HOW TO SURVIVE THE WORST
REAL ESTATE MARKET IN HISTORY
By
Tim And Julie Harris
and
Lesley Lambert, The Real Estate Natural
At Park Square Realty
This book and it’s content is not intended to give legal or accounting advice. Readers of this book are advised to seek additional information from their accountant and or attorney. The authors and co-authors are not accountants or attorneys.
Table Of Contents
Chapter One.
A National Epidemic Is Looming. Are Your Ready?
Chapter Two.
How Bad Is It?
Chapter Three.
Ok, I Get It. A Short Sale May Be My Best Option. Tell Me More.
Chapter Four.
What Is A Mortgage Foreclosure?
Chapter Five.
You Have Been Warned: Foreclosure Scams.
Chapter Six.
What Are The Options For Homeowners In Foreclosure?
Chapter Seven.
You Now Want To Short Sale Your Home:
Top 10 Short Sale Questions, Answered.
Chapter Eight.
I Thought Rates Were Falling. Won’t That Help?
Chapter Nine.
Life After Short Sale..When You Want To Buy A Home Again…FHA To The Rescue.
Chapter Ten.
Something You Should Know: The Death Of The Home Equity Loan – Millions Of Homeowners Shut Out.
Chapter One
A National Epidemic Is Looming. Are You Ready?
Are you stressed out about mortgage payments? Do you think your only option is a foreclosure? Is a short sale right for you? Millions and millions of homeowners are asking themselves the same questions. It is projected that over 20,000,000 homeowners will have negative equity in their homes in the very near future. In other words, they will owe more on their homes than they are worth. Over 2.9 million homes have foreclosed in the last three years and the number is only expected to grow. Expect the effects of the estate recession to ripple for years to come.
What can you do now?
There is expected to be massive tsunami of homeowners who are simply making the decision to sell their homes through a short sale vs. staying in a home, hoping that one day it may be worth what they paid.
No one is safe. News stories from across the country tell the tales of both celebrities and average Americans who are all considering selling their homes through a short sale.
Selling your home through a short sale doesn’t need to be a shameful, life-ruining experience. Sometimes short selling your mortgage simply makes smart economic sense, especially for homeowners who find themselves “upside down” — that is, they owe more on their mortgage than their house is worth.
Late last year, CNBC Financial Guru Jim Cramer was telling homeowners to ‘Just Walk Away’. (Watch the video on YouTube.com.)
We are clearly in uncharted waters. The current housing crisis is different from all the previous housing recessions. It is well known that many financial institutions sold mortgages in a deceptive manner — for example, by approving people for loans they couldn’t really afford — then why should homeowners feel obliged to honor their commitments?
From a homeowner’s perspective, why should they stay in a home that is depreciating? Often times it’s possible to rent the same style home in the same area for half (or less) than their current mortgage payment. Assuming it takes years for the market to recover, the homeowner who sells their home via a short sale now will be far ahead of the person who ‘stuck it out’.
Here is an example:
Starting May of 2008:
* Homeowner paid $500,000 at the market peak in late 2006. Homeowner put down 5% and did a 7 year interest only mortgage. Monthly payment including principle, interest, taxes and insurance is $4200 per month.
* Assuming the property has depreciated 30% and is now worth only $350,000, the owner has negative equity or is ‘upside down’ by $150,000.
* The market is continuing to depreciate and is projected to level off in mid to late 2009. In other words, months and months of more losses for the homeowner.
Option 1
Homeowner can ‘stick it out’ and keep the home. They will continue to make their monthly interest only payment/ house upkeep of $4200 per month. They will pay $50,400 per year to keep the home. They are deeply ‘upside down’ in the home with massive negative equity. By late 2009, the home’s value has stopped depreciating. The market stays flat for at least a year thereafter. The inventory levels have to sell off. In late 2010 or early 2011 the market then starts to slowly appreciate again. Best case the home
starts to appreciate at 5% per year. Based on this rough example it will take at least 7 years for that home to be worth what that owner paid in 2006. During that time the homeowner will have paid $50,400 per year. Do the math. That’s $352,800 spent to stay in the home and ‘stick it out’.
