The numbers are coming in and the picture for homeowners is grim: According to a recent report by RealtyTrac, the first three months of 2006 saw an increase of 72 percent in nationwide foreclosures. Economists are blaming a variety of factors, including rising gas prices, interest rates, insurance rates, and property taxes. This increase in foreclosures is not a surprise and is being driven in large part by the increase in creative financing packages offered by lenders in recent years.
In the past few years, the foreclosure rate has held at historically low levels because rising home values have made it relatively easy for homeowners in financial trouble to sell. But as appreciation rates level off and with billions of dollars in adjustable rate mortgages subject to rate increases this year, the demand for assistance from foreclosure specialists will climb.
One of the most effective foreclosure strategies is known as a short sale, which is when a lender accepts a payoff of less than the amount owed to avoid a foreclosure, or, if the foreclosure has already occurred, to unload the property and avoid greater losses. For example, let’s say a homeowner is facing foreclosure on a home valued at $250,000 with a mortgage of $238,000. If the homeowner tried to sell through a traditional real estate agent, he would have to come up with cash at closing to complete the deal. Instead, using a short sale strategy, you go to the lender with an offer of $190,000 and the lender accepts that as full payment of the loan.
In this situation, everybody wins. The homeowner has avoided foreclosure and gotten rid of a huge burden. The lender has avoided the cost of the foreclosure, the damage of having a bad loan on its books, and the trouble of having to take possession of and then sell the property. And you have purchased a property with an automatic $60,000 in equity.
While it’s possible to do a short sale after the foreclosure when the bank actually owns the property, it’s best to use this strategy when the homeowner has received a notice of default but before the actual foreclosure. Lenders will rarely, if never, negotiate a short sale until the notice of default has been recorded. But at that point, the lender can be very motivated to give you a handsome discount to take a problem off its hands.
Properties that are over-leveraged (with mortgages exceeding the market value) and properties with multiple mortgages are prime candidates for short sales. Remember, second and third mortgages are typically wiped out at a foreclosure auction. Those lenders would rather have something than nothing and will usually be willing to negotiate with you. Of course, cosmetically distressed properties are also ripe for a short sale because lenders don’t want to get in the fix-up business.
How to do a short sale
The first step in the short sale process is to reach an agreement with the homeowner and get the property under contract, perhaps using a Memorandum of Option which can be recorded if necessary. This means you now have an interest in the property and the homeowner can’t easily back out of the deal after you’ve spent hours working on it.
Next, contact the lender and ask for the short sale or workout packet. The information in the packet will tell you exactly what you need to do. The lender will probably request a substantial amount of information on the homeowner, including a letter explaining why he has not been making his mortgage payments, bank statements, pay stubs, a copy of the real estate purchase and sale agreement, etc. Put this information together and return it to the lender as quickly as possible. Remember, the foreclosure clock is ticking.
The next step in the process is the broker price opinion, or BPO. This is an alternative to a full appraisal and is typically conducted by a local licensed real estate professional. The BPO is the secret to a successful short sale–and you want it as low as possible. Remember that real estate agents are conditioned to go for the highest appraisal possible, but you need for them to see the situation through your perspective. The lower the BPO, the better your chances of getting the discount you want.
After the BPO is turned in, the lender will either reject or accept your short sale offer. If it’s rejected, you can renegotiate and even request a second BPO. If it’s accepted, congratulations–you’ve solved a problem for the homeowner and the lender, and made money for yourself in the process.Immobilienmakler Heidelberg Makler Heidelberg