Archives

March 2008

Buying a New House Before Foreclosing

Posted at 2:42 PM, Mar. 21, 2008

Walk Away or Stay?

There are thousands of homeowners facing foreclosure who simply walk away from their properties and their mortgages.  The lenders are left to deal with the financial fallout.

It’s starting to become a business decision and not just a financial duress decision causing homeowners to walk away.  Many who owe more than their houses are worth abandon their homes and mortgages and it just might make financial sense, especially if you are not too concerned about the hit to your credit score.

Some homeowners are combining that strategy with a new one. They are buying new homes before their old homes go into foreclosure, and then walking away from the old homes and the old mortgages.

What these homeowners hope to achieve is getting out of their current untenable mortgage situations with a new home and a new mortgage. And it appears that so long as the homeowners don’t mind seeing their credit scores tumble, this strategy will work.

The homeowners will need to come up with a  new lender and sizable down payment for the new home, but once they’re in, there is nothing that the old lender can do.

Since the new home with the new mortgage, has no connection to the old home and the old lender, the old lender can not come after the new home to collect any debt owed on the old home.

What is also a sign of the times is that there are now realtors who specialize in helping homeowners pursue this strategy and lenders who also specialize in these situations.

Is this the right thing to do?  I was raised with traditional values that you should pay back the money you borrowed.  However, when a colleague approached me with the concept, I have to admit that it made me think.  I have clients who continually ask my advice about the home they purchased in the height of the market  . . and when they consider the crushing blow they’re taking, they want to know what they can do.

Some have crunched numbers and it may take an additional 7 yrs to break even...and if there are short sales and foreclosures attracting buyers who can enter the neighborhood for up to $300,000 less than what others entered into - what does that mean to the neighborhood?  Are these new neighbors taking care of their homes and their yards in the same manner?  Are they upgrading and landscaping to the same level as those that paid hundreds of thousands more for their homes?

Even when the overall market returns, will the neighborhood be an entirely different community than when others purchased the home?  And, if you’re at a time in life saving for retirement and the primary residence was supposed to be an appreciating asset - is it better to walk away with a minor ding on your credit for going through a short sale and "starting over"? 

I don’t have the answers, but I can say that, suprisingly, this concept made me stop and consider!

10 Common REALTOR Short Sale Mistakes

Posted at 3:21 PM, Mar. 14, 2008

1. Listing the property at an amount that insures the property will go to foreclosure. (Not negotiating a big enough discount)

2. Failure to disclose that the sale of the property will/may require the lender's approval of a short sale in the MLS.

3. Allowing a listed property to remain on the market after the owner has filed bankruptcy. You must talk to the bankruptcy Trustee to leave it on the market.

4. Failure to have the seller disclosure form completed correctly.

5. Failing to understand that the lender cannot/and will not make a determination until they have received all the hardship package information. (With supporting documentation from the owner)

6. Advertising the co-op at 3% or any number on the MLS. The lender will always determine the actual commission which will be paid. I recommend you put 50/50 for the commission slot in the MLS unless you already have approval from the lender.

(My personal opinion is that the buyer-broker should actually get the full commission and the listing agent take a discount if required. For instance, if I'm the Listing Agent, I'll take 2% if the lender only pays 5% instead of 6%, and offer the 3% to the buyer-broker. It's good business etiquette.)

7. Failure to understand the role of the Loss Mitigation Department and how to best interact with them. "Give them what they need to get what you want."

8. Allowing the property to remain on the market AFTER foreclosure. Watch your listed property and know what stage it's in at all times.

9. Lack of understanding of the foreclosure process and not being familiar with the documents and state and Federal laws, which are applicable.

10. Failure to get the training needed so you don't make the above listed mistakes!

We keep hearing about a "slow" market, blah blah blah. Well, if you really are that slow, there's no better time to improve your realtor skills and knowledge than by taking some time get education on your weak areas. We always need to keep educating ourselves. The only constant is change. Many of us are seeing a side of the market we have not yet experienced so jump in and learn! There are many FREE seminars out there that are extremely helpful. Be the best realtor you can be for your clients, then you will still have a real estate business in 3 years.

Good luck!