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hort sale may help in mortgage
bailout
Sunday, October 7, 2007
By G. PATRICK KELLEY
REPOSITORY BUSINESS EDITOR
The
nationwide crush of foreclosures and lenders
with bad loans on their books have spawned
another aid for those caught in a financial
bind - the short sale.
It won't save your home, but it's designed
to help preserve some of your credit rating,
and make it easier to recover your good
credit.
Realtors Shelly Ralston and Michael E. King
work together at Whipple Auction & Realty.
They took a course on short sales and have
completed about 15 sales, with another four
pending. It's not a lucrative business. "We
typically work at a reduced commission,"
King said.
What is a short sale? It's when the lender
accepts a payoff that is short of the actual
loan amount.
"What it amounts to for the banks is cutting
their losses," King said. "Banks are in the
business of loaning money, not owning real
estate. They can't have too much property on
their books."
avoiding foreclosures
Foreclosures can cost the lender as much at
$20,000, and King said if a house goes to
sheriff's sale and doesn't bring a bid of
two-thirds of the appraised value, the bank
will buy it back.
Rebecca and Karl Wasara are hoping the pair
can help them. They were living in a
condominium and have a 11/2-year-old
daughter. When Rebecca became pregnant
again, they decided they needed a larger
home.
The put the condo up for sale themselves and
thought they had a buyer, so they bought a
new home in Nimishillen township - then
their buyer backed out.
"Here we had a new home and a new mortgage"
and the old mortgage had an adjustable rate,
Rebecca said. The interest rate was fixed at
7.25 percent for two years, and then it went
up 3 percent, or about $200 to $250 a month.
"Now we're looking at two mortgages that are
well above $1,000 a month." They couldn't
refinance the condo, and an attempt to rent
it out didn't work out, plus it needs
repairs and they didn't have the money.
The Wasaras contacted Ralston and King and
decided to go through a short sale.
"I guess our main objective right now is to
salvage our credit," Rebecca said.
"Ultimately, the short sale is attractive
because it doesn't destroy your credit, but
it does impact it," Ralston said.
less impact on credit record
The effects of the short said can be worked
off credit history much faster - in a little
as a year - if you keep paying your bills on
time, King said. A foreclosure will stay on
your record for several years.
Stacy Cable's mother has rheumatoid
arthritis, osteoporosis and severe
Alzheimer's disease. She needed to sell a
second home to help out with finances.
Cable said she tried contacting the bank
herself because the mortgage was $135,000.
"It was appraised at that although nothing
else in neighborhood was selling for more
than $100,000," she said.
That didn't work, and the house wasn't
selling because of the down market, so she
contacted Whipple.
"They did all the negotiations with the bank
and got them to accept the short sale,"
Cable said.
The house sold for $96,000, and after fees,
the lender got $88,000.
"I'm not going to talk to a lender until
I've got a purchase agreement," Ralston
said. They list the home at fair market
value, no matter what the mortgage amount
is.
"You're fighting with the world out there,"
King said. Trying to sell a home above
market value, "You're wasting your time and
you're wasting our time."
Once there is an offer and the seller
accepts it, "We become negotiators at that
point," Ralston said. They take the offer
and submit it to the bank on their behalf,
along with a letter describing the seller's
hardship and financial status.
The bank can either accept, reject or
counter-offer, and lenders in today's market
have accepted some pretty surprising
numbers. One home the pair sold had a
$70,000 mortgage and the lender ended up
with $7,056. Another $75,000 mortgage was
settled for $25,000, and the lender ended up
with $21,974 after fees.
"Some banks are slower to act. They're not
as accepting" of the short sale premise,
Ralston said.
Short sales start with a phone call from
somebody in need. "They're three months
behind, the interest rate is going up ..."
said Ralston said. "Can you help us?"
However, "There's always a but" like, 'But
we don't think our house is worth what we
owe,' " King said.
"We already know that."
loan above house value
Often - like Cable - people with mortgage
problems are buried under an inflated
appraisal that jacked the loan amount well
above the value of the home.
One person who came to Whipple had a
mortgage for $210,000. "On a good day it
wouldn't sell for $140,000 - $145,000,"
Ralston said.
They have even helped people already in
foreclosure or bankruptcy. Borrowers should
remember that the amount the lender forgives
may be taxable, and an accountant may be
needed to straighten things out with the
Internal Revenue Service.
"These people are hurting," Ralston said.
With a short sale, "There's hope, and that's
ultimately what we want to give people."
Conclusion
Are you one
of the many that suffer from insurmountable
debt and wonder if bankruptcy is an option?
Give us a call at (203) 924-6700 or
contact us.
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