Massachusetts Real Estate News » Foreclosure/Bank Owned

Credit Scoring Impacts Short Sale vs Foreclosure

Bill Gassett — Tue, 11 Oct 2011 11:29:42 +0000

It is probably safe to assume that most consumers like to work with folks they know can be trusted. In Real Estate, like some other businesses there are those that can always be counted on for delivering great advice and others that only care about their own pocket book.

I always tell people some of the best Real Estate agents are those that don’t NEED to make a sale! It makes perfect sense because an agent that NEEDS business is far more likely to tell a buyer or seller something they want to hear rather than the truth.

Short sales unfortunately are a specialized Real Estate transaction where information is often times bandied about with no basis of fact. Many Realtors blindly go around telling people in financial distress that a short sale is better for their financial future because their credit score will not be impacted like going through a foreclosure.

Folks this could not be further from the truth! While there are certainly advantages of pursuing a short sale vs foreclosure, credit scoring is NOT one of them. There will be plenty of Realtors that will read this and argue with me telling me I am wrong.

As a Realtor who is tech savvy and social media connected you will see many of my articles in places such as Linkedin, Twitter and other Real Estate forums.

They will see some of my short sale articles and flat out tell me that I have incorrect information. When I mention the credit scoring impact of a short sale compared to a foreclosure is just about the same they scowl in disbelief. They will tell me I don’t know what I am talking about because they just learned differently at some short sale course their local Real Estate board was putting on. At this point I will be laughing because the people that teach these courses are usually Realtors that couldn’t make it in the business. They teach this nonsense because it is propaganda that helps get Realtors more business.

By now you are probably thinking how do I know the credit scoring impact is similar in these two financially stressful events. You have every right to be wondering! I know because I go right to the source. My FICO is the governing body for credit scoring including what happens in both a short sale and foreclosure.

Short sale vs foreclosure credit scoring impacts

Since I am often getting challenged on the credit scoring impacts by other Realtors and get asked all the time by my clients, I am going to share a very interesting study that was conducted by Fair Issac corporation.

The FICO study took various types of mortgage delinquencies on three credit bureau profiles of consumers that had scores of 680, 720 and 780, respectively. The study focused on consumers whose credit characteristics (e.g., utilization, delinquency history, age of file) were typical of the three score points considered. All of the consumers had an active currently-paid-as-agreed mortgage on file.

Results of this credit scoring study are shown below. The first chart shows the impact on the credit score for each stage of delinquency and the second shows how long it takes the score to fully “recover” after the fact including a short sale or foreclosure.

What you can easily see by this study is that there is a negligible difference in credit scoring when comparing a foreclosure or short sale. While it seems unfair, those that had a higher credit score to start will see a greater scoring drop. In addition, the higher starting score, the longer it takes for the score to fully recover.

While there is a minimal difference in scoring impact between moderate and severe delinquencies, there may be a significant difference in time required for the score to recover completely.

These statistics are right from the guys that make credit scoring. They are not opinions. This is actual data that was put together and sourced by FICO themselves.

Benefits of a short sale vs foreclosure

So what are the benefits of going through a short sale rather than letting a lender foreclose on your property? The biggest advantage is that you will be able to buy another home in the future a lot quicker than you would with a foreclosure. Generally speaking the turnaround time for getting another loan after completing a short sale is two to three years. In a foreclosure it is typically five to seven years. There are a number of circumstances that can affect the time frame including whether the loan is FHA, Fannie Mae or Freddie Mac. For a complete financing guide see buying a home after short sale or foreclosure.

One of the other big factors you need to consider is your employment status. There are a number of large companies that will not hire a new employee that has a foreclosure on their resume. While this may not seem fair with all the financial turmoil that has taken place over the last five years, employers look at a foreclosure as a black mark on your record. In other words when you short sale a property you are owing up to a financial commitment. In a foreclosure you are walking away and taking no responsibility for your debt.

The last reason why more and more will choose a short sale over a foreclosure is just the sheer embarrassment of going through a foreclosure proceeding. In some states an auction is held right on the front lawn of the property. Who wants to lose their home and then have salt rubbed in the wound by watching a bunch of buyers compete over it. This is an unsettling experience for most.

The goal of almost anyone that goes through a short sale or foreclosure will be to improve their financial stability moving forward. Of course improving the impact a short sale or foreclosure had on their credit scores will typically be one of the first areas that people look at once they are back on their feet. There are certain things you can do to help fix your finances after a short sale or foreclosure that are covered in this helpful article.

Unfortunately, sometimes people just don’t realize they have options and just lose their home to foreclosure. Many have never taken the time to do any research and just assume there are no alternatives. A short sale can be a great alternative for some home owners – best of luck if you are one of them!

If you are need to short sale your home or condo in Ashland, Bellingham, Framingham, Franklin, Grafton, Holden, Holliston, Hopedale, Hopkinton, Medway, Mendon, Millbury, Milford, Southboro, Westboro, Natick, Northboro, Northbridge, Whitinsville, Upton, Uxbridge, Shrewsbury, Sutton, or Worcester get in touch! I would love to interview for the chance to represent your short sale transaction.

