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When Should a Home Owner Consider a Short Sale?

February 12, 2012
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Tips for Underwater  Home Owners Who Want to Avoid Foreclosure

by Jeff Donnellan RE/MAX

The US is beginning its 6th straight year of declining home values.  Like myself, 10 million home owners are underwater on their mortgages.  This is not always a problem if there is a long term solution like waiting out the market or renting your home until the mortgage is paid off or values return.  Many home owners that have experienced a hardship like loss of income, wage reduction, increased bills, death of a family member or divorce time is working against them.  They can’t wait out the market until it gets better, they need a solution now.  Most people in these situation are at the end of their rope and savings accounts are running dry.  Now is the time to find out what solution is best, refinance, mortgage modification or short sale.

Here are a 10 tips for home owners who owe more than what their home is worth and they don’t know what to do.

1.  BEWARE of foreclosure prevention scams.  Many unscrupulous people prey on distressed home owners at their moment of weakness.   Never agree to up front fees.  Check credentials and ask for referrals.

2. Be realistic. If you’re spending more than you make each month or have a hardship now or foreseeable future take action now that could prevent defaulting on your mortgage and bills later on.  Ignoring the problem will only make it worse.

3. Must ask the question can I (we) or do we want to stay in the home?  Be honest with yourself.

4.  Seek out information. My website is filled with information to help home owners.  www.webhomesearcher.com

5. Contact your bank and specialists like a Short Sale Realtor, Short Sale Attorney, Mortgage broker.  Each will be able to help you discover all possible options. Banks are more willing now than ever to keep people in their home instead of foreclosing.

6.  Government sponsored programs such as HAMP (mortgage modifications), HARP ( refinance), & HAFA (short sale 3k to home owner for moving expenses) are available to struggling home owners.  Use these programs while they are still available.

7. A Short sale is not the end of the world.  It’s a practical solution to a difficult situation.  No cost to home owner. Credit scores can be affected as little as 50 points, better than foreclosure on credit report and can qualify for a new home mortgage in as little as 2 years and can negotiate away the deficiency ( difference between amount sold and amount owed).

8.   In some cases renting the home is possible if rent prices meet or exceed mortgage payments.  This can be a risk as well because if the tenant doesn’t pay mortgage payments will be missed.

9.  Consider what is best for your short term and long term future.  A foreclosure can stay on your record for 10 years and could prevent purchasing a home again for up to 7 years.

10.  Some banks are offering up to $35000 for home owners to complete a short sale instead of letting the home go into foreclosure.  Contact your bank to see if there are incentives.

My best advice is to meet the problem head on.  The longer  a home owner waits to take action the fewer options will be available.  I have often been contact when there is only 1 month left until a home forecloses and there is very little that can be done to save a home owner.  In contrast when I’m contacted early in the process all options are available.  This process can be scary &  frustrating, but in the long run will benefit your financial future.

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Chicago’s Shadow Real Estate Inventory

January 24, 2012
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A Wave of Foreclosure Homes to hit the Market

Remember your neighbor that lost their job 2 years or had wages reduced?  Well they have probably  missed mortgage payments too.  But that was 2 years ago.  How have they managed to stay in their home so long with out the bank foreclosing?

For a few years now there has been talk of a “shadow” real estate inventory or homes that are working their way through the foreclosure process before coming up for sale as REO or Real Estate Owned.  Roughly 15% of homes in Illinois are in some stage of the foreclosure process and this shadow inventory has been building up for over a year now and is a dam ready to burst.  In wake of the  “Robo-Signing” scandal, (fraudulent documents being signed to speed up the foreclosure process) a moratorium has been placed on foreclosures, stopping delinquent loans working their way through the foreclosure pipeline.  Since the scandal broke in the fall of 2010 many home owners haven’t made a payment in almost 2 years because the Attorneys General of all states have put a halt on many of the large banks.  The “Robo-Signing” law suit involving the 5 largest mortgage lenders ( B of A, Chase, Citi, Wells Fargo, & Ally) is about to be resolved and the foreclosure machine to start churning again.  2011 Foreclosures were down 34%  the lowest total in 4 years, now we could see them all in 1 year, the tidal wave that could be approaching.  The foreclosure crisis didn’t just disappear. Millions of home owners are still in distress, upside down, and dealing with adjusting mortgage rates.  Government backed mortgage modifications & refinances (HARP & HAMP) have been largely ineffective helping only around 1 million of our nations 30 million house holds.

So what does all this mean?  The banks and mortgage companies will start moving home owners past the delinquency state and through foreclosure again in the 1st part of the year and will come to market as REO sales in the 2nd half.  This means thousands of REO homes flooding the market.  Some estimates say that just 1 foreclosure in a neighborhood drops the entire neighborhood’s value by 30%. Think of how this will affect the you and your neighborhood.

I feel like a real Debby Downer with all these negative statistics, but there is also empowerment that comes from knowledge.  These statistics and numbers are real people and real families, they are our friends, our family, our neighbors, our community and they are in distress.  Now how can we help them through this frightening time and help yourself as well?  Everyone knows some one who was laid off during the recession and now we all know some one who is in danger of losing their home to foreclosure.  On my website www.webhomesearcher.com I have created a foreclosure prevention resource that helps guide distressed home owners through the process and all the foreclosure alternatives that exist.

Jeff Donnellan

Re/max