To follow up on my last entry, it looks like the rest of the country is finding out what’s already been reported here in Detroit – that the real estate crisis is far from over.
Time Magazine reports that prices are being slashed across the country, as inventory levels begin to climb again. The article credits the inability of move-up buyers (people who already own a home, but are looking to upgrade) to take advantage of the low prices – likely because they can’t sell their current home.
Much of the positive news in the real market recently, centered around first time buyers taking advantage of the tax credit that had been offered last year and extended in to this past spring. With many of those potential buyers now spoken for, the lull that many expected seems to be here.
While I agree with the last paragraph of the article – that you should wait to sell your home until you absolutely have to – for many people they’ve already crossed in to “must sell” territory. For them, a short sale is likely the best way to go...
Saturday, July 24, 2010
Friday, July 16, 2010
Short sale on - Home value havoc not over
It feels like every couple weeks or so, we hear or read about how the “recovery” has arrived and home values are on the way up. Then, an article like this one in the Detroit Free Press comes out.
Face it folks, we’ve still got a ways to go before the word “recovery” can be mentioned with a straight face.
There is no doubt the tax credit helped to spur sales, but as long as unemployment stays high, there is no way a serious, permanent recovery can be made.
Granted, we’re worse off here in Metro Detroit than in many other parts of the country, but we also never peaked as high as many areas did during the bubble years. Still, the articles projections for property values dropping to 50% of their pre-2007 worth by 2013 are pretty amazing.
So for those on the fence about a short sale, wondering if they will see their property values come back if they wait a little bit longer - let it go. Get out now and go cheaper, unless time and money are on your side…
Face it folks, we’ve still got a ways to go before the word “recovery” can be mentioned with a straight face.
There is no doubt the tax credit helped to spur sales, but as long as unemployment stays high, there is no way a serious, permanent recovery can be made.
Granted, we’re worse off here in Metro Detroit than in many other parts of the country, but we also never peaked as high as many areas did during the bubble years. Still, the articles projections for property values dropping to 50% of their pre-2007 worth by 2013 are pretty amazing.
So for those on the fence about a short sale, wondering if they will see their property values come back if they wait a little bit longer - let it go. Get out now and go cheaper, unless time and money are on your side…
Fannie Mae: Pursuing you for your money With YOUR money!
Shahien Nasiripour of The Huffington Post reported on a story that has flown somewhat under the radar, regarding Fannie Mae’s announcement of their intent to pursue for the deficiencies (in states that allow it) of those who strategically default on their mortgages.
I’ve written about Strategic Defaults in the past – when someone who could otherwise afford their mortgage payment decides they’re tired of paying on an underwater, depreciating asset (i.e. throwing good money at bad) and simply walks away without attempting a loan modification, short sale or other loss mitigation action.
While the mortgage industry obviously frowns on this act, more and more people are finding it’s often the best way out of a situation they really had almost no hand in creating.
Sure, there are people who borrowed irresponsibly but in general, far more people are casualties of the current real estate crisis, than they are the causes of it.
Let me digress for a moment and use myself as an example, to help better understand the rationale behind choosing to strategically default. I purchased a condo almost 10 years ago. I’ve made my payments on time every month and, while I only put 5% down, I’ve done everything I’ve been contractually expected to do. However, if I wanted to sell today, I would have to bring $100k to the table to cover the amount my property has dropped in value. Pass.
To take it a step further, the bank has made tens of thousand off of me in interest payments, whereas my down payment and all my money sunk into remodeling, etc., is gone. By my choosing to discontinue making payments and walk away, the bank is more or less losing future money I’m obligated to pay, but not a ton as far as money already loaned out. I’m losing out on real actual money that was invested and will see no return.
Keep in mind this is my primary residence. To take a hit on an investment property is unfortunate, but it’s a gamble and most people going in know this. To buy a home in which you plan to reside, it’s not unreasonable to think the value will go up – lenders and mortgage companies have been selling us on that for years. It wasn’t unreasonable for me to think that I would be able to sell my place 5, 10 years later and make a profit, let alone cover the mortgage amount.
For the first time since the great depression, that is no longer a reasonable expectation.
So, people like myself find themselves in a curious position. I could try a modification, but then I would have to go delinquent on my payments, thus ruining my credit AND taking a chance that a loan mod wouldn’t be approved – or even offered. With few people actually getting temporary modifications, let alone permanent ones, it’s a risky bet. I could do a short sale, but with a second mortgage, it’s highly likely I’ll still get stuck paying back a portion or all of the deficiency – especially since I live in Michigan.
So while a strategic default might sound like an irresponsible action, the very concept was born out of the banks underwhelming desire to work with people.
Back to Fannie Mae.