I am successfully completing short sales through out the Metrowest Massachusetts and Worcester County areas. So far, knock on wood, I have a 100% success rate for short sale approval! Short sales are difficult transactions that are critical to have the right Realtor representing you. Do not make the mistake of picking a Real Estate agent that does not have experience closing short sale transactions.

If you are outside of the Metrowest/Worcester Massachusetts area and need to do a short sale please feel free to contact me and I would be happy to refer you to a Realtor in your location that handles short sales and knows what they are doing! I have referred short sales to other Realtors all around the country.

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About the author: The above Real Estate information on Credit scoring impacts of short sale vs foreclosure was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-435-5356. Bill has helped people move in and out of many Metrowest towns for the last 25+ Years.

Thinking of selling your home? I have a passion for Real Estate and love to share my marketing expertise!

I service the following towns in Metrowest MA: Ashland, Bellingham, Blackstone, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Natick, Northboro, Northbridge, Shrewsbury, Southboro, Sutton, Wayland, Westboro, Whitinsville, Worcester, Upton and Uxbridge MA.

Fixing Your Finances After Foreclosure or Short Sale

Bill Gassett — Mon, 15 Aug 2011 11:30:48 +0000

There are not many things that can negatively impact your credit score more than a foreclosure or short sale. In fact one of the more common untruths you will hear from many Realtors is that short sales don’t impact your credit scores like foreclosures do. This is absolutely WRONG!

If you fail to pay your mortgage during a short sale the credit score impact will be nearly identical to a foreclosure according to My FICO the governing body for credit scoring.

Being a Realtor myself for the last twenty five years it does not surprise me when I hear this misinformation being spewed in person or around the internet. Some Real Estate agents will paint a short sale as your ticket to the promised land and a foreclosure as a ticket to financial misery for the rest of your life.

They do this of course because they want you to list the property with them as a short sale. A true Real Estate professional should be going over all possible financial options with you and not just looking to put money in their wallet.

There are of course advantages to doing a short sale but a better credit score is not one of them unless you are able to complete a short sale without missing mortgage payments. The sad truth is that most but not all of the time a lender is not going to grant short sale approval unless you are behind in your mortgage payments. From a lender’s perspective if you are able to continue paying your mortgage why should they grant you a short sale?

The advantages of a short sale vs a foreclosure center around the time you will be able to purchase a home again in the future. You will be able to buy a home after completing a short sale much quicker than a foreclosure.

For a complete breakdown of how quickly you can get financing after both of these events see getting a mortgage after short sale or foreclosure. If you can show extenuating circumstances of why you had to do a short sale or lost your home to foreclosure you may be able to get a loan sooner. Some of the acceptable hardships that could factor into a lenders decision are divorce, loss of a job and unexpected medical expenses.

Another advantage of a short sale is how future employers, as well as other types of creditors look at you in the future. Having a foreclosure on your resume is not something an employer is going to look at favorably. In a short sale you have at least attempted to live up to your debt and not just walk away.

Owning a home again after a foreclosure/short sale

Work on increasing your credit score

One of the most important steps you can take to getting back into the home ownership arena after a foreclosure is to work on increasing your credit scores. This article provides some excellent tips on building back your credit score as quickly as possible. There is no doubt that building your credit score after a foreclosure or short sale is a difficult task. On average you can expect your score to drop between 150-200 points so you will have a lot of work to do!

Two or the most important things you can do to raise your score is to pay your bills on time and keep your credit card bills below the maximum levels.

Keep your employment stable

One of the things lenders look for with borrowers especially after a short sale or foreclosure is employment stability. Unless you have the opportunity to move into a position that offers a much higher pay you will be better off sticking with the job you have. The lender is going to want to see you are grounded with work and not changing jobs.

Rebuild your savings after foreclosure

Lenders are also going to want to see that you have squirreled away some money. Working on saving any extra money so that your nest egg is built back up becomes important. A six month reserve is a safe bet to show lenders that you have a fall back plan should you happen to become unemployed.

Owning a home again after short sale or foreclosure is certainly achievable is you work diligently towards getting your financial house in order!

Buying a Home After Short Sale or Foreclosure

Bill Gassett — Mon, 21 Mar 2011 11:43:23 +0000

As a Realtor who has been heavily involved closing Massachusetts short sales over the last five years, one of the questions that I get asked quite often from home sellers is how long will it take before I will be able to buy a home again.

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.

Going through either a short sale or a foreclosure has the potential to seriously impact ones credit. Government entities Fannie Mae, Freddie Mac and FHA do not directly loan money to individuals but are the governing body that work with lenders to guarantee loans and free up money to provide mortgages.

Banks typically have the authority to lend to whoever they want but will generally follow the guidelines set forth by these entities. There are some lenders of course that will take greater risks with some borrowers than others.

