Have Flat Prices Hit Bottom?

Last year it appeared that the price of flats in Manchester had finally hit bottom. If one was to have done a search on flat auction manchester, they would have discovered that most of the flats were selling at around sixty percent below their highest value from 2007. Over speculation by investors led to an oversaturated market and now banks and lenders are willing to sell off these properties as soon as possible and are not concerned if they take a loss. Now may be the best time to take advantage of low prices and availability. Check out an auction close to you.

Foreclosure Trends Today

First of all, what is foreclure?

Foreclosure is the legal and professional proceeding in which a mortgagee, or other lien holder, usually a lender, obtains a court ordered termination of a mortgagor’s equitable right of redemption.

Foreclosures took a turn for the worse in the United States during the fall on Wall Street in 2008.
In fact, foreclosures in WA, CA, AZ and most states, surpassed three million in 2008, calling for more efforts from Washington DC lawmakers.

What’s in store for 2010? Well, officials from Realty Trac are suggesting that foreclosures for 2010 could go as high as four million, which might be considered the peak of the foreclosure cycle.
It’s possible that the US foreclosure fiasco won’t stabilize until the end of 2012.

What Is A Strategic Foreclosure?

Many Americans are going to great lengths to save their homes; from maxing out credit cards to getting a foreclosure attorney.  There have even been stories of people blockading their property to prevent eviction.  But a small minority of owners are actually walking away from their homes even when they can afford the mortgage.

Strategic Foreclosure

If you bought during the peak of the real estate market, the value of your home may have decreased anywhere from 10 to 40% or more.   For many, this is irrelevant, because they plan on being there for the long run.  But others bought with the intention of reselling their home for a tidy profit in a few years.  Whatever the case, many are choosing to walk away simply because their home is worth so much less than what they paid for it.  This is called a strategic mortgage.

Right now only a small percentage of people are doing this.  But if prices continue to decline, this may become much more common.  In fact, a recent poll recently found that 32% of homeowners say they would walk away if the value of their home continues to decrease.  They say it would be better to cut their losses and get an apartment than continuing to pay on an underwater home loan.

Consequences

If you’re contemplating this technique, there are consequences to consider.  First of all, a strategic foreclosure impacts your credit in the same way a regular foreclosure does.  That means it will stick around on your credit record for at least 7 years. 

During that time, it will most likely be more difficult to get credit cards, car loans, or any kind of lending for that matter.  According to internet forums and credit card reviews, right now it’s even difficult to obtain something as simple as a department store card if you’ve had a recent foreclosure. And if you’re dreaming of a Visa Black card or some other premium piece of plastic, you can forget it as long as that foreclosure is on your credit file.

Alternatives

As ironic as it sounds, there’s never been a better time to have troubles with your mortgage.  With so many new programs, incentives, and regulations to protect homeowners, there’s a good chance you can modify your mortgage.

There are now opportunities to get a historically low APR.  Depending on your current rate and the amount you borrowed, this has the potential to save you hundreds of dollars a month.

Rate Reduction: 

  This may be harder to do, but depending on the price you purchased your home for, you may be able to get the amount of the principal reduced.

Principal Reduction:

Foreclosure Freeze:  This varies state by state and the rules are constantly changing, but there are some areas which have put a “freeze” on new foreclosures; postponing them an extra 30 to 90 days.  During that time, they want you to try and work out a new payment to keep you in your house.

The bottom line is that help is available and a strategic foreclosure may not be necessary.  Consult the internet or an attorney which specializes in this field to find out more.

Finding foreclosure listings and foreclosed properties by city and state can easily be done through sites like GoHoming.com

Mortgage Rates

For those of you out there who don’t have a clue as to what a mortgage is, read on. A mortgage is the transfer of an interest in property a lender as a security for a debt which is usually a loan of money. Mortgage is mainly a security for the loan that the lender makes to the borrower. It is the way by which individuals and businesses can purchase real estate without the need to pay the full value immediately from their own resources.

In the ’50s and right up until the mid ’60s the Mortgage Rates were around 5% to 5.5%, which is very close to where mortgage rates are now. However, beginning in 1971, the mortgage rates started to increase. The economy today is very dependent upon mortgage   rates. Right now the interest rates are very low.

