When consulting sellers about various alternatives to foreclosure, (such as a short sale) I am often asked if a short sale is a better than a foreclosure where credit scoring is concerned. The short answer is no, but there are several other factors to consider when advising your clients about a short sale vs foreclosure.

As mentioned above alternatives to foreclosure (i.e. short sales and deeds-in-lieu of foreclosure) are all weighed the same by FICO. They are reported as debt that is not “paid as agreed” and therefore are scored the exact same way as an actual foreclosure. According to FICO (Fair Isaacs Corporation) here is how they score various delinquencies:

· 30 Days Late – 40 to 110 Points
· 90 Days Late – 70 to 135 Points
· Foreclosure – 85-160 Points
· Short Sale – 85-160 Points
· Deed-in-lieu – 85-160 Points
· Bankruptcy -130 to 230 Points

The benefits of short selling vs. foreclosure.

· The wait to buy another home is shorter. Fannie Mae, Freddie Mac and the FHA determine lending guidelines for mortgages. If a job loss, loss of income, illness or some other detrimental event had an effect on your ability to pay your mortgage and subsequently lead to a short sale or a deed-in-lieu of foreclosure the wait is typically only 2 years as opposed to 7 years after a foreclosure.

· Immediate eligibility to purchase. Current Fannie Mae guidelines may allow the purchase of another home immediately. Even though the guidelines are on the books finding a lender who will fund this kind of loan is extremely difficult. For guidelines on purchasing immediately after a short sale I recommend that your clients consult a reputable lender who has successfully funded this type of loan.

· Your client shows that they are responsible. From a lender’s prospective a short sale or deed in lieu of foreclosure demonstrates that even though you had a life event that prohibited you from paying as agreed you didn’t just walk away from your home. You worked with the bank to liquidate the property in a responsible manner.

· Money to relocate. The HAFA (Home Affordable Foreclosure Alternatives) program offers money for relocation expenses to borrowers who short sell their homes. If the homeowner qualifies HAFA pays $3000 in relocation expenses.

The bottom line is that any liquidation of property without paying the full balance is not going to be good in terms of credit ratings. When making a decision on whether to short sell a home your clients should consider their entire financial picture and all of the options available to them.

This article is from inmanNews.

TAMPA

In just eight months, Barry Haught and his business associates have acquired 71 properties in Hillsborough County with a market value of $8.2 million.

Total purchase price according to public records: just over $220,000.

Haught’s group is among a new breed of investors who have found an unusual niche: buying properties foreclosed on by homeowners associations because the residents didn’t pay their dues. Given so many struggling homeowners and the abundance of HOAs in Florida, the potential for profit is great.

The opportunity has attracted some unlikely buyers, among them Haught, who spent 4 1/2 years in prison for Medicare fraud and whose own home is in foreclosure.

Haught and his associates have landed some amazing deals:

• A $1.2 million bayfront home in Apollo Beach for $10,010.

• A 3,700-square-foot home in north Tampa for $8,090.

• Dozens of single-family homes in Brandon and Riverview for less than $4,000 each.

Investors like Haught can rent out the houses, pocketing the income for months or potentially years until the bank finally forecloses — and they don’t have to tell tenants that the lender could kick them out at any time.

Sometimes, associates of the group move into the homes. Among them: Edward Pruse, 36, who did time in state prison in connection with a 1999 armed robbery of a Largo movie theater. Pruse, who said he finds homeowners association foreclosures for the investor group, now lives in a 4,000-square-foot house in Brandon that sold in 2006 for nearly $700,000. The group got title in December for less than $7,000.

“We’re the new way of buying and selling real estate,” Pruse said. “We’re an epidemic.”

And it’s all perfectly legal.

• • •

Haught, 57, attends foreclosure auctions, signs documents and collects rent on behalf of four companies officially headed by Michael Chancey, son of Tampa marketing consultant Ralph Chancey.

The Chanceys and Haught are longtime friends. In 2001, Michael pledged a Valrico home he owned as collateral for Haught’s legal fees after Haught was indicted for bilking Medicare out of $14 million.

And when Haught was released from prison in 2008, he went to work for Ralph Chancey’s consulting firm.

Haught declined to comment for this story. Michael Chancey, president of Prop. Inc., F.Y. Mortgage, F.Y.M. and P&D Resources, did not personally return several requests for comment.

Ralph Chancey said he came up with the idea of buying homeowners association foreclosures after attending an auction at the Hillsborough courthouse last year. He had read about people renting out abandoned condos illegally and figured there was a legitimate way to make money by simply buying the properties at auction or from the associations.

