The Obama administration has finally begun to crack down on mortgage companies and loan servicers that are failing to do enough to help borrowers at risk of foreclosure. Measures announced this week include sanctions and fines that will be imposed via the Treasury Department. According to a random survey of approximately 50 of our clients who purchased property in Miami Beach after 2004, we have roughly estimated that only 25% of eligible borrowers who purchased premier waterfront properties in Miami Beach have been able to permanently modify their loans.
As part of the various Homeowner Relief Programs being advocated by policy makers in Congress, The Treasury Department, and The Obama Administration, over 35,000 homeowners received letters during the summer of 2009 from the Federal Regulators–offering them a new, more affordable mortgage payment. However, the real problem seems to be the bureaucratic bottleneck, disorganization, and lack of accountability on the part of loan servicers and banks. In the past two weeks alone, I have had four separate clients tell me that their loan modifications have either been denied due to lost files, incomplete paperwork (because a form changed from time of application), and general lack of responsiveness and policy confusion from lenders.
The Federal Deposit Insurance Corporation (FDIC) is offering many delinquent borrowers significant concessions on past due mortgages–in many cases lowering interest rates to as low as 3%, extending loan amortizations schedules from 30 to 40 years, waiving traditional qualification requirements, and keeping payments under 38% of a borrower’s gross income. Many Miami Beach homeowners who currently find themselves “underwater”, which is defined as owing more than the property is worth in today’s market, are anxious to participate in the loan modification programs.
Our sampling of Fortune International’s clients includes those that purchased a waterfront property as their primary residence on Sunset Island IV, Palm Island, Biscayne Island, and in Miami Beach condo buildings including The Murano at Portofino, The Portofino Tower, The Bentley Bay and The Continuum South Tower. Approximately 65% of those surveyed indicated a willingness to stay in their homes, as long as they were successful in lowering their monthly mortgage payments and bringing their cost of owning closer to the cost of renting a comparable property in Miami Beach (whether it be a condo or single family home).
I’ve been asked so many times over the past several months if there are any advantages to successfully accomplishing a “Short” sale versus just letting the Foreclosure process run its course. So I’ve decided to write this post highlighting the major differences between a Short Sale and a Foreclosure, and how will it will probably affect a seller/property owner?
This is an all too common question being asked today for property owners in Greater Miami and Miami Beach, be it an owner of a Miami Beach single family home or condo. In my experience, most owners or property investors who purchased after 2003, and whose total housing expenses exceed 31% of gross income are dealing with this issue. To keep things as simple and brief as possible, I am not going to go into the details of these transactions; rather I’m going to give my way of explaining these terms when someone asks me this very question. At Fortune International, we have an experienced and dedicated team of agents, lawyers, and paralegals, and administrative assistants that have had success negotiating zero deficiency judgements for short sales worth millions of dollars. It’s not an easy process, and requires dedicated and persistent follow up with lenders, lawyers, bank negotiators, condo associations, and various other debt holders.
- A short sale is when a homeowner is trying to sell for less than the amount owed on the loan, this type of transaction requires bank approval and there are certain guidelines and pre-requisites a bank will ask for prior to s short sale approval.
- A foreclosure is when the lender takes over the property. A court ordered sale is required prior to the foreclosure and at this sale if no buyer comes forward who is willing to pay the minimum bid for the property, then the lender takes possession and the property is foreclosed on.
The following breakdown is courtesy of Oliver Ruiz, General Manager of Fortune International and President of the Miami Board of Realtors:
Fannie Mae Mortgage Eligibility (Primary Residence):
A homeowner who loses a home to foreclosure is ineligible for a Fannie Mae backed mortgage for a period of 5 years.
A homeowner who successfully negotiates and closes a short sale will be eligible for a Fannie Mae backed mortgage after 2 years
Fannie Mae Mortgage Eligibility (Non-Primary Residence)
An Investor who allows a property to go to foreclosure is ineligible for a Fannie Mae backed investment mortgage for a period of 7 years
An investor who successfully negotiates and closes a short sale will be eligible for a Fannie Mae backed investment mortgage after 2 years.
Future Loan with any Mortgage Company:
On any future loan application, a prospective borrower will have to answer YES to question C in Section VII of the standard 1003 that asks “Have you had property foreclosed upon or given title or deed in lieu thereof of the last 7 years?” This will affect future rates.
There is no similar declaration or question regarding a short sale.
Impact to Credit Score:
Score may be lowered anywhere from 250 to over 300 points due to a foreclosure. Typically will affect score for over 3 years.
Only late payments on mortgage will be reported as paid or negotiated. This will lower the score as little as 50 points, if all other payments are being made. A short sale’s affect can be 12 to 18 months on an individual credit score.
Credit History:
Foreclosure will remain as a public record on a person’s credit history for 10 years or more.
Short sale is not reported on a credit history. There is no specific reporting item for “short sale.”
Security Clearances:
Foreclosure is the most challenging issue against a security clearance outside of a conviction of a serious misdemeanor or felony. If a client has a foreclosure and is a police officer, in the military, in the CIS, Security, or any other position that requires a security clearance will be revoked and position could be terminated.
