Denver, Mooresville & Lake Norman NC Short Sales

"TOGETHER WE'RE BETTER!"

Mooresville & Lake Norman NC Real Estate

How the Foreclosure Crisis Costs You Money

By: Lew Sichelman

Published: July 8, 2010

Foreclosure may seem like someone else’s problem, but when it happens in your neighborhood, it’s going to cost you money, too. Using the alternative of a Short Sale before you get to the foreclosure stage can not only help you but it will help the nation's economy as well!

Each foreclosure within 660 feet (1/8th mile) of your house can drop your home’s value by a factor of almost 0.75%, according to the Center for Responsible Lending, a consumer watchdog group.

The closer a foreclosure is to your house, the bigger the impact. A university of Connecticut study suggests one foreclosure within 300 feet of your home will lower your property value by 1%.

If you live in a neighborhood with few vacant homes and a foreclosure occurs within 250 feet, a University of California, Berkeley study suggests you could lose 2.2% of your home value.

Do troubled owners deserve help?

Some people think the homeowners facing foreclosure got themselves into trouble because they bought more house than they could afford with toxic mortgages for which they never should have been approved. At least one study of the 2007 and 2008 foreclosure crisis suggests that was indeed the case.

Foreclosures become comparable sales

Even if you don’t feel compassion for those facing foreclosure, you might feel sorry for yourself. Homebuyers and mortgage lenders use foreclosures as comparable properties to value your home when you sell or refinance. And the discount at which foreclosures sell is a hefty 27% on average.

Although most appraisers adjust the value of your home upward compared with a foreclosure, a homebuyer may consider the foreclosure equally valuable to your home and base his offer on that instead of your property’s real worth. If that happens, your real estate agent can argue that non-distress sale comparables and better condition make your property worth more.

Foreclosures lower tax revenues

Drops in property values brought on by foreclosures don’t just hurt your property value; they also cut away at the whole property tax base, the source of revenue for local government. Elected officials then have to either charge you higher taxes or cut services to make up for the shortfall.

What you can do about foreclosures

To limit foreclosure damage in your community, ask local officials to pass laws forcing lenders to maintain the properties they now own and to pay the taxes and homeowners association dues on them.

If the town isn’t forcing lenders to maintain a foreclosure in your neighborhood, organize a volunteer effort to cut and trim the shrubs at vacant houses on a round-robin basis, and report vandals or squatters to the police. A well-kept foreclosed home will attract more buyers than one with a weed-filled yard. Take trespassing laws into account as you organize your effort.

If you’re selling or refinancing and the appraiser uses foreclosures as comparable sales to determine the value of your property, ask your real estate agent to make sure the appraiser accounts for the distressed nature of those sales and the condition of the properties as they compare to yours. Ask your agent to seek out other comparable sales the appraiser might have missed, which show your home in a much better light.

Syndicated housing columnist Lew Sichelman lives in a ranch house on the western shore of the Chesapeake Bay and has been writing about housing for more than 40 years.

Foreclosure & Your Credit Rating

When is Foreclosure Removed from Your Credit Report?

Use this handy guide to figure out how quickly you can buy a home after a major financial setback when applying for a loan through FHA, Fannie Mae, or Freddie Mac.

The chart below outlines the criteria that government entities FHA, Fannie Mae, and Freddie Mac follow for major credit-busting events, including foreclosure. Although FHA, Fannie Mae, and Freddie Mac aren’t direct lenders, they wield a lot of behind-the-scenes influence by working with banks to guarantee loans and help lenders free up capital to provide more mortgages.

One of these entities may have made your loan possible without you even knowing it. Although for the most part banks make loans to whomever they want, they’ll likely find themselves following FHA, Fannie Mae, or Freddie Mac guidelines at a minimum in order to keep working with these useful partners.

Some lenders may have more stringent policies and others, willing to take greater risks, may work outside these entities and offer more liberal lending policies.