Below are the general guidelines that FHA, Fannie Mae and Freddie Mac follow when considering a loan after a short sale or foreclosure:

Short sale with FHA Loan

Can purchase right away with no mortgage default
3 year wait if in default at the closing
Reduced wait if the borrower has re-established good credit and can show extenuating circumstances

Short Sale With Fannie Mae Loan

2 year wait if the borrower puts 20 % down
4 year wait if the borrower puts between 10% to 20% down
7 year wait if the borrower puts less than 10% down
2 year wait if the borrower can show extenuating circumstances and puts more than 10% down

Short Sale with Freddie Mac Loan

4 year wait before being able to get a loan
2 year wait if the borrower can show extenuating circumstances

Foreclosure with an FHA Loan

3 year wait before being able to get a loan
Reduced wait if the borrower can show extenuating circumstances and re-establishes good credit

Foreclosure with a Fannie Mae Loan

7 year wait from the completed foreclosure sale date
3 year wait if the borrower can show extenuating circumstances. Additional underwriting requirements apply for 4 years after a 3 year waiting period.
7 year wait for a 2nd home, cash out re-financing, or an investment property

Foreclosure with a Freddie Mac Loan

5 year wait from the completed foreclosure sale date
3 year wait if the borrower can show extenuating circumstances

** As a side note a deed in lieu of foreclosure follows the same guidelines as FHA’s foreclosure policy, the same as Fannie Mae and Freddie Macs short sale policy.

When analyzing the difference between completing a short sale or going through a foreclosure in regards to purchasing another property in the future it boils down to the waiting time which is more favorable in a short sale.

Credit Scoring After Short Sale and Foreclosure

The other question that I get from folks considering a short sale is how it will impact their credit. There is a lot of misleading information that come from Realtors, as well as online forums about the impact on credit scores. On many occasions you will hear that a short sale is far better for your credit than getting foreclosed on. This is incorrect! A credit score in a short sale or a foreclosure have the potential to be about the same. Maybe marginally better in a short sale.

According to Fair Issac (My FICO) a company that provides analytic, decision making, and credit scoring services for financial service companies a credit score will go down by 40 to 110 points after being 30 days late. Further, the scoring drop will increase to 70 to 135 points after 90 days late on a mortgage payment.

The average scoring drop in a short sale, foreclosure or deed in lieu is 85 to 160 points. You need to keep in mind that in both short sales and foreclosure it is possible that the credit score drop could be closer to 200-300 points.

Credit scoring factors vary from individual to individual. The scoring change is heavily dependent on where the credit score was before the negative event took place. Both a short sale and foreclosure are considered a loan that was not paid as agreed.

What happens to your credit score in each of these events could be different than someone else who goes through the same financial event. Unfortunately, most of the time the higher the credit score the greater the decrease from where you started.

When trying to decide whether a short sale is right for you don’t be fooled into making the decision under false hopes that your credit will not be impacted all that much. The biggest advantage in a short sale is the shortened time frame in which you will be able to purchase a home in the future.

One of the most important steps after going through either a short sale or foreclosure is to be conscious about trying to improve your credit standing. Here are some excellent tips on how to increase a credit score.

*** The above information for waiting periods before buying a home after completing a short sale and foreclosure was sourced by the Fannie Mae and Freddie Mac selling guides along with the FHA handbook.

Lenders Choosing to Foreclose Instead of Short Sale Approval

Bill Gassett — Mon, 07 Feb 2011 13:08:14 +0000

Why would a lender foreclosure instead of approving a short sale?

As a Massachusetts Realtor who deals with short sale transactions on a daily basis, I have seen and learned quite a bit since I started getting involved with these types of transactions four years ago.

One thing that I am extremely proud of is the fact that every short sale that I have listed has received short sale approval from the lender. This is no small feat, as nationally the success rate for completing a successful short sale in less than 30%.

I certainly can not take all the credit as the attorney I work with does all of the grunt work with the lender. The short sale law firm I use does outstanding work. My job in a short sale is the same as with any home I am marketing….get it SOLD! This means finding a buyer who will pay something in the ball park of market value and be willing to wait the time it takes to get short sale approval which is typically longer than a regular transaction.

Of course part of getting a short sale to the closing table is knowing how to follow proper procedures. The are plenty of Realtors getting involved with short sales who are completely clueless but see it as a money making opportunity and are willing to put a seller’s financial future at risk for their own potential gain.

Here are a few mistakes that I see repeated over and over again by Real Estate agents that don’t know any better:

Realtors® submitting multiple unsigned offers to the lender.
Realtors® submitting low ball offers to the lender.
Realtors® allowing home inspection contingencies after short sale approval.
Realtors® allowing an investor to negotiate the short sale.

For a complete explanation of each of these issues and why you don’t want any of them to happen to you see short sale lawsuits against Realtors.

Then again there are some Realtors who do in fact understand the short sale game and how to successfully navigate the waters. Short sales that have more than one lien holder tend to be slightly more difficult to get done than ones where there is only one lender involved. When there are multiple lenders involved you need approval from both in order for the sale to take place.

While I have yet to have this happen (knock on wood) I know of other Realtors who seemingly have had a situation where a 2nd lien holder has chosen to foreclose instead of granting short sale approval.

