Q&A: Appraisal Disappointment

Q. I want to re-finance my house and the appraisal came back significantly lower than I had expected. My broker says I can’t refinance now because of the low appraisal. How can I get another appraisal from another bank?

A: Sometimes when you answer literally the question which has been asked, you miss providing the information the person is really seeking. I will try to address both what you asked and what I think you are trying to get to.

Can you get an appraisal from another bank? The simple answer is “yes, you can.” By applying for a re-finance at another institution they will require you to pay another appraisal fee and they will also order an appraisal.

I am going to go out on a limb and assume that you mean by “the appraisal came in low” that it came back for less than the amount you had hoped for in order to cover expenses and make it worthwhile for you.

If your real goal is to find out what the value of your home is, there are several recommendations I would make which could accomplish that:

1. Find an independent appraiser and pay for an appraisal of the home, on your own—without an order from a bank
2. Select one or two competent, experienced real estate agents in your area and request a Complimentary CMA (Comparative Market Analysis) or BPO (Broker Price Opinion). Agents are usually happy to do this since they hope you will give them a listing later or at least a referral to someone else
3. Check the tax records on your home to see what valuation is used by the local Tax Assessor

Our current financial crisis was caused, in large part, by inflated appraisals; many of those were associated with re-finances. Lenders across the country are now being ultra-conservative and you are not likely to find anyone who is willing to refinance unless you have equity in the home which can be clearly demonstrated with an appraisal. Marginal values are not going to cut it.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

WORD: Appraisal

And the WORD for Today is:

Appraisal – is a document which is used to give an estimate of a property’s fair market value based on its condition. An appraisal is usually requested by the lender as part of the loan process and one purpose is to determine if the value of the house is at least as much as the loan being requested. Since the house will be the security for the loan, it is reasonable for the lender to need this assurance. Lenders also use the appraisal to determine the loan-to-value ratio, which will let them tell you how much of a down payment is needed. The consumer pays for the loan and is entitled to see a copy. The appraisal is seldom provided to consumers; instead consumers will be given a disclosure at closing which tells them how they can get a copy by mailing in a request at a later date. They will only be able to do so for a limited period of time and seldom do consumers discover that they need the appraisal until AFTER the time frame to make the request has expired. YOU SHOULD KNOW THAT YOU ARE ENTITLED TO HAVE A COPY PRIOR TO CLOSING. THE APPRAISAL HAS BEEN COMPLETED BEFORE CLOSING, YOU PAID FOR IT AND IT IS IN YOUR BEST INTEREST TO GET A COPY AT OR BEFORE THE CLOSING.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

You can find more helpful definitions of WORDS like these in Your Real Estate Advisor which can be purchased at www.DovePublishingHouse.com.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

WORD: Appraisal Report

And the WORD for Today is:

Appraisal Report – is the written document, prepared by the appraiser, which shows the documentation for the value, which the appraiser has assigned to the property. The report should include information about the neighborhood of the subject property, recent sales as well as data on homes currently on the market. All properties selected should be within fairly close proximity to the subject and be similar in age and design. Price adjustments should have been made for any major differences in each comp as compared to the subject.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

You can find more helpful definitions of WORDS like these in Your Real Estate Advisor which can be purchased at www.DovePublishingHouse.com.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

Myth: Modification vs Refinance

Myth: There is a widespread myth that a modification is just a re-financing of the loan. The two options have some things in common, but they are worlds apart. Let’s get some clarity.

Fact: Modification is usually a much better option for a borrower, especially if you are behind on the mortgage and want to use this option to get a loan which you can afford.

Both a modification and a re-finance will result in the old loan being paid off and a new loan being created. However, almost everything else about the two are dramatically different.

A modification:

a. Will be handled by the lender/servicer currently holding the loan (a big plus)
b. Will NOT require a new appraisal or upfront fees to be paid (a significant financial blessing)
c. MAY be used even when a person’s credit score has already been lowered by late or unpaid payments
d. Should definitely be considered if your interest rate is scheduled to reset

Under the terms of a modification:

1. the term of the loan can be stretched out (which reduces your monthly payment)
2. the interest rate can be changed from a variable to a fixed rate
3. the interest rate may be lowered
4. the principal balance on the loan (the amount you owe) can be reduced with documentation that the actual value of the home has declined (almost a given in today’s market)

A re-finance has major differences which are not as consumer friendly.

