Archive | Tips for Sellers
One year ago, the interest rate on a 30-year fixed conforming and FHA loan was 4.875%, an incredibly low rate. However, the rate for those same loans today stands at only 5.125%, a mere ¼ point increase. With the 7.5% decrease in median home value in Truckee for homes in the conforming price range in the past year, Buyers are still ahead if they purchase today.
Jumbo loans are a different story. One year ago, a 30-year fixed jumbo was 7.875%. Today, it’s 5.75%, a 2.125 point drop. The median price of homes in the jumbo arena dropped over 6%, so with both interest rates and value of those homes down, Buyers can buy much more than they could have a year ago. So those who decided to “wait and see” made a good decision.
HOWEVER, neither the interest rates nor the home prices will stay this low. We certainly hope that Buyers trying to outsmart the market won’t be left out in the cold. Literally.
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It is true that both foreclosure and short sales have serious consequences for homeowners faced with the inability to pay thier mortgages. The following are some of the ways homeowners are affected showing the difference between foreclosure and short sale. (Source: Distressed Property Institute)
PURCHASING A HOME IN THE FUTURE…
- Fannie Mae Insured Loans for Primary Residences - Foreclosure requires a 5 year wait before purchasing again vs. a 2 year wait if you sold through a short sale.
- Fannie Mae Insured Loand for Non-Primary Residences – Foreclosure requires a 7 year wait and short sale again will only require a 2 year wait.
- Future Loan Applications – On any 1003 application the borrower who has a foreclosure will have to mark “YES” to the questions “Have you had a property foreclosed upon or given title or deed in lieu thereof in the last 7 years?”, yet a borrower who has done a short sale will not have to answer yes to this question.
CREDIT HISTORY AND CREDIT SCORE
- Credit scores can be lowered anywhere from 250 to over 300 points with a foreclosure and will typically affect your credit score for over 3 years. With a short sale only late payments will show and after sale the mortage will be reported as paid or negotiated. The short sale’s affect can be as little as 50 points and can be as brief as 12 to 18 months.
- Credit history for foreclosure will remain as a public record on your credit history for 10 years or more. A short sale is not reported on a credit history, typicall it shows the mortgage was “paid in full, settled.”
EMPLOYMENT
- SECURITY CLEARANCE – If you have a security clearance, a foreclosure can result in a revokation of your clearance, where typcially a short sale on its own does not challenge a security clearance.
- Your current employment can be affected if your employer checks your credit regularly.
- Many employers are requiring credit checks when hiring for new positions. A foreclosure could challenge future employment opportunities.
DEFICIENCY JUDGEMENTS
- In 100% of foreclosures in Nevada the bank has the right to pursue a deficiency judgement. With a short sale the lender often agrees in writing to give up the right to pursue a deficiency judgement.
- With foreclosure the price the home sells for after the bank gets it back through the foreclosure process is often significantly less then the proceeds they would receive in a short sale. Thus the deficiency balance is typically much higher with a foreclosure than with a short sale.
There is a common misconception that foreclosure and shortsale are equal, but as you can see the truth is that the consequences of a short sale can be more favorable for homeowners.
If you or someone you know if facing foreclosure please contact me and I can help you understand the options available to you and give you referrals to others who can help.
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Many homeowners in the Reno-Sparks area are facing issues with mortgage delinquency and possibly foreclosure. This can be a very stressful time and knowing the process and where to go for help can be very beneficial. As a member of the Nevada Association of REALTORS Foreclosure Prevention Task Force, I have come across a very valuable tool for homeowners – “Nevada Foreclosure Information Workbook”. This booklet was compiled by the Nevda Statewide Foreclosure Prevention Taskforce. You can download this booklet from Nevada Department of Business and Industry’s website. Here is a link http://foreclosurehelp.nv.gov/Brochures/ForeclosureWorkbook.pdf.
The booklet covers topics like – Understanding Delinquency, Understanding Your Financial Situation, Know Your Mortgage, Know Your Options, Beware of Scams, Tools for the Homeowner, and Document Checklist for Dealing With Your Lender. There are also definitions for many of the terms you may need to know. There is also a list of resources.
