Tom Braunagel

In a recent interview, foreclosure was defined as the most fiscally irresponsible and destructive thing you can do by a highly respected real estate attorney. Mark Stern (the attorney) walks through many misconceptions about why handing over the keys to your bank and walking away from your commitment to pay is irresponsible and simply doesn't yield the results that most people expect. Why? Here are a few reasons... and be sure to click on the video below for the detailed interview:

1. YOUR CREDIT REPORT SUFFERS: The moment you decide to walk away from your mortgage obligation and stop paying the bank, they begin to report your delinquencies every month to the credit bureaus. After 90 days in Connecticut, a bank can start a foreclosure which can take several years to complete and during that entire time, your credit is being tarnished every month with damaging updates. Here's how a bad credit report can hurt you... If you're looking for a job, companies are now requesting a credit report prior to making an employment decision. Isn't it reasonable to conclude that your past decisions may repeat themselves in future situations? If you were fiscally irresponsible in the past, will you tend to be fiscally irresponsible in the future? Also consider if you're looking to finance anything such as a car, house or other investments, banks or investors will ask for your credit report and make lending decisions based on your history. This can mean lost opportunity for you and your family long term.

2. AFTER A FORECLOSURE IS WHERE YOUR PROBLEMS BEGIN, NOT END. The bank sells the home for a price that THEY accept and then reserves the right in Connecticut to pass along a deficiency judgement against you to cover the shortage. You didn't pick the sales price...the bank did. Worse yet, YOU are still responsible for making up any deficiency... Ouch! Keep in mind that up to now, you handed over your keys to the bank and since your first late payment, they have been issuing damaging monthly updates to your credit report. You don't have a house any longer and your credit is dragging you down.

3. ATTACH YOUR ASSETS AND GARNISH WAGES: Once the bank sells your house, they reserve the right to attach assets and / or garnish wages in order to collect the deficiency owed on the mortgage note you signed. The bank came up short in the sale and will attempt to collect the debt from you however legally possible. This could be 3-4 years after you stopped making payments. You can't borrow money any longer because your credit report is so damaged and you're likely to be renting while banks and collectors are calling you to settle up on the debt that you still owe. That's a long time to be on the run. Not so easy anymore ...is it?

4. YOUR FINANCIAL LIFE IS IN TURMOIL until you either settle the debt with the bank or you file bankruptcy. At this point in the process, your credit is tarnished, you have a foreclosure recorded on your credit report, a bankruptcy lurking on the horizon and you've been dealing with threats from your creditors for payment. You're bouncing between appointments with your attorney and the court house to defend yourself against garnished wages and having your assets attached by the creditors. This is a painful process and in many cases, you're no longer dealing with the bank, you're dealing with money hungry investors who purchased the bad debt from the bank who are relentless in their pursuit to collect from you.

5. BANKRUPTCY CAN BE YOUR ONLY OUT to defend yourself against the deficiency you owe the bank. If you choose bankruptcy, be ready to fork over thousands of dollars to hire an attorney and spend hours documenting your financial history and justifying your financial hardship. Just because you file for bankruptcy doesn't mean you'll be approved. Be ready for Trustees of the court to uncover hidden money and give back to the bank what is rightfully theirs. Seems like the long way around....why not just sell short and save yourself alot of time, money and agrevation?

In MOST cases, dealing with a short sale and a knowledgeable real estate agent is a much better choice. Once your home is sold short, the derogitory credit updates from the bank stop and you can immediately begin rebuilding a strong credit history. In most cases, by the time it takes to finish a foreclosure, you could have sold your house short and fully repaired your credit history to take advantage of buying a new house. Doesn't that sound like a better way to go?

In my opinion, when we focus on our true goals...to improve our life and not on passing off our responsibilities to someone else, it's an easy conclusion to choose a short sale as a much better option compared to a foreclosure. As Attorney Stern puts it, a foreclosure can be the most fiscally irresponsible and destructive thing you can do. Click FISCALLY IRRESPONSIBLE to see the 8 minute interview with all the details. To see if a short sale is an option for you, click SHORT SALE TEST and I will get back to you with the results. For more information about short sales and a great Q&A list, click on SHORT SALE Q&A. Let me know if I am able to help you or anyone you know through a difficult time. I truly believe that when you're armed with the right information up front, only then can we make GREAT decisions!

