WORD: Buy-Down

The WORD for Today is:

Buy-Down—a sum of money paid to the lender at closing to reduce the borrower’s out-of-pocket monthly mortgage payment. Buy-downs are usually temporary. In the last several years it has been common for the amount of the buy-down to be added to the purchase price for the house so that in effect the buyer is borrowing the reduction. This is a dangerous practice for several reasons: it adds to the indebtedness by inflating the mortgage/appraisal and causes the borrower to be upside down.

Buy-Down is also an inducement to a lender to reduce the interest rate on a loan during the early years of a loan. The buy-down payment to the lender may come from the seller, buyer, a third-party or a combination of these. The buy-down may be for the first 1-5 years of the loan; most common is the 2-1 buy-down. Buy-down sounds good but in a practical way it is seldom helpful to the borrower. If the borrower is not very strong financially and able to pay the buy-down totally out of pocket then it will be financed into the loan, which hurts them over the long haul. An artificially reduced rate now only means you have to catch up later. The lender is entitled to, and must receive, a certain rate of return. There really is NO FREE LUNCH.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

You can find more helpful definitions of WORDS like these in Your Real Estate Advisor which can be purchased at www.DovePublishingHouse.com.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

Reflections on the Home Affordable Loan Modification Program

The Obama Administration announced the H A M P program with great fanfare on March 4, 2009. It was a bold step to address the foreclosure problem which was clearly swirling out of control. $75 Billion committed to reducing loan payments. Projected to help more than 4 million homeowners.

It Began With a Premise

Foreclosures in the country were occurring at break neck speed and something had to be done. The plan was conceived based on the premise that homeowners would pay their mortgages—IF they could. Despite being upside-down, borrowers are committed to retaining their home. Warren Buffet has been quoted as saying “Commentary on the current housing crises often ignores the crucial fact that most foreclosures do not occur because a house is worth less than it’s mortgage (upside down). Rather, foreclosure takes place because borrowers can’t pay the monthly payment they agreed to pay.” It is a premise with which I agree and an honorable premise on which to craft a resolution.

A Look At the Program

H A M P or Home Affordable Loan Modification Program was launched with the specific and ambitious goal of making sure that millions of Americans would have the opportunity to remain in their homes even though market dynamics and other factors beyond their control meant the value of the property had declined AND they were struggling with payments but they wanted to keep their home. The goals were clear, the mandate receiving strong support. It seemed a good thing—for all the right reasons.

Reduction in Payment

To address the ‘ability to pay’ the H A M P plan provided guidelines for getting those payments under control. Conservative banking guidelines for many years had shown that mortgage payments at no more than 31% of a borrower’s income usually prove to be sustainable so that OLD underwriting guideline was used as a benchmark for what should be the new goal to help us get out of this mess.

To accomplish this, lenders and their servicing partners were provided with guidelines to make this happen:

a. First, Reduce the payment amount so that it was no more than 31% of the borrower’s monthly income

b. Reduce the interest rate to as low as 2% as a way to get the payment down farther

c. Extend the term of the loan—up to 40 years—further reducing the monthly payment

d. If the payment amount was still more than 31% of the borrower’s monthly income, THEN funds from the H A M P fund would be used to pay whatever was needed to get the payment down to 31% of monthly income

Adjusting the principle balance was not an option addressed by this plan even though it was a logical step (in the opinion of this writer) and had been the objective of the ‘cram down’ component of the bankruptcy reform legislation defeated late in 2008.

Criteria for Participation

H A M P was created as an option for owner-occupied properties with outstanding balances of $729,750 or less. The homeowner was required to demonstrate a hardship caused by a factor or factors beyond their control. It applied to loans originated prior to January 1, 2009. Modified payments were set up for 3 months, as a test to see if the borrower could afford the new payment.

If they made that threshold, then the loan modification became permanent (for 5 years, so let’s say, semi-permanent).

Investors or speculators were exempted from participations. So if you had bought into the hype that building a piece of America was the way to financial security, you were on your own. Consequently, it was expected by a number of observers that the number of foreclosures in this segment would rise dramatically, and RISE they have.

Incentives

In order to facilitate this voluntary program, the H A M P initiative provided for financial inducement to all parties to participate. Servicers (and/or the lenders whom they represented) were to receive $1,000 for each completed modification. The plan called for an additional $1,000 for each year the modification remained in place with a cap after 3 years. The borrower could get $1,000 off their principal balance for each year, up to five years.

“Net Present Value” Test

In order to determine which loans should be modified, lenders/servicers were to conduct a ‘net present value’ test. The test was supposed to compare the expected cash flow which would be generated under the program (with a modified, performing loan) as compared with the expected cash flow if the loan were not modified (and continued non-performing if the borrower were already in default). Let’s see, some $ paid, versus $0 paid. Not a hard test really. Seems like a no-brainer to me.

