What's all the buzz about: SHORT SALES
The hot button in real estate these days is the Short Sale. "Short Sale" is not an official real estate term. It's a vernacular expression encompassing a real estate transaction where a seller received an offer from a buyer to purchase the seller’s property. The offered price, however, is less that the amount owed to the bank or lender (and there could be more than one) plus closing and other ancillary costs.

Some lenders call it a “work out”, others a “settlement”; still other lenders use the term “short sale” as a transaction where the seller accepts , in the form of a person loan, the responsibility to pay the remainder (deficiency) of the loan.

For the purposes of this blog I’m using the term “Short Sale” as a sale where the bank simply takes less than is owed in order to avoid the costs of foreclosure, maintenance, taxes, insuring, listing and re-selling the property and the seller is absolved of any residual liability for the loan.

That brings us to “why are short sales needed?” Coupled with some very creative financing methods and sagging sales, many home owners are finding themselves between the proverbial rock and a hard place: an ungainly monthly mortgage payment having adjusted upward and the market value of their home dropping below the payoff balance of the mortgage – and in some cases a second, third and even fourth mortgage may be hanging in the wings.

When market values are reasonably stable and buyers cannot meet their mortgage payments a lender will usually resort to foreclosure –

“Foreclosure is the equitable proceeding in which a bank or other secured creditor sells or repossesses a parcel of real property (immovable property) due to the owner's failure to comply with an agreement between the lender and borrower called a "mortgage" or "deed of trust." Commonly, the violation of the mortgage is a default in payment of a promissory note, secured by a lien on the property. When the process is complete, it is typically said that "the lender has foreclosed its mortgage or lien.” Wikipedia.

In today’s volatile real estate market where prices can drop tens of thousands a month it can cost a lender more to foreclose than to take less than is owed right up front. Hence the reason short sales are the gaining in popularity and frequency.

Some questions have arisen and many myths abound regarding short sales. Such as, if a lender accepted less than the mortgage balance for the payoff of a mortgage at the sale of a property the federal government would consider the deficiency “income” (since the seller received that much money as a benefit!) Since Dec 20, 2007 and lasting until 2010 President Bush signed a law relieving sellers of this burden. After 2010? Who knows…

Another myth is that the lender can take legal action against the seller for the deficiency amount. The fact is any reputable attorney or closing agent will assure that the closing documents include wording that protects the seller from any responsibility to pay a remainder or deficiency.

So, even though “Short Sale” is indeed the hot button word on the real estate street today, it certainly isn’t complicated and most professional real estate agents are well versed in the process.

And, of course, I am always available with a click or a call to answer questions about the sobering sale of a house with a top heavy mortgage.

8 Steps to Getting Your Finances in Order

1. Develop a family budget. Instead of budgeting what you’d like to spend, use receipts to create a budget for what you actually spent over the last six months. One advantage of this approach is that it factors in unexpected expenses, such as car repairs, illnesses, etc., as well as predictable costs such as rent.

2. Reduce your debt. Generally speaking, lenders look for a total debt load of no more than 36 percent of income. Since this figure includes your mortgage, which typically ranges between 25 percent and 28 percent of income, you need to get the rest of installment debt—car loans, student loans, revolving balances on credit cards—down to between 8 percent and 10 percent of your total income.

3. Get a handle on expenses. You probably know how much you spend on rent and utilities, but little expenses add up. Try writing down everything you spend for one month. You’ll probably see some great ways to save.

4. Increase your income. It may be necessary to take on a second, part-time job to get your income at a high-enough level to qualify for the home you want.

5. Save for a downpayment. Although it’s possible to get a mortgage with only 5 percent down—or even less in some cases—you can usually get a better rate and a lower overall cost if you put down more. Shoot for saving a 20 percent downpayment.

6. Create a house fund. Don’t just plan on saving whatever’s left toward a downpayment. Instead decide on a certain amount a month you want to save, then put it away as you pay your monthly bills.

7. Keep your job. While you don’t need to be in the same job forever to qualify, having a job for less than two years may mean you have to pay a higher interest rate.

8. Establish a good credit history. Get a credit card and make payments by the due date. Do the same for all your other bills. Pay off the entire balance promptly.

Tips on Buying in a Tight Market

Increase your chances of getting your dream house instead of losing it to another buyer, with these easy steps.

1. Get prequalified for a mortgage. You’ll be able to make a firm commitment to buy and make your offer more desirable to the seller.

2. Stay in close touch with your real estate sales associate to find out first about new listings that come on the market. And be ready to go see a house as soon as it goes on the market.

3. Scout out new listings yourself. Look at Internet sites, newspaper ads, and drive by the neighborhood frequently. Maybe you’ll see a brand-new “for sale” sign before anyone else.

4. Be ready to make a decision. Spend lots of time in advance deciding what you must have so you won’t be unsure when you have the chance to make an offer.

5. Bid competitively. You may not want to start out offering the absolute highest price you can afford, but don’t try to go too low to get a deal. In a tight market, you’ll lose out.

6. Keep contingencies to a minimum. Restrictions such as needing to sell your home before you move or wanting to delay the closing until a certain date can make your offer unappealing. In a tight market, you’ll probably be able to sell your house rapidly. Or talk to your lender about getting a bridge loan to cover both mortgages for a short period.

7. Don’t get caught in a buying frenzy. Just because there’s competition doesn’t mean you should just buy anything. And even though you want to make your offer attractive, don’t neglect inspections that help ensure that your house is sound.

As always, I'm ready, willing and able to guide you to the perfect home. Click or call anytime.
Tom