Metro Atlanta Short Sales Blog

For the time being, this will be the final installment in my series about why Short Sales fall through.  I will likely revisit this topic in the future, as I hear more stories, but I plan to move on to other topics for the next few posts.  The purpose of this series is to contrast my approach with those agents who have recently come into the Short Sale market in order to keep their numbers up.  As a Short Sale Specialist, I have learned to avoid these mistakes that inexperienced agents have made.  I keep your transaction on-track.

As new agents move into this market to keep their numbers up, the ‘numbers’ are my topic for this article.  They are another reason why Short Sales fail, but in this case with even more disasterous results for the seller because the agent was not prepared.

I read about a transaction where the listing agent did not know that they were responsible for getting a “HUD-1″ to the lender before closing.  The HUD-1 is a preview of the closing statement which contains all the numbers that everyone is paying or gets out of the transaction: the lenders, the seller, the lawyers, the agents commissions, all the fees, etc.  The agent was caught unaware, and needed to get it done quickly.  The HUD-1 was prepared hastiliy and sloppily, showing the lenders getting the full amount of their loan and a negative net to the seller.  This would mean that the seller is bringing cash to the closing table - contrary to the purpose of a short sale.

This never happens to me.  I know all about the process, and have the HUD-1 prepared well in advance.  Beyond that, I have the taxes checked and the property investigated for leins.  This saved several transactions, but let me tell you the story of just one.

The closing attorney called me a week before scheduled closing with the information that the property had two leins - people had filed legal paperwork saying the property could not be sold if they did not get their accounts paid by the seller.  This would derail the closing if not dealt with.  We had 4 days to deal with the problem, and two of them were weekend days.

We found that one of the leins had already been satisfied, and with some effort, got it lifted.  The Seller had to find a way to get the money to pay the second one, get a bank check or money order for it, and present it in person to the lein-holder.  And he had to get a signed letter from them saying the lein had been settled.  But the amount of the lein was more than the Seller could manage.  We negotiated a reduction, that the paperwork would be ready when he showed up, and that his credit report would be cleared.  He managed to get all this done on the morning before closing, brought the paperwork to the closing table, and the transaction went through.

Imagine a new agent working their first Short Sale faced with this situation.  The agent above, the one who did not know about the HUD-1, would not have known about this until the closing appointment.  Very few agents would go through the title clearing process far enough in advance to find out about this deal-killer.  I do.

Let me help you with your short sale process, so I can help keep this type of thing from happening to you.  And if you have horror stories like this, please share them with us all by posting a comment.

Today’s installment in my series on Why Short Sales can fall through is about times when the buyer walks away from the deal.  As I mentioned before, agents are entering the Short Sale market because the “normal” market is now declining.  To keep thier carreers alive, they are turning their eyes to short sales.  But their lack of experience can cause the deal to fail, and everyone to lose.  As a Short Sale Specialist, my years of experience has prevented this problem for my clients.

Short Sales are a long process requiring patience - from everyone.  Sometimes, in this long process, a buyer gets ‘cold feet’ or decides there is a more attractive opportunity around the corner.  Or they simply get tired of waiting.  For whichever of these reasons, they walk away from the transaction.  If this happens after the lender’s acceptance, of course, they forfeit the earnest money.  So more often, this happens during the negotiations with the lender.  This process can extend for weeks, and lenders often do not communicate their status throughout this time.  Under these conditions, it is natural for the buyer to get nervous or frustrated.

Even worse, sometimes, is when the buyer convinces the agent to put the listing in Pending status when the seller accepts the offer, so that they can be assured of being the only offer.  Believe me, it happens with some agents.  I don’t do that.  First, by definition following the terms of my contract addendum, the offer is not a contract, and therefore pending, until the lender accepts the offer, not the seller.  Second, a key to success of the short sale process is ensuring that the lender believes they are getting the best offer they will get on the property.  Putting the listing in Pending status makes it unlikely that better offers will come in during the process.  Finally, as has happened to some of these other agents, the buyer may still walk away after the listing has gone Pending, and the agent needs to start all over again.

Certainly buyers can walk away through the long process, and I cannot claim that it has never happened to me.  It has, but very rarely.  I make sure the buyer is informed, and that I keep up to date with the lender’s status and communicate that back to all parties, calming everyone down. 

