Short Sale, Foreclosure and Strategic Default


Saturday, August 25, 2007

Short Sales Effect Credit - Impact of Short Sales on Credit Reports - How Short Sales Affect Credit

Lately I have been getting a lot of questions for California Real Estate owners about how a short sale will effect their credit. I am giving a link to this information because I have found some of this realtors information to be pretty good but not perfect in the past. I have also found many Realtor cite making roughly the same claims about the effect on an upside down homeowners credit. However I rarely see the cite attribute the information to anyone.

Next, I note that this information may be old and getting older. As I have reported elsewhere on this blog it has been reported the Fico people are working to make a short sale and a foreclosure have an equivalent effect on your credit report. It makes sense because a short sale is really no better than a deed in lieu. Finally, I would like to remind people that you really need both a Realtor and an attorney working as a team to create your best solution.

Short Sales Affect Credit - Impact of Short Sales on Credit Reports - How Short Sales Affect Credit

here is a summary of what the realtor resported:

Fico points lost:

* Foreclosure or Deed-in-Lieu of Foreclosure
250 t0 280 points
* Short Sale
80 to 100 points
Waiting Period Before Buying Another Home

* Foreclosure or Deed-in-Lieu of Foreclosure
36 months till you can get a reasonable rate on your loan
* Short Sale
18 months
Please remember to make sure you are crafting your solution to eliminate deficiency judgments and/or tax liablity for loan forgiveness. (something you can do by yourself or with your lawyer) If your Realtor claims to be able to negotiate these agreements for you - it may be a good thing - because imo they will be practicing law without a license. Just make sure they work for a large non indenpendent broker with deep pockets.

Real Estate Auctions

Interesting article about foreclosures and auctions. Note, each state has different rules for instance California's rules for redemption by foreclosed former owners are different.

Let the Home Auction Bidder Beware: "'Banks have a duty to bid as much as they are owed' on an outstanding mortgage, says Ryan Slack, chief executive of, an online real estate research company in New York City. 'But investors don't want to buy a property unless it's [priced] at a discount,' he adds. Indeed, at a July 13 foreclosure auction at the Queens County, N.Y., Supreme Court building, only four of the 18 properties auctioned that day attracted any bids from the public. The rest, observers said, ended up in the hands of their mortgage lender. But the ability to obtain troubled properties doesn't end there: Some time after the lender takes title to foreclosed properties, a new selling phase typically begins. That's when banks try to shed unwanted properties - typically by selling them through a real estate agent or by offering them at a second auction. These post-foreclosure auctions are attractive to lenders, experts say, because they can unload their mounting stocks of properties on a specific date. Thus, 'you're seeing [post-foreclosure auctions] of 20 to 30 properties at a time, held at conference centers or hotels,' says Rick Sharga, marketing vice president at RealtyTrac Inc., a real estate information company in Irvine, Calif. 'In the past, [such lenders] didn't have enough inventory' to hold such events. For"

San Diego Real Estate fallout > News > Business -- Summer job cuts in county offset by year-to-year gain: "“There's a relatively good chance that unemployment will hit 5 percent in coming months,” said Alan Gin, economist with the University of San Diego. “The fallout from the declines in the real estate market have not been completely realized as far as the local economy is concerned.”"

Thursday, August 23, 2007

Gross: Bush needs to rescue homeowners: Financial News - Yahoo! Finance

Gross: Bush needs to rescue homeowners: Financial News - Yahoo! Finance

Bill Gross of Pimco, one of the biggest players in notes and bonds in the world suggest that Bush should help bail out homeowners.

I am sure many owners of San Diego real estate hope that Gross is floating a trial bubble for the administration.

Tuesday, August 21, 2007

San Diego Real Estate Mess - Blame?

A quote from a comment to the article cited in my previous post about San Diego Real Estate.

By MJB on 08/19/2007

Bankers are getting quite cranky,
forced to give up their loan hanky-panky.
"Let's foreclose on the fools
who followed our rules,
and blame the whole mess on Bernanke!" > News > Business > Dean Calbreath -- S.D. housing market may only be in eye of storm > News > Business > Dean Calbreath -- S.D. housing market may only be in eye of storm: "This trend will worsen next month, which is the two-year anniversary of the nationwide peak in the housing boom. By October, more than $50 billion worth of adjustable-rate mortgages will require higher monthly payments, and that number is projected to grow by more than $30 billion each month through September 2008, according to the Credit Suisse banking firm. Because many of the borrowers could scarcely afford to make their payments at the teaser rates, they are going to be in a bigger bind when the rates adjust upward. Even if the Federal Reserve moves to push interest rates lower, many borrowers will be forced to sell their homes at a loss or go into foreclosure. Already, the number of"

Sunday, August 19, 2007

Loss Mitigator: The Ins and Outs of Short Sales & Understanding Credit Reports/ Q&A

Real Estate Blog - Loss Mitigator: The Ins and Outs of Short Sales & Understanding Credit Reports/ Q&A

The author of the article gives us his notes after going to a lecture from a "Loss Mitigator".

Please be aware the information regarding deficiency and tax liability does not apply to many California real estate owners. California has a complex web of consumer protection statutes which protect many California homeowners from deficiency judgments. (Tax liability is another complex area of law. It should only be tackled by a lawyer with the tax regulations in front of him (or her), and understanding of the anti-deficiency statutes and case law.) Finally, it is my opinion a short sale is rarely the best option for a California homeowner. In fact from my perspective the Lender is the party who should be suggesting the short sale and making the concessions if the homeowner negotiates properly.

Here is my condensed version of the "notes" for the lecture.

Credit Reports

A credit history which shows a history of making mortgage payments is important. Lenders may forgive missed payments if the applicant had a very good reason for the missed payments.

The above information about credit may not apply during our current credit squeeze. (I think there is a strong chance this will hold true in the future.)

Short Sale Negotiation

The negotiator should convey the following:

- We want to work with with you (the lender) to minimize your loss.
- We have determined reason for delinquency. (What factor did the lenders miss during underwriting which should have tipped the bank off to the increased risk.

- Ask the bank if it is willing to give up some of the fees and penalties to get a sale done.
- Also ask the bank if they are willing to reduce the principle.

- At the time of the lecture the loss mitigator stated the banks did not want to believe their appraiser would have let the borrower pay too much for the real estate. (Banks no longer suffer from this illusion.)

- It is helpful to have the listing aged and to show the property has zero interest at a higher price.

- The loss mitigator does not make the decision, he packages it up for a supervisor or officer at the bank.

- And now perhaps for my favorite piece of advice which I have suggested before. Attorneys have options which bring the loss mitigators or the foreclosure departments to the negotiating table. If your home is in danger of becoming upside down, you should work with a San Diego attorney who understand this area of the law. Your short sale team should have a licensed California attorney and a licensed California real estate agent.

"Again, banks do not want to believe they made a mistake by approving your homeowner. However, they want to minimize losses. They also want to avoid a bankruptcy filed by the homeowner at the very last minute right before the forced sale. If you can document your homeowners desire to file bankruptcy (via attorney letterhead) then you may have a better chance at getting the short sale done according to your terms."