1. You probably won’t qualify for a re-finance if your credit has been dinged.
2. You must go to an outside source (different lender) apply, and pay fees for processing a new loan
3. There will be fees associated with the process such as an appraisal and possibly a lender’s inspection
4. Closing the transaction will cost another substantial fee
5. Strong possibility of a higher, rather than a lower, payment

When it’s all said and done, the climate is right for your lender or servicer to be willing to consider a modification of your loan if you are struggling to make payments. It is definitely in their best interests to help you resume making regular payments even if those are at a reduced amount.

There will be paperwork required for either of these options. You will need to demonstrate your ability to make payments and fill out the hardship documents which are required, but it is well worth the effort to get a PERMANENT change to your loan which makes it a workable situation for you as well as the lender.

Call your lender today. Best of luck.

Copyright © 2009, Home Ownership Matters, LLC. All Rights Reserved.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

WORD: FHA Appraiser

And the WORD for Today is:

FHA Appraiser – is an appraiser who has studied the guidelines required by FHA in order to evaluate a property when the borrower plans to us an FHA-backed loan. FHA maintains a list of “approved” appraisers so lenders can select from this list when ordering an appraisal to complete processing of a loan application. The use of an FHA appraiser is extended to avoid making/approving a loan on a property which has structural or mechanical problems, exhibits safety concerns or has code violations. A house which needs numerous, repeated or expensive repairs can drain a budget and lead to default on the loan. An ounce of preventions, packaged as an FHA appraisal could be just the solution to sustained home ownership.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

You can find more helpful definitions of WORDS like these in Your Real Estate Advisor which can be purchased at www.DovePublishingHouse.com.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

REO Assumptions and Assertions

REO Assumptions and Assertions

Biggest Assumption: They just need to dump it

Translation: They’ll take any kind of crazy offer

Assertion: N-O-T YET

As a former Fannie Mae Broker–Specialist, I can provide insight into the real world of buying and selling bank-owned properties. First, forget most of what you think you know about such transactions—you’re probably way off target.

The Devil’s in the Details . . .

If you’re assuming they just need to dump it, you are half way right. They do, they really do, but not at any price. The most common misconception is that the holder of REO property will accept any offer without consideration for the value of the collateral. I suspect you’ve been watching too much late night television. While it is true that the increased volume of foreclosed properties means a substantial increase in REO inventory, the basic business principles which govern liquidation are not changing as rapidly as they need to (or as you had hoped they would.)

Harsh New Reality

It is a harsh new reality that today’s market is being flooded with REO’s. Thousands more will be added in the months ahead as a result of the backlog which has been created because of political posturing. As a consequence, both federal agencies (HUD, VA, Fannie and Freddie) and private mortgage insurance carriers will need to adjust their guidelines during the upcoming months. Unfortunately, as a practical matter, in the meantime, they and loan servicers must operate within the guidelines of existing regulations and existing contractual stipulations until they are amended. They will be relaxed—necessity will dictate that they must be. The consequence will be a ‘let’s make a deal free-for-all.’ Good for agents and buyers—not so good for price stabilization. But it has to happen and the sooner we get to it the better.

They Don’t Know Its Value

You’re right on target with that assertion. The “local market reality” is a piece of data which is hard for the servicer to grasp when they handle properties around the country from a centralized location. The truth is, their usual resources are less than reliable. They must rely on:

• Their appraisal, and we know how likely that is to be inflated
• A $50-$75 BPO—okay, does anyone really think you’re getting an accurate evaluation with a product produced in a BPO mill? Do you really think that they are trying to determine value with that document? (They are NOT. They are fulfilling a servicing requirement to have a BPO performed.)
• Their gut instinct
• The loan amount shown in their computer—but since when has that been connected to the ACTUAL value of the property?

Hence, the market will dictate and that process takes time. If the property is ‘rejected by the market’ for an extended period of time then it is declining in both actual and perceived value. It’s in everyone’s best interest to determine fairly accurately, from the onset, what is today’s market value. Consequently, the servicer needs a current, as-is appraisal. While many appraisers were rewarded for inflating values during the boom years, they are now stuck with the unpleasant task of trying to justify vast differences between former and current value. Market correction is not enough of an explanation but the recently sold comps don’t lie. It’s worth what someone will pay for it—today—not last year.

The Law of Supply and Demand

In time (I think within the next three to four months) the inventory will be so high that the valuations will plummet and get in line with what a ready and able buyer is willing to pay a reluctant REO owner. During the boom years hundreds of thousands of houses were built across the country without any clear need based on population growth. Speculation in real estate was HOT. The jobs created, the loans generated, and false illusion of prosperity made for wonderful headlines.