The scenario goes like this…. a home is on the market for $300,000 and is being marketed as a short sale. There is a 1st mortgage on the property for $310,000 and a 2nd mortgage for $50,000. The seller has lost his job and can no longer afford to pay the mortgage so he chooses to short sell his property.

A buyer comes along and makes an offer for $290,000 which is accepted by the seller and sent to the 1st and 2nd lien holders. After a period of time the 1st lien holder orders an appraisal to verify market value and after doing their due diligence determines that $290,000 is well within the acceptable limits of market value. During the negotiation process the 2nd lien holder is offered $5000 in order to approve the short sale and allow the sale to take place.

The lender digs in their heals and says NO. They will not accept the short sale payoff of $5000. The Realtor involved says why not? They go on to argue with the lender that if you allow this to go to foreclosure you will get NOTHING as the home is worth far less than the $360,000 mortgage balance.

The lender does not bend and says we don’t care we are going to foreclose. Folks this is a real world scenario that happens everyday in the world of short sales.

What remains to be seen is whether or not the lender is going to get nothing. The answer is probably NO. More than likely one of the following scenarios will have taken place:

The 2nd lien holder has a loss sharing arrangement with the FDIC that will allow them to collect substantially more than the amount offered by the first lien holder under the short sale scenario.
Unbeknown to the homeowner, the second lien holder has bought insurance against the default. The lender will now collect on that insurance. Depending on the terms, this may not have been possible if they agreed to a short sale.
The homeowner’s loan with the lender was full recourse and they intend to pursue him for the deficiency and/or sell that right to a collection agency.
There are tax advantages to the lender that far outweigh the offer of $5000 that they received from the 1st lien holder.
Any or all of the above!

The above situation is why it is imperative to have a great short sale negotiator on your side. Of course there are times that it will be impossible to make the deal work but in many cases the skill of the negotiator can find a middle ground with the 2nd lien holder.

Click on the links below to see other important information related to completing a Massachusetts Short Sale:

If you are need to short sale your home or condo in Ashland, Bellingham, Framingham, Franklin, Grafton, Holliston, Hopedale, Hopkinton, Medway, Mendon, Milford, Southboro, Westboro, Natick, Northboro, Northbridge, Whitinsville, Upton, Uxbridge, Shrewsbury, Worcester, or Douglas Get in touch! I would love to interview for the chance to represent your best interests.

I am successfully completing short sales through out the Metrowest Massachusetts and Worcester County areas. So far, knock on wood, I have a 100% success rate for short sale approval!

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About the author: The above Real Estate information on Lenders choosing foreclosure over short sale approval was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-435-5356. Bill has helped people move in and out of many Metrowest towns for the last 24+ Years.

Thinking of selling your home? I have a passion for Real Estate and love to share my marketing expertise!

Stopping a Foreclosure Via a Short Sale

Bill Gassett — Thu, 07 Oct 2010 11:37:25 +0000

Avoiding a Massachusetts Foreclosure

Foreclosure is something that most people want to avoid at all costs. Nobody sets out to own a home and then see it taken back by the lender. Across the country this has become a common theme as ten’s of thousands of people are losing their homes due to an economy that has not been this poor since the great depression. Like other states, Massachusetts has their fair share of foreclosures.

In these tough economic times there are many contributing factors on why someone could fall victim to the inability to pay a mortgage. These include but are not limited to job loss, reduction in income, mounting credit card debt, an increase in mortgage payments, an illness, or a divorce.

In Massachusetts there are areas where property values have dropped 30% or more since the Real Estate market peaked in 2005. Some Massachusetts home owners have found themselves so under water that they just throw in the towel and walk away from the property lock stock and barrel.

In fact there are a percentage of borrowers that still have the ability to pay their mortgage yet decide they just do not want to own the home anymore.When a Massachusetts home owner can afford to pay their mortgage yet feels the need to abandon the home it is what’s known as a strategic foreclosure or default. Fannie Mae the giant mortgage backer for many loans has taken the initiative to come down hard on these folks walking away by not allowing them to procure financing for up to seven years!

People that decide to strategically default generally are looking at it as a business decision. The theory is that it will take years for their homes market value to recover to anywhere near where they paid. Instead they walk away from the property and start fresh.

What I have realized in talking to many people who have come under financial strain is that they don’t realize they have options besides letting the lender foreclose.

The alternative that I have been tremendously successful with is helping owners complete a short sale of their property. In a Massachusetts short sale the lender allows a home owner who owes more than their home is worth to take less than the amount owed at closing.

You may be thinking why would a lender want to allow a short sale? There are a number of reasons, most importantly the cost involved for the lender proceeding with a foreclosure. The mortgage holder when all is said and done can easily spend $40,000-$50,000 going through a foreclosure. A short sale can save the lender money they would otherwise lose. With a short sale there is a buyer in place and on many occasions the owner is still in the home maintaining the property until closing.

