Three Reasons Not to Lend a Short Sale to the Previous Owner

If you’re buying a short sale as an investment property to rent out, it would seem like a good idea to give the previous owners first dibs, right?  The former owners probably like where they are and wouldn’t mind avoiding the hassle of packing and moving.  Actually, it’s a terrible idea.

Legalities

Oftentimes, renting a short sale to the previous owner is simply not allowed, as stipulated by clauses and disclosures and the like.  Buying a house is complicated enough, and a short sale is even more so, so make sure you understand all the fine print.  More often than not, you’ll find in the fine print that you just can’t do it.

Emotions

It may seem like a great idea to you as the new owner and the previous owner.  You might talk it out and they might see it as you doing them a great favor.  Everyone may be happy at first, but resentment often comes when a person is at the mercy of someone else, especially when it comes to something that comes with all the emotions of something like a house.

Business

If you’re depending on someone to pay rent on a house, would you really trust the person who just sold their home for less than it’s worth because they couldn’t afford it to pay the rent?  Not to disparage people who short sell their homes, it happens for any number of reasons, but the hardships you have to prove in order to qualify for a short sale are not flippant or easy.  So while it might feel like you’d be doing the person a favor, you’re probably going to end up making things harder for yourself.

If you think you’ll have that hard of a time getting a recently-purchases property rented, talk to your short sale agent.  Chances are they know people who can help you with it.  And if you have any other questions about the intricacies of short sales, call Nilesh Jethwa at 910-622-0319.  He is a short sale expert in the Wilmington, NC area and would be glad to help.

Why Buy a Wilmington, NC Short Sale?

It’s no secret that the Wilmington, NC area, including Wilmington itself, Wrightsville Beach, Carolina Beach and Leland, is one of the best places to live. Wilmington has a population of just under 110,000 people (2012 data), a thriving art scene, an historic downtown and plenty of beaches. It’s one of the most popular tourist destinations in North Carolina with four of the state’s most popular tourist attractions within about half an hour. Wilmington, NC is not just a popular tourist destination though; people move here from all over the country.

One downside to Wilmington’s popularity and the fact that so many people want to live here is that the law of supply and demand keeps the houses more expensive than other areas a little further inland. It’s not as expensive as buying a home in the Hamptons by any means, but the home prices drop a good bit if you head out towards places like Burgaw or Beulaville.

So what if you want to own a home in Wilmington so you can be near the beach, but you don’t want to spend an arm and a leg? Consider a short sale.

To quote myself, a short sale is when a seller attempts to sell their property for an amount that is less than the price they paid for it. Because the other option is a foreclose, which can cost the lending bank $40-50,000, banks see short sales as a way to cut their losses so they are often more inclined to grant a short sale than go through a foreclosure. As a result, a home buyer can save a lot of money by purchasing a short sale.

If you’re one of the many people who wants to own a home in the Wilmington, NC area, but you’re just not sure if you can afford it, give Nilesh Jethwa a call at 910-622-0319. Nilesh is a short sale expert and can help you find and get into the perfect Wilmington, NC short sale home.

Buying Short Sales in Wilmington, NC

Buying Short Sales in Wilmington, NCBuying a short sale in Wilmington, NC, or anywhere for that matter, is not as simple as a usual real estate transaction, and those aren’t exactly easy-breezy themselves.  Not any real estate agent can help you with a short sale either; you’ll want to make sure you’re working with an experienced short sale agent.  (Call Nilesh at 910-622-0319 for one of those if you’re in Wilmington, Leland or the surrounding areas).

Even though you’ll definitely want to have some help, we’ll outline the process of buying a short sale in Wilmington, NC here for you.

Find a short sale

Obviously, the first thing you’ll need to do is find a short sale to buy.  You can look on this website, search popular online real estate listing websites or even check courthouse records to find pre-foreclosures.

Research

A downside to short sales is that they’ve often been somewhat neglected and will need a little fixing up.  Make sure you are able to get a good look at the house to gauge how much money and effort you’ll need to put into it.  You’ll also want to find out what you can about the house and the seller.  What is the property worth?  Are there liens on the property?