How to read the chart

This chart offers summaries of what can be complex rules and regulations. So:

1. Look to professionals, such as a bankruptcy lawyer and a CPA specializing in bankruptcy provisions, before making major financial decisions.

2. For HUD-approved counselors, go to http://www.hud.gov/offices/hsg/sfh/hcc/fc/index.cfm. You can also call 1-888-995-HOPE for help from the Homeownership Preservation Foundation.

3. Understand what “extenuating circumstances” means in each case:

FHA: An event that was out of the borrower’s control that made a significant impact on the borrower’s finances and led to bankruptcy or foreclosure.

Fannie Mae: A nonrecurring event that’s beyond the borrower’s control that results in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations.

Freddie Mac: A nonrecurring or isolated circumstance, or set of circumstances, that was beyond the borrower's control and that significantly reduced income and/or increased expenses and rendered the borrower unable to repay obligations as agreed, resulting in significant adverse or derogatory credit information.

	FHA	Fannie Mae	Freddie Mac
Foreclosure	•3-year wait. •Reduced wait if borrower has re-established good credit and can show extenuating circumstances.	•7-year wait from the completed foreclosure sale date. •3-year wait if borrower can show extenuating circumstances (additional underwriting requirements apply for 4 years after 3-year waiting period). •7-year wait for a second home, investment opportunity, or cash-out refinancing.	•5-year wait from the completed foreclosure sale date. •3-year wait if borrower can show extenuating circumstances.
Short Sale	•No wait if not in default. •3-year wait if in default at closing of short sale. •Reduced wait if borrower has re-established good credit and can show extenuating circumstances.	•2-year wait if the borrower puts 20% or more down. •4-year wait if the borrower puts 10-20% down. •7-year wait if the borrower puts less than 10% down. •2-year wait time if borrower can show extenuating circumstances and puts 10% or more down.	•4-year wait. •2-year wait if borrower can show extenuating circumstances.
Deed in lieu of foreclosure	•Same as FHA’s foreclosure policy.	•Same as Fannie’s short sale policy.	•Same as Freddie’s short sale policy.
Bankruptcy	Chapter 7 (liquidation): •2-year wait from the discharge date of the bankruptcy. •1-2 year wait if borrower can show extenuating circumstances. Chapter 13 (repayment plan): •1-year wait from the discharge date of the bankruptcy.	Chapter 7 or Chapter 11 (reorganization, usually involving corporations or partnerships): •4-year wait from the discharge or dismissal date of the bankruptcy. •2-year wait from the discharge or dismissal date may be accepted if borrower can show extenuating circumstances. Chapter 13: •2-year wait from the discharge date or 4-year wait from the dismissal date. •2-year wait for a dismissal if borrower can show extenuating circumstances. Multiple bankruptcies: •5-year wait if the borrower has filed more than one bankruptcy petition in the past 7 years. •3-year wait if borrower can show extenuating circumstances.	Chapter 7 or Chapter 11: •Same as Fannie’s bankruptcy policy. Chapter 13: •2-year wait from the discharge date of the bankruptcy. •2-year wait from the discharge or dismissal date of the bankruptcy if borrower can show extenuating circumstances. Multiple bankruptcies: •Same as Fannie Mae’s policy for multiple bankruptcies.

Source: FHA Handbook, Fannie Mae Selling Guide, Freddie Mac Selling Guide

Short Sales 101

Foreclosure Alternative: The Short Sale

Article From HouseLogic.com

By: Gwen Moran
Published: July 08, 2010

A short sale is far from hassle-free, but it's a better alternative than foreclosure. And now you've got a little help from your friends in D.C. Here are the facts about short sales and how to get started.

Facing foreclosure and tempted to stay in your home until the bank pulls it out from under you? Bad idea! Don't do it. A much more graceful exit is a short sale, an agreement between you and your lender to sell your home for less than you owe. Although there's no guarantee that your lender will let you avoid foreclosure with a short sale, new government regulations are aimed at encouraging lenders to do so.

