Helping Select Atlanta Homeowners Avoid A Foreclosure

One of the most difficult decisions a homeowner can make is to take action to leave a home they can no longer afford to keep. It is so difficult that most homeowners will freeze like a deer in the headlights - and then get mowed over by the sale of their property on the courthouse steps. Others will list their property for sale - but at such a high price that it will not attract any offers - once again resulting in foreclosure.

In today’s market, it is not uncommon to find many homeowners who do not have sufficient equity to sell their homes at market value - and still be able to pay all the expenses of that sale, which could include repairs, closing costs, and brokerage fees.

There is an alternative for many homeowners who find themselves unable to pay their mortgage - but it requires a proactive approach. It is called the short sale. A short sale occurs when a property is sold and the lender releases their lien for an amount less than what is owed. For this to occur, any secondary lienholders must also agree to release their liens, in most cases for substantially less than what is owed.

For a variety of reasons, not all attempts at a short sale can work. Homeowners who have ample assets will NOT be able to get a short payoff approved.  Second mortgages and other liens on the homeowner’s property - particularly IRS liens - can make the process very difficult to navigate, though not impossible.

One of the primary reasons for selling your home under the terms of a short sale is that you avoid a foreclosure. There’s nothing like the big, black mark of a foreclosure on your credit file… and many candidates for a short sale have otherwise fairly decent credit histories. While you will have some credit damage from late payments, a properly performed short sale will show your debt as paid in full - which preserves a great deal of your credit history that a foreclosure would otherwise destroy.

Another reason is that if you lose your home to foreclosure - and the lender sells the home for less money than you owed - the lender can seek a deficiency judgment against you.

In the past, when your lender accepted a short payoff, you would receive debt forgiveness… often accompanied by IRS form 1099-C showing the forgiveness as taxable income.  Under the Mortgage Forgiveness Debt Relief Act of 2007, taxpayers may exclude debt forgiven on their principal residence if the balance of their loan was less than $2 million. The limit is $1 million for a married person filing a separate return.

So you see - a short sale can be the best path to take when you can no longer afford to keep your home.

Time Is Precious  When Selling Your Home By Short Sale

The biggest mistake you can make is wasting time with an ordinary agent with an unrealistic list price. That is a recipe for disaster! Most agents don’t have  the foggiest idea about how to properly price a property to sell at a price that the lender can be convinced to accept.

Let me rephrase that. Your agent needs to be able to perform a comprehensive Broker Pricing Opinion - as well as take a variety of other factors into consideration - when putting the right price on your property. This price needs to be low enough to attract a buyer - without being unreasonably low, as your lender has to be convinced that your home could not sell for a higher price.

When an initial price has been established, systematic price reductions must be made - usually weekly - until an offer is presented. Keep in mind that as a homeowner who is seeking to sell by short sale - you are on a runaway train heading for the proverbial washed out bridge. You have a very limited amount of time to present an offer to your lender, so first and foremost - you need an offer. Without an offer,  you have nothing - as it is difficult to convince the lender to refrain from proceeding with the foreclosure without one.

Once an offer has been made and accepted, your agent will prepare the short sale package (or will contract a company to prepare the package for them) and then begin negotiations with your lender and any other lienholders.

This is a strange twist for many agents, because at this point - your agent becomes an advocate for the buyer. Your agent is working to get the buyer the property at the price s/he has agreed to pay… because a short sale at ANY price is in your best interest. Your agent has to convince your lender  (and any other lienholders) that the short sale is in their best interest, too.

Since you can not receive any money from any party when doing a short sale, the sale is the ultimate goal - not the price.

Be Wary Of The Tsunami Of Offers To Help In Your Mailbox

When your lender serves you with a Notice Of Default, your mailbox will be stuffed full with offers to "help". Most of these "offers" are nothing more than buzzards trying to profit from your misery. Many will offer to give you some "walking away money" in return for you signing your home over to them. Others will offer - for a fee - to bring your mortgage current and lease your home back to you.

