Have you ever said to yourself, "I'm just going to walk away from this house and let the bank have it back." The truth is you certainly can walk away, but know that liabilities & long term consequences will follow you. Contact me for a better plan.
Brian J. O' Connor / Detroit News Finance Editor
A grim echo of the housing bust is building for Michigan homeowners who've lost their homes to foreclosure or sold them in short sales. Without even knowing it, they could end up owing tens of thousands of dollars in mounting debts under a previously unenforced provision of the state's foreclosure law.
Until a few years ago, when someone lost a home to foreclosure in Michigan, the owner walked away embarrassed and financially battered, but owing nothing more onthe property.
Now, because of dropping property values, mortgagelenders are engineering foreclosures so they can pursue a borrower for the unpaid balance of a home loan for years to come. With added fees and interest, this phantom debt — called a "mortgage deficiency" — could swell to become more than the homeowner paid for the property.
"It's a huge problem," said Julia Gordon, senior policy counsel at the Center for Responsible Lending in Washington. "This is the last thing anyone needs." There are no figures to show how many Michigan homeowners could be liable for deficiencies, but foreclosure rates suggest there will be plenty.
Since 2006, the number of foreclosures in Michigan has more than doubled to nearly 136,000 last year, and the state has recorded nearly 500,000 filings for homes in or near foreclosure. As a result, property values in southeast Michigan have plummeted. Home prices dropped 34 percent during the past decade and recently hit their lowest point since the summer of 1994. Before the real estate meltdown, few lenders ever pursued borrowers for mortgage deficiencies, said bankruptcy attorney Stuart Gold of Southfield. "We used to see it maybe once a year or very infrequently," Gold said. "In the last two years it's become more and more prevalent."
Values sink under water
Before the recession, foreclosed homes in most cases were worth enough that banks could recoup the amount they were owed plus legal costs, if not more. At the county sheriff's foreclosure auction, lenders would bid the amount they were owed on the mortgage, then sell the property, and banker and homeowner could move on.
But now that many homes in the region are worth far less than their mortgages, lenders aren't bidding what's owed. They enter bids for the current value of the home or, sometimes, even less. Under state law, the lenders can then pursue the homeowner for the shortfall between what was owed and what the lender got when the home was sold, plus legal fees and interest.
Lenders have up to six years to sue for the bad debt and, once they obtain a judgment, can pursue the borrower for 10 years. If they still haven't collected, they can renew the judgment for another decade, repeating the process indefinitely.
During that time, interest can build on the debt at the default rate stated in the original mortgage. That's usually four or five percentage points above the original mortgagerate, so a deficiency on even a low 6-percent loan would be charged 10 percent or 11 percent interest, doubling the cost of the debt in as little as six and a half years.
"The whole situation has gotten kind of crazy," said bankruptcy attorney Mike Greiner of Warren's Financial Law Group. "I have one or two clients a month who are being sued on the first mortgage, and it's usually a large number, $50,000, $60,000 or $70,000. It's quite a shock because the client's attitude is, 'I gave the house back to the bank.'"
Short sales not excluded
These unseen debts also are cropping up on short sales, where the bank approves the sale of a home for less than the amount owed. But just because the bank OKs the sale and releases its lien on the property doesn't mean it can't sue for the balance, said Dan Lievois, a short-sale expert and chief executive of Devon Title Agency in Troy.
"There are a lot of folks walking around now who don't understand that in three or four years they're going to wake up and have letters coming in from debt collectors," Lievois said. "That's what's sad."
The only way out for the homeowner is to get a specific release on the amount owed, Lievois said. Often in short sales, the deficiency is negotiated down and paid off by having the seller take on a new unsecured loan for the amount owed.
"In instances where the consumer didn't get that waiver of the deficiency," he said, "they have to understand that the lender has the right to sell that debt or collect on it, and do whatever they want with that asset."
This, consumer experts say, is where the real trouble can start.
In the past two decades, a robust business has grown up around the buying and selling of old consumer debt, from years-old credit card balances to long-forgotten traffic tickets and library fines.