Massachusetts Short sale vs loan modification

What about a loan modification instead of a short sale? There are also many people that I meet on a monthly basis that would love to stay in their home and not move at all but can’t afford to stay in the home without it becoming more affordable. There is usually some valid reason the home has become a financial burden such as a pay cut or job loss by one of the spouses. Home owners that wish to stay are often times requesting the lender modify the terms of their loan to make it more affordable.

The Obama Administration instituted a program called the Making Home Affordable Program which includes opportunities to modify or refinance your mortgage to make ones monthly payments more affordable. The problem is that the program has not been nearly successful as hoped. There are numerous folks who have tried to get loan modifications only to be turned away by their lender.

Some of the guidelines for the loan modification include the following:

Mortgages for single-family properties that are worth more than $729,750 are excluded from the provisions of the loan mod bill. For two families the amount is $934,200. For three families the amount is $1,129,250 and for four families the amount is $1,403,400.
Interest rates can be lowered to a minimum of 2 percent and then if necessary, the term of the loan can be extended to a maximum of 40 years.
The home must be the owners primary residence and verified as such with a tax return, credit report, and other documentation such as a utility bill. The home may not be an investor-owned property.
The home can not be vacant or be condemned.
Borrowers must provide their most recent tax return and two pay stubs, as well as an “affidavit of financial hardship” to be qualified.
A Borrower who is in bankruptcy are not automatically eliminated from consideration for a modification in this program.
Borrowers in active litigation regarding the mortgage loan can qualify for a modification without waiving their legal rights.
Borrowers are only allowed to have their loans modified once and eligibility only applies for loans made on Jan. 1, 2009 or earlier.
Incentives are provided to extinguish second liens on loans modified under the Obama re-finance program.
Homeowners are eligible for up to $1,000 of principal reduction payments each year for up to five years.

There are many folks that I speak with who seemingly meet the above criteria yet are turned away for a loan modification forcing them into other alternatives. When a loan modification is not possible the next best alternative remains a short sale.

Stopping a Massachusetts foreclosure should be the goal of any home owner who cares about their financial credit and the ability to get a loan in the future. The effects on ones credit from going through a foreclosure can be devastating!

Recently I have found a lot more home owners are getting foreclosure notices before they start thinking about a short sale. This of course makes it more difficult to get one done but certainly not impossible. In fact I have been involved in transactions where I have gotten the foreclosure postponed when the auction date was only two weeks away. This of course is not ideal. If you see financial problems ahead that you know are not going to change, you should really be actively thinking about initiating a short sale.

Once you become committed that you are going to short sale your Massachusetts home it is highly advisable that you work with a short sale specialist who is knowledgeable, honorable and someone you can trust! There are an abundance of Realtors that have begun to take short sale listings that have no experience what so ever completing a short sale transaction.

I would encourage you to do your home work when selecting a Massachusetts short sale Realtor to work with. Short sales are complex transactions that require an in depth knowledge. Some of the key considerations include short sale tax consequences and short sale debt removal. When you are trying to complete a short sale it is not advisable that you hire your mothers sisters boyfriends cousin because you heard they were a great person!

The success rate nationally is less than 30% for completing short sale. Don’t make this mistake – HIRE A PRO!

If you are needing to complete a short sale of your home or condo in Ashland, Bellingham, Framingham, Franklin, Grafton, Holliston, Hopedale, Medway, Mendon, Milford, Hopkinton, Southboro, Westboro, Natick, Northboro, Northbridge, Whitinsville, Upton, Uxbridge, Shrewsbury, Worcester, or Douglas Get in touch! I would love to interview for the chance to represent your best interests.

I am successfully completing short sales through out the Metrowest Massachusetts area. As of this writing over the last three plus years, knock on wood, I have a 100% success rate for short sale approval! I work hand in hand with a local short sale Real Estate attorney who knows how to get short sales done! I will admit there is some luck involved in my success rate but the team I have put together does a stellar job.

If you are outside of the Metrowest Massachusetts area or even in another state and need to do a short sale please feel free to contact me and I would be happy to refer you to a Realtor in your location that handles short sales and knows what they are doing! I have referred short sales to other Realtors all around the country.

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About the author: The above Real Estate information on stopping a Massachusetts foreclosure via a short sale was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-435-5356. Bill has helped people move in and out of many Metrowest towns for the last 24+ Years.

Thinking of selling your home? I have a passion for Real Estate and love to share my marketing expertise!

Buying a Massachusetts Foreclosure Property

Bill Gassett — Tue, 20 Jul 2010 11:39:41 +0000

Are you considering buying a Massachusetts foreclosure property? Investors that have a long term perspective of the Real Estate market understand that purchasing a bank foreclosure can be an excellent financial proposition. In the Metrowest Massachusetts area there are plenty of them around and they can typically be bought at a discount to the present market value.

Buying a Massachusetts foreclosed home however, is not for the timid at heart and there are many things that buyers need to consider. If you have ever watched a late night infomercial you would think that buying a foreclosed home for 50 cents on the dollar and immediately re-selling it for a boat load on money is automatic. Don’t plan on it!

Foreclosed homes generally can be purchased anywhere from 5%-20% below the current market value. Along with the chance for immediate equity comes a lot more risk. As a buyer of a foreclosed home, you should be preparing yourself for a significant amount of due diligence.