Option 2
Homeowner lists the home with an agent trained in doing short sales. The home sells and the bank agrees to accept the loss in equity as the short sale. Bank loses $150,000. Homeowner moves to a rental home in the same neighborhood and pays rent of $2000 per month. Half of his previous house payment. Homeowner saves the difference between what he had been paying for the owned home and his new rent payment. $26,400 per year. Yes, the homeowner does have significant negative credit ramifications as a result of their short sale. This negative credit will prevent them from buying a home for the next 18-24 months. With this option he can sit out the real estate recession and jump back in when the market has hit bottom. If he times it right he can buy at the markets bottom. This time he will have a more significant down payment and a better quality mortgage.
Let’s be very clear about this next point…Yes, there is damage to your credit. According to national experts, after a short sale, a person’s credit will go down by 300 + or – points and then prevent them from buying using a government backed mortgage for up to 24 months. With a foreclosure, the credit is damaged for up to 4 years preventing someone from obtaining a government-backed mortgage.
Many home owners who are now short selling their properties are going to want to buy houses again some day; and when they do, lenders are going to want to make money lending them money to do so.
Chapter Two
How Bad Is It?
One thing is certain: Foreclosures are on the rise. Cities in California, Ohio, Florida and Michigan just posted the highest foreclosure rates in the U.S., according to RealtyTrac, a private firm.
RealtyTrac is the go-to source for the best foreclosure information. This information is from a recent report that they released. If you want to obtain current, up to the minute information on foreclosures in your area go to their website. www.realtytrac.com
Foreclosure Activity Up 112 Percent From Q1 2007
California and Florida Cities Accounts for 13 of Top 20 Metro Areas –
“RealtyTrac, the leading online marketplace for foreclosure properties, released its Q1 2008 U.S. Foreclosure Market Report™, which shows foreclosure filings — default notices, auction sale notices and bank repossessions — were reported on 649,917 properties during the first quarter, a 23 percent increase from the previous quarter and a 112 percent increase from the first quarter of 2007. The report also shows that one in every 194 U.S. households received a foreclosure filing during the first quarter. Foreclosure activity in the first quarter increased on a year-over-year basis in 46 out of the 50 states and in 90 of the nation’s 100 largest metro areas, demonstrating that most regions of the country are seeing more foreclosures.”
Nevada, California, Arizona have the highest state foreclosure rates. One in every 54 Nevada households received a foreclosure filing during the first quarter, the highest foreclosure rate among the states and 3.6 times the national average. Foreclosure filings were reported on 19,595 Nevada properties during the quarter, up 3 percent from the previous quarter and up 137 percent from the first quarter of 2007.
Foreclosure filings were reported on 169,831 California properties during the first quarter, the highest total among the states and a rate of one in every 78 households — the nation’s second highest foreclosure rate. Foreclosure activity in California increased 32 percent from the previous quarter and was up nearly 213 percent from the first quarter of 2007.
Arizona documented the nation’s third highest state foreclosure rate, with one in every 95 households receiving a foreclosure filing during the quarter. Foreclosure filings were reported on 27,404 Arizona properties during the quarter, up 45 percent from the previous quarter and up nearly 245 percent from the first quarter of 2007.
Foreclosure filings were reported on 87,893 Florida properties during the first quarter, the second highest state total and giving Florida the nation’s fourth highest foreclosure rate — one in every 97 households received a foreclosure filing during the quarter. Foreclosure activity in the state was up 17 percent from the previous quarter and up 178 percent from the first quarter of 2007.
Colorado foreclosure activity increased 33 percent from the previous quarter and 78 percent from the first quarter of 2007, and the state’s foreclosure rate ranked No. 5 among the states. Foreclosure filings were reported on 18,996 Colorado properties during the quarter, a rate of one in every 110 households.
