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Posts Tagged ‘short sale’

New Program Pays Owners to Sell for a Loss

Monday, March 8, 2010 posted by Tommi Crow

With more than 5 million households currently behind on their mortgages, the Obama adminstration is rolling out a new program to encourage lenders to accept a short sale.   A short sale is one in which a property is sold for less than the outstanding mortgage owed to the lender.   The administration hopes the program will prevent more foreclosures, which further depress property values and harm good neighborhoods.

The  program, which takes effect April 5, 2010,  pays lenders and borrowers to complete a short sale.   Key points of the program are as follows.

  • 1.  The program compels lenders to accept a short sale offer and forgive the difference they are owed between the market value and the outstanding mortgage balance. 
  • 2.  The lender will receive $1000 for every short sale they participate in.
  • 3.  The program encourages millions of borrowers to get serious about getting rid of their homes.  It  pays homeowners $1500 in walking away cash for finding buyer for their property and closing the sale.
  • 4.  The lender will utilize real estate agents to determine the present market value for a home.  That value will set the minimum acceptable price.   The estimated value will not be shared with the homeowner.  If an offer is submitted that is equal to or higher than the estimated value, the lender MUST take it.

Pro’s and Con’s

  • 1.  For the investment pools which own most of the home loans, there is the hope of getting more money from a short sale than a foreclosure proceeding.
  • 2.  For the lender, $1000 will help offset the labor intensive short sale process.
  • 3.  For the borrower, their credit will suffer less damage.  They have the lenders assurance that they won’t be sued down the line for their unpaid balance.  And, they get $15oo to assist with their relocation.
  • 4.  For the community, short sales mean fewer empty houses sitting around waiting for the bank sale.  It is estimated as many as half of all vacant properties are ransacked, neglected, vandalized and depress the value of neighboring homes.
  • 5.  The downside is that short sales are “tailor made” for fraud.  House values are inherently subjective, which provides a wide latitude for potential conflicts.
  • 6.  Another problem is that bankers hate the very idea of accepting an offer short of what they are owed.  By nature, they don’t want to sell anything at a discount.  If they loan $200,000 …they expect to be repaid $200,000, not $150,000.

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Fraud Alleged in REO and Short Sales

Tuesday, July 14, 2009 posted by Tommi Crow

An accusation of fraud is a serious matter, but some home buyer’s and their agents are accusing the listing agents of bank owned property exactly that.

In a traditional sale, which is a rare event these days, the buyer’s agent presents an offer to the listing agent. The listing agent, in turn, presents the offer to the seller, who can reject, accept or make a counter offer to the buyer.

In contrast, REO (Real Estate Owned by the bank) contract negotiations take place with a bank, lender, or a representative hired to represent the lender. In contrast to a “normal” seller to buyer transaction, neither buyer or agent has the opportunity or ability to meet with the seller. Therefore, the buyer and their agent have no way of knowing whether their offer was actually presented to the lending institution, at all.

So you ask, “Why would a listing agent hide offers from the bank?” The answer is sadly cliche…”follow the money”.

Buyer agents allege that often, listing agents for the banks are also working with their own own buyers. If their buyer’s offer is accepted, the agent is paid two commissions, one as the selling agent, another for listing the property. So, if the listing agent holds back a higher offer in order to leave their client in the number one position, the agent “double dips” and earns double the money.

What can you do? Unfortunately, not much. The bank is unaware that other offers have been presented. Other buyer’s and their agents have no way of knowing if their offers were really presented, either. Usually buyers and agents are just told that their offer was rejected. Only after the closing can they see that their offer was better than the one the bank accepted and that the listing agent was also the selling agent.

If you suspect that you have been a victim of fraud or underhanded dealings, you can try to contact the lender. But, be prepared that most lenders want no contact with the public and even their own fraud departments show little interest in helping “would-be” buyers or their agents. And, as for the “listing agent for the bank”, it is highly unlikely that the  of the fraud will suddenly get a change of heart and confess.

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On Thursday, the government announced two programs that may help thousands of homeowners that are sinking in debt avoid foreclosure.

Treasury Secretary, Tim Geithner, said “Today we are announcing a new program component to help homeowners obtain modifications in areas suffering from price declines.  If a modification is not possible, we are announcing steps to encourage the quick private sale or voluntary transfer of property, which will save homeowners money and protect their financial future.”  Geithner went on to say that, “These are critical steps in stemming the foreclosure crisis and stabilizing the housing market, both of which are critical to your economic recovery”

The Program in a Nutshell:

  1. Foreclosure Alternatives:  The program increases the odds of closing a short sale by streamlining the process and offering incentives to lenders for participation.  The program is designed for homeowners who are eligible for a loan modification, but can not qualify for one.  Under the new program, lenders may receive compensation up to $1000 for completing a short sale.  Borrower’s may receive up to $1500 for relocation expenses.  Holders of 2nd mortgages will receive up to $1000, if they agree to the terms of a short sale.

Why This New Program May Help:

  1. A short sale is the last step before foreclosure, and is far less costly for lenders and borrowers.   Selling short is less damaging to the homeowners credit and they are less costly for banks and lenders.   Survey results show that losses from short sales average 19 percent versus losses of 40 percent in the case of foreclosure.
  2. Currently, more than 75 percent of short sale contracts fall apart, despite sometimes heroic efforts on the part of the borrower.  Lenders have for the most part been uncooperative when responding to offers on short sales, which means the properties sit vacant and pull down values in the entire area.
  3. The new program may provide a much needed boost to the current Making a Home Affordable program.  Despite good intentions, the program has only helped 55,000 homeowner’s modify their loans.   In comparison, there were 342,000 foreclosure filings in the month of April, alone.

