If you are in jeopardy of loosing your primary home, you need an agent that understands the "Short-Sale" process and foreclosure process. If you have already lost your home to foreclosure, there is some good news for you too.
This post is to inform the many that still do not know that Mortgage Debt Cancellation Relief-HR 3648 passed.
What this means is that primary residents that may have previously received a 1099 for a shortage in a payoff on a sale, will not have to worry for any sale of a primary residence or foreclosure that takes place between January 1st 2007 and December 31st 2009.
Fore more specific details, you may contact your agent or attorney.
WHAT AFFECTS MORTGAGE RATES?
Many consumers eagerly follow mortgage rates trying to time a refinance or in anticipation of buying a new home. Most don’t really understand the dynamics of what causes mortgage rates to change. What follows is an explanation of how this occurs. Please note, many of the concepts have been simplified to make them easier to understand & follow.
How Often Can Mortgage Rates Change?
First it’s important to understand that mortgage rates can change just like stocks, by the minute! Normal practice though, is lenders set their rates daily. They take a peek at the financial markets when they open to get a feel for how the day may go, and usually publish their rates between 10am and 12am. Lenders do reserve the right to change rates at any time without notice, if market conditions change dramatically enough later in the day. Of course, lenders are more likely to raise rates rather than lower them.
What Affects Mortgage Rates?
In one word, INFLATION! More accurately, it’s the financial markets’ anticipation of inflation that causes mortgage rates to change. So now you need to understand inflation.
Why Does Inflation affect Mortgage Rates?
Inflation is the nemesis of long-term investors. Over time it causes prices to rise & buying power to decline. For example, let's say you won a lottery that paid you $1,000 every month for 30 years. At first, that $1,000 would buy a lot of things, but over time as prices went up, you’d be able to buy less & less with that same $1,000.
In the same way, inflation eats away at the value of a long-term fixed instrument like a bond or a mortgage. Because bond investors are very aware of this, they’ll require a higher rate of return, through a higher interest rate, on their investment to compensate them if they feel inflation will be increasing.
So, How Do Mortgage Rates Change?
Many people mistakenly think mortgage rates change with the 10-year bond. Actually, mortgage rates change based on the trading of Mortgage Backed Securities (MBS) on Wall Street. The 10-year bond can be used as a leading indicator of what MBS & mortgage rates are doing, but it’s important to understand that this is not really accurate.
What’s a Mortgage Backed Security?
When a lender gives someone a mortgage, they may or may not be actually lending their own money. They may be actually lending money off a credit line. In either case, at some point they will usually seek to recoup their money so they can lend it to the next customer. To recoup their money they go to Wall Street and sell the rights to the loan, but retain the servicing of the loan. This transaction is accomplished through the creation of a Mortgage Backed Security (MBS). So when you make a payment on a mortgage, the lender receiving your payment keeps part of the interest as their fee for servicing the loan, and then forwards the rest of your payment to Wall Street and whoever owns the MBS. Just like stocks & bonds, MBS are traded on Wall Street. The changing sales prices of the MBS, lead to changes in mortgage interest rates.
Does Anything Else Affect Mortgage Rates?
The stock market also has an effect on mortgage interest rates. It’s important to understand that there’s a limited amount of liquid assets or money in the financial markets. These assets can be in the form of checking & savings accounts, mutual funds, individual stock portfolios, and retirement funds like IRA’s & 401(k)’s. They can be invested in two basic parts of the financial market – equities (stocks) or fixed instruments (bonds and securities). When investors put assets into stocks and drive the stock prices up, they often pull those assets out of the bonds & securities. This drives the prices of bonds & securities down (basic supply & demand) forcing the yields or interest rates up. Conversely, when there’s a sell-off in the stock market, those assets are often put into bonds & securities for safety, resulting in rates dropping.
World events also affect the financial markets. War, political turmoil or a foreign country’s economic problems can make international investors nervous enough to put their assets into the U.S. bond & securities markets as these markets are perceived to be the safest havens in the world. This “flight to quality” can cause interest rates to drop in spite of inflationary concerns.
