"I am like any other person [facing] something most of America has gone through or is going through as well," Alexis McGee told AOL Real Estate about her decision to downsize to another home not far away from her 2007 custom-built, Craftsman-style "dream home" in Fair Oaks, Calif., which was originally scheduled to be auctioned off at the courthouse steps this month.
"When faced with the tough decision on keeping a home that does not make financial sense, or cutting our losses by short selling and downsizing [versus walking away and allowing foreclosure], a short sale was the right decision," she said in an email interview. "The exact same decision I recommend to my investor clients and the many homeowners I have helped over the years."
Many real estate investing and personal finance experts will tell you it's better to negotiate a short sale with your lender rather than let your home spiral into foreclosure, but many homeowners will also want to attempt a loan modification so they can stay put. McGee, pictured left, was no different. However, the lender denied the permanent loan mod request she and her husband, Tim, hoped for.
In December, McGee's lender filed a notice of trustee's sale showing McGee and her husband, Tim, owed $1.7 million on their 4-bedroom, 4.5-bath home in suburban Sacramento, reported The Sacramento Bee, and they were $65,000 behind on the payments as of June. McGee told the paper that she expected the home to sell for a bit less than $1 million, even though it was worth $3 million-plus when she and her husband began building the 4,775-square-foot home in 2007.
"I teach investors to do the math before they buy, to make sure they have locked in their profit. However, when building your dream home that you never intend to sell, emotions take over and the numbers go out the window. You need to know when to cut your losses and move on."
The home, which sits on one acre of land at the end of a cul de sac, has every imaginable amenity, according to the listing details. There is a wine cellar, heated flooring, skylights, two Kim Pacini-Hauch of .
"There is no foreclosure," she told AOL Real Estate. "We have the house in escrow with one full-price offer and one backup buyer. The short sale should close within the next 30 days."
A short sale is when a lender agrees to accept a payoff, via a sale, that is for a lesser amount than what is owed on the mortgage note. The benefit of the short sale is that you take a softer blow to your credit rating (a 50 to 130 point drop) than what you would encounter with a foreclosure (a 200 to 400 point drop). And you'll likely qualify to take on another home mortgage in two or three years, rather than five or seven.
If you're pursuing a short sale be sure to use an experienced Realtor, as this is not the time to do a for sale by owner, McGee wrote on her blog. "You must make sure you go into escrow with the right buyer who will hang in there while you wade through the maze of lender requirements. Oftentimes the lender will counter your buyers offer, so your buyer must have 'wiggle room' in their price, ready to go up if the lender asks," she wrote. "A short sale is not for the weak at heart and takes a lot of tenacity and persistence."
McGee, author of Guide to Making Huge Profits Investing in Pre-Foreclosures -- Without Selling Your Soul, started having money problems nearly two years ago, reported the Bee. In March 2009 California filed a lien against her property for $127,000 in unpaid taxes and the federal government filed a lien for $210,000 in unpaid taxes.
"We have paid huge amounts of income taxes and will continue to pay all the taxes we owe," she told AOL Real Estate. "We aren't asking for sympathy, but we also feel that a lot of nonfactual things have been asserted by others simply because we have been blessed by some success over the years."
Foresclosures.com launched in 1995 with a goal to provide foreclosure investors with tools, training and information. McGee and her staff use real-life stories, people, and experiences in their seminars, books and training videos to show buyers the right way and wrong way to structure a deal.
"We built a successful business for over 15 years and decided to reward ourselves by building our dream home...pouring significant amounts of our own personal savings and heart into the project. The mistiming of that project has had absolutely no affect in our ability to teach our clients how to profitably invest in distressed housing."
It was clear during my interview with McGee, that she was worried about any ill-effect her personal financial story would have on her business, even though she did not say so directly. Instead, she said: "I am surprised you are considering running this story. There is nothing more to this story than an adjustment in lifestyle."
When I told her that for just that reason, that many AOL readers, including myself, have faced financial woes at some point or another and we can learn from others stories, she asked, "So you will include your personal financial issues as well in this story?" I let her know that I have written about my own situation before, including taking a loss on my home sale in 2009.
Although this story is not about me, I hope to reassure her that there is some legitimacy in being "just like every one else." In fact, some may argue that McGee's personal experience will make her an even more valuable resource. Consider how Suze Orman has shared her own personal finance mistakes early in her career, or how personal finance author Lynnette Khalfani-Cox, known as The Money Coach, has been open about the $100,000 of credit card debt she racked up because of the shopaholic habits she once had.
"[B]ecause of our expertise, we have a better understanding of the process and can navigate the course with greater ease," says McGee, who also successfully negotiated a short sale for her property at a Lake Tahoe resort in Squaw Valley, which she at one point was $25,000 delinquent on. It closed in December, about 60 days after the short sale was accepted.
So what other advice and words of wisdom about foreclosures and short sales does McGee have?
McGee expects 2011 to be a banner year for distressed property sales as banks step up efforts to liquidate properties, according to a January post on her blog. "During the robo-signing debacle at the end of 2010, many banks were not confident in delivering clear title with their REOs, so they redirected their liquidation efforts to their short sale departments. Banks are now approving short sales much quicker (30 days versus 90 days or longer) and closing them in many cases at wholesale investor prices. For investors and buyers, 2011 will be a great time to submit wholesale REOs and short sales offers, as your chances for success will be high."
For more on real estate brokers and related topics see these AOL Real Estate guides:
- How to Choose a Realtor
- Top Questions to Ask a Real Estate Agent
- Terms Every Seller Should Know
- First-Time Homebuyer's Guide
More on AOL Real Estate:
Find out how to calculate mortgage payments.
Find homes for sale in your area.
Find foreclosures in your area.
Get property tax help from our experts.