5 things You Must Know Before You Buy a Foreclosure in Lansing, Michigan
Foreclosures can be very tempting. They are quite often the lowest priced homes in the neighborhood and here in the Greater Lansing real estate market they still make up a fair portion of sales, even if the numbers of foreclosures have been decreasing in recent months. As a home buyer, it makes sense to consider purchasing a foreclosure, but here are a few things you must know.
1) Condition. While the condition of foreclosures varies widely, they are most often in poor condition relative to the other nearby homes. If someone was struggling to make a mortgage payment they probably didn’t have extra money for home maintenance either. Sometimes we even see malicious destruction of foreclosure property. For all of these reasons, a home inspection is particularly critical before purchasing a foreclosure.
2) Bank Addendum. You need to be aware that most likely when you write an offer on a foreclosure, the actual offer will never even be seen by the bank. Most banks negotiate deals on a computer system and do not sign anything until the details are hammered out. Then, you will receive a bank addendum. This is a purchase contract from the bank, written by their lawyers and thus very much written in their favor. It will say things like, “If you don’t close by the contract date there will be a late fee. If we don’t close by the contract date we will extend the date.” Frustrating and annoying…yes, but if the deal is good enough often still worth it.
3) AS-IS. Bank owned properties are (most often) sold in their “as-is” present condition with no representations or warranties. This means that their will be no disclosure about past issues with the property and after you sign on the line all issues are yours.
4) Nuisance Fees. These are fees placed on the property for work done by the municipality. For example, if no one is mowing the grass the City may come in a mow it but place a special “lawn mowing” fee on the tax bill. You need to double-check and make sure these have all been paid as some title companies will not pay claims for these types of fees that pop up later.
5) Non Homestead Taxes. In Michigan if you do not live in a property you pay a higher property tax rate. Since the bank does not occupy the house they are paying this higher tax rate. While you will qualify for the lower tax rate if you intend to occupy the house, you lender may have to base the estimated taxes for your mortgage payment on the current higher rate. Check with you lender for details.
Short Sale in Lansing Area – The best of bad alternatives?
I have been re-energized about short sales as banks large and small are beginning to understand that short sales really are better for everyone involved. It has been said that the loss a bank will sustain with a full-blown foreclosure is about 60%, while a short sale averages just a 40% loss. So what are some the benefits to the homeowner?
1) No foreclosure on credit – Fannie and Freddie and any other government insured loan, such as FHA, has restrictions on how soon you can apply for a loan with a foreclosure – up to a 7 year wait – whereas there are currently no restrictions with a short sale. Which means you can apply for a new loan once your credit is repaired.
2) You have more control over the loss – in Michigan you can be on the hook for the loss in both a short sale and foreclosure, but you will have more control over the size of the loss with a short sale as you control how the property looks and what price to accept. Some banks, though fewer and fewer, will waive the deficiency with a short sale. Check with your attorney or CPA for tax and legal questions.
3) Nosey Neighbors – To the rest of the world it just looks like a regular sale
4) Security Clearances – You will not lose your security clearances with a short sale as you may with a foreclosure, especially important for those in security or military or other government position.
When chosing your real estate agent make sure to pick someone who specializes in short sales and has done a number of them in the past. Remember to get the appropriate legal and accounting advise as well.
Do you want to know if you are you candidate for a short sale? Fill out this simple form to find out.
Foreclosure Moratorium: Good or Bad for Lansing Real Estate?
The financial industry has been buzzing lately with news that mortgage giants such as PNC and Bank of America and several others have been fudging foreclosure paperwork. As such, there have been calls from attorney generals in all 50 states to put a moratorium on foreclosures until the mess can be sorted out.
At first glance a freeze on foreclosures seems like a great thing. Struggling homeowners are giving a delay and a chance to catch up late payments or perhaps even try for a loan modification. The short-term implications for the housing market in Greater Lansing and the country are great too, less supply from foreclosures means supply and demand are put back in harmony and prices stabilize.
But then I look next door at the giant white house whose paint has begun to chip and birds have begun to nest on the porch and I am reminded that Bank of America is not the best next door neighbor. A moratorium in foreclosures would mean that this and the hundreds of thousands of other homes that are sitting vacant would continue to deteriorate as these large institutions sort out their paperwork mess (The photo at the start of this post is from a foreclosure in Haslett that sat so long after the power was turned off that the sump pump went off and flooded the basement – a common story around Greater Lansing and certainly the entire country)
An article that ran in the associated press states, “The debacle injects yet more uncertainty into a frail recovery that is still trying to find its strength.” A moratorium does not get rid of but just delays foreclosures and at some point they will be released to the market, thus once again flooding the supply and caused prices to dip further.