The Federal Reserve & Mortgage Rates
Many consumers incorrectly believe the Federal Reserve directly controls mortgage rates. The Fed actually only controls the Fed Fund & Fed Discount Rates, which are very short-term loans when compared to a 30-year mortgage. The Fed Discount Rate is the interest rate that banks can borrower money directly from the Federal Reserve at the “discount window”. The Fed Fund Rate is the interest rate at which private depository institutions (mostly banks) lend balances (federal funds) at the Federal Reserve to other depository institutions, usually overnight. This rate affects the Prime Rate that banks set. Most Home Equity Lines Of Credit (HELOC) and credit card rates are tied to Prime. The Fed uses the Fed Fund Rate to try and control the U.S. economy, lowering the rate to stimulate the economy and raising it to slow inflation. It’s what the bond & securities markets anticipate the Fed’s actions will have on inflation that dictates what mortgage rates will do! Often when the Fed lowers its rate to stimulate the economy, the financial markets will anticipate inflation increasing and will react by raising interest rates. Conversely, mortgage rates often drop when the Fed increases the Fed Rate because the markets anticipate the Feds actions slowing inflation.
It’s important to note that sometimes the financial markets can be disappointed in the Feds actions and will react in unanticipated ways. Also, the fact that we are moving closer to a global economy means it’s also important how foreign markets react to the Feds movements.
Summary
Hopefully, this sheds some light on the complicated dynamics affecting mortgage rates. The average person can no more predict what mortgage rates will do on any given day, than they can predict what the stock market will do. The key is finding a Certified Mortgage & Equity Planner who can assist you in analyzing the volatility of current market conditions when you’re ready for a new mortgage, so you can make a better informed decision.
Drew Sygit, CMPS, CALO, MBA
www.TheLendingEdge.com
How Often Can Mortgage Rates Change?
First it’s important to understand that mortgage rates can change just like stocks, by the minute! Normal practice though, is lenders set their rates daily. They take a peek at the financial markets when they open to get a feel for how the day may go, and usually publish their rates between 10am and 12am. Lenders do reserve the right to change rates at any time without notice, if market conditions change dramatically enough later in the day. Of course, lenders are more likely to raise rates rather than lower them.
What Affects Mortgage Rates?
In one word, INFLATION! More accurately, it’s the financial markets’ anticipation of inflation that causes mortgage rates to change. So now you need to understand inflation.
Why Does Inflation affect Mortgage Rates?
Inflation is the nemesis of long-term investors. Over time it causes prices to rise & buying power to decline. For example, let's say you won a lottery that paid you $1,000 every month for 30 years. At first, that $1,000 would buy a lot of things, but over time as prices went up, you’d be able to buy less & less with that same $1,000.
In the same way, inflation eats away at the value of a long-term fixed instrument like a bond or a mortgage. Because bond investors are very aware of this, they’ll require a higher rate of return, through a higher interest rate, on their investment to compensate them if they feel inflation will be increasing.
So, How Do Mortgage Rates Change?
Many people mistakenly think mortgage rates change with the 10-year bond. Actually, mortgage rates change based on the trading of Mortgage Backed Securities (MBS) on Wall Street. The 10-year bond can be used as a leading indicator of what MBS & mortgage rates are doing, but it’s important to understand that this is not really accurate.
What’s a Mortgage Backed Security?
When a lender gives someone a mortgage, they may or may not be actually lending their own money. They may be actually lending money off a credit line. In either case, at some point they will usually seek to recoup their money so they can lend it to the next customer. To recoup their money they go to Wall Street and sell the rights to the loan, but retain the servicing of the loan. This transaction is accomplished through the creation of a Mortgage Backed Security (MBS). So when you make a payment on a mortgage, the lender receiving your payment keeps part of the interest as their fee for servicing the loan, and then forwards the rest of your payment to Wall Street and whoever owns the MBS. Just like stocks & bonds, MBS are traded on Wall Street. The changing sales prices of the MBS, lead to changes in mortgage interest rates.
Does Anything Else Affect Mortgage Rates?
The stock market also has an effect on mortgage interest rates. It’s important to understand that there’s a limited amount of liquid assets or money in the financial markets. These assets can be in the form of checking & savings accounts, mutual funds, individual stock portfolios, and retirement funds like IRA’s & 401(k)’s. They can be invested in two basic parts of the financial market – equities (stocks) or fixed instruments (bonds and securities). When investors put assets into stocks and drive the stock prices up, they often pull those assets out of the bonds & securities. This drives the prices of bonds & securities down (basic supply & demand) forcing the yields or interest rates up. Conversely, when there’s a sell-off in the stock market, those assets are often put into bonds & securities for safety, resulting in rates dropping.
World events also affect the financial markets. War, political turmoil or a foreign country’s economic problems can make international investors nervous enough to put their assets into the U.S. bond & securities markets as these markets are perceived to be the safest havens in the world. This “flight to quality” can cause interest rates to drop in spite of inflationary concerns.
