The story:
Underwater on their mortgage, the owner of this Issaquah townhome had decided to walk away and let the home go into foreclosure. The HOA president talked to the owners and convinced them to try a short sale.
Washington Property Solutions was able to successfully broker the short sale, as well as negotiate with the lender to get 100% of the seller's debt forgiven. Not only are the sellers in a better position financially than they would have been had they gone into foreclosure, they also got a bonus: a $23,000 cash incentive paid to them by the lender.
Lenders, including Chase and Bank of America, are paying significant cash incentives to encourage sellers to do a short sale and avoid foreclosure. The programs are for a limited time. Find out more about how short sale cash incentive programs work.
Saturday, September 29, 2012
Monday, September 24, 2012
The Top 3 Reasons Short Sales Fail
1) Failure to
understand and justify market value.
Setting a price for a short sale is the delicate art of
balancing what a buyer will pay and what the lender will approve. It's important
to understand how the lender values a property. The bank will commonly hire an
appraiser or BPO broker to set a value after you submit an offer. If you have set the price too low, the lender
will not approve the offer. Everyone
loses. The buyer has been given an
unrealistic expectation of what they should pay, so usually is not willing or
able to offer much more. More
importantly, your client's clock is ticking.
They have a certain deadline to do a short sale and avoid foreclosure,
and you have squandered valuable time on a deal that was never going to go
through. (If you think the value the bank set is unreasonable, this Ask the Expert article explains how to dispute lender valuations.)
2) Not knowing the
specific lender's short sale process.
On average, the bank's short sale negotiator has over 1,000
short sale transactions that they are processing at any given time. And each
lender's process is different. If you don’t follow the lender's specific
process or there is an error in the paperwork or you're missing a form, it all
comes to a halt. Your file gets set
aside until the issues can be resolved. And unless you call, it can be
weeks before you are even aware that there is a problem. (We have a dedicated
staff that follows up with lenders daily to make sure the process is moving
forward.) The short sale transaction
that closes, and closes quickly, is the one where everything is done right the
first time.
3) No system to monitor the short sale process.
Because a short sale has so many more variables than a
traditional real estate transaction, one of the most important jobs the listing
broker has is making sure everyone involved has all the information they need
to make their part of the deal happen. We have a private password-protected
online system that lets all parties see what's happening with a transaction at any time- 24 hours a day, 7 days a week. This helps everyone involved track
deadlines and ensure that no details fall through the cracks. It's also important for you to build a team
of professionals who are highly experienced in short sales. For example, we
work with title and escrow agents who understand the additional documentation
and complex issues that are specifically related to short sales.
Tuesday, September 18, 2012
How to Dispute a Short Sale Valuation That's Too High
Occasionally a lender's valuation of a short sale property
is significantly more than what the market will pay. As a broker you may have recourse, however, every lender has a different process for
reevaluating value. The first step is to contact the lender and get a detailed
overview of their value dispute resolution process. You want to make sure that you are providing
the lender with the precise information they need to consider a change in
value.
The BPO broker or appraiser who sets the original value
often does not have a complete picture of the property. When we request that a
lender reconsider a home's value, we gather as much documentation as
possible. That includes comps, a summary
of repairs needed, and contractor bids for those repairs. We sometimes pay to
have our own appraisal done as well.
If the lender is unwilling to budge on their value, we find
out when the appraisal or BPO figure expires and then work with the lender to
order a new one.
Bank of America is one lender who is making an extra effort
to work with brokers. BofA has streamlined their process for settling valuation
disputes during a short sale, making it faster and easier for brokers to get
the bank to consider an alternate value. Get step-by-step instruction on How to Dispute a Bank ofAmerica Short Sale Valuation.
Labels:
bank of america,
bofa,
negotiators,
price,
pricing,
short sale,
short sale negotiator,
valuation
Monday, August 27, 2012
Questions Buyer's Agents Should Ask in a Short Sale
Some buyer's agents shy away from short sales because of the complexity and uncertainty involved. And it's true, short sales are complicated transactions even for those highly experienced in short sale negotiation. Properties that are represented by brokers with little or no short sale experience can result in transactions that are a nightmare for both you and your buyer. Here are a few questions you can ask to determine whether you want to move forward with an offer.
1) Who are the lien
holders?
The amount of time it takes to process a short sale varies greatly from lender to lender. The broker should be able to tell you who the
lien holders are, and the average number of days the lenders take for closing.
This will help your buyer decide whether the lender timeline matches their
timeline.
2) Who is negotiating
the sale? How many short sales have they closed? Do they have experience
working with the seller's lien holders?
Real estate brokers, attorneys and mortgage brokers are the
only individuals that can legally negotiate a short sale. If the negotiator is a real estate broker,
they must be listing or co-listing the property — they cannot legally negotiate
the sale unless they are part of the listing agreement.
Because of the complexity and ever-changing nature of short
sales, you want to make sure the negotiator is highly experienced. That means
they've closed a minimum of 100 short sales and have worked with a broad range
of lenders, including the seller's lien holders.
3) Are there any
additional costs to negotiate the sale? If yes, who pays those costs?
If the negotiator is a real estate agent, negotiating the
short sale is part of the service that they provide when they list or co-list
the property. There is no additional fee to anyone.
Attorneys typically charge a fee of 1-2% of the purchase
price to negotiate a short sale. The lender may be willing to pay their fee,
but more and more often they're not. The seller typically is undergoing
economic hardship and doesn't have the funds. That leaves the listing agent,
buyer or buyer's agent to pick up the attorney's fee. Before you make an offer
make sure you have in writing who is responsible for the negotiating cost.
4) Is there someone
dedicated specifically to follow up with the lender? How often do they follow up?
