Title

Short sales successes

When we started selling homes in 2001, short sales were unheard of in Metro Detroit.  Foreclosures were rare in Oakland County.  But times have changed and this year we have had an enormous uptick in our short sale business.

Short sales are taking place in every price range.  In the last 30 days we’ve helped buyers and sellers to close on homes with list prices between $110,000 and $999,000 in communities like Bloomfield Hills, Royal Oak and Orchard Lake.  We’ve got 5 other short sale homes in the pipeline right now, all with offers on them and in to the bank for evaluation.

Some scenarios can make a short sale even more challenging to handle successfully.  Dmitry recently navigated treachorous waters with a short sale that involved private lien holders in addition to the banks.  Three individuals had made personal loans to the owner and did not really want to accept anything less than payment in full.  The banks were offering a few grand to them to scram.  If the home and gone to foreclosure they would not have seen a nickle.  In the end there was intense drama for a few weeks but Dmitry got everyone to the closing table.  The buyers got a great house and the seller got out of a bad situation.

Buyers, you can get a deal with a short sale, but it comes at a price.  If you have the time and the patience you could be rewarded handsomely.

Tags: bloomfield hills short sale, foreclosure, short sale

What Really Happens after I “Give it Back to the Bank”?

I have been hearing people saying lately that foreclosure is so common now that being foreclosed really doesn’t have the same negative impact on credit and borrowing ability as it used to. Can this be true? Absolutely not. This article is directed at those folks who are considering walking away from a property they own because it has lost value – not because they are having a financial hardship, like job loss. If you choose to “give it back to the bank” you should understand the long term implications. A foreclosure will have at least 5 potential long term issues associated with it.

Credit Score Damaged
OK, it goes without saying that your credit score will be hammered. This is not an exact science and depending on what your credit report looks like now will affect the score reduction. However, you can expect your score to go down by 100 maybe 200 points or more and stay that way for several years. The foreclosure itself will stay on your credit report for a minimum of 7 years and you’ll be explaining that to creditors any time you apply for new debt.

New Loans Hard to Get
Lenders of all types – automobiles, credit cards, department stores, gas stations, installment loans, mortgages, home equity loans, every lender uses your credit score and credit report to determine your willingness to repay your debts. If you walk away from a mortgage loan every lender you currently borrow from, and those that you may apply with in the future, are going to wonder “If you didn’t repay that loan what’s stopping you from walking away from our debt?” You will not be able to obtain any mortgage financing for approximately 4 years (and only then if you have re-established good credit) and you may even have trouble leasing a place to live because landlord’s look at your credit score.

Existing Credit Cards Limit Reduced and Rates Increased
Surprising to some folks, your credit card companies review your credit report every year and even if you are paying that bill on time they can and will raise the interest rate on your credit card if your credit score goes down. They may also reduce your credit limit or change the terms on your card or even cancel and close the account.

Higher Insurance Rates
Insurance companies also use credit score as one means to determine risk and they may increase your rates if a score reduction occurs. This can impact your auto insurance, home insurance, even your health insurance!

Home Equity Loans and Second Mortgages can continue Collection Efforts
One thing that most people do not understand about foreclosure is what happens to a second lien on the house. If you have a home equity loan or a second mortgage on the property that lender will be forced to release their Lien on the home for the foreclosure to go through. However, this does not mean that they give up their legal ability to collect on the debt. The second mortgage lender will place a collection account on your credit report for the full amount of the debt and that collection account will not go away until you pay them off or settle the debt. This will make the impact of the foreclosure even worse for your credit score and ultimately you may be forced to pay the debt even after the foreclosure is completed.
The bottom line here is that the impact of a foreclosure has not changed. If anything has changed it’s the perception that letting a home go to foreclosure is somehow OK. Foreclosure will have far reaching implications on you and will continue to haunt you for years to come. If there is a course that you can follow that does not involve “giving the keys to the bank” then you should look hard and long at it because the foreclosure may seem like a good short term fix but in the long run it’s going to cost you a lot of money and heartache!

