Thursday, February 25, 2010

Short Sale Answers:

Top 10 most frequently asked short sale questions.

What does Short Sale mean?

A short sale simply means the amount of the existing mortgage is greater than the sales price of the home. A short sale would result. The mortgagee would accept the lesser amount and avoid the foreclosure proceedings. The balance of the loan would be forgiven by the lender.

Why do lenders allow a short sale?
Simple. The seller is out of the home the cannot afford and the lender avoids the costly foreclosure proceedings.

If I have equity in my home, will my lender allow a short sale?
Depending on the amount of equity, lenders may choose the traditional means of foreclosure. This may allow the lender to recapture some of the expense of the proceedings. Though on the other had, the home may be encumbered by other liens, and the inventory of homes may detour the lender from wanting to take title.

Can I still profit on a short sale?
No - Though the seller may have used the equity on a previous refinance or equity line, the current loan balance will be higher than the selling price of the home. A seller may not receive proceeds from a short sale.

How much time do I have to start a short sale?

In a Pre-foreclosure "Time is of the essence". Timelines starts from the date the notice to the borrower is filed. Each state has individual foreclosure laws and regulations. In some states a foreclosure can proceed as quickly as 35 days. Do not delay. In most cases you have no more than 60 days from the date of the notice, to contact lender to effectuate a lender approved short sale.

Is there an application process to start a short sale?
Yes - In basic terms you are applying for a short sale in much the same way you applied for your mortgage.
The individual short sale process will depend on the lender. Be prepared to submit a hardship letter detailing the circumstances behind the short sale; Current financial condition of the seller, ie; pay check stubs, bank statements, a personal financial statement.

Additional, they may require a monthly budget assessment. Lastly, a signed, valid purchase and sales contract, preliminary HUD-1 settlement statement and a preliminary estimate of proceeds to the lender.

How will a short sale affect my credit rating?
Current estimate is -50 points. Each individual lender to decide what to report. Often it will note loan as "paid" on their credit report, while in the footnote it may reference "settled for less than amount owed". though it is a mark on the credit report, it is more favorable that "foreclosed" which is currently about -250 points.

I have filed for bankruptcy, can I still do a short sale?
Most lender would not consider a short sale if the homeowner is in the middle of a bankruptcy proceeding. A short sale by nature is a collection activity which is prohibited in a bankruptcy.

Will I need an appraisal for a short sale?
This is not on your list of things to do. Lenders vary on whether they will use a full appraisal or real estate BPO brokers price opinion to be submitted in the short sale package. All lenders will require a formal assessment of value of the home. Some will use more that one type of appraisal.

What are the tax implications in the short of real estate?
This is a biggie. Consult a tax accountant as each case varies. Generally, taxes are reported as a loss to the lender and a gain to the buyer. If the lender forgives 20K on your mortgage, you would receive a form 1099C in that amount as income, and responsible for paying the tax.

The mortgage forgiveness act of 2007 allows forgiveness of up to 2 million on the principal residence.

This is purchase monies only. Meaning the mortgage you took out to purchase your home. Sellers need to understand that if you then took a HELOC (home equity line of credit) for other reasons (debt consolidation, college, home remodel etc) this money IS NOT purchase monies. Many lenders will require you to sign documents (promisory note) that you understand you are responsible for the deficiency / short fall.

Understanding the process is imperative to sellers and buyers alike. As a certified short sale and foreclosure resource I have the knowledge and expertise to help navigate and negotiate on your behalf.

Monday, February 15, 2010

8 REO Tips for Buying Foreclosures

Lots of savvy home buyers want to hit the jackpot and buy that REO foreclosed home, many of which are often under-priced. When banks price REOs under the comparable sales, multiple offers are often the response. This means you could be up against stiff competition for that bank-owned home.
It's not unusual for some REO homes in Sacramento to receive 15 or 20 offers. Sometimes the bank will throw out all but two offers and then ask the selected buyers to resubmit what is called "Highest and Final" offer. Sometimes the bank simply accepts the best offer at inception.

