Archive for month August, 2008

Why Do Short Sales Fall Through? Part 3

Saturday, August 30th, 2008

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.

Why Do Short Sales Fall Through? Part 2

Tuesday, August 26th, 2008

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.

Why Do Short Sales Fall Through? Part 1

Friday, August 22nd, 2008

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.

More Detail on the Housing Stimulus Bill

Monday, August 18th, 2008

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.



Downpayment Assistance Ends in 54 days!

Thursday, August 14th, 2008

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.

What Does the Housing Stimulus Bill Mean?

Tuesday, August 5th, 2008

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.