What is a short sale?
While the housing market and economy are gradually showing signs of improvement, there are still many people who are behind on their mortgage payments and unsure of how to proceed. One option is a short sale.
Short sales are when the owners sell the mortgaged property, with the banks approval, knowing that the house will likely sell for less than the outstanding mortgage amount. Some banks will then write off the difference between the outstanding mortgage amount and the selling price of the home. However, that is not a guarantee so you should talk with your mortgagor to understand exactly what they will allow and get their approval before listing your house for sale.
If you are facing the possibility of losing your home, talk to your bank and a local real estate agent about the options. Having a portion of your loan written off through a short sale will hurt your credit much less than going through a foreclosure.
Should I consider a short sale?
Today nearly 1/3 of all homeowners owe more on their homes then the homes are worth. If the homeowner can continue to make the mortgage payment and isn’t planning on moving anytime soon, that is not a problem. However, if the homeowner needs to sell the home being underwater on the house can be a huge problem.
In certain areas of the country, the real estate market is flooded with short sales and foreclosures. Home sales are picking up but buyers are still able to name the prices they are willing to pay for the properties. Increasingly, banks are holding the homeowners responsible for the balance left between a home’s selling price and the selling owner’s outstanding mortgage. Banks have taken a hit and now the stimulus money the got from the government keeps their top executives from earning the big bucks they want from salary and stock options so the banks are doing their best to repay the government and avoid needing any additional stimulus because the CEO wants his millions. That may sound a bit harsh, but the reality is, banks are not as willing to negotiate a short sale down and write off the balance now as they were a year ago.
Before starting a short sale, talk to your banker to see if you qualify for a loan modification or some other program that will let you stay in your home
Real Estate Market Changes
The real estate market has slowly been changing over the summer months. In Florida things were going quite cheap this summer. Orlando had condos asking $19,000. Prices now are starting to creep back up. Maybe its the $8,000 housing credit or maybe it is the economy and housing market starting to recover. Either way, prices are going back up even though there are plenty of bank owned properties still on the market.
While prices are going up, there are still some good deals available. However, when looking to purchase a bank owned property, be prepared to spend some money in repairs. From what I have seen, these properties are $50,000 to $80,000 off the market value. Be prepared to spend anywhere from $10,000 to $40,000 in repairs though.
Before purchasing a bank owned property, get a home inspection so you know exactly what you are getting yourself into, especially if you are a first time homeowner. Homeowners tend to find a house they love and get so excited about the house that they don’t see the flaws in the property or they don’t know what they should be looking for.
Beware of Fraud
Since houses are worth less today than they were purchased for, i.e. the homeowner is underwater on his mortgage, some families have tried to put their homes on the market as a short sale and then have a family member purchase the house at the lower price and then sell the property back to the original homeowner at that lower price. While the homeowner would still get to live in his house, this is considered fraud and lenders are cracking down on this. California, Florida, and New York have been identified as the top three states in the country where these fraudulent transactions happen. If you are caught doing this, you could go to jail. I understand that people don’t want to leave their homes but it isn’t worth committing fraud and going to jail.
Vacation Home or Investment Property in Florida Pays for Itself
Right now there are plenty of opportunities to purchase some deals in the Florida real estate market. One of the best opportunities I have seen on the market lately is an auction on May 16th in Panama City Beach. The auction features 223 1, 2, and 3 bedroom condos and 24 townhomes in a single condo community. The condo fees are reasonable, the properties are practically brand new, and the amenities are great including a huge lagoon style pool, fitness center, parking garage and indoor basketball court.
With so many properties for sale in a single area, let alone a single community means that the properties will sell relatively cheaply. Thus, for very little initial payment you can get a practically maintenancefree vacation property or investment property. Rental rates for the Panama Beach area run around $750 a month for a 2 bedroom unit. Do the math. The condo fees for a 2 bedroom are $175 a month. Say another $150 a month for real estate taxes. This gives you fixed monthly expenses of $325 a month with the potential to earn $400 a month in profit.
With so many units being auctioned at once, I would doubt that the units will sell for more than $30,000 each. Even that seems a bit high. At an auction I attended in Orlando a few weeks ago there were 3 units for sale in the same building. Other people in the building were trying to sell their units, with the eact same floorplan and square footage, for up to $400,000. At the auction, the first property went for around $72,000. The next two were for $65,000. Right now the supply is greater than the demand so the prices are not going to get that high. While that is bad for the banks foreclosing on the properties it is great for the investors looking to purchase. Take the invseting plunge. This is a great market for it.
