The Do’s and Don’ts of Short Sales

By Marylyn B. Schwartz

By Marylyn B. Schwartz, CSP

RISMEDIA, February 2, 2009-It is a veritable alphabet soup of language out there relative to distressed sellers’ properties. There are foreign-sounding terms, made-up jargon, rules, policies, procedures; blah, blah, blah. No matter who you might happen to speak with, they know someone who knows someone who is an “expert” at handling one or all parts of the distressed properties’ options.

Well, to paraphrase the Trojans, beware of Greeks bearing gifts-especially when the gift bearers are claiming to be experts within a market segment fraught with pitfalls and legalities at every turn. Many are dilatants, few are experts. Rick Cowle (rcowlelaw@comcast.net), a highly experienced attorney who has handled hundreds of bankruptcies, short sales, foreclosures and mortgage modifications, is an expert. When Cowle speaks, he has experience, credibility and expertise on his side. His advice and counsel are sought by other attorneys new to “distressed property” issues.

MBS: Rick, you and I have worked with REO (real estate owned) properties and with sellers in all phases of foreclosure in the past. We’ve seen markets deal with the onslaught of short sales and foreclosures 15 years ago, but nothing comes close to what we are seeing today. The volume and rapidity of the properties cropping up is unparalleled. What advice do you have for the agents out there struggling to assist people fraught with problems?

RC: While it may be easier said than done, it is important to consult an expert. There are resources out there available to the public such as the Housing and Urban Development website, free credit counseling services, attorneys with extensive experience with distressed seller issues, etc. It is even possible to use Google to find attorneys who advertise their credentials as distressed property experts. The thing never to do is to give advice or guidance when you are not qualified to do so. Taking a three-hour short-sale class does not make one an expert on giving advice on the short-sale process. However, there is much that an agent can do in concert with an attorney. I always advise agents to help the seller find an attorney before they do anything else.

MBS: Sellers who are in financial distress fear that they cannot afford an attorney to assist them. They often simply “ignore” bank delinquency notices because they believe they are powerless to help themselves. Presented with such a scenario, what do you recommend?

RC: While I cannot speak for all attorneys, I know that many, myself included, have plans that take into consideration the sellers’ current financial realities and allow for ways to navigate the process with little or perhaps no attorney fees upfront. There are cases where attorney fees can be billed to and paid by the financial institution holding the lien. This is one part of the negotiable issues to be worked out. The ultimate cost to the seller can be far more damaging by non-action than by researching all options. If the agent plays a part in being a resource to the consumer, they indeed have value. Knowing what to do is less important than knowing what is available to help the consumer and guiding them to those resources. Just helping sellers to know what questions to ask or where to begin the process is invaluable.

MBS: It is no secret that even when sellers, or agents they have authorized to do so, try to contact the bank(s) in question, there is no guarantee that they will make any progress getting to the right people to help. It can feel like a black hole, and the level of frustration felt by everyone is enough to cause ulcers. What’s the right way to handle these roadblocks?

RC: There is no one answer that is right. Getting to the right people in the right departments is key in possibly preventing foreclosure. It is not going to be the mortgage department that will facilitate the process. The right department may be called asset recovery, loss mitigation, workout or something else. In addition, each lender will have its own paperwork requirements. Getting that package from the bank and completing the required documents is essential to even being heard. By hiring an experienced negotiator who works with most, if not all, major national banks, he/she will know what is required by that bank in advance and has forms on file for the sellers use. By knowing how to complete the necessary forms and doing so in a timely fashion, it could shorten the process for short sale approval by perhaps months.

MBS: What is a short sale for those readers who may be new to this?

RC: When the sellers owe more on their mortgage(s) than the value of their home, the sellers are in a shortage situation if they decide to sell. There will not be enough money to pay off the loan(s). The seller would need to come to the table with proceeds to satisfy the lien(s). That is not the same as being able to justify a short sale where the bank determines that the seller is worthy to be allowed to sell the home at less than the outstanding lien(s), and the bank will accept as their loss the shortage. In order to be considered for short-sale eligibility one would have to have a hardship such as divorce, medical expenses, job loss, death of family member or some similar life catastrophic situation. In addition, the sellers’ expenses must exceed his/her/their assets/income, they are behind on their payments and have no way to repay the bank. Simply owing more than the home is worth yet wanting to sell regardless of a lack of hardship is not a reason to apply for a short sale.

