Archive for Sellers Tips
Deed in Lieu of Foreclosure Facts
Posted by: | CommentsSellers, You Do Have Options.
For all the talk about working things out with your lender when you’re in a financially distressed situation and afraid that you might lose your home to foreclosure, there is a time when the realization sets in that you just can’t dig your way out of debt.
Some Options are Better Than Others.
Some – like going through the entire foreclosure process – will leave a black mark on your credit report for probably 10 years. Others – like simply walking away from the property – aren’t necessarily wise ways of dealing with the situation either.
Sometimes, you just run out of options! Short of filing for bankruptcy (which only delays the inevitable, and does not STOP foreclosure in its tracks), sometimes your lender just isn’t willing to negotiate a loan workout (modification), or accept a short sale (agreeing to take less money on the sale of your property than the balance due on their underlying mortgage).
Then again, the lender MIGHT be willing to accept a Deed-in-Lieu of Foreclosure. Depending on how severe your financial hardship is, and other factors, the Deed-in-Lieu approach would allow you to sign over legal ownership to your home for the lender’s agreement not to foreclose. You are in effect giving up all claims and rights to the property in exchange for the ability to walk away from it, without having to make another mortgage payment – and, possibly, without a mark on your credit report.
At the very most, maybe a light gray mark instead of a black mark, if any mark at all depending on whether the lender reports your mortgage as “paid in full” or not. Some lenders will report a Deed-in-Lieu as a foreclosure to the credit bureau. Be aware of this, since the point of this transaction is to avoid this designation on your credit report. Plus, once agreeing to the Deed-in-Lieu, the lender will likely have to waive its rights to any deficiency judgment, which saves you from having to pay off any deficiency amount awarded the lender by a court. However, should you find yourself in this situation where there may be a deficiency judgment involved, the best thing to do is to consult with a reputable real estate attorney about possible options. You should contact a real estate attorney anyway if you are considering a Deed-in-Lieu because it involves you giving up some legal rights.
Bottom Line About Deed-in-Lieu.
A Deed-in-Lieu is a potential way out of foreclosure for distressed homeowners who are hard pressed to find their way back to financial solvency. It may not always be the best way, but it can be much better than going all the way through the foreclosure process or filing for bankruptcy!
Should Borrower Just Walk Away From a Vacation Home?
Posted by: | CommentsA borrower who owes more on a Florida vacation condo than it’s worth wonders if foreclosure is the best option vs. a short sale.
Question: I am going through a short sale process right now for my condo in Sarasota, Florida. I bought the property in 2005 and was moved by my employer to California a few months ago. Therefore, I have no use for the place now, and cannot afford the monthly mortgage payments, maintenance fees, taxes and general upkeep.
There is a 1st and 2nd mortgage on the property: One is owed about $350,000, and the second lien holder is about $50,000. According to a recent CMA/Appraisal, the property is now only worth $290,000. Both of the lien holders are going to submit 1099C forms to the IRS. That will result in me paying taxes on about $110,000! If I walk away and they foreclose, do I need to pay anything? I don’t care much about my credit record at this point! Can the lien holders come after me after a foreclosure?
Answer: Definitely stick with the short sale. In either case, since this is considered an “investment property” or “second home” by the IRS and not your primary residence, you’ll be on the hook for taxes on the shortfall between the final sales price and the amount owed on the mortgages. Plus with a foreclosure, if you personally signed on the note, the lenders won’t forgive your debt without first trying to collect the shortfall from you, according to a local real estate attorney that I recently spoke with.
Unfortunately, investors like you who bought a second home at the top of the market and have seen it drop in value get no relief from the federal government since this is not your primary residence. The IRS counts debt forgiveness – the difference between the home’s sale price and the amount owed on the mortgage(s) – as regular income, although there are exceptions for bankruptcy, insolvency, forgiven deductible mortgage interest and seller-financed debt. You also cannot deduct losses from price declines or expenses you incur for real estate brokers, attorneys or others involved in the sale. Primary homeowners, however, get a break from being taxed on the shortfall, at least until December 31, 2012, thanks to the Mortgage Forgiveness Debt Relief Act of 2007.
