The artist formerly almost in foreclosure

The artist formerly know as “The Artist Formerly Known as Prince” — also known as, well, Prince — was almost in foreclosure on a piece of land in Chanhassen, MN.  Apparently the artist made a last-minute $368,000 payment to “balance out the mortgage” and hence take the property off of the auction block.

Getting to the point of a foreclosure auction doesn’t mean that the property is lost.  There’s usually the right to redeem the property more or less right up to the time of sale.  The owner of the mortgage in default has already taken a hit on their credit for being so late on the payments, but keeping the property out of foreclosure is far better than letting it go into foreclosure.

Granted, not everyone has a princely six-figure wad of cash to throw at a mortgage, but there always is a chance of redemption if your property is going to a foreclosure auction.

Short sales are hard if you’re the short seller

This post over at Debt Kid is funny, in a macabre sort of way.  It illustrates first-hand how badly you should try to avoid being the person selling short in a short sale.

In a nutshell, a short sale is a sale of a property for less than what’s owed on it.  It’s meant to end up being less costly to the lender than foreclosure in the case of a default by the borrower.  Short sales, though, involve much more negotiation than foreclosures because legal title hasn’t yet been transferred to the lender.

The only people for which the process is remotely pleasant is the buyers and the real estate agents.  The buyer stands to get the property at below market value (one would hope) and the real estate agents stand to make commissions on the sale.  The lenders are hung out to dry because they’re losing, and the seller will have his credit trashed after the transfer.  But short sales often fall through because the parties cannot agree on the terms of the sale.  That can make it frustrating for prospective buyers.  Contrast this with buying foreclosures, which can move really fast — almost too fast — for the buyer.

Take Debt Kid’s story as a warning.

Four smart tips to take out a mortgage after foreclosure

If you are a victim of foreclosure, you do not need to consider it as an endless suffering. Foreclosure does bring upon you financial disaster but it does not end your life. You can regain your financial condition, even after you have encountered a foreclosure. You can usually get a mortgage after 2 years of your foreclosure. A foreclosure does not impede you from getting a mortgage; you can buy a house even after you have faced a foreclosure. This article provides you with some tips you must follow in order to recoup your financial security after foreclosure.

Here are some tips you must follow in order to get a mortgage after you have encountered a foreclosure:

  1. Improve your credit score.  Get a copy of your credit report and review it thoroughly. Find out if there are any dues on credit cards or loans. Pay off your dues as soon as possible. Negotiate with your creditors and try to get a reduction on your outstanding debt. You have to improve your credit score to minimum 580 if you want to secure FHA loan. If you need a conventional loan, you require a score of at least 680-700. Thus, improving your credit score is essential when you decide to get a mortgage after foreclosure. Mortgage lenders will review the last three years of your credit report, so it’s better to prepare a document in writing to explain the reason for your foreclosure.
  2. Save for a down payment.  If you need to purchase a new home, you have to save enough for your down payment. Down payment after foreclosure may cost you outrageously. It may cost you almost 3 to 4 percentage points above the current rate.
  3. Save for PMI.  If you can put 20% for your down payment, you can improve the terms of your mortgage and avoid Private Mortgage Insurance (PMI). If you are unable to do that, you need to save enough for PMI in order to buy your new home after foreclosure.
  4. Plan a budget.  Create a budgeting plan as you need to save enough in order to buy your own home. The means to lower your monthly interest rate is to increase your savings. Draft a budget and find out your income and your expenses. If your find your expenditures are more than your income, immediately take steps to reduce your over spending habit. Stick to your budget as this will help you manage your finances in a better way and help you save more.

Apart from following the tips to secure your mortgage after foreclosure, you must also be a smart shopper. You must be careful to shop for the best mortgage loan, compare prices online and take out the loan that offers you with the best deal. Keep your spending in check and you will be able to overcome the stigma of your foreclosure as soon as possible.

Don’t expect banks to be nice to you for buying their foreclosures

We just purchased a new house this week.  It happened to be a foreclosure.  It was in excellent shape even compared to a house not in foreclosure.

I have to say, though, the seller jerked us around quite a bit throughout the whole process.  That wasn’t pleasant at all.  But we ended up getting the house, and they fixed the big thing that we asked them to fix:  the water heater.  So it wasn’t all bad.

But here are some of the big lessons I learned throughout the process:

  • The seller’s addendum was extremely restrictive. There’s the part of the contract that we signed with our real estate agent, and then there was the part that the bank added on (an addendum) with their terms.  It was nine pages of very, very small print that gave every discrection to them and took all of ours away.
  • We had to rush everything over to them, but they dragged their feet on their end. Games.  Nothing but games.
  • We never met any of the parties on the seller’s side in the transaction. But that may be normal for foreclosure transactions.  I don’t know.
  • We had to get an inspection, and have the report to them on very short turnaround, but they didn’t even have to acknowledge that they fixed anything. Again, very one sided, but they did let us know beforehand that they did fix the one thing we asked for.
  • They called us the day of closing, after we had already given up hearing from them, at 2:30, expecting us to close that day. I still hadn’t done a walk-through, and the settlement agency’s office was 45 minutes away.  We got it done, but I was not amused by that little stunt.

The transaction moved quickly overall, but I did get the feeling that they were figuratively throwing the keys at us at the closing table.  But I’m probably not the only one who’s seen the very distanced view of banks and their foreclosed real estate.

Strategic default? Banks are on to you

Few states have been hit harder by the foreclosure mess than Florida.  Properties in some areas are worth half of what they were at their peak.  A sizable number of underwater borrowers — those owing more than their homes are currently worth — have simply stopped making payments on their mortgages, using the extra money to pay off other debts, and then forcing the lenders to take the property back through foreclosure proceedings.

