Short Sales – just GOOGLE it!

For most realtors, short sales are a substantial part of our business. After 4 years in a decreasing marketplace, more people find themselves upside down on their mortgage EVERY day. While they certainly have their downsides, helping sellers in a financial quagmire unload a very negative asset is rewarding.

While I have a SFR designation (Short Sale & Foreclosure Resource) and have attended numerous training events offered by our local realtor Board and other entities, there is NO substitute for getting your hands dirty and working the phones for a short sale. I learn new things just about every short sale I close.

I took a listing recently that has THREE mortgages. It’s a first for me. Obviously, 1 mortgage is normally fairly straightforward and 2 mortgages requires some more advance planning and technique. But 3 mortgages??? Now I’m in the majors, baby!

After the fear subsided, I realized I had no choice but to dive right in. The very first thing I did was send in the authorization letters. My second action was to hop online and Google “short sale 3rd mortgage” and also the bank holding the note.
Now, we all know 2nd & 3rd lienholders THEORETICALLY have no “leverage” but they actually wield quite a lot of power, which catch many by surprise. They have the power to withhold approval, meaning you have a dead deal. They have the power to release the lien, allowing the sale, but NOT release the seller from the obligations of the note. They have the power to require a large payoff at closing, which is basically a ransom demand.

If one has never dealt with a particular bank in a particular lien position, then Google is a great place to start. The amount of info-sharing via customers and realtors is great. For instance, I learned that this particular 3rd mortgage has a separate number for submitting authorization letters (which I knew beforehand) and it behooves realtors to follow up for a contact in their Executive Client Relations division, where they will be assigned a neogitator. Unfortunately, I also learned that under no circumstances will they release the deficient amount owed on the equity line – at least that is what people claim. A follow-up call to the lender confirmed that.

Information is power these days. I have already alerted the sellers in order to set their expectations. I know the bank’s negotiation position beforehand. I also know how they have responded to other borrowers.

So if you’re wondering how your bank responds to short sales, just Google it. You’ll be glad you did.

Ok, so you're realtor just called. That beautiful 3/2/1 Mediterranean-styled TH just went under contract, even though you only saw it this morning. Seems the seller signed right after your showing...and you just missed the opportunity of a lifetime, right?

Wrong.

If you have a savvy realtor, he or she should be advising you to MAKE A BACKUP OFFER!

"Oh, not a backup offer," you say, " they take up too much time and you might never get the property."

Um, hello...isn't that the definition of all short sales????

Let me enlighten you, without charge, to one of the little short sale secrets in our business...the FIRST buyer RARELY gets the home...it's normally the SECOND but most likely the THIRD buyer who puts an offer in that gets it.

Now this may be hard to believe, but let me illustrate w/ Buyer A, B, & C.

Buyer A is hitting the streets hard...they know everything out there, are waving their mortgage pre-approval letter at anyone who will notice, and have written about 4 offers that have gotten nowhere. I just listed that beautiful 3/2/1 Med-styled TH at a competitive price that I can justify (the key!). Buyer A comes screaming in 3 days after it hits the market and write an offer on the hood of their agent's car (yeah, that used to happen). The seller executes the offer and then....

...they wait...

...and wait...

...and wait some more.

Days pass, then a couple weeks, and now a month. They get an update every once and a while - the bank this or the bank that. No negotiator, no BPO done yet. So they wait some more...

In the meantime, Buyer A keeps hoping (and shopping).

Buyer B comes along after about 5 weeks of my listing being on the market and they love it, too. Perfect for their first home. I tell the agent there's an offer in place but NO BACKUPS. Buyer B thinks about it, thinks some more, but just can't get the motivation to put in that backup. After all, backup's never work out.

About 7 weeks into it, we get the BPO done and a negotiator assigned. Buyer A gets a momentary blur of excitement. And then waits some more. Oh, a new TH just came on the market for $10k and it's NOT a short sale...hmmm.

At about Week 8, Buyer C comes through. They are savvy, know about the contract in place, have asked how long the 1st contract has been in place, and that there are no backups. They put in a backup BUT decide to keep shopping. Now they have reserved a spot and all they have to do is serve written notice if they want to cancel...done deal.

About this time, Buyer B (or D, E, F, etc) comes back...but it's too late. You can be a 2nd backup, which still isnt bad, but your odds are much less). Buyer A has emotionally moved on...they pull their contract. Buyer C slides right into 1st place, the bank negotiator substitutes their name into the deal, and 2 - 4 weeks later, I email them the approval letter.

This happens ALL DAY LONG. So don't be an "B"...if you can't be an "A" then be a "C" and cash in on everyone else's time and waiting!

Taking a step back and looking at the big picture, why are all these banks PROACTIVELY committing resources to allow borrowers to renege on millions and millions of dollars of legal mortgages? These lenders literally employee 1000's of people for the sole purpose of assisting borrowers with "getting out" of mortgages where they might owe tens and perhaps HUNDREDS of thousands of dollars.

The sole reason: there are 100,000's of homes fitting this description and this tidal wave will swamp our real estate landscape should it go unaddressed.