Short Sale, on its own, does not challenge most security clearances.
Current Employment:
Employers have the right and are actively checking the credit regularly of all employees who are in sensitive positions. A foreclosure, in some cases, can be grounds for immediate reassignment or termination.
Short Sale is not reported on a credit report and is, therefore, not a challenge to employment.
Future Employment:
Many employers are requiring credit checks on all job applicants. A foreclosure is one of the most detrimental credit items an applicant can have and in most cases, will challenge employment.
Short sale is not reported on a credit report and is therefore not a challenge to employment.
Deficiency Judgment:
In 100% of foreclosures (except in those states where there is no deficiency), the bank has the right to pursue a deficiency judgment.
In some successful short sales, it is possible to convince the lender to give up the right pursue deficiency judgment against the homeowner.
Deficiency Judgment (amount):
In a foreclosure, the home will have to go through an REO process if it does not sell at auction. In most cases, this will result in a lower sales price and longer time to sell in a declining market. This will result in higher possible deficiency judgment.
In a properly managed short sale, the home is sold at a price that should be close to market value and, in almost all cases, will be better than an Foreclosure sale resulting in a lower deficiency.
A few of the properties that we have successfully completed “short” sales: (Click on the pictures to see more information about the building)
The world is constantly changing and evolving- and this is especially true for Miami Beach’s internationally focused local real estate market. Most of the luxury buyer’s in today’s market are both tech savvy and very well informed. In order to reach this target market, whether we are the listing or buyer’s agents of a Miami Beach waterfront home or condo, it’s more important than ever to stay current with marketing trends. These can involve promoting properties and communicating via social networking sites, search engine marketing (Yahoo, Google, Bing, etc.), as well as old fashioned phone calls and direct mail campaigns.
We make it our business to stay up to date on the latest international marketing tools, such as our website, and the latest technology trends as they relate to real estate. We’re passionate about what we do, which means that we also embrace change while at the same time not abandoning the tried and true old-style real estate marketing tools.
Our international target marketing includes a network of over 200 affiliates, which allow us to successfully represent sellers and buyers from Miami Beach to Key Biscayne, Sao Paulo to Bogota, Buenos Aires to New York.
Everyone keeps asking – how long until the market recovers? Particularly if you are a seller today, a better question to ask is how the Miami Beach Real Estate market has actually performed over the past two months. I’m not going to mince words here, the reality is that the mortgage and real estate crisis is having a strong downward pressure on prices (yes, even in South Beach). The strongest pressure, however, is occurring on the lower and middle range of the Miami Beach homes market. The high end of the residential market, particularly for completely remodeled and turnkey waterfront island homes, continues to experience strong demand and remains relatively insulated from the current financial crisis.
If you are a potential seller, all is not lost and now is when when savvy buyers are purchasing spectacular waterfront properties in Miami Beach (such as Palm, Star, Hibiscus, Sunset, and the Venetian Islands).
As a reality check, let’s take a look at the latest closed sales of single family waterfront homes and non-waterfront foreclosure homes in Miami Beach:
This completely updated 3,500 sq ft 3 bed/3.5 bath home features: Downtown Miami & sunset views on open water bay view on a 11,375 sq ft lot has 65 ft water frontage Asking Price: $4,495,000
Sold: $3,700,000 ($1,057/SF house) ($325/SF land)
Closing Date: 12/30/08
This private Mediterranean estate boasts spectacular bay & downtown Miami skyline views, resort-style pool and 4-car gar. Lavished w/exquisite Old World details, the interiors have soaring ceilings, fine inlaid marble, hardwood flrs, exquisite moldings, custom blt-ins, columns, arched windows. Dockage for the yacht of your dreams with water frontage of 100ft. Asking Price: $10,900,000
Sold: $9,750,000 ($1,227/SF house) ($325/SF land)
Closing Date: 9/11/08
165 feet of open bay frontage and direct access to the Atlantic Ocean and 37,578 sq ft of property, this home offers expansive views, resort-like pool deck and spa, and oversized master bedroom & bath. Asking Price:$8,900,000 Sold:$6,250,000 ($945/SF house) ($166/SF land) Closing Date:12/23/08
Miami Beach
Miami Beach Home
Remodeled with updated kitchen and granite counter tops & stainless steel appliances, arched doorways and terracotta tiles. New roof and windows with lush tropical landscaping with privacy for homeowners. Orginal Asking Price: $1,175,000
Foreclosure Sold Price: $350,000 ($179/SF house) ($46/SF land)
Closing Date: 12/24/08
As the last example above illustrates, in a market that’s still in decline, the market reality between the upper and lower end of the residential real estate market is significant!
The Obama administration has finally begun to crack down on mortgage companies and loan servicers that are failing to do enough to help borrowers at risk of foreclosure. Measures announced this week include sanctions and fines that will be imposed via the Treasury Department. According to a random survey of approximately 50 of our clients who purchased property in Miami Beach after 2004, we have roughly estimated that only 25% of eligible borrowers who purchased premier waterfront properties in Miami Beach have been able to permanently modify their loans.
