August 2010

Stop Making Payments During A Short Sale?

by Lisa Udy on August 30, 2010

I was asked by one of my clients who is thinking about doing a short sale if they should just stop making their payments. This is a very difficult question to answer for anyone, and I can’t answer this question as a real estate agent.

This question should be asked when talking to your bank, a financial advisor, or your attorney. What I can do is, give you some scenarios that can happen if you stop making payments during a short sale.

Should You Stop Making Payments During A Short Sale?

Should You Stop Making Payments During Your Short SaleThis question should be answered with another question. Are you willing to go through a foreclosure? A short sale is not a guaranteed sale. Your home selling in a short sale is based upon many factors and you never know what the bank will do.

If you receive an offer on your short sale it doesn’t mean the bank will approve it. If the bank denies your buyers offer and the short sale is denied, this will leave you with backed up payments if you stopped making them.

If you can’t come up with the money to pay these payments, you will go into foreclosure. So, this is a personal decision. Are you willing to face foreclosure if your short sale doesn’t work out? Which could be very likely considering that only 20-25% of all short sales around the country close.

Short sales are difficult, emotionally draining, and time consuming. When you decide a short sale is the only way out, you need to be prepared for a foreclosure at anytime. It’s the nature of the beast.

Why You Should Keep Making Payments During Your Short Sale

Yes, Make Payments During A Short SaleIf at all possible, making your payments during the short sale could be advantageous for a few reasons:

If your short sale doesn’t work out, you can cancel without any penalties. If the bank doesn’t accept an offer you submit, you don’t get an offer, or the bank denies your short sale for any other reason. You will be in a much better situation then if you had stopped making payments.

Making payments will protect your credit. Although your credit may not be the most important thing for you to worry about during financial hardship, your score will not reflect late payments. However, the bank may report your short sale and the short sale itself could have an affect on your credit. It’s called a Credit Factor Score #22, and it could drop your FICO.

It is possible to purchase a new home directly following a short sale if you stay current. Both FHA and Fannie Mae have guidelines allowing a short sale seller who is current on payments to purchase a home directly following a short sale. Why would anyone do this?

If your home is worth dramatically less than what you paid for it, selling it short may be your only option. You may have to move for any number of reasons such as divorce, employment, or many other reasons. If your payments are up to date, you could purchase a new home when you move if you stay current.

Reasons To Stop Making Payments During A Short Sale

Man With No MoneyYou may not have a choice in the matter. If you don’t have the money to make payments than you can’t make payments. Plain and simple. Other’s decide to not make payments by choice, and here are their explanations:

To save money for a move. It’s no secret that many homeowners are under water and feel they need to get out from under their current situation. They will stop making payments during the short sale process to save up money to move when the short sale goes through.

Lenders may not force you to make up the payments. Many times during a short sale, all missed payments are forgiven, but not all the time. If your situation allows you to not make payments and you don’t have to pay them back, you may consider not making payments. Banks still may file a deficiency notice however.

The short sale could be moved to a more critical time frame for approval. If you aren’t making payments, it would be in the banks best interest to close on your short sale as soon as possible to start recouping their losses. You don’t have to be in default in order to short sale, but someone who is making payments compared to someone who isn’t making payments may take priority.

If You Miss Payments You May Face Default

Bills Past DueMany short sales do not get approved, never find a buyer, or are screwed up by inexperienced real estate agents. There is a very good chance that you may end up facing foreclosure if you stop making payments. Here are some of the drawbacks if you go into foreclosure:

Although both short sales and foreclosure affect your credit, a foreclosure is much worse. After short selling a home, even if you miss payments, you can purchase a home again within 2-3+ years.

If you go into foreclosure you won’t be able to purchase home for 7-10+ years. Seven years if you don’t have any other credit issues, pay off all your delinquencies, and stay up to date on all future payments. Ten years or more if you face delinquencies or other credit issues related to your foreclosure.

If you’re facing financial hardships, please do not avoid the situation. It will not go away, and a short sale may be the best option. If you can’t make your payments, you can still sell your home in a short sale and avoid foreclosure. Be sure to talk to a lawyer, an accountant, and seek out an experienced short sale agent to give you advice on your personal situation.

Related Posts:

How To Avoid Foreclosure

What Is A Lease Option And What Are The Pro’s And Con’s

Choosing A Realtor To Sell Your Home

Common Short Sale Questions Answered

Common Short Sale Myths

The Full Short Sale Process

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Struggling Home Sellers Should Consider Lease Options

by Lisa Udy on August 27, 2010

The EconomyBefore I get into why you might want to consider a lease option, let me give you a little background on market statistics.

