Short Sale Update … Are They Working … Worth It?

The Short Sale has gone from something that few practitioners had ever heard of to a commonly used real estate term. When they first became popular they were nearly impossible to implement. Lenders were so hard to work with that most Short Sale efforts were for naught. Things have changed considerably to a point where they are feasible though not for the faint of heart.

The Seller must provide substantial information to prove need including a Hardship Letter, Financial Statement, bank statements, paycheck stubs, tax returns, etc. The Lender wants to know what changed the borrower’s repayment ability, and if there are other assets that could be used to repay, i.e.- cash, stock holdings, other real property assets. This takes work, but is required and worth it.

We’ve learned a lot in the past eighteen months about doing Short Sales. It used to be frustrating when the lender would say that we weren’t authorized to talk to them even though we had submitted the correct paperwork. It was frustrating when they said they had not received our FAX transmission of the documents. This was common, and done repeatedly – we would send each package, all 60-plus pages, three times. It didn’t matter who the lender was, this is what the agent encountered. We now know that they are taught how to get agents off the phone as quickly as possible and those were two of their best techniques. With this knowledge we know to stay the course on the phone, ask for a supervisor and ultimately they will find everything to be in order and we can proceed with the business that needs to be done. It is one way that agents have achieved a higher level of success in implementing Short Sales.

There are scavengers hovering over distressed property owners so be careful who you agree to work with and what services you agree to pay for. There are those that are trying to tie your property up with an option at a low price while they try to flip it in a double escrow. No, it isn’t legal, but it is a predatory practice that is presently occurring. Other services are being offered with the understanding that the lender will pay for them. The problem is that the lender won’t pay for them and the already cash-strapped Seller has to pay. Yet another scammer offered to tell the Seller how to cure her loan that was in default for $5,000. She paid – the advice, “Pay your loan current.” True story.

Our advice: Sellers can realize great benefits and Buyers can get a very good price with a Short Sale transaction if you stick it out and allow it to work. Make sure the Listing agent is Short Sale savvy. Short Sales have become an area of special expertise just like dealing with industrial properties or ranch properties. Realtors aren’t to work outside of their area of knowledge and we believe the Short Sale has become an area that the inexperienced shouldn’t indulge without a mentor. Allow enough time, and be patient. There are significant steps to each SS transaction that you want to look for to assure progress: a. The package was received. b. The BPO was received, c. A negotiator has been assigned. d. A decision to accept or Counter is reached. Short Sales are closing much to the benefit of Buyers, Sellers and Lenders.

The latest lender technique we’ve encountered – telling us the Mortgage Insurance company requires them to get a specific minimum amount on their loan. The problem it’s a second and there is no PMI. The first won’t pay more and they will be wiped out if they don’t take the payment the first authorized. They continue to play these games to get more money. When it comes to choosing professionals to assist you with your real estate needs … Experience is Priceless! Lisa Wetzel & Jim Valentine, RE/MAX Realty Affiliates, 775-781-5472. carsonvalleyland@hotmail.com, www.carsonvalleyland.com

Do Not Let Your House Go To Foreclosure Without Taking Every Step To Prevent It.

If you owe more than your property is worth, you have as a Distressed Property. Until recently, working with Distressed Properties was fraught with peril for agents, and owners were often told to “let it go”, ie.- stop making payments and let the lender foreclose. We’ll spare you the horrific Short Sale experiences as well as our speculation as to why the lending industry was so slow to adapt to the need to cooperate with home owners and their agents. Times have changed and Short Sales are now viable and should be given serious consideration.

Unknown to most of us until about 18 months ago, Short Sales are now very common, and it is very important to understand their benefit to the homeowner. Consider some of the following differences between the effects of a Foreclosure versus a Short Sale:

Credit Score: A Foreclosure will lower your credit score 250 to over 300 points for over 3 years. A Short Sale will show late payments, but the score will be lowered as little as 50 points, and the affect can be as brief as 12-18 months.

Credit History: Foreclosure will remain on credit history for 10 years or more. Short Sale is not reported on a credit history as there is no specific reporting item for “Short Sale”. Foreclosure remains on public record forever as it is recorded.

Employment: Employers often actively check credit of employees in sensitive positions – especially security clearances (Military, Police, Public Communication, Public Utilities, etc). Foreclosure can result in immediate reassignment or termination if employed, or can prevent you from being hired if you are looking for work. A Short Sale is not reported on credit report … is not a challenge to employment.

Deficiency Judgment: In a Foreclosure the bank has the right to a deficiency judgment. Some successful Short Sales provide for the lender to give up the right to a deficiency judgment. If a deficiency judgment is pursued the Short Sale’s higher yield from the sale results in a lower potential judgment amount.

Future Fannie Mae Loan: After Foreclosure you’ll be ineligible for a Fannie Mae backed loan for 5 years. Short Sale - 2 years.

Future Loans: For 7 years you will be asked on your application if you have had a foreclosure, but there is no similar declaration regarding a Short Sale.

Our Advice: There is now a designation known as Certified Distressed Property Expert that has been earned by local real estate agents to help Sellers and Buyers of Distressed properties. If you have cash flow or moving issues, we suggest you get professional help to assess your situation, determine alternative options, and make an action plan. The world of Short Sales and Foreclosures has changed from the frustrating mass confusion that it was to today’s smoother processes with positive results. Though there is still frustration and emotion, help is available to you that can help you establish and achieve your goals through the confusing maze.

Whether getting the financial elephant off your back, moving to put the family together, or other bona fide reason for selling … if you have a Distressed Property get with a Certified Distressed Property Expert and take control of your future. Foreclosure is the last option…do what you can to avoid it.

