Real Estate Darwinism

Knightlines Mortgage Services, LLChas just opened it's new branch at 3309 Northlake Blvd, suite #203, in Palm Beach Gardens.

Considering all of the bad news that's been around lately - starting with the sub-prime disaster of last year - people might wonder how we can actually be expanding.

It's easy.  

We started up our main office with the intention of cutting through all of the BS in the mortgage industry.  Sounds like a lofty goal - but it's really not that difficult.  Over the last few (?) years, all of the hype, the ridiculous advertising and plain old-fashioned greed had gotten things to the point that a mortgage almost seemed like a mystical thing.

When you come right down to it, the entire mortgage loan process is pretty easy - ESPECIALLY on the residential side.

It didn't take us very long to settle on our motto:

"Financing the way it's SUPPOSED to be".

The term 'transparency' is thrown around quite a bit in the mortgage world  - a lot of companies spout it, but very few actually operate in a transparent manner.

This is what you can expect when using Knightlines:

• no guessing - you're always kept updated
• no surprises - especially not at the closing table
• we operate 7 days a week - things don't stop at 5:00 PM on Friday
• you will be fully educated on the loans that you qualify for so that you can choose what's best for you - we can make suggestions, but the final choice is yours
• we only advertise realistic loan terms - no 'bait' ads about loans so outrageous that nearly no one can qualify
• your Broker will be with you from the beginning all the way to the actual closing and that includes being AT the closing.

Yesterday I started to talk about foreclosures and short sales - there is way too much confusion about them, so I'd like to simplify things a bit.

I finished up by mentioning the case of owing more on your real estate then it's actually worth or "Being Upside-down".  How could that happen?

Several ways:

• Regardless of your loan type, if you live in an area with extreme depreciation, the value of your home could be going down faster then you can pay down the loan.
• If you have an interest-only mortgage, ANY amount of depreciation would make the home worth less then the loan balance since the principle never gets paid off.
• If you have been using the minimum payment on an option-ARM you would be experiencing negative-amortization - you're making monthly payments, but they don't cover the amount of intrest owed each month.  This increases the outstanding balance.  So even if your home's value didn't go down, the amount owed would be increasing.  If you're one of the many that has that type of loan, I hope your Broker / Lender made that perfectly clear.

Of course, the lower the initial Loan-to-Value (LTV) the safer you would be, regardless of the loan type.

So what is FORECLOSURE?

Let's start with PRE-FORECLOSURE - you've stopped making your monthly mortgage payment, now you are in DEFAULT on the loan.  A red flag goes up at the bank and they let you know that you had better get back on track, quickly.  At this point, get in touch with the bank DO NOT just ignore the problem!  The bank isn't going to say "You seem like a good person -  don't worry about it!" - but you could possibly work something out with them before the worst happens.

You could go the route of the SHORT SALE - it's called that because by taking less then what they are actually owed, the bank is taking 'a short'.  Here's where it gets a little complicated.  You can't sell the house for what's owed so you list the property and any offers that come up go straight to the bank to approve or disapprove - you as the owner have no say in the matter. 

The banks really don't want to take your property from you, they already have more than enough and then they have to pay their lawyers for their work, re-list the property and try to sell it themselves (and pay more agents).  So, yes, they will take less then what is owed in many cases - but how much less?

You might as well roll the dice and take a guess because if there really is a hard and fast rule they're never going to tell you & me!

As an example, let's say that the loan balance is $500,000.

    Case 1:  An offer comes in for $480,000 - will the bank take it?  There is a reasonable chance, because they really aren't losing too much.

    Case 2:  An offer comes in at $350,000 - if the bank took that offer, they would have a considerable loss - but instead of just saying no, they won't say ANYTHING - for several weeks, while they wait for a better offer to come in.  The usual turn around time for offers/counteroffers does not apply here.  After all, it IS their money.

Currently, if the short-sale works, you will have to pay tax on the difference between what was owed and what the bank finally accepted.

Lastly there is Foreclosure - the bank takes your house. It is then referred to as 'Real Estate Owned' (REO) and they will they try to sell it -

You can always contact me at 561-282-7406, but if you think you're headed for any of the negative situations I've described it's very important that you contact your Accountant and/or Lawyer ASAP so that you find out as much as possible.

I would like to talk a little about foreclosures and short sales today.

First of all - contrary to what the newspapers seem to want to you to believe, not every homeowner is in a financial crisis and not every home that is listed is being sold out of desperation!

Take a look at HAVE to Sell vs. WANT to Sell.

Are there foreclosures and short sales in Palm Beach Gardens?  Certainly - but its not the free-for-all that way too many people seem to expect.

Now that Im done with that, Ill cover the basics.

• You might own your real estate free and clear -GREAT!
• You could have a mortgage on the property - youre making the scheduled payments without a hitch.  Again, good for you.

The majority of people fall into those 2 categories.

Unfortunately, some homeowners arent (or are about to stop) making their mortgage payments.  The reason why does not matter - all the banks care about is: Are you or are you not making your scheduled payments?

This breaks down one of two ways:

1. Your house is worth more then what you actually owe on the home loan.  Youre not so bad off if thats the case because you can list it for sale and price it properly so that it actually DOES sell before you start missing payments.
2. You owe more on the mortgage loan then what the home can sell for.  Of course, this is the worst case.
   

Ill discuss how that could happen and what the next steps are tomorrow morning.

A few years ago, Jason Price and myself were thoroughly disgusted with what we were seeing in the Mortgage Industry. 

The average Broker / Lender couldn't even spell 'ethics'. 

As long as they made a quick dollar, they couldn't care less about:

• that their advertising was 'stretching' the truth,
  
• lying to a Client about what they could qualify for to get them into a situation that was more profitable,
  
• not disclosing the facts about the loan in a timely manner
• or the last minute 'oops' change in the loan at the closing table.

That's no way to run a business if you plan on being around for the long haul-

Just look at the large # of Mortgage Companies that went out of business in 2007 - the whole subprime mess, coupled with ineptitude and a complete disregard for Customer Service brought quite a few companies down - some of them were huge.

We couldn't do much to change things if we were working for other people, so we opened Knightlines Mortgage Services - and the slogan that we easily settled on was:

"Financing the way it's SUPPOSED to be."

We both realized that the only way to generate business was to get referrals from Clients that were more then satisfied with how we took care of them.

It's not exactly rocket science!

We started small, with our first office in Central Florida and now we're getting ready to open a new office right here in Palm Beach Gardens. 

This new office will offer the following:

• Residential Financing: Purchase money mortgages for new property, refinancing for current owners of Palm Beach Gardens real estate  and HELOCS
  
• Commercial Financing: Come to us with any situation - you'd be surprised at what's possible.

We started out small and quiet - no ridiculous ads for mortgages that 99.9% of the population can't qualify for, no promises for BS 'No-Cost' loans, no price-gouging - and things seem to be working out pretty well!

Makes you wonder where the 3rd office will be......