Good intentions for a worthy cause. So how did it go wrong. Why have consumers across the country been yelling fowl by the hundreds of thousands? Why has the Administration acknowledged that the program has not reached nearly the scope that they projected? We’ll provide those assessments in tomorrow’s blog. Don’t miss it.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

WORD: Jingle Mail

And the WORD for Today is...

‘Jingle Mail’

Words come into use and then fade from the forefront in the same way that clothes go out of fashion or popular stars fall into obscurity. Then something happens and they appear again. “Jingle mail" is such an expression. It may be a new expression to you but the phrase is being recycled because we are repeating the situation which sparks its use in the first place. Specifically, huge numbers of consumers who are hopelessly upside down on their mortgage, unable to get anything worked out with the lender and finally, in frustration, they simply mail the keys back to the bank. Keys in the mail—hence the phrase 'jingle mail’. Previous recessions—the oil bust in Texas and the dot com craziness immediately come to mind from recent history—left thousands of borrowers feeling so helpless that they eventually totally conceded and simply mailed the keys back to their lender. No workout, no release from further obligation—just I give—you win—take these keys and... You get the picture.

Across the country—and in your neighborhood—jingle mail which used to be an option of last resort is now being used by a new crop of borrowers. An especially interesting twist is that sometimes theses borrowers are NOT behind and sometimes they are behind but choose not to make the mortgage payment because their home is so seriously upside down.

Another new phrase has emerged; strategic default. This concept is gaining widespread acceptance as a reasonable way to deal with an unreasonable situation, especially if that borrower has not been able to get a solution from their lender which they felt was a reasonable one. Strategic defaults are increasing dramatically across the country and creating an intense firestorm over whether it is the ‘right’ thing to do'. I will not debate the ethical or moral side of the issue but will discuss the contractual side in a later post.

Suffice it to say that jingle mail will continue on the upswing since it is frequently used by someone who could not or chose not to get a formal deed-in-lieu completed by the lender. Instead, their solution was to use our reliable postal system to give the bank access to the house without the need to change the locks. Post office + Keys = Jingle mail.

"Remember, Knowledge CAN BE Empowering"

Mildred

If you found this post helpful why not sign up for the direct RSS feed? Or BUZZ this? Or tweet a friend?

WORD: Upside Down

And the WORD for Today is:

Upside down—refers to a situation when a consumer owes more on a house than the mortgage pay-off. Also called Underwater.

Underwater—relative to housing—this is a term which means a home cannot be sold on the open market today for enough money to pay-off the existing mortgage. There are a number of factors which might contribute to this being the case; an over-supply of houses in this price point perhaps because of over building, a limited supply of buyers for this type house, lack of easily affordable financing, a declining market because of excessive foreclosures, or various other factors might impact the seller’s ability to get an offer for as much as the current indebtedness on the property.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

You can find more helpful definitions of WORDS like these in Your Real Estate Advisor which can be purchased at www.DovePublishingHouse.com.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

WORD: Upside Down

And the WORD for Today is:

Upside Down - refers to a situation when a consumer owes more on a house than the mortgage pay-off. Also called Underwater.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

You can find more helpful definitions of WORDS like these in Your Real Estate Advisor which can be purchased at www.DovePublishingHouse.com.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

Fast Fact: Short Sale Denial

Too many folks have unrealistic expectations concerning a possible short sale. While it is now pretty common knowledge that lots of homes are “upside down” or “under water” most consumers (and too many REALTORS) don’t really understand how a short sale listing works.

FACT: The lender must approve a short sale in order for there to be a “closing”. Frequently the lender DOES NOT approve a short sale attempt and the homeowner eventually loses the home to foreclosure.

REALITY: When an agent lists a home for ‘possible short sale’ that listing is always based upon getting the approval of the lender to accept a shortfall if the new buyer will not pay enough to pay off the mortgage in full and pay all related expenses (commission, taxes, etc). All parties need to understand that it is a possible real estate transaction where the homeowner does not have the final say so about whether or not the offer being presented is or will be acceptable to the bank. There are numerous reasons why a lender may ultimately choose not to approve a possible short sale. Some are connected to the seller but the issue could just as easily be a second lien holder who refuses to budge on the amount needed to lift or satisfy their lien again the home. Or the lender could decide that they are not willing to accept the terms of the offer, as written. The possibilities could fill a rubix cube.