Fannie Mae bears just as much responsibility for the mess we’re in as any other lending institution. Maybe more, between their sub-prime lending practices/nonsensical lending formulas and their inability to accurately predict the potential outcome of those practices.
Consider the following – it’s been written that Fannie Mae (and other lending intuitions) generally believed that property values would continue to appreciate at 6%-8% annually… forever. Essentially, they took peak bubble appreciation and concluded it would stay that way indefinitely, never dropping. As Kyle Bass of Hayman Advisors put it, simply hiring an actuary to look just three years into the future could have probably avoided much of what we’re stuck dealing with today.
Fast forward to the present.
As cited in the article, almost 80% of Fannie Mae and Freddie Mac are owned by taxpayers, thanks to a bailout that not only kept the two mortgage entities from failing, but ensuring that they had unlimited financial assistance.
And the thanks they offer to the very people who provided them with that money? You will play by their rules and go along with what they decide is right for you. If you choose to decide your own fate without working with them, they will use your tax dollars to pursue you.
Obviously, a short sale is the easier way to work around this, however that still might not release you from liability for the deficiency – it may just reduce the amount you’re liable for. For that reason, your best bet is to work on change from the top – your elected officials. Write to your member of congress, senators or anyone in your municipality, city or state who might have influence and let them know that in order receive the massive amount of tax payer cash being funneled to Fannie & Freddie, they need to do a better job of working with the people keeping them solvent…
I’ve written about Strategic Defaults in the past – when someone who could otherwise afford their mortgage payment decides they’re tired of paying on an underwater, depreciating asset (i.e. throwing good money at bad) and simply walks away without attempting a loan modification, short sale or other loss mitigation action.
While the mortgage industry obviously frowns on this act, more and more people are finding it’s often the best way out of a situation they really had almost no hand in creating.
Sure, there are people who borrowed irresponsibly but in general, far more people are casualties of the current real estate crisis, than they are the causes of it.
Let me digress for a moment and use myself as an example, to help better understand the rationale behind choosing to strategically default. I purchased a condo almost 10 years ago. I’ve made my payments on time every month and, while I only put 5% down, I’ve done everything I’ve been contractually expected to do. However, if I wanted to sell today, I would have to bring $100k to the table to cover the amount my property has dropped in value. Pass.
To take it a step further, the bank has made tens of thousand off of me in interest payments, whereas my down payment and all my money sunk into remodeling, etc., is gone. By my choosing to discontinue making payments and walk away, the bank is more or less losing future money I’m obligated to pay, but not a ton as far as money already loaned out. I’m losing out on real actual money that was invested and will see no return.
Keep in mind this is my primary residence. To take a hit on an investment property is unfortunate, but it’s a gamble and most people going in know this. To buy a home in which you plan to reside, it’s not unreasonable to think the value will go up – lenders and mortgage companies have been selling us on that for years. It wasn’t unreasonable for me to think that I would be able to sell my place 5, 10 years later and make a profit, let alone cover the mortgage amount.
For the first time since the great depression, that is no longer a reasonable expectation.
So, people like myself find themselves in a curious position. I could try a modification, but then I would have to go delinquent on my payments, thus ruining my credit AND taking a chance that a loan mod wouldn’t be approved – or even offered. With few people actually getting temporary modifications, let alone permanent ones, it’s a risky bet. I could do a short sale, but with a second mortgage, it’s highly likely I’ll still get stuck paying back a portion or all of the deficiency – especially since I live in Michigan.
So while a strategic default might sound like an irresponsible action, the very concept was born out of the banks underwhelming desire to work with people.
Back to Fannie Mae.
Fannie Mae bears just as much responsibility for the mess we’re in as any other lending institution. Maybe more, between their sub-prime lending practices/nonsensical lending formulas and their inability to accurately predict the potential outcome of those practices.
Consider the following – it’s been written that Fannie Mae (and other lending intuitions) generally believed that property values would continue to appreciate at 6%-8% annually… forever. Essentially, they took peak bubble appreciation and concluded it would stay that way indefinitely, never dropping. As Kyle Bass of Hayman Advisors put it, simply hiring an actuary to look just three years into the future could have probably avoided much of what we’re stuck dealing with today.
Fast forward to the present.
As cited in the article, almost 80% of Fannie Mae and Freddie Mac are owned by taxpayers, thanks to a bailout that not only kept the two mortgage entities from failing, but ensuring that they had unlimited financial assistance.
And the thanks they offer to the very people who provided them with that money? You will play by their rules and go along with what they decide is right for you. If you choose to decide your own fate without working with them, they will use your tax dollars to pursue you.