Unfortunately, you are stuck, although the short sale does have several advantages over the foreclosure. Some lenders don’t report short sales to credit bureaus, or report them as “paid as agreed”; and even if they do, you’ll likely have a lighter hit to your credit score than if you had a foreclosure. If you buy a home again in California, the loan application will ask if you have ever had a foreclosure; it won’t ask about a short sale. Moreover, under Fannie Mae guidelines, if you have a short sale and have been current on your payments, you may qualify to buy another home immediately; or within two years if you were in arrears. However, if you go through a foreclosure, the wait is 7 years.
But perhaps you have other options. You mention that you were moved by your employer, so I assume you are receiving the same salary that you had when you bought your Florida condo four years ago. You also state that you can no longer afford payments, but don’t explain why. Unless you’ve suffered a setback like a medical emergency, or you have a co-signer on the loan(s) who is now unemployed or has died, I don’t understand why your lender would accept your hardship letter and approve a short sale. Generally, you must prove a hardship in order to qualify for a short sale. With some lenders there are exceptions, but very few.
Lenders don’t consider not being able to use a place as sufficient reason to grant a short sale; after all, you can always rent the place out until prices improve. If your financial circumstances haven’t changed, and you truly can afford this condo, I suggest that you do that, even if the rent doesn’t cover all of your expenses. It’s a much better alternative than having your credit ruined, or exposing yourself to prosecution for fraud.
Is Your Home Worth More Than Gold?
Posted by: | CommentsThese past few years haven’t been particularly golden ones for housing. But over the long haul – say, three decades – housing has been golden. Even better than gold, reports Ted Jones, chief economist at the Stewart Title Guaranty Company.
Jones suspects that if asked to name the best long-term investment, most people would probably say gold. And if you considered just the past nine years or so, they would be correct. But if you go back to 1980, he says a house would have been the better place to park your money.
Not counting transaction fees and holding costs, if you bought an ounce of the precious mineral in 1980 and held it until October 2010, you would be ahead 95.5 percent, the economist figures. But if you adjust for inflation, you would have lost almost one-third of your investment. “The value of gold in the last 30 years did not even keep up with inflation”, he says.
But if you had purchased a median-priced existing home in January 1980 and sold it for the median price in October 2010, Jones says that you would have notched a 252 percent gain, again assuming no transaction fees or holding costs. This is despite a 23 percent decline in values since 2006, he points out.
And unlike gold, you would have been able to live in the property, reap the tax deductions for mortgage interest and property taxes, and a nontaxable gain of up to $500,000 when the house was sold.
Even after adjusting for inflation, Jones says housing values are still 18.6 percent to the good over the 30-year period!
How to Sell Your Home in 2011
Posted by: | CommentsBy AMY HOAK (Wall Street Journal)
If your New Year’s resolution involves selling a home in 2011, you’ve got some work to do: There’s lots of inventory out there. And in a buyer’s market like this one, getting an offer on a home can be challenging.
Still, for the committed seller willing to do some prep work and come to terms with the current value of his or her home, locking in a buyer isn’t impossible.
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By putting your house on the market in early January, you might be able to catch some of those early birds who start browsing in the winter so that they can find a new home before school starts in the fall, says Louis Cammarosano, general manager of HomeGain.com, a real-estate website.
Many buyers tend to start their searches online right after Christmas, and continue looking throughout January and February, he says.
“If you hit the ground running and you’re a fresh listing that has done everything right, you’ve got the best shot,” says Mr. Cammarosano.
Consider the following tips to give your home the best chance to get noticed — and sold — in 2011.
Price it right from the start. Many sellers suffer from attachment bias, says Tara-Nicholle Nelson, consumer educator for real-estate website Trulia.com. They believe that their home is worth more than what they would pay for it in another context.
While it’s always a bad idea to overprice a home, it’s especially dangerous in times like this because there is so much competing inventory in many local markets.
Ms. Nelson’s advice: Give yourself a reality check by looking inside comparable homes during open houses. That can help you get a clearer idea of your home’s value.
You might even consider interviewing a few real-estate agents to get more than one take on how the home should be priced, Mr. Cammarosano says.
The longer something sits on the market, the more price reductions you might have to make and the more potential buyers will assume that there’s something wrong with the home, he says. So more often than not, it’s best not to try testing the waters with a higher price, he adds.
