Now that more than one in four American homeowners is “underwater,” I feel that it’s important for the community to know the truth about strategic default.

The truth is the foreclosure process carries with it credit issues, current and future employment challenges, issues with security clearance and possible debt collections.

That’s why it is vital to explain the 3 reasons why the term “strategic default” is misleading:

1. There’s nothing strategic about defaulting on purpose, especially when you have options like short sales, mortgage modifications, and refinance (just to name a few) that may keep you from foreclosure.
2. The waiting periods to apply for a new mortgage loan are at least five years less in a short sale vs. a foreclosure.
3. A foreclosure will show up on your credit report every time you apply for a home loan, car loan, new job, etc., and will affect your financial situation for many years to come.

Foreclosures in Washoe County increased by 16% in January 2011 over December 2010, and up 23% over January 2010. 

If you are underwater and can no longer afford your mortgage payments, you need to create a genuine strategy to avoid foreclosure, helping to provide stability for you and our community.

If you have any questions about what steps you or someone you care about should take next, contact me today – 775.813.2387! 

I offer a free report at http://www.KevinBown.com

Here are the key changes:

1. Monthly Gross Income Requirements- Servicers are no longer required to verify any financial information to determine if the borrower’s total monthly mortgage payment exceeds 31% of the borrower’s monthly gross income.  This being said, the servicer is still required to verify the borrower’s hardship and may request financial documents to evaluate the hardship.
2. Vacant Property Requirements – Properties can now be vacant or rented up to 12 months prior to the Short Sale Agreement as long as the borrower can prove that the residence was their primary residence and they have not bought another home in that time.  Relocation no longer is limited to work related relocation and the relocation distance requirement has been removed.
3. Release of Subordinate Liens (Paying Off Second/Junior Liens) -  the 6% cap to pay off junior liens has been eliminated.  The servicer determines the percentage going to each junior, but the $6,000 cap is still in place.
4. Timing For Issuance of Short Sale Agreement – now for both HAFA short sales initiated by the servicer  and those requested by the borrower, the time line for the servicer to respond to the borrower is 30 calendar days. (Please note that many servicers are not adhering to this guideline simply because of the volume of HAFA requests.  There does not appear to be any penalty to the servicer for not meeting this timeline.)
5. Timing For Response To Alternative Request For Approval of Short Sale – if the borrower submits an executed sales contract, Alternative RASS and signed Hardship Affidavit or RMA, the servicer must communicate approval or disapproval, or a counter within 30 calendar days. 
6. Real Estate Commissions – the 6% cap remains, but servicers must now include a statement in the Short Sale Agreement that they will not deduct 3rd party vendor fees from any agent commission.
7. Alternative Deed-In-Lieu (Deed for Lease) Programs – these programs did not previously qualify for the borrower to receive relocation incentives.  They now are included but only when the DIL is final.
8. Borrower Notices – Servicers can now consider a borrower for HAFA while the borrower is considering HAMP.

Servicers are not required to, but may re-evaluate borrowers who were previously ineligble before the guideline were changed. 

For more information contact me for the full Supplemental Directive 10-18.

Short sales accounted for 39% of November sales.  The median sales price for short sales was $159,900 and the average days on market was 180. 

Bank owned proeprties accounted for 35.1% of November sales.  The median sales price for bank owned sales was $128,000 and they averaged 95 days on market. 

Traditional (equity position) sales accounted for 25.7% of November sales.  The median for these sales was $192,000 and they averaged 82 days on the market. 

Buyers used FHA financing for 42.9% of these purchases.  Conventional financing accounted for 28.9%, 19.5% were purchased with cash and 7.8% using VA financing.

Does this mean that homeowners are completely off the hook and won’t have any costs?  No, in some cases depending on your financial situation the lender may ask the homeowner to contribute to the loss with a cash contribution or promissory note.  An experienced short sale real estate agent can assist you in minimizing these and working on a win-win solution for both the homeowner and the lender.  In some cases the cash contribution or promissory note can be the key to having the lender release the homeowner from any future liability.

How can you afford not to do a short sale?  When the alternative is foreclosure which can be devastaing to your credit, your future ability to purchase a home again, and result in larger tax consequences – how could you afford not to consider a short sale?

If you are a homeowner facing difficulties making your mortgage payment, consult an experienced short sale agent as soon as possible.

The total number of sales for the Sparks area  (MLS area 108) dropped slightly from 2009 to 2010, down about 6.1%.  In addition, the median price also fell from $170,000 in 3rd Q 2009 to $160,700 in 3rd Q 2010, a drop of 5.5%. 

There are currently (as of 10-22-2010) 568 active listings available to buyers in the Sparks area market.  Of these 48.6% are short sales, 34.4% are traditional sales and 16.9% are bank owned.  Key here for buyers is to make sure you have a buyer’s agent working for you that knows the ins and outs of short sales – doing your homework before making an offer on a short sale is key.