“It looked real easy to do,” he said.

Florida has 40,000 homeowner and condo associations, many of them struggling to pay for even routine maintenance because so many owners have fallen behind on their fees. As a result, lawyers are advising associations to foreclose quickly to limit their losses.

“If they don’t do something to stop the bleeding, the community will go under,” said Robert Tankel, a Pinellas County attorney who represents more than 500 associations in Florida.

Homeowners associations want to beat the bank to foreclosure, Tankel said, because a bank foreclosure usually wipes out the association’s lien, leaving it with no way to recoup its delinquent fees.

In what Tankel calls “the race to the courthouse steps,” associations have an advantage. Because most homeowners owe less than $15,000, associations can file their foreclosure cases in county court instead of circuit court with its higher dollar amounts and heavier caseloads. That way the associations can get a final judgment of foreclosure in as few as 270 days compared with the 617 days it now takes for the average bank foreclosure in Florida.

The time lag creates an opportunity for third-party investors like the Chanceys and Haught. Once a property goes to public auction, anyone has the right to bid. It usually costs just a few thousand dollars to cover the delinquent association dues, court costs and lawyers’ fees. The winning bidder gets title to the home and can start looking for tenants.

If there are no bids at the auction, the association can then negotiate a private sale with a third party. The Haught-Chancey group has acquired about a third of its properties through such transactions, in which the price paid is not part of the public records.

“It’s called capitalism,” Tankel said. “It’s the free market.”

The strategy works because of loopholes in state and federal law. The home­owners association doesn’t have to notify the bank that it is foreclosing. That means the bank could lose its chance to pay the delinquent fees itself or start its own foreclosure action.

And investors who buy and rent out properties foreclosed by homeowners associations don’t have to tell the tenants that the bank could also foreclose and evict them.

Ralph Chancey said his venture is a boon to both cash-strapped associations and people who have a hard time renting. His companies don’t do background or credit checks. One tenant got the keys to a Brandon townhouse for just $300 down and $1,100 a month for rent.

The landlord-tenant relationship has not always gone smoothly.

Haught was arrested in May after a tenant accused him of entering her apartment and smashing a TV. The criminal mischief charge was later dropped.

“We help people, but whether it’s a good investment is still a flip of the coin,” Chancey said. “We still don’t know if we are fools or brilliant.”

• • •

The race to foreclose and move in new tenants has left some homeowners in the dust.

Earlier this month Jesse and Natasha Fiechter fought to regain title to their home in Riverview after it was sold at auction.

The couple were about $2,000 behind on their fees to South Pointe of Tampa Homeowners Association. But they had worked out a payment plan and sent their first $1,000 check to Bush Ross, the homeowners association law firm, by the due date. The firm said it hadn’t received a signed agreement from the Fiechters before the auction and the sale went ahead. Prop Inc. made the $4,260 winning bid.

Natasha Fiechter said she first learned of the sale when Haught stopped by her house June 2 and told her mother he was the new owner.

When Fiechter insisted the sale was in error, Haught wanted $2,500 to go away, she said.

“I thought, ‘Are you insane?’ Then I stopped answering their calls and got a lawyer.”

On June 20 the matter went to court and Haught appeared on behalf of Prop Inc. Judge Matthew Lucas set aside the sale and told the association lawyers to refund $4,260 to Prop Inc.

The Fiechters were grateful for the resolution but shaken by the experience of nearly losing their home.

Companies like Prop Inc. are “bottom feeder outfits (that) take advantage of the poor economy and a loophole in the law,” said the couple’s lawyer, Martha Bolton. “They’re taking advantage of the fore­closure limbo.”

• • •

In another case, Tim McMurry, president of PowerNet Credit Union, said his staff was puzzled when a borrower who was current on his credit union mortgage called in April to ask why he had gotten a foreclosure notice.

It turned out that the notice was from the man’s homeowners association. By the time he realized what was going on, his house had been sold. The buyer: Prop Inc.

The homeowner was just $890 in arrears to the South Pointe of Tampa Homeowners Association, but with interest, court costs, and attorneys’ fees of $2,250, his total had spiraled to about $3,700. That’s how much Prop Inc. paid for the three-bedroom, two-bath property in April.

Prop Inc. evicted the homeowner in early May and leased the house to Melissa Wollam, her two children and her mother. The family, who saw Prop Inc.’s rental sign on a street pole, were relieved when they got a year’s lease at $1,150 a month without a credit check.