The other day, the National Association of Realtors (NAR) released a troubling statistic. In July, home sales across the nation dipped 27% year over year from July 2009. This was due to many buyers purchasing before the home buyer tax credit expired, but it’s still an ugly statistic for home sellers.

Obviously, the tax credit had a major impact on home sales. Everyone who would have bought a home in July or August this year, that qualified for the credit, moved up their purchasing dates to get the credit.

The credit didn’t increase sales, rather it made buyers move up their purchase to qualify for it. Waste of tax payers money? Most likely, but that’s a story for another day. Back to my post:

What Is A Lease Option?

People Discussing A Lease OptionAs home sales slow moving into the fall selling season, a lease option might be something that could work for you, especially if your home is vacant. What is a lease option you say?

A lease option allows someone to lease your home with the option to purchase it. It’s like a glorified rental, in that the renter of your home has the option to purchase the home at the end of their lease agreement; usually 12 months. Here are some basic principles to a lease option:

The lease option binds the seller to sell and not the buyer to buy. The option gives the buyer discretion to buy or not. This is why lease options usually come with a larger deposit than a months rent. This deposit usually ranges from 2-5% of the home price. Of course this is negotiable between buyer and seller.

How do you determine price? Price can be dealt with in two ways. The buyer and seller can agree to a price when the contract is signed, or they can agree to price by when the date the option is exercised. Either way, it’s usually still based on an appraisal. The monthly payment is determined by buyer and seller, and it can be applied to the cost of the home or not.

It all depends on the terms of the agreement. If the payments are applied to the purchase price of the home, if the buyer decides not to purchase the home, the seller will not have to pay that back. Basically, a lease option is the same as a lease, with the option at a determined time period for the buyer to purchase the property.

Advantages Of A Lease Option For Home Sellers

Happy Lease Option Home OwnersA lease option opens you up to more buyers. A lease option allows you to sell your home where you otherwise wouldn’t have been able to sell it.

For example, there are many people right now that don’t qualify for financing with the increased regulations in the lending industry.

Many of these potential buyers have been taken out of the market, and a lot of times all they need is more time to qualify. They may need to pay off some debt, raise their credit scores, or save up a larger down payment. Many of these buyers are very close to purchasing, but can’t quite get over the hump.

For you the seller, this gives you an advantage in an otherwise strong buyers market. When I deal with sellers looking for lease options, I like to tell the buyers they get price or terms, pick one. Meaning, they can either get a better price with terms that are more strict, or they can pay more and get more lenient terms. As a seller, both will work in your favor. You either get a better price on your home, or you will get some great terms with a nice non-refundable down payment.

If the buyer doesn’t exercise the option to buy your home at the end of the agreement, they forfeit all rent paid, and usually forfeit their down payment. And once this happens, you go into landlord-tenant relations, giving you the right to evict and retain your home. You may also work out another agreement, either way the ball is in your court.

Another advantage is; if you have to move fast or your home is sitting vacant, you get someone to pay your mortgage payment for you. They may also do some upgrades that could add value to the home, and you get people to in your home to maintain it.

Disadvantages Of Lease Options For Home Sellers

Couple listening to news over phoneA lease option has it’s disadvantages. One of them being having someone in your home that may not take care of it. They may trash it and leave you holding the bill, just like any renter.

Also, the buyer may not exercise the option to purchase your home and you’re left with another mortgage payment when the lease runs out.

If you are unable to make payments on two homes, if that is your situation, you might not be able to find another renter. And if you try to sell the home again, you may not be able to sell it either.

The real estate market is still declining here in Logan. If you sign a lease option  today, in 12 months from now when it’s time for the buyer to purchase, your home may be worth less. If you take if off the market today, you won’t have the chance to sell it for today’s prices. You’re locked into the agreement unless the buyer defaults.

Interest rates may go up. If interest rates go up, the buyer who could afford your home today may not be able to afford it tomorrow. Even if interest rates go up only a point, it could disqualify many buyers from purchasing your home.

Why Should Struggling Home Sellers Do A Lease Option?

Happy Lease Option home SellerIf you’re home is sitting vacant, there are many renters right now in the Logan UT real estate market. These people are calling my brokerage everyday asking for lease options or rentals. I can’t speak for other markets around the country, so I would talk to a local Realtor about markets where you live.

If you’re tired of showing your home, a lease option could help you get out of the market, out of your home, and get someone who will pay part of your mortgage for you.

