your short sale (and even cancel it last minute). It is very important that both homeowners and their agents understand what is happening, before listing a property for short sale.
As is customary, many lenders sell loans, even those that are delinquent – this is nothing new. But the fact that B of A sent out a notice about it is concerning, because of the timing that is mentioned for possible sales. The notice states that while in the midst of a short sale, borrowers’ loans may be sold to other servicers. If that happens, there is no guarantee that the pending short sale will close. Here are the steps by which this may happen (as spelled out in the notice):
â€¢Â Bank of America will send the homeowner a letter 15 days before the servicing transfer date.
â€¢Â Bank of America may call the agent to advise of the impacts to the short sale.
â€¢Â The new servicer will send a letter or statement advising the homeowner where to send payments.
â€¢Â If an offer has already been accepted on your short sale, a closing has been set and an approval letter issued, the new servicer will determine if the short sale will continue. (Yikes – a little too much discretion here!).
The scary part is that B of A is giving itself an out – why would a lender approve a short sale, only to then sell the loan while the property is in escrow? This makes not sense whatsoever. B of A states, “Real estate professionals should advise homeowners that, similar to foreclosure, a servicing transfer is a risk that may occur at any time during the short sale process. This is why it is important to move as quickly as possible to facilitate the short sale.” Wow – if I have to tell this to potential short sellers, why would they want to risk a short sale? Why would a buyer want to risk making an offer, with the very real prospect of losing money and not closing? And why would I, as an agent, want to risk spending marketing dollars and time in selling the property? NO ONE WINS!
It seems to me here that B of A is trying to cover it’s behind, but this warning and the described act is contradictory to short sale approvals.
The solution here is this: if you have a B of A loan and are considering a short sale, you need to have your agent or negotiator discuss this with B of A before listing your home. I would ask to get something in writing that B of A will not sell the loan after the short sale has been approved and during the escrow period, up until the deadline that is provided in the approval letter. This applies whether you have a first or second loan with the bank. If B of A is not willing to do this, you can either take a risk or look into other options.
This move is a step in the wrong direction by B of A, and thus they remain on the top of my “lenders who are not cooperative” list. What a shame that this bank – Bank of AMERICA, for goodness sake, is not willing to truly help American homeowners. Maybe they ought to think about a name change.