Archive for Short Sales
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Short Sale, Deed-in-Lieu, Foreclosure, Deed-For-Lease?
A record 23% of US homeowners owe more on their mortgages than their homes are worth according to a study by First American CoreLogic and an article in the Wall Street Journal on 11/24/09. A whopping 45% of Florida residents who have a mortgage are underwater! The article states that: “More than 40% of borrowers who took out a mortgage in 2006 — when home prices peaked — are under water. Prices have dropped so much in some parts of the U.S. that some borrowers who took out loans more than five years ago owe more than their home’s value.” With distressed homeowners unable to refinance due to appraisal issues, and most unable to modify their loans, Tampa residents are wondering where to turn.
The state of the U.S. economy and housing market has brought many homeowners from security to uncertainty. But within this uncertainty, solutions have been created to assist those who need help. If you or someone you know in the Tampa Bay area is struggling to pay the mortgage, it is vital to understand ALL the options available.
The pressures of an upside-down mortgage are not just felt by the homeowner. Lenders are looking to avoid foreclosure and work with homeowners to find solutions to their financial situations. Lenders are not in the real estate business, do not wish to take ownership of a home, and do not want a house to sit idle on the market.
WHAT OPTIONS ARE AVAILABLE?
If you or someone you know is facing foreclosure and the damages it will cause to credit scores, employment or security clearance, you should consider a short sale or a deed-in-lieu of foreclosure (or “deed-in-lieu”). These options could allow you to sell or walk away from your home without incurring liability for deficiency.
WHAT IS A FORECLOSURE?
By definition, foreclosure is the termination of all rights held by the homeowner covered in a mortgage. The process, in which the lender claims ownership of the property, begins when the homeowner fails to make mortgage payments at the appointed time- this is called delinquency. Typically, a formal demand for payment is issued from the lender through a Notice of Default. Although this varies by state, the lender will often issue this notice when the homeowner has been three months delinquent on the mortgage payments.
Foreclosure can:
· Remain permanently as public record on your credit history 10+ years
· Lower credit scores anywhere from 250 to more than 300 points
· Make you ineligible for a Fannie Mae-backed loan for 7 years
· Challenge current and future employment
· Put homeowners at risk of high deficiency judgments
· Become an issue against security clearance if applicable
WHAT’S A SHORT SALE?
In a short sale, a seller works with their mortgage lender to accept a price that’s less than the amount owed on the home. This results in the seller avoiding foreclosure, and allows the lender to avoid taking ownership and selling the property.
WHAT’S A DEED-IN-LIEU OF FORECLOSURE?
A deed-in-lieu is a process in which a property is given fully to the lender because the homeowner can no longer make payments. The lender then sells the property in order to retrieve a part, or whole of the loan balance owed. In most cases, the homeowner must attempt to sell the home at fair market value for at least 90 days before a mortgage company will consider a deed-in-lieu. This may not be an option if there are other liens on the property, such as second mortgages, judgments from creditors, or tax liens.
DEFICIENCY JUDGEMENT?
For both a short sale and a deed-in-lieu, your lender can claim you owe a deficiency judgment on your remaining balance. This means the lender may have the right to pursue the difference of what you owed and the eventual sale price of the home. In a foreclosure, all rights to your property are lost, while the lender retains the right to pursue a deficiency judgment. It will also remain on your credit history for ten years or more. During negotiations for both short sales and deed-in-lieu transactions, it is imperative to understand whether your lender reserves the right to pursue a deficiency.
WHAT ARE THE POSSIBLE TAX CONSEQUENCES?
When it comes to the tax implications of a short sale or deed-in-lieu transaction, you will need to consult a tax professional. As a general rule, any debt forgiven by the lending institution will be considered income. Lenders are required to file a 1099-A with the IRS showing the deficiency, which could have tax implications for you. Once you have received Form 1099-A, you will need to complete IRS Form 982 to report how much of the debt was forgiven by the lender. Again, consulting a tax professional is a vital part of this process, and can save you from future financial difficulties.
WHAT ABOUT DEED-FOR-LEASE?
You might have read about a new program called Deed-for-Lease™. Fannie Mae created this program as an option for homeowners who are in distress but not eligible for a mortgage modification. Through this program, qualifying homeowners have the option to remain in their homes as renters after voluntarily transferring the property deed back to the lender. The homeowners must prove they are able to afford market rent, and then sign a lease with the lender. A deed-for-Lease provides an additional option for borrowers who do not qualify for, or have not been able to sustain other loan-workout solutions. While this program is unique to Fannie Mae loans, be sure to discover what options your lender offers to homeowners who do not qualify for loan modifications but wish to stay in their homes.
