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“7 Years of Bad Luck”
Today’s Date: January 31st 2016

Here in the year 2016, I realize that life and times have really changed in America.  I was thinking about my friend Bill today.  I remember back in 2010 how he came to me one day when he found himself between a rock and a hard place.  Bill had found himself in an unsettling situation.   He had an adjustable rate mortgage coming due and he knew that he soon could not afford the payments to the bank.  He told me with the job uncertainty in the economy, rising fuel costs, rising grocery and insurance costs it was tough to make ends meet.

Bill had noticed that credit card companies were increasing interest rates, minimum payments and even lowering his allowable credit lines, which made him appear to be maxed out, further lowering his credit score.  Now Bill wasn’t sure he wanted to make any more house payments, since his credit was already bad,  he now worried about any possibility of buying a house in the future.  Bill had mentioned to me that he wanted to refinance his house.  I told him that it’s a nice thought, but in today’s housing marketing a lender likely won’t give you the appraisal you are looking for, and you aren’t going to get financing with a new bank when you are behind on payments.

At this point, Bill said, “well then, I won’t sell, I’ll just stay in the house and wait for something to happen.” I told Bill that’s really your plan, what’s going to happen exactly?  I told him that once he gets behind on payments,
around three to four of them, the bank and their attorney’s will file what’s called a NOD-Notice of default.  It will appear in all of the local public legal newspapers, so he can expect a lot of mail at that point. The paper will
advertise a sheriff sale date, which he’ll need to come up with the full amount or bid amount at the sheriff sale,  and if he  doesn’t, in most cases only 6 months remain in the redemption period.  I told Bill that even if he didn’t
want to sell and just wanted to wait, the bank won’t wait, they will move forward and sell your house.  The bank will sell through a clause in the mortgage called the “power of sale.” The bank will accelerate the loan,
and foreclose on the house.  They’ll make their own arrangements, even if they aren’t in line with yours Bill.  I could tell Bill was listening.  Bill then said, “But I have equity, I’ve had this house for awhile.”   I told him that I hope he does have equity, that would be great, but unfortunately as the news and research shows, now over 20% of local Minneapolis and suburb area homes are over-financed, that’s the likely scenario.

I said, Bill do yourself a favor, please call an agent and see if you are one of the homeowners with an over-financed home. Find out now before you keep spending your hard earned money and time.  At this point Bill said he’d consider staying in the house and do one of those loan modification things he had heard about on the news.  I told Bill that 90% of those loan modifications never work, there are upfront costs, sometimes as much as $5000, and with the new foreclosure laws, you may want to check if a company is even allowed to charge an upfront fee.  I told him that the loan modification was in the banks best interest.  I told him the bank may give him a lower interest rate, a longer fixed rate, but at the end of the day, few loan modification programs will do the one thing that really matters, a principle reduction.  This is the true source of the problem, if you’re over-financed.  I told Bill those loan modifications are like fresh paint on a rusty car, it doesn’t make sense if you’re over-financed.  It would take some time for you to see that your decision today was later incorrect.  Bill, what concerns me is that in a couple of years from now when you do finally call an agent and realize that
your house is over-financed and the temporary loan modification fix, was only just that, a temporary fix, do you know what the worst part is?  It’s that your benefit of the Mortgage Forgiveness Act of 2007 is going to be the
biggest missed benefit of all, saving big on 1099 and homeowner taxes, that act, is going to end soon.  It likely will end before the day you realize it’s already too late. Bill I’d hate to see you pay a big tax bill in the future, if you can avoid it.

