The financing vehicles have been in place for several years now for a borrower using some creativity with a seller to make 100% financing possible. However, the real estate market had been so hot in many areas in the U.S. the sellers did not have to even entertain anything resembling creative financing. With a softening market, creative financing is back as a helpful tool to allow sellers to unload their properties as long as an over supply of inventory exists.
Harold and Laura had been renting a home in a suburban area for three years. They had been digging out from under a heavy debt load of medical collections. Laura was leaving work one day and a truck had crossed the line and pinned her in her small car for a half an hour until the jaws-of-life was used to extract her out from her crushed vehicle. With a broken hip, ankle, eye socket and fibula a long recovery ensured and Laura was not able to work for two years. The other driver was at fault, but any financial recovery was years down the road as the other insurance company was playing hardball. In the meantime, with constant harassment for the out standing medical bills and the weight of credit card and installment debt that existed prior to the accident was just overwhelming. Harold had been working two jobs just to meet the basic family needs. Family help was limited and really wasn’t expected. Laura’s therapy had been going on for a year now and real progress was being made. Her employer had kept her job open as a customer service representative ironically at a credit card service center. The benefits were limited and very little of the medical bills and rehab had been covered. Harold and Laura had been seeking some financial advice from a local bankruptcy attorney. It was decided that with their level of income and huge medical bills that filing a Chapter 7 Bankruptcy action might be the best thing to do for mental sanity and cash flow. A Chapter 13-payback plan would be crippling for many years to come. As the bankruptcy attorney explained to Harold and Laura that in his practice example after example comes before him where just bad things happen to good people and that there was no shame in taking care of their financial affairs in this manner. The rationalization process followed.
Two months before filing the bankruptcy, the insurance company was offering a small settlement based on an allegation that Laura may have temporarily been distracted by talking on her cell phone and thus reduced her reaction time. Rather than put up a long protracted fight Harold and Laura, for better or worse settled for an amount that just covered her payoff on her totaled car. They were relieved of that installment. Their attorney for the accident urged them not to settle, but with Laura’s eminent recovery and the stress of the whole ordeal, they grabbed what they could at the time.
Harold and Laura received their notice of the Final Discharge of their Chapter 7 Bankruptcy. All the collections for medical bills, non-secured credit cards and one major medical bill that had resulted in a judgement being awarded for the first responding hospital had all been wiped out. They excluded their family car from the Bankruptcy matrix (which names all the debtors), which still had a $6,850 balance with a $295/month payment remaining. They also excluded a credit card that they had for years and had a low balance and a low monthly payment. This allowed Harold and Laura to maintain two trade lines and their on time rental payment of some $1,250/month outside the Bankruptcy action. Laura had now been back to work at her old job for two weeks. She was fortunate to take advantage of a car pool with a fellow worker who lived a half mile away.
It was like the world had been lifted off their shoulders. Now Harold and Laura had their rent, one car payment and a small credit card and their home utilities. The cell phone service had gone by the way side many months before.
Even through the most brutal times and the lowest of the low, Harold and Laura, as their custom, visited Open Houses after church every Sunday. It was always in the neighborhood and never more than two home visitations. It was Harold and Laura’s way to cope with the dark cloud that had beset them. During this process, they became familiar with a local Realtor who took a very personal interest in their situation. The Realtor, named Betty, knew they were not ready to do anything until some things had been handled. At the most recent Open House visit, Harold and Laura shared that they had put their financial challenges behind them. Laura was feeling great and off all her pain medication. Betty raised the prospect and questioned them if she could figure out a way to get them into a home at a little more than they were paying in rent with little or no money out of pocket, would they have an interest at least in hearing more about it. Harold raised his hands with palms up and a shrug of the shoulders, and shared that it wouldn’t hurt to listen to some possibilities. The accident had caused a detour in the quest to own a home, but it had not killed their dream.
