What is a Short Sale?
You will likely come across dozens of properties in foreclosure with little or no equity, that is, the seller owes at close to or more than the property is worth. In these situations, lenders are sometimes willing to accept less than the full amount due, commonly referred to a “short pay” or “short sale.”
Negotiating a short sale with the lender is a difficult process, generally because it is a daunting task finding a bank officer who has the authority to accept a discount. You will have to call around to locate the lender’s “Loss Mitigation Department”. More than likely, each lender you deal with will have a separate name for this department, so be patient when calling. Much like getting your phone bill corrected, you can expect the process to involve a lot of waiting on hold and being bounced around an intricate maze of automated voice mail systems. Once you get in touch with the right person, then the negotiating begins.
From the lender’s perspective, a short sale saves many of the costs associated with the foreclosure process - attorney fee’s, the eviction process, delays from borrower bankruptcy, damage to the property, costs associated with resale, etc. In a short sale scenario, the lender gets the property back faster, so it is able to cut its losses. Your job as the investor is to convince the lender that it will fare better by accepting less money now.
The lender will want some information about the property, the borrower and the deal he has made with you. Specifically, the lender wants to know what the property is worth. The lender will generally hire a local real estate broker or appraiser to evaluate the property (called a broker’s price opinion or “BPO”). You can also submit your own appraisal or comparable sales information. In addition you will want to offer as much specific negative information about the property as possible. Also, include some relevant information about the neighborhood and the local economy if things are bad (copies of newspaper articles with “bad news” may help). A contract’s bid for repair estimates should also be submitted, which, of course, should be the highest bid you can obtain!
The lender will also ask for financial information about the borrower. Sort of a backwards loan application, the borrower must prove that he is broke and unable to afford the payments. The borrower must show that he has no other source of income or assets to repay the loan. This process may involve as much, if not more paperwork than an original mortgage application! The borrower should submit a “hardship letter”, which is basically a sob story about how much financial trouble the borrower is in. This may require a little literary creativity, and some help on your part. Don’t lie, just paint a picture that doesn’t look good.
Finally, the lender generally wants to see a written contract between you and the seller. The lender wants to make sure the seller isn’t walking away with any cash from the deal. Generally, the contract must be written so that the buyer pays all costs associated with the transaction, so that the “net cash” to the seller is the exact amount of the short pay to the lender. A preliminary HUD-1 settlement statement is often requested, which can be difficult, since many title and escrow companies simple won’t prepare one in advance of closing. You can prepare your own HUD-1, and simply write “preliminary” on the top.
Don’t be surprised if your first short sale bid is rejected. Lenders aren’t emotionally attached to their properties, so they aren’t as likely to give you steal. Many short sales fall through if the BPO comes in too high, which is often the case. You can’t pull the wool over a lender’s eyes – if the property isn’t is need of serious repair, it is unlikely you can convince the lender the property is worth a whole lot less than the appraised value.
The process of the short sale is not that complicated, but the success or failure of the deal depends upon how you present it to the lender. Many novice investors and realtors give up at short sales quickly because their first deal is rejected. Like any business, short sales takes practice to get good. Generally speaking, loss mitigators are pretty good at spotting an amateur investor. If you know what you are doing, the loss mitigators are more likely to make a deal with you. If you would like to put your San Diego home on the market, but owe more than it is worth, then a request to your bank for a short pay off, may be what you need. Please call me for more Orange County Home & market information at: 949-521-3512, or email me at CaCoastalProperties@gmail.com
Monday, October 27, 2008
Sunday, October 26, 2008
Foreclosures add to tight rental market, Mercury News
Lupe Parga and her family must find a house to rent, and soon. In late June, the 4-bedroom home she and her husband owned in San Jose's Evergreen neighborhood was foreclosed upon. Parga, her husband, their four kids and Parga's sister's family are all still living there while seeking a rental that can hold both families. Meanwhile, they're trying to stave off eviction from their former property.
