South Atlanta Househounds

Every cloud has a silver lining, and the rise in South Atlanta home foreclosures is no exception. That’s if you’re an investor hunting for good deals.

Investing in foreclosures is not a low-risk venture. You often need to act quickly, have ready cash and may need to earmark money for repairs to make properties sellable. Here are some basics on buying distressed homes.

Where The Deals Are

Short sales: When borrowers can’t keep current with mortgage payments, some lenders agree to allow the sale of the property for less than the loan balance. These can be found by reading the comments section of the MLS listings.  Beware of the difference between an approved short sale and an unapproved short sale.  In an approved short sale the current owner has already gone through the short sale approval process, which can take up to 3-4 months.  If  your dealing with an unapproved short sale be prepared to wait.   

Auctions: Auctions typically offer good buys, but the risk to you is greater. You must research liens against the property and decide on your maximum bid price. You’re also required to have proof of funds or be pre-approved and in most cases a large down payment is required just to bid.  Typically the auction companies do not offer any financing or inspection contingencies.  You can use an agent to assist you or deal directly with the auction company. 

REO’s, Foreclosures: (Real Estate Owned)  These are properties that have been taken back by the bank. These homes are frequently listed in the multiple listing services and can be found on the internet through a multitude of websites.  I suggest you use an agent that is comfortable with buying REO properties as the process is different than buying an owner occupied home. 

HUD Homes:  These are properties taken back by the FHA.  While primarily targeting the owner occupied, there are often deals for investors who don’t mind making improvements.  While the owner occupants get first crack at these properties, they tend to stay clear of most properties that need improvements, thus making great deals for investors.  Traditionally HUD has taken a 8% to 12% discount off their list price, but they now are taking deeper discounts on properties that have been on the market for longer than 120 days.  For a listing of the best 4 HUD deals in South Atlanta you can visit www.southatlantahudhomes.com. 

To Repair or Not Repair… That Is The Question!

Deciding to repair or not should be dependent on what your goal for this property is.  If you want to flip it for a profit then you will most likely need to make some repairs.  If you’re wanting to keep it for a rental, maybe repairs could be less.  In all likelihood you will need to make some repairs, but the trick is to set a budget and keep to it.  Your repairs or updates need to match the value, neighborhood and price point of the house.  If you have a property your planning on selling for $70k, then putting granite counter tops may not be cost effective.  If however you have a house for $300k, it may be expected.  Doing the repairs yourself or working with an agent like me, who has a complete list of reliable subcontractors will save you money.  If you need some help with reliable subcontractors, just drop me a line at alrichard@charter.net and I’ll send you a list of who we use.  We list and sell bank owned properties and we constantly have to use subcontractors for all sorts of repairs.  Make sure you include not only your repair costs into your final selling price but also a realistic estimate of your holding costs.  If it will take months for you to repair it before you even start marketing the property, make sure you account for that cost.  For Henry County, Clayton County, Spalding County and Rockdale County 157 is the average days on market. 

Now What Do You Do With It

A couple of years ago the flippers were everywhere.  Even today you can’t turn on HGTV without finding a flip this house type of show.  We work with many investors and while there are abundant deals to be had, most of our investors are not flipping properties outright.  There are still a few areas where flipping is still happening but it’s in small pockets throughout the city.  This is not a great market for first time flippers to be cutting their teeth that have never done this before.  With the downturn in the market, most of our investors are now picking up these properties and sitting on them until the market turns.  By and large, most are only making minor repairs and renting the properties.  For most, the plan is to rent the properties for the next year or so until the market turns, then make the major repairs and sell it for a bigger profit. 

Should you need any help finding investment properties please give us a call.  We list bank owned properties, we run South Atlanta HUD homes and we are very knowledgeable and comfortable with these properties.  We know how to find the deals so please give us a call at (770) 769-8000 or drop me a line at alrichard@charter.net. 

For the background on what a loan modification is, how it works and if it can help you, click here.

