Archive for July, 2010

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CDPELogo_color_name_72dpiIt’s funny how when we’re not feeling well, we know to go to a doctor who’s a general practitioner. When we need open heart surgery, however, we also know we need to find a specialist.

Specialists study the nuances of a specific part of an industry; whether it be a cardiologist who becomes an expert in human hearts, or a Realtor who specializes in a neighborhood or type of property.

I’ve specialized in listing and selling duplexes and small multi-family properties for several years. And as a result of that constant learning, I recently became painfully aware of a trend I see in the months and years to come.

The resetting of the Option ARM and interest-only loans some duplex owners used to purchase or refinance their properties four or five years ago is causing many to see doubling and tripling of their mortgage payments. As very few people can adjust to that kind of radical increase in payments, they fall behind and face the threat of foreclosure.

Duplex owners do have options besides foreclosure, including mortgage modifications, reinstatement, forbearance and short sales.

And for many, short sales have become the best option to escape the blemish of foreclosure.

The trouble is, most of today’s working Realtors didn’t learn about short sales in real estate school. And for many, the process is so complicated and cloudy they prefer to avoid the endeavor altogether.

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Minneapolis Duplex Buyers Are Couch Potatoes

said on July 7th, 2010 categorized under: Twin Cities Real Est

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couch potato coupleVegetation is something that usually happens during Minnesota winters.

Yes, I know it’s green outside and there are plenty of weeds to pull and lawns to mow.

But I’m talking about the kind of vegetation that keeps buyers at home, or “up north”, sitting on the couch.

Don’t believe me?

For the week ending June 26, single family home sales were down 47.6 percent from their mark one year ago. While the number of new listings was also down 6.5 percent, the market is a bit like dieting right now. Less activity with only a marginal reduction of caloric intake, and it’s akin to gaining winter weight.

Proof is in the 27,526 homes on the market; an increase of 3.2 percent year over year.

Duplex buyers may have been watching Netflix, but they seemed to be sofa surfing as well. Pended sales were down 52 percent from the same week last year. While it was encouraging that 41.7 percent of these transactions belonged to traditional sellers compared to last year’s 24 percent, the average off market price of $185,000 was just slightly ahead of the $172,828 for the same week in 2009.

The good news here is in the duplex and small multi-family market, the number of new listings year over year dropped 26.8 percent. Of these new listings 53.7 percent belonged to traditional sellers compared with last year’s 25 percent.

Let’s hope duplex buyers start a workout program soon.

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sheriff badge with pathThe other day I was visiting with a gentleman who owns a Minneapolis duplex and is behind on his mortgage payments.

When I suggested it would be in his best interest to try to market the property as a short sale, he told me the property was already sold.

I was surprised to hear this, so I probed a little further, asking how he’d managed to get it sold and where he found a buyer. His answer?

At the sheriff’s sale.

While we’ve all watched late night infomercials suggesting buying property at a sheriff’s sale at a deep discount, that’s not the case here.

In Minnesota, sheriff’s sales are usually conducted when a lien has been placed against a property in the amount of a judgement. 

When a duplex owner falls behind in mortgage payments, the foreclosure process begins. About the time he is six months or more behind, the mortgage holder will take the matter to a sheriff’s sale. By this time, all of the legal fees the lender incurred while trying to collect the debt in the previous months have been added to the amount due on the loan.

At the sheriff’s sale, the minimum bid amount is most often the total amount owed on the property, plus the accrued legal fees. late fees and penalties.

In today’s real estate market, the total is often more than the property is worth. As a result, there aren’t a lot of Carleton Sheets disciples standing on the court house steps trying to get rich.

In essence, then, the winning bidder is the bank that holds the note on the property.

From the date of the sheriff’s sale, the property owner is given a 6 month “redemption period” in which he can pay off the total amount of the lien or judgement on the duplex.

This doesn’t happen very often.

More likely, one of two things will. The home owner may choose to let the property go back to the bank through foreclosure or, he may choose to attempt a short sale.

If the rights to the property belong to the bank following the sheriff’s sale, it does not necessarily mean a Realtor can’t help the duplex owner attempt to sell the property for less, then negotiate with the bank for a settlement or short sale.

Bankers know these properties aren’t worth what people either paid or refinanced them for just a few years ago. What’s more, a foreclosure always ultimately costs them more than a short sale.

Not to mention the permanent black mark a foreclosure puts on a former property owner’s credit report.

So remember, if your property has recently sold at a sheriff’s sale, you still own it. However, you won’t for long. The choice between a having a short term credit hit (short sale) vs a long term one (foreclosure), should be easy.

Call a Realtor who’s a Certified Distressed Property Expert (CDPE) to help. There aren’t that many of us, but our numbers are growing. Each and every one of us has been trained to carry many of the burdens of imminent foreclosure for you.

And if you can’t find a CDPE and I’m not in your market, call or email me. I’d be happy to help you find one.

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CrocodileI want to dispel an urban myth.

No, not the one about alligators in the sewers.

The one I’m talking about is you have to be behind on your duplex payments or in the process of foreclosure in order to sell your property as a short sale.

Not true.

According to the Distressed Property Institute, there are a number of reasons that cause a property and duplex owner to become a “distressed” property. They are:

  1. Payment Increase or Mortgage Adjustment- Many property owners who took out interest only or option ARM mortgages between 2005-2007 may experience a jumps in their monthly payments of anywhere from 60 -300 percent in the next year. Actually, these resets are the top reason for distress in today’s market.
  2. Loss of Job – With a job loss comes the loss of income which contributed to paying the mortgage and bills.
  3. Business Failure – Like a job loss, people who lose their businesses lose their income, resulting in mortgage payments being missed.
  4. Damage to Property- No matter how good your insurance is, it often doesn’t cover all of the damage. Not having enough money to fix the property, many homeowners use the insurance settlement to cover living expenses.
  5. Death of a Spouse – This will not only cause emotional duress to surviving family members, but may also cause the loss of the person who paid the mortgage.
  6. Death of Family Members- Even if the deceased person didn’t contribute toward the duplex payment, the emotional loss may have ripple effects.
  7. Severe Illness – The medical bills associated with something like cancer and the time lost on the job can be devastating.
  8. Inheritance – Doesn’t make sense, does it? But, what if grandma leave you her house– that has a monthly mortgage payment of $5,000?
  9. Divorce – Imagine the cost of attorneys and two living spaces.
  10. Separation – Again, separate living spaces when perhaps, both parties were paying the mortgage.
  11. Relocation – If your employer asks you to transfer, chances are in this job market that you’ll take the opportunity. However, many employers don’t offer compensation for homes or multiple house payments.
  12. Military Service – While there are some opportunities for relief, extended miliary service can cause financial stress.
  13. Insurance or Tax Increase – An increase in either of these often results in higher mortgage payments.
  14. Reduced Income- Many employees have been asked to grant wage concessions in order for their employer’s companies to survive. Those who work on commission may also be suffering reduced income due to the economic slowdown.
  15. Too Much Debt – An increase in credit card interest rates, or sudden, unexpected expense can result in a duplex payment being too large.
  16. Incarceration – It’s tough to keep your job when you go to jail. And at prison wages of pennies per hour, it’s tough make a mortgage payment.

If you’re facing any of these challenges, remember there is a solution besides foreclosure. A short sale will likely result in your being able to a much faster financial recovery, as well as keep the permanent black mark of foreclosure off your credit report.

Call me. I’d be glad to help.

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