If your not getting any showings and you can’t reduce your price, a lease option is a great way to wait out the market. Even if the buyer doesn’t buy your home at the end of the option period, you still have someone paying you rent, and you can negotiate keeping a nice down payment. Plus, you could always try to sell when there is less inventory and get a better price.

All in all, if your a home seller, I truly understand how difficult it is right now. A lease option may be something you could try if your home isn’t selling and you’re struggling to make ends meet. If you do a lease option, be sure to consult with an attorney about terms of a contract, or talk to a Realtor about the options we can provide.


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Short Sale Agents And Investors Committing Fraud?

by Lisa Udy on August 26, 2010

Smiling Policewoman.We all have our bad apples in our industries, and Realtors are no exception.

With the uprise in the amount of short sales in today’s real estate market, there is more and more short sale fraud being committed by unsavory agents.

A very good friend and colleague of mine Bill Gasset, a Massachusetts Realtor, recently wrote a blog post about short sale investor fraud.  His blog post recieved some really heated comments, and I wanted to chime in on the subject.

Bill describes real estate agents taking short sale listings, finding buyers to pay the market value for the home, and than having an investor on the side offer less than market value.

The agent will then submit the investors offer, while telling the buyer who is willing to pay market value that their offer was submitted and they are waiting for approval. What ends up happening is the investors lower offer gets accepted, than the agent and investor use the leftover funds from the unknowing buyer to make an instant profit.

Who’s Committing The Fraud?

The fraud Bill describes makes it hard to determine the culprit.  Many of the comments he received claimed that investors are not committing fraud, but the agents are.

They claim that the investors are just looking for a great deal. The fraud has nothing to do with investors purchasing a home for a great price and turning a profit by reselling the home in a flip. They say it’s the agents fault and the investors have nothing to do with it.

Here’s what I think. The short sale agent that is involved with this practice needs to go to jail, lose their license, and face civil liability for the parties who were hurt by their negligence. Of course, I am not an officer of the law, a judge,  or a lawyer – this is just my opinion.

Second, the investor may or may not have known what was going on. I understand that an agent could put all of this together without the investor knowing. If that’s the case, I don’t think they should be punished for buying a home for a great deal. However, this is most likely not the case, and here’s my thoughts on why.

If a short sale agent does this once, they probably will do it again or they have been doing it many times before they will get caught. They would need a trusted investor or group of investors to continually submit offers for this scheme to work.

For this to work long term, you would think these investors would know what was going on. They would be ready to submit an offer at anytime once the agent tells them they have a buyer for their listing.

So, to know if an investor is committing fraud along with the agent, we would need to see a pattern, but it would still be very hard to determine investor fraud unless the agent ratted them out.

I do think that if the agent is involved there is a good chance the investor is involved as well, but it’s much harder to prove. Unfortunately, homeowners are in the middle of this fraud, and they are the losers in the end.

Bill’s article is a great read, and the comments were filled with some heated arguments on both sides. If anything can be learned from this debate it’s the fact of how important it is to do your research before putting your financial future in the hands of a real estate agent, a mortgage officer, or any other profession related to real estate.

Be careful out there folks, there are people out there who are trying to profit from your misfortune, and it’s only going to get worse as some agents become more desperate for a paycheck.

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How To Avoid Going Into Foreclosure

by Lisa Udy on August 25, 2010

Facing a potential foreclosure? Well, in today’s real estate market, you are one of many. Ever since the job market started going south, foreclosure rates all across the country have continued to climb. Let me give you a few tips to try before the bank takes away your home. You can also view Logan Utah foreclosures by clicking that link.

Don’t Feel Embarrassed And Put Your Head In The Sand

Scared HomeownerThe best thing you can do to avoid a foreclosure is confront the problem early. If you just lost a job, have huge medical bills, or you know your mortgage is about to go up do to an adjustable interest rate. Get in touch with your bank and do it now before it’s to late.

The first step to avoiding foreclosure is to take action. Chances are if you’re reading this, you’ve already missed some house payments. The best thing you can do is contact your mortgage holder/bank and find out what options you have.

Many banks today are working with homeowners to avoid foreclosure. They don’t want to foreclose on your home if they don’t have to, it costs them too much money. Talk to your bank about working it out.

Ask for a forbearance which will allow you to stop making payments for a while as long as they add the lost interst back into your loan.  You can also ask to re-structure your loan if it’s about to get a larger interest rate.

They may increase your loan payoff time in order to skip some payments, they can also let you pay interest only until you get back on your feet. It never hearts to ask, but not asking can leave you homeless.

