Update for 2012: Short sales and foreclosures are still a significant portion of the Los Angeles and San Fernando Valley real estate market. It takes short sales a long time to be approved/closed. Foreclosure property sales usually are completed more quickly.
Defaults, Short Sales and Foreclosures: Information and Resources
Considering a short sale or foreclosure in Burbank, Studio City, Toluca Lake or other east San Fernando Valley communities? It wasn't that long ago when short sales and foreclosures weren't on the real estate market's radar. Alas, times have changed. Here are some things to know, some definitions, and hopefully some options for you. Be sure to check this page often; as the market evolves, I will post updates.
First things first for buyers: short sales and foreclosures have been a significant part (30% or more) of the home inventory in Burbank, Toluca Lake, Studio City and other L.A. and San Fernando Valley communities for the past few years. However, it's not necessarily easy to purchase a short sale. Banks and loan servicers are not heavily discounting these properties. Call me and I'll walk you through how the process works. Two "musts" for potential short sale buyers:
- Please be patient. Short sales are still taking months to get approved by the mortgage-holding banks.
- Don't even think about attempting to purchase a foreclosure or short sale until you are completely pre-approved and can furnish (high) FICO scores and proof of funds to close.
First things first for home owners/sellers: Sometimes, home ownership is no longer a good choice. Financial reverses can happen to anybody. With the creation and sale of risky mortgages, some home owners find they can no longer afford what once seemed possible. Life changes, such as job transfer, divorce, etc. also impact your home ownership situation. If this has happened to you, and you are a home owner in Burbank, Toluca Lake, Studio City, Hollywood Hills, or other Los Angeles-area and San Fernando Valley communities, here are some definitions, ideas and a few tips that might help you. Of course, it's always a good idea to contact your attorney or tax professional for advice.
Contact your mortgage servicer about modifying your mortgage and reducing your payments. You can also ask for an extension of time or a temporary reduction in your payments. (See the HAMP program, below.)
Consider renting a room in your home, if you have one, to help you meet your payments.
Consider making a move to less expensive living quarters and renting out your entire home. This will work if the rent you get equals your monthly home expenses (mortgage, insurance, and taxes).
Refinance. Interest rates are low and you may find your payments are lower. You will need to have equity in your home in order to do this, though. Please contact me if you'd like to talk this over.
Short Sale Definition
This is when the owner/seller owes more money on the property than it can be sold for. Many times (but by no means always), in situations like these, the bank will allow a "short sale" for a lower amount than what is actually owed on the loan. (Your lender's fpreference may be to modify your loan terms.) How is this superior to the foreclosure process? Simple. It can help to preserve your credit rating. You'll also become "credit worthy" again sooner than you will for a foreclosure. And, in most cases, there are no longer negative tax implications for the seller for such "debt forgiveness." If you are a seller and want to sell your house through the short sale process, don't wait. Please contact me when you can no longer regularly make your payments and before the Notice of Default (defined above) is filed. It can take awhile for your lender to approve a loan modification or short sale, and by the time it does, a foreclosure process may have already begun. Here's how to get started:
- Even if you have already done so for a loan modification, gather your financial documentation for submission to your lender. This includes recent tax returns, recent pay stubs, recent bank statements, etc.
-Then, contact me for a confidential consultation. Yes, I can help you decide if you can go for a loan modification rather than going straight to a short sale. I will also prepare a comparative market analysis, so we will know how much you can likely sell your home for.
- Prepare your home the best you can for sale, and get it on the market.
If a short sale does not work, the next option is to let your house go to:
This is when the bank takes your house back, and you need to find other housing accomodations. It can take a bank six months or more to foreclose. However, here's a bit of good news: with the new HAMP and HAFA rules, lenders' preference will be to keep you in your house through loan modification. If that doesn't work, the other options are deed-in-lieu (call me for a definition) or a short sale. Once again, please contact me if I can help you or advise you in any way.
Hopefully, our current climate of increased short sales and foreclosures will pass soon. For the latest news on the current local market, you may wish to check out my blog at sfvrealestate.blogspot.com
Home Affordable Foreclosure Alternatives Program (HAFA)
Have you heard about the HAFA (Home Affordable Foreclosure Alternatives) program? The program revamps the short sale market. In 2009, the Treasury Department introduced the HAFA program to provide a viable short sale option for homeowners who are unable to keep their homes through loan modification -- the Home Affordable Modification Program (HAMP). The goal is to reduce the number of foreclosures by incentivizing banks to pursue short sales instead of foreclosures. The HAFA program took effect on April 5, 2010, although not all lenders participated right away. It sunsets on December 31, 2012. And yes, the devil will be in the details.
Here are some of the differences between HAFA and the way short sales have been previously handled by lenders and borrowers.
- Uses borrower financial and hardship information already collected in connection with consideration of a loan modification. A borrower will no longer have to submit a second package if they have already submitted a complete first package.
- Allows borrowers to receive pre-approved short sales terms before listing the property (including the minimum acceptable net proceeds). This is huge for both the borrower and the real estate agent as we´ll now know the minimum the bank will accept.
- Requires borrowers to be fully released from future liability for the first mortgage debt (no cash contribution, promissory note, or deficiency judgment is allowed).
- Uses standardized documents, processes and timeframes/deadlines. There should be no difference now between the way, say, BofA handles a short sale as versus Wells Fargo.
- Mortgage servicers are required to make a preliminary decision regarding allowing the short sale within 15 days of receiving a borrower´s completed package! We´ll see if the lenders institute enough internal procedures to guarantee that this holds up. If it does, it will be so helpful for everybody concerned.
- Provides the following financial incentives:
- $3,000 for borrower relocation assistance;
- $1,500 for servicers to cover administrative and processing costs;
- Up to $2,000 for investors who allow a total of up to $6,000 in short sale proceeds to be distributed to subordinate lien holders, on a one-for-three matching basis. In other words, the Treasury will match one dollar to each two dollars the first mortgagor gives the second mortgagor, up to $6,000. However, 2nd mortgages are still "the elephant in the room."
- Requires loan servicers participating in HAMP (the loan modification program) to implement HAFA in accordance with their own policy and investor guidelines. (Remember, the lender´s main concern is not the borrower. It is the lender´s investor.) What constitutes investor guidelines? It includes factors like total potential loss, local market conditions, timing of foreclosure actions, etc.
Here are a couple of links that you may find useful:
Home Affordable Foreclosures Alternatives Program: Guidelines and Forms
Need a laugh about all of this? Check out the Blood Sucking Vampire Realtor video either here on my YouTube page or visit my blog at http://sfvrealestate.blogspot.com!
Once again, please contact me if I can help you in any way with your short sale or foreclosure properties.