Several precautions are advised for sellers who are upside down:

a. All offers submitted to your agent should first be forwarded to your lender for their consideration. (That’s what “lender approval” means.)
b. Sellers would be ill-advised to sign a purchase agreement to sell the home to Mr./Mrs. Smith PRIOR to receiving, in writing, approval to do so.
c. Sellers should be aware that if you ignore item #b above (because your agent said you had to) and you agree to sell for $159,00 and your bank eventually says that you can close for $$175,000, you have a few thousand dollars to find real quick. (I suggest you get your agent to help you FIND the money since they gave you the advice).

The point is this; if you sign a legally binding contract which the bank later declines; you still signed a contract agreeing to sell your home for a specific amount. You can be sued by the potential buyer for “failure to perform”.

You were warned!

Copyright © 2008, Home Ownership Matters, LLC.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

Q&A: Should I Buy?

Q: I am thinking about buying a home even though the market is really bad in my area right now. It seems I might be able to get a really good deal on a house and I want to stop paying rent and get into home ownership. What are some of the things I need to consider? Or should I just wait altogether?

A: In today’s market you should certainly consider not only whether or not you can afford the home (down payment—20% or so, insurance, maintenance, etc) but it is critical that you are comfortable with the stability of the market in the area where you are considering purchasing. Are property values still sliding, or have they stabilized? Do you plan to live in the home for the next 8-10 years so the market conditions overall have returned to a more normal state? Can you buy the home at an amount which you feel will not have you upside down (owing more than possible re-sale) on day one?

If the home needs repairs do you have the funds readily available to handle them or can you do them yourself? Are you sure you are ready to assume the responsibilities associated with owning, caring for the yard, etc? Only you can answer most of these questions. I would recommend that you take some time and evaluate not only the questions which I already asked but also:

1. Why do you wish to buy? Is it to build equity? Enjoy a certain lifestyle? To feel that you have accomplished a goal you set for yourself? Because you are a certain age and you SHOULD? Is it because you are being told you are foolish if you keep renting? Carefully examine whether or not the reasons for considering the purchase come from within and that buying a house will, in fact, meet your needs.
2. Are you informed enough about all the aspects I have raised questions about to make a good decision?

If you are not, then do the research, seek out the answers, get the details so you make an educated decision. Then go for it.

Lastly, please tell me you are looking for a house for shelter, not a house as an investment. On the surface the question above gives the impression it is from an individual looking for a personal residence. I answered based on that assumption.

If you are very strong financially and want to invest in rental property for the long haul, then go for it—with caution. Keep in mind that everything written above still applies.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

Short Sale Buyer: 10 Critical Areas of Concern

Short Sale BUYER

Ten (10) Critical Areas of Concern

If you are thinking of buying a home in today’s market, there is a pretty good chance that you will find a home you like which is upside down (seller owes more than the house is worth in today’s market and the sale will require that the lender approve a short sale). Buying a ‘short sale’ is not necessarily a BAD thing but it is definitely a DIFFERENT thing than a regular purchase and so you need to ask yourself some important questions before you embark on this journey. I am going to assume that if you know the right questions to ask that you will be diligent about getting some good answers before you move forward.

Here are areas where you need to do your homework:

1. AGENT—Is your real estate agent experienced in working with short sale buyers? Know how short sale transactions differ from regular transactions? Provided you with sufficient documentation to help you know what the current value of the property is?
   
   
2. TIMING—Are you aware that it could take months (several months) for you to get an answer and go to closing on a short sale? Can you afford to wait for an indefinite period of time? Can you STAY in your current housing until you get closed—however long that might be? Did you know you can decide to walk away anytime you want to even though you have made an offer? Simply tell your agent to rescind your offer if you want to consider another house. (You know to do that in writing, yes?)
   
   
3. NEIGHBORHOOD—Have you done the research you need to do to be sure that the back side of the neighborhood is as appealing as the front side? Are you comfortable with the mix of owners vs. tenants in the neighborhood? Is the neighborhood moving more toward tenants? Are homes well-kept or more of them in disrepair? Have you driven the area at night—do you feel comfortable with the nighttime look and feel of the area you will be calling home? Is there a significant numbers of homes empty—whether for sale or otherwise available for occupancy (rent, lease, etc)? Are property values still falling or have they hit a plateau? Where did you check? (and don’t tell me you just asked your agent). Are you comfortable with the levels of taxes in the area? Are there any special assessments which you need to consider? If there is a neighborhood association, how financially sound is it? Have you stopped and talked to neighbors to see what is REALLY GOING ON IN THE NEIGHBORHOOD?
   
   
4. PROCESS—Did your agent carefully explain the short sale process to you? Did you ask for a response based on how long you are willing to wait (2-3 months) or based on the traditional practice of allowing only a few days? You wrote an offer which was presented to the local owner/seller but then forwarded to their lender/servicer for consideration. Are you aware that the lender may/will consider multiple offers and then make a decision on ONE of them? Were you warned that the Lender may counter your offer—after a very long time—even months after you initially wrote the offer? Are you prepared to increase the amount you are willing to pay or risk losing the house? Have you pre-determined how much you are willing to pay? May I suggest that should be the amount you should offer in the first place?
   
