Reno Home Blog

FHA,VA and Conventional loans: An Insider's Look by John Roussel

The mortgage tide has turned.

From virtually anyone being approved for 100% percent financing to 10-20% down payments in order to buy a house; I needed to learn more on the changes in the mortgage industry. 

Hence, John Roussel, A man who possesses what you might call 'infectious enthusiasm' yet is not hopelessly bounded by blind faith (correction: he also has it but not full-blown) often exhibited in our business.  A rare feat, if you ask me.   

Though I quietly disagreed (makes life colorful) with some of his arguments on the current state of our real estate market, he is on the side of the angels. I learned a lot from this guy.

Who is John:  John D. Roussel is owner of ProStar Home Loans with eleven years of mortgage experience in single family lending in Northern Nevada.  He is a member of the Mortgage Bankers and Builder's Association of Northern Nevada.

About this post:  John talks about Conventional loans, VA loans(veteran's administration) and FHA loans (Federal Housing Authority). 

Note: This 3-part article is not meant to encompass all the details regarding the topics mentioned.  Our hope is that through John's experiences we can all learn something new and hopefully aid us in our decision-making.

When and how did you get into the loan business?   

I actually started my undergraduate studies in cellular physiology.  So I'm not working in the field on which I started.   I had planned to attend Michigan State for medical school but my whole family relocated to Reno.  So I followed them and applied at the University of Reno's medical school and had gotten turned down because they've already filled out all their of state student box.

I had to wait for one year to establish my residency and during that year it was the first time I worked at a hospital, and I hated it.  I was so happy that my family relocated and I found out I never wanted to be a doctor in the first place. 

My whole family was in mortgage lending, it was an easy fit.   So that's where I went into eleven years ago.

What's the biggest difference in the mortgage business eleven years ago to now?

Actually, not a huge difference.  I've seen the business in that eleven year period fully cycled.  A lot of the loan programs that came around the last four or five years weren't there eleven years ago.  And a lot of those programs have now gone away.  So we've actually gone back to the lending practices similar to where I first began.
               

How about the changes from 2005 to the present? 

There's two parts to that answer.

Number one: what has Congress and Senate done to enact change? And the second part is how is the lending different?

The first part is they passed a terrific bill: AB440.  Where you can no longer state income without some type of backing documentation. Now, stated income makes sense for a lot of self-employed people who structure their taxes differently.  However, before, you could just state income and never had to give any backing, and the greedy industry was allowing that.

So they passed a bill (AB-440). (What is the AB-440 bill?)

You can no longer state income without some type of document backing, whether it be U.S Dept. Of  Labor, Salary.com or six months average deposit and bank statements.  That law helped tremendously. Congress and Senate on the local level, passed that law and they're trying to pass that on a Federal level.

On the Federal level they passed a number of laws that have helped like the FHA Secure product. (What is the FHA Secure Product? A word from the President)

That law would help a lot of homeowners that was on adjustable rate mortgages that are upside-down in their house.  This will help them fix their situation so that they don't have to go into foreclosure.

"Because Reno and Sparks have been tagged, 'in a declining market'.  It is very difficult to obtain 100% financing when using conventional financing."

That's sub-section one of your question.

Sub-section two: because of all of the profit-taking and the greed that happened in the past few years, many of the loan products that I was able to offer seven months ago no longer exists.  The conventional lending is drying up.

Because Reno and Sparks have been tagged, 'in a declining market'.  It is very difficult to obtain 100% financing when using conventional financing.

There are four major types of financing:  Veteran's administration (Better known as VA), Federal Housing Authority (FHA),Conventional and then Sub-Prime and there's also Private Financing.

However the three that everybody focuses on are  VA,FHA and Conventional.  So a lot of the conventional lending products are number one: hurting you on the loan to value that they're able to offer.  Number two: if you don't have a credit score of greater than 680,  it is going to severely affect your rate.  So conventional financing is becoming to where it's just the crème of the crop, just your 720 borrowers with ten percent down or greater.

If you don't fit those parameters you need to default back to your FHA and VA loans.

 

Tell us more about those loans

FHA has been around forever.  And back in the day (when I started 11 years ago) all of my loans were FHA. All of  these conventional products that have come out within the last four or five years, the ones that caused all the problems, didn't exist.

Ten years ago it was, ' oh you don't have 20% down, ok we're going to do FHA loan' and that's what the market has gone back to.

With FHA, you can still do a 106% financing.   I've told you a while ago that in conventional loans rules change five times a day and we have to keep a whole team just to keep up with that.

Whereas, I printed out the rulebook for FHA two weeks ago and the rulebook was from 1992.  Since 1992 they've released five mortgage E-letters, (a mortgage E-letter is how they announce their programs changes.) Since 1992 they've had five changes in the program.