Mortgages may be largely classified into two:
1. Fixed Rate Mortgage (FRM) and
2. Adjustable Rate Mortgage (ARM)
The Fixed Rate Mortgage has the characteristic of a constant and stable interest rate throughout the life of the loan. Our parents more than likely had one, as did their parent before them. The major advantage of fixed rate mortgages is that they present predictable housing costs for the life of the loan. The more prominent mortgages rates you will probably hear about are:
• 30-year fixed-rate mortgages
• 15-year fixed-rate mortgages
• ”Convertible” mortgages
This option gives protection to the borrower in the event of fluctuating rates. It is a well-adopted alternative mortgage plan with conventional and concise figures devoid of hidden rate escalations most suited for a typical middle class family. Right from the inception of the loan up to the completion, you will know the fixed amount that will be paid during the entirety of the term.

The Adjustable Rate Mortgage, on the other hand has become one of the most popular and effective tools for helping some home buyers achieve their dreams of owning a house.   As it was mainly developed during a time of high interest rates which kept many people out of the housing market, the Adjustable Rate Mortgage offers lower initial rate. It does so by sharing the future risk of higher rates between borrower and lender. They can be an excellent choice of financing under certain conditions, like the high interest rates, and short-term home ownership.  Adjustable-rate mortgages differ from the fixed-rate mortgages in that the interest rate and monthly payments and as market interest rates fluctuate.
In recent weeks, mortgage rates have spiked, representing perhaps the most menacing obstacle to the federal government’s efforts to revive the housing market and pull the economy out of its devastating rut. Rates have gone up from 5.03 percent on May 26 to 5.79 percent on June 10, as per the sources. Increased mortgage rates undercut the recovery in a number of ways. They tend to drive housing costs up, thus limiting the buyers demand and threaten to drag the already falling home prices even lower.

But yes, the one thing about recent mortgage rates trends is that they are worth talking about! Back in ‘07, when the mortgage rates were going down towards 6%, everyone said that it couldn’t last much longer. But people have short memories. The recent mortgage rates trends have taken mortgage rates from a historical low to a truly historic low, and there is likely to be another fall or three before the recession bottoms out.

Seller Lease Backs

Over the years I have often been asked this question when trying to help people in foreclosure.  “Can’t you buy my house from me, then we’ll just rent it back from you?”  I have always answered no, as this arrangement, known as a “seller leaseback”, is a bad deal for all parties.
At first it seems like a good deal for the buyer, because the property can be obtained for well below market value, and you already have a tenant that appears willing and eager to pay their rent.  However, relief often turns to resentment in these situations and the sellers soon stop paying their rent and taking care of the property, once they realize it no longer belongs to them.
Furthermore, the IRS casts a suspicious eye on these transactions, and both parties are likely to be audited.  These transactions have been used to hide assets and change the appearance of ownership, so the IRS will likely take a close look at your finances and tax returns if you enter into this type of arrangement.  The IRS may choose to “reclassify” the sale and leaseback, which could result in the buyer losing a great deal of money and being immediately foreclosed upon by their new lender.
Finally, if the seller subsequently files bankruptcy, the bankruptcy could decide the seller leaseback was an attempt to hide assets.  The court could confiscate the property to satisfy secured debt and tax liens.
From your standpoint, you may be thinking you’ll get to stay in the house and that’s all that matters.  But once you realize the house isn’t yours anymore, how will you feel? 
The bottom line is this: Seller leasebacks are a bad deal for both parties.  You may decide to accept an investor’s offer to do this, but think carefully, read the fine print, and do so only as a last resort. The reality is, very few people end up buying their houses in these deals, and believe me, the investors know it.

For Sale by Owner – FSBO

If, for whatever reason, selling with the help of an agent is not an option, you can attempt to sell your house yourself.  You’ll save the 6% commission, but you’re going to have more work to do on your own. On the other hand, if you don’t have enough equity in your home to pay the commission, most agents won’t help you anyway.

Make It Look Good!
 Make sure you clean up your home and make it attractive and welcoming to prospective buyers.  Get on the web and search for “how to sell my home” and you’ll quickly find articles on how to make your home more attractive to prospective buyers.  Be sure to keep it neat and tidy, the lawn well-trimmed and picked up, etc.  Make your home look like a place your prospects would want to live! 

Get The Phone Ringing
Now that your house is looking good, here’s how to get plenty of calls in a hurry!
1) Buy a big “For Sale by Owner” sign at Home Depot or Lowes and stick it in your front yard.  Put your cell phone number (if possible) on it in BIG numbers.  Buy a couple of the smaller, arrow signs to put on major cross streets to direct people to your home.