Step 1 – Evaluate Your Situation

Honestly decide if a loan modification is what you truly need. Only 37% of loan modifications end up with the homeowner attaining at least a 10% reduction in monthly payments. So using 10% as your target, if your monthly mortgage was 10% less than it is now, would you be able to maintain your monthly finances? If your answer is no then it may be better to consider a short sale or deed in lieu of foreclosure and plan on renting for a while. You also need to consider the amount of time, trouble and effort you are willing to put into attaining a modification. Even if you utilize a government or non-profit company it is still going to take a lot of your time just to get the information together. You should expect that this process will take 3-4 months to complete and you should plan on spending 3-4 hours each week.

Step 2 – Have Realistic Goals

Everyone would like a principal reduction, but that very, very, very rarely happens. In the past year only 2% of all loan modifications had a reduction in principal, and nearly all of those were in California or Michigan. As stated above, a reduction in monthly payments of over 10% is a good starting goal but your specific situation may require different goals. Remember that this is a negotiation and in a successful negotiation each side has to give some and take some. Please don’t threaten or try to throw your weight around telling them to come and pick up the keys. You will feel like telling them that several times through this process, but bit your tongue and remember what your goals are and have a plan to achieve these goals.

Step 3 – Get Your Paperwork Together

Regardless of who owns your loan, nearly all the mortgage companies will require the same basic information. The more information you have ready at your disposal the easier this entire process will be. Also the more information you have ready, the better informed you are as to what concessions you are willing to give on and which you can’t when you get to step 5, the negotiation. The usual documents you will need are:

• Proof of income.
• At least four months of bank statements.
• A hardship letter explaining your situation and requesting a loan modification.
• A monthly expense sheet detailing all your expenses.
• Your most recent mortgage statement
• 2 years W2 forms
• 2 years tax returns

Most of the list is self explanatory, but the hardship letter is critical. The hardship letter should be about 1 page long, but no more than 2 pages ever as most lenders and extremely busy, backlogged and staffed with overworked employees so keep it short and to the point. It should be a basic blueprint of how your current financial situation is, how you got into this situation and any other issues affecting your ability to meet your financial obligations.

Remember to include any of the following issues in your hardship letter if they apply: adjustable rate mortgage reset, death, death of a spouse or co-borrower, loss of job, reduction in salary, job relocation, did you business go under, divorce, separated, accident, illness, medical bills or military duty. I do not suggest you try and convince them about your local real estate market or how the value of your house has gone down as most lenders do not do any principal reductions anyway. Don’t blame the lender and don’t blame the value of your house. It is not the lenders fault that you have the loan on your home and trying to say that you can’t pay because your house is worth less now than what it was when you bought it doesn’t make any sense. You may not want to pay, but it doesn’t mean you can’t.

Step 4 – Contact Your Mortgage Company

It’s astounding the number of delinquent borrowers who never have the courage to pick up the phone and just talk to the lender before heading into foreclosure. Make the call and ask to speak to customer service. Have a note pad to keep up with everyone you talk to and what each person says they are going to do, yourself included. Identify yourself and ask to speak with the loss mitigation department. Don’t spend too much time with customer service, they generally can’t help you, but before you get transferred, ask for the direct dial number for the loss mitigation department. This will save a step in your many, many follow up calls.

Once you get the loss mitigation department get the name of who your speaking with and position and let them know your keeping a record of all your conversations to ensure all the I’s are dotted and t’s are crossed. Explain in general terms to the person that your having trouble making your monthly payments and that you are or may become delinquent on your loan and you need to modify it or there is a serious chance you’ll fall farther behind or could go into foreclosure. Don’t throw out the foreclosure word too much or threaten them, if they feel your headed into foreclosure they won’t waste their time with a lost cause. What you want to clearly communicate to them is that this is a serious problem and it requires their immediate attention.

Be prepared for them to ask you some basic questions. Have the list I gave you above handy to help with specific details. You MUST be honest or it will come back to bite you in the butt. You shouldn’t be overly optimistic or too upbeat about your financial situation, but it can’t be all gloom and doom either. Within the bounds of honesty you need to communicate that your in a bad financial place. Just as you had to qualify yourself to get the loan the first time, now you have to qualify to get a loan modification in much the same way. You have to prove that you are financially incapable of making your mortgage payments in the manner they are currently structured. Lastly, your going to have to prove that a loan modification will actually improve your situation to the point where you will be an acceptable risk to them.
If the lender decides that your situation qualifies, they will send you a loan modification information packet along with a worksheet to calculate your monthly expenses. Even if you already have it all in your own format, take the time to copy it over to their forms, it will speed up the process every time.