Bill came back and said  “Yeah, but those short sales cost money also don’t they?”  I told him actually their is almost no cost, you may have to pay a Truth In Sale Housing with some cities, that’s a very minimal inspection fee.  If your property happens to be part of an association, then a small amount on
a resale disclosure on what the association is due.  Bill you’d have to pay these fees someday anyways when you do sell the house.  The short sale negotiator gets paid by the bank, they’ll handle it all, and pay all of the agents.
Bill told me he was sure glad their wasn’t much money needed out of pocket. He for sure didn’t have $5000 upfront for a loan modification, he said if he did, he wouldn’t be in this bind. He further more said, well then I think I’ll just
live here for awhile, and quit making the payments, and said I really need the money, so not making the payments would really put some extra money in my pocket.  I told him I wasn’t going to advise him on whether or not to
make any more payments.  He was welcome to talk to an attorney or CPA on that decision, but I did tell him that after you become in that NOD status, almost always the bank won’t take any more payments unless it’s the full amount you are behind in payments, plus collection fees and attorney’s fees to date.  Whether you decide to save up money or not for your next place, by not making any more payments, that’s your decision, all I know is that you should move forward and still work on a short sale either way to minimize the damage.

Bill agreed to be the one to make the final decision.  He said he thought it would be easier if this all just went away, he thought he’d just file for Bankruptcy.  I asked him Chapter 7 or 13?  Bill didn’t know what the difference was.  I told Bill that he should possibly talk to a bankruptcy attorney or google it and do some research first.  Bill let me make it clear that I am not a bankruptcy attorney, I will just tell you that depending on the bankruptcy you follow through with, it may end up on your credit for up to 10 years, google it.  Furthermore it may limit you on establishing future credit and limit your options.  Ask an attorney if you could have a court order over seeing your finances, in Chapter 7 ask if all of your assets will be liquidated except maybe your house, ask if they watch your financial decisions for 3-7 more years. The real question is if bankruptcy is a quick fix, or would a restructure plan last for years.  Bill do your own research, ask an attorney, in addition simply google “why bankruptcy is bad.”, and you’ll see for yourself.  Bankruptcy has been known to affect getting jobs at high security clearance positions.  Also verify with your research that a bankruptcy will just slow down a foreclosure, but not stop it.

Bill wanted to know what his spouse thought about all of this.  I told him that I think she’d agree with what I am saying, that is, as long as she had all of the same facts in front of her that you do.  Bill, If you are trying to memorize everything and trying to convey everything to her, you’ll only remember part of the important info. Bill I’d recommend taking notes, and then pass them onto your spouse.  Later, Bill decided to try that loan modification.  In fact, Bill called me months later and vented his frustration on losing valuable time and money when it didn’t even work out.  He had realized that even had it worked out, that it never really would have mattered because his neighbors were now buying houses at the new adjusted housing prices which were about 50-75% of what Bill had paid just years ago, why was he trying to hold on to an upside down asset, which now had become a liability, he wondered.

Bill decided to just wait things out, hoping something would happen, he simply didn’t know what to do next.  I reminded him again that the bank won’t wait.  Months later Bill had finally taken action, he listed it with some new agent.  So many months had passed now, Bill was well past the sheriff sale, in his final months of redemption. Time was quickly running out for Bill.  It was at this point, I felt I needed to say something.   I told Bill that I hope his agent does a great job for him, I really do.   Many agents don’t have a lot of experience doing short sales.  Bill asked what I meant by experience.  I told Bill at this point, that if you don’t play your cards right and hurry, you could have 7 years of bad luck.  I could tell Bill was eagerly listening, so I continued.  You see Bill,  I have seen this happen so many times before that I have lost count.  If you run out of time and go through a full foreclosure you may have to wait up to 7 years to get financing through Fannie Mae.  Fear was apparent in Bill’s eyes, after all, 7 years is a long time.  I said don’t even bring up the deed-in-lieu of foreclosure, that is such a good deal for the bank, their is fine print that you won’t like, and it’s still going to devistate your credit score a lot.  At this point I think Bill was feeling he wanted to screw the bank or show the bank what he thought of them, and you could tell he was thinking of thoughts of just shoving the house back to the bank.  I told Bill that giving the house back to the bank does hurt the bank, but it doesn’t help you at all, it really hurts you a lot, it’s like kicking yourself in the face, just make the best of the situation that you find yourself presented with.