The Federal Reserve & Mortgage Rates
Many consumers incorrectly believe the Federal Reserve directly controls mortgage rates. The Fed actually only controls the Fed Fund & Fed Discount Rates, which are very short-term loans when compared to a 30-year mortgage. The Fed Discount Rate is the interest rate that banks can borrower money directly from the Federal Reserve at the “discount window”. The Fed Fund Rate is the interest rate at which private depository institutions (mostly banks) lend balances (federal funds) at the Federal Reserve to other depository institutions, usually overnight. This rate affects the Prime Rate that banks set. Most Home Equity Lines Of Credit (HELOC) and credit card rates are tied to Prime. The Fed uses the Fed Fund Rate to try and control the U.S. economy, lowering the rate to stimulate the economy and raising it to slow inflation. It’s what the bond & securities markets anticipate the Fed’s actions will have on inflation that dictates what mortgage rates will do! Often when the Fed lowers its rate to stimulate the economy, the financial markets will anticipate inflation increasing and will react by raising interest rates. Conversely, mortgage rates often drop when the Fed increases the Fed Rate because the markets anticipate the Feds actions slowing inflation.
It’s important to note that sometimes the financial markets can be disappointed in the Feds actions and will react in unanticipated ways. Also, the fact that we are moving closer to a global economy means it’s also important how foreign markets react to the Feds movements.
Summary
Hopefully, this sheds some light on the complicated dynamics affecting mortgage rates. The average person can no more predict what mortgage rates will do on any given day, than they can predict what the stock market will do. The key is finding a Certified Mortgage & Equity Planner who can assist you in analyzing the volatility of current market conditions when you’re ready for a new mortgage, so you can make a better informed decision.
Drew Sygit, CMPS, CALO, MBA
www.TheLendingEdge.com
FOR REALTORS
IN TODAY'S MARKET, MANY REALTORS STILL LACK ONE SKILL
NOT all agents have one tool in their toolbox or know about it yet and even if they have heard about it, don’t have a clue on how to successfully put one together. If you are an agent that has come across a seller that is in distress (loss of job, death of spouse, divorce, major illness, etc…) and owes more on their home than what it is worth, but do not know exactly how to do a successful short-sale, consider referring it out to an agent that has had a tremendous amount of recent experience!
Just to make sure we're on the same page, a short sale is simply when a lender accepts less for a home than is currently owned.
Now a few years ago, doing short sales with banks were almost heard of. These days, things are quite different.
So if short sales are so powerful, why aren't more agents doing them?
Because there's a huge obstacle in the way, and based on my experience, the biggest obstacle to doing short sales is that each one is still somewhat unique so it almost has to become a specialty.
There are certain myths floating around out there that I want to dispel:
Short Sale Myth #1: Banks Won't Do Them...
A few years ago, when the market was hot, this was largely the case. Banks had no financial incentive to do short sales. There was simply no need.
In today’s market, things are different...
Banks are in business to make money. They can't make money when their customers default on their mortgages. When a bank is forced to foreclose on a property, that REO inventory prevents the bank from lending a certain amount of money as they need to have cash in reserve, and a bank can't make money if it can't lend money.
A foreclosure is bad business for a bank. That means there is a huge upside for doing short sales. These days, banks are motivated to minimize risk as much as possible. A properly structured short sale does that for them.
Short Sale Myth #2: Not All Banks Do Them...
This one is simple. ALL major lenders do short sales. In fact, they have entire departments dedicated to that very thing. It's called the loss mitigation department.
It's just that sometimes what they SAY they'll do and what they'll actually do are two different things. Experience in this area helps tremendously.
Short Sale Myth #3: Lenders Won't Pay Commissions...
The bank doesn't care primarily about commission. The bank cares about their bottom line, (NET to them.)
This might sound too good to be true, but I have been successful thus far in getting my usual and normal commission rate for doing short sales.
Short Sale Myth #4: Sellers Facing Pre-Foreclosure Will NOT Be Cooperative...
This is one of the biggest myths out there. Once I have been able to take a seller through the scenario and explain how foreclosure stays on their credit for 10 full years vs. allowing me to help them properly package and dispose of their property for the bank (which may get them out with a 14-24 month ding on their credit) and prevent the foreclosure from actually hitting their credit report, they are all for it!
So sellers are cooperative and this couldn't be further from the truth.
Here are the simple facts:
Doing a short sale keeps the client from losing their home to foreclosure. It keeps them from having the negative mark of a foreclosure on their credit. That's HUGE! Does it really make sense that the client would be "uncooperative" for helping them save their credit?