Advantages of a short sale are plenty. It's a question frequently asked and thought I'd help spread the word. Deciding to do a short sale in Connecticut or anywhere else is an important decision that can dramatically change lives for the better. It's an emotional decision. It's a stressful decision and one that can paralyze a family into doing nothing... which is usually the worst decision a family can make. If you're a home owner that has to sell your home due to health reasons or cash flow reasons AND you owe more on your home than it's worth in today's market, you may be a perfect candidate for a short sale. Why? For several reasons actually. Here are a few advantages of a short sale to consider:

1. Selling your home and downsizing can fix your cash flow problems so that you're living within your means and not depleting your savings that you planned to use for retirement. I've met families that tried to 'hang on' and use up their last bit of lifetime savings to meet their obligations, only to enter into a short sale anyway, and this time with no retirement plan. A short sale is designed to help you. Take advantage of a short sale while the laws are on your side and before you run out of money!

2. Selling your home short provides the possibility to sell your home to a buyer at market value while relieving you from any deficiency owed to the bank. That's right, a huge advantage of a short sale is that you get a chance to walk away from the difference between what you sold your home for and the amount owed to the bank. A great real estate agent will negotiate this for you with your bank.

(Note): Clients are quick to point out that they are still responsible for taxes on the difference. Well, that by itself can be true...but it's not the whole truth. The whole truth is that President Bush signed the "Mortgage Debt Relief Act" on Dec. 20, 2007 that protects homeowners from their obligation to pay taxes on their forgiven debt (the act is set to expire at the end of 2012 as of writing this blog). You still will receive a 1099 from your lender showing the forgiven difference as additional income. Please know that it's coming and it doesn't negate your protection from the act itself. It's the bank's obligation to send you a 1099 so they can write off their losses. It doesn't mean that you are required to pay that amount. If you qualify, a great accountant will prepare your taxes with the proper representation that protects you from having to pay taxes on your forgiven debt. This by itself is a tremendous advantage that short sales have over alternatives.

3. Your personal credit is affected very little, if at all by going through a short sale. Clients are lead to believe that doing a short sale ruins your credit when the reality is that a short sale by itself doesn't affect your credit like a foreclosure or deed-in-lieu would. These two items are reportable and identifiable on a credit report and they do bring down your scores significantly. An advantage of a short sale is it typically shows up on your credit report as "mortgage satisfied" with a note saying that you "settled for less than agreed". Now, couple that with the fact that your debt has just been satisfied by a short sale can by itself actually help your credit scores and unlike a foreclosure and deed in lieu, there is no code built to report a 'short sale' in your credit report. The mistake that many people make is through their online research. They find people who went through a short sale and read stories about the big hit their credit took. What they aren't telling you is the whole truth... that they were late several months before selling their home... and that is reportable on their credit and the reason their credit scores were affected. The trick is to project ahead of time that you will have an unrecoverable cash flow problem and decide that a short sale will benefit you. Then find an experienced agent to help you through the process before any damage is done or retirement accounts depleted.

4. I've often heard foreclosure and bankruptcy referred to as the 'double kiss of death'. Families will hide too long from their financial truths and find themselves in foreclosure. They're emotional and angry at the banks and succumb to the banks foreclosure tactics. What's important to understand is that the primary problem doesn't go away. The bank still has a mortgage signed by you and your promise to pay that debt. That problem comes back after a foreclosure. The bank wants and is entitled to the difference between what they eventually sold the home for and your mortgage amount. You've lost total control of how much your home sells for AND are still responsible to make up the short fall... regardless of the terms or final sales price that you never agreed to. Is that really a place you want to be? A place where you control nothing and are responsible for everything...no thanks! In Connecticut, the banks can pursue you for the difference between what you promised to pay and what they sold the home for (less their expenses of course). More debt collection phone calls and legal fees and court appearances are all possible until the debt is paid. The logical next step to protect yourself is to file bankruptcy....which is not cheap. If you thought that the paperwork for going through a short sale was excessive, wait until you have to produce mountains of paperwork in a bankruptcy. Before you decided that a foreclosure is the quickest way out, you're likely to find that it's actually the longest, most painful and most expensive of your options and highlights the advantages of a short sale.

