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half of the information we submitted is missing from the file and would we please re-send it, or what we sent is now outdated (because they took so long to review it), and would we please send new pay stubs and bank statements.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an effort to improve their processing systems by utilizing a technology platform such as Equator, most banks rely on outdated systems and under trained personnel, ill-equipped to handle the thousands of short sales landing on their desks.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 8, 2011

The Emotional Up-Side of a Short Sale

Posted by martikilby under foreclosure, Home Ownership, Selling your home, Short Sale | Tags: , , |
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Over the past two years we’ve all become somewhat numbed by the landslide of bad news about foreclosures and the declining value of our homes.  And if you’re in the real estate business, you’ve eagerly watched for the monthly sales statistics, anxious for a glimmer of hope. But beyond the news articles and charts of numbers are the real stories of individuals and families and lives forever changed.

No one buys a home with the idea that they might lose it one day.  We all buy a house with a vision of it being the place we call home until we move-up, downsize, or for one reason or another, decide to move.  And because it is ours, we put a lot of love (and money) into making it reflect our tastes and lifestyles.  We paint, we plant, we remodel – we make it distinctly ours.

When threatened with foreclosure, there are a lot of emotions, depending on the situation; anger, fear of the future, sadness and a sense of loss are a few.  But the overwhelming feeling that people express to me is a sense of helplessness.  Losing their home is usually not their decision and they often feel powerless to control the direction of their lives.

For many, a short sale offers an opportunity to put a positive spin on what is otherwise a negative situation.  Instead of losing your home, you are making a conscious decision to sell it – you are in control of the situation.  You are choosing to sell and salvage your credit rating; you are choosing to rebuild your financial picture; you are choosing to close one chapter, put the hurt behind you, and move forward with your life.

Facing a financial loss such as losing your home to foreclosure can be devastating.  A short sale may have benefits that go well beyond your credit report by helping you start that new chapter on a positive note.  Please feel free to call or email with any questions.

 

February 28, 2011

Do You Qualify for a Short Sale?

Posted by martikilby under Selling your home, Short Sale | Tags: , , , , , , |
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A short sale is an attractive alternative to foreclosure, mainly because the impact on your credit is far less severe.  However, just because you owe more on your mortgage than your home is worth doesn’t necessarily mean that a short sale is a viable option.

In a short sale, the lender agrees to accept a pay-off on your mortgage for less than the amount owed.  Logically, the lender is not going to agree to receive less money if there is evidence that you can continue to pay your mortgage as promised.  Thus, a homeowner hoping to sell their home in a short sale must demonstrate that they can no longer afford the mortgage payments. 

The first question the lender will ask is “What happened?”  At the time of loan origination you were able to make your payments….why not now?  You will be asked to identify one or more recent hardship factors that have negatively impacted your ability to pay.  Examples of hardship factors include: 

  • Illness/Disability                                             
  • Death of a Spouse
  • Unemployment                                               
  • Reduced Income
  • Medical Bills                                                   
  • Too much Debt
  • Divorce/Separation                                        
  • Military Service
  • Incarceration                                                  
  • Business Failure

The lender will also request that you complete a financial worksheet that lists all of your monthly expenses and income.  You will need to provide bank statements and pay stubs to document the information on the financial worksheet.  Contrary to popular belief, it is OK to have a small amount of money in savings and lenders do not expect you to drain your 401K to pay your bills.

So the bottom line is that if you have experienced an event(s) that triggered a financial hardship and your monthly expenses are greater than your monthly income you probably qualify for a short sale.  Please feel free to contact me with specific questions about your situation.

 

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!

 

December 9, 2010

Your Credit After a Short Sale

Posted by martikilby under 2nd mortgage, Credit score, mortgage, Short Sale | Tags: , , , , , |
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The most frequently asked question about selling your home through a short sale is “What will this do to my credit?”  Like most questions in today’s real estate market, there is no single answer.  But the good news is that you may be able to buy another home much sooner than you think.

There are many factors that determine the all-mighty credit scores, but generally a short sale will cause your score to drop by 100 – 200 points.  This is true if your short sale is reported as “settled for less than agreed”, and no deficiency judgment is filed.  This is a critical point, and it is important that you and your Realtor carefully read the language used in any short sale approval.   In California, SB 931 goes into effect on January 1, 2011 which protects borrowers from lender recourse on a 1st  mortgage, but may still leave them vulnerable on 2nd mortgages.  If you are unclear about whether or not your lender can file a judgment or if they ask you to sign a promissory note, consult with an attorney before signing anything!  A deficiency judgment or other recourse will increase the long-term negative impact of the short sale on your credit.

Another important factor is the length of time of default before the sale and whether or not a Notice of Default (NOD) was ever filed.  For many lenders, the filing of a Notice of Default is nearly as derogatory as an actual foreclosure.  A foreclosure stays on your report for 7 years and with either a foreclosure or NOD, you will most likely not be able to buy another home for a full 3 -5 years.  However, with a short sale that did not include an NOD, you may be able to qualify in as little as 2 years, according to some lenders.  This is another reason why it is important to act quickly once you realize you can no longer make your mortgage payments.

