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Category: Foreclosure

  • Foreclosures and Bankruptcies Won’t Crash the Housing Market

    While foreclosures and bankruptcies can have an impact on the housing market, they are unlikely to cause a complete crash on their own. It’s important to understand that housing market crashes are typically the result of a combination of factors, such as a significant oversupply of homes, an economic recession, or a financial crisis.

    Foreclosures occur when homeowners are unable to make their mortgage payments, leading to the lender taking possession of the property. While foreclosures can increase the supply of homes on the market, they typically do not have a widespread impact unless they are occurring at an unusually high rate

    Similarly, bankruptcies can lead to the sale of assets, including real estate, but they are usually individual cases and do not have a significant effect on the overall housing market.

    That being said, it’s important to keep an eye on foreclosure and bankruptcy rates in your local area, as they can still impact specific neighborhoods or communities. Real estate professionals should monitor these trends and adjust their strategies accordingly to navigate any potential challenges or opportunities they may present.

  • How to Avoid Foreclosure with a Short Sale

    There are many flavors of compromise you can strike with your lender if you are facing foreclosure. One of the toughest to execute is the short sale.

    What Is a “Short Sale”?
    The title “short sale” is somewhat misleading; many assume that “short” means quick, implying a transaction that has a short escrow period. Au contraire. A short sale refers to a homeowner’s sale of their home for a net sales price (after commissions, closing costs, etc.) that is less than what the homeowner owes their mortgage lender(s).

    Why Is a Short Sale Desirable?
    A short sale is an alternative to foreclosure. A short sale prevents you from having to go through foreclosure and eviction. A short sale does make a smudge on your credit report but is much less traumatic to your credit than a foreclosure.

    What Makes a Short Sale Hard to Complete?
    Because a short sale results in the lender losing (a) funds they are owed and (b) the property which secured the mortgage loan, these transactions must be done with the full participation and agreement of the homeowner’s lender(s).

    Lenders are institutions, not people. They often move at a snail’s pace when evaluating a request for a short sale. Short sales are more frequent in a declining market — many lenders are simply not equipped to handle the deluge of short sale requests they receive.

    Realtors who work on short sale transactions all have stories of trying for weeks to get the short sale “package” to the correct person in the loss mitigation department! Once the package is in the hands of the right person, the bank may have some reason they disagree with the deal between the buyer and seller and may insist on inserting the bank’s price increase, reduction in closing cost credits, or other major alteration of the terms of the deal.

    During a short sale, the buyer, seller and even the real estate agents are somewhat subject to the whims of the bank — the deal cannot be done without the bank’s agreement.

    How to Get Your Lender to Agree to a Short Sale
    With all that said, short sale transactions are completed every day! Because the lender is likely to take so much time processing your short sale request — and because time is of the essence — you must ensure that your short sale request itself is as articulate, thorough, and persuasive as possible. Here are some concrete actions you can take to maximize your chances for success.

    1. Approach your lender as soon as you think you might need to request a short sale. If you are struggling to make your mortgage payments, list your home with a reputable real estate agent as soon as possible. If they advise you that your home is likely to sell for less than you owe on it, immediately contact your lender’s “workout” department to request a short sale package. If you can get your lender to indicate how much of your mortgage, they are willing to forgive upfront, you boost your chances of working with a buyer to create a deal that is a bargain for them, but likely to be accepted by the bank, too.
    2. Authorize your real estate agent — in writing — to work and to negotiate directly with the lender. But make sure to stay on top of the communications between your agent and your lender. Delegate; don’t abdicate!
    3. Make sure an offer is presented in its best light. Make sure your real estate agent includes a cover letter that explains the buyer’s qualifications to buy your home, how much down payment money they propose to put in— anything that might boost the lender’s confidence. If the buyer is requesting any closing cost credits, be sure to tell the lender if the buyer is a first-time homebuyer; lenders are more likely to agree to concessions for first-time buyers than for investors.
    4. Your lender will request a hardship letter from you. Make sure you handwrite it and present your finances in the worst light. If you lost a job, had an illness or death in the family, are a senior citizen or have any other circumstances then let the lender know! Let them know that you are considering filing bankruptcy and that this short sale would prevent you from doing that; because bankruptcy stops the foreclosure process cold, the lender would much rather approve your short sale than have you file bankruptcy. Also, explain any facts that might make it harder for the bank to resell your house — anything that makes the bank grateful that someone has made an offer.
    5. Make sure your short sale package is impeccably thorough. At a minimum, the lender will want to see:
      • *The offer to purchase your home, including the buyer’s preapproval letter.
      • *Your hardship letter.
      • *A balance sheet listing your monthly income and expenses.
      • *Statements from your checking, savings, and other asset accounts.
      • *A net sheet from your real estate agent listing all the closing costs that must be paid for your short sale to close.
      • *Supporting documentation, including two months’ worth of paycheck stubs and all your bills.
      • *Your last two federal income tax returns.

    Don’t make them have to come back and ask you for any of these items. Make sure the package is complete the first time your real estate agent sends it.

  • Buying a Home After a Foreclosure

    It is common for homeowners who’ve lost a home to foreclosure to feel a certain sense of defeat—and even a little fear—when it comes to trying to buy another home. Frankly, nobody wants to default on their mortgage and lose possession of their home even once, let alone think about going through it again.

    But once the market conditions, personal circumstances or financial situation that led to a homeowner going through a foreclosure change, there is hope for buying another home. The bottom line is that buyers who’ve gone through a foreclosure should be prepared to do a little more work and show a little more proof that they are financially ready to own a home again.

    Here are five things to expect when buying a home after a foreclosure:

    1. There might be a waiting period.
    If you’ve gone through a home foreclosure, the chances are good that you won’t be ready to turn around and buy a new home within months or even a year or so. The reality is that you likely wouldn’t be able to do so anyway. Lenders typically require buyers who’ve gone through foreclosure to wait anywhere from three to seven years before trying to purchase a new home. This waiting period gives buyers plenty of time to bounce back and improve whatever financial circumstances led to their foreclosure.

    2. You’ll need to prove your financial situation has improved.
    As buyers look to purchase a home after a foreclosure, they can use a waiting period to improve their financial situation. Like other home buyers, this is the time to work on paying down debts, saving money and improving your credit score. Because any lender will be aware of a previous foreclosure, buyers who want to purchase a home again might have to show several months of cash reserves on hand, whereas other home buyers might not be required to provide such stringent financial proof to qualify for a mortgage.

    3. You should be able to explain any financial hardships.
    Buyers who are trying to purchase a home after a foreclosure can expect to provide increased documentation. Foreclosures can happen to anyone, and lenders do understand that. But that doesn’t mean your lender won’t want to know about your personal experience when it comes to going through a foreclosure. Be prepared to explain whether it was a job loss, medical issue, market conditions or other circumstance that led to your foreclosure. It might be hard to talk about the situation, but it could help you qualify for buying another home.

    4. You might need to shop around for the right lender.
    This is advice given to every home buyer, but it is particularly true for buyers who have been through a foreclosure. If one lender won’t offer you a mortgage, shop around for another – and another if you need to. Every borrowing institution has varying requirements when it comes to loan approval. Don’t be discouraged if the first lender you seek out is not willing to offer you a loan.

    5. You could face a higher interest rate and down payment.
    When you are shopping around for the right lender after a foreclosure, you might notice that the terms offered differ from those offered for other buyers. You could be required to pay a higher interest rate or provide a larger down payment in order to purchase another home. This is another reason why a longer waiting period can help you better prepare for buying again. You’ll have more time to save money for any additional mortgage requirements you might face.