May 30, 2011

Bank of America’s Cooperative Short Sale Program – Not as Advertised?

Posted by martikilby under Bank of America, Short Sale | Tags: , , , |
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In March of this year, I reported on the newly introduced Bank of America Cooperative Short Sale Program.  As noted in that post, the two key elements of this new program are the relocation fee of $2500 paid to the sellers, and the timeline.  Instead of waiting for the short sale seller to find a buyer, this program was designed so that a seller could submit all paperwork in advance and be approved prior to a purchase offer.  According to Bank of America, by approving the property value and seller hardship up front, this would decrease the amount of time needed to process the actual sale and approve the buyer once an offer is presented to the bank.  At that time, the bank indicated this would shorten that approval timeframe to about 10 days.

So when my negotiator called last Friday to let me know that Bank of America had determined that one of my files might be eligible for a Cooperative Short Sale, my first thought was, “Great!”  I figured that we’d be able to get this closed quickly as we already have a strong buyer, and my sellers would receive $2500 to help with moving costs.

I then asked about any down-side to my sellers accepting the Cooperative Short Sale versus a traditional B of A short sale, and my negotiator’s response was surprising.  She said that in her experience, (and she has been a full-time short sale negotiator for several years), the Bank of America Cooperative Program takes about 6-8 weeks LONGER than their regular short sales.  Longer???  The normal B of A processing time is 6-8 weeks, and now participation in this program would essentially double that?  According to my negotiator, the reason it takes longer is because there is a more intense review of all seller financials – probably needed to justify the $2500 relocation payment.

My first thought as a Realtor protecting my seller’s interests, is that participating in this program could double the chances of a buyer to walk!  It is hard enough to keep buyers waiting 6-8 weeks for an approval, but to extend that period for another 2 months is asking for trouble!  I have also heard it rumored that by performing a more intense financial review B of A is actually looking to see who has sufficient assets to target with a deficiency judgment.  I don’t have any evidence to support this, but it could pose a potential risk if there is any question as to whether or not the seller’s loan is protected under the state’s anti-deficiency laws.

I presented the choice to my sellers who quickly decided that the risk of losing their buyers was not worth a $2500 gamble.  Who knows?  Their file might have been processed quickly, but on the other hand we might have ended-up back at square one looking for a new buyer.  It is definitely a choice that each seller will have to make based on their unique situation.  If anyone out there has experience with this B of A program, I’d love to hear from you!

 

May 10, 2011

The Secret to a Successful Short Sale

Posted by martikilby under Realtor, Selling your home, Short Sale, Short Sale Negotiation | Tags: , , , , , , |
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No secret, actually.  The success of your short sale all comes down to your listing agent.  Really.  Negotiating a short sale is one of the most challenging jobs in real estate today. An agent representing a short sale client is responsible for helping them get out from under a huge financial burden and save their credit, and responsible to the new buyers for closing the deal in a reasonable length of time.   Without the right agent representing your interests it’s easy for the deal to fall apart and your home go to foreclosure. 

Here are some important questions to ask a perspective agent before listing your home as a short sale: 

1)      What is their short sale experience and what percentage of attempted sales have they successfully closed?  This is not the time to hire an inexperienced agent as short sales are an intricate process that requires an understanding of lender procedures and requirements.

2)      Do they do their own negotiation, or do they work with a professional negotiator?  An experienced, professional negotiator may be a real plus as that leaves the agent with more time to focus on marketing your home and finding a qualified buyer.  Also, a professional negotiator will have established relationships with a greater number of lenders which can often help expedite approvals.

3)      Will the agent pre-qualify you for the short sale?  Although the lender will have the final word, an agent should be familiar with all required documentation and be able to pre-qualify you for a short sale.  If economic hardship cannot be proven it is unlikely that the bank will approve a short sale.  They should also be able to let you know if you might be eligible for HAFA.