Tags: forclosures, foreclosure

Short Sale Can Save Metro Detroit Home Sellers

Unfortunately, the number of people who owe more than their house is worth is increasing in Metro Detroit.  If you are staying in your house, you don’t have a pressing issue, though the new housing bill that is coming out on March 4th may provide you with some relief.  More on that later when the details come out.

If you have to sell your home now, and you are upside down, there are some things you should know. Some people have the cash to bring to closing when they owe more than it they’ll net at close. Most simply don’t.

One option is a Short Sale. This is when the lenders agree to accept the shortfall and write it off. They may ask you to contribute as much as you can, or they may write off the entire amount. If there is a first mortgage and a second mortgage, then both lenders will need to agree to the outcome. Other liens will complicate the picture too.

You need someone experienced in short sales to help you. Chose wisely. The bank is not expecting to deal with you: they are want the package put together by a professional.  In order to have any success with the bank, the transaction requires great attention to detail and follow through. Banks notoriously lose short sale packets over and over.  Last summer I faxed a short sale packet to a lender at least 12 times.  I called to confirm receipt.  Each time I called in, nobody knew where it was… That’s just the reality.

You will not be paying the Realtor’s commission, or, most likely, many of the other things associated with a short sale, like tax prorations, transfer tax, etc. The bank usually pays most of those expenses.

You need to be 100% committed to the process. Short sales are not quick and easy, but with a solid plan, the pain can be reduced.

There is really nothing “short” about short sales.  They usually take much longer than the typical sale, mostly because we are waiting for banks to make decisions.

Banks usually don’t tell you how much they will accept until after you have an offer. That means we start the process without knowing how it will end.  It is important to have a very good grasp of the market.  You need an offer to get things really started. Pricing and marketing are key.  Buyers can be scared off by short sales because they don’t want to take on the uncertainty.  We have to do a good job of demonstrating that we are on top of the process.

There are some things you will need to do to facilitate your short sale:

1. Write a hardship letter. In your own words tell the bank why you are not able to pay the shortfall on the mortgage. Typically banks are looking for things like illness, job loss, etc, but just tell them honestly what the problem is.
2. Gather your last 2 tax returns, w-2’s and current bank statements and current pay stubs.
3. Talk to the bank. The banks don’t want your house, and they need to hear from you. You might run into some brick walls, but start the dialog. If you chose to work with us on the short sale, we will take over most of the bank discussions after we list the property. We will also keep you informed about our progress with the bank. We have to work together as a team to succeed, so it is important that you keep us informed to any changes in your status.

Short sales have generally not impacted a seller’s credit score as much as a foreclosure. You may wish to consult with a tax adviser to determine if you will have an tax consequences from a short sale.

Short sales can be a great path toward avoiding foreclosure and a real relief for a strapped home owners.  If you need help or guidance about working on a short sale for your Metro Detroit home, we would be happy to talk to you.

Here are some other articles we have written about short sales:

11 Things about Buying a Short Sale in Oakland County

A Short Sale Question

Tags: avoiding foreclosure, foreclosure, michigan short sale, oakland county short sale, owe more than my house is worth

Yes, Virginia, there are HUD homes in Birmingham, Michigan

Birmingham is certainly known for its upscale downtown, incredible restaurants and it’s wonderful neighborhoods.  We have pricey real estate here too, compared to much of the rest of the region.

On Inauguration Day, I showed Birmingham’s only HUD home active in the MLS.  To date, there are have been few HUD homes in Birmingham, but we could have more in the future.

My client asked me, “Aren’t HUD homes in bad areas?”  This seems to be a common perception, but HUD homes are the product of people who had FHA guaranteed mortgages losing them to foreclosure.  2009 FHA loan limits for Oakland County are up to $273,700, and we certainly have many homes in that price range in Birmingham.

FHA loans have allowed people to get into homes with lower down payments, and have been of particular assistance to first time home buyers.  In the last 9 years we didn’t see that many FHA loans financing Birmingham/Bloomfield Hills homes.  It was much more common to do a piggyback loan, with a first mortgage and a second mortgage to avoid PMI.  Piggyback loans gone now that underwriting guidelines have tightened up.

