Archive | June, 2009

10 Steps to Buying a Short Sale

Posted on 15 June 2009 by Carl Martens

1. Identify potential short-sales

Locate preforeclosures in your area.  You can do this by searching courthouse listings, legal ads, or contacting a local Realtor that is an expert in that community.  Determine how much money is owed on the house and compare that number to the approximate value.  You should focus on homes where the owner has little equity in the home and pass on those where the owner has substantial equity.  If the owner has equity in the home the lender may rather foreclose and then resell the home closer to market price.

2. View the property

More often than not homeowners of short sale homes often neglect to do basic upkeep and repairs to the property because they are unable to do so.  Therefore, it is very important that you view the condition of the property and figure out a rough estimate of how much it’s going to take to repair or renovate the home.  When buying a short sale, you aren’t just buying a home you are buying someone else’s problem, yet that doesn’t mean it isn’t fixable!

3. Do your research

What do homes similar in the same neighborhood sell for?  You make your money on the buying side, not the selling side of a home sale.  Be sure to determine the potential profit before making any offer.

4. Find all liens and mortgages

Ask the seller or the listing agent what liens are on the property, and which lender is the primary lien holder.

5. Figure out the financing

This is critical. You have to know how you’re going to pay for the property. If you’re a good credit risk, the existing lender may be willing to give you a loan. Since they already have a lot of your information in the short-sale paperwork, they may be able to expedite the loan application process. It’s important to understand that in a short sale you have to have the ability to move quickly. Once an agreement is worked out, it is common the lender will require closing in as few as 20 days. This is too late to start shopping for a mortgage.

6. Contact the lender

You or your agent should speak with the loss mitigation department (or perhaps the resource recovery department) rather than the collection or customer service department, which is only interested in recouping past due loan payments. Finding the decision maker can be one of the biggest initial challenges. You will first need to have the homeowner complete and sign (notarization is usually required) an authorization letter, which gives the lender permission to discuss the mortgage situation with you.

7. Complete the lender’s short sale application, if they have one

Many lenders have an application specifically for a short sale request.

8. Assemble the proposal

The proposal generally consists of a package of materials including the application and authorization letter plus:

  • The purchase and sale contract — signed by you and the seller — to buy the property for a specified price. The lender is not going to entertain tentative offers. You’re not going to get the chance to ask the bank, “Would you take X number of dollars?” In most cases this also means posting a sizable amount of money to demonstrate your desire and ability to go through with the transaction if it is accepted. If you can’t make a sizable down payment, the lender would have no reason to believe you can do any better than the last owner. It’s also very important to the buyer that the contract be contingent upon all lenders approving the short sale in writing.
  • A hardship letter. It’s important to remember a lender will not even discuss a short sale until the homeowner has fallen behind on payments — usually 90 days. The lender must be convinced taking a smaller loss now is better than a bigger loss later. To make that case, start with a letter written by the seller giving an overview of the seller’s desperate situation. The lender must recognize the seller’s inability to pay the loan — immediately and in the foreseeable future — and that the situation is irreversible. The seller should supply as much evidence and documentation as possible, such as divorce papers, evidence of job loss, delinquent accounts, utility shutoff notices, car repossession paperwork, last two years tax returns, recent pay stubs and recent bank statements. If the lender thinks the seller has money or assets stashed away, it will never go along with a short sale.
  • A statement of the property’s value. This can be an appraisal or a broker’s price opinion. The lower the estimate of the property’s current market value, the better it will be for you. You want to show the lender that the seller would not be able to get enough for the home via a normal sale to satisfy the loan. Compile a list of all the negatives and problems of the home that negatively affect the value and make it undesirable to the average buyer and tougher for the lender to resell. The longer a lender must hold onto a property, the more expensive it becomes. If the lender realizes the property will bring them nothing but headaches, it will be more likely to OK a short sale. Geller, who has participated in hundreds of short sales, says this part is critical. “Many short sales are turned down because the lender doesn’t think the offer is high enough.” He advises doing this before the lender does a valuation. “There are ethical and legitimate ways to get a low valuation and if you show this to the lender to start with your offer won’t look so low.” Geller adds the offer to the lender can be below the amount of valuation. “The offer can be 85 percent in areas that are slow but not terribly distressed and as low as 50 percent in really distressed areas.”
  • Detail the costs and liabilities. You want to show the lender it would be much better off letting you take the property off its hands. If you can convince the lender the home is a money pit, all the better. Take photos of any damages and get estimates of the repair costs. Note: This is also a good opportunity for you to take an honest look at the property, and decide if you are willing and able to invest the time and money required to fix it up. Remember: A short sale is always an as-is sale. The lender is not going to pay for or otherwise be responsible for any repairs. But, for example, if the lender forecloses, there’s a good chance it will be forced to make repairs just to get the house resold. That’s one of the liabilities the lender may face.
  • A settlement statement. This statement (which can be prepared by a closing agent or real estate lawyer) outlines the purchase price, the closing costs and any other costs or fees involved in the transfer of the property. Often referred to as a net sheet and the information can be entered onto a HUD-1 Settlement Statement to show the final, negative result at closing.

9. Negotiate

It’s not uncommon for the lender to reject your offer or to come back with a counteroffer. As with any real estate transaction, you should figure out beforehand what your absolute highest limit is, and don’t be afraid to walk away if the lender won’t meet your figure.

