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.