So why not just ramp up their REO departments to handle this "flood" of foreclosed homes? Actually, there are a couple of reasons...

1) Lending standards and "book" balances. Per lending regulations, however LOOSE they mayy be to some, lenders can only have a maximum amount of bank-owned property on their books at anyone time, otherwise they become restricted in the amount of money they can loan. By doing a short sale, they circumvent this restriction as they never take ownership of the property and can continue loaning money to make money.

2) Actual cost. Sure, the foreclosure process "punishes" the homeowner by ripping their home from them in a most publicly humiliating way, branding them with a scarlet "F". But when the smoke clears, the bank is now the brand new owner of a home it doesn't care a bit about BUT had to invest in to get it back only to sell it. From foreclosure legal fees to appraisal costs to rehab costs to satisfying municipal liens to insurance and tax costs to REO closing costs, these are all ADDITIONAL expenditures a lender must make in order to take the home back and then divest it from their books.

3) Overall cost: The latest figures show that on average, short sales are selling for about 17% BELOW MARKET, which normally reflects buying the property as-is and costs to rehab it after closing. Why would they ever want to sell a property at that much of a discount? Because the going rate for a BANK-OWNED home is about 30% below market. So after spending all that money to take the property back, they take an even LARGER hit selling it themselves.

4) Owner-occupied vs. vacant. You probably know a homeowner who is upside down on a mortgage and may be living payment-free. I'm not addressing that moral dilemma. However, processing a short sale where the owner is still in the property, paying utilities and providing even minima of upkeep is preferential to a VACANT bank-owned home which may have been vandalized BEFORE the foreclosure auction out of spite of AFTER the auction out of mischief. Obviously not all short sales are owner occupied, but all short sales have at least a realtor trying to sell the property, thus keeping tabs on it.

I say all that to say this - when you are buying a short sale, don't think the bank is doing you a favor. Know that you are doing the BANK and borrower a favor.

Military sellers reimbursed for losses

WASHINGTON – Feb. 8, 2010 – Using $555 million in Recovery Act funds, the Department of Defense has expanded a program that can reimburse employees up to 90 percent of the price they paid for a primary residence to avoid a loss when they go to sell. The Department identified Florida as having the most home sellers who qualify for the program.

The Pentagon’s Housing Assistance Program now applies to:

• wounded service members relocating for treatment or medical retirement and survivors of those who have died while deployed

• military personnel and Defense Department civilians affected by the 2005 round of base closings, as a result of the Base Realignment and Closing initiative

• military personnel moving to a new base

Previously, applicants had to demonstrate that the closing of their base contributed to the decline of the area’s real estate market and a resulting loss in sales. That requirement has been waived under the expanded program.

As of Jan. 18, 2010, almost 4,000 eligible applicants for the expanded program have been identified and 429 claims have already been paid for a total $32.8 million, according to the Pentagon.

After Florida, the Defense Department says it also expects applications from California, Virginia and Georgia.

For more details about the program, including eligibility and limitations, download this PDF.

© 2010 Florida Realtors®

Have you loved your Short Sale Buyer today???

I was recently commiserating with a colleague of mine about the state of the real estate industry and how short sales should be ceremoniously renamed "long" sales 'cause there ain't nothin' short about ‘em!

She shared a short anecdote with me that a seller had become uncooperative because a buyer wanted to do multiple inspections, show the home to visiting family members, etc. My colleague related that the seller had taken the position that the buyer was getting such a good deal on the home that they (the buyer) should just be happy with the deal and leave the seller alone.

I haven't had that occur (yet) and I can understand the seller’s point of view. No one wants to sell their property for less than market value, lose their down payment and any equity they once had, and have to take a small hit on their credit to do so. let's face it...there are hurt feelings involved.

As I ruminated on this story one night, I got to think that the seller should be grateful they have a buyer who's willing to take the home off their hands. Here's why:

1) The buyer has the courage to buy in a depreciating market. If Apple stock showed 4 years of cumulative losses, how eager would you be to throw your money in? Granted it doesn't seem like it can go much lower and in some places has reversed course AND we’re talking about mortar and bricks vs. paper stock, but you get the point. Buyers should be applauded for wading into the market rather than sitting on the sidelines.

2) Buyer’s have the patience to jump through all the hoops a short sale requires. I have counseled too many Buyers not to get their hopes up but inevitably all do at some point in the transaction. Having the saintly patience and perseverance to wait for some behemoth lender in a land far, far away to approve of a deal where they take an immediate loss should be rewarded, if just with the appreciation of the seller. Tom Petty must have been in a short sale deal when he prophetically wrote, “The waiting is the hardest part!”

3) The most import reason a seller should be appreciative of a short sale Buyer is that this Buyer is going to relieve you, Mr. Seller, of tens of thousands and possibly HUNDREDS of thousands of dollars of negative equity. When combined with the government’s non-taxation of that forgiven debt (for primary homes only), you have just witnessed one of the biggest get-out-of-jail-free, please-move-on-with-your life, water-under-the-bridge cards ever thrown a citizen’s way!