   
5. RISKS—Are numerous but forewarned is better than being caught off guard. Risks include:
   
   a. The SELLER may file bankruptcy—and the house cannot be sold to anyone
   
   b. The LENDER may foreclose and the property become unavailable
   
   c. ANOTHER OFFER may be accepted instead of yours (even if the seller signs your offer that does not mean that the LENDER/SERVICER is going to approve your offer instead of another one which they have received)
   
   
6. LONGTERM—Have you carefully considered whether this house meets your long-term needs (say for the next 10 years)? Lifestyle? Location? Size? Amenities? Condition? Does it have ‘growth potential’?
   
   
7. FINANCING—Do you already have a firm loan commitment from your institution—not a pre-approval? You should start out with a /loan commitment/ to increase your chances of getting your offer accepted and to avoid any surprises down the road. Can your lender use the appraisal recently acquired by the selling institution in order to speed up the process at the end? Did you know that your earnest money check should not be cashed until AFTER you have an offer accepted by the LENDER who is the real decision maker on a short sale transaction? (That could be 3 months from now.)
   
   
8. INSPECTION—Are you aware that most states allow you to have inspections on any property which you wish to acquire (including REO’s, short sales and anything listed ”as is”?) Is your agent encouraging you to have a full property inspection as a way to be sure you fully understand the ACTUAL condition of the property you want to acquire? (Good agents will insist that you should, especially on a short sale which probably has not been well maintained if the home is in foreclosure). Are you aware that you can decide NOT to move ahead with the purchase if the inspection shows some substantial issues which are unacceptable to you?
   
   
9. REPAIRS—Are you prepared to cover the cost for any repairs which are needed immediately (and in the near future) once you close? Have you gotten estimates based on the items uncovered during the inspection?
   
   
10. GETTING TO THE CLOSING—Are you prepared to wait a few or several months to get to the closing date? Are you comfortable knowing you may be asked to increase your offer amount at the last minute, once the lender knows EXACTLY how much is needed to make the deal work under the guidelines from the Guarantor on the loan?

I am a firm believer that if you point someone in the right direction, they will usually get where they were headed. These are not ALL the questions you need to be asking but you are certainly headed in the right direction.

A short sale does not have to be a nightmare. Not with an experienced agent and a well educated consumer. Good luck with your new home experience.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

Fast Fact #9 and #10

Fact #9. The “HARDSHIP PACKAGE” is a critical element of the short sale. How can you be sure it’s prepared effectively?

Fact #10. You can be fairly competent to handle an upside down listing IF you take Day One and Day Two of the FIS training.

© Copyright 2007, Home Ownership Matters, LLC. All Rights Reserved.

(Please e-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have. We appreciate all feedback, comments, and especially your questions. Don't be shy!)

Community Service Announcement: Funding for Foreclosure Training

Home Ownership Matters is pleased to be able to tell you that NAR (National Association of REALTORS) announced on March 1, 2009 a grant of $3 million dollars which is to be used for foreclosure training by state and local real estate boards around the country.

As part of their “RIGHT TOOLS—RIGHT NOW” initiative, NAR has made the funds available by launching the Foreclosure Prevention and Response Program (FRP). Unlike many government programs which are complicated, with unclear guidelines and take months to implement, this initiative could easily be dubbed as the real estate professionals “giving back”. The funds can be used for either professional training and/or community outreach programs and it is very likely that the bulk of the funds will be utilized for training for agents who need to better understand the changes associated with helping a consumer who is either already in default or expects to be in default.

Personally, I’d vote any day for someone to help my agent afford the training they need to better understand my situation. Since REALTORS are self-employed many of them are struggling right along with other segments of the community, and would have difficulty paying for the specialized training which these funds will make possible.

Comprehensive training on how to manage a short sale is rather expensive, but is now attainable as a result of this program. If you need to sell a home and it is "upside down" would you rather have a well-trained "short sale specialist" or someone who has taken a 4 hour class on what to do?

The application process is easy (2 short pages) and while it requires coordination between your local board and the state board, it should not be difficult to have quality foreclosure training approved and scheduled within the next 6 weeks. The entire $3 million is set aside to be used by the end of 2010. For more information, log onto NAR for details.

(NAR) offering you the "RIGHT TOOLS—RIGHT NOW"

How is that for stepping up to the plate?

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

Q&A: Pended House—Available?

Q: My wife found this house which we really, really love from looking at the outside and peeping in the windows. When we called our agent to tell her we wanted to look at it she told us ‘It is pended’. If a sale is pending on a house, can I still take a walk-through with my agent and if I want it, make an offer?