MBS: Let’s assume there is a hardship as stated above. What is the process for the agent/seller to follow?

RC: List the property at a price based on a detailed market analysis. The agent needs to be sure that they make other agents in the MLS aware that it is a possible short sale and that “all transactions including the amount of compensation, are subject to bank’s approval.” The fact is that even if a home is listed at market value and a buyer comes along and makes an offer commensurate with that value, the bank may not accept the sale. There are cases where the bank’s price opinion may be higher than the offer on the table, and the bank may counter or refuse the offer if it does not conform to what they believe is accurate. I often suggest that the agent take a video of the home to truly document condition as some appraisals are done without a full walk through. Without documentation it may be difficult to make the case to the bank about why the home is not worth what the bank’s appraiser determined. Agents should always meet the bank’s appraiser at the property and provide them with comps. They may not use the agent’s comps, but the documentation could come in very handy if a conflict ensues. This is not to be taken as gospel that any bank will debate with either an agent or an attorney. Some will, others will not.

MBS: What are the banks looking for relative to a buyer’s qualifications?

RC: In the vast majority of the time, the bank does not want to negotiate contingencies. Buyers who have another sale pending and need the proceeds from that sale in order to close on the next purchase are not likely to be considered. Banks take a dim view of buyers requesting concessions. Sales are always as is with no repair credits, except under very, very rare instances. While buyers can have inspections done, it is for their consideration only and not for negotiating any issues that may surface. I had an incident where during the processing of the short sale, the house suffered a freeze-up. I went back to the bank and renegotiated for the purchasers. We had to document the problems and estimate the cost of repair. That is the kind of rare occurrence I would consider presenting to the bank.

MBS: Are there some red flags that agents should be aware of before venturing into helping a distressed seller?

RC: Sellers need to be very cooperative with the agent and whoever else enters the process. Couples involved in a divorce and at odds with each other can present insurmountable challenges when it comes to being responsive and getting all documentation in the hands of the right people. The sellers must also be willing to do the required paperwork. This is time consuming and detailed. Anyone who won’t ‘dig out’ what is needed as proof of the claims being made is wasting everyone’s time. There are also transfer documents that require signatures. Once again, if there is more than one seller, and the two or more are not likeminded, raise the red flag and be sure the problems are cured before approaching the bank with an offer. We hear about short sales taking upwards of a year plus. That is usually because of problems with issues such as referenced above. Well prepared and cooperative sellers make both the attorney’s and agent’s jobs much easier.

MBS: Often homes will have more than one lien holder. In such instances, what happens when trying to process a short sale?

RC: I have had about a 90% success rate working through this very issue. I know that the high rate of success is due to being very familiar with the lien release process and how to approach banks relative to why taking the sale is in their best interest. It is often a delicate balancing act fraught with lots of back and forth negotiating. I would say that it would be nearly impossible to accomplish without the skills of a very experienced negotiator working on the sellers’ behalf.

MBS: What upcoming trends do you see within this segment of the business?

RC: Lack of knowledge on the real estate practitioner’s part while the number of distressed sellers continues to grow will only exacerbate the challenges of getting these properties sold rather than in foreclosure. Banks are not yet geared up for the breadth and depth of the problems, and many sellers are falling between the cracks who could otherwise have been helped. The market will soon be flooded with REOs as these homes process through the banks’ systems after the foreclosure process. Agents want to work this segment of the market yet few understand the breadth and depth of what is required and the time commitment. Banks need educated agents for REO listings.

MBS: Having managed and processed hundreds of REO properties, I could not agree more. As matter of fact, errors and omissions companies are now concerned about indemnifying brokers who do not require their agents to clear all REO listings with the company prior to seeking them out. It is a very litigious, slippery slope. Banks require all kinds of guarantees and bonding for persons who work on their listings… not for the faint hearted for certain.

RC: I could not agree more. The more people understand the whole process from first delinquency on the mortgage through to the REO stage, the less likely they are to want to take it all on.

MBS: There are times when second lien holders, or even first, will ask the sellers to sign an unsecured promissory note for part of the shortage paid by the lender on the sellers’ part. When does that happen and how often?