Other states with foreclosure rates among the top 10 were Georgia, Michigan, Ohio, Massachusetts and Connecticut.
The Q1 2008 U.S. Foreclosure Market Report also ranks the nation’s 100 largest metropolitan areas by foreclosure rate. California and Florida metro areas accounted for 13 of the top 20 metro foreclosure rates, with the California cities of Stockton and Riverside-San Bernardino taking the No. 1 and No. 2 spots.
One in every 30 Stockton households received a foreclosure filing during the quarter — 6.6 times the national average — and one in every 38 Riverside-San Bernardino households received a foreclosure filing during the quarter — more than five times the national average. Other California metro areas in the top 20 included Bakersfield at No. 4, Sacramento at No. 5, San Diego at No. 9, Oakland at No. 10, Fresno at No. 12, Los Angeles at No. 17 and Orange County at No. 19.
Las Vegas documented the third highest metro foreclosure rate, with one in every 44 households receiving a foreclosure filing during the quarter. The metro area’s foreclosure activity increased 1 percent from the previous quarter and 134 percent from the first quarter of 2007.
Detroit foreclosure activity in the first quarter decreased 22 percent from the previous quarter and was down almost 4 percent from the first quarter of 2007, but the metro area’s foreclosure rate still ranked No. 6, with one in every 68 households receiving a foreclosure filing during the quarter. Phoenix foreclosure activity increased 46 percent from the previous quarter and 294 percent from the first quarter of 2007, and the metro area’s foreclosure rate ranked No. 7, with one in every 70 households receiving a foreclosure filing during the quarter.
The highest ranked Florida metro area was Fort Lauderdale, which ranked No. 8 with one in every 73 households receiving a foreclosure filing during the quarter. Other Florida metro areas in the top 20 included Orlando at No. 13, Miami at No. 14 and Sarasota-Bradenton-Venice at No. 15. The foreclosure rate in Tampa-St. Petersburg-Clearwater ranked No. 21.
Other metro areas with foreclosure rates among the top 20 included Denver at No. 11, Atlanta at No. 16, Cleveland at No. 18 and Memphis, Tenn., at No. 20.
Chapter Three
Ok, I Get It…A Short Sale May Be My Best Option…Tell Me More…
A short sale is when a lender accepts a discount on a mortgage to avoid a possible foreclosure auction or bankruptcy. For example: A homeowner, who is facing foreclosure, has an existing first mortgage of $500,000. The market value of the home is $350,000.
Long story short, the lender accepts the offer for $350,000 and the home is sold.
That’s a short sale.
Why are lenders so eager to take such a huge discount? Banks do not like bad loans. If they see an opportunity where they can sell the property without the huge loss of a foreclosure, they will do it. Some lenders report that if the home goes into foreclosure by the time the home actually closes with the new buyer, the lender will be lucky to net 50% of the original loan balance.
Bottom line from the lenders perspective? They are in the business of lending money, not owning homes. If they can accept a short sale offer and rid themselves of the bad loan AND net more, vs the home going into foreclosure, they will do it every time. It’s simply smart business.
Time is not on your side when you are considering a short sale. You must act quickly and work only with a real estate expert who has successfully completed and graduated from advanced real estate education programs like Harris Real Estate University.
Chapter Four
What is Mortgage Foreclosure?
Mortgage foreclosure simply means the deed can only be foreclosed through court action. Mortgage foreclosure is usually referred to as a judicial foreclosure.
A mortgage is a security document that allows the borrower to keep title of the property while using the property as security or collateral for a loan. The lender then places a lien on the property in the event the owner does not pay the agreed payment. When the borrower pays off the loan, the lender gives the borrower a satisfaction of mortgage that removes the lien from the property. About half the states in the U.S. use mortgage foreclosure as the means of satisfying the loan balance.
