Avoid These Top 5 Short Sale Buying Mistakes

With so many great foreclosure and short sale deals on the market, you may find it hard to resist jumping in and taking advantage. But few are aware of the expensive problems that can accompany short sales. Short sale properties often have hidden issues like structural damage, mold, and plumbing issues. Don’t let this completely discourage you; there are some hidden gems out there. Just keep the following tips in mind and don’t fall for these five mistakes short sale buyers commonly make.

5 Tips for Buying a Short Sale

Don’t Ignore The Problems

Many previous short sale owners faced financial difficulties and therefore were not able to care for the property properly. Many of these homes suffer from more than just neglect. They are leaky, moldy, have termites, have been stripped by thieves, and are dirty. Beware though, that in some areas banks are not required to disclose any of these issues to potential buyers. There have been cases when the house was constructed of defective and recalled materials and the bank did not alert the potential buyers. Many older short sale homes are in worse shape. It is likely that the previous owners had experienced financial hardship for some time and were unable to make cosmetic repairs.

Don’t Skip the Property Inspection

Make sure you are present for the inspection. The inspector will help educate you on the property. Be aggressive in asking questions because the inspector is on your side. Get estimates on expected repairs and when a problem is noted, do your research on it. Renovation costs are always underestimated. In some areas, buyers are going as far as doing property inspections before making an offer, known as a preoffer property inspection. Also, call in special inspectors for more costly issues such as damage to the house’s structural construction, mold, and termites. If the house is particularly old or damaged, consult a structural engineer.

Don’t Ignore Important Insurance and Legal Information

Because most short sales won’t come with a disclosure statement, you should do additional research independently. Try to find out whether any renovations and housing additions have been made legally, have permits and are approved. You don’t want to get fined and cited for construction you didn’t do. Checking in with the neighborhood planning department can help you ensure that there aren’t any neighbor plans to build a large structure next to your house or tear one down. This information won’t be included during a short sale.

Don’t Leave Yourself In a Time Crunch

Short sales closings take longer than traditional home sales. The seller’s lending bank will have to approve the terms and price at which the property is sold. In this economic environment, banks have a lot of short sales to review; so things will take some time.

Don’t Get Emotionally Attached to a Bad Investment

Not every short sale is a great deal. Think as an investor would and don’t get emotionally attached. Think about how much someone would pay to rent the property. Would that cover the mortgage? Also consider how much money you’ll have to put into the house to live in it. Bring along a friend or relative and ask what they think about the property. If it’s not a good investment, walk away.

This is a really great time to get a deal on a short sale property. Keep in mind the above when you are shopping. This way you’ll know for sure you’re getting a great deal and making a good investment.

Chicago Neighborhood are Working to Survive

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Although this video is from 2009, the problems are still the same in neighborhoods across the country.  This is a neighborhood in Chicago, IL, but you can see the same problems and struggles in similar neighborhoods in the Midwest.  Some areas of the country are slowly recovering, but many were so devastated by the foreclosures and the fact that houses are left empty, that it will be a long time before they are close to healthy again.

Problems in Foreclosure Outreach Program

The Government Accountability Office or GAO is of the view that current foreclosure outreach program which has been designed to help troubled property owners is not doing enough to reduce foreclosures in United States.

High rate of Foreclosure

Since the rate of foreclosure is still a major hurdle in the economic and housing recovery, a study was conducted by GAO to find ways of enhancing foreclosure mitigation effort. They came out with a report that suggested that government agencies that are a part of foreclosure mitigation program must make changes in their strategies to help existing borrowers.

Significant Negative Equity

The report released by GAO specifically addressed the United States Department of Agriculture, Federal Housing Administration and Government Sponsored Enterprises. Even though these agencies have modified more than 2 million loans, the number of loans that are in foreclosure are still very high which is weakening the American real estate market. An analysis of the mortgage data showed that about 2 to 3 million loans have characteristics that are associated with high probability of foreclosure like significant negative equity and serious delinquency. Significant negative equity means the ratio of loan-to-value of the property mortgaged is 125 percent or more.

