About Short Sales

For the past several years, the number of home foreclosures has been steadily increasing and it seems that there is little chance for the situation to improve itself. The people who are affected by home foreclosures are not just people who foolishly choose to blow off paying their bills. The reality is that they tend to be individuals who have had some bad experiences financially or who have been taken advantage of by unscrupulous lenders.

There have been very few people who signed a mortgage agreement with the intent of losing their home. Additionally, very few would agree to loan that they know they would be unable to pay back on time. Yet, there have been some lending practices that convince people that their financial situation will get better before they fall into bankruptcy and that the equity in their home can help them out of trouble when it is needed.

Many lenders, however, are not all that concerned about the financial well being of their clients. The many foreclosures that are filed for on a daily basis prove this.

When someone wants to buy a home and are turned down by traditional lenders, they often seek out those who make loans to high-risk borrowers. The initial interest rate may be in line with other opportunities but if the buyer is even a few minutes late with a payment, depending on the loan agreement, the interest rate can soar.

Foreclosures often occur just a few short months after loan payments start to increase because of such interest rates.

The Blame Goes to Both Lenders and Borrowers

During times of a high rate of home foreclosures most lenders place the blame on the home buyers, claiming they did not take their financial responsibilities seriously. However, after looking at the trends in home foreclosures, it may become obvious that some of the lenders did not take seriously the need to make loans to person who had the financial ability to repay them.

Even though both sides are right in some ways, the point is that only the homeowners and their loved ones lose when foreclosure happens. If a lending agency decides to allow someone to borrow a loan who shouldn’t, they will be able to recoup losses through a sheriff’s auction of the property in question. When foreclosure is a serious threat, borrowers tend to work to find various ways to not lose their homes.

F.G. (NY): “Foreclosures are the top subject in the economic news today. Will it affect my condominium association too? What can be done?”

Dear F.G.: Foreclosures stalk condo owners like a predator looking for his prey. They are at an all time high in over 20 years, especially in the big cities. They are evenly split between builders going out of business and buyers that bite off more than they can chew. With people’s financial house in complete disarray due to general economic conditions or loss of income, condo foreclosures are becoming a fact of life. This is more common than most would have you believe.

If mortgage payments are not made by the current owner, a foreclosure may occur. The bank or lending institution will sell the unit at below market value. This is devastating if it happens to you.

The bank or mortgage lender has no choice but to get some money back through foreclosure because of the lack of payment by the owner. The bank or lender may allow someone else to make the payments and move into the condominium.

When too many condominium owners lose their units to foreclosure, condo associations feel the financial pain. That is bad news for homeowners who depend on them to take care of building maintenance, property insurance, utilities, landscaping, and other amenities that are shared in common.

Borrowing money from a bank or from the association’s reserve, reducing contributions to reserves, reassessing costs, renegotiating service contracts, and delaying capital expenditures are some of the actions that the Board of Directors can take. Obviously, these actions are not very palatable to the owners. Cutting back on amenities, increasing monthly assessments, and levying special assessments usually affect owners immediately.

The Board can offer payment plans or loans to the owners. They can waive late fees or penalties to help owners catch up on delinquencies. Some condo associations are assessing anywhere from $10,000 to $30,000 per unit to make up for the shortfall.

Just because the funds are inadequate, associations cannot abandon their fiduciary responsibility. They must continue to make an effort to collect delinquencies.

When a condominium association forecloses on a unit, the payments will cease. The bank or mortgage lender may accept a deed to the property from the association in lieu of a foreclosure. This could result in a faster sale of the unit to a new owner. The top priority is to get someone into the condominium who will pay the assessments.

Times have changed. Foreclosure stalkers (politely called investors) are not showing up in bunches at foreclosure auctions to snap up great bargains. We always used to hear about the great times when condominium properties were sold with profit to interested buyers and the associations recovered all their money - plus making a profit that financed the new landscaping at the front gate. Those times are gone!