“Homeowners who are falling behind on a mortgage often worry just how much they might be damaging their credit score.

How much will a score be dinged if a [...]]]> The Baltimore Sun had an interesting article on Monday on the subject of the relative impact of foreclosures and short sales on credit scores:

“Homeowners who are falling behind on a mortgage often worry just how much they might be damaging their credit score.

How much will a score be dinged if a payment is late a month or more? Or worse, what happens if the homeowner must resort to a short sale or winds up in foreclosure?

FICO, which produces the widely used credit score of the same name, says it has been getting many such questions from regulators, lenders, loan servicers and others who advise consumers with mortgage troubles.

Lenders use credit scores to decide whether to extend credit and under what terms.”

It has been widely believed that a borrower/homeowner short selling their property had less of an impact on their credit scores than losing the property thru foreclosure. According to the Sun article, this is not quite true:

“One of the big myths, FICO scores director Joanne Gaskin says, is that a short sale is better for a credit score than a foreclosure.

‘Both are considered a default. There is little difference in impact,’ Gaskin says.”

However, the full answer is a bit more nuanced than that:

“In certain cases, a short sale could be less damaging than a foreclosure. Credit scores are derived from information that lenders and others send to credit reporting agencies. Some lenders report a short sale without including the amount of debt the borrower didn’t repay.

When a balance shortfall isn’t reported, a score would be 35 points higher in a short sale than a foreclosure, FICO says.

That’s not much, but there are better reasons to consider a short sale,

And lenders might look more kindly on you in the future.

For example, if you’re current on your mortgage and undergo a short sale, you still could qualify for a mortgage insured by the Federal Housing Administration.  But after a foreclosure, homeowners must wait three years to be eligible for an FHA-backed loan.”

Is this enough of a difference for you? Homeowners are well advised to make that business decision with the advice and guidance of  their legal counsel.

The full article –

http://www.baltimoresun.com/business/real-estate/bs-bz-ambrose-fico-scores-foreclosure20110502,0,1824554.story

“What these homeowners, whose loans are “underwater,” may [...]]]> The Orlando Sentinel had a good article today that is worth a read by any homeowner considering a short sale as a way to get out of an underwater loan. Although it is a Florida-focused article, the same caution would also apply to a Maryland homeowner:

“What these homeowners, whose loans are “underwater,” may not realize is that they could successfully complete a short sale of their house but then face a lawsuit from their lender for not paying off the entire loan, a shortfall known as a “deficiency.”

At particular risk of being hit with such a debt judgment are owners of second homes and investment properties, homeowners who haven’t faced any kind of financial hardship, and owners who have a second mortgage.” (emphasis added)

Sounds like a few Ocean City, Maryland area homeowners I’ve met recently.

“That’s going to be a huge problem moving forward in the next few years,” said Orlando lawyer Matt Englett, who specializes in home foreclosures. “These people who use Realtors to advise them on the transactions can end up facing deficiencies, and the deficiency notes will go to third-party collections agencies, and they will start suing and progressively pursuing those people.”

Folks, consult legal counsel before attempting a short sale on your own. As a Maryland licensed attorney and real estate broker with over 20 years of independent real estate private practice experience, I stand ready to help.

The full article –

http://www.orlandosentinel.com/os-law-and-you-short-sales-20100704,0,2086741.story

“For Alex Pemberton and Susan Reboyras, foreclosure is becoming a way of life — something they did not want but [...]]]> Another article found today about how clever it is not to pay your mortgage, and how we may be in for a VERY, VERY LONG ride to home price and mortgage stabilization in America:

“For Alex Pemberton and Susan Reboyras, foreclosure is becoming a way of life — something they did not want but are in no hurry to get out of.

Foreclosure has allowed them to stabilize the family business. Go to Outback occasionally for a steak. Take their gas-guzzling airboat out for the weekend. Visit the Hard Rock Casino.

The average borrower in foreclosure has been delinquent for 438 days before actually being evicted, up from 251 days in January 2008, according to LPS Applied Analytics.”

The full article –

http://www.nytimes.com/2010/06/01/business/01nopay.html?hp

“Locally however, Worcester County is below both the state and national average for foreclosure properties, but, according to Robert Smith, [...]]]> The Maryland Coast Dispatch had an interesting article this Friday about the impact of, what might be, a potential tsunami of Ocean City Maryland resort condominium and home foreclosures and REOs in the future:

“Locally however, Worcester County is below both the state and national average for foreclosure properties, but, according to Robert Smith, supervisor of Worcester County Assessments, there is reason to be concerned on both the short term and the long term, as far as what your house is potentially worth.

