Archives for January 2010

The Moral Obligation: Repay or Walk?

January 30, 2010 by admin

Short Sales are a tricky beast. There are two sides to the argument when it comes to paying off a loan that you’ve promised to pay. The first argument is that you’ve signed a promise to pay and you have a moral obligation to do so. The second argument says that the lenders took advantage of us, so why should be pay them back? They are the cause, right?

It doesn’t exactly work that way. When you signed the note on your home, there was no clause within it that stated that you promise to pay “when the market is good.” You signed a promise to pay no matter what. Let’s face it. I think we all can take a step back and say that we’ve learned a huge lesson about borrowing money in this day and age, and the lenders have clearly taken a step back to re-evaluate how they lend money. So, it’s arguable that both parties are at fault for the disastrous market conditions.

That doesn’t release you from the obligation that you agreed to. So, what are you supposed to do now? Repay, or walk away?

That all depends on your financial outlook. If you are in a position of financial distress, and you’re headed towards an inevitable foreclosure, then you’re probably a candidate for a Short Sale, which is the best option for you because it’s not really walking away. It’s asking the lender for permission to sell for less than you owe. Foreclosure is what happens when you simply don’t pay. Foreclosure is not an option, it is a symptom. People who don’t pay their mortgage lose their homes. People that walk away from their homes, lose their homes.

It’s critical that you determine whether or not you qualify for a Short Sale. A short sale allows you to move on with your life with the permission of the lender. The lender agrees to release you from the note, and release the mortgage, and in most cases, you can walk away with peace of mind and a bright outlook on your future.

Why would a lender allow this?

Banks don’t want real estate. They want money. They lend money to make money. Without cash, a bank goes out of business. We’ve seen this happen time and time again. When you quit paying your mortgage, and the bank reposesses your house, they have to spend thousands upon thousands of dollars to maintain the house, prepare it for sale, and sell it. It will cost them more to foreclose than it will to allow you to sell it for current market value.

You have a moral obligation to pay your debts. You signed a promise. When you walk away, you are invalidating your credibility and as a result, regaining trust in you as a borrower will take years. Don’t walk away without attempting to sell the property, and make sure you hire someone who knows what they’re doing.

9 Ways to Prevent Foreclosure

January 30, 2010 by admin

Reinstatement

Bring your loan current. Contact your lender, let them know you’re going to get caught up, and you’ll be able to remove the Notice of Trustee’s Sale and your home won’t go to auction. Make sure you and your lender are on the same page, and that you get everything in writing.

Forebearance

Contact your lender and work with them to come to a temporary repayment plan. Keep in mind that this also needs to be in writing. Bank collectors are not friendly people and what comes out of their mouths is usually not true. Forbearance is a temporary solution, and it will ultimately benefit the lender over you, but for now, it may relieve a cash-flow problem.

Refinance

Find a better deal. The ability to do this hinges on your ability to qualify, and the value of your property. If you owe more than it’s worth, you won’t be able to refinance without bringing the new loan to value ratio within an acceptable range. This will mean coming out of pocket to bridge the gap. Not many people can do this, so it may not be an option for you.

Loan Modification

It’s possible, but not likely. Over 60% of those who attempt to modify don’t even qualify. The rest manage to arrange something with the lender, but rest assured, it will be in the banks best interest, not yours. Loan modification doesn’t usually solve the long term problem. Prinicpal modification is extremely rare. Don’t bet on it.

Sell the Property

If your payments are too high, sell the house. If the home is worth more than you owe, you’re going to solve a huge financial burden in your life and you’ll have some cash left over. Most people in this situation don’t think to down-size, but if you have equity in your home, and your income is such that you’re headed towards financial difficulty, sell the house. Downsize and live within your means.

Rent the Property

Renting out your property may be a good option for you, but I would encourage you not to carry unnecessary risk in your life. Renting out, while you’re renting, is a risky proposition because there are costs associated with being a landlord. If you’re in foreclosure, you still need to be current with your lender to stop the auction process.

Short Sale

Even if you owe more than the property is worth, you can sell the home. Most lenders will allow this to avoid the extensive costs of foreclosure. It’s in their best interest to do so, and if you haven’t caught the tone of this message, I’ve been quite clear about the banks. They typically only do what’s in their best interest.

Deed in Lieu

This is when you voluntarily hand over the keys to your house, much like when you voluntarily hand over the keys to your car. The problem with this is that it doesn’t solve the problem. When you hand it over, the bank, who is not in the real estate business, will have to pay the associated costs of selling the house, and that means that every penny that doesn’t cover your loan is a penny they’ll chase after legally.