I was nearly thrown out of a Foreclosure Task Force meeting in Indiana in 2006 when I dared to mention the need for a moratorium on new construction since the city had already built more than 30,000 new homes in 5 years for only 10,000 new residents. I mentioned a college business class on supply and demand. I visited Denver in 2006 and thought they were building homes for the entire United States to move there. Then I moved to Florida and quickly observed that enough new houses were being built there for the few folks who didn’t want to move to Denver or Indianapolis. Shall I mention Atlanta, Las Vegas and twenty other cities which issued building permits without checking to see where the buyers were coming from. We are paying the piper (and we will be paying for the next ten years) for allowing an excessive amount of housing to be built. We created an economic situation which will dictate FEWER aggregate occupied households as people move to sharing homes in order to survive the financial crisis created, in part, by the ‘creative financing’ used to sell the new housing stock.

In time, the newly created rental housing market (previous homeowners, now renting again) will absorb much of the current excess single family housing but we will have changed the dynamics of communities across the countries from single family, owner-occupant to rental dwellings, perhaps housing more than one family. Investors are the most likely purchasers for the glut of foreclosed homes which will hit the market during the next two years. As businessmen and women, they will make decisions based on totally different criteria than buyers who would be owner-occupants. Financial institutions will have no choice except to reconsider their options when holding costs, fines from municipalities and other constraints dictate they do something to stop the bleeding. Excess has its payback. The law of supply and demand will not be ignored; pretending it does not exist is a sure fire way to pay the piper.

Now About that Insurance and Title Work

If you do not know the difference between a ‘marketable title’ and a ‘clear title’ this would be an excellent thing for you to research if you are planning to purchase an REO property. Suffice it to say that the REO you are purchasing can have gaps in the title coverage which leave room for undisclosed liens to surface after the closing and bite the new owner in the proverbial behind. Since you will have signed numerous documents which stated that you understood that you had no recourse after closing: you will not be surprised when I tell you: YOU HAVE NO RECOURSE AFTER CLOSING.

Watch for an upcoming webinar on the HOM website: “Buying REO is Risky Business”. You might want to put that on your schedule.

Copyright © 2008, Home Ownership Matters, LLC. All rights Reserved.

(Please e-mail Heather at homeownershipmatters@gmail.com with any questions, comments, or concerns you might have. We appreciate all feedback, comments, and especially your questions. Don't be shy!)

WORD: Still Mortgages...

The WORDS for Today:

Mortgage Fraud-The intended victim is the LENDER. The transaction involves a group of scam artists. The usual players are: a real estate sales person, a mortgage broker, an appraiser, and a title company closer. A buyer is a necessary component of the scam. Sometimes they will be a part of the scam team and sometimes they will not be aware that they are, in fact, breaking the law. This team operates by:
a. Purchasing a low-income property, usually for cash
b. Secure a grossly inflated appraisal to support a new loan
c. Close the transaction with a buyer (typically called a “straw buyer” by law enforcement)
d. Profit from the difference between the lowest cost of the property, perhaps $15-20K and the new loan which will always be substantially HIGHER than the actual value of the dwelling may be as high as $90K-300K depending on the proximity to more expensive housing an the boldness of the players

Mortgage Modification- The borrower may be able to refinance the debt and/or extend the term of the mortgage loan. This may help them to catch up by reducing the monthly payments to a more affordable level. Borrowers may qualify if they have recovered from a financial problem and can afford the new payment amount.

Mortgage Warehousing-means a mortgage company holds a loan, which would ordinarily be sold. Most often the reason to “warehouse” the loans for a period is in anticipation of selling them later at a lower discount. These mortgages will be used as the security with a bank to borrow new money to loan.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

You can find more helpful definitions of WORDS like these in Your Real Estate Advisor which can be purchased at www.DovePublishingHouse.com.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

FYI: Short Sale–Slow Crawl

What they DIDN’T tell you about short sale offers  

The man back at the bank has a few things to take care of before he can respond to the offer you just made to buy a home as a short sale. Did your REALTOR mention?