When you help solve big problems for people, they tend to be VERY cooperative.
Short Sale Myth #5: Short Sales are HARD...
Yes, short sales are a different animal. They do require a lot of work and require patience and persistence. They aren’t rocket science though.
To do short sales, I have had to learn the process. It's a new skill that most Realtors simply don't know.
BEWARE-
Of course, you can't take two steps without tripping over the newest "we'll close your short sale for you" company. They charge a fee for this "service." By the way, it's often non-refundable.
SO REFER IT OUT…
So if you have come across a lead that may qualify for a short sale, contact me. Put together a referral sheet and fax it to me at 248-283-2461 Or call me at 248-283-0181.
NOT all agents have one tool in their toolbox or know about it yet and even if they have heard about it, don’t have a clue on how to successfully put one together. If you are an agent that has come across a seller that is in distress (loss of job, death of spouse, divorce, major illness, etc…) and owes more on their home than what it is worth, but do not know exactly how to do a successful short-sale, consider referring it out to an agent that has had a tremendous amount of recent experience!
Just to make sure we're on the same page, a short sale is simply when a lender accepts less for a home than is currently owned.
Now a few years ago, doing short sales with banks were almost heard of. These days, things are quite different.
So if short sales are so powerful, why aren't more agents doing them?
Because there's a huge obstacle in the way, and based on my experience, the biggest obstacle to doing short sales is that each one is still somewhat unique so it almost has to become a specialty.
There are certain myths floating around out there that I want to dispel:
Short Sale Myth #1: Banks Won't Do Them...
A few years ago, when the market was hot, this was largely the case. Banks had no financial incentive to do short sales. There was simply no need.
In today’s market, things are different...
Banks are in business to make money. They can't make money when their customers default on their mortgages. When a bank is forced to foreclose on a property, that REO inventory prevents the bank from lending a certain amount of money as they need to have cash in reserve, and a bank can't make money if it can't lend money.
A foreclosure is bad business for a bank. That means there is a huge upside for doing short sales. These days, banks are motivated to minimize risk as much as possible. A properly structured short sale does that for them.
Short Sale Myth #2: Not All Banks Do Them...
This one is simple. ALL major lenders do short sales. In fact, they have entire departments dedicated to that very thing. It's called the loss mitigation department.
It's just that sometimes what they SAY they'll do and what they'll actually do are two different things. Experience in this area helps tremendously.
Short Sale Myth #3: Lenders Won't Pay Commissions...
The bank doesn't care primarily about commission. The bank cares about their bottom line, (NET to them.)
This might sound too good to be true, but I have been successful thus far in getting my usual and normal commission rate for doing short sales.
Short Sale Myth #4: Sellers Facing Pre-Foreclosure Will NOT Be Cooperative...
This is one of the biggest myths out there. Once I have been able to take a seller through the scenario and explain how foreclosure stays on their credit for 10 full years vs. allowing me to help them properly package and dispose of their property for the bank (which may get them out with a 14-24 month ding on their credit) and prevent the foreclosure from actually hitting their credit report, they are all for it!
So sellers are cooperative and this couldn't be further from the truth.
Here are the simple facts:
Doing a short sale keeps the client from losing their home to foreclosure. It keeps them from having the negative mark of a foreclosure on their credit. That's HUGE! Does it really make sense that the client would be "uncooperative" for helping them save their credit?
When you help solve big problems for people, they tend to be VERY cooperative.
Short Sale Myth #5: Short Sales are HARD...
Yes, short sales are a different animal. They do require a lot of work and require patience and persistence. They aren’t rocket science though.
To do short sales, I have had to learn the process. It's a new skill that most Realtors simply don't know.
BEWARE-
Of course, you can't take two steps without tripping over the newest "we'll close your short sale for you" company. They charge a fee for this "service." By the way, it's often non-refundable.
SO REFER IT OUT…
So if you have come across a lead that may qualify for a short sale, contact me. Put together a referral sheet and fax it to me at 248-283-2461 Or call me at 248-283-0181.
PAYING YOUR MORTGAGE OFF EARLY
We live in interesting times. The economy is in a recession caused in large part by falling real estate prices, record foreclosures and adjusting mortgage payments. Homeowners haven’t been this pressured about potentially losing their homes since the Great Depression. And just like back then, more & more homeowners are becoming enamored with the idea of paying off their mortgages, so they don’t have to worry about losing their homes. Where there’s enough demand, someone will come up with a supply. So, several companies have sprung up with products & services to help homeowners pay off their mortgages early. Of course, these products & services come with a fee. The question is, what are you paying for?