Get financing

You’ll want to make sure your financing is lined up once you’ve settled on how much you want to spend on the short sale home.  Once the agreement is done lenders want to move along quickly to sell the home, sometimes closing in as little as three weeks.  If you don’t have all your money lined up, you might miss out.

Talk to the lender

When getting in touch with the lender, make sure you’re not talking to the collections department- their only concern is getting back lost money.  The department you’re looking for might be called loss mitigation or recovery.  Either way, make sure you’ve got signed (preferably notarized) permission from the current homeowner to discuss their mortgage with their lender.  The lender may have a short sale application for you to sign.

Propose and negotiate

There’s a lot that goes into the short sale proposal, and this is one of the areas where a short sale expert will help you out.  We won’t go into all the details here, but there will be a package ranging from the sales contract to the settlement statement.  Once that’s submitted, the lender will probably reject your offer and give you a counteroffer.  Make sure you have your negotiation tactics ready, including knowing the max you’re willing to pay for the short sale property.

Close it

Once everything has been agreed upon between yourself, the seller and the lender you sign some papers, shuffle some money around and congrats: you’ve got a new home at a discounted price!

This is, of course, just a brief overview of the process of buying a short sale.  A lo of complications can arise throughout, and moving quickly, as we said before, is essential.  If you’re interested in buying a short sale in Wilmington, NC, Nilesh will be glad to help.  Give him a call at 910-622-0319.

A Short Sale is Not a Foreclosure

Over the past few years the term short sale has been mentioned a lot. Unfortunately, many people have a misunderstanding of what a short sale actually is. A true understanding of a short sale is the key piece of information every buyer needs before starting down this road.

Before jumping into what a short sale is, let’s start with what it’s not. A short sale is not a foreclosure, though many potential buyers tend to interchange the two terms. A foreclosure is the process of taking possession of a mortgaged property due to the homeowners failure to keep up with payments. This is a done deal. The homeowner hasn’t upheld their end of the bargain. As a result the bank is taking the house from them.

Short sales avoid the foreclosure process. A short sale is is an arrangement between the homeowner and the lender to accept a price below the amount owed on the property.

There are many pluses and minuses to choosing to buy short sale over a foreclosure. The biggest advantage that turns people toward the short sale is the condition of the average short sale home. While short sales will still likely require some TLC, they tend to be in better condition than the average foreclosure. The reason: when a homeowner choosing to go through the short sale process, they are generally doing so to avoid being kicked out of their residence. The previous homeowner is still living in and maintaining the home. Foreclosures often sit vacant and untouched while waiting to be purchased. Any damages are not repaired and there is no effort to prevent normal wear and tear.

While some argue the purchasing process is easier for foreclosures, the increased chances of less updates is often what tips the scales in the direction of short sales. Neither can offer a “move-in ready” residence, but a short sale can offer less repairs once the home becomes yours at a lower price than the regular market.

If buying short sale is a potential option for you or if you would like more information on short sales in Pender, New Hanover or Brunswick Counties contact Nilesh Jethwa at (910) 622-0319.

What Hardships Qualify for a Short Sale?

You might already know the qualifications for filing for a short sale:

  • The market value of your home has dropped
  • Your mortgage is in default (or close to it)
  • You have no assets
  • You have fallen on hard times

Most of those are pretty straightforward, but what does is an acceptable hardship for the “hard times” qualifier?  First, let’s look at what does not qualify.

You made a bad financial choice.  You spent all your money on a new car or lost it in Vegas.  Poor financial decisions don’t qualify as a hardship for a short sale.

You want to move.  You found another house you like better or you’re not a fan of the neighbor’s 2AM garage band jam session.  Sorry, you’ll have to get some ear plugs and suck it up.

You’re having a baby.  Congrats on the new bundle of joy, but feeling like you need a bigger nursery or can’t take on the expanse of an additional family member won’t qualify you for a short sale.

To sum it up, none of the above things fall into anything but irresponsibility or personal preference, and none of them are considered hard times when you’re trying to apply for a short sale.  In order to prove you’ve fallen on hard times, things have to be a little more dire and less subjective.  Here are some examples of qualifying hardships.