Don’t be afraid to advertise in the listing and marketing materials that it’s not a foreclosure or short sale, Ms. Nelson says. In markets where distressed sales are plentiful, there are buyers who simply don’t want to deal with the extra hassle and uncertainty of a short sale or bank-owned property, she adds.
Get the house ready. Most sellers know they need to declutter, paint in neutral colors and generally stage the home as best as they can to help buyers envision themselves in the home. Often, this is done on the advice of a real-estate agent or professional stager.
The closer you can get your home to looking like a photo from a Pottery Barn catalog, the better off you will be, says Beth Jaworski, a real-estate agent in the Milwaukee area.
And make sure that your cabinets and refrigerator are cleaned out and decluttered, too. “You want to have a minimum of ’stuff’ in the house,” she says. “The less stuff you have, the larger the closets, basement and garage will look.”
Ms. Jaworski also recommends having a home inspection done a month before putting the home on the market to identify any major defects that need to be corrected.
Provide as much information as possible. Have energy bills and a list of updates available for buyers to see, Ms. Jaworski says.
“Buyers are always curious what the utility bills are, how old the roof is, how many layers it has, how old the major mechanicals are and when that addition was added,” she says. “The more information you can provide on the house, the better.”
Consider providing a floor plan with listings as well, Mr. Cammarosano says. That way the prospective buyers don’t have to keep making return visits to determine how their furniture will fit in the space — they’ll have the dimensions in hand.
Make it easy to show. The more available you can make your home for showings, the better, says David Welch, a broker/associate in Orlando, Fla.
Make it easy for your real-estate agent to access the property and keep the place clean.
“You want your home to be easy to show because you don’t know if you will get a second chance,” Mr. Welch says.
“Trust me, the buyer wants to like your house. Keep it in show-ready condition,” he says, so they aren’t turned off by a first impression.
Be flexible. Buyers are in the driver’s seat these days, and they know they can make all sorts of unusual requests without risking the deal. Be ready.
“Buyer wants to see the house at 7 a.m. on Tuesday, OK,” Ms. Jaworski says. “Buyer wants to bring 10 family members and an inspector to check out the house for three hours this weekend, OK. Buyer wants you to include the kitchen table and chairs, the painting over the fireplace and your snow blower, OK.”
“The more flexible you are,” she says, “the better off you will be.”
Selling Your Home – Why The First Week is Critical
Posted by: | CommentsBy Emily Peck (Wall Street Journal)
Trying to sell your house? Many sellers put their home on the market at a wishful-thinking price, figuring that they could just lower it later.
That strategy could be a misfire. According to a new analysis by RedFin Corp., a Seattle-based brokerage that operates in nine states, a listing gets the most attention online when it’s new to the market. The week that a listing hits the market, Redfin estimates that it gets nearly four times more visits on real estate websites than it does a month later, likely the earliest time that a seller will consider cutting the price.
Redfin looked at traffic to listings in Seattle, San Francisco, Los Angeles, Irvine, Calif., Washington, D.C., Boston and Chicago. They considered listings that debuted in the first three months of 2010, sat on the market for at least 60 days and had undergone at least one update. The site used its own traffic data to estimate what traffic would be like to other real-estate sites.
Redfin’s graphic, below, tells the story:
The red line represents visits from the day of debut. Green shows visits to the listing after it’s updated.
Back when most folks looked for a new home by getting in the car, the freshness of a listing didn’t matter very much. But now a new real-estate listing works almost like a news story. When the news hits, people flock to read it. The next day, traffic drops off. Your home listing, says Redfin chief executive Glenn Kelman, “is just another momentary media phenomenon in an ADD-addled world.”
Sink More Money in Your Home?
Posted by: | CommentsThe housing crash has left at least 11 million people in the unenviable position of owing more on their homes than they are worth—and many more millions with properties worth far less than they paid for them.
But some might not be as trapped as they think.
Record-low mortgage rates and a new slump in home prices are presenting unusual opportunities in the housing market these days—even for so-called underwater borrowers.
A real-estate broker in Sarasota, says none of her clients kicked in cash when selling their home last year. This year, “about half are willing to bring money to closing, anywhere from $5,000 to $45,000,” she says.