But let me tell you a story about when a buyer did walk away on one of my transactions.  I had a sense that this buyer was getting distracted and unreliable.  Just days before the acceptance from the lender was due, the buyer’s agent stopped returning my calls - a sure sign of trouble.  But I was ready for it. 

I got a backup offer in place that resulted in the same net for everyone and closing on the same date.  That was one of the most frenzied Short Sales I ever had, but in the end, all worked out for everyone involved.  And the buyer, a wonderful immigrant lady, invited us to her housewarming dinner in her great new house just a month later.  That dinner, and her obvious pride in owning her first house and participating in the American Dream, made all the hard effort and long hours scrambling to put the transaction together worthwhile.

You can rely on my expertise in Short Sales to help you get through the process without this happening to you.  Give me a call and let me walk you through what a short sale is and how it can help you when your mortgage is “upside down”.  If you have stories about buyers who walk away, or other thoughts on how to keep it from happening, please post a comment here.  I’d love to hear it.

Continuing my series on why Short Sales can fall through, today’s topic is deals that fall through because the buyer’s mortgage gets denied.  As I mentioned in my last article, agents are entering the Short Sale market because the “normal” market is now anything but normal.  In order to remain a full-time agent, they are turning their eyes to short sales.  But their lack of experience can cause the deal to fail, and everyone to lose.  As a Short Sale Specialist, my years of experience has prevented this problem for my clients.  Not one of my short sales has fallen through because the buyer’s lender denied their loan.

Traditionally, it is the buyer’s agent’s responsibility to ensure that the financing comes through.  In my experience, this is insufficient.  I have special provisions in my contracts that ensure that the buyer has not just been “pre-qualified” but also pre-approved, and that it has been checked by another lender - a second opinion if you will.

Other agents have had the buyer’s lender deny the loan after the seller’s lender has officially accepted the offer - and more than once, not learning from the experience.  This has never happened to me, and not by luck.  I make sure of it. 

If you are thinking of doing a short sale on your home, make sure your agent is an expert in Short Sales - one who can protect your interests from unexpected turn of events, not by luck but by design, with a well crafted set of paperwork.  If this problem has happened to you, or you have other suggestions for avoiding it, please post your comments here.  I’d love to hear from you.

In this market, many agents have started doing short sales as they watch their “normal” transactions decline.  But they have entered this very complicated market late, and have not gathered the experience to make the transactions work.  I wanted to take a moment and share with you some reasons why this occurs.  Each of the next few articles will cover a different reason why Short Sales can fall apart.

The first reason?  The BPO.  A BPO is a Brokers Price Opinion, it is the bank asking for an “independent opinion” of the market value of the property.

Who does a BPO?  A Real Estate Agent.  One who is not involved in the transaction.  And if it comes in too high, the lender may terminate the transaction because they feel they are not getting enough or money is being left on the table.  So what’s the problem?  The agent may not know anything about the area or the type of property involved, and turn in a bad BPO - a price not supported by the market.

There have been cases where the BPO came in 30,000 to 40,000 over the reasonable value of the property - over the last two recent sales in the same complex, for example.  The lender stopped the transaction unless the buyer could come up with an additional 25,000 in their all-cash deal - when the buyer had offered more than the last comparative sale.  This is not the lender’s fault, they just asked for a second opinion, and relied on someone they thought would do a competent job.  The seller’s agent could not affect the outcome because they are not involved in the process.

But there is something the seller’s agent could have done to keep this from happening.  Something I do on every transaction, when submitting the Short Sale packet.  I prepare and submit a detailed market value analysis with the package that can easily refute an overvalued BPO, showing that the offer is valid and the best the lender is likely to get.  While I can’t put that information here, where other agents can learn in hours what it has taken me years to develop, I will gladly show it to you at my listing appointment if you like.  This has saved many transactions from falling through this trap.

In a few days, I will post another article about another reason why Short Sales fall through.  Please let me know your thoughts by posting a reply to this message.  And take a look at my Short Sale FAQ (Frequently Asked Questions) to learn more about what it takes to put through a short sale packet.

The announcements surrounding the home stimulus bill said vaguely that they would help home owners who are in trouble and cannot pay their mortgages.  But how?  The idea, they said, was to help you refinance your loan, but they provided no details.  Well, here are the details.  If you have an FHA backed loan, it can be renegotiated:

FHA foreclosure rescue - development of a refinance program for homebuyers with problematic subprime loans. Lenders would write down qualified mortgages to 85% of the current appraised value and qualified borrowers would get a new FHA 30-year fixed mortgage at 90% of appraised value. Borrowers would have to share 50% of all future appreciation with FHA. The loan limit for this program is $550,440 nationwide. Program is effective on October 1, 2008.