It sticks a loss to the bank, of course, but banks aren’t taking this lying down.  Faced with over half a million borrowers (an estimate by Experian) banks are playing tougher:

  • They recognize the likely patterns and encourage the at-risk-of-defaulting homeowners to tough it out.  This keeps the payments coming in.
  • They go after defaulted borrowers with other legal avenues such as deficiency judgments to collect the difference between the sale price (after the foreclosure) and the amount owed.

Just because the foreclosure process is becoming more socially acceptable doesn’t mean that (a) there aren’t consequences, and (b) it’s not ethically wrong.  A house is a place to live first and foremost — not an investment first and foremost.  Cutting bait on paper losses is shortsighted, because the house still provides shelter.  It just hasn’t produced the double-digit gains investors were expecting.  Oh well.

Patron saint of foreclosures?

Poor St. Joseph.  He can’t catch a break these days.

Folks are buying St. Joseph (husband of Mary) figurines and burying them, upside-down, near the For Sale sign in hopes of bringing a quicker sale.

Prayer sure doesn’t hurt but this is a bit off the deep end.  I had heard about this practice several months ago as a woman in our home group knew someone who did this.  Heck, kits are available for sale just for this purpose!

About the only thing that will help sell a house in this kind of a down market is lowering the price and taking a loss, if needed, or holding out for a recovery.

Well, this is one way to get rid of unsold homes

If this story is true, this is an ugly development.  (It’s a guy with a video camera, so who knows.)  Banks are allegedly paying to destroy new and unfinished homes that they own rather than pay mounting fines imposed by local government for allowing the homes to stay vacant and poorly maintained.

The only people winning out are the people being paid to demolish the homes.  The banks are destroying the collateral for defaulted loans.  The local government, for its want of fines, now misses out on tax revenue.  A person who would have bought the home at the right price no longer can.

Banks and local governments are playing monetary chicken with vacant homes.  Banks must either maintain the homes acceptably — a cost they’ll likely never get back — or face fines.  Local governments turn up the heat and expend effort to get the banks to maintain the properties, or else they become run-down and desirability of surrounding properties goes down, squatters move in, etc.

In this town, the banks flinched.  But neither the banks nor the town will win here.

Big jump in foreclosures: Who’s immune?

Probably not too many people.  Though California, Arizona, Nevada, and Florida are still the poster children for the housing carnage, Idaho, Illinois, and Oregon are up-and-comers.  Foreclosures for February 2009 are up 30% from February 2008 levels.  Seven hundred thousand properties owned by banks haven’t been put on the market yet.

What may make the foreclosure situation worse is that some communities and homeowners’ associations are clamping down on owners’ rights to rent their properties.  Without the option to rent out, owners are forced to carry the full weight of their mortgage payments until they can sell — or until they’re foreclosed on.  It’s simply HOAs looking after their interests, but it’s at the expense of strapped homeowners.

The 700,000 REO properties is huge.  That will take a while to burn off, and home prices will go down when they hit market.

No one’s immune.  If you’re not being foreclosed on, someone near you probably is, and that affects the value of your house and your neighborhood.

My workplace is turning into an MLS

Maybe yours is too.

Over the past few years I’ve seen people occasionally posting a place for rent or sale.  Usually not too often.  For the past couple of weeks, I’m greeted each day with four advertisements for property.  Three of them are looking for renters.

It might be just that lots of people have vacancies now, or it could be that the owners are in a pinch, have moved, and need to stop the bleeding because they can’t sell.  One way to stop the bleeding is to rent the house out.

I think there will be more need for rentals as people lose their homes to foreclosure.  They’ll need to live somewhere.  But renters can move.  They can find good deals.  They don’t have to settle for above-market rent just because the owner needs to charge them that to stay afloat themselves.

Workplace MLS is a cheap way to sell real estate.  Maybe it’s all people can afford to do?

Upside down? Prepare now to keep your mortgage current

Plonkee Money is going upside-down a little bit on her mortgage, and is getting a little worried.  She can afford the payments, but she’s concerned that if she were to be laid off she might lose everything.

This is a valid concern, and she’s wise to consider how to allocate her resources to protect herself against losing her house.  Being upside-down (owing more on a house than it would sell for) is not a problem by itself, as long as the payments can be made.  Being upside-down becomes a problem is when the borrower wants to refinance, or if the borrower runs into financial trouble and goes into default on the mortgage.

So, assuming there’s no immediate worry, what are some choices for preparing for this situation?

  • Pay down the mortgage. This means paying extra principal each month.  The mortgage balance goes down more quickly, and fewer payments need to be made over the course of the loan.  The minimum payment doesn’t change (in her case, GBP 500 per month).
  • Make some prepayments. This would mean paying, for example, GPB 1500 for February, March, and April, while continuing her GPB 500 per month payments.  This way, she could stop paying her mortgage for three months and still be current.
  • Invest more or save more. This is setting aside a “job loss emergency fund” that can be drawn down to cover mortgage payments and other current expenses.

So, which would be appropriate?  If the concern is not being able to make mortgage payments within, say, the next few years, then paying down the mortgage (first option) probably would not alleviate these concerns.  It depletes her reserves, but does not bring relief from making payments.

The other two options will allow her to have a cushion if her income drops.  If she’s more concerned about dipping into the reserves prematurely, then it may be wiser to make a few prepayments.  If she can leave the money alone, saving cash is better, because she can earn interest on the money.

(Note:  Thanks to Taking Charge for including this post in the Carnival of Personal Finance!)