4)      How will the agent determine the list price of your home?   Listing your home too low may get you a quick offer, but it’s likely the bank will counter and you may lose your buyer.  Remember, the bank needs to recoup as much of the loan amount as the market will bear.

5)      What is the process?  An agent should be able to explain the entire process and timeline and describe exactly how and when you will be updated on progress.  They should also be able to provide information about the pros and cons of moving early in the process or staying in your home until closing.

6)      How will they market your home?  Over 90% of buyers begin their home buying search online.  Make sure your agent can provide an extensive online presence for your listing.

7)      What is the outcome that you can expect?  The agent should be able to discuss the potential outcomes including 1099s and deficiency judgments. They should also make recommendations to you about seeking the advice of other professionals, such as a lawyer and accountant.

8)      And finally, can they provide you with references of past short sale clients?   Hearing from a satisfied client can go a long way to easing your concerns.

A short sale is a complicated transaction, but it needn’t be stressful.  Please don’t hesitate to contact me with your questions or concerns.  I have a 100% short sale success track record and look forward to hearing from you.

 

May 3, 2011

When the Bank Says “No” To Your Short Sale Price

Posted by martikilby under Short Sale, Short Sale Negotiation | Tags: , , , , |
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You have a buyer and their offer is submitted.  The bank has accepted the financials and reviewed the BPOs.  You’re happily waiting for a short sale approval, when out of the blue, the bank drops a bomb in your lap:  They counter with a sales price that is $25,000 more than the offer submitted.  What now?

Agents can find this very discouraging, and with lack of experience as to how to proceed, a counter can often kill the deal.  For the novice short sale agent, the first thought is often, “I’ll never be able to convince the buyer to pay that much more!”  But digging deeper into the buyer’s wallet is not the place to start.  Get ready to go to work; it’s time to prepare for negotiation. 

  • Make sure the price of the initial offer submitted is realistic.  Yes, short sales often do sell somewhat under market value, but the bank is not going to accept a ridiculously low offer.  Save everyone’s time and don’t even bother to submit a seriously low-ball offer unless you’re prepared for a counter.
  • Gather your ammunition.  Check current comps and make sure that your price point falls within range of active and sold listings.  If needed, do an additionalBPO, pointing out items that add or detract from value in all of the comps.  The comp that is most similar should also be closest in price.  Often times, bank BPOs are performed by agents who are from outside the area and might be unaware of certain neighborhood conditions that have a negative impact on value.
  • Make sure you have a list of all items that need repair on the property, or other concerns that might take away from the value.  For example, un-permitted room additions or proximity to a noisy business.
  • Speak with the buyer and the seller.  Before going any further in the negotiation it’s important that you carefully explain the situation to both the seller and the buyer.  Don’t let your seller panic.  Explain the steps you are taking to justify the original price to the bank and keep the buyer on board.  And likewise, make sure your buyer understands the price range of the comps and come to an agreement about how much more they might be willing to pay, if any.

Armed with solid comps, a list of repairs, and some wiggle room to negotiate price, your chances of getting the deal done are great!

 

April 27, 2011

Short Sales Hit a Record High

Posted by martikilby under foreclosure, Real Estate Values, Short Sale | Tags: , , , , , , |
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A survey released on Monday shows that nationally, nearly half of all home sales in March involved distressed properties; either foreclosed homes or short sales.  This is the second highest level seen in the past 12 months.   And while this might not seem like good news, the statistics actually provide a glimmer of hope. 

The Housing Pulse Tracking Survey reported that short sales rose from 17.0% of total sales in February to 19.6% in March, and at the same time REO sales fell from 14.9% to 12.0%.  this is an all-time high for short sales.

So why is this a good thing?   Short sales, though not as speedy as we would like, are resolved much more quickly than foreclosures.  An REO can sit empty on the market for months, often falling into disrepair.  REOs are used as comparables by appraisers and thus drag down neighborhood property values.  Smaller numbers of REOs would be a positive sign for improved home values in the months ahead.

