Should I Try to Short Sale My Home?

This is a loaded question that I deal with every day. If anyone tells you that there is an easy answer, they either have no experience with short sales, or are lying to you. The greatest issue in my humble opinion is whether this is going to resolve your problems. That is, understanding the ultimate result to unburdening yourself of a home you perhaps can no longer afford. It always saddens me when I get a client that has already exhausted their financial resources attempting to stay current with mortgage payments. If you are using savings to survive, you should be talking to me.

The first criteria for a short sale is obviously a hardship. That is, either a financial or personal need to sell the home. This may also pertain to investment property, second homes, as well as to one’s primary residence. If the home is creating a financial hardship, that is a problem.

The second criteria is that if you do sell this home, will you be in a more manageable financial position. This is an analysis that needs to be made up front. If you are burdened with many other debts (ie. credit cards, installment loans, other mortgages, etc.), you should be consulting with a bankruptcy attorney prior to even attempting to sell your home and request a short sale. Far too often people are persuaded to sell their homes without the appropriate counseling. If selling this home is still going to leave you personally under water, financially, you shouldn’t wait until you have exhausted much time and effort trying to avoid bankruptcy. Especially if at the end of the day, bankruptcy is unavoidable. Again, this is where a professional opinion becomes invaluable. If it is exclusively the home creating the problem, then a short sale is definitely called for to resolve the issue.

The third criteria is that one must be prepared to make a tough choice between “credit” or “cash”. That is, if selling the home is going to free up the necessary cash flow to survive, one must be ready to let go of their “perfect” credit score. Many people have spent years establishing their credit and are very resistant to disrupting that score. However, a short sale will create negative credit implications. If credit is more important to you then cash in your pocket, then perhaps you are not at the point of needing to unburden yourself of this home.

Sometimes people will say, “but where will I live”. My response to them is that you find a nice home or apartment to rent at a fixed price. Many people fail to evaluate the extraneous expenses that come with owning a home. It isn’t just the mortgage payment, taxes and insurance. It is the additional burden, depending upon the size of the home, for utilities, maintenance, etc. that goes with home ownership.

If you are real estate agent that is sitting on listings that are not moving, and the seller’s are resistant to re-pricing, it is quite possible that there is information they are not sharing with you. Perhaps scheduling an appointment with a Short Sale Expert to explain this process will help. Often people are not forthcoming with their financial worries. However, if I can describe for them the process and what it can do for them, they may be more willing to make adjustments to get a sale accomplished.

I am going into my 4th year of counseling people on the “ins and outs” of short sales, deeds in lieu of foreclosure, and loan modifications. If you would like to understand better how your circumstances present with regards to any of these alternatives, please feel free to call me to schedule a free consultation.

Today’s Short Sale Horizon….

It seems that we have now been in a solid four (4) year period of short sales.  Distressed sales haven’t disappeared.  However, the climate has been transformed.  Whereas a few years ago, the typical seller in a distressed (short sale) situation had either lost their job or was stuck in a mortgage product that was creating a financial nightmare.  Now, the typical seller may be an individual that was rode out the storm for as long as they can.  Their life circumstances have perhaps changed (ie. being married, divorced, having children, etc.) and are now realizing that the ability to sell their home on a “break even” is still not attainable.

Most people may not realize that if you want to sell your home, and the market will allow you to pay off your primary mortgage, and you have a second mortgage which is what is creating the “under water” circumstances, there is a solution.  It may be possible to negotiate a settlement with the secondary lender.  It isn’t the same as having to settle with a primary lender, and is many ways much easier.  Not all second lenders function the same and some are more difficult than others.  However, there may be a willingness to work with a seller that has a good offer on the table that will allow the a decent payoff albeit not a full payoff.  Sellers that are considering unburdening themselves of a home should examine the financial and personal impact of keeping a home that may be costing them money, versus trying to settle the debt on a secondary, or even in some instances, a primary loan.

The Rising Trend of Short Sales

Prices do not appear to be falling too precipitously any longer.  In fact, in certain cases there have been “over bids” where the offer to purchase is actually higher than the asking price for the home.  For the most part, the damage has already been done.   Prices in some areas of the metropolitan Detroit area have seen as much as a 50% decline from the high point of the market in 2006.   There is less inventory, and many of the “nicer” homes are selling easily and quickly.  Many of these sales are homes that are “priced right” and are short sales, or distressed properties.  The foreclosures have slowed and the banks seem to be embracing the concept of accepting short sale offers recognizing the obvious advantages to doing so.  Will the trend continue?  We are seeing more homeowners that are frustrated as they have been held hostage in their homes for over 5 years around the time when  the financial meltdown started.  These individuals were holding out for the market to recover, and now don’t see that happening any time soon.  It doesn’t appear that the national or local economies are stable nor are they growing fast enough for any measurable appreciation in home values.  As long as this is the case, there will be the necessity for short sales.

