At the closing table, a seller discovers he needs to contribute tens of thousands of dollars to actually sell his property, which he doesn’t have. The deal falls through. A former lender from 2003-2006 recalls the many 100%-option-arm-negative-amortization products he sold during that period and worries about the people who bought them. A woman sobs on the phone to her agent. She can’t possibly make another payment and doesn’t understand why her mortgage balance goes up every month.
Just snippets of conversation recently overheard…
Yesterday’s sales meeting featured a seminar on short sales. A short sale is when a lender accepts a lower payoff amount than the total amount owed on an existing mortgage. Why would a lender do this? To mitigate losses when the property owner can’t sell a house, gets behind on payments and can no longer afford to pay. From the bank’s point of view, a short sale is typically quicker and more cost efficient than a lengthy foreclosure.
The basic process of decline after an owner falls behind on payments is: 1) Notice of Default filed with the county, 2) Possible short sale if you can negotiate this with your lender, 3) Foreclosure. (For those interested, I now offer a weekly Notice of Default list, so if you want to receive it, send me your email address.)
The disturbing thing is, a lot sellers may not even realize they’re upside down. Maybe they bought with 90% financing 18 months ago, their home value has gone down a bit, and their option-arm payment has gone up tremendously because they’d been making the lowest payment possible that whole first year. They go another few months with the new payment but just can’t make it any more. They get behind, they list the house, by some miracle they sell it, they get to the closing table thankful to be out of it, then find out that negative amortization and a huge prepayment penalty have eaten every last bit of equity they had, and now they need to come up with $2500 to close. A shock to many.
As a buyer purchasing a property subject to a short sale, you need to understand some key points. First, the lender must approve the deal, and this process may take 2-6 weeks. So keep that in mind when scheduling rate locks. Second, the approval will be subject to numerous conditions, for example, limits on payments toward commissions, escrow fees, title insurance, transfer taxes, seller repairs, home warranties and anything else in the contract that may be a cost to the lender. Bottom line? The lender can come back and say, we pay for nothing, else no approval. So when you write an offer on a short sale, write a nice standard contract, but know in the back of your mind they may insist you pay everything, so pick your very best price going in.
I imagine this post will produce a flurry of I-told-you-so comments from my regular contributors, whom I should probably refer to as my canaries in the coal mine, because essentially, they called this one… right here in beautiful Reno.
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Tips for Being a Successful Landlord
In today’s apartment rental market there are several things that are “must do’s” for becoming a successful landlord. The reason you’re playing the real estate rental game is to have the check in your mailbox on the first of the month, right? Here are a few tips that can help you to achieve this with as little aggravation and frustration possible.
First and foremost is finding the right tenant to rent your apartment, house or other rental. This is the most important ingredient in the recipe. Checking the prospective tenant’s credit history to make sure they are paying their bills is one of the best ways you can screen. A tenant that pays their bills on time most likely will send you their rent on time. Establish a clear system on collecting rent, handling complaints from the tenant and how you will contact them if you need to gain access to the apartment.
Secondly, get all the important terms of the tenancy in writing. You have the option to have a basic rental agreement or draw up a formal lease. Whichever you decide, the important thing is to document the terms that you and the tenant agreed to. Clarify who is paying the utilities, the rental price and any other agreements made between you and your tenant.
It’s a good idea to stay on top of the repair and maintenance needs of your property. When you are notified of something that is broken or not working, repair it as soon as possible to prevent further damages. You may also lawfully enable the tenant to withhold rent, sue for injuries caused by defective conditions or move out without notice.
On a similar topic make sure you are carrying enough property and liability insurance to cover yourself in any situation. A well designed insurance program can protect your rental property from losses caused by everything from fire and storms to burglary, vandalism, and personal injury lawsuits.
I hope that this has been helpful to you. Just remember, as long as you follow these simple tips you will be on your way to a happy and fulfilling landlord future. Best of luck!
ABOUT THE AUTHOR: Eric Goldstein, associated with http://www.AllSpacses.com which Conveniently Connects All People with All Spaces in All Places, has been dedicated to the real estate rental market for over 8 years. He has assisted over 25,000 landlords with their renting needs. Any questions about renting apartments, houses or other rentals feel free to visit http://www.AllSpaces.com or email him at Eric@AllSpaces.com.
