Everything You Need To Know About Short Sales & More…

Written By:
Howard "HD" DeRias
Tim & Julie Harris

*This book and its content are not intended to give legal or accounting advice. Readers of this book are advised to seek additional information from their accountant and or attorney. The authors and co-authors are not accountants or attorneys.

Table Of Contents

Chapter One: A National Epidemic Is Looming...Are You Ready?

Chapter Two: How Bad Is It?

Chapter Three: Ok, I Get It… A Short Sale May Be My Best Option…Tell Me More

Chapter Four: What Is A Mortgage Foreclosure?

Chapter Five: You Have Been Warned: Foreclosure Scams

Chapter Six: What Are The Options For Homeowners In Foreclosure?

Chapter Seven: You Now Want To Short Sale Your Home: Top 10 Short Sale Questions, Answered

Chapter Eight: I Thought Rates Were Falling…Won’t That Help?

Chapter Nine: Life After Short Sale…When You Want To Buy A Home Again…FHA To The Rescue

Chapter Ten: Something You Should Know: The Death Of The Home Equity Loan - Millions Of Homeowners Shut Out

Bonus Chapter: What’s the difference between Short Sale vs Short Payoff?

Appendix A: Loss Mitigation Companies and Contact Info

Appendix B: A Complete Mid-Atlantic State-by-State Guide To the Most Common Foreclosure Procedures

Chapter One - A National Epidemic Is Looming…Are You Ready?

Are you stressed out about mortgage payments? Do you think your only option is a foreclosure? Is a short sale right for you? Millions and millions of homeowners are asking themselves the same questions. It is projected that over 20,000,000 homeowners will have negative equity in their homes in the very near future. In other words, they will owe more on their homes than they are worth. Over 2.9 million homes have foreclosed in the last three years and the number is only expected to grow. Expect the effects of the estate recession to ripple for years to come.

What can you do now?

There is expected to be massive tsunami of homeowners who are simply making the decision to sell their homes through a short sale vs. staying in a home, hoping that one day it may be worth what they paid.

No one is safe. News stories from across the country tell the tales of both celebrities and average Americans who are all considering selling their homes through a short sale.

Selling your home through a short sale doesn’t need to be a shameful, life-ruining experience. Sometimes short selling your mortgage simply makes smart economic sense, especially for homeowners who find themselves "upside down" — that is, they owe more on their mortgage than their house is worth.

Late last year, CNBC Financial Guru Jim Cramer was telling homeowners to ‘Just Walk Away’. (Watch the video on YouTube.com.)

We are clearly in uncharted waters. The current housing crisis is different from all the previous housing recessions. It is well known that many financial institutions sold mortgages in a deceptive manner — for example, by approving people for loans they couldn't really afford — then why should homeowners feel obliged to honor their commitments?

From a homeowner’s perspective, why should they stay in a home that is depreciating? Often times it’s possible to rent the same style home in the same area for half (or less) than their current mortgage payment. Assuming it takes years for the market to recover, the homeowner who sells their home via a short sale now will be far ahead of the person who ‘stuck it out’.

Here is an example:

Starting May of 2008:

* Homeowner paid $500,000 at the market peak in late 2006. Homeowner put down 5% and did a 7 year interest only mortgage. Monthly payment including principle, interest, taxes and insurance is $4200 per month.

* Assuming the property has depreciated 30% and is now worth only $350,000, the owner has negative equity or is ‘upside down’ by $150,000.

* The market is continuing to depreciate and is projected to level off in mid to late 2009. In other words, months and months of more losses for the homeowner.

Option 1

Homeowner can ‘stick it out’ and keep the home. They will continue to make their monthly interest only payment/ house upkeep of $4200 per month. They will pay $50,400 per year to keep the home. They are deeply ‘upside down’ in the home with massive negative equity. By late 2009, the home’s value has stopped depreciating. The market stays flat for at least a year thereafter. The inventory levels have to sell off. In late 2010 or early 2011 the market then starts to slowly appreciate again. Best case the home

starts to appreciate at 5% per year. Based on this rough example it will take at least 7 years for that home to be worth what that owner paid in 2006. During that time the homeowner will have paid $50,400 per year. Do the math. That’s $352,800 spent to stay in the home and ‘stick it out’.

Option 2

Homeowner lists the home with an agent trained in doing short sales. The home sells and the bank agrees to accept the loss in equity as the short sale. Bank loses $150,000. Homeowner moves to a rental home in the same neighborhood and pays rent of $2000 per month. Half of his previous house payment. Homeowner saves the difference between what he had been paying for the owned home and his new rent payment. $26,400 per year. Yes, the homeowner does have significant negative credit ramifications as a result of their short sale. This negative credit will prevent them from buying a home for the next 18-24 months. With this option he can sit out the real estate recession and jump back in when the market has hit bottom. If he times it right he can buy at the markets bottom. This time he will have a more significant down payment and a better quality mortgage.

Let’s be very clear about this next point…Yes, there is damage to your credit. According to national experts, after a short sale, a person’s credit will go down by 300 + or - points and then prevent them from buying using a government backed mortgage for up to 24 months. With a foreclosure, the credit is damaged for up to 4 years preventing someone from obtaining a government-backed mortgage.

Many home owners who are now short selling their properties are going to want to buy houses again some day; and when they do, lenders are going to want to make money lending them money to do so.

Chapter Two - How Bad Is It?

One thing is certain: Foreclosures are on the rise. Cities in California, Ohio, Florida and Michigan just posted the highest foreclosure rates in the U.S., according to RealtyTrac, a private firm.