Contact A Government Approved Foreclosure Avoidance Counseling Company

Woman Talking On The TelephoneThe government knows homeowners are struggling, and they have put in legislation to help homeowners avoid going into foreclosure.

One of these peices of legislation is called Homeowner Affordibility and Stability Plan (HASP) which allows some homeowners access to Making Home Affordable (MHA) loan modifications to refinance or lower  monthly payments.

These agencies provide services free of charge so you don’t have to worry about paying for the program. There is NO need to pay a private company for these services.

If you’re receiving a bunch of letters in the mail claiming to help you avoid foreclosure if you pay an upfront fee burn them. These are scams. Do not pay anyone money upfront to negotiate with your bank. Period.

You can find a counseling agency that has been approved by HUD by checking out the list at: Foreclosure Avoidance Counseling. You can also check out HOPENOW.com a website that provides support and guidance for distressed homeowners.

Talk To A Professional About A Short Sale

Business woman portrait in an officeIf you have a valid hardship, and the banks won’t budge on your loan terms, a short sale could be your next step. A short sale is where the bank allows you to sell your home for less than you owe on it.

Because home prices have dropped since the bubble in 2005, more and more homeowners owe more than they paid on their homes. Because of this, short sales are becoming quite popular in today’s real estate markets.

When you’re looking for a short sale agent, be sure to get an agent that has a proven track record for short sale success. You do not want to get an agent that is clueless to the process.

I would also recommend talking to a real estate attorney who is experienced with short sales. There can be numerous legal problems when dealing in short sales, and you should always get legal advice from an attorney, not a Realtor.

Find out the tax implications from a CPA (Certified Public Accountant) and never assume you won’t have to pay back money on a short sale. The only person you should ask for financial or tax advice from is an accountant, not a Realtor.

Prepare Yourself Emotionally

Families TogetherWhen facing difficult financial times, it’s always best to try and find someone to talk to. I would recommend seeking help from a counselor or family members who understand your situation.

Having people in your life that you can talk to may not help you avoid foreclosure, but it will be a blessing during these tough times.

Foreclosure is extremely stressful. Not knowing what will happen next or where you’re going to live is up there with the worst. But keep in mind, it’s not the end of the world.

It’s a chance for a new beginning, and a chance for you to rearrange your lifestyle.  A minimalist lifestyle is good for the soul, and it will give you time to evaluate the next steps in your life.

I hope you found these tips helpful for your situation, but please talk to your bank as soon as possible. You never know what you can work out until you try. Good Luck!

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Buying Logan Utah Foreclosures At Public Auction

August 24, 2010

Yesterday I discussed buying a foreclosure during the pre-foreclosure process, and today I wanted to move along in the series to the public auction phase. Once a homeowner is foreclosed on, the banks will hold an open auction for the home. The public auctions in Logan, UT are held at the Logan justice court located [...]

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Contacting A Distressed Homeowner To Buy A Pre-Foreclosure

August 23, 2010

Earlier, I wrote a post on the Logan Utah foreclosure process, and in that post I discussed negotiating with a home owner on purchasing their home while it’s in pre-foreclosure. In this post, I wanted to discuss this tactic in more detail. Contacting The Homeowner When Purchasing A Pre-Foreclosure A home is in pre-foreclosure when [...]

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Logan Utah Foreclosures Process And Overview

August 23, 2010

This post is going to be one of many posts on the foreclosure process in Logan UT that I will be writing over the next couple days. First of all let’s discuss what a foreclosure is. A foreclosure is a process that allows the lien holder, or lender of a mortgage, to recoup the costs [...]

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The Complete Guide To Buying A Home In Logan Utah

August 20, 2010

Most real estate markets around the country are considered to be a buyers market. The Logan real estate market is no different. We are in a very strong buyers market, and it only makes sense to me to give you buyers as much information as possible to ensure that a great home for a great [...]

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5 Reasons To Buy And Not To Buy A Home In 2010

August 19, 2010

You read that right. A Realtor telling you not to buy a home. It’s quite a concept isn’t it? Well, there are some very valid reasons not to purchase a home in the next few months, and I wanted to point them out.  They are in red. Buying a home can also be a great [...]

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Pros And Cons Of Buying Logan Utah Foreclosures

August 18, 2010

Logan home buyers are just like most buyers all across the nation. You want the best deal on a home that fits perfectly into your criteria of needs. Getting that great deal means being cautious and shopping around. Many times, the best deal out there ends up being a Logan Utah foreclosure property since banks [...]

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