Divorce

Your income effectively just got cut in half (or more) and you’re no longer able to make payments on your home.  Divorce is an acceptable hardship when qualifying for a short sale.

Unemployment

Like divorce, except you just lost all your income, sans whatever you’re receiving from your unemployment benefits.  Unemployment is also an example of a hard time that will qualify you for a short sale.

Bankruptcy

When you declare bankruptcy, you’ve already proven that you’ve fallen on hard times.  If you’ve successfully files for bankruptcy, you can qualify for a short sale.

Illness or Accident

We’re not talking the flu.  If you’ve come down with a serious medical condition or had a debilitating accident that affects your ability to earn a living, you can qualify for a short sale.

While it’s true that personal choices can lead to divorce, unemployment, bankruptcy or a serious accident, these things are generally a little more out of your hands than making a decision that you’d like to move.  These situations are acceptable examples of hard times that a bank will take into consideration when you are applying to for a short sale for your home.

There is, of course, a lot more to it than that.  Navigating the waters of a short sale can be tricky business, so if you’re considering a short sale in the Wilmington or Leland, NC area, make sure to call me, Nilesh Jethwa, your short sale expert, at 910-622-0319.

Why Do Short Sale Negotiations Take So Long?

Banks and short sales in Wilmington NCLong story short: The bank is dragging its proverbial feet… But why?

Let’s imagine someone bought something from you for what it is worth; let’s say $1000, and you agree to take payments at $100/mo. But a few weeks later, that person goes through some hard times and gets it revalued so they can sell it, and it is then only worth $750. So they ask you for a refund of $250, or they say they will stop paying you. You’d probably drag your feet, as well!

Basically, banks are hoping that the seller will change his or her mind, and get back on track with the payments. The bank doesn’t have to agree to the short sale, but it is better than getting no payments at all.

Finessing a short sale can take time and patience. It can also take longer if you have an inexperienced realtor, because one mistake on the paperwork and your application goes back to the bottom of the pile! There may be no getting around the fact that a short sale takes longer than a regular sale, but there is also no getting around the fact that it can be a great option for a seller who is “underwater” and/or a great deal for the buyer.

We can help you navigate these short sale “waters” as experienced short sale realtors. If you are considering the purchase or sale of a short sale, please do not hesitate to give us a call at 910-622-0319!

How to Find the Right Short Sale Agent

How to Find the Right Short Sale AgentShort sales are a great way to afford the house you want, in the area you want, without blowing your budget.  While short sales can give you more house for your money, be careful.  A short sale does not always equal good investment.  The best way to ensure you are getting a good deal is taking the right short sale agent on the journey with you.  But with all the agents out there claiming to be the best, how do you choose? Here are a few tips for finding the right agent for you.

Experience with closing

It’s important to keep in mind that certified is not the same as experienced.  Just because an agent has completed a short sale class, it doesn’t mean they’ve taken advantage of opportunities to put their knowledge to use.  Be sure to look for closing records.  Having fewer short sale closings doesn’t mean one agent is worse than another, but it does guarantee more experience.

Experience with your short sale bank

Choosing a short sale agent who is familiar with your bank doesn’t guarantee approval, but it does ensure more insight into your institution.  If you are choosing a smaller institution this may be a more difficult task, but if are sticking with a large bank, you should be able to easily find an agent who has worked with short sales through them before.

Experience selling in your area

Choosing an agent with experience in your area means more familiarity with the local customs and a better relationship with other local agents.  Most importantly, an agent with experience in your area increases the ability to guide you to the correct short sale price.

Looking into these three areas of experience before choosing your short sale agent can increase your chances of making that short sale home yours.  So while you’re researching short sales in your area, make sure to give Wilmington and Leland, NC short sale expert Nilesh Jethwa a call at 910-622-0319.

