What is Strategic Default in Real Estate?

strategic defaultConsciously or knowingly ceasing to make mortgage payments is called strategic default. There are many people that knowingly stop paying the mortgage because they cannot afford to continue to do so, and there are others that opt to stop because they believe that this might accelerate their short sale or their loan modification.

Borrowers need to understand the consequences of their actions. Late mortgage payments impact your credit score and thus, they also impact your future ability to borrow.

The Home Affordable Foreclosure Alternatives (HAFA) program has specific guidelines, which often allow for a short sale when the borrower is current on the mortgage. Additionally, short sales can be completed for short sale sellers that have not missed a single mortgage payment. For more information on the HAFA program, visit www.MakingHomeAffordable.com

Some homeowners also stop making their Home Owners Association (HOA) payments. This can often be a short sale deal killer. Short sale lenders do not like to pay the seller’s unpaid HOA balance and often will only allocate a small amount of money for HOA document and transfer fees. Most experts advise short sale sellers to continue to pay the HOA dues whenever possible.

Whether to continue to make the mortgage payments or HOA dues is a personal decision that can only be made by the borrower. Understanding the consequences of the late payments can often help to make a more informed decision.

Source: http://www.ShortSaleExpeditor.com
For previous articles, visit www.SonjaBush.com

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Distressed Sales in Mammoth Lakes

There are distressed sales in almost every market.   Before we look at Mammoth Lakes specifically, bank ownedit is important to understand the definition of distressed sale.

A distressed sale in real estate is defined as the urgent need to sell property when the owner can no longer make the mortgage payments.  He/she must sell the property immediately to pay off the mortgage, even if it involves losing money on the property.  There are two primary types of distressed sales:

Foreclosure:  A situation in which a mortgage lender takes possession of the property because the borrower  has not made payments on interest or principal for a certain period of time.

Short Sale:  An agreement between a mortgage borrower in distress and the lender that allows the borrower to sell the house and remit the proceeds to the lender.  A short sale is an alternative to foreclosure or a deed in lieu of foreclosure.

Foreclosure-related sales are on the decline but distressed sales continue to claim a “disproportionately high portion” of total home sales across the country, according to RealtyTrac’s most recent foreclosure and short sales report. The firm also found increases in prices for distressed properties in 2012.

Distressed property sales made up 43 percent of all home sales nationwide in 2012, according to RealtyTrac. Foreclosure-related sales made up 21 percent of all sales, while non-foreclosure short sales made up 22 percent of sales. Together, foreclosure and REO sales decreased 6 percent from 2011 with a total of 947,995 sales over the year in 2012.

Here in Mammoth Lakes, in 2012 distressed property sales made up 41 percent of all home sales.  Foreclosure sales made up 15 percent of all sales and short sales were 26 percent.

A qualified licensed real estate agent can provide information on available distressed sales.  Often the lender has special requirements for buyers and although there are some “good deals,” patience is a virtue when dealing with distressed sales.

For previous articles, visit www.SonjaBush.com

What are the chances of buying real estate again after a foreclosure?

The answer to this question does not have any clear cut and dry answer.  There are quite a few variables involved when trying to figure out when someone will be able to purchase a home after a foreclosure or short sale.  Much will depend on the circumstances that led you to foreclose; generally it can take anywhere from two to seven years.  Of course it also depends on how you have maintained your credit AFTER the foreclosure.   According to most lenders, you will need to re-establish a credit score of at least 580 to qualify.  My suggestion is to contact a reputable and knowledgeable lender or mortgage broker.  They can review your current situation and offer advice and services on repairing  your credit.  Also, there are many on-line resources that can help you take the right steps.  Some services are free and others charge a monthly/annual fee (try doing a Google search then check for feedback on the provider).

Finally, consider asking your real estate agent for properties where seller financing is available.  Often buyers may benefit from less stringent qualifying and loan payment requirements and more flexible rates on a home that otherwise might be out of reach.  These loans are often short term with the idea that within a few years, the home will have gained enough in value or the buyers’ financial situation will have improved enough that they can refinance with a traditional lender.

Sonja Bush

Broker Associate – DRE #01904399

                       

The Village at Mammoth

661.979.9000 cell

sonja@sonjabush.com

www.mammothvillageproperties.com

What is the difference between a short sale and foreclosure?

Whether you’re a seller in the middle of a real estate problem or you’re searching real estate listings as a potential buyer, it’s important to know the difference between a foreclosure and a short sale. Foreclosure is a far worse fate than a short sale if you are the seller, but as a buyer of a distressed property, a short sale is often the more difficult process to wade through.

A property that has been foreclosed on means the owner was not able to make the monthly payments for a certain amount of time and the lender has taken control of the property. If not sold at auction, foreclosure property is simply owned by the lender, often called REOs or real estate-owned properties. In either case, the seller is taken out of the equation and the buyer only negotiates with the bank /lender.

You can stop a foreclosure by considering a short sale. Don’t be fooled by the name, the process of a buying a short sale property can be a long one. Once the seller accepts an offer, he sends it to the lender for approval. Even if a seller accepts the offer, the lender’s approval is the one that matters and that can take time. More paperwork is involved in a short sale than a regular sale, or even a foreclosure.  Use a realtor who is knowledgeable in short sales, as there are many nuances to completing a short sale successfully.

With both foreclosure and short sales, the sellers credit is affected negatively. According to MyFico.com for a foreclosure, you can expect your FICO score to drop by as such as 200 and for a short sale at least 75 points.  Both types of default are considered as “not paid as agreed.”  There are also tax consequences to consider with both options – check with your accountant.

Sonja Bush

Broker Associate – DRE #01904399

                       

The Village at Mammoth

661.979.9000 cell

sonja@sonjabush.com

www.mammothvillageproperties.com