Collection agencies buy the debt for pennies on the dollar, then try to track down the debtor with threats of legal action and damage to credit scores. Often, the debt may not even be legally owed because it's beyond the statute of limitations, which is six years in Michigan.
Now, mortgage lenders can start selling their deficiencies to make up some of their loan losses, unleashing debt collectors who may wait years to file suit — well after foreclosed homeowners have rebuilt their financial lives and have assets that can be pursued for collection.
"There are certain lenders that know borrowers will become viable for collection down the road," Lievois said.
The best way for borrowers to avoid the problem is to get a release from the lender in a short sale or, in the case of a foreclosure, file for bankruptcy. If they file soon after a foreclosure, when they have few assets, they can wipe out the debt entirely in a Chapter 7 bankruptcy. But if they wait until a collector shows up years later, they might have to pay some of the debt under a Chapter 13 bankruptcy, or may not qualify for bankruptcy at all. "You can garnish their wages or you can seize property," said Greiner, the bankruptcy attorney. "You can go after people for their assets. "It's like a big iceberg out there. We haven't even seen the beginning of it yet."
If you're considering doing a short sale on your home, be sure you choose a real estate agent that is well aware of all the "down the road" implications to you and your family.
I utilize the knowledge and negotiation power of a real estate attorney to ensure that this never happens to our clients. This service is provided free of charge to our clients also. Call me today, and I'll guide you through this process.
Increasing Seller's Property Value
Provided by
Understand first of all that there IS a difference between price and value. Price is the amount you are asking for the property. Value is buyer perceived, and this perception of value is influenced by many factors such as location, features, condition, comparison to other purchase option, etc. By attending to details that can have a positive impact on the value, sellers can significantly increase their chance of attracting qualified buyers willing to pay the asking price.
Some tips to achieve a positive impact on value are:
Perceived size impacts value, even more so than actual square footage. Open floor plans make a room feel bigger than larger spaces with smaller rooms. Showing property that is furniture free, or at reduced clutter, helps to make the space feel bigger.
Vacancy increases sale-ability. Property is easier to show and easier to sell, and quicker to take possession of when it is vacant at the time it is offered for sale. Evidence of problems to take possession of the property -- such as encroachments, or tenants who wont allow buyer tours -- negatively impact value. Vacancy also helps the buyer walk through the property imagining ownership. Sellers should remove personal trinkets and family pictures as well as being conveniently absent during a buyer tour.
Cosmetics are important.
Fresh paint will always add more value than it costs.
Clean or new carpet/flooring adds more value than it costs.
Landscaping adds more value than it costs. At the very minimum, make the entrance area neat.
If you can, add some colorful flowers and new sod.
Take care of the obvious! The spot on the ceiling from the roof leak takes thousands of dollars from the perceived value and the offer price.
Condition affects value. Do a seller's home inspection to identify and fix the problem BEFORE closing. No point holding up your check a few extra days; plus a failed buyer's inspection could cost you the sale. Buyers will often bargain down your asking price to accomodate for property condition and repairs.
If you can, remodel/update the kitchen and master bathroom. These two areas have a big impact on home buying decisions.
Strategic renovations impact value and your bottom line. Don't spend more money to renovate the place than you can recapture in value on the sales price.
Tuesday, February 15, 2011
How Much Can You Afford?
Start out with a budget so you can determine your price range
By LendingTree
If you're like many first-time homebuyers, chances are you've been spending your weekends driving around visiting open houses and new model homes. This is a great way to get a feel for what you want. The problem is that what you want isn't always what you should get.
Before you start touring homes for sale, it's important to start off with a budget so you know how much you can afford to spend. Knowing what mortgage payment you can handle will also help you narrow the field so you don't waste precious time touring homes that are out of your reach.
Where to begin
The key factor in figuring how much home you can afford is your debt-to-income ratio. This is the figure lenders use to determine how much mortgage debt you can handle, and thus the maximum loan amount you will be offered. The ratio is based on how much personal debt you are carrying in relation to how much you earn, and it's expressed as a percentage.
