Your Real Estate Advisor: 4 Prudent Rules for Buyers of Short Sale Listings

Four Prudent Rules for BUYERS Who Write Offers on Short Sale Listings

Rule 1: STAY PUT: Do not give notice in your existing housing until after you have closed on a short sale listing. Even if you have to pay a significant amount to go to a month to month arrangement where you currently live. The path to a closing on a short sale listing could get bumpy. The seller might:

1. File for bankruptcy which removes the home from availability
2. Receive an offer from another potential purchaser which the lender decides to accept instead of your offer
3. Lose the home to foreclosure in which case you will no longer have a valid offer and will need to attempt to purchase it as an REO, if you are still interested

Rule 2: BE SUSPICIOUS: If your offer is signed by the seller very shortly after you write the offer (within a few days) then the chances are pretty good that the seller signed without the lender’s approval. There is no guarantee that the lender is going to approve. Most likely you have a listing agent who does not clearly understand that “lender approval required” means the “Lender has the right to accept or reject any offer which is not to their liking”. Everyone should wait until you have the lender’s “required” approval for the acceptance of a short sale.

You should not be celebrating that you are going to be closing if the seller signed but you do not have the lender’s approval. Lenders make the final decisions on short sales, not the sellers who are upside down nor the REALTORS who are unfamiliar with or unwilling to bend to the way short sale transactions are typically handled.

Rule 3: BE PATIENT: We mean be prepared to be ‘seriously’ patient, like for a few months. Literally. Buying a home which is listed for a short sale can get you a great deal on a property, but you must be prepared to wait for an extended period of time (2-3 months is common). The lender has numerous things they must check and cross-check before they can approve a short sale. Watch for a future blog on “What is Taking Them So Long?” We’ll address the laundry list of things which must be checked before a short sale can be approved.

Rule 4: EXPECT A COUNTER: Four things you should understand from the beginning:

1. Your offer is likely to be set aside until the lender gathers the information they need to make a decision
2. Your offer is likely to be ‘joined’ by additional offers during this waiting period
3. The Lender is likely to present a COUNTER OFFER to the potential purchaser who they believe has the offer which will net them the most
4. That this COUNTER may not be presented to all potential buyers

Consequently, you should write the offer for the amount you are willing to pay since you can not be guaranteed a second opportunity to increase that amount. Short sale transactions are a real estate gamble; you’ve got to realize that going in and decide if you have the stomach for this kind of acquisition. If not, find a regular listing which will offer you the comfort of more traditional negotiating and timing.

It’s all in the game. All in the wonderful game that we know as: Short Sale.

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.)

Short Sale Fast Facts for Consumers

Short Sale Fast FACTS for Consumers

1. Short Sale could be your solution—but it has some pitfalls

Get informed and Get started

2. Short Sale is an Option Not a RIGHT

You will need to “qualify” for the option to dispose of the house by using a short sale.

Most lenders use the same basic criteria—what I call the “Universal Hardship Test”

• Was the default ‘trigger’ something beyond your control
• Did the trigger lead to an increase in expenses or a decrease in income?
• Are you still an occupant in the home secured by the loan?
• Have you depleted all of your assets available to make mortgage payments?
• Are you willing to pull together the documents required by the lender/guarantor to determine if they believe you qualify for a workout?
• If there is a co-borrower, are both parties committed to this workout attempt?

3. Finding a competent REALTOR could be difficult

A short sale is a Speciality transaction. You need to find a

REALTOR who:

• Works full-time—yes, even in today’s climate
• Is experienced in short sales (means they closed)
• Is familiar with your area and price point
• Whom you feel comfortable with
• Who is able to demonstrate to you what the value of your home is compared to similar homes in the neighborhood
• Has the ability to effectively market your home
• Is pleased to share with you that they have had specialized training in Short Sales (I mentioned this last, because if they haven’t mentioned by now, it is because they don’t have any—Not a good sign)

4. You can list the home for short sale—BEFORE the lender approves the

short sale—

**As long as you indicate that “all offers are subject to lender approval” This should be included on your listing contract, on the seller disclosure form and within the comments on the MLS sheet

**You can’t ACCEPT and CLOSE without the lender’s approval but you don’t have to wait to get started. Why not start today? Is your house ready? Do you have the documents needed for the hardship package?

5. Might leave you with a deficiency—which could be used to get a judgment against you

Negotiate to get the lender to agree to “waive their right to a deficiency judgment” as part of the short sale approval letter.

You should NEVER assume that because the lender agreed to the short sale that they have waived their right to pursue you for the shortage.

If it’s not in writing—signed by an authority—you should expect them to pursue you for the shortage.

6. Foreclosure process—will most likely continue, even while you have the house on the market for sale

FHA loans which are subject to HUD regulations—require that the foreclosure process STOP while the home is marketed for short sale

Foreclosure action continues on ALL other loan types

7. Listing Termination—can be mandated by your lender when you are in default

The Lender is not a party to the listing contract and you might logically assume that therefore they had no say so about what does or does not happen with the attempt to sell your home.

Unfortunately, you would be mistaken.