"With FHA, you can still do a 106% financing."

So everybody is going back to FHA products, which is a terrific law.  It is designed for low to no down payment  loans.  The other good thing here is the mortgage insurance is very inexpensive,because it is a government-backed loan.

Describe your typical FHA borrower?

Nowadays, anybody with less than 10% down payment.  Which is exactly how it was seven to eleven years ago. Anybody with less than 10% down payment is now an FHA borrower.

How about the VA (Veteran's administration) loans?

For any eligible veteran who served in the military. This is a phenomenal loan as far as a zero down payment loan; there is not a superior product in the market. 

You see,FHA has a monthly mortgage insurance charge whereas the VA allows you to finance that on top of your loan amount so that you don't have to pay a monthly amount.  So you get a much lower payment as a veteran on a zero down payment loan.

If you are a veteran and you can exercise your VA benefits in buying a house, there isn't any zero down payment program that's going to surpass it.

 

...Read our 'friendly fire' dialogue on the state of the Reno real estate market

...Read why John loathes negative amortization and sub-prime loans

John Roussel of ProStar Home Loans
985 Damonte Ranch Pkwy Ste.120 Reno,NV 89521
775-284-STAR (7827)
john@prostarhomeloans.com
www.prostarhomeloans.com

Reno Real Estate: Where am I?

Who is John:  John D. Roussel is owner of ProStar Home Loans with eleven years of mortgage experience in single family lending in Northern Nevada.  He is a member of the Mortgage Bankers and Builder's Association of Northern Nevada.

About this post: John briefly tells us about refinancing issues he is experiencing with many of his clients.  Then John and I engage in a dialogue about the current state of the Reno real estate market.

Note: This 3-part article is not meant to encompass all the details regarding the topics mentioned.  Our hope is that through John's experiences we can all learn something new and hopefully aid us in our decision-making.

What's the most recurring question people ask you about loans?

They want to understand the re-financing option because property values have decreased significantly .

It is very important to understand what different loan programs you fit into.  There's just a lot of mis-education out there right now about what's available for the consumer whether you're buying or refinancing a home. The mis-education happens because information comes in so fast that it's taking twenty of us every day to keep up with the updates in the lending rules & regulations.  Education is where it's really lacking.

What have been the issues with refinancing?

A lot of people realize that they owe $320,000 and the house is worth $300,000.  And now they have adjustable rate mortgage that's going to adjust and people may think that there is no hope for that and so a lot people are throwing up their hands and walking away from their homes.

"There's also FHA secure, which as long as you do a 97.75% first loan here in Washoe County you can have an unlimited Loan to Value on a secondary mortgage."

There are so many other options aside from walking away from the house, which a lot of people don't want to do, but they're not being educated as to their choices that they have.  There's loan modification, where somebody negotiates on your behalf in order to take your adjustable rate  and make it to a longer term fixed rate.

There's also FHA secure, which as long as you do a 97.75% first loan here in Washoe County you can have an unlimited Loan to Value on a secondary mortgage.

So even though you're upside down they still have the opportunity to refinance your house to a long term fixed rate product.

What's your two cents on the present real estate market in Reno?

Historically, it has never been a better time to buy.

We're at the bottom of the trough.  A house that you're buying for $250,000 today, a year and a half ago would have cost you $350,000.

And with the Federal Reserve during their next meeting announcing a probable .5% discount rate cut (which they did), it looks like the rates on the long term fix are going to push towards 5%.

So if you look historically on the most ideal time to buy in the Reno-Sparks area, the answer is now or within the next two to three months.  People who were sitting on the fence should not be sitting on the fence anymore.

 

I can almost hear some of my readers saying, “ ok Ian/John how is it a good time to buy when my friend moved in to her new home, and after two months the builders slash their prices by $25,000, how can that be a good time to buy now? Wouldn't it be wiser for me to just wait for the bottom of the market and then buy?”

A lot of people put too much emotion in the home buying process.  And it's a very emotional decision.  However, if you look at the data empirically, over a ten years span, real estate has not gone down in value, period.  Now, this is a history of the United States, including the Great Depression.

So if you're asking me why is it a good time to buy now, a better question is why aren't you investing? Because it is an investment.  You're investing in something that is going to go up in a long period of time.  So as long as you don't do anything that forces your hand in order to move you out of that house; example by taking adjustable rate mortgages or some type,or Heaven forbid, a negative amortization,which is the worst product in the planet.

If you take a long term fixed and you can afford the payment you are not going to lose money ever.  So what if you can get that house for $10,000 less.  What if that same house goes up by $10,000 the next month because we've hit the bottom of the trough and you're back up to appreciation.  Are you going to be kicking yourself?