“Foreclosures aren’t the driving force yet when it comes to what properties are being assessed at, but it could very possibly end up that way if things don’t improve,” said Smith. “Right now, foreclosures are looked at, but not factored into the equation when we are assessing a property, but that could change if numbers continue to rise.”

To date in 2010, 22 of the 113 condominiums (excluding new construction) that have been sold so far are foreclosed properties.

In Ocean Pines of the 25 single-family homes that have sold this year, five were foreclosures.

Smith says that buyers are in some cases, opting to drive the price down during negotiations based on the foreclosure or short sale properties in the neighborhood or area. He says that even though real estate numbers are starting to pick up, the price that properties are being sold for will have long-term effects on future assessments and tax revenues.”

The fall of prices and the effects of REOs and foreclosures, for anyone who is considering buying an Ocean City Maryland area property, will probably be the biggest story of this decade– just like price increases during the bubble were the biggest story of the last decade.

Stay tuned. This story has a number of chapters left.

The full article–

http://www.mdcoastdispatch.com/article.php?cid=37&id=8484

“A contagion effect within communities is leading borrowers to consider default as an acceptable option in the face of financial hardship, Fannie found. Both delinquent and current mortgage borrowers are more than twice as likely to have seriously considered [...]]]> HousingWire.com is reporting that more borrowers are increasingly planning “strategic defaults” with their housing debt:

“A contagion effect within communities is leading borrowers to consider default as an acceptable option in the face of financial hardship, Fannie found. Both delinquent and current mortgage borrowers are more than twice as likely to have seriously considered stopping payment if they know someone who has already defaulted.”

But according to the study, thinking about walking away and actually walking away are two different things:

“Despite a growing acceptance of strategic default on the community level, thinking about walking away and actually walking away are separate events, according to Kathleen Day, a representative at the Center for Responsible Lending.

“From everything we know, no one defaults if they could possibly stay in their homes,” she tells HousingWire. “We just don’t see people responsibly walking away. It’s people who are at the end of their economic rope.”

The full article–

http://www.housingwire.com/2010/04/06/fannie-mae-sees-strategic-default-on-the-minds-of-underwater-borrowers/

“Former homeowners may still be on the hook if there’s a difference between what they owed on their mortgage and what the bank could sell [...]]]> CNNMoney had a very thought provoking article today that should be a must read for any home owner, particularly those  pursuing  a short-sale or deed-in-lieu end to their troubles:

“Former homeowners may still be on the hook if there’s a difference between what they owed on their mortgage and what the bank could sell it for at auction. And these “deficiency judgments” are ticking time bombs that can explode years after borrowers lose their homes.

Lenders may release property liens in order to facilitate short sales without releasing borrowers from their obligations to pay under the promissory notes. The secured debt can convert to an unsecured one after the sale.

Zaretsky had one client who was so relieved to have arranged a short sale that he signed every paper his real estate agent shoved at him, even a confession that clearly stated he still owed the debt.

“He had no idea what he was doing,” said Zaretsky. “All the lender had to do was go to court to convert the confession into a deficiency judgment.”

Those facing foreclosure, including homeowners considering  a short- sale or deed-in-lieu solution to their problems would be very wise to seek the services of an independent, competent real estate attorney during this process.

The full article –

http://money.cnn.com/2010/02/03/real_estate/foreclosure_deficiency_judgement/

“The government is dropping nuclear bombs on the mortgage market and nobody is dying. They can’t move the product.  What has been taking off are foreclosures. They are soaring. The general feeling is [...]]]> Michael David White at NewObservations.net had an interesting piece last week arguing that defaulting on one’s mortgage is a patriotic duty:

“The government is dropping nuclear bombs on the mortgage market and nobody is dying. They can’t move the product.  What has been taking off are foreclosures. They are soaring. The general feeling is that foreclosures are terrible and should be stopped because of the distress they bring both to a family and a neighborhood. The more important truth, widely ignored, is that foreclosures promise to bring back cheap prices.

In our post-bubble world, foreclosures are the surest mechanism for creating affordable housing. Consumer advocates should now welcome this method of price correction. Those true to their mission will embrace a mass-foreclosure remedy.

In a credit bubble, the smart economist makes the highest goal a true reckoning with phony debt. The common man now has a chance to play the smart economist.

Let the house go back to the lenders. The bank will throw the mortgage in the garbage. Reality will return. Prices will fall – perhaps dramatically from our current 30% loss. Systemic mortgage debt in the United States should be reduced in amounts equal to the losses in real estate values. It’s trillions in the plural.

The government has screwed up management of the financial crisis by granting debt assets special status. It’s time for the owners of debt assets to take losses. It’s time for the people to fix the financial crisis. Give the debt investors the losses they bargained for.”

The full article -

http://newobservations.net/2010/01/12/default-is-a-patriotic-duty/