Short Sale & Foreclosure 101

Great Chart On Credit Scoring; Check this out if your credit might be in danger

March 13, 2010 by Sasha Farmer · Leave a Comment 

I really like this chart on credit scoring- I receive lots of questions from potential buyers about credit, including how they can improve their credit scores in order to prepare for a home purchase.

Whether in the market for real estate or not, these are things that everyone should be aware of pertaining to their credit. If you are interested in learning more about your credit score or looking for ways to improve it, contact me and I will connect you with a lender who can help you through your questions!

[Credit: SpendOnLife.com]

What is a strategic default?

December 23, 2009 by Sasha C. Farmer Realtor · Leave a Comment 

As defined by Wikipedia…

A strategic default is the decision by a borrower to stop making payments on a home mortgage despite having the financial ability to make the payments. Usually this occurs after a substantial drop in the house’s price such that the debt owed is considerably greater than the value of the property, and is expected to remain so for the foreseeable future. Such borrowers are called “walkaways.”[1]

[From Strategic default - Wikipedia, the free encyclopedia]

As discussed in CRS Course-111 on Short Sales and foreclosures, a strategic default will likely effect your credit score negatively by 140-150 points and will also result in 5-7 negative marks on your credit. This is likely going to be more detrimental than going through the process of a short sale or a loan modification, but is said to not effect your credit score as negatively as filing for bankruptcy.

**Disclaimer: I am a licensed real estate agent and cannot provide legal consulting or tax advice. For counsel on either of these things, please consult your tax accountant or attorney.

Before making any decision to pursue a short sale, a foreclosure, a strategic default, or to file for bankruptcy, it is in your best interest to consult with a licensed Realtor, your tax accountant, and an attorney.

Answer these questions to determine if purchasing a bank owned home/foreclosure is right for you…

December 23, 2009 by Sasha C. Farmer Realtor · Leave a Comment 

Please read carefully through the following items when trying to determine whether or not you are interested in looking at REO (Real Estate Owned) and Foreclosure properties.

1. Would you be okay with a delayed closing? Purchasers of foreclosures may have to wait for a significant amount of time before closing can occur. Are you on a tight deadline to get out of your lease? Are you attempting to take advantage of the Home Buyer Tax Credit (in which homes must close by June 1, 2010?) If so, this may not be the best choice for you.
2. If closing were delayed, would you be okay with re-applying for your loan and possibly losing your current loan lock? All during the time that we are awaiting closing, mortgage rates will be fluctuating, and if the loan lock deadline passes, you will have to re-apply for the loan and incur any related charges.
3. If closing is delayed, will you be able to adjust the timeframe for your date of possession? It is very unlikely that we will be allowed to occupy the property prior to closing, so you would need to have a backup residence in mind, in case of any delays. If this is your primary home, some sort of temporary living arrangement would need to be made, and it may include moving twice- from your current home to the temporary residence, and the temporary residence to your new home.
4. Even if the property is priced extremely competitively, do you have other funds that may be necessary for updating, cleaning up, and repairing the property? Sometimes REO and foreclosed homes will require a significant cash investment just to bring them up to standard living conditions.
5. Are you comfortable purchasing a home “as is”? Most REO and foreclosed homes will come in “as is” condition. A handful of them will not allow any sort of home inspection prior to purchase at all, however most allow a home inspection for information only. Would you be comfortable making any necessary repairs yourself (or with a contractor, of course) and after closing?
6. Would you be willing to sign addenda that heavily sways negotiations in favor of the Lender/Bank who owns the property and overrides most of the standard protections granted to the buyer? Most of these forms override rights that we outline in the standard Virginia Association of Realtors Residential Contract to Purchase. Oftentimes, the lender will allow no revisions to be made to these documents. Some of the changes that are often arranged in the addenda; tougher restrictions on the Purchaser, shorter timelines for the Purchaser to secure a loan, conduct a home inspection, etc, a larger deposit, deposits to be held in the escrow of the lenders choice, and very few provisions that will allow for the Purchaser to get out of the contract and many ways for the lender/seller to walk.
7. Would you be okay with getting up to the week of closing, only to find that the lender received another offer and has chosen to take that offer and void their contract with you? Many of the packages of documents that the lenders have you sign will include a provision allowing for this.
8. Would you be comfortable with your earnest money deposit to be escrowed with a escrow company or attorney of their choice? This money will not be accessible during the time that the property is under contract.
9. Are you prepared to do a title search and purchase title insurance? You will want to verify that the lender does hold title of the property (not all homes transfer from the previous sellers right away). You will also want to make sure that any liens that may have been held against the previous owners (who may have had difficulty paying many bills, aside from their mortgage) have been released and you will have the ability to purchase the home free and clear of liens and encumbrances.