I see your point John, but people are thinking, “Why don't I wait for another year? For the past two years the builders have been dropping their prices every quarter.  Why don't I just wait for another year or two and get a bigger discount? And by that time my feet will be firmly panted on the ground, rather than sinking $10,000 until who knows when”

Well, how much have they gone down this quarter?

You mentioned 1.6% 

We are towards the bottom end of the trough.  They are going to go up.  Period.  If you just look at the OFHEO index (Office of Federal Housing Enterprise) and you graph it, and I have graphed it over the last five-year period.   We are on the very bottom of that bell curve.

"Now, if you'd ask me six months ago if you should buy a house, I'd say 'yeah,wait' but our drop in property values right  is down to single digits."

So where is it going to stop? It's pretty darn soon actually.  It's probably going to end within the next couple of months.  If you just look at numbers.

So when is the best time to buy? Now.  Before it starts going back up.  Five percent appreciation does not seem like much.  But if you look at it that means a $300,000 investment is going to cost you $15,000 more the next year.  So next year it's going to cost you $315,000.

And it's compounded because now it's five percent of $315,000.  So when is the best time to get in? Again, We're near the bottom of that trough right now.

Now, If you'd ask me six months ago if you should buy a house, I'd say 'yeah,wait' but our drop in property values right  is down to single digits.

 

But isn't it too early to call the market bottom basing it from last quarter's single digit  decrease when multiple quarters before that have been going down?

Not if you graph it over time. Real estate, it always cycles.  It's beautiful and you can count on it.   It's very very easy to make money in real estate.  You can just look at the empirical data and how everything cycles.

We're at the bottom end of the mortgage market meltdown.  There are obviously dropping the rates through the floor in order to stimulate the home buying market.

Here's another way to look at it. Let's say you can get the house for $10,000 less.

However, because the rates are going to hit bottom about five percent on the long term loans.  Then the rates will start to go up, and rates react much more quickly than do home prices.  Obviously, banks have their finger on the pulse with Wall Street.  And they raise rates much quickly than they drop them.

So if we hit that five percent level, and you can save $10,000 by waiting another quarter but the rates go up from 5% to  5.75% you've actually lost money.  If it's only a $10,000 decrease and your rates go up .75% you will lose money within two and a half years.

That doesn't make any sense.  Rates are historically low right now, it's one of the best time to get in the market here in Reno-Sparks.  And I'm not just saying that because I'm in the mortgage business.  You can look up the numbers and if anybody wants to know more you can send me an email and I will give you the websites where I  pull out the numbers, this is empirical data.

And again, if you would've asked me six months ago, “should I buy a home?” My answer would be, “Wait”.

...Read John's take on FHA,VA and Conventional loans

...Read why John loathes negative amortization and sub-prime loans

John Roussel of ProStar Home Loans
985 Damonte Ranch Pkwy Ste.120 Reno,NV 89521
775-284-STAR (7827)
john@prostarhomeloans.com

Negative Amortization and Sub-Prime Loans: What's Not To Loathe?

Who is John:  John D. Roussel is owner of ProStar Home Loans with eleven years of mortgage experience in single family lending in Northern Nevada.  He is a member of the Mortgage Bankers and Builder's Association of Northern Nevada.

Note: This 3-part article is not meant to encompass all the details regarding the topics mentioned.  Our hope is that through John's experiences we can all learn something new and hopefully aid us in our decision-making.

About this post: John shares his heart on what he thinks on the perils of getting a negative amortization and Sub-prime loans. 

Why he is still the number one fan of 30-year fixed rate notes. 

And finally, John answers the proverbial question, " If you had two minutes..."

What can we learn from this market downturn and the tough lessons that came with it? how can we can prevent this from happening again. (meltdowns,sub-prime mess,foreclosures, real estate bubbles)

"My answer to your question is if you can't qualify using a 30-year fixed rate note. You are buying too much home. Period."

We really need to do better at our education. As a country we need to do better. We aren't arming our students with the correct information. They need to understand the home buying process.  They need to understand credit. They need to understand balancing the checkbook. They need to understand some finance; basic skills that are going to get you through life.

My answer to your question is if you can't qualify using a 30-year fixed rate note. You are buying too much home. Period.

If you have to do a 5-year adjustable rate note in order to qualify for that home, and you're not getting significant raises (salary), you're in trouble; you will lose that home. There's a very small segment of the population where an adjustable note make sense.

We as a company don't believe in 'em. If you look at our numbers, in all of the loans we did in 2007, we only did four adjustable rate mortgages . Now we are a company of twenty people, we do a lot of loans, but only four times it made sense(adjustable rate mortgages). That's it.