These loans that have significant negative equity are concentrated in states like Florida and Nevada. Also, the recent signals like strong home equity and home prices does not mean that real estate market in US has recovered because the prices of some of the properties is still close to their post-bubble lows. Another worrying factor is that total household mortgage debt is $3.7 trillion more than the household’s equity. This means that household wealth is declining and the value of most properties are not rising.

Problems in Loan Modification

Also, thousands of borrowers who had requested assistance did not receive modification. The applications of about 2.75 million borrowers who had requested HAMP loan modification was denied which has decreased the volume of federal loan modifications. Even though efforts have been made to improve the reach of the refinance programs, low participation of the borrowers in these programs has raised questions on the need for the Treasury to offer financial support for these programs. GAO is of the view that funding given to underused programs must be re-evaluated.

Even though several agencies have stepped up their efforts to monitor the outreach of the services to struggling borrowers, most agencies are not conducting analysis to evaluate the benefits and effectiveness of the foreclosure mitigation programs. GAO is of the view that better analysis of the data collected is needed to improve the effectiveness of mortgage mitigation effort. These efforts will not only reduce cost but also improve the effectiveness of the outreach program.

Suggestions of GAO

The report has also suggested that principal taken by a few homeowners must be forgiven especially loans that have significant negative equity. However, this must be used as one time measure as some borrowers may misuse this benefit.

GAO has also come out with suggestions to help agencies and enterprises that are a part of the outreach program. The report has also called for detailed analysis of the borrower profile and loan data which can help them find effective solutions.

Foreclosures Scenario in the United States

Right now, in the U.S. thousands of people are losing their homes and other properties due to foreclosures. Sadly, the Midwest part of the country has the highest number of foreclosures happening every year and such a high numbers of mortgages and auctions are affecting the real estate scenario of the country. The percentage of foreclosures has gone up to 47% since the last year and is increasing with time. It is being predicted by economists that these mortgages are going to rise in the coming months. According to Economist David Shulman of the UCLA Anderson Forecast, foreclosures will continue to rise for the remainder of the year as more adjustable-rate mortgages reset. California has the highest foreclosure rate and is set to rise.

Foreclosure is a complicated process and raises a number of questions in people’s mind. After the property is mortgaged and auctioned, where does the property go and what happens of it? How do bankruptcies come into picture? How is the real estate situation of the country? These questions are on everybody’s mind and here is some information that will help you understand these questions and their answers. To understand what the effect of foreclosures is, you first need to understand what a foreclosure is.

When a group fails to make payments or dues usually up to 3 months, the authorities take an action against the mortgage borrowers and the lender has the right to take over the property after the process of the foreclosure is complete and the borrower still hasn’t been able to pay the complete dues. Approximate time taken by the process to be complete is 5 to 6 months and after the process the borrower has to leave the place as he or she loses all right to that property.

What happens to mortgaged property?

Auctions

As the rights of the property now rest with the lender, in many cases the bank, there are many options available to them to make use of the property. First option is mortgaging the property right away. The lender puts the property on auction at the time when the foreclosure deal is finalized and the lender takes in whatever the highest bidder has to pay to collect their dues. Most of the time, the new owner get the rights the property in a lower-than-retail price and in this case sometimes the lenders get partial payment for the dues and again the mortgage borrower is entitled to pay the rest of them.

Bank-Owned property

When the bank or the mortgaged lender comes in terms with the fact that the property owner many not be able to give back the dues that had to be given as repayment, the bank or the group decides that they will wait for a better opportunity to sell the property so that they get better returns out of it. This means there will be a delay in selling the property and such property is often called as bank owned property. One problem that arises in bank owned property is that the bank has to maintain it and it takes a lot of resources which is expensive. Thus when not done properly it reduces the value of the place and the banks are not able to sell it.

How do bankruptcies feature in foreclosures?