The Bi-weekly Mortgage Payment Program. It’s been around for years and if you’ve had a mortgage for any length of time, your lender has probably sent you an offer to sign up for the program. The typical solicitation shows how by paying ½ your current mortgage payment every two weeks, you’ll save thousands, if not tens of thousands of dollars and pay off an average 30 year mortgage in only 23 years. The charge for this program is usually a $350 set up fee and a $1-$2 payment processing fee.
How does the program work? The calendar year has 52 weeks in it. If you break your monthly mortgage payment in half and pay it every 2 weeks, you’ll end up paying 26 half-payments (52 weeks divided by a payment every 2 weeks). If you divide 26 half-payments by 2, you come up with 13 whole payments. So, the program really pays of a mortgage early by making an extra payment every year.
The Money Merge Account Program. There are several offerings of this type where you open a special line of credit, called a money merge account, against your home. The account allows you to deposit your paychecks directly into it and comes with a checkbook and often a debit card. The typical solicitation claims an average 30 year mortgage can often be paid off in as little as 10 years. You’re required to open a money merge account using your home as collateral. You are then told to deposit all your income into the account and to pay all your bills by writing checks from the money merge account instead of your normal checking account. Then a computer program is used to determine when to borrow funds from the money merge account to pay down the first mortgage. Over time, you pay down the money merge account and the computer program tells you when to repeat the process. The charge for this program can be as high as $3500. Most of the companies require you to have at least $10,000 in equity in your home to be eligible. One company has also turned their service into a multi-level marketing offering.
How does this program work? There’s no magic. The spreadsheets & graphs analyzed showed that the majority, if not all, of the savings comes from the homeowner applying their discretionary income to pay down the money merge account. So, instead of putting part of your income in a savings account, you’re using it to pay down your mortgage balance. For the program to work, you must make more than you spend.
BOTTOM LINE: Don’t fall for any of the hype! There are con artists pushing these programs as “magical” solutions that create money out of thin air. These con artists aren’t just going after homeowners. They’re paying professionals you trust – Realtors, loan officers, financial & insurance professionals, even attorneys, & fooling them into selling these programs to you.
There are no special tricks or magic to any of these programs. Homeowners should understand that there is no way to make your mortgage just disappear. Financial discipline is required to pay down your mortgage. Both of the programs outlined above charge a homeowner for something that can be done entirely on their own. If you have a good handle on your finances, these programs are probably a waste of your money. On the other hand, if you’re a spendthrift & have a difficult time saving money, these programs may help you find the discipline to accomplish your financial goals.
It is highly recommended that you speak with a Certified Mortgage Planner, or at least a certified financial expert of some sort, before spending money on one of these programs. Otherwise, you may be doing more harm than good.
The Bi-weekly Mortgage Payment Program. It’s been around for years and if you’ve had a mortgage for any length of time, your lender has probably sent you an offer to sign up for the program. The typical solicitation shows how by paying ½ your current mortgage payment every two weeks, you’ll save thousands, if not tens of thousands of dollars and pay off an average 30 year mortgage in only 23 years. The charge for this program is usually a $350 set up fee and a $1-$2 payment processing fee.
How does the program work? The calendar year has 52 weeks in it. If you break your monthly mortgage payment in half and pay it every 2 weeks, you’ll end up paying 26 half-payments (52 weeks divided by a payment every 2 weeks). If you divide 26 half-payments by 2, you come up with 13 whole payments. So, the program really pays of a mortgage early by making an extra payment every year.
The Money Merge Account Program. There are several offerings of this type where you open a special line of credit, called a money merge account, against your home. The account allows you to deposit your paychecks directly into it and comes with a checkbook and often a debit card. The typical solicitation claims an average 30 year mortgage can often be paid off in as little as 10 years. You’re required to open a money merge account using your home as collateral. You are then told to deposit all your income into the account and to pay all your bills by writing checks from the money merge account instead of your normal checking account. Then a computer program is used to determine when to borrow funds from the money merge account to pay down the first mortgage. Over time, you pay down the money merge account and the computer program tells you when to repeat the process. The charge for this program can be as high as $3500. Most of the companies require you to have at least $10,000 in equity in your home to be eligible. One company has also turned their service into a multi-level marketing offering.