So what does this mean for you? If you have an FHA backed loan of 200,000, you can refinance it at 180,000, with a fixed (and hopefully lower) rate.  If you then sell it 8 years later at 220,000, you would owe the bank $20,000.

Unfortunately, the Mortgage Revenue Bond Authority is still as murky as it first seemed.  It simply says municipalities can use a part of the $10B to help people renegotiate their loans.  We will continue to keep an eye on it and see how we can use it to help you.

Does this new law help you?  Let us know.  Also, if you find out more information about the municipalities Bond Authority, please post it here to get the news out.

There are a bunch of new incentives for buyers in the new law just signed to help out in the housing crisis.  This is good news for those trying to sell their houses through a short sale process, as it helps buyers afford better houses and gives them a little push to get moving.  But there’s an even stronger reason for them to move now - the loss of the Downpayment Assistance program.

The Downpayment Assistance programs are designed to help first-time homebuyers get into homes they can afford.  But they’re going to end in 54 days. 

The combination of the Downpayment Asstance program and the new tax credits, along with the below market prices of short sales, make it very attractive for a buyer to buy NOW.  This can be good news for you.

What can you do to help out?  If you know anyone even thinking about buying their first house, tell them about this and about the new tax credit.  Have them call me.  Even if they’re not right for your house, maybe they are for another client, and maybe that client knows someone who might like your house.  So help me help you.

Here are some of the specifics of the new law, for you to share with your friends:

Current FHA Changes
1.  All government-sponsored zero down payment assistance programs would be eliminated as of October 1, 2008.  To be eligible for these programs, all home loans would need to be approved by September 30, 2008.
2.  The minimum down payment for Federal Housing Administration (FHA) loans, the largest purchaser of mortgages in the United States, would increase from 3 percent to 3.5 percent.
3. The risk based tiers that were just implemented for FHA will be under a 1 year moratorium
 
Tax Incentives for First Time Homebuyers
Anyone buying a first home between April 9, 2008, and July 1, 2009, will receive 10% of the purchase price of a new home and up to $7,500 in federal income tax credits.  This will essentially be a tax free loan that will be paid back over 15 years. 

So have your friends give me a call.  And share with us all, here on the blog, any ideas you have for getting buyers to stop waiting in the wings, by posting a comment here.

President Bush Signs Landmark Housing Bill into Law

On Wednesday, July 30, President Bush signed into law H.R. 3221, the Housing and Economic Recovery Act of 2008, aimed at ending the current cyclical downturn in the housing industry. The housing bill is intended to help home buyers and strapped borrowers and strengthen the housing finance system, according to the National Association of Home Builders (NAHB).

“This milestone bill contains several provisions to get home buyers back into the marketplace, stop the slide in home prices, provide a lifeline to borrowers facing foreclosure, improve mortgage liquidity and bolster confidence in Fannie Mae and Freddie Mac,” said NAHB President Sandy Dunn.

The measure, regarded as the most significant housing legislation in decades, lets homeowners who cannot afford their payments refinance into more affordable government-backed loans rather than lose their homes.

Key elements of the Housing and Economic Recovery Act of 2008 that may affect you include:
FHA modernization and expansion.

• A revitalized FHA will have greater flexibility to respond to the needs of borrowers, enable more working families to become home owners and play an important role in the mortgage markets. To address the foreclosure crisis, the FHA is given additional authority to insure up to $300 billion of mortgages to refinance loans headed for foreclosure.

Mortgage Revenue Bond Program.

• The measure gives states the ability to issue an additional $11 billion in mortgage revenue bonds, which will help strapped borrowers seeking to refinance their home loans.

Low Income Housing Tax Credit.

• Enhancing this program will expand the supply of much-needed affordable rental housing.

Additionally, the law tries to stimulate buyers to ‘get off the fence’ and buy thier homes.

So what does this all mean to you?  First, the lender should be more willing to negotiate terms with you, possibly lowering your mortgage payment, so that you can stay in your home.  If that does not work, they should still be more willing to do a Short Sale.  Finally, if you do end up leaving your home via a short sale or a foreclosure, finding a place to rent should be easier to do.

