Buying And Selling a Home During a Credit CrunchAs President Obama is taking office, many people who had hoped to buy a home in 2008 or 2009 are stressing as to whether a bank will be found, which will finance a home purchase.
The TARP bill (Troubled Assets Relief Program of 2008) was intended to secure bad assets in our banking institutions, in order to permit banks to open their vaults once again and issue new loans. Four months down the road, banks are still holding onto their cash in a miserly way.
Contrary to most Americans and my fiscally conservative roots, I supported the passage of the TARP bill. I honestly believed that once the federal government secured the bad debt on the books of various banks, the banks would start loaning money again for commercial loans, new car loans and home mortgages.
* All around us, businesses are going under because they cannot secure the loans they need to buy inventory or to pay staff during the production cycle.
* The automotive industry is suffering for two reasons, one because their cars don't get good enough gas mileage, but more importantly, because consumers cannot get auto loans.
* Homeowners who need to sell homes cannot sell, because there is no one around who can get a home loan. Even those individuals with really good credit are having a hard time finding a bank, which will loan on a home purchase today, except in certain small pockets around the country.
* For those individuals who have taken a new job in a far-off location, owning a home in two cities is a very daunting situation. But in the current real estate market, the owner of two homes has to consider letting one home fall to foreclosure, because it looks like the current financial crisis could continue for several more years.
The TARP bill passed, money was given to troubled banks, and we taxpayers got screwed. Along with many others - including the likes of Donald Trump - I was wrong. We underestimated the self-serving idiocy of the people who run our banking institutions.
Instead of using TARP money to secure the financial well being of their banks, the banking managers bought competing banks, remodeled their bathrooms, threw extravagant parties and gave themselves huge bonuses!
The credit crunch is still deeply entrenched in the United States and around the world. If TARP was unable to fix the credit crunch, I can only surmise that we will have a long and difficult, economic road in front of us all.
But What If You Need To Sell A Home Now?
Home sellers who need to sell a home now, and homebuyers who want to buy a home now, likely have only one option open to them, during this financial crisis. Interestingly, the option for home sellers and homebuyers is exactly the same - FSBO homes, or in layman-speak, For Sale By Owner homes.
As a home seller, FSBO can seem quite scary, but it shouldn't be scary. As a seller, you have options available to help ensure that your buyer will stick to the path of righteousness.
As a seller, it is important to remember that you have something that someone else wants. And so long as there is someone out there that wants to own your home, you have the leverage to ensure that you will get the terms that you want in the transaction.
If you are wise, you will ALWAYS have your attorney review any paperwork in relationship to the sale of your home.
It must be noted that many mortgages have what is called a "Due On Sale Clause" in the paperwork. In essence, what this means is that your bank or mortgage holder has the "option" to call the mortgage "due in full", when you sign interest in your property to a third-party. It should also be noted that if you sign a Lease With The Option To Buy with a third-party, and you do not tell your bank, then this amounts to fraud and is a federal crime.
With the legal issues on the table and known upfront, we can go to the next step. The "Due On Sale Clause" in your mortgage paperwork is only an "option" that a bank holds in a property, to ensure that they get paid what is owed to them. Basically, that clause is in the mortgage paperwork to ensure that if payment to them stops, then they still have the right to evict the lessee and take over the property.
BUT - and this is very important to realize - just because your mortgage has a "Due On Sale Clause" in it, does not mean that your mortgage holder will not authorize you to do a Lease To Own or FSBO agreement on your home. The Due On Sale Clause is an option that banks have, but banks do not always automatically take advantage of that option.
You have to put yourself in your banker's shoes to understand why they would not force the "Due On Sale Clause" on your mortgage.
If you still owe, let's say $60,000 on your $100,000 home, the bank stands to lose as much as $30 or $40,000 if they have to foreclose your home. When banks foreclose homes, they have to sell the homes as soon as possible at auction. But, homes typically sell at auction for as little as 20 to 40 cents on the dollar. So if you still owe more than 40 cents on the dollar against your original mortgage, chances are that the bank will lose a ton of money, if you force them to foreclose your home.
Banks as a rule - and more so in the current economic crisis - are typically more interested in having the house "paid off in full" than forcing a homeowner into taking more drastic actions, like deciding to let the bank to foreclose on the property. More often than not, the bank will permit the FSBO arrangement, on the condition that they continue to receive all monthly payments on time.
As a result, many banks will permit you to bypass the Due On Sale Clause, if you are willing to speak to them directly about the possibility. But, you have to open your mouth and talk to your banker, and then you need to get all of the legal agreements necessary to protect your interest and the bank's interest in your property.
Talk first to your banker, then talk to your attorney and have the paperwork drawn up on a Lease with Option To Buy or other For Sale By Owner arrangement. With the appropriate permissions gained and the appropriate legally-binding paperwork in hand, you are now set to sell your home FSBO.
In most cases, your buyer will lease your home on yearly renewals, and then the moment they can secure a bank loan of their own, they will buy out the lease, permitting you to escape the mortgage on that home and permitting them to transfer the property into their own name.
Are You Seeking To Buy A Home?
People, who are serious about selling their home now and not holding that home until the financial crisis has ended, have started to get creative about how to sell their homes.
If you see a home listed as For Sale By Owner, chances are that the home seller has already taken the above-described steps to ensure that they will be able to sell their home now.
So, if you have a down payment available and you want to buy a home now, it may be in your best interests to seek out FSBO homes in the area where you wish to buy.
A friend of mine recently bought a quarter million dollar home under a Lease with Option To Buy agreement. Before the financial crisis, he had been waiting to find the perfect home, and in the current economic market, he was able to find the exact home he wanted to buy for the exact money he desired to spend on the purchase of his dream home.
The best thing about the Lease with Option To Buy is that you are only locked into the home for generally one or two years at a time, and if you decide that you would like to secure a home mortgage after the banks have started loaning money again, then you have the option to pay the homeowner the amount of money owed to take full ownership of the home.
We Cannot Afford To Wait Until The Banks Fix Their Mess
With the TARP bill, it was assumed that the banks would take the money from the federal government and fix the broken credit system. Unfortunately, the bankers screwed us and only fixed their personal bank accounts.
So, until the credit system magically fixes itself, we the consumers need to take matters into our own hands and get our own financial houses in order - no pun intended. If we are selling a home, we need to take action to get that home sold. And if we are trying to buy a house, seek out those people who are most motivated to sell you their home - look for that FSBO sign in front of the house or that FSBO ad in the newspaper.
Let us fix our economic system one FSBO at a time, and maybe we will be able to shorten the financial crisis that our politicians seem unable to fix for us.