Following are a few of the homeowner qualifications for this program:
· The property is to be used as the occupant’s primary residence
· The occupant’s income is sufficient to cover rental payments
· Inspection shows that the property has been kept in good condition
· The occupant agrees to be responsible for regular maintenance
· The number of occupants is appropriate for the home
· The occupants signing the lease must agree to a credit review
· See http://www.efanniemae.com
WHAT IS YOUR FASTEST WAY OUT?
A deed-in-lieu is the fastest solution for Tampa Bay homeowners out of a foreclosure, compared to the timeline of a short sale. However, very few lenders will negotiate a deed-in-lieu if a lien, or second mortgage has already been taken out on the home. Conversely, a short sale provides the feeling of accomplishment for selling your home.
WHAT SHOULD I LOOK OUT FOR?
If you are considering either a deed-in-lieu or a short sale, it would be wise to review the terms and conditions of your transaction carefully. Make certain your agent can explain whether or not a deficiency balance is forgiven, or how long the lender can pursue this judgment. Both options can save you from the distress that foreclosure will cause on your credit, finances, future employment and, most importantly, your stability. With more than 1 in 8 U.S. homeowners not paying the mortgage, it’s clear that no one is immune to the current economic situation.
We believe every Hillsborough County and Pasco County homeowner deserves the best information and education to protect themselves from losing their home to foreclosure and ruining their credit. For those already struggling to pay their mortgages and unsure of what to do next, understanding short sales and deeds-in-lieu can ease their stress and potentially save them from an impending foreclosure.
Deciding on which route will be best for you and your family’s future is the most important decision you can make. Please use this information to better understand the options available.
As a CDPE, Certified Distressed Property Expert, I have been trained to assist homeowners in these difficult situations. If I can provide you with more information or assistance, please don’t hesitate to contact Dale Bohannon at 813.979-4963 .
Much of this article was written by the Certified Distressed Property Institute (http://www.cdpe.com), with edits by Dale Bohannon.
Think Foreclosure is your only option…Think Again!
Owe more than your home is worth? Struggling with rising payments? Facing unforeseen circumstances? Need to move on to a new chapter? You are not alone.
Thousands of Tampa homeowners are facing the same tough challenges every day. Now more than ever, there are steps you can take to avoid foreclosure. You need guidance, confidentiality and someone who understands the serious choices you are facing about your home, your family, and your life. The wrong decision might make it impossible for you to repair your credit or purchase another home for 5-10 years. Foreclosures, short sales, and mortgage modifications can have vastly different impacts upon your future.
If you would like to speak with a Tampa Realtor who understands these difficult choices, please do not delay. You have options, and you do not need to go through the process alone. As Certified Distressed Property Experts (CDPEs), Realtors at team Bohannon provide FREE information that compares and contrasts ways to avoid foreclosure. Call today at 813-979-4963
Wesley Chapel Estate Report
What is happening with the real estate market in Wesley Chapel? At the moment there are 417 single family homes for sale, with 17 of those being bank owned foreclosures and 189 being short sales. There are 287 homes under contract, with 34 of those being bank owned, and 179 being short sales. Thus far in 2009, 592 homes have sold/closed, or about 65 per month.
If you are curious about the real estate market in Wesley Chapel, see our new 4 page Wesley Chapel Real Estate Market Report that shows statistics on Wesley Chapel Listings, Contracts Pending, and Closed Sales over the past 6 months. The report shows average prices, list-to-sales price ratios and the absorption rate. The Wesley Chapel Real Estate Market Report contains colorful charts contrasting Available Listings – vs- Contracts Pending, Sold Listings -vs- Expired Listings, Days on the Market (DOM), and Average Sale Prices. To see homes for sale in Wesley Chapel, click here and zoom in to see homes or click the search tab to revise the search criteria. For more information, contact the Realtors who have sold over over 300 homes in Wesley Chapel – Team Bohannon of Coldwell Banker at (813) 979-4963.
About Wesley Chapel
Located in Pasco County just North of New Tampa, near the intersection I75 & I-275, Wesley Chapel is home to master-planned neighborhoods, top schools, new shopping, golf courses and amenities galore. Recent estimates peg the population around 45,000 residents. Newcomers have helped found burgeoning communities in Meadow Point, Seven Oaks, Lexington Oaks, Watergrass, Countrywalk, Saddlebrook, Villages of Wesley Chapel, Chapel Pines, Northwood, Brookside, New River Lakes, and other neighborhoods.
Lenders Are Reining In Short Sales
Short sales have been an important lifeline for many Tampa Bay homeowners unable to sell their homes at market prices. In fact, 30% of the single family homes for sale in New Tampa are short sales, while 46% of homes for sale in Wesley Chapel are short sales. Over half of the homes under contract in Hillsborough County are short sales. Many Tampa Bay homeowners have been willing to face uncertainties about time frames, deficiency judgments, and promissory notes in order to avoid foreclosure. For their part, banks have reluctantly and belatedly accepted short sales as a fact of life.
