Seattle Real Estate Bells

The Short Sale Process

A Short Sale is where the market value of a home is less than the actual mortgage amount owed to the lender. How does this happen? In several ways actually. Because Seattle's Real Estate Market has been so strong the past few years and prices have increased so quickly that many people got into bidding wars and bid the price of a home up, something by as much as 10% to 20%. Then when the market recently corrected the home wasn't "owned" long enough for the usual appreciation to catch up with what was paid for the home. And in fact, the Seattle Real Estate Market has actually declined by an average of about 8% to 10% since September of 2007. So that $450,000 home that got bid up to $495,000 is now worth about $400,000. If the buyer did a zero down or a 5% down mortgage they are underwater so to speak with the property at this time. Also when you sell there are selling cost that can range from 2% (if you do everything yourself) to 9% of the selling price.

Now, if the homeowner has financial problems, like they loose their job, they get sick and can't work, or they got one of those very low introductory adjustable rate mortgage programs and have seen their mortgage payments increase substantially they are in trouble if they can't make their house payments. When this happens the home owner needs to contact their lender and try to work something out immediately. They need to try to re-finance or modify the mortgage program if they can but that can be a problem if the home value today is substantially less, or they can't qualify for a new loan because of new tighter lender requirements.

Basically what happens now is if the homeowner has lost their job and they can't re-finance and they can't make their house payments they will be in default of their mortgage when they become 30 days past due. At 30 days past due the homeowner will get a phone call from the lender telling them they are late with the payment and that there are now "late charges' they need to pay as well. After 60 days past due the home owner will get a certified letter telling them that they are in default of their mortgage and they need to bring their account current or the lender will Foreclose on the property. At 90 days past due the home owner will be served with a notice that they are in Foreclosure and this notice is now of public record and a Auction date will be set. The Auction date will usually be about another 60 to 120 days out. The last date the home owner can come up with the money to cure the past due mortgage and penalties and legal fees accrued by the lender is 11 days prior to the Auction date. At the 10th day before the Auction the homeowner has to pay the entire mortgage off plus penalties to keep the home. If nothing can be done by the homeowner their home will go to auction where about 20% to 25% of homes in Foreclosure actually sell. The homes that don't sell go back to the lender and the lender will then put the home back on the market to sell. The homeowner is out of the home, their credit is severally damaged and situation and consequences can just be miserable.

What are the options?

1. As mentioned earlier try to work out something with the lender right away

2. Try to re-finance the home with a different lender (that can be pretty difficult however)

3. Try to find the money from a family member to stay current on the mortgage

4. Try to sell the home, but if the home value is less than the mortgage amount then you need to orchestrate a short sale and they work about 50% to 60% of the time

5. Talk with an Attorney that specializes in Bankruptcy

6. Talk with a credit counselor to try to work out a solution

7. You need to take action and not be embarrassed, everyone has problems at on time or another

Everyone situation is different and the solutions may be different and difficult. Getting professional advise can save people a lot of problems in the long run. This is where people need to make sure they are working with people that know how to actually help. As we've said before, people don't go out and buy a home so they can get foreclosed on, but things happen and we need to make smart and timely decisions to obtain the best possible outcomes. If the home owner can't work out the situation with the lender (and that happens most of the time) they need to try to protect their credit as much as possible. While a short sale does have a negative impact on a credit rating in most cases it's much less of an impact than being foreclosed on or filing for Bankruptcy.

The Foreclosure Issues Facing Seattle Homeowners

It was reported last week that foreclosures have exceeded the 1 million mark nation wide. A vast majority of those however are located in just 4 states, California, Nevada, Colorado, and Florida. Washington State has less than 1% of all foreclosures nationally. But don't be fooled there are still people in Washington State that are at risk of foreclosure. Most of the foreclosures nation wide have been blamed on adjustable rate mortgages, when the buyer was offered a "teaser" rate then saw their house payment increase significantly over the next couple of years. We believe that some foreclosures in the Seattle area have and will be the result however of buyers paying too much for the home when they bought it over the last couple of years.

Seattle has been one of the last areas in the US to see any downturn in the real estate market. In the fall of 2007, we started to see our real estate market change and prices have fallen some and inventories have increased since then. There is still good activity however, and there are buyers ready to buy but sellers have to go about selling their homes much differently now. The latest foreclosure statistics have Washington State in about the middle of the pack in the US, ranked No. 27 for foreclosure filings in May 2008 according to RealtyTrac, which tracks default and auction notices and bank repossessions.

Washington State has seen almost an 18% increase in foreclosure filings compared to the same time in 2007 however, according to the report. Nationwide, RealtyTrac said foreclosure filings rose year-over-year for the 29th consecutive month and in May 2008 record the highest foreclosure-filing rate since the report began in 2005. One in every 483 households received a foreclosure filing during that month, according to RealtyTrac.

The Tacoma area, Pierce County, is #1 in the state for foreclosure filings, according to the report, with one in every 574 households going into foreclosure. Interestingly, though, that number was a 6% decrease from the same time period in 2007. The Seattle area, King County is #2, Clark County is #3, and Snohomish County is #4 in the state, as of April 2008.

A new law (in Washington State) took effect on June 12, 2008 intended to protect homeowners from foreclosure scams. See Washington State Adopts a New Statue that May Harm Distressed Homeowners

While this new law has many good parts to it, and will help protect people form equity skimming scams, it will also, most likely, discourage many real estate agents from helping homeowners facing foreclosure sell their homes. The new law also effects home buyers and depending on the situation the buyer may not want to buy a home that is within 20 days of the foreclosure date because of unnecessary but real liabilities.

There will be real estate agents in the Seattle area that will see an opportunity created by this new law and increased number of people going into foreclosure that will get involved with foreclosures, now called distressed homesellers. Some of these agents will do a fine job and others won't...so business as usual I guess!.

Stay tuned for several more articles on Foreclosures and Short Sales and some of the Do's and Don'ts to this very complicated process.