The same article in the associated press also quotes Mark Zandi, chief economist at Moody’s Analytics, saying that a housing recovery would be under way by the third quarter of next year before this latest hurdle. Now he believes the foreclosure scandal could prolong the housing depression for at least another few years. At the end of the day, real estate is still a very local industry but nation forces can and do affect Lansing real estate as well and we, just like the rest of the country, still have a large supply of foreclosures that need to work their way through the system.
Lansing Real Estate: Can a short sale help me avoid foreclosure?
Lots of homeowners in the Lansing area right now are struggling with tough choices about their mortgage. It has been reported that as many as half of Michigan homeowners are upside down in their mortgages. Something like an unexpected medical expense or divorce can throw a family into complete financial turmoil. In Lansing where so many people are upside down, life’s unexpected events can throw well-meaning people straight into foreclosure.
One option for a homeowner who is in default on their mortgage is to do a short sale on their property. This is a sale in which the mortgage company agrees to accept less than what is owed on the property. In order to qualify, a homeowner must have a verifiable hardship that affects their ability to pay back the mortgage. Simply being upside down does not qualify you to do a short sale. For those who qualify there are many advantages to doing a short sale over letting the house go to foreclosure. Some of the advantages of a successful short sale over a full-blown foreclosure include:
1) Not as damaging to credit, allowing a potential future home purchase to happen much sooner
2) Does not affect security clearances (a foreclosure can be viewed in the same way as a felony, depending on your level of clearance),
3) Does not affect current or future employment. Many employers or potential employers are now running credit checks. Since a short sale is not reported on a credit report it is not a challenge to employment
4) Possible to convince lender to give up right to pursue deficiency judgement. With foreclosure, the bank has the right to pursue a deficiency judgement. With a short sale it may be possible to convince the lender to give up this right.
5) Ability to control deficiency amount. Once the property goes to full-blown foreclosure you give up any right to control the property. In a short sale handled by an experienced agent the home is sold close to market value, in almost all cases this will result in a lower deficiency.
By the way, in a short sale closing the seller can NEVER walk away with a penny. That’s the bad news. The good news is that they bank pays all the costs of sale, so you also do not have to bring a penny to closing.
It is highly recommended that you seek the help of a CDPE (Certified Distress Property Expert) real estate agent to help you negotiate the short sale process. It is a very complex process and takes the help of an agent who has received special training. And in case you are wondering, yes, I am CDPE certified.
Please note that the bullet points above come from information from the CDPE distance learning class.
IF YOU ARE FACING FORECLOSURE OR IN FORECLOSURE, CLICK HERE TO FIND OUT HOW TO DO A SHORT SALE IN THE LANSING AREA
Photo Credit: http://www.flickr.com/photos/thetruthabout/3654707133/?addedcomment=1#comment72157623992166339
Foreclosures Down in 2009
New stats are out from Ingham County, and lansing real estate foreclosures fell 8% in 2009. According to WLNS News, filings for Sheriff Sales (the first step in the foreclosure process) fell from around 1800 in 2008 to around 1700 in 2009. This realtor is not surprised to hear this fact. Pair this info with the fact that prices rose in November (December stats are still not out yet) and I fully expect 2010 to be the beginning of our housing recovery. I said last September that I thought our market had bottomed out when I got outbid on 5 offers in a row. Anyway, you can view full story on foreclosures on the Channel 6 News Site.
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Short Sales – Info for Sellers
You may have heard the term “short sale” floating around out there. So what does it mean to you as a seller? A short sale is a situation in which the amount that you can sell your property for will not be enough to pay off your mortgage and thus you negotiate with you lender to accept less than what they are owed as a full payoff on the mortgage. (By the way, if you live in Michigan you are in good company if you owe more than your house is worth – a full 40% of home owners are in the same spot)
This may seem like a pretty good idea if you are ready to move and are upsidedown on your house. But hold on a minute…not just anyone can do a short sale. Who is a good candidate for a short sale? Basically someone who has a hardship and will be unable to pay their mortgage if they do not sell the house…a job loss, transfer, divorce, things like that. If you are upsidedown on your house and have money in the bank, sorry, but this is not the deal for you. In addition to a hardship, your lender will want to look at your financial information. All of it… W-2s, paystubs, tax returns, bank accounts. They want to make sure you don’t have any money squirreled away or that you could actually have the means to come up with the deficit. And no transferring the money to mom and dad’s account right before the sale…they will check back for several years.
