Here are the factors that have lead up to one of the short-sale proposals facing the City of Chico Mortgage Subsidy Program (MSP). The homeowners name has been changed for this account.
-Sue (the buyer/borrower) paid top price for the home during a period of depreciating home prices – home was immediately worth less than purchase price.
-MSP loaned money in the form of a second mortgage on the home.
-Sue miscalculated her personal budget and ability to repay. Sue became late on a number of accounts and incurred fees and penalties which exacerbated her ability to repay mortgage loans.
-Already depreciating home prices suffered a steep decline.
-Sue goes deeper in debt, unable to find a solution to multiple past due mortgage payments and penalties.
-Sue consults with a real estate agent (me) for alternatives to foreclosure. I ask Sue if she has explored credit counseling, or loan modification. Sue feels all options have been exhausted. For the purpose of salvaging some of Sue’s credit I suggest a short-sale as a possible alternative to foreclosure.
-Home is listed as a ‘short-sale’ offering at or slightly below the current market value – in this case significantly under the original purchase price (about the same amount that was loaned by the City).
-Within 2 weeks a contract to purchase is secured with a new buyer.
-I contact the first and second mortgage holders and provide a 30 page ‘short-sale’ package that includes a copy of the new offer-to- purchase, a copy of the listing contract an explanation letter from the borrower, paycheck stubs, tax statements and other documentation of income and expenses to both.
-City of Chico Housing and Neighborhood Services Department schedules review of the proposal for late January.
What comes next?
Both the first and second (MSP) will seek a second opinion on the market value of the home. Based on that opinion, the first and second mortgage holders will negotiate with each other to determine how the funds from the sale would be divided – typically the first mortgage holder will offer the second a ‘token’ of what they are owed (1-2% of what they loaned). Based on the amount of the offer and how the split is negotiated, mortgage holders will decide whether to accept the short-sale offering or foreclose. As second mortgage holders the Chico MSP options in the case of foreclosure are 1.) to hope that the home sells on the steps of the county courthouse for more than what the first mortgage holder is owed OR 2.) to pay off the first mortgage and take title to the home. The City would then own a home worth significantly less than they just paid for it.
To be continued…
-Sue (the buyer/borrower) paid top price for the home during a period of depreciating home prices – home was immediately worth less than purchase price.
-MSP loaned money in the form of a second mortgage on the home.
-Sue miscalculated her personal budget and ability to repay. Sue became late on a number of accounts and incurred fees and penalties which exacerbated her ability to repay mortgage loans.
-Already depreciating home prices suffered a steep decline.
-Sue goes deeper in debt, unable to find a solution to multiple past due mortgage payments and penalties.
-Sue consults with a real estate agent (me) for alternatives to foreclosure. I ask Sue if she has explored credit counseling, or loan modification. Sue feels all options have been exhausted. For the purpose of salvaging some of Sue’s credit I suggest a short-sale as a possible alternative to foreclosure.
-Home is listed as a ‘short-sale’ offering at or slightly below the current market value – in this case significantly under the original purchase price (about the same amount that was loaned by the City).
-Within 2 weeks a contract to purchase is secured with a new buyer.
-I contact the first and second mortgage holders and provide a 30 page ‘short-sale’ package that includes a copy of the new offer-to- purchase, a copy of the listing contract an explanation letter from the borrower, paycheck stubs, tax statements and other documentation of income and expenses to both.
-City of Chico Housing and Neighborhood Services Department schedules review of the proposal for late January.
What comes next?
Both the first and second (MSP) will seek a second opinion on the market value of the home. Based on that opinion, the first and second mortgage holders will negotiate with each other to determine how the funds from the sale would be divided – typically the first mortgage holder will offer the second a ‘token’ of what they are owed (1-2% of what they loaned). Based on the amount of the offer and how the split is negotiated, mortgage holders will decide whether to accept the short-sale offering or foreclose. As second mortgage holders the Chico MSP options in the case of foreclosure are 1.) to hope that the home sells on the steps of the county courthouse for more than what the first mortgage holder is owed OR 2.) to pay off the first mortgage and take title to the home. The City would then own a home worth significantly less than they just paid for it.
To be continued…
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