  Stop The Sinking Feeling.   If you are struggling to pay your mortgage or you are falling behind on your payments…CALL YOUR LENDER TODAY!!   Don’t procrastinate, the problem will only become larger if you wait.   You may also waste valuable time in stopping a foreclosure on your property, which is the worst case scenario for borrower and lender alike.

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As bargain hunters everywhere turn their attention to foreclosures, many buyers discover that for all the hype, the homes can not be purchased.   Banks are so overwhelmed by the sheer numbers of REO (Real Estate Owned) properties, that they hold up sales and leave buyers stuck with thousands of dollars in extra costs.

Distressed properties now make up 25 percent of all homes for sale.   Many foreclosed homes have been vandalized, neglected and cause a blight on otherwise good neighborhoods.  Selling these properties would help stabilize house prices and remove inventory from the market, but the banks simply can’t keep up with the paperwork.

Take the case of the Collins family, who in January, rushed to buy a foreclosure on a picuresque, tree lined street in southern California.   They immediately obtained their financing, paid for inspections, appraisals and completed other paperwork the lender required from them.  It is now mid-April and the Collins family finds themselves still sitting in limbo.  They have yet to receive confirmation of a closing date or signed paperwork.

While common sense tells us that the housing market can not recover until the foreclosures are sold, the reality is that the banks can not keep up with the paperwork required to transfer the property.   There are a lot of layers and people, with varying degree’s of work ethic, that are involved with the sale of any bank owned property.  Further frustrating to “would be” buyers, is that they can’t just call the bank and ask what is going on.  There is no one to ask for help, as there is when buying from a real owner.

As the nation’s banks anticipate owning another 1.5 million foreclosed homes in 2009, things will likely get worse in terms of getting rid of them quickly.   Maybe outraged buyers, and the neighbors who tolerate these blights on our communities, should all cry out to their congressmen for help.  Perhaps, they can force the banks to step up their management of foreclosed homes, and force the agents and servicers to do their jobs.

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Housing Relief – Loan Modification Help Is Here

Tuesday, November 11, 2008 posted by Tommi Crow

 A new loan modification program was just unveiled that may help thousands of homeowners, that are facing foreclosure.  The loan modification program is the latest attempt by the federal government to stabilize the real estate market.  Thr program will not provide direct financial help, but it does provide assistance to those at risk of losing their homes.

The program will benefit borrowers who are at least 3 months behind on their mortgage payments, if they live in the home and have not filed for bankruptcy.

Borrower’s who fit the criteria would be offered a mortgage loan that would bring the payment to no more than 38 percent of their monthly household income.   Loan payments would be adjusted downward through interest rate cuts and longer terms of repayment.  Borrower’s would be allowed up to 40 years to repay the debt versus the traditional 30 year mortgage most of us are familiar with.

Borrower’s who are in danger of foreclosure should immediately contact the lender who services their loan.  The loan modification program was designed to be swift and efficient in stopping foreclosures.  It is expected that 1.6 million Americans will lose their homes this year, and another 1.9 million are projected to lose their homes in 2009.

Efforts by the government to work with borrowers and homeowners and keep them in their homes is good news for neighborhoods and communities.   The program is also good news for lenders and taxpayers as foreclosures typically cost the lender 50 percent of the loan value.  Ouch!

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While the present ecomonic situation in this country is uncertain, one thing remains unchanged.  Markets will rise.  Markets will fall.  Markets will Recover.  Savvy Investors/Buyers will Profit.

Too much inventory, and too much absurd lending and borrowing, have Americans facing the worst housing market since the great depression.  While this is not new news, the opportunities in this market may be.   

Home buyers with money in the bank, a job and good credit have not been in such a great position in decades.   Price declines and record loan defaults have made bargain hunting for a home a lot more fun.   The McMansion, many believed they could never afford, is now well within their grasp. 

So, what is the truth about getting a great deal in this market?   Are some properties easier to buy than others?    Can you really get a steal from lenders sitting on unsold inventory?   

The answer is YES, but there are big differences in the types of distressed property being offered for sale.

  • SHORT SALES:  A short sale is one in which the borrower is behind on their mortgage, but they still own the property.   Usually, the borrower owes more to the lender than they can sell the home for (upside down).  Usually a short seller will ask the bank to consider any offer on the property and “forgive” the outstanding loan balance.   A short sale is good for the home owner because short sales do not reflect as poorly on their credit report.  Short sales are good for the lender because they don’t have another vacant home on their books.
  • MAKING A OFFER ON A SHORT SALE HOME:  This is the most difficult type of distressed housing to make an offer on.  Unless you have a lot of patience or an unlimited amount of time to sit and wait for a response to your offer, you may want to seriously avoid properties advertised as Short Sales.  Truefully, very few, if any, offers made on Short Sales ever close.
  • REO’s and Foreclosures:  These are bank owned properties and there are plenty to choose from.  These types of listings sell very quickly.  Generally the buyer can be sitting in their new living room in less than 30 days after submitting an offer on a lender owned property.
  • MAKING AN OFFER ON A FORECLOSURE OR REO:  Banks are completely detached and unemotional from their home listings.   They know exactly what they need in terms of price, they know the local market and they love quick closings.  That being said, you won’t be successful offering 75, 80 or even 90 percent of the list price.  You will more than likely be out bid, as often the winning bid is over the list price.  Keep in mind that the bank is not like a human home seller, they usually never counter low ball offers, they simply move on to the next offer in the pile.

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