2) Set a reasonable price for a quick sale.  Put an ad in the paper that says “By Owner: (brief description), must sell fast, serious inquiries only, 555-1234″.  Your phone will ring, mostly from investors.  Depending on your time constraints, you may want to talk to anyone who calls right away because you are desperate to get a deal done before the lender sells your house.  If you have some time, I’d advise asking flat out “are you interested in this house for yourself, or are you an investor?”  If they are an investor, you can either politely tell them you’re not taking offers from investors just yet and get their name and number in case you decide to.

3) Consider using a service like ForSaleByOwner.com.  For a very reasonable amount, they will help you come up with an ad for your house, which then prints into a full-color flyer you can leave in a box on your front yard sign for prospects to take with them.  Additionally, you can place an ad in the paper with a link to your flyer on the ForSaleByOwner website.  This will make your house stand out from all the others for sure!

At this point, don’t tell any potential buyers that you are close to foreclosure, as they might use your situation to drive down the price.  On the other hand, if you set your price too high you may not attract a buyer in time.

Doing the Paperwork
Find a local title company with a good reputation.  You may want to ask friends or neighbors who have recently bought or sold property who they used and if they recommend them.  Once you’ve identified a title company, call or drop by and ask for a “single family resale packet”.  This will contain the necessary forms that you and the buyer will need to fill out and turn in to the title company. The title company will not be able to give you any legal advice, but they can instruct you on the normal way things are done.
 Once you and a buyer agree on a price, you should sit down and fill out the forms in the packet.  Ask the buyer for an earnest money check.  Usually this will be an amount between $500 – 1% of the sale. The check should be made out to the title company, not you. The title company holds the money in escrow, and credits it to you when the sale goes through. Most contracts allow the buyer to back out and get their interest money refunded, but at least you know they were serious enough to write the check to begin with. Or, if you really want to see if they are serious, you can modify the contract by putting the special provisions section “Earnest money is non-refundable, and will go to seller if buyer terminates this contract.” This is a delicate balancing act – you don’t want to run off a buyer, but you don’t want to waste your time with tire-kickers either.  Your buyer or their lender may request a survey, appraisal or inspection.  If they do you should agree, but those are expenses that should be paid by the buyer.

Lease-Option
Something else you might consider is a “Lease/Option”.  In this scenario, you offer to lease your house to a new tenant-buyer, with an option, but not the obligation, to buy.  Perhaps you can find someone who wants your house and has a down-payment that would cover what you need to stop your foreclosure. But, for whatever reason they are unable or unwilling to get a loan and buy it at the moment. By utilizing a lease/option, you can stop the foreclosure by using the option fee paid to you, to pay your lender. You then have a tenant in your house that will cover the loan payment every month, and hopefully they will eventually buy your house.  Two tips: First, be sure to negotiate a sale price so that you make a profit when the sale goes through. Second, be sure to collect their rent and then make your mortgage payment – don’t let them send it directly to the mortgage company.  You want to make sure the payments are getting made!
All in all, hoping your house will sell in time to avoid it being foreclosed upon can be a very nerve-wracking experience — but never fear, there is always one other option to keep your house from being sold on the steps of the Courthouse - which we’ll cover in the next chapter.

Fire Your Lender! (Refinance!)

If you are unable to get the lender to work with you on any sort of payment arrangement or forbearance agreement, you should immediately see if you can refinance the property.  A refinance loan is a new loan that pays off your old loan completely.  The old lender goes away and you start with a clean slate with your new lender. Since your relationship with the old lender has soured, this may be a very attractive option!
Once again, keep your eye on the calendar.  There may not be time to refinance if you are already approaching the sheriff’s sale. For example in my state of Texas, from the time the foreclosure is posted to the sale date is only three weeks.  It may be difficult to close a loan in three weeks – but worth a try. In fact, if your loan is approved you may be able to get your current lender to delay the sale to give you time to close, but you will likely have to provide sufficient documentation that you are working with another lender.
In any case, it is important that you continue to work on other solutions simultaneously. If the refinance doesn’t go through, you want to have a back-up plan in place.  Don’t put all your eggs in one basket. More than one homeowner has seen a refinance fall through at the last minute and had their house auctioned at the sheriff’s sale before they could come up with another solution.
If you can refinance your home, your problems with your lender go away because THEY get paid off and go away.  You’ll then have a new loan with a new lender.  You’ll probably get to skip a month’s payment as a bonus.  (I understand many folks in the mortgage business refinance their house every November so long as interest rates aren’t rising, then they use their December house payment money to pay for Christmas presents and a vacation.  Not bad!) Heck, depending on the interest rate on your original loan, this may be a great deal for you anyway - your payment could even go down.