5. At a very crude level, there is a simple difference between a foreclosure and a short sale. If you are a short sale candidate and you choose foreclosure instead, it puts everybody you know on notice that you just plain gave up, didn't care to take responsibility and walked away from your obligations. You figuratively handed the keys back to the bank and said "here...this is now your problem" and you took off. Conversely, with a short sale, you have a conversation with the bank. You show that there's hardship. You work with them to find a buyer. You upkeep the house and do your part in minimizing the bank's loss and honoring your commitments the best way you could. You hung in there and worked with the bank to a best possible conclusion. You showed character and faced the music. That's a major advantage of a short sale and a whole different story to tell when you're faced with trying to explain a foreclosure. Where would you rather be?

These are just a few of the advantages of a short sale vs. foreclosure. There are more. Seems like a simple choice when you know what's at stake. Notice I said simple choice. I know it's not an easy choice and when you're able to remove the emotion and focus on the advantages of a short sale, it really is a simple decision.

The reason I decided to specialize in short sales is to help those who need it. There are few times we get to experience the relief together with someone we helped triumph over a hardship than with a short sale. I've experienced the rebirth of families and smiles that were otherwise gone when I met them. It's a lot of work and definitely worth it. For more information about short sales and a great Q&A resource, click Short Sales Q&A. For more information about short sales in Fairfield County, click CT Short Sales. If I can help you or someone you know through difficult times and difficult decisions, please call me. I love to help! Tom Braunagel, 203-268-4994.

Connecticut foreclosures and short sale is not the reason for our homes depreciating in value, it is the end result of bad policies, easy money and overbuilding of 5-10 years ago. 2003-2007 were times when builders got rich and investors got richer. Investors were gobbling up 2, 3 and 4 vacation homes and banks were lending money with no income verification. It was times when demand was high and supply was low and because of that, home prices were rising 1-2% per month and lasted for several years. In a matter of just 3 years, home prices increased 35-40 percent in our area and was outrageous. It became obvious that affordability was getting squeezed and investors were running out of buyers able to afford the outlandish prices for homes....and like a light switch, the market turned. The plateau came quite suddenly in 2007 and began to deteriorate quickly. Once appreciation stopped and depreciation set in, people were not able to refinance their homes. The glut of homes that were purchased with 3 and 5 year baloon payments were coming due and could not be refinanced since there was no equity in the home any longer. Owners were forced to sell at a loss. Couple that with financing a few wars, blowing through our national debt ceiling and unemployment hitting 10%, and we set the stage to a new supply vs. demand scenario where damand was now low and supply was extremely high. The cyclone and buying frenzie came to an end.

You see, Connecticut foreclosures and short sales on the market right now are not the problem to the falling equity in our homes. It's an end result of overbuilding and easy money that ran out of control. Distressed homes on the market today are being sold the same way conventional homes are sold. Through real estate agents to the highest bidder. The problem is there aren't very many bidders and far too many homes on the market and the extra competition is causing our prices to drop. We would have the same problem if none of the homes were distressed with the same ratio of supply vs. demand.

Don't blame the falling values on Connecticut foreclosures and short sales, the blame rests on the easy money of the mid 2000's. This area is starting to normalize prices back to inflationary levels over the last 10 years in a touch economic environment filled with high unemployment and underemployed Americans. Hang in there. There are signs we're approaching a bottom.

Overall, Connecticut foreclosures over the last 3 months ending in October 2011 are down, month over month. In August, 27% of all homes in preforeclosure (1432) were foreclosed on and in October, 32% of all homes in preforeclosure (872) were foreclosed on. What this means is that October had fewer homes entering into preforeclosure than did August and October had more foreclosures on a higher percentage of homes meaning more homes are moving through the process than are entering.

Now is good opportunity to search out Connecticut foreclosure and short sale homes and investment opportunity. As a buyer, you can purchase a home at prices 10 years ago. If you haven't considered being an investor before, now is a great time to dip your foot into the water. Low prices and low interest and a hot rental market make for good consideration. Also consider that you're eating away at the bloated supply of our market and helping get it back into balance. Want more info? Search here for Connecticut Foreclosures and click here for Connecticut short sales.

That's my .02... What's yours?