Bankruptcy

Stupid. Bankruptcy is something that you should only consider if you’re forced into it. It will slow the process down, but it will not prevent foreclosure.

Give Your Specialist Room To Work

January 20, 2010 by admin

The process of selling a home short of what you owe is simple in concept, but very difficult emotionally because it involves you and your home, and your prospect of foreclosure, and your finances.

As a short sale expert, it’s my job to first market your home, and second, negotiate with the lender so you don’t have to. Banks listen to us because our job is to circumvent their B.S. and we’re not emotionally invested in the financial situation, even if he had finest lending solution for all and because we know the market and they don’t. We are invested in you and your success through this process. We know the facts and we get the job done where the job can be done. Banks don’t really listen to their customers. In fact, they’ll use tactics to frighten you into emptying your retirement accounts to stay afloat until all of your money is gone and you’re truly realizing the hardship that was inevitable anyway. They know that most Americans feel held hostage by their “credit scores” and they’ll use that to keep you paying your mortgage even in the face of financial hardship. As long as they get their money…

It’s best that you allow your Certified Distressed Property Expert the room to do the job you have hired them to do.

Through the process, you will be hounded by your lenders, you will be called, you will receive letters that may cause you to freak out. You may even start searching for alternate solutions in desperation. Don’t do this. It’s critical that you give your short sale expert room to work. There’s a process involved and deviation from that process is the first thing that will slow the process and in some cases prevent success.

Sometimes the job cannot be done. You need to know this. A short sale is how we attempt to prevent foreclosure. Banks do it because it saves them money. Foreclosure is expensive for them, and they don’t want to own houses, they want to play with money. However, the clock is ticking, and there is no guarantee that we will be able to achieve an agreement with the lender. We do it all day long, and have been very successful at it, but nobody can guarantee that it will work.

What I can guarantee is that if you aren’t 100% trusting of your realtor, and you find yourself seeking alternative solutions, of which there are none by the way outside of finding someone else to start all over again, then you’ll be saying to your agent, “I don’t think you’re able to do the job, so I’m going to have someone with more clout, more experience, or more legal knowledge tackle it.” As a result, your agent may resign the listing to take on more loyal and trusting clientele.

A good agent will know when he in over his head, and a good agent will resign from the job if he recognizes that he can’t solve your short sale problem, whether it’s truly unsolvable, or it’s because you aren’t giving him or her the room needed to do the job. If you feel like you need to seek outside help, such as an attorney, then feel free to do so, but I would encourage you to read my story about “Attorney Negotiated Short Sales are Still Just Short Sales” so you understand why they offer this service.

Attorney Negotiated Short Sales are Still Just Short Sales

January 20, 2010 by admin

What does it take to negotiate a short sale? That’s easy. It takes a home owner who wants to sell their home. It does not require a lawyer, a REALTOR, or any other special entity. There is no requirement for certification, licensing, or any special degrees that are required to talk your lender into accepting a payment for less than you owe.

The Path of Least Resistance

Attorneys don’t have any more power to negotiate your short sale than you do. What they do have the power to do is charge you a retainer up front to do exactly the same thing that you can do. Now, as a short sale expert, I can tell you that you do not want to be the one handling the negotiations. It is time consuming. You’ll be on the phone constantly with your lender hounding them for information. You’ll be taken away from your work, your family, and your peace of mind. You’ll make roughly 60-90 phone calls and will be bullied by them. Regardless of the fact that you could do this yourself, you would be crazy not to hire someone else to do it for you.

So Who Do You Hire?

Well, that’s completely up to you. But hiring an experienced Realtor is your best and least expensive avenue. Through the process you are going to have questions that need to be answered. You’ll have questions that involve deficiency judgments. That’s when the bank holds you responsible for the difference between what you owe, and what the home sells for. Those questions are answered by an attorney. You’ll have questions about your tax liabilities. That’s what your CPA is for. Then you’ll have questions about selling your home and negotiating with the lender. That’s what we’re here for.

So Who Negotiates With the Lender?

The Realtor handles this for you. Why? Because he or she is paid at close of escrow and does not charge you up front. If you hire an attorney to negotiate your short sale, you will pay a retainer before anything comes of it. If the lender doesn’t agree to the sale, you cannot recover that money. CPA’s just don’t do this type of work, so you wouldn’t ever hire them for anything other than tax advice.