The Lender must:

• Order an appraisal (could take awhile)
  
• Order title work (won’t take long but has it been ordered)
  
• Get a broker price opinion completed (hopefully the real estate agent knows what they are doing)
  
• Check to be sure there are no unpaid homeowner’s association dues or municipal bills which must be paid (could add to what YOU have to pay)
  
• Check to be sure that the SELLER qualifies for a short sale under the guidelines for the specific insurer for this property—at this time—since those guidelines are  changing pretty rapidly lately
  
• Check all the details of the SELLER’s financials to be sure they have no assets or other reasons why a short sale cannot be approved (did they even send this stuff in yet)
  
• Verify that there are no Federal liens which must be satisfied
  
• Work out a deal with the SELLER’s second lien holder, if there is one
  
• Check with the insurer on the home to be sure that the guidelines for accepting a short sale are being followed
  
• Consider ANY/ALL offers which have been submitted on this home to be sure they respond to the one which will net the lender the most, after expenses (You did know they could consider other offers, right?)
• Negotiate with the SELLER what will be done about the shortage (on certain loan types)
  
• Review a preliminary HUD statement to be sure that the numbers which were provided by the LISTING agent on a net sheet are going to allow the lender to new what is required by their insurer or investor to close
  
• Present a Counter Offer, to the buyer with the BEST, overall offer, if the preliminary HUD reflects that the net will be below the acceptable amount required
• Must not allow a closing which not protect the interest of the insurer/investor

Somebody told you all this, right? If not, maybe your agent doesn’t understand short sales as well as they need to. Sure glad you found the information on this blog. Just a word of caution:  don’t sign a notice to vacate your current residence until AFTER you get a signed approval letter from the lender granting permission for a short sale. This could take a little while. 

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

Q&A: Promised Perks

Q.  I am not quite sure whether or not I have a legal problem but I think I got shafted and I want to know what to do about it. I recently bought a new house and the real estate agent promised me a cash rebate as well as a bonus from the builder if I purchased. I was supposed to receive these as soon as I closed. The rebate and bonus were not mentioned at the closing and now the agent refuses to talk to me. What should I do and how do I get the money I was promised?

A: Well, let’s see. You were promised a cash rebate and a bonus which appear to be outside the scope of the “official” or legal transaction since you did not receive the money as part of the closing on the home you purchased.

I am very carefully saying here that the promises made to you do not appear to be legal. Kickbacks seldom are. Trying to enforce an illegal promise could get a little dicey.

When you purchase a home (including new construction) the purpose of the lender’s appraisal is to be sure that:

a. The home is at least worth what they are about to loan you to acquire it.

b. That no amount in excess of the value of the home is being financed

For example, that you are not financing a house worth only $400,000 with a loan of, say $425,000 to allow enough money left from the lender’s funds to give you a kickback of $15,000 and a bonus of $10,000 (for furniture or a vacation or anything remotely like that). That is commonly called mortgage fraud.

The title company has a responsibility to be sure that there are no components of the closing which are in violation of the law. The title company can not be responsible for what the parties agreed to if it is not in the contract and not part of the closing instructions sent over from the lender. One of the requirements for a legal closing is that there be no “undisclosed” exchange of funds, such as kickbacks from the seller to entice you to buy.

All funds which are to exchange hands between any of the parties associated with the transaction are to be included on the HUD-1 document. It is against the law in most places for someone to pay you a rebate and a bonus to get you to buy the home they built. (I know the car companies did it, but look at them now. Apparently their guidelines are a bit more lax than real estate transactions and look at where it got them.)  

The HUD-1 is the official record of the transaction and anything which cannot appear on it usually is suspect.  In fact, fairly often during the last several years, what is on the HUD-1 frequently could stand a little more scrutiny.

I’m a grown-up so I know that what you described was not uncommon practice during the past 4-5 years in some of the hottest markets in the country. Wild construction growth, wild deals, wild foreclosures now. I am familiar with parking lot exchanges and promissory notes and gifts, rebates and bonuses which cannot appear on the HUD. Property values are falling in markets like California and Florida where I live like parachutes, in part, because one of the components of speculative building was to build in ‘extras’ such as the two things you asked about. The country is experiencing both a market correction to more realistic value for homes but also a major part of the problem was that the loans covered more than the piece of real estate, if you get my drift.

What should you do?  Enjoy your new home and try to keep up the payments. You got took!

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

WORD: Buy-Down

The WORD for Today is:

Buy-Down—a sum of money paid to the lender at closing to reduce the borrower’s out-of-pocket monthly mortgage payment. Buy-downs are usually temporary. In the last several years it has been common for the amount of the buy-down to be added to the purchase price for the house so that in effect the buyer is borrowing the reduction. This is a dangerous practice for several reasons: it adds to the indebtedness by inflating the mortgage/appraisal and causes the borrower to be upside down.