"It's really hard. Things are just getting rented right away," said Parga, an accountant who was recently laid off from her job with a janitorial services company.
Parga said she's applied for about a dozen rentals in the area since July, and is prepared to pay about $3,500 a month for a house with at least four bedrooms. But she's had no success yet.
Record numbers of Silicon Valley homeowners have been foreclosed upon this year, and most must seek rental housing once they leave their homes. If tenant-occupied houses are in foreclosure, tenants nearly always get evicted, pushing them into the rental market again. And many renters who could afford to buy homes size up the bleak economy and opt not to take on mortgages and home ownership.
The result: It's a competitive market for those seeking reasonably priced rentals, and it's a pretty good time to be a landlord.
"The rental market has definitely become tighter in the sense that rents are going up," said Martin Eichner of Project Sentinel in Sunnyvale, an organization that provides landlord-tenant dispute resolution services, as well as foreclosure prevention help. Average apartment rents rose 5.2 percent in Santa Clara County in the third quarter, to $1,708 a month, according to RealFacts, a Marin County firm that measures average monthly rents for all types of units in complexes of at least 50 units.
But rent increases in the third quarter were not as steep as in the second quarter, a sign of the softening economy. And RealFacts said apartment complexes were 95.6 percent full in the July-to-September quarter, down from 96.7 percent a year earlier.
One reason apartment occupancy rates are slipping is that more single-family houses are coming onto the market as rentals, said Joshua Howard, executive director of the local division of the California Apartment Association. Some of those houses are previous foreclosures that were purchased by investors.
"That's providing competition to multi-unit buildings," Howard said. "The rental housing economy has more options available right now."
Michelle Harris, for example, owns a two-bedroom house near Interstate 280 at the north edge of San Jose's Willow Glen neighborhood. While she was fixing it up to rent in July, she placed an ad online, asking for monthly rent of $1,800. The volume of responses, and the aggressive tactics of some of the applicants, told her she'd set the rent too low, Harris wrote in an e-mail to the Mercury News. Because of renovation delays, she didn't rent the house out until September. By then she'd set the rent at $2,300, and still had a list of qualified tenants from which to choose.
"Everyone I showed the house to told me about the tight rental market," Harris said. In the end, she chose a couple who had damaged credit because they had gone through foreclosure. "But I could tell they were good tenants so I let them have the house," she said.
Ron Stern, owner of the rental listings subscription service Bay Rentals, said most of the local landlords who list with him "are not too drastically raising rents because they know the economic situation out there won't support that." And, he said, many landlords are more averse to pets than they are to foreclosures on tenants' records — as long as the tenants have not completely ruined their credit by falling behind on all their other debts as well.
Along with economic uncertainty, high gas prices have affected the rental market, Howard said. Members of his apartment industry trade group report that tenants are less willing to live far from their jobs than in years past, and would rather share housing close to their work than pay the high price of commuting. In addition, some apartment managers say all their two-bedroom units are occupied, but not one-bedrooms, indicating that more renters want to economize, splitting the rent with a roommate.
Despite slightly increased vacancy rates at apartment complexes, the market remains very tough for renters like Lupe Parga, with poor credit and the need to move soon. Parga said she will keep searching for a rental house in the Evergreen area, so her children can stay at the schools they now attend. She said she'll be sorry to leave her house, which she and her husband bought from her grandmother for nearly $800,000 in early 2006. Its value has fallen to about $600,000 this year. Even with family members' help, they couldn't afford the payments on their adjustable-rate mortgage, and they fell into foreclosure. They have stalled eviction by trying to find family members who would buy the house back from their lender. But eviction could occur anytime now.
Having foreclosure on her credit record has been "a huge setback" when seeking to rent, she said. "Seeing the way things are, you'd think people would be a little more lenient. "... I'm sure there's a lot of people in this situation." To find rentals in South Orange County Ca, just call Deborah at: 949-521-3512 or go to my site to search yourself at: Search Orange County Rentals Yourself!!