HUD homes are sold via incredibly transparent on-line auctions, which frees them from some of the issues that have surrounded the sales of other foreclosed homes. The bids are made through HUD approved brokers (like us), and the auction results are posted daily. Owner occupants are given preference and may bid earlier in the process, without competition from investors.

Investors also need to conduct any inspections prior to making an offer. Owner occupants are given much more leeway in this regard.

These homes provide an incredible opportunity for buyers, though one should proceed with caution.

Tags: birmingham mi foreclosure, foreclosure, HUD, HUD homes

Short Sale Help Might Be On The Way

Any Realtor that has sold a short sale will warn you that the process is arduous for the buyer, the seller, the agents, and everyone else connected to the process. Right now the system works requires that the seller, who owes more than the value of the home, first find a qualified buyer before they can begin negotiating with the bank or banks. In other words, nobody knows what the banks will actually accept, and it can take months for a file to pass through the system with uncertainty at the end of that long wait. Lots of agents are steering their buyers away from short sales because there are enough other good deals out there that the uncertainty becomes unnecessary.

Fannie Mae announced yesterday that they are testing a pilot program in Phoenix and Orlando that will pre-approve short sales for 400 sellers.

I am hopeful that they will have quick success and will roll out a nationwide program. A short sale is often the best way for a seller to save themselves from foreclosure and do whatever they can to protect their credit history along the way.

Even with this protection in hand, a short sale seller will need to good advice and counsel. If you are a Metro Detroit home seller, you need to make sure the agent you are working with has experience handling short sales. The knowledge required is very different from a regular retail transaction, and the agent and seller have to both be very committed to making sure the sale is successful. Without that commitment and knowledge, it really will not work. Our team has been working with Oakland County home sellers on short sales for the last few years. If you need help, we are happy to talk to you.

h/t Santa Clarita Real Estate Blog

photo by Dimitri Neyt

Other short sale information:

From the Mailbag: A Short Sale Question

Short Sales: The New Frontier for Bank Fraud

11 Things About Buying a Short Sale in Michigan

The Foreclosure Process in Michigan

Tags: foreclosure

November Foreclosure: We are #5

From the doom and gloom we are hearing around town these days, I bet most Michiganders would be surprised to know that RealtyTrac said we were 5th in foreclosures in November.  1 in 309 Michigan homes is in foreclosure, compared to the nation’s leader, Nevada, where 1 in 76 homes is in foreclosure.

A few big banks agreed to stop foreclosing until after the new year, so the January numbers could bounce significantly, especially with all of the recent layoffs across the country.

Chart from Realtytrac.com

Tags: foreclosure

The Nerviest Former Owner…Ever!

Here’s a true story that tops my list of foreclosure experiences so far.  Unfortunately, the list is longer than I care to recall.

Not so long ago Dmitry and I listed and sold a Birmingham foreclosure that had previously been owned by a builder who had tried to sell it for about $2,000,000.  He couldn’t find a buyer, so he moved in, decorated the place and called it home while he tried to sell it.  In the mean time, I believe he lost a couple of other homes to the bank.

When we met him to take the keys  on behalf of the bank (and give him some cash for handing them over) he took Dmitry through the house.  It had been stripped of every light fixture, door handle, appliance, and even a few doors.  He insisted that those things had never been in the house, even though we could see them in the MLS photos and we remembered them from when we toured the home years before.  Still, not much we could do about it.

We found a buyer and put the house under contract.  Then the air conditioner was stolen.  Not uncommon in foreclosures, but a pain for me, the bank and the buyer, nonetheless.  I think that police report went directly in to the “cold case” file box.

The buyer moved in.

Shortly after closing the former owner knocked on the door and asked if the new owner would like to buy any of the wonderful things he had for the house: handles, doors, appliances, etc. . .  You get the picture.

Nervey. Yes.

Desperate.  Yes.

A sign of our times.  Yes.

Foreclosure isn’t pretty.