If you or your client are interested in a free consultation to discuss the nuances of a short sale based on your circumstances, please contact me.

New Rule To Protect Struggling Homeowners

The FTC has issued its final rule to protect struggling homeowners from mortgage relief scams.  The new rules regarding loan workout solutions, affect those individuals/companies that provide these types of services.  The new rules directly  impact the way these companies do business.  The major affect of these rules is that no company providing work out solutions, which includes loan modifications and short sales, is allowed to collect any money in advance of the home owner receiving a written offer from their lender or servicer that the home owner deems as acceptable.    The fee ban goes into effect as of January 31, 2011.  The homeowner must also be clearly advised that they have the option of accepting or rejecting the written offer.  The rule further requires many disclosures that are different depending upon whether those services are offered to a consumer, directly, or not.  The disclosure requirement goes into effect as of December 29, 2010.

Our company will be required to provide written disclosures on communications with our clients and referral partners.  We are otherwise in no way impacted by these new regulations.  We have been operating in a manner that is already consistent with these new regulations.  If you are interested in understanding these new regulations better,  I am attaching them to this article.

WHY DIDN’T HE TELL ME?

Yesterday I received a call from a real estate broker that I work with regularly.  One of his oldest and dearest friends was recently evicted from his home.  I spoke to his friend on the phone, and learned that, he had been working with several individuals (not the real estate agent) in an attempt to save his home.  One of the individuals was a non-profit, and the other was a bankruptcy attorney, neither of which I will name.  He had lost his job, but since has been re-employed.  My questions to him, naturally focused on why he would not have known that he was losing his home?  Of course, his friend the agent asked, why didn’t you come to me sooner?

There is no shame in our current climate for those that are faced with serious financial and personal struggles.  Many real estate agents are very close and friendly with their clients.  I have been saying for years, if you are an agent, and you suspect that a client of yours may be struggling financially or otherwise, ask them to come and speak to me.  I am objective and detached.  I am non-judgmental and have a lot of experience working with people to solve these types of problems.

There are many things that can happen during the course of time from when an individual suffers a financial hardship and when they may or may not lose their home to foreclosure.  Hardships are very often unavoidable.  However, understanding options and utilizing knowledge and resources that are available can truly help, and that is what I try to provide.

Why You Need to Hire an Expert….

The last couple of weeks have presented some challenges.  In particular, dealing with a servicer, One West, on some short sales.  There is a point during this process that one has to ask themselves, “… is this bank for real?”  If you do not have a keen sense of when you are getting “stock” responses to your inquiries, regarding the status of a short sale, you may be wasting your time, the agent’s time, and/or the client’s time.  This servicer appears to be cooperating.  However, at some point, they stop making sense.  So, what are your options?

If you are a “processor”, you will likely continue down this path of no return.  If you are an agent, you may decide that you need to cut the client lose due to this uncooperative  servicer.  If you are us, you find another way to get this accomplished.

Our extensive background tells us that there is always another way.  In fact, to the extent that you can pursue other options, you can hopefully accomplish the sale, or, at the very least, present clear evidence that this client did their best to “do the right thing”.

If you are “stuck” on a short sale, and have any sense that there may be a lack of cooperation on the part of a servicer, call me and I am happy to share some of my strategies for overcoming these “barriers”.

WHAT IS GOING ON HERE?

I have to say that in the past several months I have run across more individuals trying to modify their mortgages. Unless you really need to reduce your payment to be able to afford your home, YOU MAY WANT TO RECONSIDER! As I have said before, a modification under the Making Home Affordable, more commonly referred to as HAMP, is NOT MANDATORY AS FAR AS THE BANKS OR FEDERAL GOVERNMENT ARE CONCERNED. It is truly a discretionary program that the banks are not anxious to provide as an accommodation to delinquent borrowers. Although the program has been touted as a way to “save your home”, it truly may not be.

Here is a relatively typical example of the conversations that I hear:

“I have submitted to them over and over again the paperwork they have requested. It has been months, and I still haven’t gotten an answer. Now I have received a letter stating that I am in default, and that I owe all of the past due amounts. What should I do?”

