Comment
One of the biggest fears any of us face in life is fear of the unknown. I see it almost every day in myself, as well as the Minneapolis duplex owners, sellers and buyers I work with.
I believe it’s this very fear that keeps duplex owners who are facing foreclosure from going forward with a short sale.
At first, they tell they don’t want to go through the process, and would prefer to just let it go back to the bank.
And yet, when I question them further, I always discover they simply don’t know the facts about a short sale.
Last week I had the opportunity to visit with Jeff Nycklemoe, a short sale and foreclosure attorney who has helped a number of my duplex sellers through the short sale process. And he told me something that should scare distressed property owners even than their fear of the unknown; a second mortgage or home equity line of credit on a property not only survives the foreclosure, but can haunt the former owner for as long as 26 years.
When a duplex goes back to the bank, the lender who held the first mortgage on it is given the keys. The lender who had the second mortgage is left with nothing.
As a result, most second mortgages contain language that allow them to pursue the amount they are owed, in full, for as long as six years after the default happens.
Read the rest of this entry »
Comment
Let’s face it, there were a lot of duplexes sold during the real estate boom.
Today, most of those properties aren’t worth anywhere near the prices they sold for.
And many of the owner occupants and investors who bought them have fallen behind on their payments, finding themselves facing foreclosure.
Some owners resign themselves to the inevitable, vowing to hang on to the duplex until the bank changes the locks.
Doing so will destroy their credit for years and, in some cases, may even endanger their careers.
And while a short sale can be a drawn out, exhausting process, it doesn’t have nearly the long term ramifications that a foreclosure does.
If you’re behind on your mortgage and haven’t been able to obtain a loan modification from your lender, here are 8 reasons a short sale may be a better decision for you than a foreclosure:
- Credit Score – A foreclosure may reduce your credit score as much as 250 to 300 points for over 3 years. In a short sale, only your late payments on a mortgage will appear on your credit report. Once the property is sold, it will be reported as “paid as agreed” or “settled”. This may impact your credit score as little as 50 points, and appear on your credit report for 18 months or less.
- Credit History- a foreclosure will remain on your credit report for 10 years or more. There isn’t a specific reporting item for “short sale”. In fact, in most cases, the loan is usually reported as “paid in full”.
- Future Primary Residence Loan – If you live in your duplex and lose it to foreclosure, you will not be able to get a Fannie Mae backed mortgage (which is most of them) for 5 years. If you successfully sell via a short sale, that waiting period is shortened to 2 years.
- Future Fannie Mae Loan for An Investment Property – an investor who loses a duplex to foreclosure will not be elligible to obtain a Fannie Mae backed investment mortgage for 7 years. An investor who successfully sells a duplex via a short sale may get a Fannie Mae backed loan after just 2 years.
- Future Loan With Mortgage Company - On any future loan application, a prospective borrower will have to answer “yes” to the question whether he or she has had a property foreclosed upon in the last 7 years. There are no questions on loan applications regarding short sales. If a owner occupant duplex owner is current before executing a short sale, she may apply for an FHA loan immediately. If she’s late with payments, she won’t be eligible for 3 years.
- Security Clearance - A foreclosure may result in security clearance revocation and, ultimately, loss of employment for members of the military, police officers, or any career that requires security clearance. A short sale, on the other hand, does not impact most security clearances, as they are not explicitly reported on a credit report.
- Current Employment - Many employers have the right to regularly check credit. A foreclosure may result in termination or reassignment. As short sales do not appear on a credit report, they do not impact employment in the same way.
- Future Employment – For the same reasons that affect current employment, future job opportunities may be lost as a result of foreclosure.
1 Comment »
One of the biggest obstacles to recovery in the real estate market is the glut of short sales on the market.
See, the very term, “short sales” is something of a misnomer. For while the lender agrees to accept less than what’s owed on the sale of a home, the amount of time it takes to successfully negotiate the transaction averages two to eight months.
As a result, many buyers avoid looking at those properties altogether. They simply haven’t got the patience.
In an effort to expedite the process, the Treasury Department announced a new program last week to “streamline” the short sale process.
Available only to home sellers who don’t have the income or debt levels necessary to qualify for the Making Homes Affordable program.
