Unfortunately, the number of people who owe more than their house is worth is increasing in Metro Detroit. If you are staying in your house, you don't have a pressing issue, though the new housing bill that is coming out on March 4th may provide you with some relief. More on that later when the details come out.

If you have to sell your home now, and you are upside down, there are some things you should know. Some people have the cash to bring to closing when they owe more than it they'll net at close. Most simply don't.

One option is a Short Sale. This is when the lenders agree to accept the shortfall and write it off. They may ask you to contribute as much as you can, or they may write off the entire amount. If there is a first mortgage and a second mortgage, then both lenders will need to agree to the outcome. Other liens will complicate the picture too.

You need someone experienced in short sales to help you. Chose wisely. The bank is not expecting to deal with you: they are want the package put together by a professional. In order to have any success with the bank, the transaction requires great attention to detail and follow through. Banks notoriously lose short sale packets over and over. Last summer I faxed a short sale packet to a lender at least 12 times. I called to confirm receipt. Each time I called in, nobody knew where it was... That's just the reality.

You will not be paying the Realtor's commission, or, most likely, many of the other things associated with a short sale, like tax prorations, transfer tax, etc. The bank usually pays most of those expenses.

You need to be 100% committed to the process. Short sales are not quick and easy, but with a solid plan, the pain can be reduced.

There is really nothing “short” about short sales. They usually take much longer than the typical sale, mostly because we are waiting for banks to make decisions.

Banks usually don’t tell you how much they will accept until after you have an offer. That means we start the process without knowing how it will end. It is important to have a very good grasp of the market. You need an offer to get things really started. Pricing and marketing are key. Buyers can be scared off by short sales because they don’t want to take on the uncertainty. We have to do a good job of demonstrating that we are on top of the process.

There are some things you will need to do to facilitate your short sale:

1. Write a hardship letter. In your own words tell the bank why you are not able to pay the shortfall on the mortgage. Typically banks are looking for things like illness, job loss, etc, but just tell them honestly what the problem is.
2. Gather your last 2 tax returns, w-2's and current bank statements and current pay stubs.
3. Talk to the bank. The banks don't want your house, and they need to hear from you. You might run into some brick walls, but start the dialog. If you chose to work with us on the short sale, we will take over most of the bank discussions after we list the property. We will also keep you informed about our progress with the bank. We have to work together as a team to succeed, so it is important that you keep us informed to any changes in your status.

Short sales have generally not impacted a seller’s credit score as much as a foreclosure. You may wish to consult with a tax adviser to determine if you will have an tax consequences from a short sale. Short sales can be a great path toward avoiding foreclosure and a real relief for a strapped home owners.

If you need help or guidance about working on a short sale for your Metro Detroit home, we would be happy to talk to you. Here are some other articles we have written about short sales:

11 Things about Buying a Short Sale in Oakland County

A Short Sale Question

Last week Oakland County introduced a plan to help get some of the vacant foreclosed homes off the market in select Oakland County communities.  Their press release follows.

I need to call the county and ask some questions.  The program seems very generous and should help sell some foreclosed homes.  I am not sure why some communities were left off of the list.  For example, Birmingham is on it, but Beverly Hills is not.  Royal Oak Township is on, but the city of Royal Oak is not.  No go for Bloomfield Township, but a yes for Troy.  This has me questioning how communities became eligible.

As much as I know the foreclosures need to get off the market, this gives them a steep advantage over the regular resale homes that are already severly challenged for finding buyers.  The foreclosures are selling, for the most part, without much additional help.  Low prices do that. 

"Pontiac, Michigan, February 17, 2009 -- More families in Oakland County may be able to find homeownership within their means thanks to a new program administered by the Oakland County Community & Home Improvement Division. The Oakland County Home Buyer Program is aimed at helping low and moderate income families take ownership of vacant, foreclosed single family homes and condominiums as their primary residence.

An informational workshop for prospective homebuyers will be held Saturday, February 28, from 9 a.m. to noon at the Oakland County Executive Office Building Conference Center, 2100 Pontiac Lake Rd., just west of Telegraph Rd., in Waterford. Pre-registration is not required.

"Families who thought they could never afford their own home now have the best opportunity to become homeowners through this unprecedented program," Oakland County Executive L. Brooks Patterson said.