Need to Sell Quick to Avoid Foreclosure? Check out these tips to sell your house.
Many homes today are being sold in short sales. Short sales are when the bank agrees to allow the homeowner to sell the house for less than the outstanding balance of the mortgage. This can be a great option for banks as it saves them the cost of going through a foreclosure proceeding and if the house sells, it keeps the bank from having to sell the house. This can also be a better option for homeowners as a short sale looks better on a credit report than a foreclosure.
Before proceeding to offer your house for sale under a short sale agreement, you should first talk to your bank about your situation and see what they would advise and the amount that they would be willing to agree for you to sell the house for. It would also be a good idea to consult a real estate lawyer as some districts require the homeowner to still be liable for the difference between the selling price of the house and the outstanding mortgage.
Once you have decided that a short sale is a viable option for you, contact a realtor to list the property and take a good look at your house. To you it is a home and all the nicks and stratches on the walls may have memories, however, to potential buyers these only represent extra expense that they will have to sink into the home to bring it up to their standards.
It might be worthwhile to hire a person to come in and stage your house for potential buyers. Staging is when a person comes in and makes some changes to the house to make it more appealing to potential buyers. This can include things from decluttering rooms to make them appear more spacious, rearranging furniture, and adding homey touches like fresh flowers.
There are plenty of homes on the market right now so you need to differentiate your house from the others through staging or making a few changes to update the house. At the moment there are plenty of out of work homebuilders willing to work for excellent rates so if you were considering getting rid of that 1970s shag carpet and outdated wallpaper this is a great time to do it. You don’t need to replace it with top of the line products, but making a few simple changes like that will definitely make your house more competitive.
Mortgage Problems? Check this out!
To combat the issue of rising foreclosure, Congress recently enacted HOPE for Homeowners. This program is designed to help homeowners who are at least three payments behind on their mortgage but have not filed for bankruptcy.
If you qualify, the program extends the terms of the loan, meaning you will be paying a lot more interest over the term of the loan but will have lower monthly payments. This plan helps the taxpayer by keeping the monthly payments lower so that hopefully the taxpayer will be able to continue to make the payments and avoid foreclosure. Also, the extended term of the loan does increase the interest payments, however, that interest can be deducted from the taxpayer’s federal income tax.
As long as the taxpayer isn’t trying to move anytime soon this sounds like a great alternative. However, for taxpayers who might be moving in the next few years, this option means that you will likely be trying to sell your house for less than your mortgage. Because the program extends the term of the loan, taxpayers are paying less each month on the balance of the loan and instead a large chunk goes to interest. Thus, due to the lower housing values if you try to sell in the next few years, your mortgage will be more than the value of your house.
It is great that Congress is coming up with programs to help prevent foreclose, but this plan won’t fit everyone’s needs and you need to be aware of the limitations when considering whether it is right for you.
Going, Going, Gone. House sold for $10,000!
Pinch me, I must be dreaming. A 4 bedroom 2.5 bath home with over 2,000 square feet built in 2006 is going on auction starting at $10,000. This isn’t just a rare deal, there are plenty of others available as well.
In this current market life is pretty tough if you don’t have any savings to fall back on. For those that do have a little cash lying around though, there are plenty of opportunities to invest for retirement. One of the best options that I have seen is the Florida housing market. Yes, house values are falling like crazy in Florida and getting a mortgage is incredibly difficult, however, rental rates have not fallen and people who have been foreclosed on still need a place to live.
The Cape Coral/Fort Myers area has 58 houses and 44 lots going up for auction this month. Many of these homes have never been lived in and the auctions are starting at $10,000 or $25,000 for houses and $1,000 for a lot. With so many homes being auctioned at once and the market already saturated, it is very possible that people will be walking away next weekend with a house for only $10,000 plus closing costs!
A quick check on Craigslist shows that houses in the area are renting for $950 a month for a house or $500 a month for a two bedroom condo. Even if you rent the house out for $500 a month, the potential for future earnings is enormous.
Florida isn’t the only area in the country with some great auctions going on. Check out the following website for more info.
http://www.williamsauction.com/Search/SearchResultsState.aspx?statusid=1&CategoryID=1&p=1.2