Wilmington Real Estate’s Top 10 List: Reasons a Short Sale is better than a Foreclosure

Top 10 List: Reasons a Short Sale is better than a Foreclosure
Top 10 List: Reasons a Short Sale is better than a Foreclosure

Wilmington Real Estate’s Top 10 List: Reasons a Short Sale is better than a Foreclosure

We will focus this Top Ten List on explaining the differences between a short sale and a foreclosure. Buying and selling your home can be a complicated process, with a plethora of ways to buy your home, and a seemingly endless variety of ways to sell it, as well.

A short sale gets its name because it is “shorting” the bank on the amount that is owed on the mortgage.  The bank usually allows this because the owner owes more on the mortgage than the house is actually worth, and the owner is behind on the payments.  Often times the seller will automatically think they need to foreclose, but that is not necessarily the case.  Why foreclose on your home when you can short sale?

10. Under normal circumstances, when you foreclose, you will not be able to buy another home for 5-7 years, per Fannie May guidelines.  With a short sale, that time is cut down to 2 years (on average).

9. Short sales can be time consuming, but are usually nothing compared to a foreclosure, which can take years to complete.

Figuring out what to do with your home when you are under water can be a stressful process when going at it alone.
Figuring out what to do with your home when you are under water can be a stressful process when going at it alone.

8.  Foreclosures are usually embarrassing to the homeowner.  There is a “Notice of Public Sale” on front door.  With a short sale, no notice is given, which saves you from that embarrassment.

7.  A foreclosure stays notated on your credit report for 10 years, whereas a Short Sale is not specifically noted.  Because you will probably be behind in your payments, your credit will be affected, but it is much easier to bounce back from.

6. Nowadays, it is very well known that the economy is bad and home prices are not what they used to be. The homeowner generally feels less personal shame whenever they are allowed a short sale over a foreclosure.

5.  When you short sale your home, you are actually able to meet the new owners, as your ownership is not immediately snatched away from you.  When your home is foreclosed, the bank ceases possession immediately, and your rights are stripped away.

4. Foreclosures decrease the property value of the homes within a one mile radius by an average of 1 percent, and it also negatively impacts the housing market http://bit.ly/16LavaT.  When you choose to short sale over foreclosing, your neighbors will thank you!  Who knows, maybe you will even be able to finagle a homemade pie out of the whole deal!

3.  Foreclosures are generally rather expensive, as they require lawyers, who then require payments.  Often times people file bankruptcy after their foreclosure due to all the unknown and unforeseen expenses.  Short sales are not as complicated, and do not usually require any interaction with the law.

Most troubled home owners find short sales easier to swallow than foreclosures
Most troubled home owners find short sales easier to swallow than foreclosures

2. There is a good chance that with the sale of the home, the lender will be able to earn back some of the money it is owed on the sale of the property, which makes it much less likely that they will take you to court in pursuit of a deficiency judgment.  This is because the cost of suing you will just not be justified.  A foreclosure is a lot more expensive for the lender, however, which may increase the likelihood of you being sued.

1. There has been a much higher chance of fraud with foreclosure.  Short sale homes are generally not as much of a target by scammers, because they are less likely to be announced in public record, and usually the sellers are not as desperate to save their home (thus they are less likely to fall victim to the con artists).  That being said, it is good to arm yourself against any possible fraud.  Please take a second to review this article on how to avoid home fraud: http://www.doj.state.or.us/consumer/pages/foreclosure_fraud.aspx

As mentioned above, buying and selling your home can be a tough road to navigate.  Please do not feel like you have to go it alone; feel free to email us (nileshjethwa@ec.rr.com), or give us a call at (910) 622-0319.

Short Sales and Credit Scores

There are many events in your life that could negatively impact your credit score.  One of those events that I often deal with is the short sale of your home.  A short sale, essentially, is when a person sells their home back to a mortgage company for less than what they paid for it because the home is now worth less than it was when it was purchased.

A short sale will negatively impact your credit score.  The amount of impact varies from person to person and from situation to situation.  However, everyone’s score will be negatively impacted, and one of the most common questions I get is “How do I improve my credit score after the short sale?”