How does this program work? There’s no magic. The spreadsheets & graphs analyzed showed that the majority, if not all, of the savings comes from the homeowner applying their discretionary income to pay down the money merge account. So, instead of putting part of your income in a savings account, you’re using it to pay down your mortgage balance. For the program to work, you must make more than you spend.
BOTTOM LINE: Don’t fall for any of the hype! There are con artists pushing these programs as “magical” solutions that create money out of thin air. These con artists aren’t just going after homeowners. They’re paying professionals you trust – Realtors, loan officers, financial & insurance professionals, even attorneys, & fooling them into selling these programs to you.
There are no special tricks or magic to any of these programs. Homeowners should understand that there is no way to make your mortgage just disappear. Financial discipline is required to pay down your mortgage. Both of the programs outlined above charge a homeowner for something that can be done entirely on their own. If you have a good handle on your finances, these programs are probably a waste of your money. On the other hand, if you’re a spendthrift & have a difficult time saving money, these programs may help you find the discipline to accomplish your financial goals.
It is highly recommended that you speak with a Certified Mortgage Planner, or at least a certified financial expert of some sort, before spending money on one of these programs. Otherwise, you may be doing more harm than good.
Distress sales resulting in possible foreclosure...
are a reality for many Michiganders these days.
This blog is intended to help those understand a helpful tool that is being utilized more often to help save families from the embarassment and stress of foreclosure.
The banks do not want your home. Read further to learn more about "Short-Sales."
Michigan home owners are facing foreclosure on a larger scale than at any other time. Oakland and Macomb Counties of MI are certainly no exception.
I have recently (Since early 1996) successfully negotiated for many home owners to help them keep the foreclosure OFF their credit report.
A great strategy to combat the foreclosure process and possibly avoid entirely, is negotiating a “short-sale payoff” with the bank. I would strongly recommend using a Realtor who specializes in the short sale process if you are in jeopardy of loosing your home. I have taken the time to post a snapshot as it relates to the short sale process from an investors perspective, a sellers perspective and a banks perspective....
THE INVESTORS PERSPECTIVE:
Buying foreclosures can be extremely profitable for real estate investors. However, many home owners are mortgaged to the hilt. (As many re-financed their properties during the peak real estate market where values were climbing and they didn’t take into consideration the necessity to potentially sell in the near future.) They have no equity because they spent the money on other wants and obligations. They now have big loan payments. Because of this, many actually owe more than the property is worth! Most investors will walk away from these deals because they see no obvious profit. However, an investor can “create” their own equity by negotiating a “Short Sale” with the bank or lender. *(Most lenders prefer to deal with a real estate agent however so find an agent that has successfully negotiated short-sales with banks.) Banks prefer to deal with Realtors because they are licensed bonded and insured with errors and omissions insurance. Realtors are members of real estate boards and subscribe to a strict code of ethics.So, what is a Short Sale Payoff?The concept behind the short sale is simple: your goal as a real estate investor (through your skilled agent) is to convince the bank to sell for less that is owed as payment in full. *Often times (20-40% below value.) Of course, this concept sounds easy - buy the foreclosure from the bank at a big discount, sell the real estate, and make money! While it’s not rocket science it will require patience. (Some of these transactions take months to even get an answer from the banks.)Negotiating the Short Sale with the bank… Once you have your secured a contract through the Realtor and the homeowner and have your paperwork in order, the next step will be for the agent to connect with the loss mitigation department of the bank. Success relies on dealing with the loss mitigation department at the bank. Although most lenders look at short sales as a necessary evil within the lending industry, that doesn't mean that the bank will just roll over and take you bid. You must understand the Bank's Perspective. (They are being hurt by falling values as well) but they aren’t going to take $50,000 for a property that is worth $100,000 in “as-is” condition. With foreclosures at a 52-year high, the loss mitigation departments at the banks are very busy, and highly overworked. Turn this disadvantage into an advantage – your offer must obviously sell them the benefits of your offer and taking the short sale. Short sales contracts help lenders unload unwanted property and spare many costly expenses associated with the foreclosure process. These expenses include, but are not limited to, attorney and foreclosure fees, court costs, bankruptcies, repairs, marketing and rehabbing or an even further loss of value if the property sits vacant too long and becomes “stripped”. This is in addition to the $300,000 to $800,000 (or more!) normally held in reserve by lenders. Federal regulations require this reserve, which is usually many times over the actual price of the bad debt. As the investor, keep these benefits at the top of your mind. After all, it's up to you and the Realtor to convince the lender that cutting their losses short is the best option. The most important fact that the broker needs to know is: How much is the property worth? Banks usually hire a real estate broker or appraiser to evaluate the property. This is called a broker's price opinion or “BPO”. The BPO is one of the largest hurdles you need to clear in short sale negotiations.