Bank owned properties continued to earn the highest list to sale price ratio.  In 3rd Q 2010 bank owned lisitngs got an average of 99.6% of the asking price, short sales 98.9% and traditional sales 97.4%.  Fewer foreclosed properties at low prices, continued mis-understanding of short sales and over-priced traditional listings drive these numbers.

As expected short sales have the highest average number of days on market.  For 3rd Q 2010 short sales averaged 184 days on market, bank owned 79 and traditional sales 77.   As a note the average number of days to close a short sale is relatively the same between 2009 and 2010.  We keep being told by the banks that they are improving their processes.  Hopefully this will reflect soon in our average days to close a short sale.

According to a Yahoo.com report on 10-20-2010 more than 55% of the active mortgages in the Reno-Sparks area are upside down.  I think we will continue to see more and more short sales as homeowners become more educated about short sales as an option to foreclosure.  The key is making sure that you select an agent that is highly skilled in the short sale areana and get legal and tax advice as well.

These freezes do not mean that homeowners are going to get off the hook.  It simply means that you may have a bit more time to pursue alternative options, such as a short sale.   Don’t be fooled into thinking that you can hold off until after the holidays to look into your options.  If you are facing difficulty paying your mortgage please seek help of a qualified real estate professional as soon as possible.  The one thing you don’t have is TIME. 

Over the past several years we have seen the lenders institute foreclosure freezes in the 4th quarter simply because it is not good press to foreclose on homeowners during the holiday season.  Although the issues seems to be more focused on “robo-signing” for the current freezes, historically this isn’t uncommon. 

Again, call an experience real estate professional today…

We understand the devastating effect that being forced to leave a home has on families in our community, both financially and emotionally. If you’ve lost your home through a short sale or foreclosure, or have recently gone through bankruptcy, we can help.

Dickson Realty has partnered with The Grupe Company as the exclusive provider of Fresh Start in the area.

• Rent-to-own program designed to help families get back on the home ownership track
• Lease for up to 5 years in the neighborhood you want to live
• Re-establish credit and financial stability
• Buy in 3 to 5 years at pre-set pricing

Contact Dickson Realty today and speak with one of our Fresh Start specialists to find out how we can help you with your Fresh Start.

The site is available in both English and Spanish and includes tools like educational videos, mortgage calculators, financial forms and checklists.   A virtual assistant will walk you through the site. 

Not all mortgages are insured by Fannie Mae, but this is a great general resource.  The site does provide a Fannie Mae Look-up Tool so you can find out if your mortgage is insured by Fannie Mae so you can take advantage of the Fannie Mae specific programs that are detailed on the site.

Again the key for anyone homeowner who is facing difficulties or anticpates that they may have an issue in the near future is to seek help as early as possible.  This website is a great first step.

Short Sale  (Deed-inlieu of Foreclosure Guidelines are similar) – According to the report the affect on your FICO score from short sale depends on how the sale is reported to the credit bureau.  If reported as “not paid as agreed” the score could go down 100+ points.  Late payments will also affect the FICO score and are reported for 7 years, with thier impact lessening over time.   Buyers looking to purchase after a short sale will have to wait to purchase another home.  If purchasing using FHA financing the wait is 3 years (possibly less if not in default at time of short sale).  For a Fannie Mae insured loan buyers need only wait 2 years if putting 20%+ down, 4 years if putting between 10%-20% down, and 7 years if putting less than 10% down.  If getting a Freddie Mac insured loan the wait is 4 years, 2 years if extenuating circumstance are documented.

Foreclosure – A foreclosure stays on your credit report for 7 years, with the impact lessening over time.  A foreclosure could lower your FICO score 100+ points.  Buyers looking to purchase after a foreclosure will again have to wait.  If purchasing using FHA financing the wait is 3 years.    If getting a Fannie Mae insured loan the wait is 5 years from the foreclosure sale date, 3 years if there are extenuating circumstances.  Additional underwriting requirements may be required.  The wait for Freddie Mac insured loans is similar with a 5 year wait, 3 years for exentuating circumstances.

Bankruptcy – Bankruptcies stay on your credit report for 7 years (10 if there was a full discharge of debt).  Bankruptcies generally have a greater negative affect on the FICO score in comparison to the above mentioned issue.  Buyers looking to repurchase after a bankruptcy using an FHA loan will have to wait 2 years from discharge date with a chapter 7 BK and 1 year with a chapter 13 BK.  If getting a Fannie Mae or Freddie Mac insured loan there is a 4 year wait for chapter 7 or 11, and 2 year wait if chapter 13.   Some allowance are made for exentuating circumstances. 

Extenuating Circumstances – include serious illness or death of a wage earner, but do not include an inability to sell a house due to job transfer or relocation. 

For a full copy of this report please feel free to contact me.