Additionally, from the point of view of an individual, a short sale is usually preferable in terms of both short and long-term impact.    A few of the advantages include the fact that a short sale does not have near the negative impact on a borrower’s credit score as a foreclosure;  there is no set time limit that disallows a borrower from buying again, and a short sale is not reported on a credit report for 7 years, as is a foreclosure.

If you have any questions about short sales, or any other real estate questions, please don’t hesitate to give me a call at 619-846-9249.

 

April 17, 2011

Improving Short Sales: Not a Political Issue

Posted by martikilby under Bank of America, Short Sale | Tags: , , , , , , , |
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Believe it or not, a Republican and a Democrat are working together!  The two Representatives are sponsors of a bill that would require lenders to provide a decision of approval or disapproval of a short sale within 45 days of submission of the file.  Hallelujah! 

For those of us in the short-sale trenches, the most painful part of the process is the long period we spend waiting for the bank’s decision.  We meticulously prepare the file and then fax it off into a nameless abyss where it seemingly lies hidden at the bottom of someone’s in box.  Weeks later, we are informed that half of the information we submitted is missing from the file and would we please re-send it, or what we sent is now outdated (because they took so long to review it), and would we please send new pay stubs and bank statements.  It is a vicious process that can make a normally calm Realtor want to jump through the phone and strangle someone.

So yes, a decision in 45 days would be a Godsend!  The Bill is sponsored by Reps Tom Rooney (R- Florida), and Robert Andrews (D-New Jersey), who believe that by imposing a deadline on lenders, more short sales would be successfully executed and fewer homes go to foreclosure.   Although a few banks such as Bank of America have made an effort to improve their processing systems by utilizing a technology platform such as Equator, most banks rely on outdated systems and under trained personnel, ill-equipped to handle the thousands of short sales landing on their desks.  Thus in the current market, many short sale transactions fall-apart because the buyer gets tired of waiting and simply moves on, often leaving the homeowner to face foreclosure.

The Prompt Decision for Short Sale Act of 2011 is currently waiting to be referred to a Committee.  A similar act with the same name was introduced last September, but never came up for debate before the legislative session ended…let’s hope the support of the National Association of Realtors will help prevent this bill from a similar demise.

At the end of the day however, even if we have a shortened time period for decisions, any short sale is only as strong as the negotiator acting on behalf of the homeowner.  Please don’t hesitate to contact me for more information on how to improve your chances for a successful transaction.

 

March 24, 2011

Bank of America’s Cooperative Short Sale Program…Really Any Better?

Posted by martikilby under Bank of America, HAFA, Short Sale | Tags: , , , , |
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I was part of a Bank of America Webinar today during which they outlined the benefits of their new Cooperative Short Sale Program and took questions from way too many clueless agents.  To listen to the speaker, this new program is the greatest thing since sliced bread, but I think that remains to be seen.

The key difference between this new program and the traditional short sale program is that much of the work on the bank’s side that usually doesn’t begin until after an offer is submitted, can now begin before the home is even put up for sale.  This means that a homeowner with a B of A 1st mortgage who recognizes that a short sale is his/her best option can work with their Realtor and get the process started before actually marketing the property.  B of A will complete the valuation process and let the Realtor and homeowner know the suggested list price prior to listing, in theory speeding up the approval process once a qualifying offer is submitted.  In fact, with the review of the homeowner’s financials and the valuation completed prior to marketing, B of A is promising a response to an offer in 10 days.

The program is modeled to a large degree after the HAFA program, and like HAFA, the homeowner may qualify for a relocation fee in the amount of $2500, (HAFA is $3000).   Approval in the cooperative program would also halt foreclosure action and give the homeowner 120 days to find a buyer.  Unlike HAFA, the Bank of America cooperative Short Sale Program can apply to non-owner occupied properties.