But three weeks after moving in, a process server knocked on Wollam’s door. PowerNet Credit Union felt compelled to foreclose on Prop Inc. and the tenants to assert its right to the property, McMurry said.

Wollam, who does secretarial work, said Prop Inc. never told her the house was subject to an outstanding mortgage. Nor was the potential for a mortgage foreclosure mentioned in her lease.

“I was under the impression that the house had been completely purchased and everything was taken care of,” she said. “My kids really love this neighborhood, and I’d really hate to move again.”

McMurry, the credit union’s president, said he was stunned to learn that homeowners associations do not have to notify lenders holding first mortgages when the association starts to foreclose. If he had known about the delinquent fees, the credit union would have paid them and tacked the amount on the borrower’s mortgage, McMurry said. The original homeowner could have stayed in the house.

Now McMurry said it could take as long as 18 months for the credit union to regain the property, on which it is owed about $140,000.

“In the meantime, this guy (Prop Inc.) is going to take the rents, and I’m going to get the bills for taxes and insurance,” McMurry said.

• • •

On a recent Friday afternoon, Haught was among 20 or so people gathered for the homeowners association foreclosure auctions at the Hillsborough courthouse. Unlike Pinellas and Pasco, where auctions are conducted online, Hillsborough holds its sales in a hard-to-find room behind the courthouse cafeteria. Regular bidders don’t need directions.

About half of the would-be bidders left when a court clerk announced that the sale of a prized property, a Tampa home with no mortgage and less than $4,000 in homeowners association liens, had been canceled. Nine other properties drew no interest and were taken back by the association’s lawyer.

When a $104,000 home in Valrico came up for auction, Haught, sitting quietly in the back row, had someone else enter the sole and winning bid: $3,842.31, the exact amount of the delinquent home­owners association dues.

That’s a typical purchase for Prop Inc. and its sister companies. With rents starting at about $1,000 a month, plus a month’s security deposit, the company can recoup its investment in about three months. After that, the investors could be pulling in profits for a long time: According to public records, neither Prop Inc. nor its three sister companies have had to relinquish any of their homes to a bank.

Apart from the Apollo Beach mansion acquired for $10,010, the most the group has paid for a property was $8,090 in May for a two-story home in Tampa’s upscale Hunter’s Green community. The newest occupant is Benjamin Cheek, 37, a friend of Haught’s.

Cheek didn’t return calls for comment, but his mother, Stephanie, told two St. Petersburg Times reporters who knocked on the door that the family had bought the house. She also said they were “part of Prop Inc.”

In 2004, Benjamin Cheek, who once worked for a Virginia mortgage company, was sentenced to 57 months in federal prison for swindling a retired lieutenant colonel and his wife out of at least $250,000. From 2006 to their release in early 2008, Cheek and Haught were in the same federal prison camp in West Virginia.

Pruse, the man convicted in the Largo movie theater robbery, has been living since December in the big Brandon home that F.Y.M. acquired.

By buying homeowners association foreclosures and moving people into the homes, Pruse said investors gain so much leverage over lenders that they can practically name their price if they want to buy the property outright.

“Banks aren’t in the drivers’ position anymore,” Pruse said. “The HOA’s attorneys love us because they get paid (when we buy). But once we get in, the HOAs hate us because we control who moves in and out. They want ‘pretend millionaires’ instead of working-class people or a woman with nine children.”

Asked how long he expected to be able to stay in the home, Pruse laughed.

“As long as I want.”

This article is from the St. Petersburg Times.

New single-family home sales unexpectedly fell in June, but a sharp rise in prices and declining supply suggested the market for new houses was starting to stabilize, a government report showed on Tuesday.

Other data showed consumers grew more confident about the future this month, even though there were still concerns about lack of jobs.

The Commerce Department said new single family homes sales slipped 1 percent to a seasonally adjusted 312,000-unit annual rate. However, the median sales price for a new home increased 5.8 percent last month to $235,200.

Compared to June last year, the median price rose 7.2 percent. The rise in prices is the latest sign that home values are starting to stabilize.

“New home prices … appear to have reached a bottom. However, that conclusion must remain tentative given the large number of distressed properties,” said Steven Wood, chief economist at Insight Economics in Danville, Calif.

“Fortunately, with no excess … inventory of unsold new homes, any sustained rebound in new home sales should quickly translate into firmer prices.”

