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short sale

Home sales, listings down for November 2014

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Home sales, listings down for November 2014

While still touting a housing market recovery, area real estate associations are mindful that the market is still recovering, with the fits and starts that all that entails.

Data for November bear this out, with the area Associations of Realtors reporting November decreases in pending sales, closed sales and new listings.

Pending sales, or the number of signed purchase agreements, fell 7.5 percent in November compared with last year. New listings decreased 12.8 percent. November closed sales ended down 17 percent to 3,213 sales, versus last year’s 3,873 sales.

The median sales price rose 5.1 percent to $205,000, marking 33 consecutive months of year-over-year median price gains. However, this figure was down from an October median of $209,000.

As has been the case in recent years, the year-on-year uptick in prices indicates fewer distressed properties on the market; these properties, foreclosures and short sales, are where the home sells for less than is owed on the mortgage, and typically drag down median prices.

Minnesota mortgage ratesThe Minneapolis, St Paul, Twin Cities housing market is clearly continuing the process of recovery. Sales prices are up, but on fewer overall sales. Fewer distressed sales (foreclosures and short-sales) are certainly a welcome sign for homeowners and Realtors alike.

The Minneapolis Association of Realtors cited increased condo activity for the rise in prices. The median price of new construction condominium sales rose 65.2 percent in November to a new high of $366,242, it said.

Mortgage interest rates continue to hold just slightly above historic lows, making homes very affordable.  You can check current MN, WI, IA, ND, SD interest rates here.

FHA new Foreclosure forgiveness policy – Not what you think. Read why

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FHA foreclosure guidelinesHow long after foreclosure for a new FHA loan?

Recently FHA announced in mortgage letter 2013-26 the ability to FOREGO the current three year waiting period for previous Foreclosures and Short Sales before you can qualify for an FHA Loan if the borrower had an ECONOMIC EVENT that created a hardship.

It has been brought to my attention that many real estate agents are now advertising this, WITHOUT GIVING THE FULL STORY.

Borrowers MUST MEET VERY STRINGENT guidelines in order to qualify for this EXTENUATING CIRCUMSTANCE.

Here is the link to the actual Mortgagee letter for your reference.  Please read the FHA foreclosure guidelines so you understand what is required.

But there is more…  Just because FHA indicates they may insure a loan meeting these guidelines, you need to understand that FHA DOES NOT DO LOANS.  Lenders do loans, and you will still need to find a lender willing to offer loans under these new guidelines.

My experience tells me that very few lenders will jump on board to offer this product, so be sure to cross your T’s and dot your I’s before you get too excited about suddenly being about to get an FHA Home Loan with a recent foreclosure or short-sale.

Alternatives to Foreclosure

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Minneapolis, MN:  Life happens. For all sorts of reasons, from divorce, job loss, or a major medical event, people can sometimes get into financial trouble.  The worst thing anyone can do is bury your head in the sand. It isn’t going away, and is usually easier to deal with early on.  Ask friends and relatives for help right away.

stop_fcOther Alternatives to Foreclosure

Reinstatement

A reinstatement is the simplest solution for a foreclosure, but often the most difficult to achieve. The homeowner simply comes up with the money to pay the total amount past due (including late fees) to the lender.  This is a great option early on.

Bankruptcy

Many believe bankruptcy is a “foreclosure solution,” but this is only true in some states and situations. Entering bankruptcy can be a risky and costly process. Be sure to seek the advice of a qualified bankruptcy attorney when pursuing this as an option.

Refinance

Refinancing means you will acquire a new loan based on your current credit standing. If you have already missed mortgage payments, those missed payments and now damaged credit scores may make it difficult to get approved for a new mortgage loan

Mortgage Modification

A mortgage modification involves the reduction of one of the following: the interest rate on the loan, the principal balance of the loan, the term of the loan, or any combination of these. Contact your current lender to discuss a modification.

Deed-in-Lieu

Also known as a “friendly foreclosure,” a deed-in-lieu allows the homeowner to return the property to the lender rather than go through the foreclosure process. Contact your lender on how to “give back the keys.”

Forbearance

A forbearance or repayment plan involves the homeowner negotiating with the mortgage company to allow them to repay back-payments over a period of time. Typically this involves putting the past due payments to “the back of the loan.”

Short-Sale

A short-sale is exactly what the name implies.  You put the home up for sale, and find a buyer.  Unfortunately, the sales prices is less than you owe.  You will then negotiate with the bank to accept the sales prices as payment in full. While still damaging to your credit, it is better because you usually are able to walk away free…  with the bank never coming after you for any money they lost. On a true foreclosure, they can usually come after you later on for any loss.

Rent the Property

This option does not require lender approval, but does require the homeowner’s ability to rent the house for enough money to cover the monthly mortgage payment. Being a landlord isn’t overly difficult, but isn’t for everyone.

Service members Civil Relief Act

If a member of the military experiences financial distress due to deployment-and their debt was entered into prior to deployment-he or she may qualify for relief under the Service members Civil Relief Act.

 

Why do short-sales take so long?

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Making an offer on a short-sale home? Extreme patience required!

Minneapolis, MN: So why do short sales take so long? I get asked this question all the time. There are many reasons, some obvious, some not so obvious. Simply said, the seller owes more on the home than the home is worth today, and they are about to ask the bank to accept an amount lower than what is owned.  If I owed you $200,000, and randomly called you to say, “will you take $150,000 and call it good”, what you you say?? What would YOU do before you simply decide to accept less money?