While this all sounds pretty rosy, it was not exactly clear what happens when there is a 2nd mortgage held by another bank.  Are we to believe that they’ll speed up their approval processing to keep pace with B of A?  Ha!  And what about deficiency judgments?  In a HAFA short sale the bank has to agree not to pursue a deficiency judgment, promissory note, or the collection of funds from the borrower.  But in the B of A program, there are no such promises and the speaker today danced around discussion of deficiencies by suggesting that we all investigate the laws in our own states.  Pretty vague to me, and it has been suggested that B of A requires such in-depth financial information so that they better know who to target for deficiencies.

While I am hardly a fan of Bank of America, I’ll keep an open mind…but I’m watching closely.  I somehow just don’t trust that protecting the homeowner is their #1 priority.

For information about a short sale in San Diego County please don’t hesitate to contact me directly.

Here is an update on this post!

 

February 22, 2011

Short Sale vs. Foreclosure: You Be the Judge

Posted by martikilby under Credit score, Credit Scores, foreclosure, Short Sale | Tags: , , , , , , , , , , |
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Short sales can be a real pain for everyone involved…sellers, Realtors, buyers…and because so many fail, people are often left with a negative view of the short sale process.  But, do you really know the benefits that might make it worth the effort?

As I’ve mentioned before, I work with an exceptional short sale negotiation company that has a 99% success rate in getting approvals.  The president of that company recently put together a nice chart outlining the benefits of a short sale vs. a foreclosure and I’ll share the highlights.

Future Ability to Purchase a Home:    When you apply for a home loan, there is a question on the application that asks, “Have you had a property foreclosed upon or given title or deed-in-lieu thereof in the last 7 years?”  A positive response may impact your ability to qualify and will certainly influence the interest rate you are charged.  Currently, there is no question on the loan application with regard to short sales.

Impact on Credit Score:    With a foreclosure, credit scores can drop 250 – 300 points.  Conversely, with a short sale only late payments will impact the credit score.  After a short sale, the mortgage that was paid-off short will be reported as ‘paid as agreed’, ‘negotiated’, or ‘settled for less than agreed’.  This can lower your score as little as 50 points and will usually have little to no effect in twelve to eighteen months.

Impact on Credit History:   Foreclosure remains on your credit history for seven years.  Since short sales are not specifically reported their impact is only as great as the number of missed payments, as noted above.

Deficiency Judgment:  Unless you’re in a state with anti-deficiency laws, the bank can pursue a deficiency judgment.  In a successful short sale, the bank will waive the right to pursue a deficiency judgment.

Current and Future Employment and Security Clearance:   Many employers require credit checks for all employees, and certainly for anyone hoping to attain a security clearance.  While individual companies and agencies have different requirements, a foreclosure can have a negative impact on your ability to get a job, keep your job, or get certain clearances.

Of course I’m not a lawyer or accountant, and each individual’s situation is different, and not everyone will qualify for a short sale.  You should always consult the appropriate professional for advice.  But as a real estate professional, I would definitely give the short sale serious consideration before deciding to just walk away.  For a confidential consultation just give me a call at 619-846-9249.

 

February 10, 2011

Ammunition for Short Sale Success

Posted by martikilby under Short Sale | Tags: , , , , , , , |
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Negotiating a short sale is one of the most challenging jobs in real estate today.  As an agent representing a short sale client you are responsible for helping them get out from under a huge financial burden and save their credit, and responsible to the new buyers for closing the deal in a reasonable length of time.  Not only is it often stressful, but it can be downright frustrating;  re-faxing documents to the bank that you’ve sent three times, waiting for responses to phone messages and emails, and trying to find someone at the bank who actually cares about getting the transaction completed.

One of the short sales that I’m currently working on is especially trying as there are two different lenders involved on a 1st and 2nd mortgage, and as in similar cases, the 2nd mortgage holder won’t really look at the file until we have approval from the 1st.  After weeks of sending documents the 1st lien holder comes back to the table with an offer of approving the short sale, if the borrowers paid them $9,000.  Impossible!  If my clients had an extra $9,000 they wouldn’t be selling their home!  We counter at $1,000.  The bank then comes back at $3,000, insisting that according to their financial statement the borrowers can afford to contribute $3,000.