A: Yes and Maybe. Real estate is changing at break neck speed these days and things which were iron clad just a few months ago are not so concrete any more. Coupled with the fact that all real estate agents do not understand exactly what certain terms mean, causing them to misuse terms and confuse the general public as well as other agents.

“Pended” is SUPPOSED to mean that there is an accepted offer between a bona-fide buyer and a seller. It is SUPPOSED to mean that the parties have agreed on all terms and are waiting for a closing date in the near future. However, it does not always mean that in today’s market. Today there are agents who “pend” properties which have been listed as potential short sales once they have an “offer in hand”. Such an offer must always be accepted not only by the homeowner who is upside down and possibly in default, but also by the lender who will be ‘shorted’ at a potential closing. When this is the case, an offer being submitted does not equate to an acceptance by the lender. Additionally, the fact that the homeowner who is attempting to sell has agreed, does not necessarily mean that the lender will go along with that specific offer.

Under the scenario I just described, it is possible to have an offer ‘pended’ in your local mls which has not been lender approved and which could be viewed, followed by an offer being written which the lender could entertain. On short sales, the lender reserves the right to consider all offers until THE LENDER has granted approval and ordered a closing. They reserve that right up until the time of the actual closing

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

Your Real Estate Advisor: Deal or No Deal?

This catchy title from a popular game show has increasingly become a weekly nightmare for real estate professionals. In a market where an alarming number of clients are behind on their mortgage AND upside down, many agents are finding themselves sitting for ever increasing amounts of time—sometimes months—waiting for the lender in some distant city to notify the interested parties that, “Yes, we have a workable deal”. Now, get it closed in short order (7-10 days is not uncommon) and “No, we will not allow any contributions toward the buyer’s costs”.

Common practices (seller concessions) are not part of this transaction. Local real estate agents negotiating with a distant third party who does not, in fact, own the real estate (lenders’ loss mitigation department) has become a new reality for many real estate professionals. This practice will continue and become more commonplace as more consumers find themselves in a position where they are unable to make their mortgage payments and the local market will not support the full amount needed to cover mortgage payoff and the expenses associated with the sale. It’s called a “short sale” and the rules of the transaction are markedly different from how you used to sell homes.

“DEAL” means yes, we will allow the closing to occur. You must close quickly or we will change our minds. Seldom will any seller concessions be allowed. Worse yet, seldom will full commission be allowed. Frequently, the lender will notify all parties of a counter offer only after an extended period of time of complete silence. Then you are basically in a “take it or leave it” situation. It is critical that you get an actual letter of confirmation which includes ALL terms of the transaction from a representative of the financial institution, so that you know that the deal can be finalized with a closing and exactly which terms are acceptable.

“NO DEAL” means the lender/servicer has determined that the offer(s) is not workable for them or their insurer. There are a number of reasons why this might be true, but in essence you have been told they will not allow the closing and will most likely move forward with completing foreclosure action against the current owner of the home. There are a few options for intervention, but unless you have been trained in foreclosure intervention this an excellent time to utilize a mutual release. “NO DEAL” usually means go home—whether you’re on a game show or trying to sell real estate.




Mildred Wilkins, founder and president of Home Ownership Matters, LLC. She is the trainer for the (FIS) Foreclosure Intervention Specialist certification program. Visit her website www.HomeOwnershipMatters.com or call toll free (866) 507-5105.

Copyright © 2007. HOM, LLC. All rights reserved.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

Your Real Estate Advisor: 4 Prudent Rules for Buyers of Short Sale Listings

Four Prudent Rules for BUYERS Who Write Offers on Short Sale Listings

Rule 1: STAY PUT: Do not give notice in your existing housing until after you have closed on a short sale listing. Even if you have to pay a significant amount to go to a month to month arrangement where you currently live. The path to a closing on a short sale listing could get bumpy. The seller might:

1. File for bankruptcy which removes the home from availability
2. Receive an offer from another potential purchaser which the lender decides to accept instead of your offer
3. Lose the home to foreclosure in which case you will no longer have a valid offer and will need to attempt to purchase it as an REO, if you are still interested

Rule 2: BE SUSPICIOUS: If your offer is signed by the seller very shortly after you write the offer (within a few days) then the chances are pretty good that the seller signed without the lender’s approval. There is no guarantee that the lender is going to approve. Most likely you have a listing agent who does not clearly understand that “lender approval required” means the “Lender has the right to accept or reject any offer which is not to their liking”. Everyone should wait until you have the lender’s “required” approval for the acceptance of a short sale.