U.S. stocks pared losses as a better-than-expected reading on consumer confidence boosted investor optimism, while U.S. bond prices were steady at higher levels. The dollar fell because of the stalemate in Washington over raising the debt limit.

The Conference Board said on Tuesday its index of consumer attitudes rose to 59.5 from 57.6 in June, beating economists’ expectations for a reading of 56.0.
The reports were hopeful signs for the economy, which has struggled to pull out of a soft-patch.

“You got some improvement (in consumer confidence) but I think the one thing that was not very encouraging is that the present situation actually fell,” said Tom Porcelli, U.S. economist at RBC Capital Markets.
“The increase was due to future expectations. It’s good to be hopeful for the future but we want consumers to be more confident in the present.”

Recent data ranging from employment to retail sales suggest growth might not rebound as strongly as initially anticipated, and economists warn that failure to raise the country’s debt limit could push the fragile economy over the edge.

The government is expected to report on Friday that the economy grew at a 1.8 percent annual rate, according to a Reuters survey, after a tepid 1.9 percent pace in the first three months of the year.

The anticipated pedestrian growth pace will mostly reflect a sharp deceleration in consumer spending, which was hampered by high gasoline prices and a shortage of some popular motor vehicle models because supply disruptions from Japan.

New home sales last month fell as sales in the Northeast tumbled to a record low. Sales were also pulled down by a sharp drop in the West.

Economists polled by Reuters had forecast sales at a 320,000-unit rate. In the 12 months through June, new home sales rose 1.6 percent.

Despite lean inventories, recovery in the market for new homes is being frustrated by a glut of previously owned homes, which are currently selling well below the cost of new construction.

There were a record low 164,000 new homes available for sale in June. That compares to about 3.77 million used homes on the market in June, plus properties that are in foreclosure.

The scarcity of new homes is encouraging builders to break ground on new projects. Data last week showed housing starts rose to a six-month high in June.

This article is from msnbc.com Real Estate.

Perhaps you’ve been hearing a lot about short sales these days. It’s no wonder — the number of short sales on the market has exploded in recent months, as more and more homeowners turn to short sales as a means of avoiding foreclosure.

Some homebuyers seek out short sales in hopes of snagging a good deal. But such sales are not without complications. If you’re considering buying a home in a short sale, here’s what you need to know.

The 411 on Short Sales

When you see a house listed as a short sale, that means the homeowner is trying to sell his property for less than he owes on his mortgage. A bank may agree to this when the homeowner is underwater on his loan and might otherwise go into foreclosure.

Unfortunately, the marketplace is such that the amount the homeowner could sell the property for isn’t always enough to cover the existing mortgage balance, explains Neil Garfinkel, a real estate attorney based in New York City. In these cases, a seller would contact the lender and see if it would be willing to take less than the outstanding balance of the home loan.

What’s in it for the bank?

“Lenders aren’t in the business of owning properties,” says Garfinkel. “In a foreclosure situation, the lender would have to obtain the property back through a foreclosure action. They would then have to maintain the property and ultimately find someone to sell the property to.”

A short sale situation is often compelling for a lender, since the seller has already found someone who is willing to take the property. The lender then just has to make the decision whether it thinks the proceeds from the sale are enough to cover at least a portion of the mortgage, says Garfinkel.

Making a Bid for a Short Sale

Short sales aren’t for everyone. They require a great deal of research from the buyer. At the very least, you would need to view the property, identify all the liens and mortgages and get preapproved for a loan before making a bid.

You also should put together a team of professionals who have experience with the short sale process. Garfinkel recommends a real estate broker, a mortgage professional and perhaps an attorney who all specialize in this type of transaction.

Once you find a home you like and the seller agrees to your offer, you need a contract that’s tailored to a short sale. You’ll want your lawyer, for example, to make sure you have the necessary contingencies in the contract, including one that allows you to walk away from the deal if the process takes too long and your mortgage commitment expires, says Garfinkel.

The Risks of Buying a Short Sale

What are the risks for a buyer? The biggest one is the loss of time. Lenders control the transaction, and it’s entirely possible that a deal could take six months or more to close. It’s also not uncommon for a lender to reject a deal after sitting on the paperwork for many months.

And finally, there’s the money. A buyer may spend a fair bit of cash on out-of-pocket expenses, including attorney’s fees and a mortgage application, trying to buy a short sale only to find out later that the bank doesn’t like the terms of the transaction, says Garfinkel.

Now that you know what a short sale is, you can weigh the pros and cons and decide whether a short sale could be right for you.

This a video transcript go to AOL Real Estate to view the video.