It wouldn’t be so bad if the offers were only given by mail - but these people are relentless… and many of them will come to your home - often several times - in their quest to "help".

I won’t say that ALL of these offers are scams, but I will say that MOST of the people making these offers are nothing more  than vultures preying on the unfortunate. There are countless instances of these people talking homeowners into signing over their deeds, offering to take over their payments -  but the homes were still foreclosed, as the "helpers" did not make any payments or bring the mortgages current as promised.

To best protect your interests, you should only allow licensed professionals to assist you - not just anyone with a business card and some fast talk. You can sell your home by short sale with no out-of-pocket expenses on your part, as your lienholders will pay a reduced brokerage fee to those professionals who can perform a successful short sale.

When Is The Best Time To Get Started?

If you have missed a mortgage payment or two, and you do not have a realistic plan to bring your mortgage current - you need to act NOW. Time is not on your side.

Most lenders will not serve you with a Notice of Default until you are at least three months behind, so this extra time will be welcome in building your case for a short sale. Your agent will have more time to establish the true market value of your property and obtain an acceptable offer.

Over the last few years, I have referred potential short sale homeowners to other agents with mixed results. I now have a better idea of who the ideal candidate is for these types of transactions - and a better idea of how to prepare the short sale package for the lender and other lienholders. I am now able to refer these clients to other agents while personally assisting with the short sale package.

If you need some advice regarding your short sale in the greater Atlanta area, feel free to call me at 770-935-4045.

As always, if you have any questions regarding real estate in the greater Atlanta area, feel free to contact me here.

Consumer Alerts, Foreclosures, Mortgages, Tips For Sellers, Trends | No Comments »

Good Advice Can Be In Short Supply When Selling Your Home

It is becoming a frequent occurence that I find sellers who could have used some good advice when listing their properties for sale. Today I found an extreme example that I thought I would share with you.

This 1025 SF single family home built in 1960 was purchased in 2004 for $52,500 - apparently as investment property. In May 2007, the owner decided to sell the property - and listed it with an experienced agent for $114,900. This agent not only accepted a severely overpriced listing - he never uploaded pictures to the listing service.

In 94 days, the listing expired - and the seller listed the property in October 2007 for $72,000 with a different agent and agency. During the next 309 days, the price was reduced to $52,000 before the listing was withdrawn because the property had been foreclosed.

Shortly after the foreclosure, the property was listed for $14,250, and even with this ridiculously low price - it still took 37days before the property went under contract for a final sales price of $12,500. It closed on October 31, 2008.

While I was not consulted on this particular listing, I have had the opportunity to consult with many other sellers who found themselves in similar situations. Since the goal is to sell the property at the highest possible price - listing the property at a price that will attract a buyer is essential. Without a marketable list price - a sale is highly unlikely.

In our example above, the seller should have acknowledged the falling market and priced the property aggressively to ensure the sale.The initial price was the dream price from watching too much "Flip This House" on TV. The second agent was successful at getting a more reasonable price… but not a more marketable one. By chasing the market down, the seller was assured of helping everyone else sell their properties… not his.

I have been warning sellers about the softening Atlanta market since 2005 - and am often unsuccessful at convincing sellers to list their homes at prices that reflect current market conditions. Since I have no control over price, all I can do is refuse to list or extend a listing if the seller will not be reasonable.

A few days ago, I spoke with a previous client who told me that she wished she had taken my advice on pricing when I had her home  listed a few years ago. If she had done so, then she would have sold her home and downsized into a smaller, less expensive home as she had planned. Instead, she chose to let her listing expire,as she didn’t want to sell at a lower price.

Since then, she has watched the property values in her neighborhood plummet… and she now has a even bigger dilemma - her husband lost his job.

As it stands, her mortgage payments and other bills will wipe out her savings in a few months, as her retirement-aged husband is not likely to find another job paying anywhere near the $100K he had been earning. For her, hindsight is 20/20.