If these items would not cause a major inconvenience for you, then you may be a perfect candidate to purchase a REO or foreclosure property- there are some incredible deals to be had!

Any more thoughts/additions to this list from others who have had bank owned/foreclosure homes?

Please do not hesitate to contact me if you’d like to be set up on a search that will send you foreclosure and bank-owned homes that might meet your search criteria!

How Much Will A Short Sale/Foreclosure Hurt My Credit?

December 23, 2009 by Sasha C. Farmer Realtor · Leave a Comment 

I have had a couple of people over the past few months mention that they may consider a short sale, so that they can just get out from under their homes and move on. While the ramifications of a short sale or foreclosure seem to be getting slightly more lenient in light of all of the predatory lending that has occurred in the past several years, they are still significant.

Here are some general credit score ranges (as provided by the National Association of Realtors CRS Course 111);

• 990: highest calculable credit score.
• 900: 15% of borrowers have a credit score at 990 or above.
• 740: a rough number around which people are usually able to get a good, competitive loan.
• 680: the average credit score.
• 501: lowest calculable score.
• 500: 18% of people have a credit score of 500 or below.

Let’s imagine that you have a credit score of 740 and own your home, but are having trouble making your payments (which may actually be causing your credit score to drop in the meantime). Here are a couple of different options, and their effects;

• A loan modification is said to have no negative impact on credit score.
• A short sale is estimated to impact your credit score between 120-130 points.
• A strategic default will likely impact your score by 140-150 points.
• A foreclosure is said to impact your score by 200+ points.
• Filing bankruptcy is likely to impact your credit score negatively by 355-365 points, putting even most prime borrowers below a score of 500. We are being told that it is still remaining on credit scores for up to 10 years.

Another crucial point to remember is that Virginia is a recourse state, which means that a short sale or foreclosure debt that is not forgiven by the bank, can be pursued later. This may result in credit collectors calling on you for years to come, to collect any remaining debt owed.

Let’s do what we can to help you avoid either of these results if possible. A really interesting fact to be aware of; According to the 11/03/09 issue of USA Today, only 9% of eligible homeowners have had their mortgage modified. There may be better options for you than a short sale or a foreclosure.

**Disclaimer: I am a licensed real estate agent and cannot provide legal consulting or tax advice. For counsel on either of these things, please consult your tax accountant or attorney.

Before making any decision to pursue a short sale, a foreclosure, a strategic default, or to file for bankruptcy, it is in your best interest to consult with a licensed Realtor, your tax accountant, and an attorney.

Short Sale Debt Could Follow You (And Often Does in VA)

October 4, 2009 by Sasha C. Farmer Realtor · Leave a Comment 

If you are considering selling your home as a short sale, and are choosing a short sale instead of a bank foreclosure, you should make sure to read this Washington Post article about short sale debt.

It is very important to know that the debt from a short sale may follow you.  Since we are still early in the history of short sales, we haven’t seen how too many of these will play out, but there is a high likelihood that creditors will come back around to slowly collect the loss over time, so that you end up paying off the short sale debt eventually.  This is one ramification that will occur during a short sale, but that you will not experience if you go into bank foreclosure and then declare bankruptcy.

If you are considering any of these items, you should immediately contact your Realtor, and your tax advisor and/or CPA.

http://www.washingtonpost.com/wp-dyn/content/article/2009/09/24/AR2009092405361.html

Purchasing a Short Sale

July 18, 2009 by Sasha C. Farmer Realtor · Leave a Comment 

Charlottesville is currently seeing a handful of short sales, and for every short sale that we can successfully achieve, we are avoiding a foreclosure hitting our market. Short sales, however, are not for the faint of heart! They are highly unpredictable, and while they can result in an incredible deal on a home, they can also result in frustration and confusion. Here are a few tips and warnings for anyone who is considering making an offer on a short sale.