Are these people crazy to be tying up even more of their cash in their homes, in effect doubling down on what has been a losing bet thus far? After all, any number of variables, from the employment picture to the credit markets, could weigh on housing for years to come.
Yet economists say trading up to new homes or refinancing existing ones can be smart—even if it means plunking down more cash to get out of old mortgages. People living in less-desirable neighborhoods might be able to find better homes in tonier ones that offer better appreciation potential. And with mortgage rates so low, such buyers can keep their monthly payments manageable, even though the new homes are more expensive.
The refinancing equation is changing, too. Thanks to rock-bottom interest rates and liberal lending terms for Federal Housing Administration loans, a person who plunks down cash to retire a higher-rate mortgage might be able to reduce his monthly payments, even as he shortens his loan term to 20, 15 or 10 years.
In the past, financial planners typically recommended that homeowners devote as little cash to real estate as possible, and to invest it in the financial markets instead. But with stocks essentially where they were 11 years ago and market volatility seemingly on the rise, people are rethinking that wisdom. Devoting extra cash to repay a mortgage early is among the safest ways to produce an investment return.
Alternative to Foreclosure Gains Traction
Posted by: | CommentsKen Harney (Herald-Tribune)
Short sales have been the hot solution for financially stressed homeowners and their lenders for the past year, but here’s another potent foreclosure alternative that’s about to take center stage: deeds-in-lieu.
Some of the largest mortgage servicers and lenders in the country are gearing up campaigns to reach out to carefully targeted borrowers with cash incentives that sometimes range into five figures, plus a simple message: Let’s bypass all the time-consuming hassles of short sales and foreclosures. Just deed us the title to your underwater home and we’ll call it a deal. We won’t come after you to collect any deficiency between what you owe us on the mortgage and what we obtain from the home sale. We might even be able to wrap up the whole transaction in as little as 30 to 45 days.
Mortgage companies say troubled borrowers increasingly are signing up.
One of the largest servicers, Bank of America, has mailed out 100,000 deed-in-lieu solicitations to customers in the past 60 days, and its volume of completed transactions is breaking company records, according to officials.
What precisely are deeds-in-lieu? The full name is deeds-in-lieu-of-foreclosure. They are voluntary transfers of property ownership from borrowers to creditors that make court-directed foreclosures unnecessary.
The concept is one of the oldest in real estate, but it got a special boost earlier this year when the Obama administration included it as an option in its Home Affordable Foreclosure Alternatives program, and mortgage giant Fannie Mae cut the penalty-box time for homeowners who use the technique from four years to two before they can qualify for another home mortgage.
Deeds-in-lieu also are surging because they provide a win-win for borrowers and mortgage investors that short sales often cannot match. Tops on the list: speed. Travis Hamel Olsen, chief operating officer of Loan Resolution Corp., a Scottsdale, Ariz., firm that works with lenders to solve troubled borrowers’ problems, said deeds-in-lieu represent “a very expeditious way to move on” for underwater borrowers who are facing potential foreclosure.
“A lot of owners just want to be finished with it, now,” he said. “They don’t want to deal with (the house) anymore.” They don’t want to deal with real estate agents or signs on the front lawn that reveal their financial squeeze to neighbors. They don’t want to haggle with potential buyers coming in with lowball prices. But they also don’t want to simply walk away — strategically default — because that will crater their credit files and scores for as much as seven years.
Greg Hebner, president of the MOS Group Inc. of San Diego, which also works with banks and investors across the country to resolve defaulting borrowers’ situations, said a key motivation now is that lenders are stuck with massive backlogs of underwater homes that haven’t yet gone through foreclosure and been put on the market — the so-called shadow inventory.
Not only is it cheaper for them to do deeds-in-lieu to gain control of those properties, but with current mortgage rates below 5 percent, they’re likely to be able to resell them faster and on potentially more favorable terms in the summer and fall.
“If you can get a lot of inventory moving in the next couple of months” of prime home-buying season, said Hebner, “you are solving a lot of problems.”
Matt Vernon, Bank of America’s top short sale and deed-in-lieu executive, said the technique works so well for both borrowers and mortgage owners that his company is running pilot programs in major housing markets to alert borrowers who might benefit but are not familiar with deeds-in-lieu.
