The Stage is Set For Luxury & Higher Price Short Sales

"More than four months after the Obama administration launched its housing rescue plan, scores of lenders are focused on rewriting mortgage loans to make them more affordable.

But one demographic is being largely ignored: homeowners with higher-price loans.

They don't qualify for mortgage modifications under the Obama plan. They can't get today's low interest rates if they try to refinance. And with newly cautious lenders warier about who they lend to, just try to sell a home that costs $730,000 or more these days. In many cases, finding a buyer who can get financing takes far longer than for lower-price homes, because banks want as much as 30% down and six months of mortgage payments in reserve.

The result is a housing market in which sales and purchases of higher-price homes have come almost to a standstill, and it's a predicament that could undermine the housing recovery. Move-up buyers (homeowners who want to buy larger, pricier homes) are getting locked out by lack of financing. Too many unsold homes in the top tier of the market also can push down prices for homes in the midprice range."  Excerpt USA Today 7-17-09

To view your particular market, Click on the link below:

Troubled Jumbo Loans in 370 Markets

The real estate market is so vulnerable to market conditions that the upper end market is now heading to the same place that the low and medium priced properties are starting to recover from. High inventory, low demand and difficult financing conditions. Lenders are fully aware of this and the biggest difference with the most expensive properties are that they are even harder to sell, more expensive to maintain if the lender does foreclose and more vulnerable to vandalism, deterioration and declining values than smaller homes.

If one follows the motivation for a lender to accept a short sale versus a foreclosure, the logic remains the same or greater in the higher end. The amount of the loan is not the issue, the amount of the loss attempting to be mitigated is the ruling force. Personal assets, additional properties, tax consequences are all considerations, but they are in smaller transactions also. 

If you would like to discuss the possibilities for a short sale on your property, CONTACT MICHAEL. Even if you are not in my immediate market, as a Member of the CDPE organization, I am able to locate a Certified Expert in your marketplace and put you in touch with them!

There are benefits for all parties involved. A short sale process  allows the seller to potentially avoid the credit report damage associated with a foreclosure. A foreclosure can stay on your credit report for up to 10 years and can take an emotional and financial toll on you and your family. For the lender, it provides an orderly and predictable strategy without the additional time and expense of a foreclosure action.

But the pitfalls of the short sale process should be considered as well. The I.R.S. may consider any debt forgiveness as taxable income, thus resulting in a tax liability. Legislation has recently been enacted to exclude owner occupants from this liability, but you will need to talk with your tax advisor to determine how the potential tax consequences will pertain to your individual circumstance. IRS Debt Forgiveness Link

In addition, lenders can often pursue a borrower for the deficiency balance (the difference between the amount owed and the amount paid). in most CDPE transactions, this will be a part of the negotiations with the lender and releases from further action can often be obtained. Unsecured promissory notes are also a common remedy to address this shortfall with each borrowers situation and resolution being different depending on the lenders involved and the circumstances of the transaction.

 To understand how the process works, you might find this informative

The Short Sale Process

The short sale process can vary, but it will generally work as follows:

1) The homeowner will meet with an individual to review their situation and seek assistance in requesting a short sale. A Certified Distress Property Expert or real estate agent with experience in short sales will know the criteria required to obtain approval and begin to collect it. This information will all become part of what is known as the "THE PACKAGE". A marketing and pricing strategy will be decided and if possible, the home will be placed on the market. 

2) The agent will request the seller to issue a letter authorizing the release of personal information about the loan and the property to the agent so that contact with the lender and the agent can be established and placed in the file to allow the agent to present offers and maintain contact with the lender. Example of Authorization Letter

3) As the property is marketed according to the agreed to strategy, THE PACKAGE will continue to be prepared and needs to be the priority. This will include a "hardship letter," which will detail and explain all financial difficulties as well as the seller’s financial situation including bank statements, investment accounts, paystubs and other financial records often including the last 2 years of tax returns. 

It is essential that THE PACKAGE be ready to submit as soon as an acceptable offer is received. The transaction will require the lender to accept 10's to 100's of thousands of dollars less than the face amount of the debt and THE PACKAGE  is the story that supports the request for that consideration. The last part of THE PACKAGE will be the purchase agreement and HUD (Net sheet to the lender), pricing research and a Broker Price Opinion to support the purchase agreement, marketing history of the listing and it will normally approach 100 pages of information.