Unfortunately, at this point, you have only two options. Either write the bank at check for the amount that you are now behind, or sell your home. If you never intended to lose your home, and were in fact thinking that you were doing the best thing you could do to save it, selling your home isn’t going to be your number one choice. However, unless you can determine that you truly qualify for HAMP, which only a few people that I have seen lately do, you better be in a position to write the check.

If this sounds familiar to you, it is time to sit with an honest professional and understand what you truly have and where you may be REALLY going.

Moratorium on Foreclosures

The headlines these days read “Bank of America to put a moratorium on foreclosures in 50 states”.  This week I have been asked by real estate agents and clients, ” how might this impact a person that is not current on their mortgage as they try to pursue a workout with their lender?”   The first thing that needs to be clarified is the process of foreclosure as it relates to Michigan.  Michigan has two options of foreclosure that a lender may pursue.  One is a judicial process, whereby a court action must be filed against the borrower by the lender.  The second is a non-judicial process, more commonly referred to as “statutory” or “foreclosure by advertisement”.  This is the most prevalent option pursued by lenders in Michigan.

Most of the national headlines we are reading refer to judicial foreclosure processes that require affidavits to be filed with the court.  The contention has much to do with banks being very lackadaisical with their practices.  Since this is part of a judicial process, there is an opportunity for the litigants to challenge one another in court.

It is not so clear in Michigan what happens if a borrower feels victimized by the lender’s actions.  Since there is no court action involved, one must plea to the sensitivities of the law firm representing the lender in the foreclosure process.  I can tell you from experience having worked in the past with a major law firm for lenders on large commercial foreclosures, the attorney’s do NOT want the process challenged.   They are very careful to follow the statute accordingly.

In terms of the practical impact, we have seen moratoriums in the past and they tend to only provide a brief backlog.  If you aren’t current on your payments, it will simply delay the inevitable, and put the homeowner in further jeopardy of losing their home.   In Michigan, I do not  believe that the process will be stopped, but rather only stalled.  In fact, it will likely only lead to more homes being foreclosed, and property values falling even further.

It is sad that those who may be being victimized by their lenders and forced into potentially losing their homes, are already hurting financially and can not afford to hire an attorney and commence a court action in order to challenge the banks and potentially save their homes.  However, if you are in a position where you feel victimized by your lender, please call someone, such as myself, or a HUD certified housing counselor, that might be able to assist you.  This call is FREE.

Let Me Explain the Significance of the “14 Day Letter”…

It has been a while since I have written a new post.  However, I really became infused last week.   That always gives me the encouragement to write.  I had three people come to me that described almost the exact same scenarios.  Each of these people were trying to obtain a loan modification for their primary home pursuant to the Making Home Affordable program (“HAMP”).  All I can say is if you are working with one of the larger institutional lenders, be careful.

This is what appears to be happening, and I have heard this many more times than three over the last several months.  You call the bank and provide your financial information over the phone.  In return, you are provided with a “trial payment”, which is at a “reduced” amount of what you typically pay for your mortgage.  You commence making this trial payment, usually over a period of months, as you proceed to provide your documentation and the loan modification is underwritten.

After several months, and never having a formal written agreement in place, you receive the “14 day letter” from a law firm representing your mortgage servicer.  The servicer has been taking your payments and putting them into a “suspense” account.  Essentially, you are now in default and in threat of losing your home.  Even though, you believe that the servicer is “working” with you.

This letter is critical and unique to Michigan.  Under Michigan law there are two processes by which a mortgage can be foreclosed.  Either by judicial action, which requires a court proceeding, or by statutory process, which requires that the provisions of the statute be followed.  If the servicer does not provide this opportunity, they are forced to seek a judicial foreclosure.  Most servicer’s will do whatever is necessary to avoid a judicial foreclosure.  It is imperative that you react to this letter, and furthermore, make a determination to either pursue the loan modification in accordance with this law, or to sell your home, or negotiate another form of workout,  in order to avoid a foreclosure.

To determine whether or not you will qualify for a loan modification, you need to understand the HAMP guidelines.  You also need to be familiar with the “14 day letter” law.  Refer to the link below for a better understanding of this law:

http://miforeclosure.mplp.org/advocate_events/mortgage_foreclosure_taskfore_meeting/mi_new_foreclosure_law_qa.pdf

If this sounds like it may be, or may become your situation, and you have any questions, please feel free to contact me.  It is important to understand this process in order to protect yourself.