Short sales get government incentives

Although short sales are not hassle-free, at least you've got the government backing you. The Home Affordable Foreclosure Alternatives program provides financial incentives for lenders and borrowers to avoid foreclosure through short sales or deeds in lieu of foreclosures.

Participation in the HAFA program requires adherence to guidelines--including a standard process and minimum timeframes--that speed the process, says Dallas-based REALTOR, Tom Branch, co-author of Avoiding Foreclosure: The Field Guide to Short Sales. The HAFA program is for homeowners who can't keep their homes with the help of a loan modification Advantages of a short sale

•You can be a homeowner again more quickly with a short sale in your past than with a foreclosure. New Fannie Mae guidelines help you qualify for a new mortgage in as little as two years after a short sale, as opposed to up to seven years after a foreclosure.

•You will have more time to make relocation plans and save money than with a deed in lieu. A short sale may take four to 12 months. A deed in lieu of foreclosure arrangement typically requires you vacate your home within 30 to 60 days of signing, according to real estate attorney Lance Churchill.

•You can receive up to $3,000 from your lender for moving expenses at the time of closing of a HAFA short sale or a HAFA deed in lieu of foreclosure. Relocation funds are part of the incentives of HAFA, but not necessarily for other short sale or deed in lieu programs of the lenders.

•You can help your community's home values. Because the lender often receives a higher amount of the remaining loan balance than it would from the sale of a home after a foreclosure, short sales help support home values in the surrounding community.

Disadvantages of a short sale

•Your credit score will take a severe hit. But that would happen anyway with a foreclosure. Fair Isaac, creator of the FICO score, says foreclosure and short sales have virtually identical impacts on your credit score. VantageScore--a company that has created a credit score model for consumers--says a short sale will lead to only a marginally lighter hit when compared with foreclosure.

•You may owe additional taxes. In the past, if your outstanding mortgage was $100,000 and your lender accepted a short-sale purchase offer of $90,000, you were liable for income tax on the forgiven $10,000, says Harlan D. Platt, economist and professor of finance at Northeastern University in Boston. However, the Mortgage Forgiveness Debt Relief Act of 2007, which runs through 2012, generally allows taxpayers to exclude income from the discharge of debt on their principal residence in some circumstances. Full relief is available only if the amount of forgiven debt doesn't exceed the debt that was used to acquire, construct, or rehabilitate a principal residence. Consult a tax professional and an attorney to minimize or avoid this liability.

•In some states, your lender may still be able to come after you for the difference between the short sale price and the amount needed to pay off the mortgage. Your actual agreement with your lender and state and local laws and regulations spell out the details. Consult a tax professional and an attorney to minimize or avoid this liability.

How to proceed with a short sale

•Find a qualified REALTOR, experienced in short sales. Short sales are tough to navigate, and they're further complicated by your loan type--FHA vs. Veterans Administration vs. conventional loans. Real estate agents who specialize in short sales will know the proper steps and order of the steps involved. They'll also be able to navigate the many parties involved in the process and over-burdened loss mitigation departments. Look especially for agents who have Short Sales and Foreclosure Resource (SFR) Certification, which requires specialized training.

•Gather evidence to support your need for a short sale as opposed to a foreclosure. You'll need to prove that you have little or no equity in your home, you're behind on your payments, and you're no longer able to afford your home. You'll need to write a hardship letter to the lender describing your circumstances, such as a divorce, job loss, illness, death, or other event that has impacted your income.

A short sale can be a time-consuming process, but if you can avoid foreclosure, it's worth it in the long run.

Give us a call for answers to any of the questins you may have about how to sell your home as a short sale.704-363-6946

Real Estate Marketing & Listing Syndication By Point2
Search Homes for Sale With Point2

How the Foreclosure Crisis Costs You Money