Buy-Down is also an inducement to a lender to reduce the interest rate on a loan during the early years of a loan. The buy-down payment to the lender may come from the seller, buyer, a third-party or a combination of these. The buy-down may be for the first 1-5 years of the loan; most common is the 2-1 buy-down. Buy-down sounds good but in a practical way it is seldom helpful to the borrower. If the borrower is not very strong financially and able to pay the buy-down totally out of pocket then it will be financed into the loan, which hurts them over the long haul. An artificially reduced rate now only means you have to catch up later. The lender is entitled to, and must receive, a certain rate of return. There really is NO FREE LUNCH.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

You can find more helpful definitions of WORDS like these in Your Real Estate Advisor which can be purchased at www.DovePublishingHouse.com.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

WORD: BPO

And the WORD for Today is:

Broker Price Opinion—an evaluation of a property’s value which a servicer uses as an alternative to getting a full appraisal after a loan has gone into default. The BPO is usually performed by a licensed REALTOR familiar with sales in that geographical location who typically will complete the BPO based on a drive-by exterior examination, data from public records (including recent sales and number of existing properties available for re-purchase). As more consumers slide into default, more lenders are using the BPO to help determine what is the most likely re-sale of the subject house is valuable information in determining what workout or loss mitigation options they are likely to offer to the consumer. The BPO is especially important tool when short sale is being considered.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

You can find more helpful definitions of WORDS like these in Your Real Estate Advisor which can be purchased at www.DovePublishingHouse.com.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

WORD: Loan Commitment Letter

And the WORD for Today is:

Loan Commitment Letter—a legally binding mortgage loan commitment. It must be in writing and will not be issued until the lender has completed the underwriting and loan approval process. It is dramatically different from a pre-approval or a pre-qualification letter. Once a lender has verified all the documentation needed to make a loan, they will issue a commitment letter, which is their commitment to make a loan to the borrower. The commitment letter will state specific terms such as the mortgage loan amount, the interest rate, the date the commitment will expire (usually 60 days after it is issued).  Also special terms such as: a) the appraisal on the home must be acceptable; b) the closing must be with a bona-fide title company. It will detail what kind of loan, under what terms, state the interest rate and state the length of time for which the commitment is valid, frequently 60-90 days. Basically it states that the lender will make the loan once you find your house as long as you do not change you job or any other important details related to your finances.   

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

You can find more helpful definitions of WORDS like these in Your Real Estate Advisor which can be purchased at www.DovePublishingHouse.com.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

WORD: Loan Package

And the WORD for Today is:

Loan Package—refers to the file of all the items necessary for the lender to decide to grant or not grant the loan. These items would include the information on prospective borrower such as loan application, credit report, financial statements, and supporting documentation, employment verification and any other personal information to verify the credit worthiness of the applicant. In addition, the file would also include information related to the acceptability of the proposed property such as an appraisal to substantiate value and a survey. There is usually a charge for “packaging” the loan.

Loan package also commonly refers to the bundle of papers sent from the lender to the title company in order to finalize a real estate transaction. The /loan package/ usually contains all the necessary paperwork to “close the loan.” The mortgage or deed of trust, note and all required disclosures, from anybody to anybody, would be included. A loan closing package might include as many as 60-80 pages of material.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

You can find more helpful definitions of WORDS like these in Your Real Estate Advisor which can be purchased at www.DovePublishingHouse.com.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

WORD: Predatory Lending

The WORD for today is:

Predatory Lending—the intended victim is always the CONSUMER. The transaction requires only two participants to be successful, the mortgage broker who markets, initiates, processes, underwrites, and closes a loan transaction. The other necessary party to this transaction is an appraiser who is willing to inflate the appraisal sufficiently to cover the added costs dictated by the mortgage broker.

You may remember seeing this word in the February 14th post: here. You also saw it in the February 8th post: here.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

You can find more helpful definitions of WORDS like these in Your Real Estate Advisor which can be purchased at www.DovePublishingHouse.com.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

Short Sale Buyer: 10 Critical Areas of Concern

Short Sale BUYER

Ten (10) Critical Areas of Concern

If you are thinking of buying a home in today’s market, there is a pretty good chance that you will find a home you like which is upside down (seller owes more than the house is worth in today’s market and the sale will require that the lender approve a short sale). Buying a ‘short sale’ is not necessarily a BAD thing but it is definitely a DIFFERENT thing than a regular purchase and so you need to ask yourself some important questions before you embark on this journey. I am going to assume that if you know the right questions to ask that you will be diligent about getting some good answers before you move forward.