Do You Have Expensive Listings?

How many agents have had the same home listed for a year or more?  How many agents feel comfortable discussing a price reduction that will likely require the seller to bring money to closing? My experience working with agents, especially in the high end market, is that this is not a comfortable conversation.  However, I have a theory on how to help your business move forward while maintaining much good will.

I have worked with agents that knew the listing had to be reduced to sell given our current real estate market.  There are limited buyers for these homes and they are divided into two distinct groups (which even reduces the pool of buyers further).  Some buyers don’t mind paying a higher price for a very nicely appointed home that is not a “short sale”.  The other buyer is looking for the absolutely nicest home for the lowest possible price.

I have found that once a home is “priced to sell”, it typically has a flurry of offers in a very short time.  Gone are the rules where the banks considering a short sale required three (3) months of listing history.  Also gone are the days that the banks need to see incremental reductions to price.  I believe that banks now understand that our market (MI) continues to decline and waiting is costing everyone money.

If you are ready to have this conversation with your seller, and you know that you can sell this listing if priced right, simply let them know that you have a resource for them.  I am happy to sit with them to explain their options if they were to decide to try and proceed with short sale of their home.  Obviously, this is not an option for everyone, and must be given very serious consideration.   However, sometimes it requires an objective and experienced party to assist sellers in understanding what their options may be.  Trust me, the situation and its severity does not have to be that apparent.

At the end of the day, they may be very grateful to their agent for having the sensitivity to seek out a solution to their dilemma.   It makes no sense to wait until your client has exhausted their resources, or has reached the end of their sustenance.  They will appreciate you potentially saving them from themselves, and you will have a sale, and not continue to spend money on a listing that is going nowhere fast!

Please feel free to contact me to discuss any possible scenarios.

How Do I Obtain Assistance from the Obama Foreclosure Prevention Funding?

On June 23rd of this year, the Obama administration announced that Michigan had been selected as one of the five (5) hardest hit states chosen to participate in funding for foreclosure prevention. The U.S. Department of Treasury approved the plan to distribute $154.5 million in federal funds as of July 12, and announced an additional $128,000 to be available in October. The initial distribution of funds was estimated to help more than 17,000 Michigan households avoid foreclosure. As of August 11th, 70 households have received assistance, and as of August 21st, 150 are being considered.

Many clients are asking, how do I obtain this assistance? It is at the discretion of the mortgage Servicer as to whether any of these options is available to you. There are huge limitations as to who will qualify for assistance, what types of assistance are available, in addition to whether or not your Servicer is participating.

The options for help are:

If you are unemployed, there is the Unemployment Mortgage Subsidy Program, which offers a 50% subsidy to your current mortgage payment. If you have a second mortgage, which many people do, this will not impact that payment at all. The subsidy is available for up to 12 months, or when one returns to work, whichever comes first.

If you are behind due to a temporary disruption, and just need to “catch up” on payments that have been missed, there is the Loan Rescue Program. There is up to $5,000 available to homeowner’s who can now afford their mortgage payment and just need to get current in order to avoid losing their homes to foreclosure.

For those homeowners that are now “underemployed” the Principal Curtailment Program provides up to $10,000, which is to be matched by the loan servicer, in order to reduce the principal balance of the loan. This program is targeted towards those homeowners with severe negative equity in order to help them to afford their home going forward.

In an article recently published in the Detroit Free Press (see link #1 below), it appears that most of the servicer’s participating in the “Help for Hardest Hit Program” are small lenders. In particular, credit unions. Since I work with struggling homeowner’s everyday, I know that most of the mortgages being serviced in the Detroit Metropolitan area are not small lenders. In addition, since we all know that most of the borrower’s that are severally upside down (mortgage balances well above what their home is worth), in the Detroit Metropolitan area, are not going to be helped much by the maximum $20,000 principal reduction which the program provides.

This program is being administrated by the Michigan State Housing and Development Authority (“MISHDA”). By visiting the MISHDA website (see link below) you can determine whether or not your Servicer is participating. If your Servicer is participating, you need to contact them directly.

http://www.freep.com/article/20100821/BUSINESS04/8210327/1002/NLETTER01/Small-lenders-are-offering-help-via-Hardest-Hit-Fund?source=nletter-business

http://www.michigan.gov/mshda/0,1607,7-141–235359–,00.html