Economic calculations have historically made short sales a cheaper option for banks than foreclosure until recent government interventions. The FDIC has a program whereby your tax dollars will reimburse the banks after the first 20% of any future losses (FDIC Loss Sharing Agreements). These “losses” include all penalties and fees tacked on by lenders. As a result, delays in short sales and foreclosures can result in additional fees and higher FDIC reimbursements. The FDIC has entered into 53 loss share agreements with acquirers of failed banks. For single family mortgages, the FDIC reimburses the banks for: modifications, short sales, foreclosures, and charge-offs for some second liens. Many banks are beginning to view foreclosure as a more attractive option since government intervention has distorted market forces. While it is hard to fault business people for following the rules to earn a profit, the result of these government programs seems to be at cross purposes with the intended goals of helping the average homeowner.
Though the effort to re-capitalize banks may have been defensible, the effects of the stimulus are not working for many Tampa Bay homeowners. As Certified Disttressed Property Experts (CDPEs) who work to help homeowners avoid foreclosure everyday, we at Team Bohannon encourage you to be fully informed seek the advice of competent legal, tax and real estate professionals before contemplating a foreclosure or short sale. Here is a related Business Week story.
Are Distressed Homes Worth It?
Looking to buy a short sale or foreclosure? Wondering how to avoid the pitfalls, or what strategies to employ? The National Association of Realtors is reporting that nearly a third of overall housing sales were distress sales, but the impact in Tampa has far exceeded national averages. Short sales can be fraught with uncertainties and extended delays that cause real headships if a buyer is on a fixed time schedule. Bank owned foreclosures (REOs) often see bidding wars and multiple offers from cash buyers looking to capitalize on below market asking prices. And all distressed properties require extensive inspections and potential repairs. An article in today’s Wall Street Journal examines these questions and offers some guidance that applies to Tampa home buyers. Read full WSJ article.
As Certified Distressed property Experts (CDPEs), Team Bohannon has special training, systems and strategies to help you through this process. For more info on short sales, see: http://intampaflorida.com/short-sale-basics/
Fed Says 1 in 3 Loan Applications Denied
Pre-approval is more important than ever for Tampa home buyers. According to a Federal Reserve study, nearly one in three borrowers applying for a loan in 2008 was denied as lenders enforced tight standards to respond to the mortgage crisis. Read the AP article.
Many buyers are denied even though they have a pre-qualification letter, which can lead to expensive last minute surprises before closing. To avoid the wrong loan, or the wrong lender, consult with a Team Bohannon Value-Added Real Estate Consultant. Our goal is to provide you with a systematic process and better information that will lead to selecting the right loan for your personal circumstances.
Many consumers make the mistake of selecting a loan and lender based solely on the interest rate, or by calling an acquaintance in the mortgage business. To make a better decision, we employ a Quantitative Cost Analysis®, a Lender Comparison Worksheet®, and a Qualitative Service Analysis® to evaluate the optimum scenarios. By going way beyond what a traditional Tampa Realtor® would offer, Team Bohannon consultants help navigate a tumultuous sea of choices and deliver a highly differentiated value proposition.
Cory Lake Isles Real Estate Market Report
Located in New Tampa, Cory Lake Isles is a gated community built around a ski-sized lake that features distinctive homes surrounded by a canopy of canary palms, red brick boulevards, decorative lampposts, flower-filled medians, and immaculate landscaping. For data about the Cory Lake Isles real estate market, see our new Cory Lake Isles Real Estate Report that shows stats on Active Listings, Pending Contracts, and Closed Sales over the past 6 months. The report also shows average prices, the absorption rate, and list-to-sales price ratios. The Cory Lake Isles Market Report contains colorful charts contrasting Available Listings – vs- Contracts Pending, Sold Listings -vs- Expired Listings, Days on the Market (DOM), and Average Sale Prices. To see homes for sale in Cory Lake Isles , click here. For more information, contact the Realtors who have sold over 140 homes in Cory Lake Isles – Team Bohannon of Coldwell Banker at (813) 979-4963.
Supply of Foreclosed Homes in Tampa Declines
Think most of the home for sale are foreclosures? Think again. Tampa Realtors have been struggling to meet the demand for bank owned (or REO) homes as the supply of foreclosures has waned. For example, there are currently 12 REO listings in New Tampa out of 324 single family homes for sale; while 13 REOs are under contract (out of 192 homes total under contract).
According to Realtyrac, there are 748 bank owned single family homes in the city of Tampa. MLS data reveals that 163 of these are actively for sale, while another 206 are under contract. Hence, about half of the foreclosed bank owned homes are in the market. To put this in perspective, overall MLS data shows that bank owned single family homes represent just 4.42% of all Tampa single family homes for sale, and 13.43% of pending sales in Tampa.