So what are the benefits to doing a short sale for you as the seller? A short sale will not be AS large of a hit on your credit as a full blown foreclosure. It will still make your credit score go down. This means that you may be able to buy another house in the future sooner (or lease a car, or get a credit card, or any of the other of a multitude of things your credit tends to affect these days) In the meantime (and I say this as a landlord myself) it may be easier to rent a place with a short sale on your credit versus a foreclosure.
Finally, while you will not net anything at closing, you also should not have to pay anything to do a short sale. Though are lots of companies that may try to collect a fee upfront. DON’T DO IT. Any reputable real estate company in this market will have an entire short sale department, or at least agents who have experience with short sales. Make sure to ask your agent about their experience with short sales, including their success rate and average turn time. You don’t want to be their guinea pig.
Short Sales – Info for Buyers
As a buyer in Michigan right now you have certainly been unable to avoid the multitude of foreclosure properties available for sale. But there is another type of sale that you may have seen cropping up as well. A short sale. So what is a short sale? And what does it mean to you as a buyer?
Strictly speaking a short sale is a sale in which the price the house is listed for will not be enough to pay off the mortgage. The seller will be “short” on their payoff amount. Unfortunately, that is about the only thing that is short in a short sale. This dauntingly long and frustrating process means that as a buyer, you could be waiting 3-6 months for an answer on your offer. And after the long wait there is no guarantee that it will be accepted. But why?
As a buyer in a short sale you are negotiating not only with the seller, but also with their lender. The seller will not get a dime at closing and thus their entire motivation rests in the fact that a short sale will not mess their credit as MUCH as a full blown foreclosure. The lender has to be convinced that if they do not complete a sale for less than what they are owed that they will get the property back as a foreclosure anyway. The two things that the lenders are looking at are: 1) Is the property really worth less than what the mortgage amount is 2) Can the seller truly not afford the monthly mortgage payments. It sounds simple enough, but in order to check these two facts the lender requires a mountain of paperwork including the sellers personal fiancingal information, appraisals, realtor price opinions and more. On top of all that the lenders are absolutely OVERWHELMED with the volume of short sale requests they are receiving. One employee at the bank may have 400 files they are working on. That is a LOT.
The long and short of it for you as a buyer is that you can get a great deal on a short sale, but make sure you are prepared for a long and grueling wait to get a response once you find a house you like.
Lansing Real Estate: Buying a Foreclosure
There is a lot of talk out there about foreclosure property within Lansing real estate. On one side of the coin people are talking about how horrible foreclosures are. And they are. No doubt. But a savvy buyer can turn this crazy market into real opportunity if they are not afraid to get a little dirty. So what follows is some tips and advice from one Realtor who is on the foreclosure front lines to potential foreclosure buyers.
1) Sweat Equity- Basically this is a nice way of saying that the house is going to need some work. Certainly there is the rare exception, but the vast majority of homes have some “deferred maintenance issues” which is Realtor-speak for nobody has been taking care of the regular home maintenance for quite some time. Remember that the foreclosure process itself is quite lengthy and by the time the bank puts it on the market, it easily could have been sitting empty for a year or more. That is a year or more of no one taking care of the lawn, running the plumbing, etc.
2) Inspection, inspection, inspection – While you should ALWAYS do a home inspection when you purchase a property, it becomes even more important when purchasing a foreclosure property. Don’t be suprised if the bank requires that you pay $100-200 to “dewinterize” the property for the home inspection. Basically this just means that they will hire someone to come out and get the utilities on, which includes pressurizing the plumbing system.
3) Negotiating – Best to defer to your agent on this one. It is true that you know the bank is going to sell the house, don’t automatically assume that they are asking too much for the house. Just as often as I see overpriced homes I see properties selling with multiple offers on the property and the price actually gets bid up. Have your agent pull up recent sales from the neighborhood to see what homes are actually selling for.
4) Hire an expert – Buying a foreclosure can be quite a road to navigate, so it is especially advisable to hire a real estate agent who has been selling foreclosure properties. Remember you can hire a buyer’s agent at no cost to you since the bank has already agreed to pay the commission!
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