Hmmm…..my clients are insisting that as much as they would like to sell their house short and avoid foreclosure, they can’t afford the $3,000, especially as they just did their 2010 taxes and learned that they owe close to $10,000!  Aha!  More ammunition to make their case!  We submit their tax return and two days later have a short sale approval from the 1st lien holder with a $1,000 contribution!  Exactly what we countered!  The approval has been submitted to the 2nd lien holder and we’re pushing for a speedy response.

The bottom line is that my clients are thrilled and half seriously asked if I could help them negotiate their tax liability!  Ha!  I think I’ll stick to short sales.  Banks are tough enough…..I can’t imagine negotiating with the IRS!

 

November 19, 2010

What to Expect in a Short Sale

Posted by martikilby under lenders, Realtor, Short Sale | Tags: , , , , , , , |
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Whether you’re considering a short sale purchase, or the short sale of your own home, understanding the process will relieve some of the stress.

The first thing to understand about a short sale is that unlike a traditional equity sale there is an all-important 3rd party that controls the fate of the deal:  The lender(s).  In order for a short sale to occur, the lender or lenders must approve the transaction.  This involves 3 items for their consideration:

  1. Can the current owner show sufficient financial hardship to prove that he cannot pay his mortgage?
  2. Is the price offered consistent with comparable sales in the area?  The bank wants to re-coup as much of their investment as possible.
  3. Will the bank or investor agree to settle for less than the amount owed, or will they choose to foreclose?

Step #1 – Pre-Qualification

Let’s start with pre-qualification of the homeowner.  Before taking a short sale listing it should be the job of the Realtor to understand the financial requirements and pre-qualify the seller.  This involves having the sellers complete a financial worksheet and reviewing their income and assets.  Whether buying or selling, this is a critical step and one reason why working with an agent that is experienced in short sales is important.  If the sellers don’t financially qualify, there is no point going any further. 

Step #2 – Documentation

Once it has been determined that the sellers qualify, the Realtor or qualified short sale negotiator, will contact the seller’s lender and determine the exact requirements for submission as they are all slightly different.  It will also be determined at this point if the lender participates in the government HAFA (Home Affordable Foreclosure Alternatives) program as there may be incentives for both the sellers and the lender, and certain procedures may be streamlined.  In any case, the Realtor will work with the sellers and collect all the necessary documentation.  This will include: 

  1. A statement of general information
  2. Financial worksheet
  3. Handwritten letter explaining their hardship
  4. 2 months pay stubs or year-to-date Profit and Loss statement if self-employed
  5. 2 months bank statements
  6. Tax returns for the last 2 years
  7. Most current statements for all retirement accounts or other assets
  8. Authorization form to allow Realtor or negotiator to speak with the lender(s)

Step #3 – Sale of the Property

The house is then listed for sale as a short sale.  Both listing and selling agents must agree to equally split whatever commission the lender decides to pay.  Once an offer is received the Realtor should carefully examine the offer and make sure that it is an offer the lender is likely to accept; the price should be consistent with comps; the offer must not be contingent on the sale of the buyer’s home; and the buyer must understand that it is unlikely that the lender will pay for any termite work or other repairs.

Step #4 – Submission of the Short Sale Package

The listing Realtor or negotiator submits everything to the lender for approval of the short sale and the sale is noted in the MLS as “Contingent”.  Again, it is important to have an experienced Realtor or negotiator who makes sure that the submission is not only complete, but that it is packaged neatly and easy to read and understand.

The package goes to a special department at the lender where it is reviewed.  If there is any documentation missing or unclear, they will request additional information. Unfortunately, even this initial review can sometimes take 4 weeks or longer.

Once this initial review is completed and the package confirmed as complete, a negotiator representing the lender will be assigned.  It is the job of this negotiator to carefully review the file and make a recommendation as to whether it should be approved, or not.  If there are 2 lenders (a 1st and 2nd mortgage), this entire process must be completed for both lenders. 

