March 29, 2010

Common Causes of a Short Sale

Posted to Short Sales / Foreclosures, Steve Randall

Here in Northern Utah, most of the homeowners are not directly feeling the impact of the downturn in housing values unless there is a need to sell their home now. Indirectly, however, every homeowner is impacted when there is a short sale or foreclosure in the neighborhood as these homes tend to sell for less than the normal market values. As a result, surrounding home values are indirectly impacted as these homes become comparables used by appraisers to establish new home values.

One of the reasons the administration is trying to curb the effects of delinquencies and foreclosures is to stop the downturn of home values. As the values continue to drop, there are more homeowners who become at risk of a short sale. Unless the trend is curbed, equity in homes will continue to be lost. Last week, a new effort was made to assist more homeowners with mortgage modifications.

Most of us think that we will never be in a short sale or foreclosure situation but most of the major reasons for homeowners can happen to even the most unsuspecting owner. For example, here is a list of common reasons that would qualify a homeowner for a short sale:

  1. Job loss
  2. Business failure
  3. Payment increase or a mortgage adjustment
  4. Divorce or death of a spouse
  5. Illness
  6. Relocation
  7. Reduced income
  8. Mortgage fraud
  9. Predatory lending practices

As you can see, many of these common causes for short sales and foreclosures can and do happen to many of us and when they happen to our friends and neighbors it can have an indirect impact on us as well. For more information on short sales/foreclosures please contact our office.

Posted By: Steve Randall





March 19, 2010

Considering Other Options Than Foreclosure

Posted to Short Sales / Foreclosures, Steve Randall

In this post we deal with options other than foreclosure that a homeowner may consider. Some of the options involve a Realtor and other options do not.

Homeowners Have Choices:

  1. Refinance: Homeowners work with lenders in the new HAFA program to reduce monthly payments amounts. No Realtor involvement is necessary.
  2. Lender Workout: Lenders at time will work with homeowners to restructure the loan and forgive missed payments or add them to the end of the loan. Fees can be wrapped into the new loan and interest rates lowered. No Realtor involvement is necessary
  3. Sell and bring cash to closing: If the homeowner has other resources, lenders will expect sellers to liquidate assets and bring money to closing to pay off the difference in the mortgage amount and the sale price of the home.
  4. Short Sale: In a short sale the lender agrees to accept less than full payment and to at least partially satisfy the amount owed to the lender. Short sales won’t damage the homeowners credit as much, have less impact of the neighborhood home values, and are a more civil way for lenders to release homeowner’s from their obligations.
  5. Deed in lieu of foreclosure: this occurs when the borrower agrees to trade the property to the lender and the lender agrees to cancel the note. In declining markets, lenders are less likely to accept this alternative. No Realtor involvement is necessary.
  6. Do nothing or walk away: At times a homeowner may simply be upset that the value of the property has dropped or that the other options available are too difficult so they just decide to walk away. Homeowners should always check with their attorney and account about this option because the consequences can be far more substantial than for homeowners than those who attempt to complete other alternatives. No Realtor would recommend this alternative but a Realtor is not needed in this option.

There certainly may be other options not mentioned above and there are many variations to the options above. The Federal Government’s current recommended choice is a short sale or deed in lieu of foreclosure and new guidelines have been established to move these processes through more quickly.

Please contact me for further information on foreclosure alternatives.

Posted By: Steve Randall





March 18, 2010

Working towards a short sale instead of foreclosure

Posted to Short Sales / Foreclosures, Steve Randall

In this post we talk of a real life short sale in progress in Fruit Heights, Utah. The Sellers were transferred to another State just as the real estate market was beginning its decline in Northern Utah. When unable to sell the home for more than the mortgagee value, their Realtor called us and asked for assistance renting the property. A qualified renter was found but then the Sellers had a pay reduction which meant their cash flow turned negative and it became necessary to sell. After receiving several offers and no response from both the first and second lien holder, the collections calls from the second lien holder began to increase… as well as the pressure. Without any further resources to rely on, payments got further behind and the collection calls increased. Frustration set in and the thought process was just to walk away from the property and declare bankruptcy and put this whole mess behind them.