SHORT SALE BASICS

Below, you’ll find some facts that people are usually surprised to hear about short sales and why short sales take so long:

    1. The distressed homeowner decides to seller the home
  • The homeowner then begins working with a real estate agent, (not the lender), to determine how much money the home is worth today, and how much they will have available to pay the lender minus real estate commissions, closing costs, any additional liens, etc…
  • The home is put on the market
  • A buyer signs a purchase agreement contingent on the bank accepting a short payoff.
  • The bank is unaware of anything at this stage.
  • The homeowner and their real estate agent presents the short offer the bank along with the potential buyers offer.
  • This Short Sale Package must provide an accurate and compelling story regarding the homeowner and the hardship that is preventing them from continuing to make their mortgage payment.
  • The bank will start reviewing the information provided to determine the homeowner’s eligibility for a short sale, based on their hardship and the current market value of their home.
  • The bank could have hundreds of files that they are working on, and are at various stages in the process, at any given time.
  1. The bank will request a variety of reports and documents to substantiate the homeowner’s income and assets, as well as the market value of the property. Often, these requests are made several times, at various stages, throughout the short sale process.
  2. There can be many lien holders that must agree to basically give up their interest in the property. This includes 2nd mortgages, securitized asset holders (Fannie Mae or Freddie Mac) and even private mortgage insurance companies. Getting all those people to agree is very tricky and time consuming
  3. Just because the homeowners is trying to sell the house for less than is owed, does NOT mean the bank will accept the short offer

All this takes time.  Usually around 90 – 120 days.  Sometimes shorter, sometimes longer. 

How soon after a short-sale can I get a new mortgage?

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How Soon Can You Get A Mortgage After a Short-Sale or Foreclosure

Depending on which lending institution you ask you will receive different time-frames allowed to purchase again after a short sale or foreclosure. The reason is most lenders have credit overlays, which translates into stricter underwriting guidelines than Fannie Mae and FHA have published.

There are lesser time-frames allowed if there are documented Extenuating Circumstances involved beyond the control of the borrower, such as serious illness or death of a wage earner, and the borrower has re-established good credit since the foreclosure.

Divorce, loss of employment, inability to sell the property and job transfer or relocation does not qualify for extenuating circumstances. All other events are known as Financial Mismanagement.

  • Conventional – Foreclosure – 7 years
  • FHA – Foreclosure: 3 years.  Exception: No waiting Period if the borrower was current on their mortgage and all other installment debt for the 12 months preceding the short sale, the new subject property is not in the same geographical area as the short sale, and the short sale lender accepted the short sale as payment in full.
  • USDA – 3 years. You may read of significantly less time, but the rules are so tough, it will never happen.
  • VA – 2 years minimum. Score over 640, otherwise 3-years
  • Conventional Short-sale 2-7 years: 2 years with 20% down, 4 years with 10% down (2 years with 10% with  extenuating Circumstance) and 7 years with less than 10% down or financial mismanagement.

I am using the current Fannie Mae conventional guidelines to close loans for Short Sale as of 6/20/2012.

 

The Truth about Short Sales

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SHORT SALES: TOP 10 MYTHS DEBUNKED!

Myth #1: The homeowner must fall behind on mortgage payments in order to qualify for a short sale.   Truth: Years ago this may have been true, but not today

  • A financial hardship must exist, such as the ARM (Adjustable Rate Mortgage) increasing in monthly payments.
  • Loss of job or income.
  • Health or medical issues.
  • Extraordinary loss in home value (which may be considered a hardship).

No one should be advised to miss a mortgage payment.

Myth #2: Banks would rather foreclose on a property than approve a short sale. Truth: Many still believe this myth to be true, but more accurately, banks would prefer not to foreclose on a property due to the $50-70k it may cost the bank per transaction. Banks lose less money on a short sale than on a foreclosure.

Myth #3: Homeowners must be pre-approved by their lender to be eligible for a short sale. Truth: Absolutely not true. By and large, most lenders will consider short sale offers. However, each lender may have unique and specific processes to follow, from listing the home to the acceptance of a short sale. Bypassing any part of this process may result the sale not closing, so be sure to follow each lenders’ processes closely.

Myth #4: Short sales never close. Truth: Obviously not true. In some areas of the U.S., nearly 50% of all closings are considered to be “distressed” properties, meaning REOs and short sales.

Myth #5: Short sales take months (and months) to close. Truth: The short sale processes must be learned. Once mastered, it may not be uncommon to close a short sale in 30 days. However, certain idiosyncrasies may slow the process and each lender presents their own unique set of specific challenges. No two short sale transactions are identical.

Myth #6: Damage to the homeowner’s credit standing is comparable in a short sale and a foreclosure. Truth: In many cases, credit repercussions and deficiency protections are more damaging with a foreclosure. Short sale transactions can often lead to faster financial recovery for the homeowner and should be carefully considered. Note: If the homeowner missed no mortgage payments, they may be eligible to finance the purchase of a home immediately following a short sale transaction.

Myth #7: Following a short sale, the homeowner will be ineligible to purchase another property for the next 7 years.
Truth: Not true. Using conventional lending guidelines, some consumers may obtain a Fannie Mae backed mortgage a short 24 months after the close of their short sale with 10% down payment. FHA loans is three years.

Myth #8: After a short sale transaction, the homeowner will receive a 1099 and be forced to declare the loss as income.
Truth: The owner may indeed receive a 1099, but due to the 2007 Mortgage Forgiveness Debt Relief Act, among other considerations, the homeowner may not owe any taxes on their transaction. Note: This Act is due to expire at the end of 2012.

Myth #9: The lender will sue the homeowner after the close of a short sale (or foreclosure, or deed in lieu of foreclosure) for the deficiency.
Truth: Each state and each transaction is different. Many states have anti-deficiency protections in place for short sales and foreclosures.

Myth #10: Real Estate Agents don’t need additional training to learn all of the ins and outs of the short sale process.
Truth: Only work with agents experienced in short-sales.