When taking a listing, I always provide the best pricing advice that I can to my clients… but ultimately, the price is the client’s call. Most of the time, my experience and instinct is correct - but sometimes the client is right, and I respect that. Although we can’t recapture the first few weeks of a new listing, we can always lower the price if we don’t get an appropriate response.

If you need to sell, be sure to ask a price that can be supported in today’s market - because anything more than that could spell disaster for you.

As always, if you have any questions regarding real estate in the greater Atlanta area, feel free to contact me here.
 

Foreclosures, Investment Properties, Tips For Sellers, Trends | 3 Comments »

Likely To Be A Year Of Few Winners And Many Losers

The housing slump - which led to the financial crisis - is likely to get worse across the country… and the Atlanta real estate market will not be immune. While Atlanta does have a diverse workforce, our economy is going through a silent shakedown that will rear its ugly head in the housing market.

Ultimately, housing must be affordable. In the past ten years, we have experienced  unprecedented growth in the number of large, luxurious homes priced in the $400-600K range that were built in the greater Atlanta area. Many agents, myself included, who did NOT push their clients into expensive homes by using unconventional financing, often wondered where all of these buyers were coming from - and what kind of jobs they had that allowed them to buy these homes. After all, the median household income for the area is around $55K per year.

We all know that many of these homes were purchased using ‘liar loans’ which required no income or asset verification… and often had artificially low payments for the first few years. As these loans began to reset to higher interest rates and corresponding payments - the house of cards began to fall. Having no other choice, buyers have been fleeing and the banks (and their investors) have been left holding the proverbial bag.

With many of these foreclosed homes on the market, the prices for these homes have dropped to below the actual cost to build - thus putting many builders into bankruptcy… thus fueling the cycle for even lower prices.

Since housing is such a large component of the U.S. economy, it is no surprise that the housing slump has adversely affected the economy. When a weak economy was met with an enormous spike in oil prices - the damage spread to the auto makers. While the U.S. economy is resilient enough to handle a downturn in either of these industries - it can not handle a downturn in both of them.

With recessionary fears in the minds of the public, consumer spending has been curbed - which further fuels the downward spiral. And as consumer spending is reduced, so is business income - and the revenue required to maintain the current employment levels of most companies. And with a recession at hand - many potential buyers are afraid to commit to making a housing purchase, thus softening the market even further.

A few days ago, I was talking to a client who is a member of  many Human Resources groups here in Atlanta. He told me that many companies are not only laying off workers that they do not need - they are firing many high-paid employees so that they can refill those positions with lower-cost workers. He mentioned a few examples, such as a software salesman who had been earning over $100K a year for the last ten years has now replaced with someone who will do the job for $60K.

That displaced worker will not likely find a job that pays as well as his previous one, so eventually his house will be on the market - competing with all the other foreclosures of similar homes. If he had equity in his home, the market has probably taken most of that away - and if not, he probably won’t be able to sell it anyway. Count him in the mass of future foreclosures yet to come in 2009.

I spoke with another previous client whose management position had just been eliminated from his place of employment. He recently refinanced his home to pay down credit cards… and now has no equity in his home. Faced with no income - and the likelihood that he will not find a job making over $100K a year - it is likely that his home will be foreclosed. It’s just a matter of time.

What this means is that the glut of homes that were built in this $400-600K range is going to remain - thus depressing prices in that price range for the next few years. That’s good news if you can afford to pick up these outstanding values - but bad news if you need to sell.

It also means that the demand for lower-cost housing is going to increase substantially. Homes in the $150-200K range are stabilizing, as the demand for rental properties in this range remains strong. That’s great news for those who are considering moving up into a nicer home, as they can more easily rent out their existing home than sell it in today’s market.

So the winners in 2009 will be the buyers, no doubt. Right now, they can pick up homes for well-under the cost to construct them while financing them at historically low interest rates. The losers will be those who bought what they could not afford; the builders who built what they could not sell; and the banks that can not recoup their investments on the courthouse steps.

As always, if you have any questions regarding real estate in the greater Atlanta area, feel free to contact me here.

Custom Homes, Foreclosures, Trends | 4 Comments »