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Getting Out From Under: The Short Sale

For more than a half-decade, the real estate market in the United States has been undergoing a rough period of contraction and adjustment, due in large part to years of questionable lending practices and an economic bubble.

The boom-and-bust reality saw a spike in interest rates for consumers with adjustable rate mortgages, and it saw the implosion of home equity as a viable method of credit for all but a few homeowners. Many people are still struggling with these realities today, unable to pay their mortgage and living in a home that is simply underwater. I’m one of them.

The temptation to walk away is a strong one, but a short sale can prove less damaging to consumer credit reports and more financially beneficial than many alternative ways of getting out from under a mountain of debt.

short sale

Mitigating Mortgage Impact: Why Short Sales Are Better than Walking Away

Facing hundreds of thousands of dollars in debt, and confronted with no viable way to continue making timely payments, many of us find ourselves ready and even eager to walk away from their mortgage and let the bank foreclose on the property. This is a big mistake in virtually every scenario. Short sales actually come with a number of unique benefits that often cannot be derived from a simple foreclosure on the property. Among these benefits:

1. Short sales typically result in a lesser hit to the consumer’s credit profile. If the lender indicates that the obligation is simply paid in full, it may even result in no noticeable change to FICO scores or future credit eligibility.
2. Going through a short sale typically doesn’t allow consumers to be held accountable for their remaining financial obligations through other means. Conversely, banks can look for ways to minimize the debt they take on via foreclosure by seizing assets or pursuing legal actions.
3. Though a short sale does make consumers eligible for a “cancellation of indebtedness” tax, the government has worked to create tax incentive and rebate programs that help undo a great amount of this tax debt. Most programs cover mortgage debt incurred between 2007 and 2012, and they’re typically only available to those consumers who elected to pursue a short sale or any other method other than foreclosure and reneging on payment obligations. Furthermore, an insolvent homeowner can have their tax obligations cancelled entirely.

Choosing a Lawyer: Why Legal Aid Outweighs Realtors in a Short Sale

Short sales typically involve realtors, lawyers, and even accountants, but it’s worth noting that lawyers are probably the single biggest asset available to homeowners when they’ve decided to tackle their home’s mortgage head-on and free themselves from outsized monthly payments that they simply can’t make. A debt settlement attorney will offer a number of key services not offered by either of the other professionals.

1: Protection from Lawsuits and Seizing of Assets

Banks are in the business or making money, and the way they do that is by accepting timely repayments from their borrowers. Those borrowers who elect to short sale are essentially guaranteeing that their lender will make less money on their mortgage, forcing the lender to seek other ways to guarantee the amount they’re owed. In some cases, that means banks will be looking to recover some of the homeowner’s assets as a way to cover expenses or make up for the difference between the mortgage amount and the final amount of the short sale. Only an attorney can prevent this from happening.

2: Managing Future Personal Liability

Debt management attorneys will help their clients release themselves from future personal liability concerning the home that is undergoing a short sale. Simply put, this key legal document and procedure ensures that the homeowner cannot, and will not be pursued by the lender in the future as a way to cover any potential losses incurred by that lender during the short sale. For those homeowners who are looking to hang onto other property, or perhaps purchase a home again sometime in the future, this document is an absolute necessity.

3: Advice Throughout the Short Sale Process

A short sale is stressful, time-consuming, and often very difficult to manage. Attorneys have the experience needed to provide sound legal advice that will resonate with lenders, speed up the process, and ensure that all of the homeowner’s bases are covered. That means less pitfalls, a reduced likelihood of added expenses or future legal action, and a smoother resolution of outstanding mortgage debt. Homeowners looking to pursue a short sale should waste not time contacting the right representation for their needs, since these benefits and many others come from early, proactive action.

How to STOP Spending Money

credit cards

So many people don’t know how to stop spending money, but at the end of the day, it’s pretty simple. It was cool out for a September morning, and we were walking through the park on a fairly sad attempt to fit some exercise in. My friend, in a light sweater and shorts. Me, in a tank and capris. We were chilly. My friend turns to me and suggests warming up over coffee after our walk. I nod in agreement, but then hesitate. “I thought you were cutting back on coffee and meals out?”. That was the goal, anyway, of my friends. She wanted to start saving. She shrugged. “Yeah, I’d love to quit spending so much, but I don’t know how”.

how to stop spending money

how to stop spending money

I don’t get into it with her, but I suggest she google some tips and tricks, or at least find some motivation, to curb her spending and keep her hard earned cash in her pocket. She agrees. I tend to do that. I have conversations with my friends, offer no advice (I don’t think she wanted it), and then return to a blog to write about what I would have, should have, or could have told her. Here’s what I would have said, had I been more willing to discuss finances with her:

Stop Spending by Getting Addicted to Watching Money Grow

Something about watching your money grow in investments is very addicting. Once you see your money grow, you will want to keep putting money into your investment account. I stopped spending so much money when I started making $900/month in passive income. I started investing in Scottrade with $7 Online Tradesand stopped going out for coffee so often, because I could spend that $20/week on online trades and see that money grow so fast with compound interest. It’s addicting and if you make that initial change just once, and start investing your money, you’ll most certainly get addicted.

Just Stop Spending!

Yup, it’s that easy. Like smoking, gambling, and junk food addictions, cold turkey is the way to go. Just stop! Okay, so it’s easy in theory. That’s all that it takes.

