Housing boon: Investors seek guilt-free gain in crisis
"Take advantage of opportunities to purchase properties from banks below market value!" said the ad in the Daily Progress. The event, scheduled for three nights in mid-February, was billed as a free way to learn how to do property deals in a stressed-out economy.
With housing prices plummeting and more and more Americans unable to make their mortgage payments, the "buy low-sell high" principle of investment says now is the time to purchase real estate on the cheap, and real estate agent Anthony McGhee has two simple words: "short sale."
"It's an option almost nobody knows about," says McGhee, a Ruckersville-based agent, "and it's a win for the bank because they don't want to own it, a win for the debtor because it doesn't count against their credit score, and a win for the home-buyer because they get a good deal."
McGhee, who works under Assist-2-Sell discount brokerage banner, was hoping to educate potential home-buyers about with his seminars. On February 10, the first of his three-night stand at the Hilton Garden Inn, a total of seven showed up.
Four indicated they were looking to buy real estate as an investment, and three were real estate agents who were admittedly unaware of this relatively new phenomenon.
"A short sale," explained McGhee, "is when someone owes more on the house than the house is actually worth. This used to be rare, especially here, but once housing prices started to go down, we started to see this more and more."
So rather than foreclose on the house altogether–- and likely have to take on a non-performing asset when it doesn't sell at auction–- banks are now willing to work with home-buyers who want to take the property off their hands before a foreclosure auction, even if it means taking a loss in the tens of thousands. There's just one qualifier.
"Usually, the homeowner has to present a hardship letter," said McGhee. "This means you have to show them that the homeowner isn't making their payments because they lost their job, and that means pay-stubs, bank statements, and so on."
Still, it's not as though the banks are eager to jump at this prospect.
"You have to contact the homeowner first and then work with the homeowner's lender to get them to send you a 'short sales packet,'" said McGhee, "and for every 10 calls you make to them through the process, you might get one back. So be prepared to wait."
Nevertheless, it's supposed to be a more humane prospect for the person getting foreclosed upon, and McGhee says if only more homeowners behind on their payments knew about this option, they could save themselves a credit hit. In other words, the homeowner still loses their house, but they keep their credit score. And the buyer, theoretically, gets a deal.
"If the bank accepts your deal, they will cover the difference," said McGhee, "and the transaction will show up on their credit report as having been paid in full."
McGhee says it's a shame that more people facing foreclosure don't know about this option, and that if they're willing to wade through the voluminous paper work, they can save themselves the heartache of debt collection.
"Most people are just tired, and they're ready to hand over the keys to the bank," McGhee told the audience. "I met with a woman who literally had Kleenex on the kitchen table because the bank told her she needed $13,000 or she was going to get foreclosed on. I looked through her papers, and it turned out she'd lost her job, and she would probably qualify for this."
The prospect of stepping in on these deals without stepping on the backs of those less fortunate is one thing that drew landlord and tennis instructor William Raymond, who drove from Richmond to hear the talk.
"As long as people have been honest with their lenders, this is the best deal they can make," says Raymond. "These are astronomically good deals out there right now, and the only people who are losing are the people on the sidelines."