Older Americans who own Orlando real estate are not immune to the foreclosure process
Many Americans that are 55+, grew up thinking that real estate in Orlando would only appreciate in value and that you need to own a house to be financially secure. That way of thinking was passed on from there parents and was shared by just about everyone else in that generation. Unfortunately, according to AARP Senior Americans got in just as much hot water as the younger generations.
The perception is that older Americans are more housing secure than younger people, but the truth is that millions of Americans that are over the age of 55 are carrying more mortgage debt than ever before, over three million of which are at risk of losing their homes. And as of December 2011, approximately 3.5 million loans of people age 55+ were upside down, meaning that their home is worth less than the loan amount. From 2007 to 2011, a staggering 1.5 million + older Americans lost their homes to foreclosure.
Even though older Americans still have lower foreclosure rates than people that are under 55, they are increasing at an alarming rate.
Older Americans weren’t immune to the Orlando real estate boom and bust. They took out equity lines of credit when Orlando property values shot up, sold their homes for retail prices and purchased investment properties that floundered just like everybody else.
The biggest difference here is that if you’re under 55 and lose your house to foreclosure, you still have time to get back on your feet through hard work and perseverance. Older Americans don’t have this option because the truth of the matter is that time is not on their side. When I think about Older people losing their homes to foreclosure, it literally brings tears to my eyes, it’s just really sad.
For generations, home ownership has been a safety net in retirement, the report notes. Equity that built up over decades could be tapped for medical bills, supplement fixed incomes or help transition into an assisted living facility. If a senior needs to transition to an assisted living facility but can’t sell his house to get the money to pay for it, then that’s a huge problem.
Gail Matillo, director of elder housing for the Florida Department of Elder Affairs, recommends seniors call a local aging resource center if they are having trouble with house payments. The statewide hot line is 800-863-5337.
If you are in need of an Orlando Short Sale, call us for a free consultation.
Financial Hardship is not the only reason why Orlando homeowners are not paying their mortgage
Strategic Default is when a homeowner decides to stop paying their mortgage, not necessarily because they can’t afford it, but because it’s a bad investment not worth paying into anymore. Even if the consequence means to possibly lose their house to foreclosure and damage their credit.
Orlando homeowners have been purposely defaulting on their mortgages for several years now. When people become aware of the reality of their situation, they make a conscious decision to stop paying their mortgage. In most cases, I can’t say that I blame them. Don’t get me wrong, I would never tell a client to stop paying on their mortgage. However, I do tell my clients what their house will sell for and about how long it will take to sell and they do the rest of the math on their own. Although Orlando real estate is making a steady recovery and I believe will continue to do so. There are Orlando homeowners that will never get the money back that they’ve put into their property.
Strategic default Vs. Moral Obligation
Some Orlando homeowners are worried about their moral obligation to pay the mortgage. The truth is that the homeowner entered into an arms-length transaction with their lender in which both parties had competing interests thus spelling out their obligations in a clear, signed contract. Unless the contract states that the homeowner has a “moral obligation to pay,” then it’s plain and simple – they don’t. Here are the facts; when a homeowner borrows the money to buy an Orlando property, they have entered into a business transaction. The lender evaluated the risks and concluded that it was a risk worth taking. For its protection, the lender also required that the homeowner put the property up as collateral, as well as any equity that they had in the house. The contract spelled out that if the homeowner doesn’t pay, the lender has the right to take the property and sell it before the homeowner gets any equity back – if there were any equity left, which of course in these cases, there isn’t. The lender would not have approved the loan if they didn’t think it was a smart business decision. The homeowners choice to enter into this agreement was also a business decision. It’s now obvious, that both the homeowner as well as the lender made a bad decision. Now, the contract spells out what happens if the homeowner stops paying, the lender gets the property.
However, there are other options available to homeowners like doing an Orlando short sale or a loan modification. In my opinion, most loan modifications that get approved just don’t make financial sense unless they reduce the principle balance of the loan.
Strategic default is actually something that is caused by the lenders. The fact is, lenders won’t even consider entertaining a short sale unless a homeowner is behind their mortgage thus forcing the homeowner stop paying the mortgage.
By doing a short sale, the homeowner is able to get their house sold and walk away from the responsibilities of the mortgage. Also, there are now several “cash for keys” programs available where lenders offer substantial cash incentives for doing a short sale, sometimes up to $30,000.00 depending on what kind of loan they have and who the lender is.
Your value as a person is not determined by the value of your real estate, or how much money you owe to a bank. You are worth more as an individual than your bank will ever understand. Life is too short, and there are so many things more important than an underwater mortgage. For many Orlando homeowners, it’s literally the difference between happiness and depression.
