- Joined
- Jul 14, 2009
- Messages
- 28
How do American short sales work and can a Canadian buy one? I thought you might like to hear a little about loan modifications and a lot about short sales. Before jumping into this topic, here is the thought to keep with you. It`s Buyer Beware...but not where you think! Here is the background so you can figure out the real story.
In America, most of the time, the mortgage is not owned by the bank. The bank acts as a service provider and collects a fee for servicing the loan and collecting the payments. When a mortgage becomes delinquent the bank now gets an opportunity to collect up to five more fees for managing the process; loan modification, short sale, foreclosure, REO and the new mortgage fee.
The first fee: The government gave the banks a lot of money to help the people and make their mortgage payments affordable. This is referred to as `loan modification`. How much money did the government give? Well, according to the Arizona Republic newspaper, (largest circulation in Arizona) a couple of hundred million dollars to the state of Arizona. How many mods were completed - one! The bank receives the fee whether- or not - the loan mod is successful. Can you see the problem?
The next fee the bank will receive is the short sale fee. A short sale is when the owner of the mortgage (remember the bank does not own the loan and is acting as loan servicer) agrees to take less than what is owed on the mortgage. Home prices have fallen so much the mortgage amount outstanding is often more than the house is worth. For example ` a house has a mortgage of $250,000 but the current market value is $100,000.
The home owner applies to the bank (servicer) to list the home`and you come along, put in an offer and start the negotiation process. There is no incentive for the bank to work with the owner of the home, the new buyer or the Realtors, to complete a short sale. The bank probably doesn`t own the house and will receive its fees whether or not the short sale is successful. As this process takes so long another division of the bank will often foreclose on the house even if it has valid offers on it. The bank will receive another fee for this. Catch this: The bank, as servicer of the loan, makes another fee if the house goes to foreclosure. See the problem with the US housing market?
Most short sales take months to complete as the banks do not respond to offers in a timely fashion and it is nearly impossible to speak to anyone in the department.
Now here is how it applies to an investor. Sometimes, you can get a better price because the house is sold `as-is and shows signs of neglect. As the process at the banks took so long, the home owners have moved on, the property has become derelict, may be wrecked, thieves have broken into the property and stolen items. The list can be endless. You will need a really good renovation team in place or the fix will eat up any profit you can generate.
These are for more sophisticated buyers. One short sale our group just completed took over a year of negotiation. This said: I do well with short sales and this is a good form of revenue for my company. We are currently purchasing around four short sales a month and plan to move to eight per month. We are now signing around 12 short sale offers a month ` which will not be approved for around three to four months.
For those of you contemplating this type of purchase; this is the time in the story to really pay attention. It`s buyer beware. I do not buy any `short sale` homes unless the home owner has had legal representation and signs a document stating this. I also ensure the short sale listing Realtor has a lawyer on their side to work with the bank and complete the short sale. Neither of these cost me more but they provide protection from unwanted lawsuits.
If the banks in Canada acted the way they do here, our media would be jumping up and down, newspapers would be screaming and heads would roll. Here for now, it is business as usual.
Recognize our rules and laws are very different. However, it is my belief and that of my legal representation that this will be a big can of worms in upcoming years. This is what my legal team is suggesting to all investors: Protect yourself! America is a suing-kinda country. In an action, everyone will be named...all the way up the food chain. All the way to you! For now the American middle class is shell shocked. Their wealth has disappeared, they are acting in good faith with the banks and if they do not have legal counsel they are not being well represented. When they have their feet back on the ground they will be looking for answers. So make sure you get yourself answers today or it may be expensive tomorrow.
See you all in Calgary this weekend!
In America, most of the time, the mortgage is not owned by the bank. The bank acts as a service provider and collects a fee for servicing the loan and collecting the payments. When a mortgage becomes delinquent the bank now gets an opportunity to collect up to five more fees for managing the process; loan modification, short sale, foreclosure, REO and the new mortgage fee.
The first fee: The government gave the banks a lot of money to help the people and make their mortgage payments affordable. This is referred to as `loan modification`. How much money did the government give? Well, according to the Arizona Republic newspaper, (largest circulation in Arizona) a couple of hundred million dollars to the state of Arizona. How many mods were completed - one! The bank receives the fee whether- or not - the loan mod is successful. Can you see the problem?
The next fee the bank will receive is the short sale fee. A short sale is when the owner of the mortgage (remember the bank does not own the loan and is acting as loan servicer) agrees to take less than what is owed on the mortgage. Home prices have fallen so much the mortgage amount outstanding is often more than the house is worth. For example ` a house has a mortgage of $250,000 but the current market value is $100,000.
The home owner applies to the bank (servicer) to list the home`and you come along, put in an offer and start the negotiation process. There is no incentive for the bank to work with the owner of the home, the new buyer or the Realtors, to complete a short sale. The bank probably doesn`t own the house and will receive its fees whether or not the short sale is successful. As this process takes so long another division of the bank will often foreclose on the house even if it has valid offers on it. The bank will receive another fee for this. Catch this: The bank, as servicer of the loan, makes another fee if the house goes to foreclosure. See the problem with the US housing market?
Most short sales take months to complete as the banks do not respond to offers in a timely fashion and it is nearly impossible to speak to anyone in the department.
Now here is how it applies to an investor. Sometimes, you can get a better price because the house is sold `as-is and shows signs of neglect. As the process at the banks took so long, the home owners have moved on, the property has become derelict, may be wrecked, thieves have broken into the property and stolen items. The list can be endless. You will need a really good renovation team in place or the fix will eat up any profit you can generate.
These are for more sophisticated buyers. One short sale our group just completed took over a year of negotiation. This said: I do well with short sales and this is a good form of revenue for my company. We are currently purchasing around four short sales a month and plan to move to eight per month. We are now signing around 12 short sale offers a month ` which will not be approved for around three to four months.
For those of you contemplating this type of purchase; this is the time in the story to really pay attention. It`s buyer beware. I do not buy any `short sale` homes unless the home owner has had legal representation and signs a document stating this. I also ensure the short sale listing Realtor has a lawyer on their side to work with the bank and complete the short sale. Neither of these cost me more but they provide protection from unwanted lawsuits.
If the banks in Canada acted the way they do here, our media would be jumping up and down, newspapers would be screaming and heads would roll. Here for now, it is business as usual.
Recognize our rules and laws are very different. However, it is my belief and that of my legal representation that this will be a big can of worms in upcoming years. This is what my legal team is suggesting to all investors: Protect yourself! America is a suing-kinda country. In an action, everyone will be named...all the way up the food chain. All the way to you! For now the American middle class is shell shocked. Their wealth has disappeared, they are acting in good faith with the banks and if they do not have legal counsel they are not being well represented. When they have their feet back on the ground they will be looking for answers. So make sure you get yourself answers today or it may be expensive tomorrow.
See you all in Calgary this weekend!