Having been in the Real Estate industry for the past twenty four years the best advice I could provide is to make sure you have an attorney represent your best interests.

One of the 1st things an attorney will do is a title search to see if there are any liens or other liabilities on the property. Things like unpaid taxes, mechanics liens, or court judgments are all possible land mines. The sooner you determine the legal status of the property you are interested in the better as this will help determine if it is even worth it to put in an offer.

The last thing you want to have happen is to think you just bought a home for $500,000 but then find out there is $100,000 worth of liens on the property.

Having your financing already lined up is a very important consideration as well because these kind of transactions tend to move very swiftly.

Unlike a traditional Real Estate transaction everything is “buyer beware”. When purchasing a non foreclosed home the seller will have had some kind of history with the property and should be disclosing any known issues. In a foreclosure the lender has never lived in the property therefore they would have no idea what problems if any the home has.

Most of the time you will be buying in “as is” condition. In many cases a person who has lost their home because of financial difficulties probably has not had the funds to keep up with the maintenance.

There could be any number of problems that are not readily apparent. Issues with some of the more expensive components of a home such as heating, plumbing and electrical systems are all possible. There could also be vandalism by the previous home owner or other vandals as well.

I have been to plenty of foreclosed homes where the owner has taken out their anger on the property. I have been in homes where the entire kitchen was removed! Some of the other more common issues today is the copper plumbing being taken out of a home. I know that may sound crazy but it happens!

Still interested in buying a foreclosed home? Here are the three scenarios when buying one:

A pre-foreclosure where you buy directly from the home owner before the bank takes over.
At an auction where you may be in competition with other buyers.
From a Real Estate company or the bank itself. This is known as an REO aka Real Estate owned.

In a pre-foreclosure you get to do all your various due diligence including any home inspections and a title search to make sure there are no liens. In a pre-foreclosure the owner signs over the deed to you and you take title to the property. In this scenario you acquire the mortgage a must bring it current giving the bank any missed payments.

Buying at an auction typically carries the most risk but also can come with the greatest reward.

Auctions are handled differently from state to state. Some are held right at the property and others at the local court house.

Many times with an auction you are not allowed to inspect the property prior to the scheduled auction date. These types of sales tend to bring out more “investor” types as these properties can be bought on many occasions for a price that could warrant a “flip” where the buyer turns around and re-sells the property.

A buyer going to an auction will need to come up with a fairly large deposit and will be expected to show the lender that they have the ability to complete the purchase. The other consideration in the auction scenario is that you may have to spend time and money removing the previous owner. A task that most buyers don’t have the stomach for.

The REO scenario is usually the least risky as the bank has acquired the property and has wiped out the liens through purchase.

Once a home is Real Estate owned many banks will list these homes with a Realtor. The buyer gets clear title, is most often allowed to inspect the home, and is allowed to have a mortgage contingency. This is typically the best route for the non savvy Real Estate investor.

A few other very important considerations in the foreclosure process in the “pre-foreclosure period” and the “redemption period”. The pre-foreclosure period is the time between a previous owner’s notification of default and the point when the property can be sold by the lender.This time period is also when the existing owner can make good on the note and keep their home, or sell it themselves. So the shorter the pre-foreclosure period, the more advantageous it is for the new buyer.

The redemption period is the time when the previous owner is allowed to buy back the home after the lender has sold it. Again, the shorter this time period, the better it is for the buyer. Some states have no redemption period, making it an optimal situation for someone to purchase.These time periods vary depending on the State the property is located in. Knowing the exact redemption period is critical because you could end up losing time and money if the previous owner ends up buying back the home.

Most of your efficiency as a buyer depends on whether the state in which the property is purchased uses mortgages or deeds of trust for real estate transactions.

When a state uses mortgages, it means they also conduct their foreclosure proceedings through the courts. These transactions tend to take longer and have a range of potential problems. When a state uses deeds of trust, the foreclosures are non-judicial and tend to resolve quicker and with far less head aches.

In Massachusetts the primary means on foreclosure is non judicial (no court action). If the deed of trust, however, does not contain a power of sale language, (language in the mortgage that allows the mortgagee to sell the property) the lender may seek judicial foreclosure.

As few as 75 days may pass from the time a property owner receives a notice of default until the property is sold at a public foreclosure auction sale.

As you can see there is quite a bit to know when buying a Massachusetts foreclosed home. In addition to having a good attorney, a knowledgeable local Realtor can be an important piece of the puzzle in helping to determine the market value of the property you wish to purchase.

Fannie Mae Strikes Against Strategic Defaults

Bill Gassett — Fri, 25 Jun 2010 11:34:31 +0000

You may have heard or read recently about strategic defaults as this topic is all over the news. A strategic default is when a home owner walks away from their mortgage when they are still able to make the payments.

The reason why a home owner would consider a strategic default and just walk away is because the value of their home has dropped substantially below what they owe on their mortgage.