In order to qualify for the new program, the property must be the homeowner’s principle residence. He or she must have taken the loan out before January 1, 2009, and be delinquent or appear as if default is likely. Finally, the borrower’s mortgage payment for the month must be more than 31 percent of their pre-tax income.
The plan is designed to expedite agreements between lenders, buyers, sellers and Realtors.
Unfortunately, implementation of the plan may be slow. Mortgage companies don’t have to start the program until April, 2010.
Participation by lenders who hold second mortgages like home equity loans, however, is voluntary.
Comment
One of the most difficult concepts for Minneapolis buyers to understand is that right now, there are really two duplex markets. And seeing the differences in them is like looking at property in the moonlight vs sunlight.
The first duplex market the one we’ve all heard about, consisting of foreclosures and short sales. The second, on the other hand, is comprised of traditional sellers trying to market their properties without the involvement of a bank in the negotiations.
Believe it or not, who’s selling the properties makes a radical difference as to their value.
A chart recently released by the Minneapolis Area Association of Realtors of Foreclosures and Short Sales in the Twin Cities Housing Market illustrates exactly this point.
Let’s start with one of the neighborhoods I’m often asked about; Calhoun/Isles. Close to the lakes and within walking distance of countless restaurants and activities downtown, many people find it a desirable place to live. And in today’s market, the perception is, a foreclosure in the neighborhood can be a tremendous deal.
Statistics provided by MAR seem to support this. The average sales price for a foreclosure in the Calhoun/Isles neighborhood in the second quarter of 2009 was $129,250. Compare this to an average sales price of $287,000 for properties sold by traditional sellers. That’s a difference of $157,750!
So who would want to buy anything but a foreclosure? Or at least, so the thinking goes.
You’d be surprised.
Read the rest of this entry »
Comment
It’s not news that there are a rash of foreclosures and short sales in the real estate market. Some of this is due to fraud. Some due to spikes in interest rates in adjustable mortgages forcing monthly payments into the stratosphere.
But what might be news is that many foreclosures and short sales are the result of normally responsible people either going to refinance or sell their homes and discovering due to the plethora of foreclosures on the market, their home can no longer appraise for what they bought it for.
If you’re a homeowner and have to move, what do you do? Odds are you opt for a short sale. Or, if things are really dire, a foreclosure.
But here’s what the national media isn’t saying. Once you have a short sale on your credit report, you can’t buy another home for anywhere from three to five years. Foreclosure? Try seven years minimum. Not pretty either way.
What does this have to do with the Minneapolis and St Paul duplex markets?
Well, where are those short sale and foreclosure folks going to live? They’re going to need to rent. As many of them as there are, demand for rentals should soar, which due to that old supply and demand law, will force metro rents to increase. Of course, that means more money in landlords’ pockets.
Makes it seem like a pretty good time to buy rental property; whether a duplex, house or apartment building, doesn’t it?
Comment
One of the most frustrating transactions in today’s real estate market for buyers, sellers and Realtors is the short sale.
As discussed here before, a short sale is when a property is being sold for less than the amount owed to the bank. The seller may or may not be behind in payments. Due to the decline in market values over the last year, he or she simply can’t sell the house for what he bought it for.
In many cases, properties receive strong offers, which are accepted by the seller. Then everyone involved has to wait for the bank or banks with mortgages on the property to respond as to whether or not they will accept less than the amount they are owed. This can take months. Many, many months.
I have a buyer who wrote such an offer on Mother’s Day. The bank who holds the second mortgage on the property has refused to negotiate in any way. So we sit and wait for something to happen. That buyer has the patience of a saint. Others do not.
That’s the case on a gorgeous Mediterranean duplex in southwest Minneapolis. It’s been on the market for a while, and had numerous offers on it, which have been accepted by the seller. Months passed, and still no response from the bank. With built-ins, fireplaces, coved ceilings, three bedrooms on each floor and separate utilities, it’s a no-brainer in any other market. In fact, it sold for well over $100,000 more than it’s presently on the market for just two years ago. But none of the buyers have been able to outlast the bank.
If you’re patient, call me and we’ll take a look. It’s a terrific deal, and an even better long-term value.