You should not be celebrating that you are going to be closing if the seller signed but you do not have the lender’s approval. Lenders make the final decisions on short sales, not the sellers who are upside down nor the REALTORS who are unfamiliar with or unwilling to bend to the way short sale transactions are typically handled.

Rule 3: BE PATIENT: We mean be prepared to be ‘seriously’ patient, like for a few months. Literally. Buying a home which is listed for a short sale can get you a great deal on a property, but you must be prepared to wait for an extended period of time (2-3 months is common). The lender has numerous things they must check and cross-check before they can approve a short sale. Watch for a future blog on “What is Taking Them So Long?” We’ll address the laundry list of things which must be checked before a short sale can be approved.

Rule 4: EXPECT A COUNTER: Four things you should understand from the beginning:

1. Your offer is likely to be set aside until the lender gathers the information they need to make a decision
2. Your offer is likely to be ‘joined’ by additional offers during this waiting period
3. The Lender is likely to present a COUNTER OFFER to the potential purchaser who they believe has the offer which will net them the most
4. That this COUNTER may not be presented to all potential buyers

Consequently, you should write the offer for the amount you are willing to pay since you can not be guaranteed a second opportunity to increase that amount. Short sale transactions are a real estate gamble; you’ve got to realize that going in and decide if you have the stomach for this kind of acquisition. If not, find a regular listing which will offer you the comfort of more traditional negotiating and timing.

It’s all in the game. All in the wonderful game that we know as: Short Sale.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

WORD: Negative Equity

And the WORD for Today is:

Negative Equity – means the amount you owe on your home is less than the total amount of all outstanding liens against the property. For example if you refinance your home with a new mortgage totaling $150,000 but you could only sell it in the current market for $130,000 you have negative equity of $20,000. This is also frequently called being "upside down." This is also a strong argument AGAINST using refinancing as a means to consolidate non-secured debt into your mortgage loan. Once you are in a negative equity position it is nearly impossible to sell your home should you need to do so. It also frequently leads to foreclosure.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

You can find more helpful definitions of WORDS like these in Your Real Estate Advisor which can be purchased atwww.DovePublishingHouse.com.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

WORD: Equity

And the WORD for Today is:

Equity—the current market value of the property MINUS any and all liens against it (mortgage, etc or any other legally enforceable liens). Example: You have a home, which cost you $150,000. You have an outstanding 1st mortgage of $120,000, a 2nd mortgage of $10,000 and no other applicable liens. The current market value of the home is $160,000 with total debt of $130,000 the homeowner’s equity is $30,000. If property values have declined in the area and the current market value of the above mentioned home is only $125,000 the house is what is being called ‘upside down’. There is NO EQUITY and instead the owner owes $5,000 more than the market will bear.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

You can find more helpful definitions of WORDS like these in Your Real Estate Advisor which can be purchased at www.DovePublishingHouse.com.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

WORD: Cash Out

And the WORD for Today is:

Cash Out—is a term most commonly associated with refinancing. The popularity of the cash out refinance has resulted in a depleting of home equity across the nation and left millions of homeowners who were financially secure and confident of continued home ownership teetering on the edge of foreclosure. A cash out refinance means to take out some (or the entire) amount of a seller’s equity in cash rather than retain some interest in the property. The borrower is trading equity, which has accumulated over a period of time for cash which will usually be utilized for something less stable than their home. Aggressive marketing and slick salespeople have been exceedingly successful in convincing the American public that the cash refinance made great sense as a way to have or do whatever you want to do—RIGHT NOW. Unfortunately, there has not been a corresponding educational campaign about the risks associated with undermining the stability of your single largest investment—your home. Nor have there been meaningful conversations about the long-term implications of the cash-out craze during the past 10 years. Unprecedented foreclosures among seniors who had substantial equity is the fall-out.

Cash-Out Refinance—has become a very popular way for consumers to get money for any number of things by refinancing their home and getting cash back at closing. Also commonly called “taking out your equity” this is not a bad idea IF you actually have equity. It is a problem if you borrow to the extent that you either owe as much as the home is worth OR borrow in EXCESS of the value of the home. You will have created an upside down situation, making it difficult or impossible to sell your home.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

You can find more helpful definitions of WORDS like these in Your Real Estate Advisor which can be purchased at www.DovePublishingHouse.com.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

Q&A: Can We Still List?

Q: While we are behind on our mortgage payments do we still have the right to try and sell our home? The letter from our lender said we are in foreclosure but there has not been a court date that we know of yet.

A: If you have not filed for bankruptcy you still have the right to put the home on the market for sale. In fact, that is an excellent idea if you are facing foreclosure and feel that you will not be able to resume making the payments. A pre-foreclosure sale means that you are facing foreclosure but it does not necessarily mean that you owe more to the bank than the home will bring on the open market.