When a person’s property is going to be mortgaged, one option to avoid losing is to file the form of bankruptcy. Most people think after filing the bankruptcy, nothing can go wrong and they will never lose their house but that is not the case. When filing for a bankruptcy, there are two forms; chapter 7 bankruptcy and chapter 13 bankruptcies. The chapter 7 can you help you delaying the foreclosures with the help of the order known as automatic stay and chapter 13 can sometimes save your home as you can sit with the lender and work out a repayment plan, though not everybody can file chapter 13.

Thus, while borrowing money from bank or other mortgage lenders, a proper risk assessment should be done and extra resources counted so that the situation doesn’t arise. A good bankruptcy and foreclosure attorney can also be of help to prevent foreclosures. No matter how easily or simply somebody puts it, foreclosure is a stressful process and takes a lot of resources and time and poses a threat to the safety of your family and loved ones if such a situation arises.

Cleveland Levels Foreclosed Homes to Revive Neighborhoods

All around Cleveland, foreclosed properties are being torn down, rebuilt, or used for other purposes.  This is an excellent video to see what Cleveland neighborhoods are doing to fight the aftermath of foreclosure.

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Foreclosure Negotiations Settlement Scheduled Target is July 13, 2011

Some of the biggest banks in the United States are about to settle state and federal claims over faulty, and fraudulent foreclosures.  The target date for the settlement with Bank of America, JPMorgan Chase, Citigroup, Wells Fargo, and Ally Financial is Wednesday, July 13, 2011.

The settlement is expected to exceed $20 billion, forming state and federal funds to provide relief to mortgage borrowers.  The case has been focused on how banks treated customers during the rise in mortgage defaults.  This case is just one in many cases regarding issues of negligent, faulty, and possibly criminal activity related to mortgage and foreclosures.

Some of the issues that are related include compensating people whose homes were improperly seized.   Other issues include the institution of funds for states including Ohio to resolve civil mortgage complaints as well as a separate federal account that would require them to provide a specific amount of mortgage relief to borrowers.

I will be thrilled when this is settled as it is just one more piece of the puzzle that we need to put the Ohio economy back on track, but I am sure that whether they meet the deadline of Wednesday or not, we will be hearing about this topic for quite some time to come.

JPMorgan Chase Has to Pay Ohio and Other States Over Bid Rigging

Ohio has been caught up in another case involving JPMorgan Chase which affects our economy and the ability for the state and local municipalities to create jobs and income for Ohio residents.   JPMorgan Chase is going to pay out in total $211 million, a number that is so high I can’t even imagine what that amount is, after admitting that one of its divisions rigged dozens of bidding competitions to win business from state and local governments.  Unbelievable!

Bid rigging means that the bidder has a chance to see competitors bids before the final bid is cast, giving the bidder an unfair advantage on the bid.  Why is this bad for states?

Banks help municipalities invest the money they raise from bond offerings to earn interest before they use the money for various projects.  Competition allows the municipality to earn the best yield possible.  By bid rigging, the competition is not real, and it denies the municipality the best yield resulting in less income earned.

Complaints were filed by the SEC, the IRS, bank regulators and state attorneys general.  Part of the money is paying off a civil fraud charges.  From this amount of money, Ohio will receive $1.2 million, and the City of Cleveland, the Columbus Regional Airport Authority, and the Ohio Public Facilities Commission will also receive money.  Just one more case of the big banks taking money out of taxpayers pockets that has contributed to the economic recession.

Ohio Home Sales Delayed by Stricter Policies at Fannie Mae and Freddie Mac

One of the largest impacts on the economic recovery of states including Ohio are the new stricter rules governing government mortgage agencies like Fannie Mae and Freddie Mac.  Many people who would have fit the borrowing criteria 5 years ago to buy a home in Ohio are no longer considered qualified by the much stricter new rules.