Why are Attorney’s Selling Negotiation?

Because there’s a market for it. But you still need a Realtor to list your property and negotiate a contract price on your behalf. Also, because the attorney gets money up front. They also give you no guarantee that they will succeed. Just because they’re an attorney does not give them any more ability to negotiate with your lender than anyone else. They aren’t “forcing” the banks legally to accept less than you owe, but because they’re “attorneys” there’s some sort of mystical magical power that people think they have as opposed to a Realtor. They’re just doing what your Realtor has been thoroughly trained and is well-qualified to do for you.

Note: It is absolutely critical that your Realtor know how to manage a short sale.

If you’re going to sell short, don’t you want someone who has your best interest in mind? I don’t charge an up front fee to do the same job better than they can. Take the path of least resistance, and least financial risk. Leave the legal issues up to the attorneys. Leave the sale negotiation up to us.

For more info please visit harcourtlegal.com.

Realtor Questions: What To Do When the 2nd Requires a Personal Note

January 6, 2010 by admin

Today I was asked a question by an agent who represented a buyer on a short sale listing that I negotiated recently. She is currently representing the seller, and was curious to know how to handle the following scenario.

The 1st has approved the sale of her client’s home short of what is owed, and the 2nd has also given the go-ahead under the condition that the owner pay the balance to the 2nd. Here’s the question:

Q: I have a question that has just arisen with my current short sale. The 2nd guarantor loans lien-holder has approved the short sale; however, my client just got notified that she’ll still have to pay back the full balance. Is there any recourse or because it’s an “unsecured” debt, they have the right to request that. Please advise, thank you soo much.

Here’s my answer, and remember that I am not a CPA, nor am I a Tax Advisor, nor an Attorney:

The following objective information is based on my observations in the marketplace and cannot be considered tax or legal advice. Please consult an attorney or tax advisor if you are concerned about these very real details.

The second lien holder has a right to request whatever they want, however, since the property is headed towards foreclosure, and I assume that this is the case, the 2nd knows that they will get nothing out of the deal.

There are many variables that contribute to the expected requests of the 2nd. For instance, was the 2nd part of the original purchase on an 80/10/10 or other “creative” product? In other words, was it purchase money, or was the 2nd taken out later as a HELOC. In the case of a HELOC, it’s more likely that the 2nd will require the owner to sign a note for the balance of the loan in order to remove the lien. A HELOC is not only tied to the property, but to the person, so it much more closely resembles an unsecured debt, because the money that can be drawn from that line of credit can be done so in the form of cash to be used on anything you choose.

Since the HELOC is tied to the person, even in the case of a foreclosure, there is a high likelihood that the lender will have legal recourse and will probably pursue you in the future for the balance. In the case of unsecured credit extended to an individual such as a credit card, personal loan, or HELOC, it’s commonplace for lenders to settle for less than the balance, but only after exhausting all in-house and 3rd party efforts to collect on past due balances. This is the key in settling for less than you owe. The balance must be past due enough that the lender sees there’s no other option but to accept a fair settlement.

They’re basically saying, “hey, we will allow you to sell the house, we’ll release the lien, but you still owe us the money, so in order for us to release the lien, you need to sign a personal guarantee that you’ll repay the loan.”

There is a moral issue in this scenario. If the money that is owed on the 2nd was not purchase money, and it was cash out of the house used to finance other purchases, other real estate, cars, boats, toys, gambling, food, or whatever, then the borrower has a moral obligation to repay these debts in a reasonable time frame, if not on the pre-determined schedule presented by the lender. If the borrower refuses to pay, they are opening themselves up to legal problems, and will have an 800 pound gorilla in their financial future until it’s cleared up.

If the 2nd was purchase money, then you’ve reached a point where you need to continue to negotiate with the lender, because current tax laws may protect the buyer from a deficiency judgment, and debt forgiveness may actually become a reality on that loan. Many times, in fact in most cases, the approval process is drawn out until the final hours prior to trustee sale. The thought process behind this is for the 2nd to wait as long as they can before letting the debt go for pennies on the dollar. In that time period, some home owners’ situations improve and they are able to get back on track.

In every case that I have dealt with, the 2nd, in a purchase money mortgage, gives in, because they won’t get anything if they play “spiteful lender.”

Have a question for me? Ask! I love helping you understand the process, because it helps the entire industry to be educated about how Short Sales work.