ARE YOU FEELING A LITTLE
UPSIDE DOWN?

Throughout Riverside County, the housing market is suffering from an all-time high foreclosure rate resulting from the depreciation of an overinflated housing market. Unfortunately, Canyon Lake is not immune to this downturn of the local real estate market.

The reality of the housing market is simple... It is a challenging market, and the faster we can help a homeowner through these challenging financial conditions, the sooner we can all get back to a normal life.

We believe that many people are needlessly suffering the effects of foreclosure due to a lack of information on how to sell a home when more is owed on the mortgage than the house is worth. A real estate Short-Sale can be a highly useful method of getting a homeowner out of a difficult financial situation.

One of the immediate benefits of a lender approved Short-Sale include postponement of a scheduled Trustee Sale. Also, depending on the lender, relocation funds may be given to the homeowner to help with moving expenses.

We have helped several Canyon Lake homeowners Short-Sale their home and would like to help you if you are considering this option. Just contact us today for a free, no hassle explanation of the Short-Sale process.

We look forward to working with you,

Randy & Denise

Buying SHORT SALES: Are they worth the trouble?

Unlike foreclosures, in which the owner has walked away and the bank is looking to unload a vacant and sometimes, vandalized property, a short sale usually isn't a distressed home that will sell at a rock bottom price. The homeowner is underwater (meaning he owes more on his mortgage than the property is worth), and he has a financial hardship such as a job loss. But to limit the damage to his credit rating, he has agreed to stay in the house and to help sell it, at which point the bank has agreed to eat the loss. According to industry statistics, short sales typically went for nearly 10 percent less than the market price in the first quarter of 2011. (Foreclosures sold at a 35 percent discount.)

What makes the transaction tricky for the buyer is that you're negotiating not only with the homeowner but the bank -- and that creates three big headaches:

1. It takes a long time.
Normally, when you make an offer on a house, you'll hear back within days, or even hours. But banks move very slowly these days because their representatives are overloaded with cases. You might wait 30 to 60 days for a response, perhaps longer if there's a second mortgage on the property and therefore a second bank. The total process can easily take as long as six months from start to finish. For someone moving a family or relocating for a new job,  "that kind of timeline is incredibly difficult."

2. Your offer can't be contingent on selling your current home.
Banks generally won't accept offers on short sales if they're contingent on selling your current house to get the funds you need. Even if the buyer is already under contract, there are just too many things that can go wrong, and then all the dominoes fall. So unless you're a first-time homebuyer, you don't need the equity from your current home, or you're a real estate investor, it's unlikely that you can make a short sale work.

3. It's an "as-is" sale.
Banks also typically won't consider short-sale offers that have inspection contingencies in them. So you can either do your inspection before you make your offer -- which would mean spending $500 to $1,000 on the outside chance that you can make a deal (and less than a quarter of short-sale offers lead to a purchase ) -- or do what most people do, and go without an inspection.

As long as you're prepared for these hurdles, you may just land yourself a bargain. But make sure to work with a veteran Realtor or Broker (like Randy & Denise) because you want someone who knows the ins and outs of the process and can protect your interests throughout the negotiations. And since short sales aren't always identified on the MLS data sheet that buyers see, always ask your agent whether any house is a short sale before bothering to look at it.

Then, if you fall in love with a house that's a short sale, get yourself a mortgage pre-approval -- another short-sale requirement -- and make an offer. Sometimes you can do that without putting down any money, but if the bank requires a deposit, have your Realtor put language in the offer letter stating that if you don't have a response by a certain date (perhaps 60 or 90 days out -- however long you feel like you can wait), you have the option of retracting the offer and getting your deposit back. That gives you an out, just in case.

When the bank finally replies, it will more than likely counter with whatever value its appraiser gives the house. Typically offer them 15 percent less than that and see what happens.

