Posted by: Catherine Myers | January 27, 2008

Alternative to Short Sale and Foreclosure

Yes, there are a few alternatives.  Loan modifications could be helpful to a great many, but reports from several of our clients say its not as easy as that.  Many banks are simply saying “sorry.”   In fact, some of our clients could actually now afford their homes they’re in  . . . say they bought for 650,000, and now their adjustable loan continues to adjust right out of their financial reach, as an example.  Well, NOW that same house is worth 350,000 and with the conforming loan rates where they are now, they could actually afford to buy their home back, well, that is if they weren’t already in it.  What a situation. 

Well, there may be another option for a few homeowners.  If you owe close to what you can sell your house for (admittedly rare in many areas now), think about a lease option / equity share arrangement. 

What if someone took over your payments?  They could get the tax advantages of homeownership, you would get out from under your payments without a credit damaging short sale or foreclosure and then in 3-5 years, the house sells, and you split whatever equity has accumulated (assuming the market comes back in 3-5 years).   That is a bit of a simplified view, but that’s the gist. 

Yes, taking over someone’s payments is more expensive than a traditional lease.  But you are getting tax benefits (check with your accountant) and you are earning equity - not something you can do in a traditional lease.  And since most 80/20 and 100% loan programs are gone or very restrictive, its a way to get into homeownership without a down payment, and without the rigors of bank qualifying.  Yes you’d still have to qualify as a “renter” but it is often more forgiving than a bank in some situations.

Here’s one equity share option we have available.  This is a home that could sell around $725,000. Located in the newer Windemere neighborhood of San Ramon.  You could take over these payments for about the same amount it would cost you to go out and get 100% financing on this property (if that were still available that is).  Check it out:  Equity Share / Lease Option in San Ramon

So, its an idea.. something that could work for some.  Buyers with challenges, it could be an opportunity. 

REMEMBER a short sale is not the answer for all.  And in some cases, can yield some very damaging results (recourse, taxes, judgements, bad credit, etc) .  Foreclosure may also yield some big surprises later - do you have more than one loan? Remember, only one loan is typically foreclosed upon…  if your first foreclosed… do you know your 2nd can still go after you? Always work with professionals in negotiating a short sale.  An experienced short sale specialist may be able to negotiate out some of these unfortunate surprises. Please ALWAYS check with an attorney and/or an accountant as a short sale is not for everyone, and a foreclosure may not be the end of your problems. 

Home buyers: Looking to buy now? Looking to jump into buying a foreclosure or short sale? Contact Catherine Myers 925-683-2125 or Terry Osburn 925-381-9944 to see one of these homes or to explore other short sale, REO or pre-foreclosure opportunity homes. We can help you buy and have the experience you need with the banks.

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Responses

We can’t afford to pay the taxes on the 1099 from a short sale or deed back. Is there any options if you are low income? We did have a cash out refinance so we don’t qualify for debt forgiveness act. We are very scared of how low the house may sell for in a deed back situation. Please, help. Any advice welcomed.

By: erin young on February 6, 2008
at 8:30 am

I purchased a house with another party, who is unrelated to me. The other partyis no longer living at our shared residence and is in bk. In addition, the other party is homesteading a previoulsy purchased condo.

I am living soley in the house we purchased together and I’m making the mortgage payments and the payments on the line of credit. Recently, the bank told me I might be able to do a short sell on the line of credit, the house has depreciated 40k, and the co-borrower is in bk protection.

I’m not interested in selling the property, and I’m only looking at a short sell on the line of credit (aprox 80k) and keepitg the mortgage in-tact. The bank (equity loan department) almost made it sound easy, what is the bank (equity loan department)not telling me that I need to know?

How do I find or determine who or what skilled short sale expert is?

Thanks

By: Dianne on March 4, 2008
at 7:47 am

It’s not going to be a short sale. It is possible.
If you saw Bernanke on the news today he suggested lenders might want to reduce principal. This is what your bank is proposing. It’s not at all common.

Here’s an excellent blog article:
http://calculatedrisk.blogspot.com/2008/03/bernanke-to-lenders-reduce-principal.html

The truth is that while some people might make it shttp://www.patagoniafinance.com/mikesmortgageminute.htmlound easy, they are not the ones who you will be negotiating with.

You will have to present a very strong case for the lender to consider this. In part here’s how you will need to present the case.

Prior to the modification or reduction: If they do not modify, it is certain that you will become foreclosed upon. The house will become an REO. The home will need considerable rehab in order to sell. Woe is me!

After they modify or reduce:
You will be financially fit and strong. They will never have to worry about you paying late, ever!

Not only do you have to prove both sides of the case beyond a shadow of a doubt…
But you also need to find the one loss mitigator in the company that knows what you want, can do what you need, and isn’t completely buried under piles of other files. Good luck on that part.

I was talking to a loss mitigator the other day who worked for a mid sized bank. She said she receives around 100 new files a day. Wonder how your file got lost? They look for any little reason they can to put your file on the back burner (some of them call it the circular file of no return).

The bottom line is this. They can do that.
It may seem to be an insurmountable task on your end but it is possible. Of course it is still up to the lender.

I hope that helps.
MM

By: Mike Mueller on March 4, 2008
at 7:18 pm

Hi MM,

Very astute of Bernanke, excellent article, and excellent points, actually my position exactly. And there is definitely a need for a “strong case build”. I think I have some very compelling reasons why the bank should consider reducing the principle on the line, and some pretty compelling reasons why the bank should stick with me moving forward. However, that does not mean the bank will see it that way. So, at the very least I do think I need some guidance, or at least some “overview”. I reside in So Cal, so the same situation, just a little different demographic.

What are my possible resources? Anything online relating to the presentation to the bank? An attorney? An accountant? A short-sale negotiator?

At the outset of this real estate purchase, I realized the risk, and I actively began planning and implementing the strategy to be able to ride out possible negative impacts. However, I planned for a “we” instead of just me.

Thanks

By: Dianne on March 5, 2008
at 7:40 am

Hi Dianne, you are actually conversing with one of the best short sale negotiators there are … MM (above) negotiates on behalf of many of our clients and does a fabulous job. Due to the nature of his work, he can work with clients thru-out our state and in the nation too. You can find him and more information about what he does at http://www.suburban-renewal.com/

Good luck!

Catherine Myers, REALTOR
http://contracostashortsales.wordpress.com
http://contracostaforeclosures.wordpress.com

By: Catherine Myers on March 5, 2008
at 9:51 am

thank you!

By: Dianne on March 5, 2008
at 1:33 pm

A hundred new files a day is a bit of an overstatement. I know because I have been there it seems like they are getting that many but the only way that could happen if they were an opener and not a negotiator. Negotiators get about 3 to 5 files a day, Seems manageable but the reality is in a prime workout there are many things that need to happen. On a mod a file has to have a BPO, title report and in some instances approval from an investor if not delegated. A good negotiator can push about 60 files out a month to be a top producer, hence the bottleneck in the industry. I know that was my job at one of the nations largest lenders. Principal reduction is a reality and was getting kicked off when I was leaving the industry to start my own mitigation. A principal reduction has been done for some time now ie. a short sale but the industry is changing and we help homeowner set their financial to be able to get the reduction on a workout.

By: Loss Mitigation on March 22, 2008
at 5:03 am

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