The ideal ratio
Mortgage lenders generally use a ratio of 36 percent as the guideline for how high your debt-to-income ratio should be. A ratio above 36 percent is seen as risky, and the lender will likely either deny the loan or charge a higher interest rate. Another good guideline is that no more than 28 percent of your gross monthly income goes to housing expenses.
Doing the math
First, figure out how much total debt you (and your spouse, if applicable) can carry with a 36 percent ratio. To do this, multiply your monthly gross income (your total income before taxes and other expenses such as health care) by .36. For example, if your gross income is $6,500: Next, add up all your family's fixed monthly debt expenses, such as car payments, your minimum credit card payments, student loans and any other regular debt payments. (Include monthly child support, but not bills such as groceries or utilities.) *Your minimum credit card payment is not your total balance every month. It is your required minimum payment -- usually between two and three percent of the outstanding balance.
To continue with the above example, let's assume your total monthly debt payments come to $750. You would then subtract $750 from your total allowable monthly debt payments to calculate your maximum monthly mortgage payment: In this example, the most you could afford for a home would be $1,590 per month. And keep in mind that this number includes private mortgage insurance, homeowner's insurance and property taxes. To determine the price of home you can afford based on this amount, use a home affordability calculator.
Exceptions to the 36 percent rule
In regions with higher home prices, it may be hard to stay within the 36 percent guideline. There are lenders that allow a debt-to-income ratio as high as 45 percent. In addition, some mortgage programs, such as Federal Housing Authority mortgages and Veterans Administration mortgages, allow a ratio higher than 36 percent. But keep in mind that a higher ratio may increase your interest rate, so you may be better off in the long run with a less expensive home. It's also important to try to pay down as much debt as possible before you begin looking for a mortgage, as that can help lower your debt-to-income ratio.
It’s hard to imagine a home selling for the price of a car, but nonetheless, some home prices in some sections of the country are now comparable to prices of luxury cars. And, no, we’re not talking about Bentley’s and Rolls-Royce’s, we’re talking about Acura’s and Hyundai’s and cars that are purchased and accessible by many Americans.
Some of the homes are distressed sales — no surprise there — but some are simply low-priced homes that need a new owner. All of them appear to have good bones, but need lots of TLC. Take a look at 10 homes with four bedrooms or more, that are selling for the price of four wheels in places throughout the U.S.: 1. South Bend, IN HomeFor Sale — $49,000 | Price per sq ft: $27
Original list price – $89,900 (2009) 717 Forest Ave, South Bend, IN 46616 Listing description: Upstairs had been used as an apartment with a kitchen, full bath, 3 bedrooms, living room and has a separate entry. The main level has a living room, dining room, 2 bedrooms, kitchen, full bath and a laundry room. The basement is entered by a Bilco door and contains the mechanicals.
Comparably priced car: 2010 Acura RL (MSRP $46,830 – $54,250)
> See South Bend real estate
> See South Bend home values 2. Florence, AZ Home for Sale — $34,900 | Price per sq ft: $14
Original list price — $148,900 (June, 2010) 23803 N Bridle Way, Florence, AZ 85132
Listing description: This home has never been lived in and does not have the certificate of occupancy with Pinal County. This will need to be cleared with the county before moving in. Carpet and ceramic tile flooring, breakfast bar, fireplace, spacious rooms. Bank of America Home Loan Pre-Qualification required on all offers. Free appraisal and credit report if financed through Bank of America. Comparably priced car: 2011 Hyundai Genesis (MSRP $33,000 – $43,000)
> See more Florence real estate
> See Florence home values 3. Baytown, TX Home for Sale — $49,900 | Price per sq ft: $39
Original list price — $54,900 (Nov. 2010) 607 Lloyd Ln, Baytown, TX 77521 Listing description: Traditional brick/wood 1-story home. This home features 4 bedrooms, 1 bath, patio and shed.
