The news (and real estate market) is full of stories about “short sales,” but we find that most people don’t understand what that means. Simply stated, short selling is selling for less than is owed to the bank.
Why would a bank want to do this? Because it actually saves them money. If a bank is forced to foreclose on a house, there are costs involved. First, they have to pay attorneys to handle the foreclosure process. Next, they have to pay for items like property taxes and unpaid water bills (water bills in our area are attached to the home, while electric and gas bills are tied to the homeowner). Then there are the holding costs. Someone has to pay the bills while the home is waiting to be sold to someone else. Finally, there are the accounting issues that make any home that is six months behind a detriment to their books and no longer an asset. These factors can cost the banks tens of thousands of dollars. Some estimates say that the bank loses $50,000 – $100,000 on EACH home that they have to take to foreclosure. So short selling is a very good option for the bank.
Why would homeowners want to short sell their home? While the homeowner’s credit will still suffer if they sell their home as a short sale, the studies have shown that their credit recovers faster and doesn’t drop quite as dramatically as those who let their homes go to foreclosure. In addition, the new HAFA program allows homeowners to walk away with $1,500 in their pocket, so they get something for selling their home. Finally, all of the expenses with selling are covered by the bank. During a typical sale, homeowners would have to be concerned with the property taxes, commissions, attorney fees, etc., but during a short sale, the bank pays all of these costs!
Why is this good for buyers? Buyers can find “deals” in the marketplace. In addition, if a homeowner is selling a home as a short sale, then they are more likely to keep the home in good condition (whereas some homeowners do not take care of their home if the bank forecloses on them). Many short sales are “move-in ready” for a new buyer. Finally, a buyer has a ‘friend’ in the transaction. Any homeowner that is short selling their home is eager to work with buyers and generally wants to help them succeed. Instead of negotiations taking place between home buyer and seller (and sometimes it gets to be an adversarial process), the sellers are willing to accept any offer that will get them out of their mortgage. They want buyers to succeed!
The entire picture is not completely ‘rosy’ though. There is paperwork involved for the seller and the process generally is extended over several months. This is simply due to the volume of homes that are in trouble. The larger the bank, the more loans they have to deal with, the longer it takes for them to handle the large volume. This can make the process frustrating for some. In addition, homeowners have to be certain that they will be absolved of all of their mortgage debt when the home is sold. Some lenders will try to hold the sellers to the difference in cost. The best advice is to make sure that you have a good attorney representing you when working with a short sale (realistically, it is always a good idea to have a good attorney representing you when buying or selling any home!)
If you are interested in selling your home as a ‘short sale’ or if you are looking to pick up one of these deals in the market, contact one of the professionals at Tiered Real Estate. We will be glad to help you!
Previously the government was running a program to try and help homeowners who were caught “upside down” (who owe more than their home is worth) in the market. Despite their best intentions, this program was a failure. It was reported that 9 out of 10 people whom the program was intended for did not get help! As a result, they introduced the HAFA program.
HAFA stands for “Home Affordable Foreclosure Alternative” program. It opens the door to a lot of people who need help. It makes it easier to qualify for help (one of the biggest problems previously). For those who still do not qualify, or who choose to short sell their home, it provides $1,500 at closing to help them get started at their next residence (most likely a rental). This was intended to both help get the homeowner established and to motivate them to short sell their home because there is time and effort involved.
If you are struggling, please ask your lender about the HAFA program and find out if you qualify. It can help you save your home or help you get started at your next home. If you are looking to short sell your home, contact one of the agents at Tiered Real Estate who will be happy to help you.
In a previous post we discussed how you should approach you bank for help whether or not you are behind in your payments and start working with them right away. Many people have followed our advice and it has been difficult for everyone. A recent article discussed just how bad it is.
There are 2.7 million borrowers who are currently 2 months or more behind in their payments (according to the Treasury Department), yet offers have only been extended to 400,000 of those borrowers. That is a terribly low 14.8%. Only 235,000 of those have entered into some sort of agreement with their lender. This works out to less than 9% of the homeowners who need help are actually receiving it!
Before you start packing your boxes and swearing off your lender, we have some good news for you. We have been working with several homeowners who are part of the 2.7 million who are behind (not to mention several who are in trouble but not behind). One family in particular talked to their lender, filled out stacks of paperwork, talked on the phone and were rejected. While most would wash their hands and say “I’m done”, they persisted. They reapplied. They made more phone calls. They filled out more paperwork. They succeeded and received a loan modification!
The old adage appears to be true in the modern era. If at first the bank rejects you, don’t give up. Apply again! Truthfully, the banks don’t want to own your home and if all 2.5 million homes that are in trouble (and not receiving help) end up going through foreclosure, the banks will keep the market in the doldrums for years to come. In addition, the government is trying to help the economy and get the banks to use the programs they have implemented. Keep trying! You never know when a modification will be available for you.
If you need help figuring out your home’s value or if you want to sell your home, contact one of the great agents at Tiered Real Estate and we will be happy to help you!
This is hotly debated topic with many people arguing either side. One side argues that you should contact your bank while all of your payments are current because banks are flexible and want to keep the money flowing. The other side argues that you should be behind in your payments (whether it be intentionally or unintentionally) so that the bank will understand that you can’t pay and will be more motivated to work with you since they don’t want your home.
What we at Tiered Real Estate have found is that it depends on the bank and even on your personal situation. The best thing that you can do is look at your situation today. Can you pay your mortgage? Will you continue to be able to pay your mortgage (if everything stays the same as it is today)? If you answered ‘no’ to either of these questions then contact your lender (or lenders) right away. Talk to them and let them know your situation and ask them what they want you to do. Usually, they will have you submit a packet of information so they can determine if you are a candidate for assistance or a loan modification of some kind.
Whatever you do, do not do something because you heard a rumor or saw an infomercial on TV. Simply be direct and honest with your lenders and you will have a much better opportunity at something good happening for you.
If you would like to sell your home or if you need assistance getting an estimated value for your home to put on the forms, don’t hesitate to contact one of the great agents or brokers at Tiered Real Estate (866-904-TIERED).
The Fed is releasing details on their plan to keep 9 million borrowers in their homes. They have set up a website at www.FinancialStability.gov which will answer some common questions and help home owners determine if they are eligible.
If you want to sell your home contact a real estate professional at Tiered Real Estate and we will be happy to help you.
Nationally, the media is reporting a 25% increase in foreclosures over 2007. The Tiered Real Estate headquarters is in Illinois where foreclosures jumped 31%. Part of the reason the national rate had “only” a 25% increase was due to some states restricting the foreclosure of some properties which artificially surpressed what could have been an even larger number. It was reported that by years’ end, there could be a record 1,000,000 foreclosed properties for sale in the United States.
Why is this rate increasing so dramatically if the bail out was supposed to help? There is much speculation to the reasons. Much of the information from the banks themselves is confusing. We have worked with many buyers and sellers who are trying to avoid foreclosure and while some banks are eager to work with homeowners, there are just as many who refuse. Are they trying to foreclose? Do they want to take the properties before the governement tells them that they cannot foreclose and so they lose money from non-payment as well as not being able to foreclose? Are they so mismanaged and filled with beauracracy that they don’t even realize when they shoot themselves in the foot? No one can tell.
What we do know is that the baseline hasn’t changed. Banks are not in the business of possessing homes or being landlords. They are in the business of taking in and giving out money for a profit, and ultimately, that is what they want to do.
If you are struggling, please talk to your bank to see if they will work with you. If not, call one of the experts at Tiered Real Estate so we can help you sell your home and save some of your credit in the process.