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Joan Weisman's Blog

By Joan Weisman | Broker in West Los Angeles, CA
  • Short Sale or Foreclosure

    Posted Under: Home Buying in Dana Point, Home Selling in Dana Point, Foreclosure in Dana Point  |  September 1, 2011 11:26 AM  |  359 views  |  No comments

    Many buyers and sellers are confused about the difference between a Short Sale and a foreclosure or REO (Real Estate Owned). Both a Short Sale and a foreclosure/REO refer to selling a property with the cooperation of the bank.

    A short sale is a home or property that is still owned by a person or family, but where the owners owe more on the property than the current market can bear. For example, if the loan is for $400,000 and the current market value of the home is $325,000, the owners would either have to pay the difference of $75,000 plus fees to sell their home, or they have to negotiate a short sale with their lender. Short sales make up from 30% to 70% of most home sales markets right now.

    Short sales require signatures from both the seller and the bank. Short sales may still be occupied by the current owner who is trying to sell. If you're a buyer in this market, short sales require incredible patience as you can sometimes wait 30 - 60 days for a response to your offer. However, if you are consistent and patient you may also get a good buy through a short sale.

    Foreclosures or REO's are properties that are now owned entirely by the bank. REO's are usually vacant. The bank is the only signature required for the sale. By the time the bank owns the property, they are often eager to sell for a fair price. Cash offers are highly valued. The downside is that since the property is vacant and the previous owners went through a foreclosure, the property may not be in the best condition. REO's make up a much smaller percentage of the current real estate marketplace.

    In summary, a Short Sale is a property for sale by the owner, but with a loan higher than the current property value. A foreclosure or REO is a property that is owned by the bank.

  • Two Alternatives to Short Sale

    Posted Under: Home Selling in Laguna Niguel, Financing in Laguna Niguel, Foreclosure in Laguna Niguel  |  June 7, 2011 2:03 PM  |  364 views  |  No comments

    Today many successful people with great credit and steady incomes find themselves owing more on a house or investment property than it is worth on the market.

    If this is your primary residence and you can make the payments, your best bet is usually to stay put for a few years until values come back up again. Get the best long term fixed interest rate loan you can find and sit tight. In the meantime, you get depreciation credit and an interest deduction on your taxes while you pay down your mortgage(s) and enjoy the use of the house.

    However, if you find yourself having difficulty making the payments or need to get out from under the property for another reason, there are alternatives to a short sale or a foreclosure. Below are two other possible ways to make it through the down market.

    1. Lease your property.

    If you want to preserve your credit score and avoid short sale and foreclosure you can lease your property. Imagine you owe $300,000 for a house that is only worth $275,000. You would have to pay $25,000 to make up the difference, or hurt your credit with a short sale or foreclosure.

    However, it is possible that if you lease your property today, your negative cash flow would be less, say $200 - $300 a month. It would take 8.3 years of $-250 negative cash flow to add up to the 25K you currently owe on the sale of your home. Is it possible in 8 years rents could be a bit higher, or values could improve a bit? At least by holding onto the property you retain the right to benefit if conditions do improve.

    2. Sell Your Property "Rent to Own"

    A lease option, or "rent to own" contract is different from a regular lease in several ways including:
    a. A Lease Option contract is usually from 2 - 5 years, where the Tenant/Buyer can choose to buy before or on the final date of
      the contract.
    b. Tenant pays for basic repairs and upkeep. Owner/Seller only comes in for major repairs, or where an insurance claim may be
    c. Instead of first month, last month and deposit collected on a lease, the Owner/Seller collects a non-refundable Option Fee.
    d. A portion (from 10 - 30%) of the rent payment is credited towards the down payment on the purchase of the property. If the
      Tenant/Buyers purchase the property, they have already paid a chunk of the down payment. If they do not purchase the
      house this rent credit is non-refundable.

    It is possible that you can get a higher monthly payment on a lease option than a regular lease, because the Tenant/Buyer is receiving credit towards his down payment. This option should also reduce your maintenance expense and management duties.

    Leasing your property and selling Rent to Own are two alternatives to short sale.
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