10. Seal the deal

Once you’ve reached an agreement that all three parties (you, the seller and the lender) are OK with, get everything in writing and officially recorded. Make sure the seller understands all of the terms of the deal. Next comes the closing and the property is yours.
More important details

  1. The entire process gets far more complicated and uncertain of success if there is more than one lender involved. Second or junior lenders often are the ones absorbing most of the loss. If there is a second mortgage or a home equity line of credit, you’ll need approval from all. In addition, you may find your mortgage loan was sold to another entity in a process called “securitization,” and therefore you also need approval from that company.

    Be sure to do a title search, and verify the lien position of the lender you plan to contact. Only pursue short sales with the primary lien holder. Making a deal with a junior lien holder is a waste of time, as you will still be on the hook to the primary lien holder for whatever is owed to them.

  2. The Mortgage Forgiveness Debt Relief Act of 2007 gave short sellers a big tax break by changing the way the forgiven amount was viewed for tax purposes. Prior to passage of the act, that amount was considered as income for the borrower and was subject to tax. However, the new law removed that tax liability.
  3. Time is of the essence. While you negotiate with the lender, the clock keeps ticking. Do everything you can to get the lender to move quickly. Many short sales fall apart because the lender moves too slowly and fails to complete the deal before the property goes to auction.
  4. Some buyers have successfully negotiated with the lender to minimize the damage to the seller’s credit rating. The lender has no obligation to agree to this, but if you can convince them not to report this action as a black mark on the seller’s record (and put this in writing as part of the deal), it will give the seller a big head start in rebuilding their financial lives. Typically, the loan will show up on a credit report as “paid,” but it will carry a notation that says something like “settled for less than originally owed.” That is more favorable than a foreclosure, but still negative.

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How to Buy an Atlanta Short Sale Home

Posted on 15 June 2009 by Carl Martens

This article should help answer questions surrounding short sales and serve as a helpful guide on how to buy an Atlanta short sale home.

First the basics:

1.  What is a short sale? In real estate, a short sale is a sale of real estate in which the proceeds from the sale fall short of the balance owed on a loan secured by the property sold. In a short sale, the bank or mortgage lender agrees to discount a loan balance due to an economic or financial hardship on the part of the mortgagor.

2.  How does a seller benefit? A short sale allows the homeowner to avoid foreclosure.  The benefit of this is that it has less negative impact on the individuals credit and provides the homeowner a chance to rebuild and move forward with their life.  Another benefit that is often overlooked is that the individual is actually residing in their home mortgage free while the short sale is being negotiated.

How to Approach a Short Sale Listing agent:

Below are a few questions that you should ask the short sale listing agent:

1. Have you submitted a purchase offer to the bank? If the answer to this question is yes, you should dig a little deeper with your questions.  Get as much information from the listing agent as possible to help you determine what type of competition you are facing.

2. Have the homeowners applied for a loan modification? If the answer is yes, has a broker price option (BPO) been done?  When was the date of the last BPO?  If the BPO was done within the last 6 months are you able to get the BPO price?

3. Is the listing agent handling the short sale negotiations or are they outsourcing negotiations to a third party? If the listing agent is not the point of contact and is unwilling to be the point of contact you may want to skip this one as it may be more trouble than its worth.

How to write the purchase offer:

Write a “clean” offer.  Make it simple for the bank to take a look at your offer and either approve or disapprove it.  The fact that it is a short sale means you can go in with a low offer, but try not to be greedy and ask for much else…this will be frowned upon.

Go in with your best offer first because should it become a multiple offer situation you will want to feel confident and not regret anything about the offer.

What happens next?

You wait.  And wait.  And wait.  Often times it takes several weeks before you will hear anything back from the banks.  Don’t get discouraged if you haven’t heard back, it will just take some time until you do hear something.

Knowing that you put forth your best offer to begin with though means that should you get denied you will have no regrets, but if your offer is accepted you will be over joyed and not think you over-paid either.

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Georgia Dream NSP Purchase Program to Reduce Foreclosed Property

Posted on 03 June 2009 by Carl Martens

georgia-dream-homeownership-programThe Georgia Dream NSP Purchase Program is a forgivable second mortgage program of up to $14,000 for qualified purchasers of foreclosed homes in certain counties in Georgia.

The NSP in the program’s title stands for “Neighborhood Stabilization Program”.  Often when neighborhoods contain bank owned property the home values of neighboring homes are negatively affected by having their property values significantly reduced.  The main goal of this program is to help stimulate the sales of these bank owned properities and reduce the foreclosures within neighborhoods to help bring equilibrium back into the neighborhoods.

As with many programs, the catch is in the words “qualified purchasers”…what exactly makes up a qualified purchaser?  Well…

  • The individual buying the property must be buying from a bank, a government entity, or an eligible nonprofit.
  • Only homes in counties that have been identified as an “area of greatest need” are eligbile.  This list is based upon volume and includes all metro Atlanta counties.
  • Eligible buyers must have a total household income less than 120 percent of the area median income.

The criteria is determined on a county to county basis.  The list of maximum incomes is available at the Georgia Dream Website.

As opposed to the Federal First Time Buyer program in which purchasers receive a stimulus of up to $8,000 credit which is not required to be paid back; the Georgia Dream Loan is an actual second mortgage.  The Georgia Dream Loan amount is up to 10 percent of the home’s purchase price, not exceeding $14,000.  Although the loan is not an instant credit, it is designed to be forgiven over a period of 5 1/2 years, provided the borrower lives in the house during this duration.

It gets better…

The program can be combined with the federal credit for a total benefit to the purchaser of up to $22,000 on a house purchased for $140,000.  The second mortgage proceeds can even be used for the down payment or closing costs…likewise the federal credit can be used as a down payment too!

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