Archives for November 2010

Why is a short sale a “distressed sale”?

A short sale is a distressed sale much like other distressed sales. A short sale has a problem with the title just like other homes have problems with mold, water damage, fire damage, termites etc. These problems can be fixed but they take time and money. This is why most “retail” buyers are NOT suited for a short sale. They do not have the time or money to fix the problem with the debt that will allow the title to transfer free and clear to the new buyer. Dont get me wrong, a short sale can be a fantastic buy, for the the right buyer.

Some short sales have less issues then others depending on how many liens are on the property and who they are with. If you are looking to buy a short sale and live in Utah county please call me for a free consultation on how to qualify a short sale to make sure it is suitable for you. Don’t wast time and energy chasing deals that will never close. If you are selling your home in Utah and need to stop a foreclosure or settle your mortgage please contact me. When you are short selling your house as a seller make sure you select the right buyer who can address the needs of your short sale specifically. If you need an offer for your short sale please call me for a free no obligation cash offer for your house.

How to settle a HELOC durring a short sale (example)

From all the (seemingly reliable) sources I could find, the national average for short sales actually completed to short sales initiated is somewhere between 8% and 15%. That is a very telling statistic about the banks, the process and the agents attempting the short sales.

I have not been able to find any statistics about how many of those completed short sales were full mortgage settlements,  or just lien releases (home owners having to repay the deficiency balance). But I would be willing to bet that for homes with 2nd mortgages or HELOC’s, much less than 1% of completed short sales are completed with a full settlement of the HELOC.

This is simply because most agents and home owners do not know the difference between a full settlement and a lien release only of the HELOC and are not prepared to satisfy the discrepancy at closing. I am still reading on broker blogs everyday agents who are “shocked” to find out that the HELOC is wanting “more money than the first (mortgage) is willing to pay”.

Very simply put, the HELOC will probably release the lien on the property for the nominal figure (usually 3K) that the first mortgage is willing to allow them from the proceeds of the sale, but the home owner will be required to repay the full balance. HELOC’s always try to collect the full balance unlike a first mortgages who will usually issue a clean full settlement letter, (except for BOA, grr..)

The listing agent needs to need to anticipate this “HELOC settlement discrepancy” at the onset and plan for is accordingly. For example, if you have a;

1.200K first mortgage with GMAC and a

2.75K HELOC with Chase bank,

you should anticipate that Chase bank will issue a lien release for 3K and a full settlement for around 10K (10% to 20% of the balance depending on loan status). That leaves a 7K difference that either the seller or the buyer will have to pay (for a full settlement of the mortgage). If the seller does not have any money then the buyer should be aware that if they are expecting to pay a total of say 150K for a property, they need to take the additional funds of 7K in to account when writing the offer. So in this example they would write the offer for 143K or less. 143K plus 7K equals 150K. If the buyer writes his/her highest and best of 150K and then is asked just before closing to contribute the 7K to make the deal work for the seller it will most likely be a deal breaker at that point. This settlement figure must be fully disclosed to all parties on the settlement statement usually marked (POC) in the appropriate section.

Below is an example recent Chase approval letter. 86K Lien release for 3K.

http://investutah.com/wp-content/uploads/2010/11/chase-heloc-lien-release-only-approval-letter.pdf

Below is the same approval letter after negotiating the FULL SETTLEMENT of the HELOC for 10K.

http://investutah.com/wp-content/uploads/2010/11/chase-heloc-full-settlement-letter.pdf

When there are 3 liens or more, HOA liens tax liens or credit card judgments it takes a little more planning but still very doable.  You can see why it is important to work with someone who specializes in this area and familiar with each banks individual policy’s.  If you have a HELOC and want to settle it through a short sale and live in Utah County, Apline, Highland, Pleasant Grove, Park City, Sundance, Cedar Hills or Draper, Please call me for a free short sale consultation or Cash Offer for your house.

To view other short sale approval letters that will further illustrate the difference between a short sale and a short sale with loan settlement you can read the post below.

http://investutah.com/2009/11/02/sample-short-sale-approval-letters/

*results not guaranteed. Do not rely on this information regarding your specific situation. This is my opinion based on my experience with Chase bank and other banks in general.