If you're wondering how you can make your offer shine above all the rest and be the winning offer, here are a few tips to help you select the right price and terms:

1) Get the Property History
Ask your buyer's agent to find out the bank's purchase price on the Trustee's Deed or Sheriff's Deed. Generally, it is noted on the document itself, which you can get from the tax rolls or a title company. Compare that price to the price the bank is asking.

Look at the amount of loans that were once secured to the property. Somewhere between the original mortgage balance(s) and the foreclosure sale price is the amount the bank will accept, if the home is under-priced.

2) Determine Comparable Sales
In many cases, the list price has little bearing on the value of the home. The market value carries the most weight. If you are up against competing offers, other buyers will offer more than list price.

Look at the last three months of comparable sales, a mini CMA, for that neighborhood to determine how much this REO is worth. Try to use only those homes that most closely match the REO regarding square footage, number of bedrooms, baths, amenities and condition.

Look at the pending sales. Ask your agent to call the listing agents of those pending sales to try to find out the accepted offer price. Some will share that information and some will not.

Look at the active listings. Those are most likely the listings other buyers will use to formulate a price because they are the only homes those buyers actually tour.

3) Analyze Listing Agent's REO Solds
Most REO agents work for one or two banks. Some listing agents are exclusive listing agents for REOs, and they do not list any other type of property. Since REO agents deal in volume, they typically apply the same pricing principles to all their REO listings.

Ask your buyer's agent to look up the listing agent in MLS.

Run a search using that listing agent's name to find the last three to six months of that agent's listings.

Pull the history of those listings to determine the list-price to sales-price ratio. If most of those listings are selling for, say, 5% over list price, then you may need to offer 6% over list price, and vice versa.

4) Ask About Number of Offers
If there are no offers on the REO home, you can probably offer less than list price and get your offer accepted. However, if there are more than two offers, you will most likely need to offer above the asking price.

If there are 20 offers, bear in mind that some of those offers might be all cash. Banks like all cash offers. If you are obtaining financing, then you may need to increase the price on your offer to be considered.

5) Submit Preapproval Letter
It goes without saying that you do not want a prequal letter. You want a preapproval letter. Get preapproved from your choice of lender in advance.

Moreover, get preapproved by the lender who owns the property. Do not expect to use this lender for your loan, but submit the prepproval letter from this lender, along with the letter from your own lender. Banks don't trust other lender preapprovals but trust their own departments.

6) Don't Ask for Repairs / Inspections
Sometimes banks will pay for repairs, but typically will not agree to do so at the offer stage. If there are problems found during a home inspection, renegotiate after your offer has been accepted.

7) Shorten the Inspection Period
If other buyers ask for 17 days, for example, to conduct inspections, and you ask for 10, you will be deemed the more serious buyer.

8) Offer to Split Fees
Some banks will not pay transfer fees, for example. If the buyer offers to split those fees, the bank will feel more amenable to accepting the offer. Same thing for escrow fees.

Many banks negotiate discount fees for title insurance. If the bank will pay for the owner's policy, the ALTA policy might cost a bit more. But it's still a good idea to let the bank choose title if you want your offer accepted.

Consider the Appraisal Consequences
If you offer over list price, bear in mind that the appraisal will need to substantiate that price. If you find yourself dealing with a low appraisal, you have options, so don't despair. Remember, the bank will most likely run into this problem with the next buyer who obtains financing.

Written By: Elizabeth Weintraub

Monday, February 1, 2010

2010 Predictions for the Inland Empire

Finally, there might be some good news for struggling homeowners. Thousands of mortgage loans that were supposed to reset at a higher rate this spring won’t be changing, putting off the grim threat of Inland Empire foreclosures or bankruptcy for many Americans by as much as a year. Unfortunately, the reprieve will only be a temporary one.

A year ago, real estate forecasters were warning that spring 2009 would be the start of a whole new wave of foreclosures. Across the country option adjustable-rate mortgages (ARMs), an especially scary loan type often compared to a ticking time bomb, were set to detonate at an accelerating pace.

But something happened that few could have predicted. Interest rates dropped to historically low levels and the wave of resets could now be delayed until well into 2010. As a result, many borrowers—who have the option of making payments so low that they don’t even cover the interest, which is then added to the original loan balance—now have some breathing room.