Betty set up a meeting with the Realtor’s in-house mortgage broker to discuss their options. A joint credit report was pulled and as Harold at the time made the most money his middle score was utilized to qualify for a mortgage. His middle credit score was right at 500. The mortgage broker went on to explain that they would qualify for an 85% Loan To Value mortgage. Due to their lack of a cash down payment, it was added, that the only way that they could use this loan option would be with a seller held second of 15% loan to value with the seller also paying up to 6% of the contract selling price. This would then give them a 100% Combined Loan To Value (CLTV). The loan would need to be a Fully Documented loan with verification for employment and income. The mortgage broker felt like he could present Laura’s employment gap due to the accident and use her current income for qualifying purposes. Totaling up the income versus the debts, it was determined that Harold and Laura could buy a home in the $175,000 range IF the seller would offer reasonable terms on the 2nd mortgage. Betty piped in that she had been sitting on a listing for six months and the owner now may have an interest in holding some paper versus renting the property again and deal with the tenant challenges on repairs and upkeep. The home was close to their current residence.
Betty was able to work out the deal with reasonable terms on the second mortgage that would keep the overall monthly payment down at least for the first three years. As the mortgage broker explained, that should be plenty of time to establish a better credit history and qualify for a lower interest rate loan in two years. As an added bonus, the seller agreed to pay all the closing costs and prepaid expenses such as annual hazard insurance and tax escrows plus replacing a leaky roof. Harold and Laura moved into their newly purchased home putting all the travails of the past in the rear view mirror.
Sometimes bad things happen to good people. In this current real estate market, there are creative possibilities. It won’t last forever; the time is at hand for seller help and creative financing.
Dale Rogers
www.sellerhelpsbuyer.com
www.brokencredit.com
Dale Rogers is a thirty-year mortgage veteran and frequent contributor to the Broken Credit Blog. The BCB is a free website created to assist the general public with information about credit repair and responsible mortgage lending.
If your mortgage loan balance is higher than the value of your property and you don’t have the money to make up the difference, you probably want to know whether you’d qualify for a short sale. To find out, we have to look at a short sale from a bank’s perspective. While there are many factors that banks consider, getting your lender to approve your short sale application generally boils down to 3 main challenges:
1) Getting your lender’s attention and giving your lender a reason to discount your mortgage loan
2) Demonstrating that you have a legitimate financial hardship preventing you from paying your mortgage
3) Getting your lender to accept that the price your buyer is paying for your property is close enough to your bank’s independent valuation of the property
To understand why these are the three key requirements, we have to understand how banks make money and how they limit losses. Banks earn profits by collecting interest payments on money they lend. It stands to reason then that in most cases banks won’t even consider a short sale application if the borrower is currently paying his mortgage. However, when those payments stop, instead of making money, the bank is now losing money and as a result has an incentive to limit those losses. Although banks lose money when a property is sold via short sale, the sale of the property allows the bank to recover a portion of the defaulted loan and get the ‘bad loan’ off its books. Banks always take notice when they don’t get their money and borrowers who miss mortgage payments force lenders to at least consider discounting the mortgage.
The second major challenge in qualifying for a short sale is demonstrating that you have a financial hardship. Banks lend money expecting to get that money back, which is why they need a very good reason to accept less than the total amount that they are owed. The most compelling reason for a lender to accept less than the total amount owed is that the borrower doesn’t have enough money to make the interest payments or to pay off the balance of the loan. As the saying goes, you can’t squeeze blood from a turnip. Even so, the borrower must prove his financial hardship to the bank’s satisfaction with supporting documents like tax returns, bank statements and pay stubs. Demonstrating financial hardship is critical to getting your lender to approve your short sale.
The third key challenge in getting a short sale approval is showing that the price your buyer is paying for your property is indeed the property’s current market value ( that is current market value in the eyes of the bank!). The simple truth is that a property is worth what a buyer is willing to pay for it. Nevertheless, just like the bank has the final say when it comes to approving your short sale, they also have the final say with respect to the market value of your property. In spite of this, documenting that similar properties in your neighborhood have recently sold for a similar price will help persuade the bank that the price your buyer is paying is sufficient.