"It's really hard. Things are just getting rented right away," said Parga, an accountant who was recently laid off from her job with a janitorial services company.
Parga said she's applied for about a dozen rentals in the area since July, and is prepared to pay about $3,500 a month for a house with at least four bedrooms. But she's had no success yet.
Record numbers of Silicon Valley homeowners have been foreclosed upon this year, and most must seek rental housing once they leave their homes. If tenant-occupied houses are in foreclosure, tenants nearly always get evicted, pushing them into the rental market again. And many renters who could afford to buy homes size up the bleak economy and opt not to take on mortgages and home ownership.
The result: It's a competitive market for those seeking reasonably priced rentals, and it's a pretty good time to be a landlord.
"The rental market has definitely become tighter in the sense that rents are going up," said Martin Eichner of Project Sentinel in Sunnyvale, an organization that provides landlord-tenant dispute resolution services, as well as foreclosure prevention help. Average apartment rents rose 5.2 percent in Santa Clara County in the third quarter, to $1,708 a month, according to RealFacts, a Marin County firm that measures average monthly rents for all types of units in complexes of at least 50 units.
But rent increases in the third quarter were not as steep as in the second quarter, a sign of the softening economy. And RealFacts said apartment complexes were 95.6 percent full in the July-to-September quarter, down from 96.7 percent a year earlier.
One reason apartment occupancy rates are slipping is that more single-family houses are coming onto the market as rentals, said Joshua Howard, executive director of the local division of the California Apartment Association. Some of those houses are previous foreclosures that were purchased by investors.
"That's providing competition to multi-unit buildings," Howard said. "The rental housing economy has more options available right now."
Michelle Harris, for example, owns a two-bedroom house near Interstate 280 at the north edge of San Jose's Willow Glen neighborhood. While she was fixing it up to rent in July, she placed an ad online, asking for monthly rent of $1,800. The volume of responses, and the aggressive tactics of some of the applicants, told her she'd set the rent too low, Harris wrote in an e-mail to the Mercury News. Because of renovation delays, she didn't rent the house out until September. By then she'd set the rent at $2,300, and still had a list of qualified tenants from which to choose.
"Everyone I showed the house to told me about the tight rental market," Harris said. In the end, she chose a couple who had damaged credit because they had gone through foreclosure. "But I could tell they were good tenants so I let them have the house," she said.
Ron Stern, owner of the rental listings subscription service Bay Rentals, said most of the local landlords who list with him "are not too drastically raising rents because they know the economic situation out there won't support that." And, he said, many landlords are more averse to pets than they are to foreclosures on tenants' records — as long as the tenants have not completely ruined their credit by falling behind on all their other debts as well.
Along with economic uncertainty, high gas prices have affected the rental market, Howard said. Members of his apartment industry trade group report that tenants are less willing to live far from their jobs than in years past, and would rather share housing close to their work than pay the high price of commuting. In addition, some apartment managers say all their two-bedroom units are occupied, but not one-bedrooms, indicating that more renters want to economize, splitting the rent with a roommate.
Despite slightly increased vacancy rates at apartment complexes, the market remains very tough for renters like Lupe Parga, with poor credit and the need to move soon. Parga said she will keep searching for a rental house in the Evergreen area, so her children can stay at the schools they now attend. She said she'll be sorry to leave her house, which she and her husband bought from her grandmother for nearly $800,000 in early 2006. Its value has fallen to about $600,000 this year. Even with family members' help, they couldn't afford the payments on their adjustable-rate mortgage, and they fell into foreclosure. They have stalled eviction by trying to find family members who would buy the house back from their lender. But eviction could occur anytime now.
Having foreclosure on her credit record has been "a huge setback" when seeking to rent, she said. "Seeing the way things are, you'd think people would be a little more lenient. "... I'm sure there's a lot of people in this situation." To find rentals in South Orange County Ca, just call Deborah at: 949-521-3512 or go to my site to search yourself at: Search Orange County Rentals Yourself!!
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