In the event you are “upside down” and the sale will not cover the full amount that you owe the bank, then you need to use a real estate agent who specializes in short sales. Your listing contract should state “sale will require lender approval.” This language should also be included in the advertising for the home so potential purchasers are aware that the bank will need to consider any offer which is submitted.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

Q&A: Strategic Default

Strategic Default

Q. My house is worth considerably less than what my mortgage payoff is currently. My husband and I are still working and can manage the payment but it just does not make sense to keep making a payment every month when we are so upside down. I have heard the phrase ‘strategic default’ which seems to mean the people just decided to walk away and leave the house. Is this something we should consider?

A. The issue of strategic default has not been addressed in this blog at all until it was mentioned recently in the jingle mail blog. First, let’s get some clarity about what is being called a strategic default. As the phrase is being used currently it most often refers to someone who:

1. Has the financial means to keep making the mortgage payment
2. Has determined that the balance is significantly higher than the value of the property to the point that no turnaround is likely in the foreseeable future
3. Has been unsuccessful in getting the lender to renegotiate for a reduced principal balance
4. Has consciously made the decision to forgo additional mortgage payments and let the chips fall where they may (including the most likely outcome being foreclosure)

Now that I have provided clarity on when it might be considered, I will answer that question you asked, which is, should you consider it. My answer is that ONLY you can decide if you are willing to accept the consequences which are likely to occur as a result of a strategic default. I would not presume to try to move you one way nor the other. I will give you a glimpse of possible consequences to help you in the decision.

Possible consequences include:

1. Foreclosure—very likely—almost a given
2. Deficiency judgment—depends on your state foreclosure laws, highly likely where permitted
3. Additional expenses incurred due to vandalism to the property after you abandon and before the lender/guarantor puts the property into their name. Scary thought if they never do. (or if it is six months or a year from now and the value of the home has continued to decrease.)
4. Lender or Guarantor may be successful in going after assets you have to satisfy the deficiency mentioned above
5. Negative impact on the possibility of a future home purchase (kind of like a separation, you left but you can’t marry anybody else until you get the divorce)
6. Possible liability should someone be injured or killed on the property while you are still the title holder and the party responsible for insurance (even though you have not paid it)
7. Possible tax liability for the shortage, once that has been determined
8. I could mention a few more but you get the picture

While there is the compulsion to walk away from this really, really difficult situation you need to weigh the pros and cons carefully...then ask yourself...what is the worst thing that can happen?

Can you live with that, whatever that is? If you can, then move forward knowing that you considered the options and made an informed decision. Best of luck, whatever you decide.

"Remember, knowledge can be empowering!"

Mildred

Q&A: Money in the Bank

Q: If I want to do a short sale and I have money in the bank (let’s say $10,000) can my lender take that money from me?

A: I have some good news and some bad news.

Good news: No, a lender cannot force you to withdraw money from your personal accounts to give them if your home is upside down. Nor can they withdraw money from your accounts if you are in default. Their hands are tied in relationship to other assets you may have, they only have control of your house.

Bad news: You can’t force them nor compel them to approve a short sale IF YOU HAVE $10,000 IN THE BANK. But they do have control of your HOUSE. They can—and will—refuse to allow the short sale to close unless you have demonstrated that you have no resources with which to cover even part of the shortage.

So, I expect your question then becomes, “How would they know what I have in the bank?” And the answer is: you have to tell them. In order to even be considered for a short sale you must provide details of your finances through an extensive hardship package. They will usually ask for the last 2 years’s tax returns, most recent 3 months’ bank statements, savings accounts, etc. (You should keep in mind that your loan application detailed what accounts you had). You will also be required to sign stating that you are telling the truth.

The servicer has an obligation, imposed by the guarantor, to be sure that you DON’T have resources to offset the anticipated loss before they agree to let you close. It’s that catch 22 thing again, you ain’t got enough money, but you are blocked because you do have money.

Likely outcome: They will most likely agree to a short sale provided you cough up the $10K. I said they can’t just take it, which is different than refusing to play ball until you fork it over.

I encourage you to watch INtro #5 “What’s a Hardship Package Anyway?” It’s available, FREE, at www.HOMwebinar.com

Good luck!

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

Short Sale Fast Facts for Consumers

Short Sale Fast FACTS for Consumers

1. Short Sale could be your solution—but it has some pitfalls

Get informed and Get started

2. Short Sale is an Option Not a RIGHT

You will need to “qualify” for the option to dispose of the house by using a short sale.

Most lenders use the same basic criteria—what I call the “Universal Hardship Test”

• Was the default ‘trigger’ something beyond your control
• Did the trigger lead to an increase in expenses or a decrease in income?
• Are you still an occupant in the home secured by the loan?
• Have you depleted all of your assets available to make mortgage payments?
• Are you willing to pull together the documents required by the lender/guarantor to determine if they believe you qualify for a workout?
• If there is a co-borrower, are both parties committed to this workout attempt?