The moral of this anecdote is: don’t bite the hand that will get you out of your majorly upside down mortgage. In fact, put the Buyer on your holiday card list! The only thing a short sale Buyer is guilty of is having the ability to purchase a home in a down market…essentially, good timing.

Love your Buyer and they will love you back (and get you out of that mortgage you hate paying!).

What happens in Vegas will NOT stay in Vegas...

Bank of America To Unload 6,000 Bank Owned Homes in Vegas

19Jan10

Vegas

Bank of America plans to dump 6,000 bank owned homes in Las Vegas in 2010, according to the Las Vegas Review Journal.

A BofA executive told the paper it expects to release about 500 repossessed properties per month this year in the hard-hit region as the foreclosure rate increases.

This is the so-called “shadow inventory,” previously foreclosed homes that were kept off the market in the hopes loan modifications or short sales could be negotiated.

But a large percentage of loan modifications have re-defaulted and short sales have been difficult to process, despite tons of interest from potential buyers.

Steve Hawks, the director of the National Association of Short Sale Professionals, told the paper it’s taking an average of four to six months to complete a short sale, though he sees it dropping to 90 days in 2010.

That’s good news for Bank of America, which is reportedly receiving 40,000 new offers a month on short sales.

Unfortunately, the bank is also expected to be repossess 11,000 – 14,000 homes a month in the early part of this year and 29,000 – 35,000 by November and December.

Hawks said 22 percent of mortgage defaults were strategic, tied to underwater mortgages, adding that banks need to eliminate the hardship letter required for short sales and consider all those who fall behind on payments.

Last spring, Bank of America eased its short sale rules, requiring less of the proceeds from a property’s selling price go towards paying off an associated home equity line of credit or second mortgage.

I am pleased to announce that I have just earned the National Association of Realtor "SFR" designation - the Short Sale and Foreclosure Resource designation. With such a large contingent of my business being short sales and bank-owned foreclosures, I felt my clients would be best-represented by a realtor who is certified in such areas.

I take pride in handling my short sales with dogged determination and efficiency. To date, I have closed 10+ short sales with excellent results for my sellers. The key to Short sale success is constant communication with all parties involved. It keeps the banks moving forward, the buyers engaged, and the sellers optimistic.

Here are a couple terms that may be new to you:

1. Convenient foreclosure: This occurs when the seller already has a second dwelling to move to and will allow their over-mortgaged property to be taken back by the lender, regardless of their monetary assets.
2. Strategic foreclosure: An occurence where a homeowner will acquire a 2nd home BEFORE their 1st home goes into foreclosure with the express intent of allowing the 1st home to be taken back by the bank.

The bottom line: this massively-depreciated real estate market has affected just about everyone I know and I have re-committed myself to assisting embattled owners as best I can.

If you have any questions about the short sale process, just let me know. I don't profess to know EVERY thing about the sale process, as each bank is different. However, there are general rules that most banks adhere to and I'm always willing to share my knowledge to help a client.

So you wanted a deal and you put an offer in on a short sale, perhaps even against your realtor's advice. 1 month went by, then another, and finally you hear back. The documentation is in order, the bpo was completed, and the Seller is countering your offer price $40,000 HIGHER! Huh? You thought that offer, while low, was enough to snag this home that is on the edge of foreclosure. The banks need people like you to unload these homes, right?

WRONG.

Like any other negotiation, dealing with banks on short sales DEMANDS you know their bottom lines, procedures, and rules of play. The first fallacy is that they NEED YOU. That is incorrect. Every bank has procedures for divesting themselves of bad investments and they stick to them UNLESS it's in their favor to take the shortcut, i.e. your offer. Even if a lender's REO department is flooded with inventory, it does not mean they will accept $.50 on the dollar for that beat-up 3/2 in need of a little TLC. Banks and servicers see only numbers, not rotted wood or broken windows. If the numbers don't work for the bank, then it's a waste of your time.

Which leads us to BPO's (Broker Price Opinions) and appraisals. While we all know the real estate sector is beat down, it doesn't mean that old 3/2 isn't worth a plug nickel. Lender's use appraisals (sometimes multiple appraisals) to arrive at a proper market value for the home, in accordance with their procedures. One lender I deal with automatically takes 5% off the BPO price to account for delays, time, and condition. So do yourself a favor...comp out the property BEFORE making your offer, ask the listing realtor for comps to justify value, and if you lowball, expect a counter (or someone else to slide a higher offer in after the bank counters yours).

If much time has elapsed since the property was last appraised, consider requesting a new appraisal. Guaranteed it will come in lower and closer to market value.

Just remember - the bank doesn't care if it needs new windows, the tile job was done poorly, or the cabinets are older and need freshening up. Heck, they don't even care about the age of the roof, the a/c system(s) or even the paint. Your negotiator is OVERWHELMED, OVERWORKED, and EXHAUSTED...there is very little motivation for them to work outside the framework that is set up. If they can't sell the home via short sale, the file is simply shipped over to their legal dept for foreclosure, then onto the REO dept for re-sale. No agnst, no emotion, etc...just a simple numbers game. So do yourself a favor and offer the RIGHT number so you, too, can be a winner in this market.