If you are facing issues with delinquency the best thing you can do is take a pro-active approach and educate yourself on the process. This will enable you to have more successful results when dealing with your lender.
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Many borrowers are under the assumption that their responsibility for a mortgage ends with a short sale or foreclosure. This is not always the case.
In a short sale the mortgage holders are increasingly requiring borrowers to sign a promissory note, a written promise to pay back all or a portion of the debt, as a condition of the short sale approval. Increasingly mortgage holders are asking sellers to sign a promissory note or retaining their right to pursue a deficiency.
In many states lenders have the right to come after borrowers for unpaid mortgage debt from a foreclosure or short sale, seeking a deficiency judgment. Many times it is the second mortgage holder who will pursue the deficiency as the first may have been satisfied through the short sale.
Whether or not a mortgage holder will pursue the borrower can depend on (1) their agreement with the investor or servicer, (2) what is allowed by State law, or (3) if the return outweighs the potential return. In addition, if there isn’t a true financial hardship that is when the mortgage holder might be more inclined to try to collect the unpaid balance.
In Nevada, NRS 40.455 gives creditor 6 months from the date of foreclosure or trustee’s sale to request a hearing and determine if a deficiency judgment is owed the creditor.
As a REALTOR it is outside of my area of expertise to advise a client regarding a promissory note or whether or not they could get hit with a deficiency judgment in the future. I strongly advise anyone who is faced with a short sale or foreclosure to consult an attorney before making any decisions.
Please keep in mind that in order to complete a short sale you will need a TEAM of professionals including an experience REALTOR, a CPA and an attorney. Each of these team members will play a critical role in assisting you.
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On Saturday, April 25th, the City of Reno, in partnership with Consumer Credit Affiliates of Northern Nevada (a federally funded not for profit) will be hosting two workshops. The first workshop will start at 9am and will aim to assist households at-risk of experiencing foreclosures. After the hour long workshop, it will be followed with an informational session and one-on-one time with those attendees who are interested in speaking to counselors and providers.The second workshop starts at 1:00pm and is intended to provide information, resources and first-time homebuyer education to individuals and families interested in becoming homeowners. After the hour long presentation by Consumer Credit Affiliates, there will be an informal informational session and an opportunity to meet with various providers, including credit counselors, banks and Dickson Realty. Get information on such items as down payment assistance, first time homebuyer tax credit or how to purchase foreclosed homes.
The event takes place at the Downtown Ballroom and is free of charge.
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I attended a foreclosure seminar recently and had the pleasure of sitting in on a presentation conducted by J.C. Melvin, www.JCMelvin.com . I’ve known JC for many years and find him to be a very talented and motivating speaker/trainer. In any event JC used a “Bucket of Mud” metaphor and related it to our industry. That is that many brokers, agents, loan officers, escrow officers, etc. etc. etc. are walking around yearning for the good old days. These guys wake up, grab their buckets and head off to spread their “old school” skills and cheer with anyone that’ll listen. Let’s face it guys, our world’s changed so you’d better get over it. I’d like to offer a few points for all to consider:
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Buyers actually have to qualify for a home. They need good credit. The lender may actually require a down payment. Say it isn’t so! Risky lending practices created most of this mess. Don’t you think it should be this way? Perhaps we could have avoided all of this had things stayed as they were when I entered the industry in 1991. Those that ignore history are doomed to repeat it, get over it.
- Distressed properties will continue to dominate the Nevada market for the foreseeable future. We real estate pros must innovate, adapt and most importantly learn. This is a whole new world. It’s filled with hard work and accountability. Much more focus should be placed on loss and risk management. Our top people must embrace this and get over it.
- We will work harder for less money, get over it. We may need to work 40 – 50 hours per week or more. In the words of my teenage son, OMG!
- Banks, asset managers, third party REO (Real Estate Owned, the industry word for “forclosure”) service providers are overwhelmed. Much of this is caused by a lack of training from the real estate pros they rely upon for their field work. By the way, you typically can’t buy a bank-owned home conditioned upon the sale of another home. You probably won’t get your short-sale done in 45 days. Your listing is not worth 20% more than the nearly identical foreclosure listing down the street. The claw foot tub, great border paper and 16 pound nails are not worth $50,000. We really owe it to the public on this one.