Just like all weight loss requires is fewer calories and increased activity levels. Simple when spoken out loud, not so simple in practice. Why isn’t it simple in practice? Well, because we’re human. We’re humans with emotions and habits, with anxiety and stress. We turn to things like shopping, eating, and drinking to relieve our stress and regulate our emotions. More often than not, somebody who is truly shopping too much and needs to cut back is somebody that is coping with something. Whether that’s boredom or self doubt, here are some potentially easier ways to help yourself to begin the process of keeping your money in your pocket.

Avoid Spending Temptation to Stop Spending

You aren’t going to be very successful in not spending money if you surround yourself with things that you want to spend money on. I’m surprised that many people don’t recognize this. If you go to the mall to “window shop”, you may be successful when you are at the mall, but it showed you all of these things that you want. You could just go home and end up buying those things online. So yes, your window shopping session was a success, but you were just delaying the inevitable.

  • Coffee shop spenders: stop going by coffee shops! Stop driving that way to work. Find another commute. No more putting your change aside for that
  • Retail addicts: don’t even step foot in a mall. Avoid boutiques, shopping districts, or anything that will put you in front of retail goods
  • Impulse buyers: don’t browse the candy sections. Don’t read the magazines. Tunnel vision, people. Look straight ahead!

Avoid temptation, otherwise you won’t be successful.

Motivate Yourself to Save and You Won’t Blow Your Cash

Rewards are great. People love rewards. Humans work better, more efficiently, and meet their goals more often when there is a reward at the end of the tunnel. Rewards don’t have to come in the form of an item. It could be a trip. Maybe you want to save money so you can get married. Maybe you want the peace of mind of having an emergency fund. Maybe you want to pay off debt so you don’t have to live check to check. Whatever the reason, find your motivation. Reward yourself at the end of the journey.

Trick Yourself into Stopping the Money Leak

I’m all for playing mind games with yourself. If I’m loving on a bag of chips a little too much, I ask my partner to hide them from me. If I’m spending too much money or if I have no choice but to enter a place of temptation, I leave all my methods of payment at home. Lower your limit on your credit cards. Freeze your cards in a block of ice.  Transfer all of your discretionary spending budget into another account that you can’t access with your interac card. Do what you can to trick yourself into saving money.

 

Saving money isn’t that hard. You can save money by spending less on things that you need to spend on, or you can save money by spending nothing on things that you don’t need to spend money on. You can take a hybrid approach where you save money where you can. But either way, you have to stop spending on useless “stuff” to be successful in personal finance.

Have you curbed your spending at all? How have you been successful in not spending money?

 

Grow Rich with Real Estate

Many people think that real estate is the old man’s way to invest, and some say real estate is not an asset. And they may be right. But, investing in real estate is a tried and true method, and if you make wise purchases and find quality renters you can really get rich and make some serious coin. Let me show you two very different methods for investing.

Ten Houses, Ten Years

There are many real estate gurus out there, that got rich through real estate, that believe in this model of buying one rental property each year for ten consecutive years. That’s a lot of real estate investing! For some of you, this might seems like a slow way to earn an income, but for others, this might seem extremely fast. Let’s dig into some numbers and decide whether or not this real estate investment style is right for you.

The Cash Flow

If you purchase these pieces of real estate right and put them on a 30-year mortgage, you can most likely earn $250 a month in cash flow (after factoring the standard expenses for maintenance and repair). After you purchase your tenth house, you’ll be pulling in $2,500 a month and you’ll have 10 houses that are appreciating in value. The very first home you bought for $100k might be worth $125k today (after the tenth year), so not only are you earning a consistent cash flow each month, but you’re also increasing your equity in real estate!

The Equity and the Debt

After 10 years, assuming that the homes increase in value at the historical average, you could have about $1.1 million dollars’ worth of real estate. You are well on your way to getting rich with real estate. The only real problem is that you have nearly a million dollars’ worth in mortgage payments that you still owe the bank. If something goes wrong with two or more of your properties, you could be sunk financially.

get rich with real estate

Debt Free Investing

Many of us aren’t comfortable carrying around a million dollars in debts, so here is a different plan for you. Buy one piece of real estate at a time, pay it off as quickly as you can, and then move onto the next one to get rich with real estate.

The Cash Flow

If you have an excess amount of money from your day-job, you could aggressively pay off a $100k property in just over three years. With this pace, you could easily purchase three homes and have them free and clear within 10 years. With no mortgage payments, instead of earning just $250 a month on each property, you could earn $750, which gives you a monthly cash flow of $2,250.

The Equity and the Debt

Since you poured a lot of your own money into this plan (whereas before, you simply paid the minimum payment on a 30 year mortgage), you were able to raise an equity of approximately $325,000 and you have absolutely no debt to pay anyone.

The beauty of this plan is that you can really start to pay your next investment properties off quickly. Since you now have a consistent cash flow of $2,250 and your day-job income, you can pay off a piece of real estate in less than two years. So after just two years, you could increase your equity by $100k and your cash flow by $750. Then your earnings will most likely skyrocket from there. Choose to get rich with real estate and you’ll be glad that you did.

This post was written by Derek from Life and My Finances. Stay in the know with updates from all of our contributors by subscribing to our RSS Feed