Tag Archives: shortsale

Are you a thief?

So let me get this straight. You have not paid towards your mortgage note since 2011. We are now in 2015. The bank is asking for their money by starting a foreclosure proceeding. Your auction date is scheduled for sometimes this coming December. However your primary goal is to keep the house.

Are you a thief?

I am so sorry for harsh language. Pardon me today. If you know me well, it’s not my style. But the question “are you a thief?” is the first thing that came to mind after speaking with a prospect this morning.

Of course I had to practice good customer service while talking to her. I had to be nice even though clearly, she does not realize that all adults in America has to incur housing expenses one way or the other typically between 20-30% of an average person’s income.

I even suggested that she should simply look at the last 4+ years as some sort of blessing because she has been living in home “not paid for” FOR FREE. This is the only way she could see the reality that she is well on her way to becoming homeless.

I get it. I really do.

People are attached to their home and therefore it is not some simple logical decision. But I would think an adult can’t get a proper full time sleep if the roof over their head is not being paid for. I personally won’t be at peace.

Here is the bottom line if you happen to have a family member or a friend with similar situation. It’s time to get rid of the property and walk with whatever you get before a foreclosure action. Even if that walk away dollar amount is $0 especially in the case of a negative equity.

A foreclosure auction will take everything away from the homeowner for about 7 years including credit or any financial credibility in the United States of America. Her priority at this moment should be to simply get rid of the property so she can sleep better at night.

When I asked her, she didn’t not even remember how much she owes in total on the mortgage loan principal. It typically does not mean she is not a good person. This is a sign of a distressed home owner. I know she isn’t a thief but that’s the conclusion that a logic reasoning leads to.

Sometimes, people would rather push their problems forward as far as it can go. Sometimes, it is scary to simply open and view the bill when in arrears. It’s normal but the problem only gets worse.

After I asked her just for an estimate owed/mortgage prinicipal balance, she said she owes $300,000. “Do you have an idea what the house is worth?” I asked. She said that the city is saying about $150,000.

Equity = Estiamted Property Worth – Estimated Amount Owed

Equity = $150,000 – $300,000 = -$50,000

She has negative equity which simply means she cannot sell the property unless a shortsale is negotiated. By the way the bank thinks the home owner deserves nothing if they are taking the loss in a shortsale. There are very little (close to zero) exceptions.

She insisted that she wanted to talk to a lawyer. I had to tell her I can’t help her. Not because I couldn’t. But I would have to sell or motivate her on getting focused on solution as opposed to titles and rights.

I can even refer her to a lawyer but I’d rather spend my limited time on clients that are clear on what they want and need. I have more of them than I actually have time. I wish there was more time. I can keep going but I have to stop here.

Please share this post with your loved ones and your social media friends. Thanks.

Can shortsale mess up your credit?

Every now and then, we encounter a client who owes more money to the bank than there home is actually worth.  With conventional knowledge, selling this home may seem impossible unless the home owner actually comes up with the balance to pay the bank out of pocket.

Contrary to that popular belief, we have actually helped over 30 home owners accomplish this successfully without having to come out of pocket with any money or having to worry about any further damage to the credit ratings.

What is shortsale?

For example, a homeowner owes $325,000 principal balance on a home mortgage.  The comparable properties (comps) within a 1 mile radius that sold in the last 3 – 6 months are all indicating that this property is only worth $245,000.

  • Mortgage Loan Principal Balance = $305,000
  • Home value per comparable market analysis (CMA) = $245,000
  • The highest offer received after marketing the property for 96 days = $240,000
  • Estimated closing cost which is 2% of sales price = $4,800
  • Total estimated proceed from sales = $240,000 – $4,800 = $235,200
  • Minus loan payoff to bank = $235,200 – $325,000 = -$89,800

This essentially means that the homeowner have to come up with the $89,800 to successfully offload the property doing it the conventional way.  Chances are there are taxes and other liens that also have to paid off in order to close title properly.

Most people don’t have that kind of money laying around.  That’s why shortsale is the only solution to selling the property without coming out of pocket for the balance.  Shortsale is basically getting the bank to agree to take the loss.

Why would a bank accept a shortsale?

Guess what…

The bank doesn’t mind taking this short term loss.  It’s actually gain for them and here is why.   A lot of homeowners end up getting frustrated and therefore abandoning the property.

If that happens, the bank will end up taking a bigger loss because of vandalism and possibly getting more than 50% less than the worth of the property at the county’s foreclosure auction.

Imagine the bank receiving a highest offer of less than $120,000 at the auction.  It happens all the time.  That means the bank would lose over ($325,000 – $120,000) $205,000.

The most the homeowner usually loses is past loss and some points of their credit.  The bank is in a worse position than the home owner.  With the right investor or real estate agent in your cornet, the home owner has the upper hand.

The banks are always open to the option of shortsale especially if the homeowner is already showing hardship with late mortgage payments.  This would be called non-performing asset by a financial institution when homeowner stop paying.  The banks wants less scenarios like this in their portfolio because it’s not attractive to thieir god fathers–the investors.

Remember that the bank is not in the business of managing properties but that of investing money in mortgage instrument for massive capital gain for their investors.  Fixing toilets and kitchens or protecting properties from drug infested neighborhoods is just not the best idea for maximizing profits for them.

So how much does a shortsale affect the homeowner’s credit rating?

There was a lady client who was sick and had to be away most of summer time.  She had a house up in the New Hampshire that she had to sell.  She had been refinancing every year to pull money out of the equity.

After 6 months of not been able to sell the property, she realized that it had been overpriced.  It is tempting to overprice a property when there is negative equity (Property value – Loan Balance).  Essentially, she was hoping a miracle would happen.

She had someone staying in the property that does not pay rent.  If there was rent coming in, it would at least offset the mortgage payment every month.  But that wasn’t the case.

After 6 months of holding on to this non-performing piece of property, money down the drains on her $305,000 loan at 4% annual rate for a term of 30 years was:

Monthly Payment $1,456 x 6 months = $8,736

… with a higher chance of still defaulting or never having any savings left.  If she used the shortsale opportunity, her credit rating may drop by 100 – 150 points.  However, financially stressed people often lose their credit anyway… eventually.

Some are also concerned about the bank coming after other assets they may have for the balance loss that a bank took in a shortsale.  This is simply not the case.  Banks don’t make money from taking people assets over; the courts do.

When you settle, which essentially what a shortsale is, the courts don’t get involved.

For now, just understand that shortsale is one of the best options to avoiding foreclosure and avoiding non-performing assets all together for the homeowner as well as the bank.  This conversation on shortsales will continue in the future.

Feel free to contact us if you have any questions with regards to your real estate need.

Ola & Lawrence
1 (866) 208 – 1444