This affects both the buyer and the seller in both ends of a deal in selling homes, whether they are Ohio foreclosure homes, or just regular homes for sale.  Sellers who are selling homes at a fraction of what they paid for them, are not even able to get a buyer approved to pay for that amount.  Buyers who normally would have qualified for a loan through a mortgage lender, are not being approved even if they have good credit.  Their circumstances are just not good enough.

This causes a huge delay in the Ohio economic recovery that we all need to get back to better paying jobs and also to get back on the road to a more prosperous future.  Many of the government policies, meant to help, are just acting in conflict with each other.

Believe it or not, there are a record number of people who want to buy homes in Ohio.  However, more than usual are being turned down for mortgage loans.  This is on top of another delay caused by federal, state, and local investigations into “fraudclosure” or mismanaged or criminal neglect and oversight of foreclosure practices in several banks and banking contractors.  And no matter who is to blame, the Obama sponsored loan modification program has fallen short of goals.

“Giving out unsupportable mortgages was a disaster, and now the danger is overreacting and making the standards excessively high,” according to Joseph Stiglitz, a Nobel prize winninng economist and professor at Columbia University in New York.

Banks usually follow the standards that are set by Fannie Mae and Freddie Mac because these are loans that the agencies will then purchase and package into bonds.  These companies, along with the Federal Housing Authority back about 90% of loan originations.

Government programs like the Home Affordable Modification Program (HAMP) have mostly helped keep existing home owners out of foreclosure, here in Ohio and elsewhere in the U.S., but they have not had the success rate hoped for by the Obama Administration when the program was begun.

Right now the entire fleet of 50 state attorneys are investigating the banking industry foreclosure practices which is holding up the current batch of foreclosures in the works which may work in some homeowners’ favor, allowing them more time to catch up with their bills.

Recently, indictments were brought in Cuyahoga County against 9 employees of Argent Mortgage, Inc.

Sesame Street Elmo Helps Explain Job Loss and Foreclosure to Children

Due to the large amount of families facing financial crisis due to foreclosure and bankruptcy, Sesame Street has come out with a series of 5 videos to help explain your family’s financial difficulties to your children in a way that won’t frighten them, leading to more issues.  Sesame Street calls the series Families Stand Together: Feeling Secure in Tough Times and they also have a website that has other activities and links for families facing job loss, foreclosure, and bankruptcy, or just having to move because of financial issues.

Children are well aware when parents are not happy, are arguing, or are under stress which losing a job or a home definitely qualifies for.  As usual, Sesame Street does an excellent job of providing help through characters that your children already trust through their television shows, videos, and books.

Sesame Street – Families Stand Together: Tough Times

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Argent Employees Should Be Indicted

I have been closely following the news about the Cuyahoga County Grand Jury Indictment of the Argent Mortgage employees, and frankly, as far as I am concerned, they are just a drop in the bucket of all the fraudulent mortgage activity that had been allowed over the last few years.  If this financial crisis had not happened, who knows how much more mortgage fraud would be going on right now.

I find it insulting, to say the least to know that American banks are taking advantage of prospective buyers just so that their employees can earn a few extra bucks, when by their actions they can destroy the lives of numerous desperate families that are already on the edge.  Did the banking crisis cause the recession, or did the recession cause the banking crisis?  We will most likely never know, however, it is sure that the banking crisis is a factor, if not the cause of the long continuation of the problems facing the American financial system, and several specific states, Ohio being one of the most affected by the current mortgage, foreclosure, and bankruptcy issues.

So many companies in Ohio have had to close, or consolidate, close some of their operations, let people go, or lay people off.  These people in turn, then cannot pay their mortgage, and go into foreclosure.  It is a never ending cycle, that needs to be fixed for our Ohio economy to get better, and the rest of the country too.

Most families in Ohio are sitting on pins and needles, waiting for the next shoe to drop, hoping and praying that their jobs will stay intact for another few months.  I personally would like to see a lot more indictments to companies like Argent, whose employees thought it would be good fun to torment hardworking American families.