Improving one’s credit score will take time – there is no “quick fix.”  But by focusing on certain aspects of your credit, you can try to lessen the blow.  Here is a look at how your credit score is comprised, and tips on how to utilize this information so that the short sale does not have as much of an effect:

Payment History
35% of your credit score is based on your Payment History.  Even if you are unable to make your house payments, try to make at least the minimum on your credit cards and other loans you may have.  This will make the impact a little bit less harsh

Amounts Owed
The next largest part of your Credit Score is the amount you owe – 30%.  If you decide to do a short sale and cannot pay your mortgage, try to put some of that extra money towards paying off your credit cards or car payment.  The less outstanding debt you have, the better, and the best thing you can do for your credit score is to pay your accounts off as soon as you can.

Length of Credit History
It may be tempting to close your credit cards once you start getting into financial troubles, but 15% of your credit score is based on how long you have had your accounts open.  If you can manage your accounts, it is best to keep them open.  This does not have as much impact as your payment history or the amounts owed, but it is the third largest portion.  If you are having troubles keeping up with the minimum payments and you have high interest rates, the creditor may offer to lower the APR if you close the account.  This will impact your credit score, but it may be the best option if it makes the payments more affordable.  Be sure to weigh the pros and cons; if you are afraid you will be late, that will have a higher negative impact than if you close the account.  But if you can afford the payments, and keep your account open, that will actually help you increase your score.

New Credit (10%) and Types of Credit Used (10%)
If you open several new credit accounts in a short amount of time, that is a red flag – It signals to the Bureaus that you are in financial trouble, because you need to borrow money.  Also, different kinds of credit have different effects – Retail accounts are not looked at as favorably as, say, a car loan.  If you are having financial difficulties, opening new accounts will not help you improve your score, and will most likely have a negative impact.

These are some ideas to keep your short sale from impacting your credit score as much as it could.  If you would like some more information on your credit score and how it is formulated,  click here for more information at MyFico.com.  You can also give me a call at (910) 622-0319 or  email me by clicking here.  As a short sale expert, I’ve helped people in many different situations.

Do I Qualify for a Short Sale?

While there are certainly benefits and advantages of a short sale, not everyone qualifies for one.  To determine how you qualify for a short sale, let’s first review what a short sale is.

In simple terms, a short sale is when a mortgage lender agrees to accept less money for a house than the original price for which it was sold.  For example, if you bought your home for $200,000, but it’s only worth $175,000 now, you are short $25,000.  A lender might agree to a short sale in order to avoid a foreclosure.  There is more to it than that, but let’s move on to the main question: How do you quality for a short sale?

There are three criteria a lender will look at to determine whether a person qualifies for a short sale.  Specifically, a mortgage lender will need to know if you have fallen on hard times, what assets you have and whether your home’s value has truly taken a dive.

Financial Hardship

A mortgage lender won’t let just anybody sell their home for less than they’re owed.  A person qualifying for a short sale must be able to prove they have fallen on hard times.  It may be that you’ve lost your job or have become divorced, or maybe you or the loan’s co-borrower have developed a serious and costly illness, or the co-borrower has died, hurting your ability to pay the loan.

No Assets

Some people think a lender won’t approve a short sale unless you’re broke.  This isn’t the case at all.  The mortgage lender just wants to see that you don’t have enough cash to go ahead and pay off the loan, and they want to determine whether you’re going to have a hard time meeting the loan’s obligations.

Fallen Home Value

Lastly, the mortgage lender needs to make sure the value of your home has actually fallen.  That’s kind of the point of a short sale.  If your home isn’t worth less than it was when you bought it, you can’t qualify for a short sale just  by the mere definition of the term.

If you’re considering a short sale, ask yourself these three questions:  Has my financial situation changed?  Am I unable to pay off the loan or keep making payments?  Is the value of my home less than the loan I took out on it?  If the answer to all three of those is “yes” then you may qualify for a short sale.

If you do qualify for a short sale, the mortgage lender is going to want a lot of detailed financial information.  The process for applying for a short sale can be a difficult one, so make sure you contact a qualified short sale expert in your area for help.  If you’re in the Wilmington, NC area, give me a call at 910-622-0319 or email me at nileshjethwa@ec.rr.com.  If you’re not in the southeastern North Carolina region, give me a call anyway.  I can confidently refer you to other short sale experts.