THE HOME OWNERS PERSPECTIVE:
From a home owners perspective, your skilled agent may be able to successfully keep the foreclosure off your credit report and have you living in a new home in as little as 14 months once your credit has been re-established. I have personally represented distressed home owners that were down on their luck due to illness, death, divorce and hard times. The fact is however that today’s market is a great time to buy. Here is an example of a family I was able to help recently:
I was approached by a family where the husband (the main bread winner of the family became laid off.) And after almost a year of looking for a job his health began to suffer and he became severely depressed. The family used their savings, their charge cards and home equity line of credit to stay afloat during this time. Eventually it all ran out. The main housing payments began to be late. The next thing they knew, they were in foreclosure. They contacted me to find out their rental options. They thought that they were doomed for 10 years and would have to resort to renting for the rest of their lives. After meeting with them, I let them know that it was a long shot but that I would be willing to take a stab at trying to find a buyer for their home. (This would allow me to keep the foreclosure off their record if I could find a buyer in time.) I listed the home for sale and while it took the better part of 120 days to find a buyer, order a BPO from the bank, and negotiate the final deal, we beat the deadline by 24 hours!
With all this family had been through over the previous year, keeping a foreclosure off their record was a huge deal for them. Even better yet however, (we planned ahead) and they did some reconfiguring of their expenditures, they went into a rental home (with a smaller monthly expense and I was able to get them approved for a new loan through FHA. We will be able to put them into a home now that is roughly the same amount as what they have been paying for rent and they are on their way back to home ownership!
*Please note that if you are a homeowner that has had a recent hardship, it’s not the best choice to let your home be foreclosed on. Get in touch with an experienced Realtor. The bottom line is: A foreclosure equals ten years of terrible credit and while the missed payments will remain on your credit report for a while, (if handled properly) the foreclosure will be averted and you can re-establish your credit dings within 12-14 months. A “Short-Sale” may be the best option for you.
THE BANKS PERSPECTIVE
Sometimes the banks and their representatives need to be reminded about how much a foreclosure on their books actually hurts them and how much more costly is really is to go through that process. A skilled Realtor (as part of the negotiation process) will remind them. They really don't want your home. Taking the bull by the horns and attempting to get your home sold in partnership with a skillful agent is the very best scenario. Home owners that think they will simply give a home back to the bank may face troubles down the line and go through a much longer process to reach the very end. Do the right thing and (together with your agent) you can devise a strategy to properly dispose of your home and transfer it's ownership so as to help mitigate the banks loss's. They banks (While they may not openly say it) are much happier working with you to get it off their books at a slight loss, than to face having to evict you and go through the entire foreclosure process.
This blog is intended to help those understand a helpful tool that is being utilized more often to help save families from the embarassment and stress of foreclosure.
The banks do not want your home. Read further to learn more about "Short-Sales."
Michigan home owners are facing foreclosure on a larger scale than at any other time. Oakland and Macomb Counties of MI are certainly no exception.
I have recently (Since early 1996) successfully negotiated for many home owners to help them keep the foreclosure OFF their credit report.
A great strategy to combat the foreclosure process and possibly avoid entirely, is negotiating a “short-sale payoff” with the bank. I would strongly recommend using a Realtor who specializes in the short sale process if you are in jeopardy of loosing your home. I have taken the time to post a snapshot as it relates to the short sale process from an investors perspective, a sellers perspective and a banks perspective....