SHORT – SALE DEFINED: The term “short sale” is used to describe a sale where the debt owing against a property combined with the costs associated with the sale exceed the property’s market value. In a loan default situation (pre-foreclosure) creditor(s) may be willing to agree to allow the property to be sold for less than the loan amount and/or accept less than (or “short”) the amount owed, and may or may not accept the net proceeds of sale as payment in full of the debt.

The sales contract will be between YOU (the Purchaser) and the SELLER, not the LENDER. The sales contract will then have a contingency in it that states that the LENDER must approve the agreement and that allows the SELLER a chance to open this dialogue with the LENDER.

1. Timing is everything! A short sale can take up to 6 months to be approved by a bank. If you are a first time buyer looking to take advantage of the 2009 First TIme Home Buyer Tax Credit, I do not recommend looking at short sales. There is no way to predict whether or not a short sale will close in alignment with any sort of deadline. If you absolutely need to close and be in your home by a certain date, a short sale is probably not for you.
2. What you offer on the home and what a SELLER may agree to and ratify into a contract MAY NOT be the sales price. The LENDER still has to approve any agreement that is made in a short sale, so don’t get your hopes up about the sales price that you’ve agreed upon with the SELLER. The LENDER may counter-offer and ask you to pay a completely different, higher price. The price that the LENDER is willing to take is going to be determined through the help of a third-party broker, who will do a BPO (Brokers Price Opinion) on the home, and who will recommend a value for the home based on recent comparable sold homes.
3. It is recommended that you do your inspections immediately. The PURCHASER will need to take on some risk of lost investment on items like a home inspection or an appraisal. Once the SELLER and PURCHASER have a ratified contract, it is recommended that the PURCHASER go ahead and conduct the home inspection. This inspection will likely be for information only, as the SELLER likely cannot make repairs, and the LENDER likely will not. It is possible that the PURCHASER will spend money on a home inspection only to find out that the LENDER does not approve the sales price and the contract may fall apart, with the PURCHASER being out the cost of a home inspection.
4. Once the LENDER approves the short sale, they will likely require the PURCHASER to close immediately. The lender will often request closing to occur within 7-14 days, so the PURCHASER needs to have their finances in line by then.
5. During all of this, the home is still in pre-foreclosure and CAN progress to foreclosure. A ratified contract on a home does not necessarily stop the foreclosure process from occurring, as sometimes the short sale department (loss mitigation) does not have contact with the foreclosure department, and foreclosure proceedings may begin. If a home does progress all the way to a foreclosure sale, the contract between the PURCHASER and the SELLER becomes void.

All of these items can make purchasing a short sale a very lengthy and sometimes confusing process. Please make sure that you are in a position to purchase a home under all of these conditions before you begin to seek out short sales.

For those of you who DO have the flexibility to purchase under these conditions- happy hunting, and congratulations on the great deals you may be able to find out there!

100 Abandoned Houses

July 13, 2009 by Sasha C. Farmer Realtor · Leave a Comment 

It is undeniable that Charlottesville has suffered far less than many other parts of the nation throughout the housing crisis. I just came across a website that is truly fascinating- 100 Abandoned Houses. This site documents photographs of homes all throughout Detroit that have been abandoned due to hardship. The homes are truly fascinating, some of them beautiful.

We are blessed in Charlottesville not to have been surrounded by abandoned and neglected homes. Others have not been so lucky.

Check out some of the incredible images here; 100 Abandoned Houses.

Foreclosures 101

February 27, 2008 by Sasha C. Farmer Realtor · Leave a Comment 

I have had 2 people call me in the past month who wanted to search the foreclosure market for a deal so I’m writing this to explain how foreclosures work and why they’re not for everyone. Foreclosures are becoming more abundant nationwide in the wake of the major shift in the U.S. mortgage market, but they’re not for the faint-hearted and are often not the quick, easy deal that they’re sometimes built up to be.  While they may present incredible opportunities for some, they are always at the misfortune of others, and that is almost always obvious upon first glance.  Often, the same candidates for foreclosure are also those who were in major financial trouble with no money to spare for home repairs, maintenance, and even ordinary upkeep and cleaning- the  condition of these homes often leaves much to be desired.  

