Short Sale or Loan Modification?
Short sales and loan modifications are buzzwords these days. As much as people talk about them, do they really understand them? In this post I am going to help you decide which is best for you.
First, I want to say that there are several other options that a property owner in foreclosure has. I go into depth on all of these issues in my free eBook entitled “7 Ways to Avoid Foreclosure in 2010″. I have made this available to you as a free resource at the top right corner of this site. Grab that and you will learn several other techniques and options that you may not be aware of. For now, the two main strategies that work best right now, in this market and this phase of the recession/depression we are facing are short sales and loan modifications.
Short Sale
A short sale is when a lender takes a discount on the mortgage balance so that you can sell the property. They will do this when a foreclosure is inevitable and the owner is insolvent. If you can not make your payment and prove it, check. If you have missed several payments, check. If you are insolvent, check. If the property is upside down in value, check. If you have a negative net worth, check. You want to sell your property, check. These and several other internal factors will be required to perform a short sale. If you just want to get rid of a property that is upside down but have good income and assets, you will not qualify and you should explore other avenues. A good way to tell if you can sell a property short is if you can say to yourself, “There is no way I can afford this anymore”. If you have had hardships like job loss, divorce, death in the family, sickness in the family, or any other major life catastrophe, the bank will most likely work with you. To start the short sale process, you will have to hire a Realtor to list the property. Banks want to see that you have given the property a fair chance to sell for top dollar and the best way to get alot of exposure is on the MLS. Make sure to find the local Short Sale expert who knows your market. They will cover the whole process with you and you don’t have alot to think about. The main thing to keep in mind is that your goal is to list the property for the right price. If you owe $200,000 and the Realtor can prove to you it is worth around $150,000, you should put it on the market for 90% of that or $135,000 if you just want to sell it quick and move on with your life. The reason you put it on for less than what it is worth is because you have to offer the market a discount or they will not move on it. Short sales are a pain in the butt and take along time to negotiate. Very few buyers are willing to wait 4-12 months to complete a short sale and for that reason the buyers that are left are expecting to get a discount in exchange for waiting to move into their new home. On the other hand, if you live there and want to stay a few more months for free to put a little more away in savings, I would recommend hiring a Realtor now, put it on the market for $200,000 plus closing costs, and then have a weekly price change plan. If your Realtor lowers the price regularly, that will prove to the bank that you started high to get the most money and yet you wanted to be aggressive in finding the right buyer. To find the right Realtor, you can go to your local REA (Real Estate Association) and ask around. Another way is to visit www.Realtor.com and search around. Also, you could google “McHenry Short Sale Expert” or similar keyword phrase. If you need any help, just let me know.
One other option you do have is working with an investor to buy your house via short sale. This is a good strategy in certain situations, but it is more complex than listing it. I can go over that strategy with you in person.
Loan Modification
A loan modification is when a bank negotiates your mortgage payment and/or principal balance going forward so that the property is more affordable and stops the foreclosure. If you want to keep your property, this is a great strategy, but difficult to actually consummate. You have to have enough income to afford the new payment, but not so much income that you can easily afford it. If they see that your income is high in comparison to your expenses, they will assume that you can afford it without a modification and the bank will not take an unnecessary loss. A great way to go about this is to seek a local loan modification expert. Usually this is an attorney, a loan officer, a Realtor, or anyone who does this full time. Alot of them want upfront fees, but that is illegal in Illinois. You should look for someone with a reasonable deposit that is 100% refundable if the loan mod is unsuccessful. Some people will charge upwards of $5,000 and that is not reasonable. Unless you have an expensive property, you should never pay more than $2,500. At Exit Platinum Realty, we charge $1,000 upfront that is fully refundable and $1,000 on the back end once we are successful. The success rate for the industry for loan modifications is 8%. That means only 8 out of 100 homeowners who want to keep their property, end up keeping it. We tell our clients upfront if there is a good chance or not.
There are some professionals who will charge you $0 to get started and only charge upon successful completion. If you find one at 0 upfront, that is the best, but make sure they are competent and you are not their guinea pig. One important factor is a forensic audit. This is where an attorney can scour your mortgage documents and find errors and one-sided agreements favoring the bank that are illegal. Usually, they will find errors. This is major negotiating power against the bank and could be the difference between your payment going down by $200 without a forensic audit and $500 with one. Most banks send paperwork to the consumer to tell them specifically not to hire a loan modification specialist because they have departments set up to help you with this. That is true, but you will have far less negotiating power than a lawyer and you are subject to the limited information that you have gathered. A lawyer or other highly qualified professional would have the experience to find ways to better your situation than you can. This is why the bank sends letters saying not to hire these people, because they know they will have to offer you more. If you want to do some research, just google “McHenry Loan Modification Expert” or other similar keyword phrase. If you are an owner near McHenry, IL, feel free to contact me for a no obligation analysis of your property and situation. I can be reached at 847-629-5400 or email at nick@nickgraff.com.
Hope this helps,
Nick