Q. I have a short sale listing and an accepted offer, the trustee sale is scheduled for tomorrow. How can I be sure that the short sale lender will postpone the sale so we can close the short sale? A. "Don't let foreclosure ambush your short sale." I say this because it is imperative that the short sale process begin as early as possible, long before a trustee sale date. In fact, the process should begin prior to default when possible. That said, there is no way to compel or force the short sale lender to delay or postpone the sale date. For the most part, postponements must be requested and authorized at least ten days prior to the posted date of sale. While there may be exceptions, this is the rule of thumb. And remember, you may be negotiating with a servicer NOT the actual investor, so a delay in the communication and approval process may be an impediment. A final comment, any postponement of sale must be in writing, issued by the appropriate department, in order to be binding. Q. I've heard that homeowners who receive short sale approval and forgiveness of debt are exempt from income tax liability, is that true? A. Slow down, you may be headed down a slippery slope. Real estate professionals ought not to give legal, financial or tax advice to their clients. Only the appropriate professional can opine in this area. However, you will find some excellent material on the Internal Revenue Service website www.irs.gov. Taxpayers can obtain information regarding the Mortgage Debt Relief Act of 2007 using the search feature on the site. Within specific parameters there are taxpayers who may be exempt from tax liability after a discharge of debt, but certain criteria must be met. Q. Isn't there a way to speed up the short sale process, it just takes too long? A. This is, without doubt, the number one question!  (i) Incomplete packages submitted with the initial offer tend to create delays. An organized and professional  package and stacking process is imperative. (ii) Often the short sale negotiation process is managed by a servicer or asset manager hired by an investor to service the loan. In these cases, the type of delegated authority assigned to the servicer is critical to the timing of the short sale. If the servicer/asset manager does not have delegation to make a decision, the process is lengthened. (iii) Agreeing to a short sale is a business decision; investors (those who initiated or own the note) perform detailed financial analysis in order to determine the extent of their loss. Staffing and/or procedural weaknesses may be an issue in some cases.  Develop a plan and be ready to meet the demands from the onset. Prepare complete packages; set appropriate buyer and seller expectations; follow up; meet all tasks and deadlines ~ don't give up!

 SHORT SALES: TOP MYTHS DEBUNKED!

Myth #1: The homeowner must fall behind on mortgage payments in order to qualify for a short sale.  

Debunked:  Years ago this may have been true, but not in 2012.  

• A financial hardship must exist, such as the ARM (Adjustable Rate Mortgage) increasing in monthly payments. 
• Loss of job or income.  
• Health or medical issues.
• Extraordinary loss in home value (which may be considered a hardship).

Note: Agents should not advise a homeowner to miss a mortgage payment. 

Myth #2: Banks would rather foreclose on a property than approve a short sale.  

Debunked:  Many still believe this myth to be true, but more accurately, banks would prefer not to foreclose on a property due to the $50-70k it may cost the bank per transaction. Banks lose less money on a short sale than on a foreclosure.  

Note: In California, some lenders may pay owners as much as $25,000 to opt for a short sale. 

Myth #3: Homeowners must be pre-approved by their lender to be eligible for a short sale.

Debunked:  Absolutely not true. By and large, most lenders will consider short sale offers. However, each lender may have unique and specific processes to follow, from listing the home to the acceptance of a short sale. Bypassing any part of this process may result the sale not closing, so be sure to follow each lenders´ processes closely. 

Myth #4: Short sales never close.  

Debunked:  Obviously not true. In some areas of the U.S., nearly 50% of all closings are considered to be "distressed" properties, meaning REOs and short sales. 

Myth #5: Short sales take months (and months) to close.  

Debunked:  The short sale processes must be learned. Once mastered, it may not be uncommon to close a short sale in 30 days.  However, certain idiosyncrasies may slow the process and each lender presents their own unique set of specific challenges. No two short sale transactions are identical. 

Debunked:  In many cases, credit repercussions and deficiency protections are more damaging with a foreclosure. Short sale transactions can often lead to faster financial recovery for the homeowner and should be carefully considered.

Myth #7: Following a short sale, the homeowner will be ineligible to purchase another property for the next 5-7 years.  

Myth #8: After a short sale transaction, the homeowner will receive a 1099 and be forced to declare the loss as income.