Tags: foreclosure, theft

The Foreclosure Process in Michigan

There has been so much talk this year about foreclosures and it seems like most people really don’t understand the foreclosure process.  There is also an alarming mindset right now in that a lot of people seem to be willing to just throw up there hands and say “I’ll just give it back to the bank.”  The thing here is that the bank never bought the house.  So, it’s not “giving it back.”  You bought the house and agreed to pay the bank loan back over time.  It’s more like not living up to your obligations.  I guess that’s a whole different issue (oops, seems like my banker side is showing a bit).

Anyway, foreclosure is a very serious issue.  You want to avoid being foreclosed on at all costs because of the severe damage to your credit history and credit score.  A foreclosure can stay on your credit report for up to 10 years and can lower your credit score by 100 points and more.  Your credit score is used by credit card companies, auto lenders, insurance companies and many others to determine the rates you’ll be required to pay.  So, a low credit score is going to cost you money in many other areas of your life for a long time to come.  Of course, you’re going to be unable to get new mortgage money for a minimum of 2 years (and only then if the rest of your credit is perfect) and generally not for at least 4 years.  Probably the most important reason is that being foreclosed on, and losing the house, is a terrible experience for a family to go through.

In Michigan there are two ways to foreclose:  by lawsuit or by advertisement.  The standard mortgage document used by lenders in Michigan contains a “Power of Sale” clause that allows foreclosure if there is a breach in the terms of the loan and this clause makes foreclosure by advertisement possible.  This is easier than filing a lawsuit, so almost all foreclosures in Michigan are by advertisement and that’s what we’ll cover here.  The basic process goes like this:

1. Homeowner is 90 days past due on their mortgage payments.  Any time you’re late on your mortgage payment it’s technically a default, but generally a lender would not foreclose until you are at least 90 days late.
2. Notice of Foreclosure Sale is published.  The notice must be published once a week for 4 weeks in a newspaper that circulates in the county where the property is located.  The notice must also be conspicuously posted at the property and the lender has a right to enter the mortgaged premises for this purpose.  The sale is typically 30 days after the notice is given to borrower.
3. Homeowner’s Rights at this Point.  The borrower can cure the default and keep the existing financing prior to the sale if they pay all of the payments that are past due prior to the sale date.  They could also sell the house and pay the loan off in full (or ask for a “Short Sale” – another topic for another discussion).
4. Sheriff’s Sale.  The sale is handled by the circuit court and is called a sheriff’s sale.  It’s an auction and the house is sold to the highest bidder.  The lender will buy the property at this time unless an outside bidder offers more than what is owed on the house.  This is unlikely and in most cases the bank owns the house.
5. Sheriff’s Deed is recorded.  A deed is recorded transferring the title to the bank.  The amount of the sale is typically the principal balance of the loan plus interest, late charges and legal and court costs.
6. Redemption Period.   The rules can vary, but in most cases the redemption period is 6 months (this can be reduced by the court to as little as 30 days if the property is abandoned).  During this time the homeowner may continue to occupy the home (no payments are made) and has a right to redeem the property by paying the full amount of the sheriff’s sale plus interest at the rate of the original mortgage.  This could be done by getting a new mortgage (not likely in today’s mortgage world) or by selling the home for at least the amount needed to pay off the sheriff’s deed and interest due.

It’s a long and arduous process which puts a lot of stress on the homeowner.  If you are having trouble making your house payments the best thing to do is to be honest about it with your lender.  Call them and be prepared to explain your situation in detail.   The bank does not want to foreclose so they are generally willing to try to create a workout plan.  If you’re having trouble making your house payment the best thing to do is to face up to it early and you can probably work things out!

Editors Note: This article was originally published in 2007.  We have more articles on short sales and foreclosure and that might be of interest, whether you are looking to invest in them or are facing financial difficulties yourself.  Certainly today’s economy has put a strain on too many people who want to keep their homes.

[tags]foreclosure in michigan[/tags]

Tags: Add new tag, foreclosure, foreclosure process in michigan, losing house to bank, michigan foreclosure