I would like to make one statement directed towards some banks and loan servicers. Please stop using your collection department staff to manage loan modification. It’s kind of like asking your dentist to remove your appendix. Loan originators must be patient and intuitive. Skills not typically associated with your “repo-man”. Oh! And please stop losing my short sale file. You never seem to misplace my house payment!
Thanks for listening, I’m going to go sell another REO now.
Popularity: 4% [?]
Curb appeal remains the standard. If a house doesn’t have it, the property is likely to languish on the market. A Michigan State University study estimated that good landscaping adds 6 percent to 11 percent to the eventual sales price of a home. It doesn’t take a ton of cash to get curb appeal. Often a little bit of elbow grease will do the trick.
Here are the basics:
- Front yard and porch. Mow the grass and keep it green. Keep the porch immaculate – no dirt or bugs.
- Mulch all the beds. Flowers and shrubs help, but if the owner can’t afford anything else, mulch will do the trick.
- Paint will pay off. Covering everything with a fresh coat of paint – preferably a neutral color – will help the house sell. Freshening up the front door is particularly important.
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On December 16, 2008 the IRS announced that is now offering an expedited process for homeowners to avoid having a federal tax lien block the refinancing or sale of a home. The IRS does not want to be a barrier to people trying to save their homes or to those that are selling them for less than the mortgage lien under certain circumstances.
Taxpayers and their representatives may apply for a certificate of discharge of a tax lien. For more information and links to the IRS forms needed to make these requests please use this link – http://www.irs.gov/newsroom/article/0,,id=201343,00.html
Start the process early in your transaction so the IRS lien doesn’t become a closing issue.
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Many of you are hearing about short sales, but perhaps you are uncertain about what a short sale is. A short sale is when the seller of a home has an outstanding mortgage or mortgages that exceed the current market value of the property. Currently in Sparks, short sales represent about 25% of the active listings and 45% of the pending sales. They key is that since April 2008 they have only accounted for 15% of the closed sales.
In contrast bank owned properties currently acccount for only about 13% of the active properties and 30% of the pending sales. Yet since April 2008 they account for over 40% of the homes sold.
So with more active listings and pending sales being short sales why aren’t more closing? The answer to this is that there are some key criteria that determine whether or not a short sale has a high success rate to get to closing. Here are the key factors:
- Is there more than one mortgage on the property? If there are multiple mortgages on the property the likelihood of a successful close go down. Further if the mortgages are with two different lienholders the chances of closing on the short sale drop significantly.
- Does the seller have a ligitimate hardship and are they willing to accept the consequences that might be required by the lender – for example a promissory note?
- The knowledge of the listing agent in the transaction and their experience closing short sale transactions is key. These transactions require many additional hours of work by the listing agent and training on how to navigate the short sale systems that vary so widely from lender to lender.
- Time. Because of the volume of short sales that are in our market and markets across the country, many lenders were not prepared for the large number of borrowers that are facing difficulties. Their back log of files can cause a lag in the time it takes to get the bank to respond once an offer is submitted. Therefore many buyers loose patience and move on to another property where they can close more quickly – either a bank owned or traditional seller.
So to sellers in Sparks I say, if you are in a short sale situation be sure to contact a qualified agent to list your property. Ensure that they have experience in closing this type of transaction and do everything you can to cooperate with your listing agent, your lender and the prospective buyer who will all be working to help you out of this stressful situation.
Popularity: 4% [?]
Do you really “lose” money when buying and selling houses?
Personally, in the last year, my wife and I have probably lost over $100,000 in real estate transactions, but we wanted to sell our homes to live in a very specific area, something we always dreamed of. SO FINALLY, we were buying a home in the area we want. This property is approximately $100,000 less today than it was 18 months ago. So did we lose the money on our first two homes or is it a wash? Yes, we lost the cash, but we would have spent it anyway on another home if the market values didn’t change. It’s not a real estate market crash, it’s a correction. And, corrections ultimately benefit everyone.
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Saturday, January 16, 2010 By: Lil Schaller
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