What sellers need to understand is that foreclosure and bankruptcy are the two options that are least beneficial to them. We normally continue to work to complete a short sale until the actual foreclosure takes place. There is no harm in giving lenders one last try at a short sale because they really don’t want to take the home back into their inventory either. Short sales are less costly to lenders than foreclosures. We would encourage Sellers to hang in there until it actually forecloses before walking away.

The administration instigated a new HAMP (Home Affordability Modification Program). There is now a greater chance that lenders will cooperate. Click here for a recent article in the Utah Realtor Magazine explaining the new procedures and timelines.

Here are the advantages of a short sale over foreclosure or bankruptcy:

Short sales will impact credit less; statistics show if the Seller is current on other bills, credit may be negatively impacted 50 -70 points. This impact will be for a 2-3 year period. Completed Short Sales are reported on credit reports as:

  1. Paid in full – Paid as agreed
  2. Paid – Settled
  3. Paid – Unrated
  4. Paid – Less than owed

Foreclosure and Bankruptcy will impact a seller’s score over 200 points and stay with the seller for seven years …and may remain even longer on a credit record. It means difficulty in making any further time purchases for furniture, cars, and homes. It raises the interest rate when you do find those who will lend to you. The impact is longer lasting.

In the new short sale model, lenders are given incentives to offer a short sale solution over foreclosure/bankruptcy; $3,000 is given to subordinate liens like CitiBank. Lenders are now being paid (incentivized) to do a short sale rather than a foreclosure.

Here is more information on the HAFA program to help short sale sellers; plus a real life story from a person who actually went through a short sale.

For more information on short sales please contact me as soon as you become delinquent.

Posted By: Steve Randall





March 16, 2010

Short Sales and Foreclosures --- A Trend or Tidal Wave

Posted to Buyers, Sellers, Short Sales / Foreclosures, Steve Randall

Short sales are not new to real estate practitioners but the number of foreclosures and short sales on the Northern Utah market currently is higher than we have experienced in many years. The economic conditions have resulted in job loss and pay reduction for many causing a rise in delinquencies and stress on homeowners. In 2009, nationally, there were 1.9 million properties where foreclosure actions were started. This year the number is anticipated to increase. We certainly are seeing our share of short sale and foreclosures in Utah.

What is a foreclosure? Some may think of a foreclosure as a greedy lender taking over an owner’s home. Others may think of abandoned properties that cause a loss of value to the neighborhood and community. Still others may see this as a way for buyer’s to pick up properties on the courthouse steps for pennies on the dollar.

A simple definition of a foreclosure is a legal process whereby the borrower is deprived of their ownership interest in a property because of nonpayment.

The reality of the situation is that lenders really do not want these properties back on their books and with some exceptions, most buyers pay close to market price for homes that are in good condition. Short sales, by definition mean that the borrower owes more on the home than the home is currently worth in the marketplace. As property values decline, more and more northern Utah homeowners are facing this possibility.

Many borrowers work with their lenders to negotiate a short sale rather than letting the property go into foreclosure. A short sale allows the borrower a way out of the mortgage with less impact on the borrower’s credit and allows the borrower to re-enter the marketplace in 2-3 years.

A foreclosure will be on the borrower’s record for at least seven years and can have a negative impact on the borrower’s credit of 200 points or more. As of April 5, 2010, the Federal Government is encouraging lenders to pursue the short sale remedy first before taking the foreclosure option.

There are many websites that give information on how to proceed with a short sales or foreclosure. For information on foreclosures in Utah click here.

For more information or assistance with a short sale or foreclosure action please contact me at your earliest convenience.

Posted By: Steve Randall