REO's and Short Sales Information
Let me take this time to explain to you some of the things on the market right now...
"Short Sale" or "Short Payoff"- Seller is upside down in the house. Paid $300,000 in 2005 with an adjustable rate mortgage like a 3/1 ARM. The interest rate climbed to a dramatically high level, which made the payment almost double, making the payment impossible to make. This also happens when the seller took a "second' mortgage out on their house to buy a boat, Hummer or RV...! SO, now seller is trying to sell home, but values have decreased (adjusted), where now his home is only worth $250,000. Take out closing costs, and you have a large deficiency, or SHORT, of the loan. So, seller now has to negotiate with the bank, hoping the bank will "forgive" the debt. There is an application process with the bank to determine if seller is indeed in a "hardship situation", and MUST be approved for a Short Sale. In comes a buyer, who wants more of a deal, who offers seller $240,000. Now this has to be approved by the bank. The process may take a few weeks to finalize just the offer, then comes the 30 day escrow, adding up to a couple months before it's over.
"Foreclosure"- Seller was unable to maintain payments, unable to sell home with a Short Sale. Partially due to the stubbornness of the bank not willing to negotiate the Short Sale. Now bank is taking the property from seller through the courts. But for a very brief period, tries to offer it on the "court house steps" for an auction, usually at a price near the loan amounts. Homes rarely sell at this point due to the risk the buyer may incur with possible liens on the property.
"REO", "Corporate Owned", "Bank Owned"- These are ALL THE SAME! Real Estate Owned / Bank Owned, is property owned by the bank after foreclosure. They got stuck with the property. Corporate Owned means that the bank is too busy to mess with their REOs that they hire a 3rd party to manage the inventory for them, again a bank owned property. These can be great deals, providing the previous owner kept them in good condition, which has been the norm 7 out of 10 times. The banks will not do any repairs on homes, and you get them truly, AS-IS. The banks are paying property taxes, insurance, maintenance up keep (lawn, etc) and accruing interest on these REO properties. Therefore, you can imagine the urgency, at this point, they feel to get rid of the homes in their inventory. REOs look for a QUICK sale.
Normal resale- This is, of course, when the seller just needs to move, downsize, or upgrade. Unfortunately, he is competing with the others, making him a frustrated seller, perhaps eventually leading to one of the above...!
New Home Sales- These guys speculated at the wrong time, getting stuck with massive inventories of homes, or at least a bunch of improved land. The builder is paying taxes on the improved land and paying on the building costs of homes in production, so they are having "Fire Sales" to reduce their inventory. Many of the home builders have stopped building in their subdivision, hoping for some of the inventory to sell. A normal seller can not compete with the builder.
Loan Modification or Workout- Sounds like a great idea, doesn't it? In MY experience, you have to be in default on your loan in order to get this approved. In other words, behind in your payments. Here's how it works (or doesn't):
1.) You are approaching the 3 or 5 year adjustment period on your home loan. You thought this would NEVER happen, because the loan agent assured you that you could "refi" in a few years and get into a better loan. Who didn't fall for this one?
2.) You are a good citizen of strong morale character and do not want to get behind in your payments, who does? So you call the lender to try to "Work it out". They say no because you are current on your payments.
3.) You decide to call a "Workout Company" that is willing to get the modification on your behalf, but find out you have to pay THEM $3000 to attempt.
(Editors Note: DON'T PAY ANYONE TO DO THIS FOR YOU!!!!)
4.) By now, you are totally frustrated and just want to give in. Am I close here? So, you stop paying your mortgage, which I do NOT recommend, by the way...
5.) Now after day 16 of the month you stop paying, the lender wants to talk to you, how refreshing. Your stomach is in knots as you see your credit score plummet 150-200 points and you refuse to talk to the lender.
6.) You calm down after a few months and are ready to start the process all over with the lender. You now have to furnish the lender the following documents:
a.) Hardship letter explaining why you need the workout or loan
modification.
b.) 2 months bank statements and pay stubs
c.) Last 2 years taxes and current Profit and Loss if self employed
d.) Financial Statement, listing all monthly expenses and income
7.) You are approved for the workout...YEAH!! (Don't get too excited. You have to come with a down payment (which is the amount of money you are in arrears) and the payment is only a couple of hundred dollars below the NEWLY ADJUSTED mortgage payment (after the 3/1 or 5/1 ARM changed).
8.) So, now what? Walk away or try selling in a Short Sale? Yes, California is an "Anti-deficiency judgment" state...but only on owner occupied homes that the loan was used SOLEY for the PURCHASE of said home. No REFIs, or 2nds, or 3rds... If you bought that boat or RV or investment property with a Home Equity Line of Credit, you don't qualify for the opportunity to just walk away!
9.) It is ALWAYS better to work with the bank to get the loan modification.
10.) If you are unable to obtain a workout with the bank, short sell your home and get the WRITTEN APPROVAL that you are released from the lien. You may be liable for income earned (difference between sale proceeds and loan amount) and be given a 1099, but it is a lot better than owing the entire amount and being sued for the judgment.
11.) If you are in this situation, PLEASE do not pay for these services, as I offer them for free and am VERY EXPERIENCED in the process. If I perform a LOAN MODIFICATION or WORKOUT, what do I expect in return? NOTHING. A referral to a prospective buyer or seller would be nice, but certainly not expected.
Hope this helps!