“A former lender from 2003-2006 recalls the many 100%-option-ARM-negative amortization products he sold during that period and worries about the people who bought them.”
Oh, please.
What this “former” lender is really worrying about is the lawsuits that may be coming his way. Where was his concern for these people when he was selling them these toxic loans 2003-2006? Where was his concern when he was “helping” people buy houses they never, ever, could afford? Was this caring person just plain stupid? Did he really think a person with household income of $45,000 really could afford a $500,000 house, even with his 1.2% teaser rate neg am 80/20 piggy back nonsense? Or was he, maybe, just maybe, intoxicated with all those big commission checks in 2003-2006?
Short sales in Reno?
Short sales, in Reno?
In Reno?
You mean, people selling their house for less than they owe the bank?
You mean, selling for no profit? No gain? Nothing?
How can this be? As recently as only two weeks ago this very blog/website showed how one could build significant wealth, with appreciation at 10% annually, by buying a house in Reno.
Land is scarce in Reno, isn’t it? And Reno is special, a hidden gem so close to Lake Tahoe, such that it is immune to the operation of economic principles that afflict other markets, isn’t it?
Surely this downturn in the Reno market, while serious now, will be short lived. It will likely be over by the end of the year. And then the Reno market can resume its annual appreciation of 10% or more. And Ms. Cohn can restore that section of her website.
Diane…..is that a picture of an upside down bubble, I mean balloon, on your post??
So I am a canary in the coal mine? Well, I have been posting here for the past several months in an attempt to warn people that there is indeed methane in the Reno housing market.
And, indeed, the absurdity continues.
Look at MLS 60017038. 431 Shire Court. In South Meadows.
Current owners bought on 4/6/06 for $468,868.
Listed today at $599,000.
I call upon the listing agent of this property to come here to this blog and explain. Explain how, only 5 months after closing in April, this house is now worth $130,132 more. In a market that has gone nowhere but down. Please. Will the agent please come here and explain?
Some more absurdity.
MLS # 60021123. 1630 Silverthread. In South Meadows.
Current owner bought 8/23/05 for $421,210.
On the market today for $549,000.
I call upon the listing agent of this property to come here to this blog and explain how this property has increased in value $127,790 in the past year and a month. Please. Please come here and explain how this house has increased $10,223 a month since last August. In this declining market. Explain the fundamentals here. Please?
In honor of the coming cascade of short sales, or, more likely, foreclosures, (short sales are not that easy to do) let’s look at one more piece of absurdity.
MLS # 60019869. 10893 Rushing Flume. In South Meadows.
Current owner bought on 1/31/06 for $477,900.
On the market today for $564,500.
I call upon the listing agent to come here and explain how this house has appreciated in value $11,546 a MONTH since February of this year. Please, Mr./Ms. realtor, come here and explain this. Honesty would be appeciated, as in, you are just hoping there are still a couple of greater fools left.
Your post about short sales omits two major considerations. First, in order to convince a bank to allow a short sale, the underwater owner has to establish to the bank’s satisfaction that he has NO ability to pay the mortgage. NONE. The homeowner (can you really say that someones who owes more than his house is worth, “owns” it?) has to provide proof, in the form of tax returns, bank statements, etc. that he is TOTALLY BROKE. In effect, it is like applying for a loan in reverse. The owner has to prove he has NO ASSETS and NO ABILITY to pay. If he has any assets at all, you can forget a short sale. It’s not like all an owner has to go is go to the bank and say, hey, well, my house is mow worth less than I owe you, so just let me sell it short and we’ll call it even. Not even close.
Second, you might have chosen to inform your readers that in some instances, when a homeowner sells his house in a short sale, the difference between what he owed the bank and what the short buyer paid, (or the difference bewteen what the bank was owed and what it agrees to accept in the short sale) is considered income to the short seller. That means the short seller gets a 1099 from the bank for the phantom income. In other words, the short seller could end up having to pay income tax on money he never received. Can be ugly, real ugly.
Seems this little piece of bad news you ommitted might be of serious interest to your readers.