The general feeling amongst those that are using a strategic default is that it will take years for their homes market value to recover. They basically walk away from the property and start fresh.

Fannie Mae the government backed lending giant is putting into place simple measures that will discourage home owners from considering a strategic default. What does Fannie Mae plan to do?

They will begin “locking out” borrowers from getting new mortgages for seven years! They will also go after strategic defaulters for the money they owe in states where they are allowed to do so.

Those home owners who walk-away and had the ability to pay the mortgage or did not complete a workout alternative in good faith will be ineligible for a new Fannie Mae-backed mortgage loan for a period of seven years from the date of foreclosure.

Fannie Mae stressed that borrowers who make a good faith effort to work with their lender in order to resolve their situation will be eligible for Fannie Mae loans much quicker than those who just walk away.

Obviously the more homes in neighborhoods around the country that become abandoned due to strategic defaults puts further pressure on depressing Real Estate prices. Foreclosures and bank owned homes tend to bring down values of surrounding properties. Traditional home owners end up competing with these bank owned homes when selling their properties.

Some people that are using strategic defaults are doing so because they have become so exasperated at their lenders for not doing more to help them such as a loan modification. Anyone who has ever tried to get a loan modification would probably be the 1st to admit that lenders do not make it easy for a borrower to get one. Often times borrowers can’t get responses from banks to their questions and are repeatedly told to send in the same documents over and over again.

As a Realtor who has been selling Real Estate for the past twenty four years in Massachusetts, I have come across a number of properties where the owner just picked up and left. Often times I wonder why they did not take the necessary steps to try to avoid foreclosure.

It seems there are lots of folks that do not realize there are better alternatives that just bailing on their loan.

Short Sale vs Strategic Default

One alternative that I have been very successful with is helping Massachusetts home owners to short sale their property. In a short sale the lender allows a home owner who owes more than their home is worth to take less than the amount owed at closing.

The owner of the property benefits in this situation because they get out of a financially difficult situation without going to foreclosure which can seriously damage your credit.

Most of the time when your home is foreclosed on you will not be able to get a loan to buy another home for five to six years. With a short sale in most cases you will be able to buy another property in two to three years. In either event your credit scores are going to take a hit but a short sale is generally the lesser of two evils.

Some of the statistics that have been bandied about are pretty scary and unfortunately are an indicator that Real Estate values are more than likely not going to be headed up for quite a while.

By the end of 2011, approximately 48 percent of the 50 million mortgage loans nationwide are predicted to be underwater or valued less than the money owed on them. There are also published estimates that more than 11 million American homeowners are underwater and predictions are that the number could more than double in the next 18 months!

It begs the question on whether or not holding a buyer out of obtaining a Real Estate loan for seven years would help the housing markets around the country?

One of the driving forces for a Real Estate recovery is going to boil down to simple economics of supply and demand. Home ownership needs to be more affordable to more people. We will not see a full fledged recovery without the buyers to support it.

Given the fact that Fannie Mae is going to seriously crack down on strategic foreclosures, looking at short selling your home could be a more logical solution.

The only conundrum when looking at a strategic default vs a short sale is whether or not the lender will let you complete one. In many situations lenders will not let you short sale your home unless you have a financial hardship. In my experience, I have seen quite a few lenders that are not enforcing the hardship qualifications aspect of a short sale as you would expect. Is it harder to get a short sale done without a hardship? It certainly is but not impossible.

There is certainly lots of things to think about when deciding if a short sale is the right move or not. Over the last three years I have helped numerous home owners in the Metrowest Massachusetts area complete a short sale. Along the way I have written quite a few articles that detail some of the most important considerations when completing one.

If you are considering a Massachusetts short sale I would encourage you to read some of the articles I have put together below.

Short Sale Real Estate articles:

Acceptable short sale hardships

Short sale tax consequences

Short sale debt removal

Questions to ask a short sale listing agent

Picking a top Massachusetts short sale Realtor

If you are needing to complete a short sale of your home or condo in Ashland, Bellingham, Framingham, Franklin, Grafton, Holliston, Hopedale, Hopkinton, Medway, Mendon, Milford, Southboro, Westboro, Natick, Northboro, Northbridge, Whitinsville, Upton, Uxbridge, Shrewsbury, Worcester, or Douglas Get in touch! I would love to interview for the chance to represent your best interests.

I am successfully completing short sales through out the Metrowest Massachusetts area. So far, knock on wood, I have a 100% success rate for short sale approval!

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About the author: The above Real Estate information on Fannie Mae strikes against strategic defaults was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-435-5356. Bill has helped people move in and out of many Metrowest towns for the last 24+ Years.

Thinking of selling your home? I have a passion for Real Estate and love to share my marketing expertise!

Buying a Massachusetts Bank Owned Home

Bill Gassett — Thu, 18 Mar 2010 12:32:02 +0000

There are a few different ways in which a buyer of Real Estate could obtain ownership of a foreclosure. Here is a quick summary of the three possible scenarios:

A pre-foreclosure where you are able to buy directly from the home owner before the bank takes over. This is commonly referred to as a short sale.
At an auction where you may be in competition with other buyers bidding on the home.
From a Real Estate company or the bank itself. This is known as an REO transaction a.k.a (Real Estate owned).