3. Finding a competent REALTOR could be difficult

A short sale is a Speciality transaction. You need to find a

REALTOR who:

• Works full-time—yes, even in today’s climate
• Is experienced in short sales (means they closed)
• Is familiar with your area and price point
• Whom you feel comfortable with
• Who is able to demonstrate to you what the value of your home is compared to similar homes in the neighborhood
• Has the ability to effectively market your home
• Is pleased to share with you that they have had specialized training in Short Sales (I mentioned this last, because if they haven’t mentioned by now, it is because they don’t have any—Not a good sign)

4. You can list the home for short sale—BEFORE the lender approves the

short sale—

**As long as you indicate that “all offers are subject to lender approval” This should be included on your listing contract, on the seller disclosure form and within the comments on the MLS sheet

**You can’t ACCEPT and CLOSE without the lender’s approval but you don’t have to wait to get started. Why not start today? Is your house ready? Do you have the documents needed for the hardship package?

5. Might leave you with a deficiency—which could be used to get a judgment against you

Negotiate to get the lender to agree to “waive their right to a deficiency judgment” as part of the short sale approval letter.

You should NEVER assume that because the lender agreed to the short sale that they have waived their right to pursue you for the shortage.

If it’s not in writing—signed by an authority—you should expect them to pursue you for the shortage.

6. Foreclosure process—will most likely continue, even while you have the house on the market for sale

FHA loans which are subject to HUD regulations—require that the foreclosure process STOP while the home is marketed for short sale

Foreclosure action continues on ALL other loan types

7. Listing Termination—can be mandated by your lender when you are in default

The Lender is not a party to the listing contract and you might logically assume that therefore they had no say so about what does or does not happen with the attempt to sell your home.

Unfortunately, you would be mistaken.

Government guarantors, HUD, VA, USDA, Fannie Mae, Freddie Mac, and Rural Development have the right under Federal regulations to compel you to withdraw the listing IF:

You are cooperating with showing the property as a show of ‘good faith’

Title issues are uncovered which would prevent the transfer to a new buyer

The condition of the property is such that a sale is unlikely

You have failed to comply with request for information to determine your eligibility for a workout. Remember: This is an Option, not a RIGHT.

8. Second Liens can present a challenge—also known as a ‘stumbling block’

Second lien holders seldom initiate foreclosure; they block short sales all the time with their obstinacy. You cannot transfer real estate to a new buyer when there is a second lien holder without their cooperation.

They must either:

a. Release the lien

b. ‘Lift’ the lien and permit the closing

Usually they can be enticed to do one of these things, preferably the first. Many will accept a token payment as a settlement for the obligation if foreclosure is imminent and they stand to get nothing after the lien is wiped out. Other they may agree to an unsecured loan in exchange for

their cooperation.

Your lender may make a contribution toward getting this second released, especially if you have a government backed loan. Their regulations have a stipulated amount set aside for this purpose. Get your facts and get going.

9. Tax Implications—Didn’t Your REALTOR mention that?

When there is a deficiency (difference between what you owe on the house and what the new buyer is willing to pay for it) you are taxed on that amount as though you received it as a gift.

IRS rules require that the lender provide this information directly to IRS for tax purposes.

You should NEVER assume that because the lender agreed to the short sale that they have waived their right

10. Now about signing those papers…….WAIT

I believe strongly that the seller of a property which is upside down would do well to pretend their fingers are broken once they have signed the listing contract and seller disclosure form until Mr. Smitherman, the supervisor at the bank, has:

a. Approved their short sale, with all continguences

b. Given them permission in writing to sign something

As a trainer, I take the position that ‘lender approval’ means getting the lender’s approval before you agree to anything with a potential buyer.

That means do not sign a purchase agreement, no matter what contingency clauses have been included by a so-called sharp REALTOR. Do not sign a counter offer. I said, ‘pretend your fingers are broken until the supervisor at the bank tells you to sign something.

If you sign BEFORE he tells you to, you are agreeing to terms which he has not yet agreed to. You cannot perform (or deliver the deed to the house) without his agreement. He may:

a. Select a difference ‘potential purchaser’

b. Counter and ask for a lot more money

c. Go ahead and foreclose, then you have nothing to sell.

Don’t get ahead of the bank. “Lender approval required” means the bank gets to decide everything: to whom we will sell, and for what amount, on what terms. Don’t allow yourself to be lulled into thinking it’s okay to make an agreement and then get his approval. That is risky business. Remember, your fingers are broken.

Please share today’s blog with someone you know who is struggling and not sure what steps to take next.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)