Foreclosures are not an end-all for those experiencing this unfortunate situation.  Here are some common myths regarding foreclosure:

• Bankruptcy is worse than Foreclosure – There are many people that may think that bankruptcy is worse than foreclosure.  Although with a bankruptcy, you can re-establish yourself within 12 months but on the other hand foreclosures will stay on your credit report for 7 long years.
• Deed in-lieu of Foreclosure – This will only have an effect on your credit report as this is a type of “settlement” on a mortgage.  In most cases, the property is still taken from the borrower, but their credit score is not hurt as much as with a foreclosure.
• Bankruptcy helps you avoid Foreclosure – Actually that isn’t right – it’s the opposite.  Bankruptcy will not help you avoid the foreclosure process.  If you do file for bankruptcy, the lender will get by with the help of automatic stay.  If the stay is granted, then the lender will attempt to complete the procedure of foreclosure and take the property ASAP.

Don’t give up if you are facing foreclosure.  There is a lot of information out there and banks want nothing more than for you to stay in the home and work out a deal.

The buyer must have approved funding to convince the bank that they are serious about the transaction.  They can still obtain an inspection, but the bank will not pay for any repairs.  This is why most offers on short sales are far below the value of the home.

Short sales are a great solution to foreclosure and it’s important to hire a realtor who specializes in short sales and foreclosures to get your highest chance of getting it completed.

As banks try to off load these homes, they are slashing prices to bring in many buyers and multiple offers, creating bidding wars.  Be prepared giving your highest and best offer the first round of offers to avoid a counter offer from the bank with multiple participating parties.  The prices could be pushed further up.

There are some important things to be aware of when buying a bank owned REO:

• The home is usually conveyed “as-is” – the bank will not make any repairs, the seller will make no warranty to the buyer, expressed or implied as to the condition of the house, fitness of the property.
• The seller is still to disclose any material fact, but since the bank has not lived in the home, there will be no sellers property disclosures or CLUE report to show of any insurance claims on the property.
• Regarding the appraisal-a failed appraisal based on the condition of the home (missing A/C, mold, missing appliances, etc.) will not allow the buyer to cancel to get their earnest money back.  The as-is addendum overrides the contract, that includes an appraisal contingency.   If the appraisal comes in low,the buyer cannot use the appraisal contingency.  It is imparitive that the appraisal be done in the 10 day inspection period.  If 10 days is not long enough, extend the inspection period when you submit a contract.
• Another concern is the utilities being turned off – it can take a day or two to get them back on.

If you are buying, do your homework and make sure you have a good agent that has your best interest in mind.

Nature has dibs on swimming pools, especially abandoned ones. Pools left alone with no upkeep become a nesting spot for mosquitoes to breed and further increase the public concern with the mosquito-borne West Nile virus.

Local mosquito control agencies in Arizona, Florida and California are dumping the Gambusia affinis into vacant pools, where fish, also known as “mosquito fish” gorge themselves on mosquito larvae. Many environmentalists applaud the effort to control the mosquitoes with no pesticides, the fish do carry an environmental cost IF they find their way into local water systems. How come? The mosquito fish tend to push around native wildlife, including tadpoles of endangered frogs.

Real estate agents across the country are calling the short sale system broken since many realtors and eagerly awaiting buyers are trying to get into a home but the lenders are not responding to calls or status requests on the approval.

A short sale, is where a borrower sells the home for less the market value and the bank or lender receives less than the amount owed on the loan. The borrower’s credit rating is hurt, but not as bad as a foreclosure would cause.

From first glance, short sales appear to be a win-win strategy for the seller, buyer and the bank or lender. Due to the amount of people involved in a short sale, the amount of time, patience and stress can can its toll.

Typically in a short sale deal, it requires at least double the time and effort of a typical deal to close the deal.

According to a Reuters article, that many lenders are demanding higher prices before allowing a distressed owner to sell off the home in a short sale.

The lenders are not accepting bids below specific internal targets, which can cause the home to go into foreclosure, and a lot of time, cause the bank or lender to lose even more money in the long run, since they will typically receive bids usually far lower.

Due to the many short sales across the country, realtors think that lenders do not have the people skills to process and handle the many short sale inquiries..thus, lenders are taking way too much time to evaluate the offers. Apparently, the National Association of Realtors says that 9 out of 10 cases, the banks or lenders will lose more money in a foreclosure.

Lending practices has enabled families to buy a home who normally wouldn’t be able to afford it. This is great but the terms that they were offered is bad news. Never before have there been such confusing loans brought into the market, especially a loan that was normally not given to the ‘ordinary’ American but the ‘well off’. It is called the Option ARM.

Option Adjust Rate Mortgage (ARM) – this may be one of the riskiest and complicated home loan products ever created. It has low minimum payments because it’s a hybrid between an ARM (low fixed rate for a few years) with a negative amortization loan that lets borrowers have the option to pay less than the full amount of the interest owed on each payment. The borrower decides how much they want to pay from a list of of options supplied by the lender (usually from 4 different payment schedules such as 20 year fixed, 30 year fixed, interest only, negative amortization) . The amount not paid is tacked on to the total mortgage owed. The minimum payment is usually so low that the borrower ends up owing more on the home.

Why is this a Mortgage Product Monster?

For the borrower: Many of the option ARMs are starting to reset this year with much higher payment schedules. And worse yet, because home prices have leveled off, borrowers will not be able to count on the rising equity to bail them out. If the borrower has a pre-payment penalty, they won’t be able to refinance out of the mortgage without paying a fee that could range from $10,000 to much more.

For the lender: Brokers were paid more to sell these loans and the lenders were allowed to claim the full monthly payment as revenue even when the borrower didn’t pay the full amount. The interest rate and upfront fees were probably not set by the lender but rather by a hedge fund. Analysts estimate that 1.3 million borrowers signed up for almost $389 billion in Option ARMs in 2004 and 2005 alone. Numbers show that up to 80% of all Option ARM borrowers make only the minimum payment each month.

Conclusion: It smells like a disaster. Sadly, borrowers will be burdened with the most pain and not the lenders. The borrowers will be expected to pay for the higher payments or cough up their homes.

See if you’re at risk

You may be at risk if you:

1) Exaggerated your income on your application. A lot of times, lenders do not verify stated income loans. If your income is inflated, you will not be able to keep up with the payments when your loan resets and payments go up.

2) You only make the minimum payments each month. Not paying down your debt only increases it each month. Before you know it, the total amount you need to pay on the house is MUCH more than you anticipated.

3) You’re getting close to reaching the principal cap your lender set. Negative Amortization cannot go on forever. Your lender set a cap on the amount you owe and limits how long negative amortization can go. If you reach the cap, your minimum monthly payments can potentially more than double.

4) Home values in your neighborhood are falling. Falling or stagnant home prices could fall below how much you owe. You end up in a tough situation where you can’t afford to refinance the mortgage or sell the house, unless you have some extra cash or additional equity in your home to cover those expenses.

What can you do? Make at least the interest-only payment, refinance the loan or sell the house to pay off the mortgage. If you do end up making the interest-only payment, you are at least staying afloat instead of sinking by at least not adding to the principal. If you do refinance the loan, try to go with another lender if you didn’t feel like your current lender explained the Option ARM loan well in the first place.