Government guarantors, HUD, VA, USDA, Fannie Mae, Freddie Mac, and Rural Development have the right under Federal regulations to compel you to withdraw the listing IF:

You are cooperating with showing the property as a show of ‘good faith’

Title issues are uncovered which would prevent the transfer to a new buyer

The condition of the property is such that a sale is unlikely

You have failed to comply with request for information to determine your eligibility for a workout. Remember: This is an Option, not a RIGHT.

8. Second Liens can present a challenge—also known as a ‘stumbling block’

Second lien holders seldom initiate foreclosure; they block short sales all the time with their obstinacy. You cannot transfer real estate to a new buyer when there is a second lien holder without their cooperation.

They must either:

a. Release the lien

b. ‘Lift’ the lien and permit the closing

Usually they can be enticed to do one of these things, preferably the first. Many will accept a token payment as a settlement for the obligation if foreclosure is imminent and they stand to get nothing after the lien is wiped out. Other they may agree to an unsecured loan in exchange for

their cooperation.

Your lender may make a contribution toward getting this second released, especially if you have a government backed loan. Their regulations have a stipulated amount set aside for this purpose. Get your facts and get going.

9. Tax Implications—Didn’t Your REALTOR mention that?

When there is a deficiency (difference between what you owe on the house and what the new buyer is willing to pay for it) you are taxed on that amount as though you received it as a gift.

IRS rules require that the lender provide this information directly to IRS for tax purposes.

You should NEVER assume that because the lender agreed to the short sale that they have waived their right

10. Now about signing those papers…….WAIT

I believe strongly that the seller of a property which is upside down would do well to pretend their fingers are broken once they have signed the listing contract and seller disclosure form until Mr. Smitherman, the supervisor at the bank, has:

a. Approved their short sale, with all continguences

b. Given them permission in writing to sign something

As a trainer, I take the position that ‘lender approval’ means getting the lender’s approval before you agree to anything with a potential buyer.

That means do not sign a purchase agreement, no matter what contingency clauses have been included by a so-called sharp REALTOR. Do not sign a counter offer. I said, ‘pretend your fingers are broken until the supervisor at the bank tells you to sign something.

If you sign BEFORE he tells you to, you are agreeing to terms which he has not yet agreed to. You cannot perform (or deliver the deed to the house) without his agreement. He may:

a. Select a difference ‘potential purchaser’

b. Counter and ask for a lot more money

c. Go ahead and foreclose, then you have nothing to sell.

Don’t get ahead of the bank. “Lender approval required” means the bank gets to decide everything: to whom we will sell, and for what amount, on what terms. Don’t allow yourself to be lulled into thinking it’s okay to make an agreement and then get his approval. That is risky business. Remember, your fingers are broken.

Please share today’s blog with someone you know who is struggling and not sure what steps to take next.

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.)

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.)

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.

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.)

Your Real Estate Advisor: Deal or No Deal?

This catchy title from a popular game show has increasingly become a weekly nightmare for real estate professionals. In a market where an alarming number of clients are behind on their mortgage AND upside down, many agents are finding themselves sitting for ever increasing amounts of time—sometimes months—waiting for the lender in some distant city to notify the interested parties that, “Yes, we have a workable deal”. Now, get it closed in short order (7-10 days is not uncommon) and “No, we will not allow any contributions toward the buyer’s costs”.

Common practices (seller concessions) are not part of this transaction. Local real estate agents negotiating with a distant third party who does not, in fact, own the real estate (lenders’ loss mitigation department) has become a new reality for many real estate professionals. This practice will continue and become more commonplace as more consumers find themselves in a position where they are unable to make their mortgage payments and the local market will not support the full amount needed to cover mortgage payoff and the expenses associated with the sale. It’s called a “short sale” and the rules of the transaction are markedly different from how you used to sell homes.

“DEAL” means yes, we will allow the closing to occur. You must close quickly or we will change our minds. Seldom will any seller concessions be allowed. Worse yet, seldom will full commission be allowed. Frequently, the lender will notify all parties of a counter offer only after an extended period of time of complete silence. Then you are basically in a “take it or leave it” situation. It is critical that you get an actual letter of confirmation which includes ALL terms of the transaction from a representative of the financial institution, so that you know that the deal can be finalized with a closing and exactly which terms are acceptable.

“NO DEAL” means the lender/servicer has determined that the offer(s) is not workable for them or their insurer. There are a number of reasons why this might be true, but in essence you have been told they will not allow the closing and will most likely move forward with completing foreclosure action against the current owner of the home. There are a few options for intervention, but unless you have been trained in foreclosure intervention this an excellent time to utilize a mutual release. “NO DEAL” usually means go home—whether you’re on a game show or trying to sell real estate.




Mildred Wilkins, founder and president of Home Ownership Matters, LLC. She is the trainer for the (FIS) Foreclosure Intervention Specialist certification program. Visit her website www.HomeOwnershipMatters.com or call toll free (866) 507-5105.

Copyright © 2007. HOM, 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.)

Fast Fact #3 and #4

3. The lender may not counter the original offer until a few days before the closing.

4. The commission paid will almost always be less than full commission AND can be a little as 0%-1%.

Just thought you'd like to know.

© Copyright 2007, 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!)