Oakland County can provide no-interest loans for down payment assistance, closing costs, home improvements or other financing. The homebuyer must prequalify for a fixed rate mortgage loan from a lending institution. This loan represents 51% of the purchase price. Oakland County will finance the remaining 49% of the purchase and rehabilitation costs up to $100,000. The homebuyer must also provide $2,000 to initiate the purchase. The homebuyer only pays on the conventional mortgage obtained from their lender. Payment on the down payment and home improvement loans is deferred until the property changes ownership.

Homebuyers with incomes at or below 120% of Area Median Income (AMI) are eligible for assistance. For example, a family of four earning up to $83,900 per year is eligible under this program.

Funding for the Oakland County Home Buyer Program is provided by the U.S. Department of Housing and Urban Development's (HUD) Neighborhood Stabilization Program (NSP). This one-time $17.4 million emergency funding supplements the Community Development Block Grant (CDBG) program to purchase foreclosed homes at a discount, and rehabilitate or redevelop the homes to stabilize neighborhoods impacted by foreclosure and abandonment, and reverse the decline of neighborhood housing values.

The Oakland County Home Buyer Program covers properties in select Oakland County communities. Contact Farmington Hills, Pontiac, Royal Oak, Southfield, or Waterford directly to inquire about home buying assistance programs in their communities."

You can find more information on the programs on the county's web site.  If you need a Realtor to guide you through your purchase, I would be happy to assist you.

Birmingham is certainly known for its upscale downtown, incredible restaurants and it's wonderful neighborhoods. We have pricey real estate here too, compared to much of the rest of the region.

On Inauguration Day, I showed Birmingham's only HUD home active in the MLS. To date, there are have been few HUD homes in Birmingham, but we could have more in the future.

My investor client asked me, "Aren't HUD homes in bad areas?" This seems to be a common perception, but HUD homes are the product of people who had FHA guaranteed mortgages losing them to foreclosure. 2009 FHA loan limits for Oakland County are up to $273,700, and we certainly have many homes in that price range in Birmingham.

FHA loans have allowed people to get into homes with lower down payments, and have been of particular assistance to first time home buyers. In the last 9 years we didn't see that many FHA loans financing Birmingham/Bloomfield Hills homes. It was much more common to do a piggyback loan, with a first mortgage and a second mortgage to avoid PMI. Piggyback loans gone now that underwriting guidelines have tightened up.

HUD homes are sold via incredibly transparent on-line auctions, which frees them from some of the issues that have surrounded the sales of other foreclosed homes. The bids are made through HUD approved brokers (like us), and the auction results are posted daily.

Owner occupants are given preference and may bid earlier in the process, without competition from investors. Investors also need to conduct any inspections prior to making an offer. Owner occupants are given much more leeway in this regard.

These homes provide an incredible opportunity for buyers, though one should proceed with caution.

This post appears from miOaklandCounty.com

The well known Detroit broadcaster, Larry Henry, and Dave Benjamin from The Sales Matrix have started a new series of podcasts about entrepreneurs leading the renaissance of Detroit.  You can find their work on the recenlyt launched VoicesOfDetroit.com

I had the pleasure of sitting down with them last week and talking about the Metro Detroit real estate market and professional business coaching along with Kim Knapp. You can listen to our podcast here.  There are positive messages that Metro Detroiters need to hear about the real estate market and I was happy for the opportunity to share them.

Larry and Dave are also available to help businesses expand their reach through podcasting.  Check them out.

Shannon Paul the social media voice of the Detroit Red Wings, has taken on bringing Startup Weekend to Detroit. If there is one thing Detroit needs right now, it is jobs, and Shannon is doing her part to create some new ventures here. Who knows, the next Google or Amazon.com could be born in Detroit this year.

Shannon says:

We’re hoping to attract about 100 attendees with great ideas and deep skills, but once they get here we need to feed them — a free t-shirt would be a nice touch, too, along with some groovy stickers. We also need to make sure we have enough power strips and extension cords so everyone can stay connected throughout the event.

This way individuals and businesses can help us cover our costs with as large or small a donation as they please. Please also feel free to grab the widget and add it to your blog, website or other corner of the internet.

If your company is interested in sponsoring Startup Weekend Detroit, please drop me a line at shannonpaul5[at]gmail[dot]com.

More information on the Startup Weekend organization can be found at FAQ.

Please be sure to visit the Detroit Startup Weekend site for more information about the event.

Photo by Derek Farr (Detroit Derek)

*Photo is of a painting titled Detroit Industry by Diego Rivera on display at the Detroit Institute of Arts.