When it comes to choosing professionals to assist you with your real estate needs… Experience is Priceless! Lisa Wetzel & Jim Valentine, RE/MAX Realty Affiliates, 775-781-5472, carsonvalleyland@hotmail.com, www.carsonvalleyland.com

More Short Sale Buzz!

We Still Keep Hearing About Short Sales … Are They Real and Why Should We Do It?

Short sales are very real but they have become as confusing as the market itself. There are several aspects to a short sale when you are considering one. The first is to make sure you qualify, i.e.- you owe more than the property is worth (call your agent for a current value – things are changing quickly), have limited other assets, inability to pay, don’t own other real estate, etc., in other words … you have a genuine need for debt relief. Once you’ve determined that (not hard if you are truly qualified!) the next step is to consider options – short sale vs. foreclosure vs. bankruptcy. Each has it merits depending on your circumstances.

Bankruptcy is usually the least desirable. It can extend the time you can live in the home but has many extended adverse impacts on you, your credit, and your mind. Foreclosure is the likely option, inevitable in some cases, if you can’t or won’t put together a short sale. So what is the difference to you? 1. A short sale will typically last 3-4 years on your credit report. A foreclosure will be there 7 years. 2. With a short sale your credit is not as severely impacted. A foreclosure can reduce your FICO score up to 400 points. A short sale will impact it 50-180 depending on how it is reported. 3. A short sale is a more dignified solution. You sell your home to another person just like your neighbors do. A foreclosure often results in the home being vacant for months, signs promoting the bank ownership of the property, dead landscaping, etc. 4. It is usually easier to rent a home to move to with a short sale than after a foreclosure. Most landlords check credit on tenant applicants these days.

There is now tax relief due to a law passed last year and signed by President Bush in late December. It does not help every individual that gets mortgage relief, but it will help many. Regardless of the tax relief you get, or don’t get, it is generally better to control your own destiny and work to effect a short sale, or settled agreement with your lender.

Our Advice: The foreclosure option requires no action …don’t make your payment…wait until the date of the sale…and move out. The short sale requires marketing your property, providing the bank with proper documentation of your need including a hardship letter, financial statement, pay stubs, tax returns, bank statements, etc. - work on your part, often unpleasant because of your present financial circumstances, but it is usually worth it for the long term positive effect on you. Additionally, helping the lender out of their investment problem instead of forcing a foreclosure is something you can do to help the institution that committed to help you when you wanted help … when you wanted to buy your house. Make every effort to implement a short sale … you will be happier in the shorter-long run.

A short sale involves a lot of work by your agents, it also requires them to have specific knowledge of how to navigate the inevitable maze the corporate lender makes agents run through. If you are having difficulties making your payment call your agent immediately to explore your options. Waiting won’t solve the problem.

Experience is Priceless! Lisa Wetzel & Jim Valentine, RE/MAX Realty Affiliates, www.carsonvalleyland.com or www.carsonvalleyremax.com , email us at carsonvalleyland@hotmail.com 775-781-5472 toll free at 800-814-8799 ext. # 254.

We heard a lot about short sales and foreclosures, but nothing lately … what’s up?

Just a few months ago, the phrase “short sale” was on every real estate practitioner’s lips. It was the ready answer to the plethora of over-encumbered properties and was the key to making Buyers and Sellers happy at the same time. Every agent talked about it, and the Lenders even started opening up to the concept. So what happened?

There are several contributing factors that changed the short sale miracle into a problem. In a reasonable short sale situation, the Seller agrees to sell to a Buyer at a fair market value, which is below the amount of the existing loan. The Lender, instead of going to the great expense, risk, and liability of taking the property back by foreclosing, agrees to take less, and the sale proceeds.

What is hampering the short sale process today is that many of the “creative” loans that were put in place a couple of years ago involved a Second Deed of Trust. The Second is just that, Second … behind the First. When the value of the home is less that the amount of the First, the Second is wiped out in a foreclosure. They are also wiped out in such a short sale. Many are trying to negotiate something with the holder of the First so they get something by cooperating, but absent that, there is no incentive for them to cooperate … and most don’t.

Another detrimental factor of short sales is the time and mechanics involved. Most Lenders will not look at the application unless the borrower is behind in payments presenting a dilemma for owners current with their payment. Once you miss a payment, you have about four months before your home is foreclosed on. This situation forces the owner to miss payments and then watch the time go by to their deadline. It is frustrating as the Lenders want everything to be via FAX and email. There is no phone communication… paperwork gets lost… time goes by… and nothing is certain. Buyers don’t like waiting with so much uncertainty about the outcome.

Our Advice: Buyers were initially excited about short sales because it was a way to get a home in good condition at a good price. There wasn’t the risk associated with buying foreclosure properties in which case you can’t see the interior when you buy it. Most foreclosures these days are going back to the bank as the loan is higher than the value and a short sale couldn’t be worked out. You can buy bank owned properties at or below market after they get them back and evaluate what they have, but it is rare these days to get a good deal on the courthouse steps. Short sale sellers – get a good short sale agent and make a run at it, and look to your options. Buyers – do not discount short sales on principle these days, rather look at the circumstances of the individual property, the loan, and the agent involved. You can make a good deal with good business practices. Foreclosures and short sales … a game of patience.

This market requires hard work and short sales require extraordinary hard work. Be realistic… be fair, and all will benefit. Experience is Priceless! Lisa Wetzel & Jim Valentine, RE/MAX Realty Affiliates, www.carsonvalleyland.com , 775-781-5472.