If you’re in a situation where you need to do an Orlando short sale on your house go speak with an Orlando short sale expert and find a solution, you owe it to yourself and your family.
Jenny Zamora, Lic Re Broker/Orlando Short sale Expert
Finding the right Orlando Short Sale Realtor for you
Regular listings and short sale listings are 2 completely different beasts, which is why if you need to short sale your home, you should seek out an “Orlando Short Sale Expert”. This is an agent that specializes in doing only short sales and nothing else. Your short sale realtor should know the Orlando short sale process inside and out. This includes being up-to-date with all of the latest programs and laws that are in place to help homeowners that are going through financial hardship. If you choose the wrong realtor to do your short sale it could end up killing your short sale and put you in worse shape than you started out in.
Doing a short sale can be one of the most important decisions that a homeowner can make in their life and you need to be with an Orlando short sale specialist that understands this and that takes his or her job very seriously. You should also make sure that your short sale agent is a Certified Distressed property expert [CDPE]
One of the biggest complaints that I’ve heard from short sale negotiators over the years is that realtors fail to submit completeshort sale packages to them. This part of the process is extremely important because it can set the tone for the rest of your negotiations with the loss mitigation rep that is handling your file. Here’s a basic list of what most lenders require in order to submit a short sale package.
1-Hardship Letter-[A letter explaining the reason for your financial hardship]
2-Last 2 years’ tax returns
3-Recent pay stubs or profit and loss statement
4-Financial statement-[most lenders have their own that they will require you to fill out, these forms can easily be found online]
5-Listing agreement-[all lenders now require homeowners to have the home listed for 3 months or more]
6-Contract-[this is a contract between seller and potential buyer]
If this package is submitted incomplete or incorrectly, it can make the process a lot slower or stop it all together. A short sale package will not even be considered unless it’s complete to the satisfaction of the lender. Sometimes negotiators will even close the file and make you start from all over again.
I always tell my clients to call the bank themselves so that they know where they are in the process and how things are going. If are currently working with a short sale agent, you should be doing the same thing, call your bank and check on the agent’s work, and don’t just take the realtor’s word for it.
The Brokers Price Opinion [BPO]
After the lender receives the sort sale contract complete with the contract, the bank will then order what’s known as Brokers price opinion or BPO. The person that does the bpo is not an appraiser, but a local realtor. The BPO is crucial in completing a short sale because whatever that number comes in at will be the negotiating point. This will be a back and forth negotiation between the lender and the agent which can sometimes drag on for several months before both parties come to an agreement.
The Terms of the Short Sale
Negotiating what terms the short sale can be completed with is again very important. You need to make absolutely sure that you understand exactly what you are agreeing to. The last thing that you want to have to happen is finding out a year from now that you have a deficiency judgment against you for the balance of the short sale that you did on your home last year. I’ve seen it happen many times over the course of my career as a short sale broker and it’s a shame because usually, all it would’ve taken was for the short sale realtor to go that extra mile and continue negotiating until the lender agrees to not pursue the balance of the loan.
After it’s all said and done there is still another step that is crucial for you to follow up with and that is to make sure that the payoff has been legally recorded. As a matter of fact, you should continue to follow up with the short sale realtor as well as the title company until you have written proof that the payoff was recorded. If your payoff doesn’t get recorded for some reason this could kill your credit score.
The Mortgage Debt Relief Act of 2007
This is the 2007 law that allows taxpayers to exclude from income the amount of debt that is forgiven or canceled by their lender. However, the tax-relief provisions enacted by Congress during the housing crisis to help financially strapped homeowners are about to come to an end at the end of 2012. The good news is that if you’re considering an Orlando Short Sale, there is still time to take advantage of this very important law.
According to the law, borrowed money doesn’t need to be reported as income because you have an obligation to repay. But if your lender subsequently cancels what you owe, the IRS requires that you report that debt as income because the duty to repay it no longer exists. So, if you owe $350,000 and your lender forgives $50,000 of that debt in a $300,000 refinancing, that $50,000 is considered income. If your combined federal and state marginal tax rate is 36 percent, you would owe $18,000 in taxes. Ouch!
Although the law doesn’t officially expire until Dec 31, 2012, anyone considering a short sale should get started now. We’ve had short sale files in our office that have taken up to two years to complete. It’s true that banks are moving Florida short sales along much faster now but overall they still move pretty slow.