Bill, when you successfullly do a short sale within time, you may only have to wait 2 years to get a home loan in the future with Fannie Mae, that’s really not very long.  Some agents, but not all, will try their hardest to get your
short sale approved, they certainly mean well. Most agents never get the negotiation timing down right, so the buyers you waited so long for, often quit waiting, but even if you got a buyer to wait, most agents still will run out
of time, or worse yet, they’ll get the buyer, negotiate with the banks after many months and find that the 2nd mortgage lender still wants about $8000 or more.  This is the point where the deal never happens.  Bill the reason it doesn’t happen, is that nobody wants to pay the $8000.  Think about it, The 2nd lender doesn’t want to take less.  The agent isn’t making enough to give up their commission.  The buyer for sure isn’t going to pay the difference of $8000 more for the house.  Bill, you can’t pay it, you don’t have the extra money, remember?  Their is no $8000 difference for the closing, so most everyone gets stuck, and the sale often doesn’t happen.
This is why I always highly recommend that all agents just be the agent, make their commission, work with the seller, but have an expert negotiator as the 3rd party who communicates directly with the bank.  Especially since
an advanced short sale negotiator has worked with every bank so many times, that they know them on a first name basis, most importantly, knowing how to get the seller’s file to jump to the top of the stack of over 300 files.

Bill asked how to do it the right way then.  I told him it would take some time to explain it.  The right short sale negotiations company has done it many times.  They would create enough of a difference from the sales price
and the bank’s price to simply just pay the $8000.  They would make the 2nd lender happy.  The agents get paid, so they are happy. The buyer gets their price, so they are happy.  The seller gets the sale done, so they are happy.
This negotator gets paid by the bank, so it’s a win-win.  The negotiator is also going to do their best on getting a satisfaction for the seller while working hard to try to get the lender to avoid coming after the seller for a
deficiency judgment in the future.  If a lender is successful with a deficiency judgment, they may garnish a seller’s wages for years to come.  The truth is that a deficiency judgment can be good for up to 10 years, and be renewed
for up to 10 more years, so let’s try to avoid that.  Bill was given a lot of info that day, I remember that day in 2010 quite well.

Bill didn’t know what to do that day, come to think of it, I hadn’t heard back from Bill in years.

Today is January 31st 2016, and my old pal Bill just called me.  I said Bill, “I hadn’t heard from you in a long time.”
Bill said, “yeah, a really long time”, Bill sounded defeated.
I asked Bill what was wrong, “what’s it been about 7 years?”
Bill said, “You wouldn’t even believe me, but I never did get that short sale done.  The last 7 years have been very hard on me since we spoke last.”
I let Bill know I was listening.  Bill said, “Well after that foreclosure, I found that it ended up on my credit report shortly afterwards.  It seemed everyone asked for my credit report.  That foreclosure on my credit report really
didn’t help.  I bet that foreclosure lowered my credit score nearly 300 points.  You know, my wages did get garnished for years, it was tough to make ends meet for my family, I nearly lost my insurance three times.”

Bill continued slowly, “Through those last 7 years it was hard to get credit cards at all, and when I did, rates were astronomical.  It was hard to get a job since almost all employers would pull my credit.  My home and auto insurance monthly payments had soared.  This foreclosure just seems to sit on my credit report for 7 years.  Did you know, it’s hard to even finance a car with this darn foreclosure on my record haunting me day and night.   Even my electric and cable company pulled my credit and then asked for very large deposits upfront before I can get any type of service at all.  This foreclosure has affected me in all areas of my life, throughout the years.

I could tell Bill had been through a lot, but unfortunately it had been too late.  If only that short sale was a higher priority to him back 7 years ago.  I suppose at the time, it was something that was easier to just forget and
block out.   Bill agreed he would help me weekly educate other home sellers as to the damaging affect that a foreclosure causes and he said he would do whatever he could to help, so other home sellers didn’t have to experience the same thing.  He told me that having short sale negotiators that do all of the paperwork, negotiating, list the house, work on getting a buyer, and they get paid by the bank, what is there to really think about?

For short sale questions, or an appointment Please Call: (612) 234-5502
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