Third of Loans Deeply Delinquent

Credit Suisse (CS) estimates (click here to see the chart) that the resets will begin to accelerate next spring, rising from about $4 billion resetting in March 2010 to a peak of $14 billion in September 2011. The current level is about $1 billion. About $500 billion of option ARM loans are outstanding, according to the bank. “Things have gotten pushed out,” says Chandrajit Bhattacharya, director in U.S. Mortgage Strategy for Credit Suisse. “Right now it looks like the big increase is probably going to be somewhere toward the middle of next year.”

Option ARMs typically reset after five years, at which point the monthly bill increases 65% or more. About 37.5% of option ARMs originated in 2005 are still outstanding, 63% of the 2006 vintage are outstanding, and 82% of the 2007 loans remain, according to Barclays Capital (BCS). And about a third of the outstanding loans in these years are deeply delinquent.

In a given month, between 4% and 5% of borrowers who are current on their option ARMs taken out in 2006 and 2007 default in the following month, says Sandeep Bordia, Barclays’ head of residential credit strategy, who also expects resets to be delayed until next year. “These things have been performing horrendously,” Bordia said. “I don’t know how much of it will last into the recast.”

Moving Out of Option ARMs
But real estate analysts were predicting that many option ARMs would reset sooner as loan balances hit specified principal caps, typically 110% to 125% of the original principal. The decline in interest rates means that it would take much longer to hit the principal cap and many borrowers will instead face a reset only at the five-year mark.

The Mortgage Bankers Assn. is also estimating that the lower interest rates will delay the resets. But the group also expects that lenders will help borrowers move out of the option ARM products before they reset. Many of the investors who can’t easily qualify for modifications and the borrowers beyond help have already lost their homes, says Michael Fratantoni, vice-president of single family research and policy development for the Mortgage Bankers Assn.

And the homeowners who are holding option ARMs when the wave of resets hits won’t face as big a shock because interest rates have fallen, adds Fratantoni. “Interest rates have come down to the point where the resets that are going to occur are going to be a bit of a non-event,” he says. “Very few borrowers will experience the recast.” But Nicholas Chavarela, managing attorney for Orange (Calif.)-based America’s Law Group, which represents borrowers negotiating modifications, says banks remain reluctant to reduce principal for underwater borrowers.

Cutting Debt-to-Income Ratios
The Obama Administration’s loan modification plan, which only applies to owner-occupied homes, is a step in the right direction, Chavarela said. But lenders won’t do what’s needed unless they’re forced to, he said.

Under the plan, taxpayers and participating lenders would share the cost of cutting borrowers’ debt-to-income ratio to 31%. Loans terms could be extended to 40 years and interest rates dropped to as low as 2%. But option ARM borrowers would likely have to pay more each month, even with a modification, because they’d suddenly be required to pay both interest and principal. “The Obama plan needs to be built upon,” Chavarela said.

But even if they can refinance many borrowers can’t afford the higher payments. Philip Tirone, president of the Mortgage Equity Group in Los Angeles, said he reached out to borrowers with option ARMs, offering to help them refinance into a fixed-rate mortgage with a low interest rate. “For them, it’s all about the payments,” Tirone said.

Time to Work with Lenders
Keith Gumbinger, vice-president of, a publisher of loan information in Pompton Plains, N.J., said the lower interest rates have helped to diminish the option ARM problem. But it remains unclear how many option ARMs are left to reset and how many borrowers will be able to get out of the loans before it’s too late. Moreover, by the time they do reset it is unclear whether the economy will be better off. If home values and unemployment continue to weaken, it will become even harder to refinance. But the delay in resets gives some motivated borrowers time to work with lenders and negotiate a solution.

“I don’t think this is going to be the tsunami that was forecasted a few years ago,” Gumbinger said. “But it’s probably bigger than a ripple in a pond.”

If you are looking for a fresh start and want to get out of your Inland Empire home no matter the situation, email or call 951-505-1195. The team at Prudential have had a ton of success negotiating short sales with banks and getting people upside down on their mortgage a fresh start.