Marc Reno

We saw this coming a mile away....socially acceptable "strategic defaults." For purposes of my blog I am suggesting that "strategic default" means a homeowner that can make his or her payments but chooses not to for one reason or another. (Note: this excludes legitimate hardships like job loss or health issues for example)

Many owners think, "I'll walk away, my credit will get dinged up a bit, I will keep my credit clean and be able to buy again in a few years". But we should look at the real long term affects of default.

First, how long will it be before the borrower can buy again? The numbers change depending on who you ask and when, but a common response is 5 to 7 years from date of default to get any kind of respectable mortgage loan. Unfortunately (or fortunately depending on your view of things) it could be much longer for some opting for strategic default.

Why might some buyers have to wait 10 years or more to reenter the market? One reason is many borrowers are forgetting about the ticking time bomb that maybe awaiting them...the "deficiency" collection. The deficiency is the difference between what is owed on the note and what the house sells for at the foreclosure sale (different from state to state but I am referring to Michigan).

In Michigan, lenders have up to 6 years to purse a deficiency judgment against the borrower. Keeping this in mind, do think lenders are going to purse borrowers now, while the economy is in the crapper? Or do you think they will wait a few years until the borrower gets back on his feet, when he is making and saving some money for a home down payment. The last lender I spoke with about deficiencies said "we don't even have time to go after people now...we're too busy foreclosing, but we're not concerned about it because we have six years to go after them." Six years! Ones financial outlook can change a lot in six years. And it's not the bank that will be going after these borrowers; it'll be Collection Agencies that bought the loan deficiency rights at 10 cents on the dollar. My guess is they will be ruthless and efficient...nothing like today's loss mitigation departments.

So just when the defaulting borrower thinks he is re-establishing himself and the wife starts to dream about a new home...BAM! The collection calls and wage garnishments will start. Now what? My guess is the borrower will either have to file bankruptcy, thus starting the credit rebuilding process all over again...prolonging the rekindled dream of homeownership another 5-7 years. Or, option B, he will reluctantly make payments to settle the old and forgotten debt he walked away from. Either option likely will be a major financial setback.

I guess the moral of the story is if you're planning a strategic default...you might need to sleep with one eye open. Before walking away, consult your lender, an ethical attorney and trusted real estate professional. There may be a more suitable option. The loan may be modified, or a short sale may be in order. We can in many cases address the deficiency during a short sale so there is closure at the end of transaction.

For more information on deficiencies and short sales, email or call Marc Reno at mreno@bauerreno.com or 810-966-1200 or 810-650-2856.

Marc Reno, Associate Broker, CDPE

**This blog for informational and entertainment purposes, I am not an attorney and am not qualified to give legal advice.

There are some great opportunities for buyers in today's real estate market. We have all heard about how one can get a great deal on a bank foreclosure. However, if you are willing and able to wait out a short sale purchase, that may be the best option.

What is a short sale? It is a sale where the seller owes more on the house that the market is willing to bear. Thus, if the seller has a valid hardship, his or her mortgage company maybe willing to accept a short payoff on the loan which would allow the home to be sold.

Why would the bank take a short payoff? Banks do not want houses back...it costs a ton of money to foreclose, maintain, repair and resell a foreclosed house. With a short sale, the bank saves tens of thousands of dollars on every potential foreclosure.

Why should a buyer consider a short sale? The biggest reason (other than a great price) is because the buyer will have a better chance of knowing the condition and history of the house. The buyer can often meet the seller and ask questions about the house, etc. The seller will ususally maintain the house untill closing as he or she has a vested interest in the sale go though. With a foreclosure, buyers are going in to the sale completely blind as to the history and condition of the house.

How does one buy a short sale? Buyers need to interview agents and make sure their agents have successfully closed short sale transactions. The process has a lot of steps and it is not handled properly the sale will not go through. Not every sale will go though even when an experienced agent is working the sale. It is best to work with an agent that can help set proper expectations and realistic time lines.

Banks are dealing on the short sale properties. The process is often lengthy and requires patience. But if a buyer can wait, he or she could get their dream home at a dream price!

If you want to bid on or sell your property as a short sale, email or call Marc Reno at mreno@bauerreno.com or 810-966-1200 or 810-650-2856.

Marc Reno, Associate Broker, CDPE

HUD homes are properties that were financed and insured with an FHA loan. The loan went bad and now HUD (US Government) owns the house and has to liquidate it. In the past 6 months, HUD home pricing has come back in line with our declining market. Many of these homes are even priced below market value. The great thing about HUD Homes is that the first 10 days a HUD Home is listed it is only available to “Owner Occupants,” in other words, a buyer that is going to live in the house. This is important because many owner occupant home buyers are losing buying opportunities to cash investors. With HUD Homes, investors are sidelined for 10 days; when the house does not sell to an owner occupant, in the first 10 days, only then will it become available to all bidders. How can you buy a HUD home?

1.) You need to qualify for a loan. FHA, VA, Conventional, or have cash funding.

2.) Find an approved HUD Broker like me…Marc Reno, Bauer-Reno & Asso.

3.) Be ready to bid, the aggressively priced homes sell in the first 10 days.

4.) Have a deposit: $500 for bids 50,000 or less, $1,000 for bids over $50,000.

In some states, including Michigan, HUD is also offering special $100.00 down FHA financing for qualified buyers and qualified properties. They are also offering an additional $2,500 closing cost/repair allowance for owner occupant bidders on sales over $25,000. With the HUD incentives, the Federal Tax Credit, and under market valued homes…I see this time as an historic opportunity for home buyers! To search for HUD Homes in Southeastern Michigan visit: www.BauerReno.com

Marc Reno, HUD Approved Broker

Associate Broker

Bauer-Reno & Associates Real Estate LLC

3849 Pine Grove Rd. Fort Gratiot, MI 48059

Phone: 810.966.1200 Fax: 810.966.1211

mailto:mreno@bauerreno.com

www.bauerreno.com

By this point, most of us real estate agents have been involved in a short sale that failed to close as a result of the loan servicer’s loss mitigation delays only to see the house sit and rot for 6 months to a year as an REO and watch the bank net $50,000 less than our short sale offer a year prior. The more I witness this phenomenon, the more questions come to mind. Can the servicer be held liable for not appropriately handling short sales? As a mortgage investor, I would be pretty upset to learn I lost $50,000 because the servicer was under staffed and not able to close my short sale. Can the servicer be held liable for lost commissions? Granted the listing contract is between the broker and the seller, but if the servicer drops the ball and their inaction results in the contract not being satisfied…shouldn’t there be some recourse for the parties involved? I think if the mortgage investors started legally pursuing some of the less attentive loan services we might see things speed up a bit. Until then, I guess its back to the phone to convince some loss mitigator that it is a good idea to save $50,000 and take my offer.