Cash Incentives to Sellers for agreeing to a Short Sale
Bank of America, JPMorgan Chase, and Wells Fargo have all been offering cash incentives to their delinquent customers in Florida who agree to a short sale. It’s not unusual for a lender to give a cash bonus to foreclosed customers who leave their properties in good condition, which has become known as “Cash For Keys”. What is different about these new programs at the nation’s top three mortgage lenders is that the amounts are significantly higher, sometimes up to $30,000.00.
Short sales, while still not a particularly short process, are much more efficient and overall more beneficial for everyone involved.
In short sales, homeowners are protected from potential deficiency judgments and severe credit hits, while the banks themselves are able to recoup something, instead of nothing, from defaulted loans. They also save money that would otherwise be spent on the eviction process. It is the smarter business move for sure. Encouraging short sales is also a public relations boom for banks reeling from a recent lack of confidence from consumers. By helping people to avoid foreclosure, they present a more beneficent image. That improves their overall bottom line by bringing in new customers.
It may be smart business to offer a cash incentive for a short sale, but it really does help people, too. Those facing foreclosure frequently don’t know where they are going to live once their home has been taken away. They are often so strapped for money that they cannot afford a typical first-and-last-month’s upfront payment on a rental property. The cash makes a big difference in helping people to land on their feet. Some may even be able to use it as a down payment on a more affordable home.
The government also has a program, the Home Affordable Foreclosure Alternatives (HAFA), that provides cash, up to 3000 dollars, for short sales. To get the government credit, homeowners must meet certain minimum criteria, including that the loan is owned by Freddie Mac or Fannie Mae.
Are Orlando Short Sale properties being valued correctly?
The valuation of an Orlando short sale, as determined by the short sale lender, is probably the single most important factor of the transaction. The way it works is; we submit an offer to the bank, then the bank will order a BPO [Brokers price opinion] on the property. This person will usually be a local realtor that will go out and take photos of the property, record any damages that need repairing and after they put everything together they will complete their “BPO report” [their opinion of what the property is worth] to send to the short sale bank or the agency that hired them.
At this point there are three things that can happen that will dictate what follows.
1- The BPO comes in at a fair number that everyone is happy with and we proceed to closing.
2- The BPO comes in too low and the bank insists on another one being done. I hate when this happens because the 2nd BPO will almost always come in too high.
3- The BPO comes in so ridiculously high that the Orlando realtor has no choice but to insist that the short sale lender either order another BPO or walk away from the deal. [not on my watch]
Getting the Orlando short sale lender to order another BPO
Like an attorney presenting his case in court, it’s all about what you can prove to the lender.
We do this by preparing a report of our own called a CMA [comparative market analysis]. This report contains even more information than the BPO agent provided them with. Although reports can vary, from a two-page list of comparable home sales to a 50-page comprehensive guide, the length and complexity of the report depends on the Orlando realtor preparing it. What a CMA basically comes down to is a list of Active, Pending and Sold listings.
Active Listings- Active listings are homes currently for sale. These listings matter only to the extent that they are your competition for buyers.
Pending Listings-Pending sale homes are formerly active listings that are under contract. They have not yet closed, so they are not yet a comparable sale.
Sold Listings- These are homes that have closed within the past six months and are typically your best source for comparable sales.
In addition to preparing a CMA for the short sale lender we provide them with a contractors estimate for repairs, lots of photos and a detailed letter explaining our case and why our offer is what it is.
Here at Orlando Realty Consultants we take the Orlando short sale process very seriously because we know what’s at stake for everyone involved, especially the sellers that I am representing. I tell all my Orlando agents to treat these situations as if they were an attorney preparing for the case of a lifetime.
Junior lien holders are taking Potential Orlando short sales hostage.
The truth is that bargaining with second and third-lien holders is tough and causes serious delays deals and even killing some Orlando short sales, even though banks embrace the whole Florida short sale trend in order to avoid costly foreclosures and help clear the market of homes that are worth less than the loans on them.
There are private mortgage collection firms out there that buy up distressed U.S. home- equity loans and other junior real estate liens, often for pennies on the dollar. If your 2nd lien was bought up by one of these companies, then chances are thatthey will be much tougher to deal with than the original lien holder would have been.
The ever improving Orlando Real Estate market creates a great opportunity for these second lien holders to get a nice chunk of their money back. They are aware thatyou need them to cooperate with you in order to get the deal closed. The problem is some of these junior lien holders get to greedy and the result is the deal falling through.
Orlando short sales are being held up by second liens
Almost 50%of all Orlando homes that enter into foreclosure have more than one lien attached. Any Orlando short sale realtor can tell you that short sales with multiple lien holders requires a lot more work to complete and typically can take longer to sell. You pretty much have to do twice or even three times the work depending on how many liens are attached.
It reminds me of a hostage situation “Give me the money or I’ll kill your deal”