Step 5 – The Negotiation

Remember that the banks don’t want to loose any money, so don’t expect their initial offer to be worth taking. Fully expect that it will take 3, 4, 5 or more offers back and forth until you find one that is acceptable to both you and the bank. In most cases this is the time consuming and frustrating part of a loan modification. The endless calls going back and forth, waiting and waiting on the phone all to end up with a loan modification offer that just insults or angers you is what you should fully expect until you finally reach an agreement that you both can accept.

The average loan modification should result with a 31% debt to income ratio for your home which means your house payment should be around 31% of your gross monthly income. This is all about give and take for both sides. You can expect that the first loan modification the bank offers will actually have your monthly payments increase, for at least a few months. This seems idiotic but it’s true as the banks will initially try to begin with a forbearance agreement which temporarily increases payments because they try to add in any past due payments, penalties, interest and late fees. Don’t accept this, simply let them know you don’t have the ability to meet that financial obligation and you head back to the drawing board. Expect to have to say this several times during the negotiation.

Here is the list of the most common concessions.

• Reduction in interest rate or converting from an adjustable rate to a fixed rate. This can be a permanent or temporary (1-5 years). Some loan modifications reduce the rate down to as low as 2% for a short term. This is almost always the most favorable to both parties and is the most used concession.
• Forbearance Agreement. Expect them to try to add in missed loan payments, interest payments, insurance and other costs the lender paid on your behalf. You should try and fight these costs as much as possible.
• Extension of the length of the loan. You can expect them to extend the loan to 35 or 40 years. This is a toughie for many people, but it is one of the most used ways to reduce your monthly payment.
  Principal Forbearance. Basically they will defer payment of part of your loan and add it to the end of your loan or until you refinance or sell your property. This is commonly referred to as a “balloon payment”.
• Principal Reduction. As stated many times before, do not expect this. Only 2% of all loan modifications done in the past year had a principal reduction, and most of those were done in Michigan and California.

Step 6 – Wrap it up

Once you reach an agreement you can expect to be on a 3 month “trail period” in which if you are current at the end the lender will execute a permanent modification agreement and forward to you to sign.
Sign the paperwork, return it to the lender.

Good luck and if I can be of any further assistance give me a call at (770) 616-5062 or send me an email to alrichard@charter.net. I don’t do loan modifications and will not charge you any money but I can offer my opinion based upon my experience. I do not provide any legal advice and anyone seeking such advice should consult with their own lawyer.

If you can no longer afford to make your monthly loan payment, you may qualify for a loan modification. In essence a loan modification changes one of the variable items in your loan. It could be principle, interest rate, loan terms extended, arm rate converted to a fixed rate or they could forgive any past delinquencies. That said, lowering of the principal amount is very, very rarely done. A loan modification is never guaranteed as it is up to the bank to choose to accept or not.

Do Loan Modifications Work?

Yes and no. Statistically, it depends on the amount of modification you are able to attain. If you just can’t afford the house your in, lowering you monthly payments by 10% to 20% is not going to be the answer. Of the loan modifications written in the past year, only 37% actually resulted in a monthly payment that dropped by over 10%. What is startling is that nearly 25% of homeowners who attempted a modification had a monthly payment increase, which happens when the lenders add fees or past due interests to a loan. So what percentages of loan modifications actually work? If you get a reduction in monthly payments of 10% or more then 1 out of 4 (25%) will still go into foreclosure. If you get a reduction in monthly payment of less than 10% then nearly half of the time the borrower moves into foreclosure.

Please understand that sometimes loan modifications aren’t the right answer. If you have a second mortgage, an interest only loan or you have had a significant reduction in earnings then selling your property at a short sale and finding a rental may be a better option at this point. With second mortgages, loan modifications are very difficult to obtain as a first-lien holder doesn’t need approval to modify the first mortgage, but would have to make a more drastic change in terms if the second-lien holder doesn’t cooperate. If you’re in an interest only loan and wish to begin paying interest and principal, this will result in much higher payments than you have been making.