The most important factor is improving your score after a short sale is how you manage the rest of your credit.  I have several clients who just 18 months after a short sale have brought their credit back up over 700!  A few of their tips include:

  • Don’t take on additional debt
  • Stay ruthlessly current on every payment
  • Gradually pay down balances to a level that is 1/3 of your total credit line, but don’t close accounts.  Better to pay them off, and use them occasionally.

As short sales become more and more common on credit reports their impact on your non-mortgage credit will likely lessen, and even if you once again choose to buy a home, you may be eligible in as little as 2 years.

 

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.

 

November 3, 2010

Are We Headed for a Double-Dip in Home Prices?

Posted by martikilby under foreclosure, Interest rates, Real Estate Values, REO, Short Sale | Tags: , , , , |
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We all know that numbers and statistics can be interpreted in many different manners, depending on the desired outcome and the audience.  Case in point, within the last two weeks we have two separate reports on U.S. housing prices that range from cautiously optimistic to doom and gloom.   What’s real, and who do we believe?

Back on October 13, I happily reported in a post on this blog that according to an elite panel of economists surveyed by the National Association for Business Economics, home prices across the US saw their lowest point in the first part of the year and have been gradually trending upward.  In San Diego, the news was even more encouraging as our prices rose higher than the national average.

However, that trend over the past nine months might not hold true for the future.  On October 29th, Capital Economics, a leading international economics research firm, announced that a double-dip is already underway for both housing activity and residential prices.  Paul Dales, a U.S. economist for the firm, predicts that home prices will continue to decline over the next twelve months with a dip of over 5%.  Paul and his team add that if the economy continues to improve more quickly than analysts predict, home prices might hold steady.  On the other hand, if the economy worsens greater than predictions, prices could fall as much as 20%!

That’s huge!  Couple that with the firm’s forecast that housing demand for the next three years will remain “unusually weak”, while supply remains “unusually high”.  Right now the analysts say that there are about 1.5 million too many homes on the market given today’s demand, and that number will likely swell with additional foreclosures.  There are approximately 2.5 million homes in foreclosure and 2.4 million that are 90 days past due.  That is an addition of nearly 5 million homes that could flood the marketplace in the next year.

So what does all of this mean for San Diego real estate?  Well, I wish I had that crystal ball, but here’s my take.  To a certain degree, I believe that both reports are correct.  I certainly believe that we’ll see an increase in the supply of homes on the market due to foreclosures and short sales.  Banks can control the number of REO properties they bring to market, but I think that we’ll see a large increase in short sales as homeowners seek to avoid foreclosure. However, I don’t see a huge dip in home prices, at least here in San Diego.  I do believe that barring a total economic melt-down we’ll continue to see static prices with some modest increases in value, particularly in the $250,000 – $400,000 price range for single family homes.

Is this a good time to buy?  Absolutely!  With prices and interest rates at near record lows, what’s not to like?  Waiting to see if prices fall further is a gamble in my book as it is very likely that 6 or 9 months from now, interest rates could be as much as a full percentage point higher.

 

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.

 

October 29, 2010

Why Banks May Choose Foreclosure over a Short Sale

Posted by martikilby under foreclosure, lenders, Short Sale | Tags: , , , , , |
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It has been estimated that the average cost to foreclose on a home is about $75,000 including costs to local government for lost tax revenue and services, costs to the homeowner, and the devaluation to neighbor’s properties. Of this amount, the actual cost to the bank averages about $50,000 – $60,000, including attorney’s fees, property maintenance and REO resale fees.  Considering that the hard costs of a short sale are considerably less, and the impact on local government, neighborhoods and individuals is far less destructive, it’s difficult to understand why banks seem to be dragging their feet when it comes to approving short sales.

According to a recent article in the NY Times, many lenders are concerned about fraud. It is known that some homeowners, who actually can afford their mortgage payments, falsely portray their financial picture in order to cut their losses on a property and move on.  Other homeowners may try to sell to a relative who would then sell the home back to them, a practice that is illegal.  A recent industry report estimates that short sale fraud occurs in a least 2 percent of sales and costs banks about $300 million annually.

But fear of fraud and the associated costs is a relatively minor consideration.  The more important reason shouldn’t be too surprising:  There are financial incentives in many cases to choose foreclosure over a short sale.  For instance, institutions that service loans can reap high fees from foreclosures and lenders can often collect on private mortgage insurance that protects against foreclosure losses.  Neither the same high fees nor insurance is collected when a home sells short.  Another little known fact:  A 2009 regulatory change to a federal accounting law allows banks to foreclose on a home, but not take the loss until the home sells.  By contrast, in the case of a short sale, the bank must take the loss immediately.

So obviously, the bank’s decision has nothing to do with what is best for the national or local economy, or the individual homeowner.  Check back for my next blog where I’ll discuss what you can do to improve your chances of having your short sale approved.

 

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