RC: If the lien holder(s) feel that there are assets forthcoming, they may take this step. We see this often with loans that are secured by PMI (private mortgage insurance). PMI companies are getting hit pretty hard with the number of bad loans that were secured by PMI and subsequently failed. They may try to recoup part of the indemnifying monies they’ve lay out if they feel there is a good chance to recoup part down the road.

MBS: There are so many other topics that we could explore at great length. Volumes have been written on the whole area of distressed sellers and properties. What would you say is the single most important thing an agent could do to help them help their sellers?

RC: Education, education, education. Read, take classes, join networking groups of like-minded practitioners, etc. We simply cannot know enough to help people who need good advice, guidance and support now more than ever!

MBS: Amen to that!

Marylyn B. Schwartz, CSP, is an expert in real estate and corporate sales training/management and team development. She is president of Teamweavers and a trainer for Leader’s Choice.

WASHINGTON, February 03, 2009

Pending home sales increased as more buyers took advantage of improved affordability conditions, according to the National Association of Realtors^®. Big gains in the South and Midwest offset modest declines in other regions.

The Pending Home Sales Index, a forward-looking indicator based on contracts signed in December, rose 6.3 percent to 87.7 from an upwardly revised reading of 82.5 in November, and is 2.1 percent higher than December 2007 when it was 85.9.

Lawrence Yun, NAR chief economist, said the index shows a modest rebound. “The monthly gain in pending home sales, spurred by buyers responding to lower home prices and mortgage interest rates, more than offset an index decline in the previous month,” he said. “The biggest gains were in areas with the biggest improvements in affordability.”

NAR’s Housing Affordability index rose 10.9 percent in December to 158.8, the highest on record.² The HAI shows that the relationship between home prices, mortgage interest rates and family income is the most favorable since tracking began in 1970.

“Significant uncertainty still clouds the housing market despite improved affordability conditions. For a sustainable housing market recovery and, hence, sustainable economic recovery, we need a significant housing stimulus and mortgage availability for qualified borrowers,” Yun added.

The PHSI in the Northeast slipped 1.7 percent to 62.1 in December and is 14.5 percent below a year ago. In the Midwest the index jumped 12.8 percent to 83.7 but remains 1.2 percent below December 2007. The index in the South surged 13.0 percent to 96.8 in December and is 1.6 percent above a year ago. In the West, the index fell 3.7 percent to 97.5 but remains 17.5 percent higher than December 2007.

NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth, said the rise in contract signings is encouraging. “However, housing activity remains weak compared with potential demand, and the market is fragile given the economic backdrop,” he said.

“We can’t take our eye off the need to stimulate housing, which can set the foundation for an economic recovery,” McMillan said. “Last week’s actions in the House to eliminate the repayment feature on the first-time home buyer tax credit, and to raise mortgage loan limits, are helpful. However, we need to take additional steps to meaningfully draw down inventory and stabilize home prices.”

McMillan said some enhancements that could bring more buyers into the market include expanding the $7,500 tax credit to all home buyers and extending it until the end of 2009, and making loan limit increases permanent. “We also need to direct funds in the Troubled Asset Relief Program to add liquidity to the mortgage market, buy down mortgage interest rates and increase other forms of credit,” he said.

Yun said the outlook for housing and the economy is murky. “Although Congress and the Obama administration are taking steps to help the economy, the stimulus package must deal with the root cause of the economic downturn, and apply the right fix to turn it around. If housing is ignored, a significant downward overshooting of home prices would continue to drag the economy down independent of the scale of the stimulus,” Yun said.

The Pending Home Sales Index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing.

The index is based on a large national sample, typically representing about 20 percent of transactions for existing-home sales. In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity from 2001 through 2004 parallels the level of closed existing-home sales in the following two months. There is a closer relationship between annual index changes (from the same month a year earlier) and year-ago changes in sales performance than with month-to-month comparisons.

An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined as well as the first of five consecutive record years for existing-home sales.

²The Housing Affordability Index is a relative index where a value of 100 means that a family with the median income has exactly enough income to qualify for a mortgage on a median-priced existing single-family home, taking into account the relationship between median home price, average effective interest rate for loans closed on existing homes, and median family income. The higher the index, the greater housing affordability.