If somebody can't qualify for a 30-year fixed rate note, they just need to buy less house. And thank God the market has come down where houses are much more affordable.

The people who said two years ago “geez I can't qualify for a 30-year fixed rate note.” What a great position they will be in now! They're getting the same house that they wanted for a hundred thousand dollars less. And now they qualify making the regular income and they don't have to count on making extra money down the road.

Here's another thing I wanted to tell you- negative amortization loans (what is negative amortization?). The negative amortization loans was designed for a specific type of person.

"The negative amortization loans was designed for a specific type of person."

It was designed for an investor who owned a vacation rental. Because the house rents like crazy six months of the year and stalls the other six months. So through this loan they can have the leverage that they need to stay afloat. And that loan as far as I know would be dangerous, to say the least, for everybody else.

Truth be told, it was a complete greed on the lending side to offer negative amortization loans to common people. Thank God they're bringing down legislation to change it. In my eleven years in this business, I have done two negative amortization loans. It made sense for two people. And that was it.

Wall Street and the lending business got really greedy because they saw the future value of these notes. They saw that these notes(negative am, adjustable rates) would be going up in value of nine to ten percent once these things started adjusting.

However they did not factor in that John Q homeowner couldn't make that payment. So they started paying lenders and loan officers exorbitantly more than a 30-year fixed rate note in order to sell that product.

And the greed that was in the industry was what perpetuated a lot of these problems. “If it sounds too good to be true, it is”. It was created within the industry. And I will agree with what Congressmen and the Senators are saying, that there are a lot of greedy people that were trying to take profits. Thank God most of those people are out of the industry by now. There is a reason why the number of licensed mortgage agents in the State of Nevada has gone from 29,536 to 6,800.

 

If you had two minutes with a motivated homebuyer what would you tell her?

1. Buy the smallest house in the biggest/nicest neighborhood. That's where you get the best appreciation.

2. Make sure that you get your loan pre-approved so you can increase your negotiation.

3. Don't go anywhere unrepresented.

4. Make sure your Realtor is a great negotiator and is genuinely representing you.

...Read our 'friendly fire' dialogue on the state of the Reno real estate market

...Read John's take on FHA,VA and Conventional loans

John Roussel of ProStar Home Loans
985 Damonte Ranch Pkwy Ste.120 Reno,NV 89521
775-284-STAR (7827)
john@prostarhomeloans.com

"We're not getting out by Christmas, Deal with it"

Photo by: le faju

I now understand the reasons behind taking the easy way.  Passions that have been domesticated.  It's easy for me to look at people who 'gave up' on their dreams, feeling bad knowing what they could have been.   This market has awaken me to my over confidence- it humbled.  Indeed,It is not easy taking the road less traveled.

JoAnne Correira, the most refreshing agent in Reno, once told Joe and me: 'this down market will separate the men from the boys'.  I grossly underestimated what it meant. I am growing an inch of mustache every fifteen minutes. 

The author's present ranting is not meant to spread gloom.  We have enough of that.  I am recognizing that there is something deeper at play, a conspiracy to push us to the limit.  But why? why do I feel  that somehow this was meant to be.  And for some bizarre reason, deep at the core, I welcome the challenge: ' do your worst...' The thought of finishing this race stronger as ever gives me the chills.  I can't wait.

I am reminded of Jim Stockdale, an eight year prisoner of war at the 'Hanoi-Hilton' prison camp, (though what we are going through does not even remotely come close to what Mr, Stockdale experienced, his story has encouraged me a great deal) :

“I never lost faith in the end of the story,” he said, when I asked him. “I never doubted not only that I would get out, but also that I would prevail in the end and turn the experience into the defining event of my life, which, in retrospect, I would not trade."

I didn’t say anything for many minutes (Jim Collins speaking), and we continued the slow walk toward the faculty club, Stockdale limping and arc-swinging his stiff leg that had never fully recovered from repeated torture. Finally, after about a hundred meters of silence, I asked, “Who didn’t make it out?”

“Oh, that’s easy,” he said. “The optimists.”

“The optimists? I don’t understand,” I said, now completely confused, given what he’d said a hundred meters earlier.

“The optimists. Oh, they were the ones who said, ‘We’re going to be out by Christmas.’ And Christmas would come, and Christmas would go. Then they’d say,‘We’re going to be out by Easter.’ And Easter would come, and Easter would go. And then Thanksgiving, and then it would be Christmas again. And they died of a broken heart.”

Another long pause, and more walking. Then he turned to me and said, “This is a very important lesson. You must never confuse faith that you will prevail in the end—which you can never afford to lose—with the discipline to confront the most brutal facts of your current reality, whatever they might be.”