Step #5 – Negotiation

During the actual review and negotiation process, the lender’s negotiator may counter specific items in the offer including the purchase price and the requested commission.  In the case of the second mortgage holder (who stands to lose the most), they may also request that the buyers make a financial contribution.  Again, this is where experience counts.  The seller’s Realtor or negotiator should be in communication with the lender’s negotiator several times a week, working to move the deal along and arrive at terms that are favorable to the seller and buyer.  This part of the process can drag on for weeks, or even months, although some lenders have streamlined the process.  Also, keep in mind that many of the 2nd mortgage holders won’t even begin the review process until the 1st lien holder has approved the sale.

Step #6 – Approval

If the lender’s negotiator recommends approval, the file goes to upper management or the investor for final approval.  Generally speaking, if the file makes it this far, it is usually approved.  But again, this final leg of the process may take an additional week or two.

And finally, the letter everyone has been waiting for – the approval letter.  Assuming all terms are acceptable to sellers and buyers the sale will now proceed as a “normal” sale.  The approval letter will stipulate a date by which the sale must close or the approval is no longer valid, usually 30 days.  Hopefully the buyer has hung-in during the approval process, and at this point the clock starts ticking for buyer inspections and contingency removals.

Navigating a short sale as either a buyer or seller can be overwhelming.  Making sure you’ve got an experienced professional on your team is the best way to protect your interests.  Questions?  Just give me a call.  619-846-9249.

 

October 31, 2010

Improve your Odds for Short Sale Approval

Posted by martikilby under foreclosure, lenders, Short Sale | Tags: , , , , |
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As I mentioned in my last post, there are several reasons why a lender might choose to foreclose versus approving a short sale.   But there are a few things you and your Realtor can do to improve your chance of having your sale approved. 

1.  Submit a quality offer.  Here are a few things your Realtor should look for in any offer you receive: 

  • The offered price shouldn’t be significantly less than market value.  The lender is less likely to approve the sale if he feels that his loss is greater than necessary.
  • The buyer can show more than sufficient funds to close the deal.  The larger the down payment the better.  Banks will consider a contribution to closing costs, but remember, they are looking for the highest possible net return on the sale.
  • The buyer agrees to put his/her earnest money deposit into escrow before short sale approval.  This shows the lender that the buyer is committed and less likely to walk away from the deal.  If the sale is not approved, the deposit is of course returned to the buyer.
  • The buyer should plan on paying for any needed repairs, including termite.  Don’t submit an offer that asks for repairs or a home warranty.
  • The offer must not be contingent on the sale of the buyer’s current home.  Buyer should be flexible about when they need to move out of their current residence.
  • The offer should be well written and easy to understand.  (More on that subject in a future post), 

2.  Submit all required documents. 

  • Make sure your Realtor has confirmed with your lender regarding every required document.  They should all be submitted at one time to help prevent certain items from getting lost in the lenders system.
  • If additional (or yes, duplicate) documents are requested, submit them as quickly as possible and have your Realtor or negotiator confirm receipt. 

3.  Remember the squeaky wheel…. 

  • Whether it is your Realtor or a professional negotiator who is representing your short sale to the bank, they need to be in regular communication with the lender, inquiring about progress on your file.  1 phone call a week is not sufficient.  The negotiator on the bank’s side needs to understand that you are very serious about gaining their approval and selling your home.
  • Ask for updates from your Realtor and make sure that there is follow-up with the lender 2-3 times per week.  You should know at all times where you are on the foreclosure timeline.  Make sure you immediately provide your Realtor with any letters you receive from your lender or any legal notices.

There are many important details in a short sale that are very different from a standard equity sale.  When listing your home, make sure you select a Realtor who is experienced with short sales.  Saving your home from foreclosure is way too important a task to trust to an inexperienced agent.

 

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