SUBPRIME BLUE $$$ MAKES A BUYERS’ MARKET WITH GREAT OPPORTUNITIES IN PRE-FORECLOSURES & FORECLOSURES FOR INVESTORS.
As default rises and hit new records, there is a great opportunity for investors. Foreclosures are booming!
According to the Mortgage Bankers Association, Florida is the second state with more incidence of foreclosures. California, Florida, Nevada and Arizona, together represent more than a third of the Nation’s subprime market and responsible for most of the nationwide increase of foreclosures. It will be worsen in coming months as an estimate of 2 million adjustable rate mortgages with low introductory interest rates will reset to much higher rates. More than 20% of Florida’s mortgages in the last 2 years were made to borrowers with sketchy credit.
In limited special cases lenders offer arrangements to borrowers that get behind in payments. They increase their monthly payments to catch up with the amount that they are in arrears. This agreement between the borrower and their lender is called “forbearance,” and the agreement is usually for just 3-6 month period. This will allow the borrower to catch up the amount in arrears. Usually this does not work, as increasing the payments is not the solution to a person that is already in default in a lower monthly payment. Forbearance tough, delays foreclosure and it will appears as late payments in the borrower credit report, unless the borrower arranges with the lender not to report it as late to the credit bureaus. During the forbearance stage, delaying or missing a payment will immediately trigger foreclosure proceedings.
The foreclosure clock starts ticking once the borrower is in default. A borrower is technically in default one day after a payment is due. However, most lenders do not mail their “Notice of Default,” until 2-3 payments are missed.
At this stage, the smartest thing that a homeowner can do, is to contact an experienced Realtor® to sell the home fast so he/she can get some equity money and could maintain a better credit rating
Pre-foreclosures: is when the homeowner has received a notice of default from the lender. During this period, the homeowner still owns the property, but is behind in payments and the lender is in the initial foreclosure proceedings.
There are 2 different types of clients in Pre-Foreclosure:
- The client with high equity in the property. The best action to take is immediately contact an experienced Realtor®, to sell their home fast, cash out and walk away of their current predicament with cash and with the lesser damage to their credit.
- The client with a current outstanding mortgage balance higher that the property value. The solution for this homeowner is to contact an experienced Realtor®, so he can walk away with the less damage to his/her credit, and the less psychological stigma of being foreclosure.
An experience Realtor® will negotiate a “short sale”, in behalf of the homeowner. As homeowners are usually prevented by law to do so directly with the lender.
What’s a short sale?
When a sale/purchase contract is executed in a property that will not cover the complete mortgage indebt ness, the sales price falls short of what is owed. That’s a short sale. Even though, the lender does not receive the full amount due, such agreement usually nets him more than would be received through an expensive foreclosure procedure.
Note: this type of transaction is considered by the I.R.S. as income as it is a debt forgiven and taxes are due for the amount forgiven. Also a lender in some cases can pursue a borrower for the difference between that amount owed and the amount paid. This difference is known as “deficiency”. An attorney can determine whether a loan qualifies for deficiency judgment or claim. We always recommend sellers to contact their lawyers & C.P.A. before getting involved in a short sale transaction.
All transactions will require specific documentation and negotiation, like:
- Lenders’ agreement.
- Lenders’ letter of authorization
- Preliminary Net sheet
- Letters of hardship
- Proof of Income and Assets
- Copies of bank statements
- Comparative market analysis
- Purchase agreement and listing agreement
- Hud-1 settlement statement
- Supporting documentation.
For the above mention requirements, the best option for a homeowner in this predicament is to contact and experienced Realtor® that only will receive their compensation if the deal goes through.
Waiting for an answer: It takes usually 3-6 weeks, and a lot of follow-up to receive an approval for short sales.
Foreclosures: It’s when lenders take final title in the property. They own the property. Lenders usually use Realtors® to sell their properties. The only thing they want to get is the balance of the debt plus expenses.
Also Government programs as F.H.A. & V.A. foreclosures have their own disposition programs where buyers can only buy through their approved Real Estate brokers.
For buyers now its time to look into this booming foreclosure market:
Statistics from First American Real Estate Solution (a company that specializes in foreclosures that works with Realtors® in specific areas) indicates that if a house foreclosures in a neighborhood, the remaining houses in that area will decrease 5% of its value. If 8% of the houses in a neighborhood foreclosures, the value in that neighborhood will goes down 20%. So these properties are a good buy now, because once the foreclosure is sold the value will reach market value once more.
How foreclosure happens:
- A lender will initiate foreclosure proceedings after a homeowner arises about 3 payments in late payments.
- The house goes up for auction at the local courthouse.
- At the auction, the lender typically sets the opening bid. The lender cannot accept more than what is owed. Any surplus generally goes to the homeowner.
- If the house is not purchased at auction, it is conveyed to the lender.
The lender can then refer the property to an auction house or will use a Real Estate brokerage to market it. The asking price is determined by the lender.