Who can do a Loan Modification?

You should always attempt to do your own loan modification by working with your lender personally first. I suggest you only consider using someone to assist you if you have attempted your loan modification first and it failed for some reason. Even then I suggest you start with non-profit or government agencies such as www.helpumodify.org or www.makinghomeaffordable.gov. If you are considering using a loan modification company, you need to be very cautious and protect yourself. Remember what each person or companies motivation is. You want to change the terms of your loan, the bank wants to continue loaning you money and they would rather not change anything, if you choose to use a loan modification company, they are looking to make money by assisting you. Remember that the only one who is truly looking out for your best interest first is you.

Additionally you should always be very leery of all loan modification companies. Everyone and their brother is all of a sudden a loan modification specialist and the number of loan modification scams out there is disgraceful. Beware of any companies that claim they can always get you a loan modification, anyone claiming they always get principal reductions and any that require money up front. I am not saying that ALL loan modification companies are bad, but many are so beware.

In truth, loan modifications are difficult to obtain. But this difficulty exists whether the person making the request is a homeowner, a non-profit, government agency or professional loan modifier. Lenders and loan servicers are slow to approve refinance mortgages and modifications because there’s no proof that doing so will improve the lender’s position. Many loan modifications end up in default again within the year. When this happens, the whole process starts over. But if the lender forecloses the first time, the home can eventually be sold, and some of the money can be recouped.

What You Need To Qualify

In January the Feds adopted the FDIC qualification criteria for Fannie Mae and Freddie Mac properties and have encouraged standardization with the banks by making it a prerequisite for receiving TARP funds. The good new and bad news is that you know what it takes to qualify, but if you don’t qualify it can make the entire process very, very difficult.  

If you have a FHA or VA loan, to qualify you must:

• Be 60 days late
• Must qualify with full income disclosure with a 38% debt to income (DTI)
• Must not purposefully fall behind

If you have a loan owned by Fannie Mae or Freddie Mac, to qualify you must:

• Be on time with your monthly mortgage payments
• Have the income sufficient to support the new mortgage payments
• Home must be owner occupied

These prerequisites are only current at the time of this posting. The rules are constantly changing so please make sure you have the most current information possible if you are researching a loan modification.

If you are 60 days behind your options really narrow. Everyone starts calling you for money, lenders may not accept partial payments and foreclosure is threatened and possibly even filed. Here in Georgia we have the fastest foreclosure process in the country.

So what’s the process to apply for a loan modification? Click here for information on how to apply for a loan modification.

This is an easy to understand video that explains in great detail, but also in easy to understand terms how we got to the place we are in the “credit crisis”

In a recent town hall meeting hosted by the County Commissioners there was an explanation of the property tax assessment process and the procedures to go about to dispute your property valuation.  In the official code of the State of Georgia it states that property taxes are based on fair market value. 

But… the assessor cannot use sales of distressed properties (foreclosures, REO’s, short sales, auctions, etc.) in determining market value.  Under consideration in this session of the state Legislature is proposed legislation that would correct this issue.  In our local market the REO’s, foreclosures and short sales are driving property values and even finding a “fair market” sale to use as a comparable is few and far between. 

So How Do You Request a Reduction?

Per the Henry County Tax Assessors Office:  “After receiving a Notice of Property Value Change (assessment notice), you have the right to appeal this value to the Board of Assessors. This appeal must be in writing and must be filed in the Assessors Office within 45 days of the date on the notice. To insure your appeal rights, it is encouraged that the appeal be mailed by certified receipt or hand-carried to the Assessors Office.”

If you believe your home is currently valued for more than it’s fair market value and you want to file a dispute you can file this form with the Henry County Assessors office by April 1st, 2009.  You can go directly to the assessors office for assistance in completing the form.  You can also find other useful about your property by searching at http://www.co.henry.ga.us/MapsZonesDistricts/index_2.htm.  Submitting the form will preserve your right to a hearing on your valuation and you should expect your hearing some time in early May. 

Although the details of this article pertains directly with Henry County, should you need some help with Clayton, Fayette, Butts, Spalding or Rockdale Counties, just drop me a line at alrichard@charter.net and I will dig up the information for you on your specific county.