To this day, I carry a mental image of Stockdale admonishing the optimists: “We’re not getting out by Christmas; deal with it!”

 

Confessions of a Short Sale Expert in Reno

Note:  This is an advertising campaign that will be launched next week around Reno.  I'd love to hear your thoughts and suggestions.

                              

                      Confessions of a Short Sale Expert in Reno
                                                                                         By: Joe Salcedo

              “Genius is the art of taking pains” - Jane Hopkins

Working on a short sale listing was never on my short list.  Many horror stories have been told.  We were advised to stay away from it, if we can.  Much to my surprise a few people came to us asking for help on their homes.  And with hesitation, I leaped into the world of selling short sale homes.

Here's what I learned so far:

• It takes me thirty minutes on the phone(on hold) for a simple 'Yes or No' answer.

• Yesterday, I faxed a letter (asking for authorization) to the bank five times before I got what I needed.

• You can be sure that delays will happen in the deal.

• However great the need, you can't be a jerk. You're at the bank's mercy.

But at the end of the day, I realized the rewards for sellers far outweighs the difficulties.  It is still worth a shot.

If you, or anybody you know need answers to your questions about short sales, you can call me directly: 775.338.7653. Or if you want to know more about me
go to: www.RenoHomeBlog.com

 

 

Note: Joe was the Top Sales Agent at Chase (units SOLD) for the 4'th Qtr. Of 2007. Learn more about Joe and the Reno Real Estate Market
at: www. RenoHomeBlog.com

 

Introducing: A Simple Guide to Short Sale and Foreclosure- PART 3

Read part 1

Read part 2

NRS -    DEFAULT AND SALE

• NRS 107.080  Trustee's power of sale: Power conferred; required notices; effect of sale; effect of failing to substantially comply with requirements of section.

• NRS 107.081  Time and place of sale; agent holding sale not to be purchaser.

• NRS 107.082  Oral postponement of sale.

• NRS 107.083  Proceedings after purchaser refuses to pay amount bid.

• NRS 107.084  Liability for removing or defacing notice of sale.

• NRS 107.085  Restrictions on trustee's power of sale concerning certain trust agreements:  Applicability; service of notice upon grantor; scheduling of date of sale; form of notice; judicial foreclosure not prohibited; "unfair lending practices" defined.

• NRS 107.090  Request for notice of default and sale: Recording and contents; mailing of notice; effect of request.

• NRS 107.095  Notice of default: Mailing to guarantor or surety of debt; effect of failure to give.

• NRS 107.100  Receiver: Appointment after filing notice of breach and election to sell.

Short Sale Flow Chart

Listing Taken / Real Estate Authorizations Obtained            

↓

Short Sale Package Requested from Lender 

↓

Initial Requirements to Lender

↓

Offer Accepted

↓

Final Requirements Sent to Seller's Lender with HUD 

↓

Seller's Lender Approval - Settlement Amount Obtained
Short Sale or Release of Lien Disclosed by Lender

↓

Docs Signed by all parties, Money Deposited 

↓

Escrow Closed with First Centennial Title

Example:

Purchase price:  $450,000
(three years ago)

80% Neg Am loan:  $360,000
Loan payoff amount at 110%:  $396,000
(maybe a prepayment penalty of $6,500.00)

Contracted Sale amount:  $380,000.00
(February1,2008)

Expenses:

• Owner's Title Policy:  $1,374.00

• ½   Escrow Fee:  $408.00

• Recording Fee:  $20.00

• Reconveyance Fee:  $90.00

• ½ Transfer Fee:  $871.25

• County Taxes:  $700.00

• Additional Costs:  $150.00

• 6% Commission:  $22,800.00

___________________________________
Total Expenses:              $26,413.25

Proceeds before Payoff:  $353,586.75

Lender is owed $396,000.00  We are asking them to short sale the
difference= $42,413.25

Short Sale they would release in total and accept $353,586.75 send title company a paid in full letter and reconveyance.

Release of lien would accept the $353,586.75 and have the Seller sign a note for $$$$$$(an unknown amount) could be as high as the actual shortage of $42,413.25

* Information provided by First Centennial Company of Nevada

Related reading:

• Why do banks take so long to approve a short sale?

• Confessions of a short sale expert

• Introducing a simple guide to short sale

• Randi Bennett talks about short sales and foreclosures

Introducing: A Simple Guide to Short Sale and Foreclosure- PART 2

Read part 1

 

Who does a Short Sale Apply to?

• Seller that has missed payments

• Seller that is in foreclosure

• Seller that is upside down in a property and must sell

• Jump in payment or balloon payment coming due

• Loss of employment / divorce / illness / family death

Note:  Seller requests short sale to avoid foreclosure

                                              

Discounts

To What Extent Do Creditors Discount?