Here are areas where you need to do your homework:

1. AGENT—Is your real estate agent experienced in working with short sale buyers? Know how short sale transactions differ from regular transactions? Provided you with sufficient documentation to help you know what the current value of the property is?
   
   
2. TIMING—Are you aware that it could take months (several months) for you to get an answer and go to closing on a short sale? Can you afford to wait for an indefinite period of time? Can you STAY in your current housing until you get closed—however long that might be? Did you know you can decide to walk away anytime you want to even though you have made an offer? Simply tell your agent to rescind your offer if you want to consider another house. (You know to do that in writing, yes?)
   
   
3. NEIGHBORHOOD—Have you done the research you need to do to be sure that the back side of the neighborhood is as appealing as the front side? Are you comfortable with the mix of owners vs. tenants in the neighborhood? Is the neighborhood moving more toward tenants? Are homes well-kept or more of them in disrepair? Have you driven the area at night—do you feel comfortable with the nighttime look and feel of the area you will be calling home? Is there a significant numbers of homes empty—whether for sale or otherwise available for occupancy (rent, lease, etc)? Are property values still falling or have they hit a plateau? Where did you check? (and don’t tell me you just asked your agent). Are you comfortable with the levels of taxes in the area? Are there any special assessments which you need to consider? If there is a neighborhood association, how financially sound is it? Have you stopped and talked to neighbors to see what is REALLY GOING ON IN THE NEIGHBORHOOD?
   
   
4. PROCESS—Did your agent carefully explain the short sale process to you? Did you ask for a response based on how long you are willing to wait (2-3 months) or based on the traditional practice of allowing only a few days? You wrote an offer which was presented to the local owner/seller but then forwarded to their lender/servicer for consideration. Are you aware that the lender may/will consider multiple offers and then make a decision on ONE of them? Were you warned that the Lender may counter your offer—after a very long time—even months after you initially wrote the offer? Are you prepared to increase the amount you are willing to pay or risk losing the house? Have you pre-determined how much you are willing to pay? May I suggest that should be the amount you should offer in the first place?
   
   
5. RISKS—Are numerous but forewarned is better than being caught off guard. Risks include:
   
   a. The SELLER may file bankruptcy—and the house cannot be sold to anyone
   
   b. The LENDER may foreclose and the property become unavailable
   
   c. ANOTHER OFFER may be accepted instead of yours (even if the seller signs your offer that does not mean that the LENDER/SERVICER is going to approve your offer instead of another one which they have received)
   
   
6. LONGTERM—Have you carefully considered whether this house meets your long-term needs (say for the next 10 years)? Lifestyle? Location? Size? Amenities? Condition? Does it have ‘growth potential’?
   
   
7. FINANCING—Do you already have a firm loan commitment from your institution—not a pre-approval? You should start out with a /loan commitment/ to increase your chances of getting your offer accepted and to avoid any surprises down the road. Can your lender use the appraisal recently acquired by the selling institution in order to speed up the process at the end? Did you know that your earnest money check should not be cashed until AFTER you have an offer accepted by the LENDER who is the real decision maker on a short sale transaction? (That could be 3 months from now.)
   
   
8. INSPECTION—Are you aware that most states allow you to have inspections on any property which you wish to acquire (including REO’s, short sales and anything listed ”as is”?) Is your agent encouraging you to have a full property inspection as a way to be sure you fully understand the ACTUAL condition of the property you want to acquire? (Good agents will insist that you should, especially on a short sale which probably has not been well maintained if the home is in foreclosure). Are you aware that you can decide NOT to move ahead with the purchase if the inspection shows some substantial issues which are unacceptable to you?
   
   
9. REPAIRS—Are you prepared to cover the cost for any repairs which are needed immediately (and in the near future) once you close? Have you gotten estimates based on the items uncovered during the inspection?
   
   
10. GETTING TO THE CLOSING—Are you prepared to wait a few or several months to get to the closing date? Are you comfortable knowing you may be asked to increase your offer amount at the last minute, once the lender knows EXACTLY how much is needed to make the deal work under the guidelines from the Guarantor on the loan?

I am a firm believer that if you point someone in the right direction, they will usually get where they were headed. These are not ALL the questions you need to be asking but you are certainly headed in the right direction.

A short sale does not have to be a nightmare. Not with an experienced agent and a well educated consumer. Good luck with your new home experience.

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(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)