The real estate marketplace has undergone dramatic change in recent months. The exuberant seller's market of the past year has transitioned into a more moderate buyer's market, leaving in its wake an expected $1 trillion of adjustable rate mortgage (ARM) loans that will need to be refinanced in 2007. As higher home prices made home ownership more difficult for most buyers, especially those entering the market as first-time homebuyers, lenders introduced new adjustable loan options to help buyers qualify. The backlash, however, is that many buyers have gotten in over their heads struggling to maintain homes they cannot afford.
Couple that with declines in current home prices and many buyers find themselves in homes they can ill afford that are now worth less than what is owed on the property. The prevalence of this problem in the current real estate marketplace necessitates financial solutions such as a short sale, an arrangement wherein the lender agrees to settle with the buyer and sell the home for less than the mortgage loan amount.
"In the last few years we have seen a wave of 100 percent financing, refinancing and cashing out beyond the real affordability level of the buyer," said Eli Tene, CEO of I Short Sale, and a real estate expert with over 16 years experience in the area of short sales. "The level of refinancing and cashing out has become problematic. Buyers are taking cash out of their properties as casually as though were making an ATM withdrawal."
Tene points out that, unfortunately for the buyer, payday comes at a time when they are least prepared for it. "Mortgages used to be up to 25 percent of your total income. We see now in many cases that the mortgage is 60, 70 and 80 percent of the buyer's total income. There is no way to survive it. Any slight change in your life or income immediately affects your ability to pay," says Tene.
Most property owners who find themselves unable to pay their mortgage are unaware of options such as short sales and don't understand the best strategies to take to preserve their home and protect their credit. According to Tene, the biggest problem in the industry today is lack of communication between the lender and the borrower. "In most cases, the borrower is neither aware of his options nor of the consequences associated with his decisions," Tene says. "The first instinct of the borrower is to avoid dealing with the problem because, who wants to deal with something so painful? Many are walking in denial, rather than looking to understand their situation and find solutions."
"A short sale is the most acceptable and reasonable solution when you owe the lender more than the property is worth," explains Tene. He expounds, "There were approximately 350,000 foreclosures started in the last quarter, which is approximately a 45 percent increase from the same quarter last year. The main benefit of a short sale is that the buyer works with the lender in good faith to find a solution to his debt, which looks much better on the buyer's credit."
Based on his extensive experience with clients, Tene knows it is easier for buyers to start on a new page, with a better outcome on their credit, following a short sale versus a foreclosure. "Foreclosure and the related eviction process have a traumatic effect on a family. You are back on your feet much faster with a short sale," asserts Tene. On average, a short sale transaction takes between two and three months. The foreclosure process generally takes twice as long.
Contrary to popular belief, the lender is likely to be in favor of a short sale rather than a foreclosure on a property because in a foreclosure the lender ends up with the property. "Lenders are not in the real estate business," says Tene. "Lenders are in the lending business and when they take back a property they need to sell it. By taking back a property through foreclosure the loss to the lender is much greater than on a short sale. "
In order to successfully complete a short sale transaction, an in depth understanding of real estate, financing and banking is essential. "You need to work from a place of understanding," Tene advises. "The steps involved in a short sale are listing the property at a fair market value and presenting a complete financial package to the lender. Once the financial package is presented to the lender with an offer that has been received, the lender considers accepting a net number that is below what they are owed, which in most cases reflects closing costs as well. The lender then allows the sale of the property to a third party."
Because knowledge is needed in so many areas, it greatly benefits both the buyer and the lender when buyers seek information and assistance from professionals who specialize in short sale transactions. "Because most buyers do not fully understand the industry or the lender's terminology, it's like the lender is speaking Chinese. The buyer needs help from someone who speaks the lender's language. Mortgage brokers and other real estate professionals bridge the communications gap between buyers and lenders," Tene explains.
"We handle the short sale process for both residential and commercial property owners. Because our company extends nationwide, we work with clients across the country," says Tene. The principals of I Short Sale, Inc. have been managing short sale transaction for 15 years. Short sales and the other financing solutions offered by I Short Sale, Inc. are designed to help property owners and lenders avoid the lengthy and costly process of foreclosure and the stressful act of eviction.
"We specialize in communicating with lenders and other professionals who understand the different financing solutions available," Tene says. The solutions available through I Short Sale, Inc. are the short sale, of course; as well as modification of the note, meaning modification of the existing terms, which involves changing the terms of the loan such as the amount owed or the length of the loan. Also among the services they offer are forbearance plans, which basically are plans to pay the monthly mortgage while also paying back what is owed to the bank through default. Although deeding the property back to the lender is another solution, it is not acceptable in most cases because it may result in lots of liability to the lender, including taking on junior liens and possibly other obligations of the borrower.
To find a reputable company to work with Tene suggests that buyers begin by first better understanding the services being offered. He says, "They need to understand that there is no magic. Scams which require property owners to transfer title are prevalent." According to Tene, you should never under any circumstances transfer your title. "If you have a company that wants to take money in advance, they are violating the law. I Short Sale, Inc. works for the borrower and makes money as a commission which is in most cases paid by the lender, and only upon successful resolution of the transaction." Tene advises buyers to work with companies who are willing to work for you without charging anything in advance.
Tene believes borrowers need to be more responsible in their decision making process and measure their level of affordability based on a fixed rate, as opposed to a potentially deceiving variable rate.
"Property owners need to have a plan to get back on their feet as soon as possible. The short sale needs to be part of a general financial plan for the property owner."
In summary, Tene offers five strategies to empower property owners:
- Talk to your lender as soon as possible. Don't wait to go further into delinquency. Time works against you. Once your payment is overdue, your opportunity to get the lender's cooperation declines.
- Don't be afraid of your lenders. The lender is in the lending business, not the real estate business. They do not want your property. They want to work with you to ensure the loan is paid.
- Beware of scam artists. Predatory lenders and distress opportunity scammers often target people in financial distress. They try to force you, in a time of panic, into high cost mortgages, which increase your financial problems and the risk of losing your home. Predatory lenders usually offer loans with hidden fees and rate increases. Be aware of "magicians" who pitch dream solutions that sound too good to be true. If it sounds too good to be true, the dream will likely become a nightmare. There are no magicians in this industry. Don't agree to promises that are unrealistic. Look for a real solution.
- If your loan is insured by the department of Housing and Urban Development or the FHA, you may be eligible for a one-time payment to bring your mortgage payment current.
- Don't try to negotiate a "short sale" on your property by yourself. When you are sick, you go to the doctor. When you go to court, you take a lawyer. For a successful short sale, seek professional advice. In most cases, you will have ONLY ONE chance at a successful negotiation with your lender.
For more information on short sales and other financing solutions offered by I Short Sale, Inc. visit or call 877-907-4678.