In summary, to qualify for a short sale you must prove you have a financial hardship and that you are selling your property at current market value in the eyes of your lender. More importantly, you have to give your lender a good reason to discount your mortgage. Since non-performing loans normally reduce the amount of money a bank can lend, when a strong case for a short sale is made, your bank should want to help you get rid of both your property and the mortgage loan attached to it.
Gerald Lucas, ‘The Short Sale Authority’ http://performanceshortsale.com/ has successfully negotiated hundreds of short sales over the past decade he has spent in the real estate business.
It can be very frustrating to the buyer who already has his loan ready to close and is on the contract to buy that house. What would you advise that buyer to do?
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Short sale is a very simple way. A short sale occurs when the sale proceeds of a house fall short of what the owner still owes on the mortgage. Many lenders will agree to accept the proceeds of a short sale and forgive the rest of what is owed on the mortgage when the owner cannot make the mortgage payments.
The protections against abusive short selling are vital for issuer and share holder assurance and have endorsed prophylactic rules considered to curtail scheming behavior are held traditionally. It is one of the primary reasons for securities borrowing, without which, short selling would be impossible. Lenders have no interest in negotiation unless their payments are several months late. Another consideration is you may be held liable for taxes on the difference between the sale amount and the original loan amount. Short sales require nerves of steel.
Including different costs and risks of shorting, as well as legal and institutional restrictions and allowing stocks to be overpriced are the constraints of short sale. Make a guide of expensive stock leading to consequent low returns. The portion of mortgage of higher price of a home provided buyer willing to buy the property when the lender agrees transpires short sale. The difficult purchaser real estate business deal to agree, involve as much, and no more paperwork than an original mortgage application. The seller already owns the item at the time of the short sale. Short sales of securities are not registered on an exchange and connections in securities covered by paragraph that are resulted in the OTC market. However, they are not subject to rule. These are also used in strategies of hedge a situation in another security or a linked economic utensil.
Short sale in real estate is not always present transaction. Negotiating a lower price for a home than what is owned to the bank in a short sale of real estate. The sale of a house proceeds the fall short of the owner until owes the mortgage. To accept the proceeds of a short sale and forgive the rest of other. What is owned on the mortgage when the trader cannot make the credit payments. This is agreed by many lenders. The lender avoids a costly foreclosure and the owner can pay off the loan for less than they owes are made by recognizing a short sale.
Short sales came into the view of credit report as “pre-foreclosure in redemption”, but not as “debt discharged due to foreclosure”. The difference between the amount owed and the amount paid will not legally pursue a borrower but the lender has no guarantee who accepts a short sale. This amount is known as deficiency in some states. The mortgage debt is fully discharged. The prices of stolen stock are minus commissions and expenses for purchasing the stock so the profit is the difference between the prices of the stock. The potential losses are unlimited when the prices of the shares increase.
Nick Cifonie, a long-time real estate investor, speaker and mentor gives an explanation about wholesaling, retailing, subject-to real estate investing, rehabs, lease options and many other strategies. For more information, log on to the website http://www.REI-TV.com
Does the seller pay the mortgage, taxes, utilities on a house with an offer waiting for bank approval? Once the bank approves and accept the short sale offer might there be additional charges if the seller has not been paying mortgage on a home where he no longer lives? If they accept my offer do they often come up with other charges left behind by the former owner?
www.shortsalesriches.com Nathan Jurewicz gets his first hate e-mail from a customer being skeptical of his Short Sales Real Estate Program. After the disgruntle Mike Payne spends the day with Nathan he soon becomes a believer. www.shortsalesriches.com nathan realty house sell money crib case study educational short sale sales preforeclusre pre-foreclosure real estate investing investment investments flipping houses homes bail out guru
GM Agrees to Buy Lender AmeriCredit for $3.5 Billion
General Motors Co., the automaker 61 percent owned by the U.S., is buying subprime lender AmeriCredit Corp. for $3.5 billion to help it reach more customers with leases and loans to borrowers with faulty credit records.