To sweeten the pot, Bank of America is offering cash incentives that range anywhere from $3,000 to $15,000 — and is getting a strong response, according to Vernon.
What are the downsides or limitations of deeds-in-lieu for homeowners?
Probably the most important, say experts, is that they don’t work for every situation involving serious mortgage default. For example, if you have equity in the property, you’ll probably want to pursue a loan modification first, then a short sale, rather than hand your equity stake over to the lender.
Deeds-in-lieu usually don’t work when there are multiple mortgages from different creditors encumbering the property.
Also, though deeds-in-lieu do less damage to borrowers’ credit histories than foreclosures or bankruptcies, they definitely leave a mark.
Fair Isaac, developer of the widely used FICO credit score, says on its “MyFico” Web site that deeds-in-lieu and short sales are both treated as “not paid as agreed” accounts, and are treated the same by the FICO scoring model.
Another Foreclosure Alternative
Posted by: | CommentsBy BOB TEDESCHI (New York Times)
Published: February 24, 2010
HOMEOWNERS on the verge of foreclosure will often seek a short sale as a graceful exit from an otherwise calamitous financial situation. Their homes are sold for less than the mortgage amount, and the remaining loan balance is usually forgiven by the lender.
But with short sales beyond the reach of some homeowners — they typically won’t qualify if they have a second mortgage on the home — another foreclosure alternative is emerging: “deeds in lieu of foreclosure.”
In this transaction, a homeowner simply relinquishes the property, turning over the deed to the bank, in exchange for the lender’s promise not to foreclose. In a straight foreclosure, a lender takes legal control of the property and evicts the occupants; in deeds-in-lieu transactions, the homeowner is typically allowed to remain in the home for a short period of time after the agreement.
More borrowers will at least have the chance to consider this strategy in the coming months, as CitiMortgage, one of the nation’s biggest mortgage lenders, tests a new program in New Jersey, Texas, Florida, Illinois, Michigan and Ohio.
Citi recently agreed to give qualified borrowers six months in their homes before it takes them over. It will offer these homeowners $1,000 or more in relocation assistance, provided the property is in good condition. Previously, the bank had no formal process for serving borrowers who failed to qualify for Citi’s other foreclosure-avoidance programs like loan modification.
Citi’s new policy is similar to one announced last fall by Fannie Mae, the government-controlled mortgage company. Fannie is allowing homeowners to return the deed to their properties, then rent them back at market rates.
To qualify for the new program, Citi’s borrowers must be at least 90 days late on their mortgages and must not have a second lien on the home.
That policy may be a significant obstacle for borrowers, since many of the people facing foreclosure originally financed their homes with second mortgages — called “piggyback loans” — or borrowed against the homes’ equity after buying them.
Partly for that reason, Elizabeth Fogarty, a spokeswoman for Citi, said that the bank had only modest expectations for the test. Roughly 20,000 Citi mortgage customers in the pilot states will be eligible for a deed-in-lieu agreement, she said, and of those, about 1,000 will most likely complete the process.
As is often the case with deed-in-lieu settlements, Citi will release the borrower from all legal obligations to repay the loan.
In some states, like New York, New Jersey and Connecticut, banks can legally retain the right to pursue borrowers for the balance of the loan after a foreclosure, a short sale or a deed-in-lieu of foreclosure. That is one reason why housing advocates say borrowers should carefully weigh these transactions with the help of a lawyer or nonprofit housing counselor before proceeding.
Ms. Fogarty said Citi had no specific timetable for rolling out the program nationally.
Among the other major lenders, there is no formalized program for deeds-in-lieu. Bank of America, JPMorgan Chase and Wells Fargo, for instance, generally require borrowers to try a short sale before considering a deed-in-lieu transaction.
A deed-in-lieu is better for banks than a foreclosure because it reduces the company’s legal costs, and it is better for the homeowners because it is less damaging to their credit score.
Banks may also end up with homes in better condition.
J. K. Huey, a senior vice president at Wells Fargo, says her bank usually offers relocation assistance — often $1,000 to $2,500 — as long as the borrower leaves the property in move-in condition after a deed-in-lieu transaction.
“The idea is to help them transition in a way where they can keep their family intact while looking for another place to live,” Ms. Huey said. “This way, they only have to move once, as opposed to getting evicted.”