Let us know what you think of this new law, and how it affects you.  We’d love to hear from you.

During the last 2 months, when the market is turning even tougher, I have been spending more time dealing with Agents and Buyers that have big myths about Short Sales.

Here are a couple of the big myths I would like to share with you.  A couple more can be found in my last post.

3.  I don’t want to deal with Short Sales, I would need to deal with an eviction process.  FALSE.

All sellers that understand the Short Sale process KNOW that it is a WIN-WIN for everybody.  They do not want to cause any kind of problem in leaving the house, as they are also benefiting from the transaction by not having their credit damaged.  The seller, as in any transaction, will be leaving the house on their own as of the closing date.

4. I don’t want to work with Short Sales.  It is a long process and at the end, the lender is not going to accept it.  FALSE.

Short Sales are going through a BOOM right now.  Many Real Estate Agents, in this current slow-moving market, want to work with short sales.  Please, when you are considering making an offer, ask the Listing Agent some questions about the Short Sale Process.  For example: what experience the agent has with short sales, how many have they closed in the last three months, and if they have an established relationship with the specific lender for that property, etc.

The KEY in short sales is to work with an experienced Listing Agent.  If you have found an inexperienced one, the short sale could be a nightmare.  Unfortunately, due to the inexperience of many agents, millions of sellers are living the affects – not just because they lost their houses, but also because the buyers and their agents think the process is endless and they decide to buy a different house with less hassle.

Also, remember that the economy as a whole gets a little shot in the arm as it avoids yet another foreclosure.

Let me know what you think about these myths, as well as those in the previous article, by posting a comment.  And if you are in trouble, struggling hopelessly to make your mortgage payments, please give me a call and let me tell you how I can help.

During the last 2 months, when the market is turning even tougher, I have been spending more time dealing with Agents and Buyers that have big myths about Short Sales.

Here are a couple of the big myths I would like to share with you.  I will discuss a couple more in the next article.

1. The house is in the market for full price – I want to wait until all the price reductions take place.  FALSE.

Many agents and buyers believe that waiting is the way to have a good price on a short sale.  The reality is that as soon as you encounter a short sale that interests you, you should make the offer you think is best for you, and not wait for the reductions.  Believe me, the seller will not be offended; and the price reductions may never happen – and you have lost a good opportunity.  A house with no offers may get foreclosed while you are waiting, and your offer can hold that process back.  Keep in mind that you are really negotiating the price with the bank, and they have no emotions involved in the property – it is all about the numbers.  The lender has a number they will accept, and as long as your offer meets that number or better, and no one has submitted a better one, it will get fair consideration.

2. I want to wait until the house has been foreclosed – so I can buy it cheaper.  FALSE.

In the current market, every lender prefers to negotiate a short sale and save the costs that a foreclosure process brings – which in the best of cases will not be less than $15,000.  After a foreclosure, these costs become part of their cost basis for the house, making the same offer appear even more of a loss for them.

In addition, you will be getting a house in better condition that has not been abandoned throughout the foreclosure process.  Some foreclosure cases also result in additional damage to the house as angry owners depart.  All my short sales have been occupied, and the owners continue to care for the house until closing.  My clients understand the process of a short sale, and they know the value of maintaining it in the best condition, clean and without that damage.

In my next article, I will discuss another couple of major myths about short sales.  In the mean time, let me know what you think about these.  And if you are in trouble, struggling hopelessly to make your mortgage payments, please give me a call and let me tell you how I can help.

A growing number of lenders are approving short sales as an alternative to foreclosure, says Doug Duncan, Mortgage Bankers Association chief economist.

The move is a way for lenders to avoid having to take over and manage property.

“The way banks see it, it’s better than if the house goes into foreclosure, stands empty, and sees its value spiral downward before it’s auctioned on the courthouse steps,” says Duncan, who expects rising delinquencies to spark an increase in pre-foreclosure sales.

Though short sales put additional downward pressure on the national median home price, Fannie Mae chief economist David Berson says they also lower the number of foreclosures and can help ease the housing downturn. Short sales are hard to track, though, because they’re not counted, making it impossible to know exactly how many occur.

This is yet another reason why short sales are a win for everyone involved.  Even the national economy wins because the depression in housing prices does not go as deep as it otherwise could.  So help me help others!  If you or anyone you know is in need of my help, please let me know.  I will do my best to create a fair transaction that is a win for everyone.