1. Official record: 1bedroom/ 0.75 bath (shower+toilet), the back patio has been converted to a bonus room and used as a second bedroom (small).
2. 720 sq ft indoor, 2040 lot sz. Built in 1915, very well maintened. Previous owner did put a lot of interior upgrades with new appliances and new paint. It’s in move-in condition.
3. It’s a Bank-owned REO property. The previous owner’s unpaid mortgage balance to the bank was $359K. Listing price now is $380K. The comps in the area is about $425K to 475K.
4. Located in a very good neighborhood in Los Angeles. Close to freeway and shopping. School district is just ok, not excellent.
5. Officially, only one parking space available (not a covered garage). Street parking is not a problem.
6. Just listed in the market for 7 days.
7. Buyer would like to pay 20% down, and the credit is excellent.
When Troy and Jane entered into a contract to purchase a short sale on March 24th, they had no idea that they would be still waiting for approval more than four months later. Calls to negotiators are met with full voicemail boxes, emails go unreturned and frustration looms. As Troy and Jane’s buyer’s agent, I am just as much in the dark as they. My SFR and CHS certifications are just as meaningless as my efforts to get in touch with the head loss mitigation, or any of his numerous minions. This is a story that should be a thing of the past. Upstaffing in loss mitigation departments, streamlined government short sale programs and the use of short sale platforms like Equator were all supposed to make the short sale process more bearable for buyers and sellers, and more profitable for major national lenders. Unfortunately, despite the implementation all these new methods and philosophies, time periods for approvals are no more predictable than they were last year.
Don’t get me wrong, the situation has improved. Most large lenders now have systems in place that have defined protocols and time periods that are at least rough guidelines for the approval process, but the end user investor still has the final say in whether or not a deal closes. What most borrowers don’t realize is that when they send their payment to Bank of America, Wells Fargo, Chase or any other company, they are sending the check to the institution that services their loan, not necessarily the company to whom they owe all that money. Virtually all lenders sold a large percentage of their loans to other financial institutions like Fannie Mae, Freddy Mac and other deep pocket investors, while still maintaining the servicing contracts for these loans. This means that, even after providing mountains of paperwork and waiting for weeks and months at a time, struggling homeowners may still have to wait even longer for the mythical “investor approval”.
Even with just the few dozen short sales that I am personally working on right now, I have some fantastic stories of both triumph and misery! One of the lenders with whom I am currently working bent over backwards to get a sale date postponed at the last minute to help my needy clients; however, despite having had everything they need to render a decision on the short sale approval, we haven’t heard from the negotiator in weeks! One of my negotiators specifically expressed that I had an approval on a file, and would be receiving it via fax in a few minutes. After trying, unsuccessfully, to get in touch with him for three weeks, I was contacted by a supervisor letting me know that he was no longer with the company and I would have a new short sale negotiator assigned to me within forty-eight hours. I am still waiting for the new one! On another property, I informed the seller that we would probably be looking at needing sixty to ninety days to get accepted terms from both lenders, and received written approval on both loans at day twenty-one!
I think the lesson that we can all take from this is that patience will ultimately be rewarded. The process is evolving. As the saying goes, “There are no perfect people, only perfect intentions.” Lenders are now working with borrowers and Realtors far more closely than they have in the past. However slowly, it appears that the short sale process is becoming more user friendly as time progresses. Although Realtors may have to wait for the next market cycle to see any kind of utopian short sale system, homeowners facing foreclosure are far less likely to have the bank pull the rug out from under them than ever before, and helping homeowners is what the whole “short sale thing” is all about.
Jeremy Colonna is a licensed California real estate broker, a Certified Short Sale and Foreclosure Resource (SFR), HAFA Short Sale Specialist (CHS) and noted radio personality. Click here to listen to
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