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Consider deed-in-lieu before a foreclosure, but a Short sale for sure.

by Elite Asset Management Team

 

What are the pros and cons of a deed-in-lieu and foreclosure?

A deed-in-lieu is where you give the deed to your house to your lender and the lender does not foreclose. Thus, the concept "in lieu," meaning "instead of."

The pros of a deed-in-lieu include unloading your property with little hassle; not having to suffer the embarrassment of having the sheriff hold a foreclosure auction right on your front porch (which is the practice in many parts of the country); and you can reach agreement with your lender in advance as to how much money (if any) you will have to pay the lender.

In many deed-in-lieu arrangements, while the lender will agree to take the house back and cancel your loan, sometimes it comes at a cost, i.e., you will have to pay something for this. Compare this to a foreclosure, where you won't know what the house will sell for, and in many states, like New Mexico, you can be sued for the difference between what you owe and what the house sold for (called a deficiency judgment).

One more positive: Congress just extended the "forgiveness of debt" law for 2013, so in many situations you will not have to pay tax on the debt that was forgiven when the lender took the deed-in-lieu.

Compared to a foreclosure, I cannot think of any negatives by doing a deed-in-lieu. However, if a short sale is at all possible, I would opt to go that route instead of giving the deed to your lender. But whether you lose your house by way of a foreclosure or a deed-in-lieu, or enter into a short sale, your credit will be  impacted.

The Reality of Short Sales

by Elite Asset Management Team

4 Signs that a Short Sale is right for your buyer

Today, everyone wants a deal.  In fact, many real estate buyers expect them in today’s market.  In order to get the best “deal” consumers are looking at the distressed and short sale market for their best opportunity.

Unfortunately, short sales are not the best buys for every house hunter.  Pete Veres, CDPE, Certified Distressed Property Expert says "Our responsibility as agents is to spot the signals and understand the key aspects of a short sale to determine if our clients should pursue purchasing this type of property or focus on a non-distressed deal". We also need to qualify the listing agent to make sure they are experienced and certified in short sales.

Here a few signs to help you find out if a short sale can work for your buyer-clients:

1. Your buyers aren’t working against a clock

Sean Hellmann, CDPE agent says "The phrase “short sales “is an oxymoron".  Short sales are short because the bank is taking a, sometimes significant, loss and allowing the borrower to transfer the property without the credit and legal implications of a foreclosure.

If your client needs a house tomorrow, short sale properties should be as far away from their radar as possible.  Consumers who can afford a 3-6 month waiting period from the time they write their offer to get a bank approval or denial are much better suited for a short sale.

Timeframes vary from state to state, lending institution, and type of loan; but there will be a wait in almost all cases.  If your client has time on their hands and an interim place to live, a short sale may be a great option. Those buyers have a leg up on other consumers who will forgo looking at short sales because of the time frame for approval.  Less competition equals a lower sales price. It’s a supply and demand principle.  If they have the time, they may save some money but that’s if the home will actually make it to closing. Many things can come up to prevent the sale from actually taking place. A perfect example is the home being foreclosed prior to the close date.

2. Your buyers like change and surprises.

Short sales purchasers cannot be averse to change.  This type of transaction is all about change and surprises.  Rigid, type-A personality clients are usually not the best candidates for purchasing a short sale.

There is no rhyme or reason for short sale approval/ denial sometimes.  The banks make decisions that they feel are in their best interest, sometimes ask for the same form multiple times, and in some cases will send you contradictory forms.

In addition, there are a variety of things that can go wrong and cause you to have to restart the short sale process in the middle of negotiations. These include the bank selling the lien to another loan servicer after the short sale is initiated, policy and regulation changes, and many other changes you can’t predict until you’re working on the transaction. We have also seen the loan servicing company transfer the loan and most recently lately loan companies being bought out. Great example is the Nationstar buyout of Aurora Loans. This means you have to start the process all over from the start.

A short sale purchaser has to be change tolerant to change (I like this better) and willing to work with the system when change arises.  Flexibility is a virtue when involved in this type of transaction.

3. Your buyers are willing and have the funds to renovate.

Short sales may seem cheaper to purchase than most traditional sales and foreclosures, but there is one very important caveat for the purchaser to consider; repairs will be on them.  That’s right; most short sales are sold “as-is.” Also note that the banks will not pay for inspections, appraisal fee’s and also limit some of the closing costs. This results in more out of pocket costs for the buyer.

Many short sales carry the condition that the seller can’t invest any more money into the property.  That means, buyers who have loans that require repairs be made before the loan can be issued shouldn’t shop for a short sale.  FHA and VA loan products are good examples of loans that may require repairs before lending. This could mean extra out of pocket costs.

In these cases, if the purchaser or seller bank is unwilling or unable to make the repairs, the deal could be dead.

For buyers with loans that don’t have the repair requirement, it comes down to willpower (?).  If your buyer client is squeamish about cosmetic issues or a little construction dust, he or she probably isn’t a good candidate for a short sale.

4. Your buyers are willing to wait for a return

A good deal today could mean great profit tomorrow, but “tomorrow” is a figurative term in the world of short sales.  Gone are the days of accruing 32 percent price appreciation in 6 months.  Purchasing real estate is a long-term investment of at least 5 years.  The more focused on the long-term bottom-line a short sale purchaser is, the more likely they will enjoy the outcome of the transaction and future profits.

Short sale purchasers need to be able to examine the dollars and cents of the property and determine if they are truly getting a bargain.  They may be paying more for the short sale, in the long run, than had they purchased a traditional property

Making sure your buyer clients are good candidates for a short sale property is very important.  If they are willing to wait for bank approval, are not averse to change, willing to make repairs to the property, and can keep the long term bottom-line as a top priority, you are more likely going to have a successful transaction.

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Elite Asset Management
RE/MAX SELECT
8300 Carmel Ave. NE Ste. 203
Albuquerque NM 87122
(505)362-2005

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