One of the common misconceptions is that if you can find a single buyer that is willing to pay that much, you can sell it for that. We always have to keep in mind that the lender will have the home appraised, and that if the house doesn't appraise, most sellers will have to lower the price to get it sold. There are exceptions and you definitely don't want to 'fear' the appraisal, or price the home low to make sure it appraises. But, overpricing the home thinking that it only takes one person to think it is worth it, is not a successful strategy.
Even if you are having your home shown, you may be over priced. Agents sometimes take their clients to see homes that are over priced just to show them that the house priced in the market is a good value.
This is the second installment of what will be a three part series. The first part, we covered the first steps and some of the ways the mortgage company can help you stay in your home.
I gave three basic warnings, #1) Denial is not a way to avoid foreclosure, rather it is a way to nearly ensure it. #2) You cannot latch onto the horror stories about failed loan modifications or short sales.
#3) Stay away from companies that offer to handle this for you.
So, what if you are behind on your payments and you cannot realistically keep the home. If you income has been greatly reduced, you may not be able to come up with a modification that works. Or, what if you have been transferred or what if you had to take a new job somewhere else, etc.
There are a myriad of reasons that you could want or need to sell your home in this situation. So, what is a short sale? It is quite simply, the sale of your home when the sale does not cover all of the mortgages or liens on the property.
As an aside, a short sale may not even be mortgage related. You can owe less than what the home is worth, but have other liens on the property. These can be from contractors, HOA's, taxes, etc. And, believe it or not, in many cases, these can all be worked around. (Yes, even the tax liens)
Okay, so, now lets talk about some basics of a short sale. Keep in mind that every lender is different and many times even different employees of the same lender may make different decisions. Okay, so with that in mind, lets try to set some basic parameters.
#1) The person that is the biggest key in a successful short sale is the seller. The seller has to be committed to supplying the mortgage company all the information that the mortgage company requires.
#2) The second most important person in the short sale transaction is the agent. Regardless of what type of sale it is, the house has to be marketed well. Remember, the bank is going to want to get as much as they can out of the property. The agent needs to have a good idea of market value, so that they can offer insight to the lender. And, of course, they need to know how to market the property. It appears as if some agents don't want to put the same time and effort into marketing short sales as they do other sales. I see so many short sales with no pictures and lackluster or no descriptions. They also know that once a seller starts the short sale process with one agent, they aren't likely to switch. They don't usually have that luxury.
#3) You will need to list your home with an agent. The mortgage company is protecting its interests.
#4) Your mortgage company will not typically allow you to sell to family members. I hesitate to say they won't allow it. But, it will certainly raise their eyebrows and it will require a good explanation.
#5) Your mortgage company will have your home valued by an agent doing a BPO or an appraiser. A couple things to factor in here. It won't be your agent doing the BPO for the lender. However, if your agent knows the market well, they can provide valid input and explanation if their valuation differs from the appraisal or BPO. Additionally, the appraiser or BPO agent does not see the inside of your home, nor do they get an up close view of the exterior of your home. If you have been struggling to keep the house maintained, they may not factor in the deferred maintenance at all. But, think before you hire the agent whose sole marketing ploy is to under price the home. Remember, the mortgage company has to agree to the price.
#6) If you have the short sell approved for one buyer and they walk, that doesn't mean that it will be automatically approved the next time, even if the next buyer makes the same offer. You may get a different case manager in the middle of the process. The mortgage company may have another appraisal done and the value could be higher on the most recent appraisal.
#7) Attention to detail is VERY important. I personally use an attorney's office to handle the mediation of the process. Some agents prefer to do this themselves. So long as they have sufficient staff and processes in place, this is fine. Remember, you have to have a team that is proactively following up on your deal. Not reacting to bad news.
#8) Believe it or not, you may not have to be behind on your payments to short sale your home. There are a number of different hardships that you can have. They can vary from lender to lender. But, job transfer, divorce, death of a wage earner, etc. can all come into play.
#9) A short sale leaves a deficiency. This deficiency can be forgiven in most instances. However, it may depend on circumstance. You need to know that the deficiency isn't always waived in the short sale process. Be VERY clear on the details of your short sale.
#10) A short sale will typically prevent you from buying another home for three years. However, if you have good credit other than the short sale, and there are other mitigating factors, you "may" be able to buy a home sooner than three years. It will be up to the individual underwriter at the time that you go to buy a home.
You may thinking this is a lot of work, why not just let the home go into foreclosure? Well, the foreclosure process will add thousands to your deficiency, and the bank can get a judgement for the deficiency. It will hurt your credit more than a short sale. It will most likely prevent you from buying another home for a longer period of time. It may make it harder to rent a home. And, there is the emotional toll of going through the foreclosure process.