Loan-to-Value
A key factor in your ability to get a loan, especially if your credit is damaged, is the Loan-To-Value (LTV) ratio. If you have a low enough LTV, not only will you be able to get a loan easier, but you may be able to “cash out some equity.”  Equity is the difference between the value of the house and the amount you owe on it. Here are two examples of how equity in your house could increase.
1) You bought your house for $100,000.  It is worth $100,000 today, but in the course of making payments over the past several years, you have paid off $10,000 of the principal, so you only owe $90,000 and have $10,000 equity in your house. $90,000 / $100,000 = .9, so you have a 90% LTV.

2) You bought your house for $100,000.  The value of your home has increased to $120,000 today, and in the course of making payments over the past several years, you have paid off $10,000 of the principal, so you only owe $90,000 and have $30,000 equity in your house. $90,000 / $120,000 = .75, so you have a 75% LTV.

Thus, if real estate values in your area are increasing, you may have built up some equity in your home without even knowing it.  Ask your new lender “How much equity can I cash out?”  They might say none, but if they let you, why not get a little extra cash so you can have money to make the first few house payments or other expenses for a few months? Be responsible here - don’t cash out $20k in equity and take the family to Europe for the summer.  But if you have the ability to cash out some equity, do so.  Once you’re back on your feet, if you want to take the extra money out and pay it towards principal on the loan, you can do so.

Debt-to-Income
Another important ratio that your lender will be interested in is your Debt-To-Income (DTI) ratio. This is the ratio of how much you have to pay for your expenses and bills to how much income you bring in each month. The historical figure that mortgage lenders have required for a loan to be approved is a 36% DTI.  If you have much higher than that, you may have to look to private lenders for a loan.
I have two further suggestions regarding refinancing your home:

1. Get SOMEONE who understands mortgage loans (your banker, cousin, friend, dad, etc) to review the terms of your new loan before you sign on the dotted line.  You need to UNDERSTAND what you are signing and the ramifications to your payment, interest rate, payoff amount, loan term, etc.  Your NEW lender is not the best person for this, because your contact is probably earning a commission on closing your loan, and they may not give you 100% unbiased information.  Look before you leap!

2. If you cash out some equity, go to the bank and open a separate savings account.  Deposit in the savings account, NOT your checking account!  It will disappear out of your checking account in no time!  Withdraw that money ONLY if you really need it for your house payment, food, etc.    Don’t spend it all and find yourself back in this mess again!
Get the Facts Early
When working with a company to get a refinance loan, be sure to ask early on in the process for a realistic, good-faith estimate of their fees and what the interest rate will be. In the sub-prime market (if that is where you are at, and you probably are if your credit is damaged) it is normal to see high interest rates, but what you don’t want are surprises at the closing table.  Some lenders charge exorbitant loan initiation fees or closing costs to try to mask the true cost of the loan. Be sure to let them know you want to know how much all of that is going to cost up front, and that you do not want any surprises at the closing table. You should also get the name, phone number, and email address of your closing agent from the lender. The closing agent will work for a local attorney or title company. Contact the closing agent and ask them to fax or email you a copy of the preliminary closing statement just as soon as it is ready. Ask them to send a new copy any time there are changes throughout the process. The closing statement is called the “HUD” in the business, because everyone uses the HUD-1 Settlement Statement provided by the U.S. Department of Housing and Urban Development.  That form breaks out exactly where every penny goes in a real estate closing.

Lenders
 For a list of lenders, please see the resources page at: http://www.stop-foreclosure-manual.com/resources.html.
If you have decent credit but have just fallen on hard times recently, go to an online service like eLoan and make them compete for your business. If your credit is not-so-hot (what lenders call “sub-prime”), try Countrywide Home Loans. You can fill out the application on their site from the privacy of your home and not have to talk to any human until later.  Remember, too many credit apps in a short period of time will hurt your credit, so just pick one or two and see what they can do for you.
Another option is to try a company called Abacus Credit & Loan. Abacus maintains a database of sub-prime lenders, including many who will loan you just the amount for your back 3-4 payments. According to their web site, they have been in business since 1998, they specialize in helping people with terrible credit – in fact they guarantee they’ll get you a loan.