RealtyTrac is the go-to source for the best foreclosure information. This information is from a recent report that they released. If you want to obtain current, up to the minute information on foreclosures in your area go to their website. www.realtytrac.com

Foreclosure Activity Up 112 Percent From Q1 2007

California and Florida Cities Accounts for 13 of Top 20 Metro Areas -

“RealtyTrac, the leading online marketplace for foreclosure properties, released its Q1 2008 U.S. Foreclosure Market Report™, which shows foreclosure filings — default notices, auction sale notices and bank repossessions — were reported on 649,917 properties during the first quarter, a 23 percent increase from the previous quarter and a 112 percent increase from the first quarter of 2007. The report also shows that one in every 194 U.S. households received a foreclosure filing during the first quarter. Foreclosure activity in the first quarter increased on a year-over-year basis in 46 out of the 50 states and in 90 of the nation’s 100 largest metro areas, demonstrating that most regions of the country are seeing more foreclosures.”

Nevada, California, Arizona have the highest state foreclosure rates. One in every 54 Nevada households received a foreclosure filing during the first quarter, the highest foreclosure rate among the states and 3.6 times the national average. Foreclosure filings were reported on 19,595 Nevada properties during the quarter, up 3 percent from the previous quarter and up 137 percent from the first quarter of 2007.

Foreclosure filings were reported on 169,831 California properties during the first quarter, the highest total among the states and a rate of one in every 78 households — the nation’s second highest foreclosure rate. Foreclosure activity in California increased 32 percent from the previous quarter and was up nearly 213 percent from the first quarter of 2007.

Arizona documented the nation’s third highest state foreclosure rate, with one in every 95 households receiving a foreclosure filing during the quarter. Foreclosure filings were reported on 27,404 Arizona properties during the quarter, up 45 percent from the previous quarter and up nearly 245 percent from the first quarter of 2007.

Foreclosure filings were reported on 87,893 Florida properties during the first quarter, the second highest state total and giving Florida the nation’s fourth highest foreclosure rate — one in every 97 households received a foreclosure filing during the quarter. Foreclosure activity in the state was up 17 percent from the previous quarter and up 178 percent from the first quarter of 2007.

Colorado foreclosure activity increased 33 percent from the previous quarter and 78 percent from the first quarter of 2007, and the state’s foreclosure rate ranked No. 5 among the states. Foreclosure filings were reported on 18,996 Colorado properties during the quarter, a rate of one in every 110 households.

Other states with foreclosure rates among the top 10 were Georgia, Michigan, Ohio, Massachusetts and Connecticut.

The Q1 2008 U.S. Foreclosure Market Report also ranks the nation’s 100 largest metropolitan areas by foreclosure rate. California and Florida metro areas accounted for 13 of the top 20 metro foreclosure rates, with the California cities of Stockton and Riverside-San Bernardino taking the No. 1 and No. 2 spots.

One in every 30 Stockton households received a foreclosure filing during the quarter — 6.6 times the national average — and one in every 38 Riverside-San Bernardino households received a foreclosure filing during the quarter — more than five times the national average. Other California metro areas in the top 20 included Bakersfield at No. 4, Sacramento at No. 5, San Diego at No. 9, Oakland at No. 10, Fresno at No. 12, Los Angeles at No. 17 and Orange County at No. 19.

Las Vegas documented the third highest metro foreclosure rate, with one in every 44 households receiving a foreclosure filing during the quarter. The metro area’s foreclosure activity increased 1 percent from the previous quarter and 134 percent from the first quarter of 2007.

Detroit foreclosure activity in the first quarter decreased 22 percent from the previous quarter and was down almost 4 percent from the first quarter of 2007, but the metro area’s foreclosure rate still ranked No. 6, with one in every 68 households receiving a foreclosure filing during the quarter. Phoenix foreclosure activity increased 46 percent from the previous quarter and 294 percent from the first quarter of 2007, and the metro area’s foreclosure rate ranked No. 7, with one in every 70 households receiving a foreclosure filing during the quarter.

The highest ranked Florida metro area was Fort Lauderdale, which ranked No. 8 with one in every 73 households receiving a foreclosure filing during the quarter. Other Florida metro areas in the top 20 included Orlando at No. 13, Miami at No. 14 and Sarasota-Bradenton-Venice at No. 15. The foreclosure rate in Tampa-St. Petersburg-Clearwater ranked No. 21.

Other metro areas with foreclosure rates among the top 20 included Denver at No. 11, Atlanta at No. 16, Cleveland at No. 18 and Memphis, Tenn., at No. 20.

Chapter Three - Ok, I Get It…A Short Sale May Be My Best Option…Tell Me More…

A short sale is when a lender accepts a discount on a mortgage to avoid a possible foreclosure auction or bankruptcy. For example: A homeowner, who is facing foreclosure, has an existing first mortgage of $500,000. The market value of the home is $350,000.

Long story short, the lender accepts the offer for $350,000 and the home is sold.

That’s a short sale.

Why are lenders so eager to take such a huge discount? Banks do not like bad loans. If they see an opportunity where they can sell the property without the huge loss of a foreclosure, they will do it. Some lenders report that if the home goes into foreclosure by the time the home actually closes with the new buyer, the lender will be lucky to net 50% of the original loan balance.

Bottom line from the lenders perspective? They are in the business of lending money, not owning homes. If they can accept a short sale offer and rid themselves of the bad loan AND net more, vs the home going into foreclosure, they will do it every time. It’s simply smart business.

Time is not on your side when you are considering a short sale. You must act quickly and work only with a real estate expert who has successfully completed and graduated from advanced real estate education programs...