Home Sellers Beware!
In an odd twist to the old adage, "Buyer Beware", this real estate market adds additional problems to already burdened real estate sellers.
The scenario - homeowner is behind on their mortgage payments, the house has just enough value to payoff the mortgage and the closing costs, if they get their price. The house sits on the market for months, stressing the homeowners even more.
It is in this environment that the vultures come out. Sales agents desperate for a commission and sellers equally desperate to sell turn to the bottom feeders, who trot out schemes that appear to "sell" the property, but in reality do nothing more than shift title to the unscrupulous buyer, who pockets cash from rentals without paying the underlying mortgage.
Experts will tell you that there are no new con games, just new twists. The scenario described above played out frequently in the 1980's at a time when banks and savings and loans institutions were failing on a daily basis. At this time, local institutions held most mortgages and collection actions were swifter and more concentrated. Foreclosure usually took place within 90 days of the fist default and rolling late payments were not allowed. More importantly, any deficiency on the foreclosure, that is the amount by which the debt and foreclosure expenses exceeded the amount of debt, were subject to collection by the mortgage holder. Lenders routinely pursued foreclosed borrowers for the deficiency judgment.
This led to so called "wrap notes" where buyers would assume the mortgage note, usually with little or no cash to sellers. The sellers move out, thinking their problems are behind them. The buyers collect rent payments for a couple of months plus a deposit, do not pay the underlying mortgage and put off foreclosure for as long as they can. Multiply this by 10 or more properties and they make a tidy sum before moving to another city and starting again.
This time the scam has new twists. National companies and servicers, who can take as long as a year to foreclose, now hold mortgages. These same lenders and servicers, also desperate to reduce foreclosure inventory and comply with government mandates, are open to idea of a "short sale", a process by which the seller receives no compensation for the sale and lender accepts a payoff amount less than what it is entitled to receive.
As is the case, the process has been abused. Lenders often engage real estate companies to administer the short sales. Recently, lenders discovered that agents of these companies, armed with inside information, are directing desperate homeowner/sellers to their associates. The sale amount is usually way below any short sale value. The company attests to the value of the "negotiated" contract, inducing the parties into the contract. Once the sale closes, the associate flips the property at the true value, sharing the profits with the referring agent. Here are some tips sellers can follow and use to get through this situation:
1. Investigate your Realtor. How active are they in the market? Do they have listings as well as representing buyers? Drive by their other listings, maybe you can catch one of the property owners of their other listings and visit with them about their performance.
Realize that this market is difficult and you do not need an agent who says yes all the time. You need an agent who will discuss your price point in an honest and frank discussion. If you need to pursue a short sale, do not shy away from it.
2. Monitor property values in your area so you can spot someone trying to take advantage of you.
3. If the deal sounds too good to be true, it probably is.
Here are the two most important tips:
4. You are not released from liability on your mortgage until the mortgage is paid full, or the lender accepts a short sale, and you have a release in hand.
Most mortgages cannot be assumed under their terms - assumption does not equal release.
5. Sales agents all use the same marketing tools. Successful agents can bring other agents (buyers) to your property based on their reputation. Likewise, an agent with a bad reputation will not bring other agents (buyers) to your property. For example, you select an agent to list you property. What you do not know is that other agents in the area do not like this agent - difficult to work with; not professional; closings do not go smoothly; etc. The result is that other agents will not bring buyers to your property, no matter how nice or reasonable the price. They just do not want to deal with your agent. Your property just got blacklisted. Finally, here is a misconception I heard recently. A couple negotiating a short sale also considered renting their home. Their lender, the stagecoach, told them they could not since they took the loan out as an owner occupied.
You can rent you property out anytime you want! You do not need your lender's approval to do this. With rents increasing, this may be a way to solve your problem.
For more questions, you can reach us at the following:
Keller Williams Preferred Properties
9701 Apollo Drive, Suite 102
Largo, MD 20774