As with most mortgage foreclosure lawsuits, it starts with a summons and a complaint is issued to the borrower and any other parties with inferior rights in the property. Usually the lender’s attorney is the one who issues the notice. The complaint is usually filed in the court where the trial is to be held. Here’s the interesting part. Once the borrower has been notified, he or she has 20 days to respond back to the court challenging them on the mortgage foreclosure lawsuit. Once this occurs, the court now has 40 days to respond back to the borrower. Keep in mind that each correspondence must be legit and deal with some specific part of the complaint. This process may go back and forth as long as the borrower finds something erroneous with the complaint. This slows a mortgage foreclosure greatly because it must go through the court system. It may go as long as a year if needs be or even longer. This is how many homeowners stay in their homes for months often years after they have stopped making their house payments.
Chapter Five
You Have Been Warned: Foreclosure Scams on the Rise!
Foreclosure Scams are on the rise because of the increasing number of foreclosures. It’s very important as homeowners to know about these scams..
Common Foreclosure Scams
1. EQUITY SKIMMING:
You are approached by a “buyer” that offers to buy your home at full asking price. The potential buyer claims he will solve all your financial problems by “promising” to pay off your mortgage. He claims to take over the existing mortgage and give you a sum of money after the property is sold. But in order to do so, he suggests that you move out right away and deed the property over to him. So you move out and assume the “buyer” will continue to make the mortgage payments. However, the “buyer” collects rent for the next 6 – 8 months and does not make any mortgage payments. The lender has no choice but to foreclose and all the while you have no idea what’s happening because you’ve moved out.
2. THE BAIT-AND-SWITCH:
Very similar to taking over “subject to”, but the acclaimed buyer is only after the equity. The buyer tells the homeowners he will bring the mortgage current and tells them they can stay in the home. But in order to do so, he must have a few documents signed that protect his interest and gives him ownership of the property. Then a few weeks down the road, the homeowner receives an eviction notice.
3. THE BAILOUT:
Again very similar to the previous two, where the homeowners sign over the deed with the assumption that they will be able to remain in the house as a renter or lease it back from the buyer and eventually buy it back over time. The terms of these types of scams are so harsh that they make it nearly impossible to buy-back which was the plan to begin with. The homeowner is left with nothing and the buyer walks off with most or all of the equity.
4. PHANTOM ASSISTANCE:
Typically these are online companies claiming to have the magic touch in stopping the foreclosure auction. They know all the ins and outs and what to say to the lender to stop the auction. Then these companies charge outrageous fees for simple phone calls and paperwork the homeowner could have completed themselves.
5. COUNSELING AGENCIES:
Some groups, most of them online, calling themselves “counseling agencies” may approach you or ask you to submit your information for a personal consultation to review your situation. They then proceed to offer certain services for a fee. Most of the time these “special services” you are paying for are FREE, such as negotiating a new payment plan with your lender, working out a forbearance, or lowering your interest rate. These are all things your lender will assist you with at no charge. Be careful giving ANYONE money online that claims they can assist you out of foreclosure. There are dozens of good, non-profit organizations and free counseling agencies that are ready and willing to assist.
6. Short Sale Companies. This is the newest breed of companies to avoid. Here is the bottom line, they make all their money from the fees you pay them at the start of the process. In other words, they have little to no incentive to get your short sale actually accepted and closed.
NOT A SCAM: One of the largest foreclosure assistance programs right now is 888-995-HOPE. This is available to any homeowner in America having trouble paying their mortgage. It is provided free of charge by the Homeownership Preservation Foundation, a nonprofit dedicated to preserving homeownership.
Here are a few things you can do to avoid foreclosure scams…
* DON’T SIGN any papers that you don’t fully understand, or you could make bad matters worse.
* DON’T SIGN any papers that you feel pressured into signing. Take your time.
* DON’T MAKE mortgage payments to anyone other than your lender.
* DON’T SIGN over the deed without some closure or agreement for your protection. Talk to your attorney or title company if you need help.
* DON’T EVER pay anyone who claims to stop foreclosure. You can stop the auction yourself.
CONTINUED….