Comparably priced car:2011 BMW 3 Series Coupe (MSRP $36,700 – $50,150)
> See more Baytown real estate
> See Baytown home values 4. Aurora, IA Home for Sale — $47,500 | Price per sq ft: $34
Original list price — $48,500 (August, 2010) 209 York St, Aurora, IA 50607 Listing description: Looking for a bigger house, need more bedrooms, then this might be the house for you! Edge of town feeling, large yard, most of the work of updating this has been done for you. More than a Drive-by, CALL TODAY.
Comparably priced car: 2011 Ford Shelby GT500 Coupe ($48,645)
> 5. Detroit, MI Home for Sale — $32,000 | Price per sq ft: $16
Original list price — $28,000 (Aug. 2010) 16260 Wildemere St, Detroit, MI 48221 Listing description: Great value in this well-maintained brick 5-bedroom home with great design appeal. Arched porch & doorways and plaster ceilings inside. Big fireplace with wood mantle. Five livable bedrooms plus a part-finished basement with workshop. Lots of storage area throughout. All appliances included & efficient steam heat. Fenced garden area off Florida room. Located near U of D-Mercy & M-10. Easy appointments to show – reasonable notice requested. Won’t last long.
Comparably priced car: 2011 GMC Acadia SL FWD (MSRP $31,840)
> 6. Rocky Mount, NC Home for Sale — $33,900 | Price per sq ft: $12
Original list price — $77,900 (Sept. 2010) 331 S Grace St, Rocky Mount, NC 27804 Listing description: Prequalified/proof of funds required with offer. Sold as is. Vinyl siding, hardwood floors, master bedroom up or down.
Comparably priced car: 2010 Volvo V70 3.2 (MSRP $33,550)
> 7. Taunton, MN Home for Sale — $37,500 | Price per sq ft: $21
Original list price: $42,000 (August 2010) 303 N Garfield St, Taunton, MN 56291 Listing description: 2 story home, 4 bedrooms, 2 bath. Some updates have been done. Home to be sold “as is, where is.” All information and sizes are approximate. Comparably priced car: 2010 Chevrolet Tahoe LS 2WD (MSRP $37,280)
> 8. Rochester, NY Home for Sale — $30,000 | Price per sq ft: $15
Original list price: $34,900 (Sept. 2009) 109 Maryland St, Rochester, NY 14613 Listing description: Great Investment Opportunity! Property rented on a month to month basis at $750 plus utilities. Property can easily be converted back to a 2 family home. Huge potential! Needs some TLC. Comparably priced car:2010 Ford Escape Hybrid FWD (MSRP $29,860)
> 9. Akron, OH Home for Sale – $45,000 | Price per sq ft: $33
Original list price: $50,000 (July 2010) 1114 Herberich Ave, Akron, OH 44301 Listing description: Great investment property. Current renters have been here for 20 years. Rental income $650/month. Siding and roof replaced about 4 years ago. First floor features living room that has wide archway leading to the dining room, kitchen, and breakfast room. Second floor has 3 bedrooms and large bathroom. Third floor is finished and used as a 4th bedroom. There is a full basement and a single car detached garage. Comparably priced car: 2010 Cadillac CTS Sport Wagon 3.6L Performance AWD (MSRP $45,265)
> 10. Cheboygan, MI Home for Sale – $34,500 | Price per sq ft: $14
Original list price: $49,500 (Nov. 2010) 220 Duncan Ave, Cheboygan, MI 49721 Listing description: Turn of the century home with 4 bedrooms, detached 2 car garage, formal dining room, hardwood floors and a great location close to downtown. Comparably priced car: 2010 Toyota Highlander Hybrid Base 4X4 (MSRP $34,900)
Next, add up all your family's fixed monthly debt expenses, such as car payments, your minimum credit card payments, student loans and any other regular debt payments. (Include monthly child support, but not bills such as groceries or utilities.) 
*Your minimum credit card payment is not your total balance every month. It is your required minimum payment -- usually between two and three percent of the outstanding balance. 
In this example, the most you could afford for a home would be $1,590 per month. And keep in mind that this number includes private mortgage 