• Creditors discount debt secured by real property based on their convenience and risk.

• If they will surely get paid they will not discount at all.

• If they will most likely get paid most of what they are are owed they may discount somewhat.

• If they will definitely lose an account but still get something at the auction, they will discount very much.

• If the creditor will most likely get nothing at the foreclosure sale, they will be inclined to discount heavily in order to get a recovery.

Why Do Creditors Discount?

• Creditors discount only when they will lose even more at the foreclosure or will end up with the property in poor condition.

• The higher the chance they will get paid at the foreclosure sale, the lesser the chance they will discount.

• The lower the chance they will get paid at foreclosure sale, the higher the chance and amount of creditors will discount.

  Who Makes Initial Contact?
  Emotions Drive Decisions

• There are very few things in this world that stir emotions as hard as real estate.  Real estate is the reason for most wars.

• When it comes to a person's home, things get very personal.

• Sellers want burden removed from them.

   

Realtor Disclosures

• Listing must show sale needs third party approval.

• Possibility of foreclosure

• Hold harmless- because the Lender may not approve.

• Possible tax implications- 1099C - Cancellation of Debt filed with IRS

• Possible credit consequences

• Seller may still owe to creditors

• Sellers nets no money from the sale

• See Broker for requirements- code of Ethics

• Legal vs. non-legal

• Disclose to Buyer on offer

• Disclosure about re-sale

    

Basic Requirements of the Lender

• Hardship letter

• Purchase Agreement / Listing Agreement / Buyer Brokerage Agreement

• Estimated settlement statement (HUD1) with commission

• Market Analysis / Appraisal

• Pay stubs, Bank Statements, W-2's, tax returns and financial statements

                                                      

Time Frame

• Approximately 30-90 days with no guarantees.

• May need to extend or postpone foreclosure

• Must comply with all time frames

Get everything in writing!

Read part three

Related reading:

• Why do banks take so long to approve a short sale?

• Confessions of a short sale expert

• To short sale or foreclose? I share my experiences

• Randi Bennett talks about short sales and foreclosures

Introducing: A Simple Guide to Short Sale and Foreclosure

Foreclosure

Homeowners Predicament:

• Ruined Credit
• May end up owing after the foreclosure
• Collectors chasing: Judgements & garnishments
• Shame

Solution

Short Sale

• Avoids some of the problems listed previously
• Creditors get more of their principal sooner
• Short Sale has the same time frames as an ordinary sale- easier exit.

What is a short sale?

• A short sale is the sale of a property, for less than what is owed, by obtaining permission from all the secured creditors to do so.

Who takes short sales?

• Any creditor, secured by collateralized real estate,whose equity position in the property is compromised.

Parties involved in a Short Sale

1.   Homeowners- provide copies of notes, prepayments & loan balances.
2.   Listing Agent- letter of authorization signed.
3.   Loss Mitigation Officer
4.   Trustee
5.   Additional Lien Holders
6.   Title Company
7.   Appraiser or BPO from Realtor

       

                                Difference Between Short Sale vs. Release of Lien

• In a short sale the creditor settles in full the amount owed by the debtor for a value that is less than what the creditor is owed.  The remaining balance is forgiven.  The homeowner no longer owes anything to the creditor.

• In a release of lien, the creditor removes its security interest in the property but the amount owed is not forgiven.  The homeowner still owes a balance to the creditor.

Short Sale vs. Release of Lien

• A creditor that authorizes a short sale will issue a settlement letter stating that the debt is settled in full for a specified amount.

• A creditor that releases a lien will, prior to releasing the lien, make the homeowner sign a new promissory note, not secured by a trust deed on the property, stating the value of the debt and the terms of payment/

• Listing agent keeps Seller informed w/ documentation as to what could happen, including foreclosure.

                                  Who does a Short Sale Apply to?

• Seller that has missed payments

• Seller that is in foreclosure

• Seller that is upside down in a property and must sell

• Jump in payment or balloon payment coming due

• Loss of employment/divorce/illness/family death

Note:  Seller requests short sale to avoid foreclosure

                                              

Discounts

To What Extent Do Creditors Discount?

• Creditors discount debt secured by real property based on their convenience and risk.

• If they will surely get paid they will not discount at all.

• If they will most likely get paid most of what they are are owed they may discount somewhat.

• If they will definitely lose an account but still get something at the auction, they will discount very much.

• If the creditor will most likely get nothing at the foreclosure sale, they will be inclined to discount heavily in order to get a recovery.

Why Do Creditors Discount?