THE INVESTORS PERSPECTIVE:
Buying foreclosures can be extremely profitable for real estate investors. However, many home owners are mortgaged to the hilt. (As many re-financed their properties during the peak real estate market where values were climbing and they didn’t take into consideration the necessity to potentially sell in the near future.) They have no equity because they spent the money on other wants and obligations. They now have big loan payments. Because of this, many actually owe more than the property is worth! Most investors will walk away from these deals because they see no obvious profit. However, an investor can “create” their own equity by negotiating a “Short Sale” with the bank or lender. *(Most lenders prefer to deal with a real estate agent however so find an agent that has successfully negotiated short-sales with banks.) Banks prefer to deal with Realtors because they are licensed bonded and insured with errors and omissions insurance. Realtors are members of real estate boards and subscribe to a strict code of ethics.So, what is a Short Sale Payoff?The concept behind the short sale is simple: your goal as a real estate investor (through your skilled agent) is to convince the bank to sell for less that is owed as payment in full. *Often times (20-40% below value.) Of course, this concept sounds easy - buy the foreclosure from the bank at a big discount, sell the real estate, and make money! While it’s not rocket science it will require patience. (Some of these transactions take months to even get an answer from the banks.)Negotiating the Short Sale with the bank… Once you have your secured a contract through the Realtor and the homeowner and have your paperwork in order, the next step will be for the agent to connect with the loss mitigation department of the bank. Success relies on dealing with the loss mitigation department at the bank. Although most lenders look at short sales as a necessary evil within the lending industry, that doesn't mean that the bank will just roll over and take you bid. You must understand the Bank's Perspective. (They are being hurt by falling values as well) but they aren’t going to take $50,000 for a property that is worth $100,000 in “as-is” condition. With foreclosures at a 52-year high, the loss mitigation departments at the banks are very busy, and highly overworked. Turn this disadvantage into an advantage – your offer must obviously sell them the benefits of your offer and taking the short sale. Short sales contracts help lenders unload unwanted property and spare many costly expenses associated with the foreclosure process. These expenses include, but are not limited to, attorney and foreclosure fees, court costs, bankruptcies, repairs, marketing and rehabbing or an even further loss of value if the property sits vacant too long and becomes “stripped”. This is in addition to the $300,000 to $800,000 (or more!) normally held in reserve by lenders. Federal regulations require this reserve, which is usually many times over the actual price of the bad debt. As the investor, keep these benefits at the top of your mind. After all, it's up to you and the Realtor to convince the lender that cutting their losses short is the best option. The most important fact that the broker needs to know is: How much is the property worth? Banks usually hire a real estate broker or appraiser to evaluate the property. This is called a broker's price opinion or “BPO”. The BPO is one of the largest hurdles you need to clear in short sale negotiations.
THE HOME OWNERS PERSPECTIVE:
From a home owners perspective, your skilled agent may be able to successfully keep the foreclosure off your credit report and have you living in a new home in as little as 14 months once your credit has been re-established. I have personally represented distressed home owners that were down on their luck due to illness, death, divorce and hard times. The fact is however that today’s market is a great time to buy. Here is an example of a family I was able to help recently:
I was approached by a family where the husband (the main bread winner of the family became laid off.) And after almost a year of looking for a job his health began to suffer and he became severely depressed. The family used their savings, their charge cards and home equity line of credit to stay afloat during this time. Eventually it all ran out. The main housing payments began to be late. The next thing they knew, they were in foreclosure. They contacted me to find out their rental options. They thought that they were doomed for 10 years and would have to resort to renting for the rest of their lives. After meeting with them, I let them know that it was a long shot but that I would be willing to take a stab at trying to find a buyer for their home. (This would allow me to keep the foreclosure off their record if I could find a buyer in time.) I listed the home for sale and while it took the better part of 120 days to find a buyer, order a BPO from the bank, and negotiate the final deal, we beat the deadline by 24 hours!
With all this family had been through over the previous year, keeping a foreclosure off their record was a huge deal for them. Even better yet however, (we planned ahead) and they did some reconfiguring of their expenditures, they went into a rental home (with a smaller monthly expense and I was able to get them approved for a new loan through FHA. We will be able to put them into a home now that is roughly the same amount as what they have been paying for rent and they are on their way back to home ownership!
*Please note that if you are a homeowner that has had a recent hardship, it’s not the best choice to let your home be foreclosed on. Get in touch with an experienced Realtor. The bottom line is: A foreclosure equals ten years of terrible credit and while the missed payments will remain on your credit report for a while, (if handled properly) the foreclosure will be averted and you can re-establish your credit dings within 12-14 months. A “Short-Sale” may be the best option for you.
THE BANKS PERSPECTIVE
Sometimes the banks and their representatives need to be reminded about how much a foreclosure on their books actually hurts them and how much more costly is really is to go through that process. A skilled Realtor (as part of the negotiation process) will remind them. They really don't want your home. Taking the bull by the horns and attempting to get your home sold in partnership with a skillful agent is the very best scenario. Home owners that think they will simply give a home back to the bank may face troubles down the line and go through a much longer process to reach the very end. Do the right thing and (together with your agent) you can devise a strategy to properly dispose of your home and transfer it's ownership so as to help mitigate the banks loss's. They banks (While they may not openly say it) are much happier working with you to get it off their books at a slight loss, than to face having to evict you and go through the entire foreclosure process.
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