Obviously, a short sale is the easier way to work around this, however that still might not release you from liability for the deficiency – it may just reduce the amount you’re liable for. For that reason, your best bet is to work on change from the top – your elected officials. Write to your member of congress, senators or anyone in your municipality, city or state who might have influence and let them know that in order receive the massive amount of tax payer cash being funneled to Fannie & Freddie, they need to do a better job of working with the people keeping them solvent…
On A Lighter Note... NBA Short Sales
While Ron Artest was busy heaping praise on his psychiatrist, during his post game interview after helping the Lakers beat the Celtics in this years NBA Finals, he should have also been thanking his Realtor. As reported in the Sacramento Bee, Artest recently completed a short sale on his home in Loomis, CA - leaving behind a $450,000 deficiency.
People often ask if a high income prevents a short sale from going through and the answer is no - as is certainly the case here - it simply might mean having to pay back more of the deficiency, if applicable in the state the property is located or based on the mortgage structure.
In Artests case, it appears that none of the deficiency will be need to be paid back, since California is generally a non-deficiency state.
Of course, you might want to thank those of us here in Detroit as well - had your brawl with our fans not lead to your being traded, you might have ended up having to short sell a property in Indiana - which is a deficiency state...
People often ask if a high income prevents a short sale from going through and the answer is no - as is certainly the case here - it simply might mean having to pay back more of the deficiency, if applicable in the state the property is located or based on the mortgage structure.
In Artests case, it appears that none of the deficiency will be need to be paid back, since California is generally a non-deficiency state.
Of course, you might want to thank those of us here in Detroit as well - had your brawl with our fans not lead to your being traded, you might have ended up having to short sell a property in Indiana - which is a deficiency state...
Friday, July 9, 2010
Avoid A Last Minute Short Sale
The Detroit Free Press touched on a subject recently that seems to be somewhat of a growing problem – banks taking possession of homes before they’re allowed to, or at least, supposed to.
It’s one of the best reasons not to wait to attempt a short sale.
Yes, you typically have 120 days from the date of your last mortgage payment until the sheriff’s sale (and another 6 months or more through the redemption period), but if a lender or servicer deems your home to be vacant or abandoned, they often have the right to “winterize” the home to protect their investment.
Usually, that means shutting off the water and changing the locks. This is where many of the issues cited in the article begin.
If you start working with your lender early, these problems are typically avoidable. The longer you wait, you’re not only gambling that you’ll be able to provide the bank with what they’re seeking (payment, short sale, etc.), but you’re gambling that they will be able to communicate the resolution to the necessary parties in a timely manner. This is far from a safe bet.
A client of ours had initiated a short sale, just prior to the sheriff’s sale date. We continued to work with his lender after the sale, but the lender never informed their local attorney’s. Our client had already moved out of the area and wasn’t receiving his forwarded mail – including letters from the lenders attorneys. When he didn’t respond to the letters, the attorneys decided they would shorten the redemption period and get the home re-listed. When we found out, we fought it and Chase had them reinstate the full redemption period.
Once a step like that is usually taken, it’s rarely reversed.
I understand that many people wait until the last minute so they continue to live rent free for as long as possible. If that’s your intention, I can’t say I blame you. But, be aware that’s it tough to have it both ways. If you want to wait, it’s a gamble. If you’re like me and Vegas ain’t your speed, start working with your lender early and increase your chances of a positive resolution. Living rent free for a couple months is nice, but I’d rather be excused from a six-digit deficiency…
It’s one of the best reasons not to wait to attempt a short sale.
Yes, you typically have 120 days from the date of your last mortgage payment until the sheriff’s sale (and another 6 months or more through the redemption period), but if a lender or servicer deems your home to be vacant or abandoned, they often have the right to “winterize” the home to protect their investment.
Usually, that means shutting off the water and changing the locks. This is where many of the issues cited in the article begin.
If you start working with your lender early, these problems are typically avoidable. The longer you wait, you’re not only gambling that you’ll be able to provide the bank with what they’re seeking (payment, short sale, etc.), but you’re gambling that they will be able to communicate the resolution to the necessary parties in a timely manner. This is far from a safe bet.
A client of ours had initiated a short sale, just prior to the sheriff’s sale date. We continued to work with his lender after the sale, but the lender never informed their local attorney’s. Our client had already moved out of the area and wasn’t receiving his forwarded mail – including letters from the lenders attorneys. When he didn’t respond to the letters, the attorneys decided they would shorten the redemption period and get the home re-listed. When we found out, we fought it and Chase had them reinstate the full redemption period.
Once a step like that is usually taken, it’s rarely reversed.
I understand that many people wait until the last minute so they continue to live rent free for as long as possible. If that’s your intention, I can’t say I blame you. But, be aware that’s it tough to have it both ways. If you want to wait, it’s a gamble. If you’re like me and Vegas ain’t your speed, start working with your lender early and increase your chances of a positive resolution. Living rent free for a couple months is nice, but I’d rather be excused from a six-digit deficiency…
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