• Creditors discount only when they will lose even more at the foreclosure or will end up with the property in poor condition.

• The higher the chance they will get paid at the foreclosure sale, the lesser the chance they will discount.

• The lower the chance they will get paid at foreclosure sale, the higher the chance and amount of creditors will discount.

                                           Who makes Initial Contact?
                                            Emotions Drive Decisions

• There are very few things in this world that stir emotions as hard as real estate.  Real estate is the reason for most wars.

• When it comes to a person's home, things get very personal.

• Sellers want burden removed from them.

   

                                           Realtor Disclosures

• Listing must show sale needs third party approval.

• Possibility of foreclosure

• Hold harmless- because the Lender may not approve.

• Possible tax implications- 1099C - Cancellation of Debt filed with IRS

• Possible credit consequences

• Seller may still owe to creditors

• Sellers nets no money from the sale

• See Broker for requirements- code of Ethics

• Legal vs. non-legal

• Disclose to Buyer on offer

• Disclosure about re-sale

    

                                          Basic Requirements of the Lender

• Hardship letter

• Purchase Agreement / Listing Agreement / Buyer Brokerage Agreement

• Estimated settlement statement (HUD1) with commission

• Market Analysis / Appraisal

• Pay stubs, Bank Statements, W-2's, tax returns and financial statements

                                                      Time Frame

• Approximately 30-90 days with no guarantees.

• May need to extend or postpone foreclosure

• Must comply with all time frames

Get everything in writing!

                                            NRS -    DEFAULT AND SALE

• NRS 107.080  Trustee's power of sale: Power conferred; required notices; effect of sale; effect of failing to substantially comply with requirements of section.

• NRS 107.081  Time and place of sale; agent holding sale not to be purchaser.

• NRS 107.082  Oral postponement of sale.

• NRS 107.083  Proceedings after purchaser refuses to pay amount bid.

• NRS 107.084  Liability for removing or defacing notice of sale.

• NRS 107.085  Restrictions on trustee's power of sale concerning certain trust agreements:  Applicability; service of notice upon grantor; scheduling of date of sale; form of notice; judicial foreclosure not prohibited; "unfair lending practices" defined.

• NRS 107.090  Request for notice of default and sale: Recording and contents; mailing of notice; effect of request.

• NRS 107.095  Notice of default: Mailing to guarantor or surety of debt; effect of failure to give.

• NRS 107.100  Receiver: Appointment after filing notice of breach and election to sell.

                                              Short Sale Flow Chart

 Listing Taken / Real Estate Authorizations Obtained            

↓

 

Short Sale Package Requested from Lender 

↓

Initial Requirements to Lender

↓

Offer Accepted

↓

Final Requirements Sent to Seller's Lender with HUD 

↓

Seller's Lender Approval - Settlement Amount Obtained

↓                 

Short Sale or Release of Lien Disclosed by Lender

↓

Docs Signed by all parties, Money Deposited 

↓

Escrow Closed with First Centennial Title

Example:

Purchase price:  $450,000
(three years ago)

80% Neg Am loan:  $360,000
Loan payoff amount at 110%:  $396,000
(maybe a prepayment penalty of $6,500.00)

Contracted Sale amount:  $380,000.00
(February1,2008)

Expenses:

• Owner's Title Policy:  $1,374.00

• ½   Escrow Fee:  $408.00

• Recording Fee:  $20.00

• Reconveyance Fee:  $90.00

• ½ Transfer Fee:  $871.25

• County Taxes:  $700.00

• Additional Costs:  $150.00

• 6% Commission:  $22,800.00

___________________________________
Total Expenses:              $26,413.25

Proceeds before Payoff:  $353,586.75

Lender is owed $396,000.00  We are asking them to short sale the
difference= $42,413.25

Short Sale they would release in total and accept $353,586.75 send title company a paid in full letter and reconveyance.

Release of lien would accept the $353,586.75 and have the Seller sign a note for $$$$$$(an unknown amount) could be as high as the actual shortage of $42,413.25

  Related reading:

• Why do banks take so long to approve a short sale?

• Confessions of a short sale expert

• To short sale or foreclose? I share my experiences
  

• Randi Bennett talks about short sales and foreclosures

 

 

 

                                  

Introducing: A Simple Guide to Short Sale and Foreclosure- PART 1

Hello, My name is Joe Salcedo.  My sole purpose for this article is to help you answer any of your questions regarding short sales and foreclosures.  At the end of this article you will find other related articles that I wrote (and other experts) for the sole purpose of helping you understand more about this topic.