REO, or real estate owned, just means the lender reclaims the property and establishes control over it to minimize its losses.   Buying REO foreclosures is the easiest way to pick up a distressed property. When a property is owned by a lender, the lender has often paid off all of the liens, overdue taxes, and other debts against the property in order to provide a clear title.  However, the result of this is that the lender is usually trying to recoup anything that they have spent on the property when buying it at the auction, which may result in the property being sold for close to market value.  The “deals” can be found when a lender is racking up several of such foreclosures and getting anxious to get them off their hands, or when a specific property has been sitting in the lender’s pocket for a long period of time, and the lender chooses to cut his losses and get rid of a liability. 

Buying a foreclosed property at an auction is the riskiest way to purchase one of these properties, as the home will be sold “as is.”  What this means is that no inspections will be done whose results will be a contingency in the sale of the property.  In some cases an inspection for information is allowed, the results of which cannot be used by the purchaser as a reason not to complete the sale.  It is very possible to “strike a deal” with these, but the property could easily be tarnished by bad title or lots of deferred maintenance. When buying at an auction you can generally expect a small down payment deposit, with the remainder of the balance due within 30 days. You must do your research before going to an auction- auctions are a prime way for people who haven’t researched and secured their financing to really come out in the negative. 

If you do choose to go the foreclosure route you must either commit to dedicating some time to doing your homework and researching the area and any specific properties that appear to be attractive, or I would suggest, as always, working with a Realtor to represent your best interest and help you navigate the intricacies of the purchase.

The Virginia Foreclosure Market

January 19, 2008 by Sasha C. Farmer Realtor · Leave a Comment 

Courtesy of Virginia Business Magazine, here is a good article on how Virginia’s housing market has fared in 2007, despite trouble nationwide with foreclosures. As stated in the article,

“At a time when foreclosures are soaring and some mortgage lenders have gone out of business, plenty of homebuilders would gladly trade places with Genuario. And homeowners in other states can’t help but look at their counterparts in Virginia with envy, because home prices here continue to outperform the nation’s. That’s one piece of encouraging news in what has been a bruising year for the housing industry.”

Additionally, click here for a very bad scan of a nice chart that was included in the article on Virginia Foreclosures FILINGS By County.

As you can see from the graphic, about 1 household out of every 196 households are subject to filing for foreclosure. However, in Virginia, only 1 out of every 411 homes are subject. Virginia has avoided quite a bit of the foreclosure mess. The two closest counties to Charlottesville that are listed- Orange and Culpeper counties- have 1 foreclosure FILING for every 132 and 96 households, respectively. Our local area hovers at about a 1% foreclosure FILING rate, which really is not a terrible statistic. Following the trend that the majority of foreclosures are a result of subprime loans, failures at flipping, and unscrupulous lending practices, it is probably safe to say that most of our neighbors here in the Charlottesville area will be relatively protected from impending foreclosures or short sales.

Over 80% of all foreclosures are in 5 states – and Virginia is not one of them. Currently, the top 5 foreclosure states are California, Florida, Ohio, Michigan and Texas, with Virginia currently falling at #21 in the nation. Compared to 148,000 in California; 86,000 in Florida; 47,000 in Ohio; and 44,000 in both Michigan and Texas; Virginia looks great with it’s mere 8,000 foreclosure sales in 2007. With an estimated 3,300,000 households in Virginia, this would leave us with less than a 0.01% ACTUAL foreclosure rate in the state. Back to the first article, on median home prices, we see

“Still, compared with states such as Florida, Nevada and California — which experienced huge building booms and busts — Virginia is holding up well. For instance, the median price for a Virginia home was higher in September than for the same time in 2006, a stark contrast to what’s happening nationally. In September, the national median existing-home price for all housing types dropped 4.2 percent to $211,700, while it rose by 5.53 percent in Virginia to $229,000. In fact, the Virginia Association of Realtors reports that a Virginia home purchased in 2002 at the median price of $144,480 appreciated 58 percent in the past five years.” 

However, all is not rosy.

“Virginia has one of the highest year-over-year increases (in foreclosure filings) in the past months. It’s catching up with some of the other states,”

says Daren Blomquist, a spokesman for RealtyTrac. While the bulk of these filings are occurring in Northern Virginia, Charlottesville will certainly see some evidence of the shift as well.