There are 3684 homes for sale in the overall market, and 1534 homes under contract according to Tampa MLS data. The high number of pending sales can be partially attributed to the attractive lower home prices, as well as the large number of short sales that languish in contract pending status for an average of 5 months.
Digging deeper, how do distress sales compare to traditional sales? Of the 583 homes currently under contract that are not distress sales (short sales or bank owned) in the city of Tampa, the average home was listed for $225,364 and went under contract within 129 days for $108 per square foot. Of the 745 short sales currently under contract , the average home was listed for $156,512 and went under contract within 144 days for $85 per square foot. The 206 bank owed homes (foreclosures) under contract were on the market for an average of 76 days for an asking price of $90,000, or $54.50 per square foot. In case your are wondering, bank owned homes have been selling for 96% of the final asking price.
The encouraging numbers in the Pending Sales Index and the Absorption Rate do not take into count the number of homes which will eventually come onto the market. Recent studies show that just 6% of homeowners catch up once they fall behind on their payments (cure rate), and the data indicates that large numbers of Tampa area homeowners are in default. This “shadow inventory” will impact the market for years to come as these homes are added to the supply of active listings. Hence the supply shortage of foreclosed homes for sale may be fleeting.
Why Sell Short if I risk a Deficiency Judgment?
Tampa homeowners considering a short sale might wonder if the bank may someday ask for repayment of the amount they are short. If the bank approves a short sale that results in the bank forgiving $50,000, for example on a home in Lutz, will the bank have the ability to seek repayment years later?
Unless explicitly waived in writing, a debt holder has the right to ask the court for a “deficiency judgment” to collect on debts that are not paid in full. This holds true for a foreclosure, a short sale, and even credit card debt. At the end of the short sale approval process, the bank will produce a letter proposing terms for the short sale acceptance. The precise wording in the “short sale approval letter” is very important in determining your future liability. Here are a few ideas to keep in mind:
#1) You Might Negotiate Away the Deficiency Judgment Before Closing
Upon approval of a short sale, the bank will send a letter with terms and conditions that must be signed by the homeowner. If you are not satisfied with the wording set forth in the letter, you can stop the short sale process. Alternatively, we can attempt to negotiate a change in the wording to remove the risk of a deficiency judgment. In many cases, Team Bohannon has been able to obtain language explicitly stating that a debt is satisfied, paid as agreed, or that the lender waives all rights to pursue a deficiency judgment.
#2) A Short Sale Deficiency Will Be Smaller than a Foreclosure
If the lender(s) and/or investors are determined to reserve the right to pursue a deficiency judgment in the future (for the short sale), you can decide whether or not you would accept the conditions of the short sale. If you allow the bank to foreclose, however, you will face a deficiency judgment. The amount of the deficiency will likely be likely be larger with a foreclosure. We have seen sellers say “I’m not gong through with a short sale if I have a deficiency”, only to later realize they would be stuck with a greater deficiency after a foreclosure. Why? If it takes an extra 6-12 months to complete the foreclosure process, we would expect: a) the condition of the home to deteriorate, b) Tampa real estate values to continue to decline, c) the bank to incur addition legal/tax/HOA/CDD fees, d) and additional uncollected penalties to be assessed. Hence the eventual sale price will be less, and the deficiency greater.
#3) A Deficiency Judgment Can Be Settled
If the bank or investor reserves the right to pursue a deficiency judgment at some point in the future, there is no guarantee this will happen. Remember, there is no automatic schedule for payments. There is talk that banks may bundle up hundreds or thousands of these bad debts and sell them to collections companies at some point. As with any unsecured deficiency or debt, we understand that uncollected debt can sometimes be settled for a fraction of the original amount.
#4) You Cannot Negotiate in Advance
It would be nice to know if a lender was going to insist on a deficiency judgment before you start the short sale process, but there is no way to know in advance. Calling a bank is kind of like calling the IRS: the answer you receive might vary depending upon who you speak to on any given day. And today’s answer might not be the policy in 3-6 months when the bank is considering the short sale. To complicate matters, the bank usually does not even own the loan, and decisions about deficiencies may be made the the investor who actually owns the loan. Furthermore, we have seen banks/investors be much more determined to pursue deficiencies from people with questionable hardships, strong income and other assets. Additionally, we cannot assume that a bank’s approach to short sales and foreclosures will make sense to us; as 53 banks have entered into “loss sharing agreements” with the FDIC that may provide incentives for banks to keep racking up the late fees and eventually foreclose.
In summary, there is no way to know in advance if you will risk a deficiency judgment. A short sale transaction at least gives you the potential to negotiate away a deficiency judgment, or to face a lower potential deficiency. Contact Team Bohannon today for additional information. We will use all of our experience and expertise to help you avoid a deficiency and move confidently into the next chapter of your life.