If you feel overwhelmed about this topic know that this is far from simple and you are not alone.  I promise to help you any way I can.  You can call me directly at 775-338-7653

                                                                                                            -Joe

Foreclosure

Homeowners Predicament:

• Ruined Credit
• May end up owing after the foreclosure
• Collectors chasing: Judgements & garnishments
• Shame

Solution

Short Sale

• Avoids some of the problems listed previously
• Creditors get more of their principal sooner
• Short Sale has the same time frames as an ordinary sale- easier exit.

Short Sales

What is a short sale?

• A short sale is the sale of a property, for less than what is owed, by obtaining permission from all the secured creditors to do so.

Who takes short sales?

• Any creditor, secured by collateralized real estate,whose equity position in the property is compromised.

Parties involved in a Short Sale

1.   Homeowners- provide copies of notes, prepayments & loan balances.
2.   Listing Agent- letter of authorization signed.
3.   Loss Mitigation Officer
4.   Trustee
5.   Additional Lien Holders
6.   Title Company
7.   Appraiser or BPO from Realtor

       

         
Difference Between Short Sale vs. Release of Lien

• In a short sale the creditor settles in full the amount owed by the debtor for a value that is less than what the creditor is owed. The remaining balance is forgiven.  The homeowner no longer owes anything to the creditor.

• In a release of lien, the creditor removes its security interest in the property but the amount owed is not forgiven.  The homeowner still owes a balance to the creditor.

Short Sale vs. Release of Lien

• A creditor that authorizes a short sale will issue a settlement letter stating that the debt is settled in full for a specified amount.

• A creditor that releases a lien will, prior to releasing the lien, make the homeowner sign a new promissory note, not secured by a trust deed on the property, stating the value of the debt and the terms of payment/

• Listing agent keeps Seller informed w/ documentation as to what could happen, including foreclosure.

                             -----------------------------------
" If you need answers to your short sale questions now, you can call me directly for a no hassle-no pressure-phone consultation today! Joe: 775-338-7653"
                            ------------------------------------

Read part two

Related reading:

• Why do banks take so long to approve a short sale?

• Confessions of a short sale expert

• To short sale or foreclose? I share my experiences

• Randi Bennett talks about short sales and foreclosures

Common Ways To Hold Title In Nevada

Note: It will be less of a burden for some (like me) in understanding the article below if we start with this one:  How You Take Title.

 

	Tenancy In    Common	Joint Tenancy with Right of Survivorship	Community Property	Community Property with Right of Survivorship
Parties	Any Number of persons. Can be     Husband & Wife	Any number of persons. Can be Husband & Wife	Husband & Wife,Only.	Husband & Wife,only. Two persons per marital community
Division	Ownership can be divided into any number of interests. Does not have to be equal.	Ownership interests must be equal.	Ownership interests must be equal.	Ownership interests must be equal.
Title	Each owner has a separate legal title to his undivided interest.	There is only one title to the whole property.	Title is in the "community." Each interest in separate but manages unified.	Title is in the "community." Each interest in separate but manages unified.
Possession	Equal rights of possession.	Equal rights of possession.	Equal rights of possession.	Equal rights of possession.
Conveyance	Each co-owner's interest may be conveyed separately by its owner.	Conveyance by one co-owner without the other breaks the joint tenancy. Must be recorded before death of any tenant.	Both co-owners must join on the conveyance of the real property. Separate interests cannot be conveyed.	Both co-owners must join on the conveyance of the real property. Separate interests cannot be conveyed.
Purchaser's Status	Purchaser will become a tenant in common with the other co-owners of the property.	Purchaser will become a tenant in common with the other co-owners of the property.	Purchaser can only acquire whole title of community. Cannot acquire a part of it.	Purchaser can only acquire whole title of community. Cannot acquire a part of it.
Death	On co-owner's death, the deceased's interest passes by will to the devisees of heir. No right of survivorship. Subject to court approval.	On co-owner's death, the deceased's interest ends and cannot be disposed of by will. Survivor owns the property by right of survivorship.	On co-owner's death, one half belongs to survivor in severalty. One half goes by will to descendant's devisees or by succession to survivor.	On co-owner's death, the deceased's interest ends and cannot be disposed of by will. Estate passes to survivor outside of probate.
Creditor's Rights	Co-owner's interest may be sold at execution sale to satisfy creditor. Creditor becomes tenant in common.	Co-owner's interest may be sold at execution sale to satisfy creditor. Joint tenancy is broken; creditor is then tenant in common.	Co-owner's interest cannot be seized and sold separately. The entire property may be sold at execution sale to satisfy creditors.	Co-owner's interest cannot be seized and sold separately. The entire property may be sold at execution sale to satisfy creditors.

Additional Links:

• Title: Can't Own A Home Without It
• How To Take Title

* Information provided by First Centennial Title Co. of Nevada.