Don't Call it a Foreclosure!

As I wrote last week, we are moving away from the term foreclosure for the loss of a house.  Our current Administration wants fewer foreclosures.  Sounds good.  So here’s how they’ll accomplish that:  they’ll call them something else—now they will be short sales or deeds in lieu of foreclosure—thankfully this much more “correct” way of explaining how a house was lost is likely to be available through HAFA.

I can’t guarantee that HAFA (the Home Affordable Foreclosure Alternatives program) will work for you or even someone you know, but it is designed to help folks who have been trying in good faith to work out a mortgage issue with their bank.  It’s a program intended to make short sales easier and more streamlined for homeowners (who did not qualify for a loan modification).

Unfortunately when the government gets involved, things tend to get complicated.  But recently thanks to HAFA, some larger banks have begun to “work” with their clients and this may now pave the way for more short sales (or deeds in lieu of foreclosure) to get more homes sold in 2011

There is a bonus for all players.  The banks can absorb up to $20,000 in deficiencies, meaning you can sell your $120,000 home for $100,000 and not have a penalty.  Really, that’s about what it costs a bank to handle a foreclosure, but if it results in a successful short sale, it’s a win/win situation.  And, the bank will offer up to $3,000 as a relocation fee if you find a buyer and make the sale, this is really a bribe to close the home without involving the bank—and eliminating the potential for a long list of repairs that the bank might normally have to make.

To be considered for HAFA, the property currently must be (or have recently been) the borrower's principal residence. A property qualifies that has been vacant or rented to a non-borrower for less than 12 months prior to the date of the Short Sale Agreement (SSA).  The borrower must prove that the property was their principal residence prior to relocation and such borrower has not purchased a one to four-unit property during the 12-month period prior to the date of the SSA.

The borrower's reason for relocation does not need to be connected to re-employment or transfer of employment. Also, there is no longer a minimum distance requirement.

The program is designed help homeowners who couldn't or didn't get a Loan Modification and are now unable to keep their home.  A borrower may be able to avoid a foreclosure by completing a short sale or a deed-in-lieu of foreclosure under HAFA.

Who is eligible?

The borrower must meet the basic eligibility criteria for HAMP:

Principal residence.  (You now or recently lived in the house)

You got your mortgage before 2009.

A delinquency or default is reasonably foreseeable.  (You have a hardship)

Unpaid principal balance no more than $729,750 (higher limits for 2 to 4 unit dwellings).

Benefits of a HAFA Short Sale:

You are allowed to sell your home for less than you owe on the mortgage!

You avoid foreclosure and its effect on your credit!

Requires borrowers to be fully released from future liability for the first mortgage debt (no cash contribution, promissory note, or deficiency judgment is allowed

No obligation to repay the deficiency!

Qualify for a new loan in as little as 2 years!

Receive up to $3,000 for relocation expenses!

Allows borrowers to receive pre-approved short sales terms before listing the property (including the minimum acceptable net proceeds).

If you think HAFA might work for you or a friend, check out the government website that will give all the information and nuances as they will apply to a specific transaction.  http://homeownership.org/foreclosure-help/mortgage-relief-programs/hafa-program.aspx

Dane Hahn is a real estate professional, reach him at dane.hahn@gmail.com or check his web site at http://www.danesellsflorida.com/.

Q: How Can You Tell A Statistitian is Lying? A: The Numbers Look So Much Better!

The latest housing numbers aren’t pretty. But they’re about to seem a lot better. Here’s why that’s happening. The whole key to correcting our crappy housing market is to eliminate the excess and surplus inventory of homes. (And getting rid of the foreclosures).

The issue we are seemingly unable to address is what to do when a homeowner either can't make his payments, or simply wants out of his contract because as far as he can see, the house isn't worth the money he agreed to pay, back when he bought it. In either case the homeowner is what we call, underwater.

Banks are increasingly offering underwater homeowners a way out that’s less familiar than the well-known process of foreclosure. Instead, they’re employing a strategy called a deed-in-lieu of foreclosure. Here's how that works, a homeowner (currently paid up on their mortgage or not) can voluntarily sign the deed of their home over to their lender. In exchange, the loan is canceled.

It’s different — but not that different — than a foreclosure. It lets an underwater homeowner out, and saves everyone the legal hassle of a foreclosure. It extinguishes a debt that might have been a bad idea for the purchaser in the first place. But getting a borrower off the bank's hook may not cover all the bases; banks may report the deed-in-lieu to the IRS and to credit bureaus, although a lender’s credit might not be as harmed as it would under a foreclosure.

The bad news is it still means that housing supply is ratcheting up. But it's good news for banks, who can avoid legal expenses and it creates the illusion that foreclosure rate are dropping. In the mean time former owners are being driven to renting.

Undoubtedly, the illusion of declining foreclosure rates will play a role in pretending that the economy isn’t so bad, especially during next year’s presidential election. But make no mistake. Housing prices continue to reflect the underlying reality of the economy.

And house prices are probably lower than they have been at any time in the last 50 years (adjusted for inflation). Now is the time to buy in and hold—if you can. I know my opinion until now has been that the market has been awful, but when you think of real estate as an investment, now is the time to buy.

Now is when you can get the lowest financing rates. Now is when the selling prices are scraping the bottom, and now is a time when more Americans need to rent. So buying one or more homes right now with the idea of holding them (as an investment) as rentals is an excellent idea.

For investors with the financial resources to obtain a loan, the willingness to put in some hard work, and the patience for a long-term investment, real estate is now a great buy.

Today's good news/bad news: The supply of homes will dry up over the next year. So expect fewer foreclosures and more “bank owned” properties (think “deals”). If you get in now, plan to buy and hold for the long term investment--don’t expect to flip a property for huge profits anytime soon. Real Estate is not that liquid, but it's also not likely to be going down (like gold) anytime soon.

Dane Hahn is a real estate professional with Tarpon Coast Realty, call him at 941-681-0312, or at dane.hahn@gmail.com. See him on the web at http://www.danesellsflorida.com/