Deed In Lieu- If you have only one mortgage, and you have tried to sell your home, but have been unsuccessful, you may be allowed to turn the property back over to the lender without the foreclosure process. This is called a deed in lieu. If there are two mortgages, a deed in lieu is much more difficult. Many times, this will allow you to avoid being required to pay the deficiency.
In the final installment, we will discuss foreclosure and your rights. If you have anything you want to add or clarify to this, PLEASE comment.
In this series, I am going to cover your options to avoid foreclosure. This series will cover mortgage modifications, short sales, deed in lieu and the details of being foreclosed on and your rights.
The first thing that you need to do is disregard all of the horror stories you have heard about failed loan modifications or failed short sales. Obviously, several mortgage companies have made mistakes, or more correctly, the people that work for them have made mistakes. The people that work in the loss mitigation department are overwhelmed with cases that are similar to yours. If not followed up on, some will fall through the cracks. The key is follow up and persistence. Remember, the person that you are working with is not facing foreclosure, you are. They are doing their job. I am not saying they don’t care, but they don’t care as much as you do. Plus, many of the horror stories are from a time when the mortgage companies were less efficient in the processes. The foreclosure crisis caught the mortgage companies flat footed as well.
The second thing you need to do is CALL the mortgage company. This is especially true if you are going to get to more than two months behind. Denial is not a strategy to avoid foreclosure. In fact, it is a way to almost guarantee it. The mortgage company will have many options to help you stay in the house. Depending on your need, they can defer payments, they can lower your payments for a specific period, or you can apply for a loan modification. If you cannot find a way to keep the home, they can help you with the short sale process.
The mortgage company will ask you whether you are trying to stay in the property or not. This will tell them how they should initially try to work with you. If you are trying to keep the property, they may give a small time period deferment, or they may do a full loan modification. If you don’t want to keep the house, then the mortgage company will talk to you about selling your home. By the way, if you haven’t had contact with an appraiser or an agent, don’t assume this will be a short sale. The mortgage company may also mention a deed in lieu. This is simply turning the property over to the mortgage company without the actual foreclosure process. You will typically be asked to at least try to sell the home for a period of time before the mortgage company will consider a deed in lieu.
There are many companies out there that offer assistance. While I hesitate to call “all” of them scams, the money they charge would be better placed going towards your mortgage.
So, let’s talk about a mortgage modification. If you are looking to stay in the home, but can’t quite afford the payment, then a modification will be a great option for you. There is no ‘standard’ modification. Typically, the mortgage company will not discuss a modification with you until you are two months late.
If you have not been late, and can still afford the property and have good credit…. DO NOT get behind just to get a modification for a lower rate. Especially, not without first seeing if you can get a streamline refinance for VA and FHA or a HARP Refinance for a conventional loan. There is no reason to wreck your credit to try and get a modification just to lower your payment.
Also, if you are planning on claiming bankruptcy, please note that this can eliminate the mortgage modification that you have in place. If you are claiming bankruptcy, then talk with your attorney about the best way to proceed with a modification. In many cases, it will be best to finish the bankruptcy, then pursue a mortgage modification.
The key to any modification is going to be documentation. They will want to know what is causing you to get behind. They will want to know if you have any prospects of increasing your income in the near future. They will want documentation of your income. And, they will want a breakdown of your expenses. This is not intended to be a down to the penny budget. It is a reasonable estimate of what you spend money on in a given month. Modification paperwork can vary, but they will obviously cover debt payments, food, auto, utilities, etc. It is a great idea to put this together before you call. That way, you can have all that in front of you.
A modification will usually take at least a month to approve. But, call your mortgage company once a week to check on it. There are times that you file is reassigned to a different counselor and they have no idea where you are at in the process. Do not wait for them to call you. You need to call them.
Once you are approved for a modification, you will have to pay two or three trial payments on time to have the modification become permanent. Attention to detail on these payments is imperative. If you under pay by a single cent, you could lose the modification and have to start all over.
A true loan modification is permanent and will stay that way for the remainder of the loan. If you are facing a temporary financial hardship, the mortgage company may give you a temporary modification, including deferment, etc. to allow you to get back on your feet.
The old adage that your mortgage company does not want to get your home back is still true. So, they will work with you in most cases if you give them an opportunity to. The first step is to call them.
The next blog will cover the short sale process. What it is, and some key points to help you have a successful short sale.
If you can't make fun of yourself, then who who can make fun of?
I will say that right now, it is in fact a good time to buy and a good time to sell. It is a good time to buy because interest rates are ridiculously low, and we are coming off the biggest market in documented history. I imagine that the real estate prices went down more in Rome after the fall, but I can't pull those statistics up on my computer. Now, it is a frustrating time to be a buyer because it is a struggle to get a contract on a home because there are multiple offers on most homes right now.
But, if you are a seller, we have never had this low of inventory on the market. We are 2.5 months of inventory in Gwinnett County.
So, yeah, it is a good time for both.
David and Amanda Blanton
Make the Wise Move!