Below is everything you need to consider about buying a bank owned home after a foreclosure.

The opportunity to buy a Massachusetts bank owned home is one that many buyers often consider due to the fact that there is a prevailing belief that you are able to purchase one for 50 cents on the dollar or less. More often than not many bank owned properties do represent a decent Real Estate value and sometimes a great deal! Do not expect to buy one for half off the market value though. You can sometimes but not always pay 5-20% less than the going rate for a similar comparable property.

Buying a foreclosed home however, is not for the timid at heart and there are many things that buyers need to be aware of going into a REO transaction.

Like any other transaction, you should investigate the present market value of the property. Do not blindly assume the list price is a fantastic deal. This is something a skilled local buyer’s agent can do to assist you.

A Realtor that knows the local inventory and recent sales data should be hired to help you with the transaction. While a banks goal is to get rid of their inventory as fast as they can, don’t expect the bank to consider silly low ball offers especially during the first few weeks the property is listed for sale.

In my experience while working as a Massachusetts Realtor for the past 24 years, I have never seen a bank accept an offer less than 10% under the asking price. In many cases the asking price has already been set aggressively to start. Like any seller, the banks goal is to maximize the price they get for a property.

What many buyers fail to understand is that banks have to demonstrate to shareholders, investors and auditors that they attempted to get the highest price possible.

After a home has been in the banks inventory for a while they do tend to become more aggressive with the price. A bank after all is not interested in being a home owner. Do not make the poor assumption however, that banks are desperate sellers and will do anything to clear out their inventory. This is rarely the case!

In order for a bank to consider accepting your offer you want to make sure you have been pre-approved by a lender. Most banks will not even consider your offer without proper financial documentation. If you happen to be making a cash offer with no financing contingency, the bank will want to see proof that you have the funds to purchase in an account somewhere.

Some banks may also ask you to get pre-approved through them as well, although it can not be a requirement to do so due to RESPA laws. RESPA stands for Real Estate Settlement Procedures Act and is designed to protect consumers.

Often times with a bank owned property you will need to have patients of a saint. In many cases the bank will take days to respond to your offer. Also remember that on weekends banks do not conduct business. The process can take even longer if you find yourself competing with multiple offers on the property.

When you buy a bank owned property be prepared to be buying it “AS IS”. Most banks will not make repairs to a property unless it would effect the buyers ability to finance the property. Some of the things that a bank may consider remedying could include:

Termite or other insect problems.
Mold issues.
Plumbing or heating system issues.
Electrical issues especially if it involves a safety hazard.
Septic systems ~ some states require a passing inspection in order to close, including Massachusetts. See Massachusetts Title V
Structural issues.

On many occasions I have seen banks not even consider fixing these types of issues. Every bank is different in how they operate and make decisions. Do not expect a bank to make small repairs. You may be able to possibly get a credit for some repairs at closing but do not expect it.

Most banks have their own contracts that they use. You will be expected to sign their standard form and in most cases you will not be able to make any changes to it! I have seen attorneys try and more often than not they are rebuffed.

Massachusetts is different than most states because we have a two part contract including an offer form and a purchase and sale agreement (P&S). The purchase and sale has the same general terms in the offer just spelled out in much greater detail. With a bank owned home you will just sign the banks form and that will be considered the Purchase and sale.

In most circumstances you will be given the opportunity to conduct inspections even though the property is being sold “as is”.

It is crucial that your Realtor makes sure that you have proper contingencies in place to inspect the property for such things as the structure, pests, mold, radon , water, and others.

You will want the right to terminate the contract if these do not meet local or national standards. Be aware that the bank is going to want these inspections to be done immediately and not the typical 7-10 day period of a standard sale.

Lastly, banks will prefer that the closing will take place quickly. You will not see the same flexibility that you could possibly get with some traditional home sellers. As a rule of thumb, most banks will want the closing to take place in 6 weeks or less.

One really important clause that you find in many bank owned contracts is the penalty if you do not close according to the stated contract date. In most cases there is a $100 dollar a day penalty for not closing on time! You better make sure your ducks are in order when buying a bank owned home.

There is no question that some bank owned properties can be exceptional values. Don’t overlook the fact that there is quite a bit to think about going in though. Having Real Estate professionals in your corner who can guide you and protect your interests is very important. I always recommend to my buyer clients that they use a good Real Estate attorney, especially when buying a bank owned home.

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About the author: The above Real Estate information on buying a Massachusetts bank owned home was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-435-5356. Bill has helped people move in and out of many Metrowest towns for the last 24+ Years.

Thinking of selling your home? I have a passion for Real Estate and love to share my marketing expertise!

I service the following towns in Metrowest MA: Hopkinton, Milford, Upton, Southboro, Westboro, Ashland, Holliston, Mendon, Hopedale, Medway, Franklin, Framingham, Grafton, Northbridge, Shrewsbury, Northboro, Bellingham, Uxbridge, and Douglas.