For a short sale to progress smoothly it is essential that
the negotiator has a system to follow up regularly with all the various lender
departments that are involved with the short sale. The negotiator can never assume that just
because they have sent the correct paperwork, the lender is moving forward on
the sale. We call lenders daily to make sure the right people have the right
information to close the sale in the shortest possible time.
Here is more information to help your buyer decide whether
buying a short sale is right for them.
If you have any additional questions, we're happy to give
advice. Call Richard Eastern at (206) 612-5541.
Thursday, August 23, 2012
3 reasons why NOW is the best time to do a short sale
If you have a client who is considering a short sale, there are a number of compelling reasons to
make the move now.
December
31, 2012 . That means they need to get their house on the market
now.
1) Tax advantages for
doing a short sale are set to expire.
When a lender forgives a homeowner's debt, the tax laws had
previously considered the forgiven debt as taxable income. This law applies
equally to short sales and foreclosures.
The Mortgage Forgiveness Debt Relief Act enacted in 2007
allows debt forgiveness of up to $2 million to NOT be considered taxable income
if:
- The house has been used as the principal place of residence for at least two of the previous five years.
- The debt has been used to buy, build, or make substantial improvements to the home.
2) Lenders are
offering significant incentives for sellers to do a short sale instead of
foreclosure.
Banks have recognized how expensive the foreclosure process
is for them. They also do not want to add to their already bulging inventory of
bank-owned homes, which are expensive to insure and maintain. As a result Chase and Bank of America are paying significant cash incentives to encourage sellers
to do a short sale and avoid foreclosure.
Recent examples include a client who sold a $200,000 home
and received a cash incentive of $20,000 at closing, and the owner of a
$350,000 home who received $30,000. If
you have a client who is – or should be – considering a short sale, this may be
the incentive they need to move forward.
3) It's a seller's
market.
Inventory levels in the Puget Sound
area are the lowest they have been since 2006.
Low interest rates and affordable home prices have drawn additional
buyers into the market. As a result, more buyers are competing for a shrinking
pool of properties. That growing competition for homes has resulted in multiple
offers and escalation clauses on many of our short sale listings. It's an ideal
time to sell a home.
Tuesday, July 31, 2012
Short Sale Statistics Report- 2nd Qtr 2012
Distressed
property sales were down overall throughout the Puget Sound area in the second quarter of the
year, according to the Washington Property Solutions 2nd Quarter Short Sale Statistics Report. The fall was due
to a significant drop in the sale of bank-owned properties. Short sales showed
moderate gains.
Short sales inKing County increased year over year from 11 percent of all home sales (single family homes and condominiums) in the second quarter of 2011 to 13 percent in the second quarter of 2012. Bank-owned sales fell from 23 percent of all home sales in the second quarter of 2011 to 15 percent of all sales in the second quarter of 2012.
InSnohomish County , short sales grew from 13 percent of all home sales in the second quarter of 2011 to 16 percent in the second quarter of 2012. Bank-owned sales decreased from 35 percent of all home sales in Snohomish County in the second quarter of 2011 to 23 percent of all sales in the second quarter of 2012.
Pierce County short sales rose from 14 percent of all home sales in the second quarter of 2011 to 15 percent in the second quarter of 2012. Bank-owned sales fell from 38 percent of all home sales in Pierce County in the second quarter of 2011 to 29 percent of all sales in the second quarter of 2012.
Short sales in
In
The full
report includes historical statistics for both Short Sale and Bank-Owned properties in King, Snohomish, Pierce and Kitsap counties.
Thursday, July 12, 2012
How Short Sale v. Foreclosure Affects Credit Scores
A key issue for clients facing
a short sale or foreclosure is how each affects their credit score. There are a
number of factors that favor a short sale over foreclosure.
While doing a short sale will negatively affect credit, short sales by their very nature may well have a lesser effect on credit than foreclosures. For instance, a completed foreclosure means the borrower has, at a very minimum, missed six months of payments (often considerably more). The property has also gone through a completed foreclosure sale. So while a short sale negatively impacts credit, the effect has been shown to be less than a full blown foreclosure which followed months, if not years, of missed payments.
Here are a few additional benefits of doing a short sale v. foreclosure:
If the homeowner is
participating in the federal government's Home Affordable Foreclosure Alternatives (HAFA) Program, there are definite credit benefits to choosing a
short sale over foreclosure. Recent changes to the HAFA Program dictate what
the lender can state on the borrower's credit report after a short sale, and
lessens the impact on the borrower's credit rating. Credit bureau reporting of
HAFA transactions where the deficiency is forgiven is now to be reported as
"Paid or closed account/zero balance" or "Account paid in full/a
foreclosure was started", as applicable.
A short sale is usually reported as “Account paid for less than the full
balance”, or similar statements which have a negative affect on the homeowner's credit score.
While doing a short sale will negatively affect credit, short sales by their very nature may well have a lesser effect on credit than foreclosures. For instance, a completed foreclosure means the borrower has, at a very minimum, missed six months of payments (often considerably more). The property has also gone through a completed foreclosure sale. So while a short sale negatively impacts credit, the effect has been shown to be less than a full blown foreclosure which followed months, if not years, of missed payments.
Here are a few additional benefits of doing a short sale v. foreclosure:
- With a short sale, the homeowner is in control of the sale, not the bank. In fact, today cash incentives may be available to homeowners who decide to do a short sale instead of foreclosure.
- When the consumer wants to obtain a loan to purchase a property in the future, more opportunities will be available to them sooner if they do a short sale. For example, contrary to popular belief, one can be current on their payments and still do a short sale. And if a homeowner is current on their mortgage through a short sale, they can qualify for an FHA loan afterwards without any waiting periods. The same option is not available following a foreclosure.
- Some people feel there is a
much stronger social stigma attached to foreclosure as compared to a short
sale.
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