The calculation assumes a down payment of 20 percent and a qualifying ratio of 25 percent of gross income for mortgage principle and interest payments. The index is a general gauge with conditions varying widely around the country. Affordability conditions are lower for first-time buyers with smaller down payments and less income.

Monthly publication of the index began in 1981 with annual data calculated back to 1970.

Existing-home sales for January will be released February 25; the next Pending Home Sales Index will be on March 3

Falling Prices Push Homes Sales Up: Expert Points to ‘Bargain Shopper’s Market’

RISMEDIA, January 22, 2009-(MCT)-Rose Vicente is tired of waiting.

Sixteen months after she and her husband, Manny, put their Simi Valley home up for sale for $650,000, they decided they couldn’t put their life on hold any longer.

Although they still are waiting for a buyer, the Vicentes purchased a home in Wildomar, Riverside County, and plan to move in February.

Last year, the Vicentes told The Star they wouldn’t budge when they lowered their asking price on their five-bedroom house to $495,000. Their outlook has since changed. The Vicentes just slashed their asking price to $379,000, a 42 percent reduction from their original asking price.

Their experience mirrors what is happening in the weak housing market.

Ventura County home sales shot up nearly 50 percent in December, but the median sales price fell by more than 35 percent from the previous year, culminating a nerve-racking 2008.

Sales were bolstered by foreclosure deals, which brought down overall home prices.

There were 876 new and existing homes and condominiums sold last month, up 48.5 percent from 590 the previous year, according to MDA DataQuick. It was the sixth consecutive month of year-over-year sales increases, a result in large part of buyers being lured by deeply discounted distressed properties. Foreclosures comprised 51.4 percent of last month’s resale activity.

The median, the point at which half the homes sold for more and half for less, was $338,000, down 35.6 percent from $525,250 in December 2007, according to the real estate information service.

A similar trend was seen throughout Southern California. Each of the six counties in the region reported a strong uptick in sales but a downward slide in prices.

A total of 19,926 new and existing homes and condominiums sold across Southern California last month, up 19.2 percent from 16,720 in November and 50.5 percent from 13,240 in December 2007 — the slowest December in DataQuick’s statistics, which date back to 1988.

Foreclosures comprised 55.7 percent of the resale activity last month in the Southland, up from 24.3 percent for the same month the previous year.

“It’s mostly a bargain shopper’s market,” said Andrew LePage, DataQuick spokesman, noting that mid- to high-markets are posting sluggish sales. “Some of the more expensive markets are at or very near record lows for sales.”

The Southland median was $278,000, down 34.6 percent from $425,000 in December 2007.

Sales from September 2007 through last summer were at the lowest in at least two decades, but they’ve since edged up, DataQuick reported. Still, last month was the fifth-slowest December in DataQuick’s statistics.

Sales gains were strongest in areas that were hit hardest by foreclosures, where home values experienced the greatest declines. The median for San Bernardino and Riverside declined 42.9 and 41.1 percent, respectively, but sales surged 88.5 percent and 77.2 percent.

Monthly mortgage payments that buyers are committing to are declining along with home prices. A typical monthly mortgage payment that Southern California buyers committed themselves to paying was $1,239 in December, down from $2,060 the previous year, according to DataQuick.

For the Vicentes, the substantial price drops gave them the ability to buy a second house in California, without being forced to wait until they sold their Simi Valley home. They decided on Riverside County because they were able to buy a 3,500-square-foot house — twice the size of their current home — for $300,000.

The space was important, Vicente said, since her son and daughter-in-law and their two children have moved in with them.

“Getting more house for your dollar is more important because grandchildren and kids are moving back home they can no longer afford to live on their own,” she said.

It’s been a tough road, and not just for sellers, Vicente said. As buyers, she and her husband were surprised to see severely damaged homes with kitchens and tubs torn out by bitter former owners.

She said she is hoping that the market will stabilize within the next five years so her family can move to Texas.

“I feel sad about leaving Ventura County,” she said. “But there are things you have to do. Hopefully, this will be better for the family.”

Copyright © 2009, Ventura County Star, Calif.
Distributed by McClatchy-Tribune Information Services.

Moving with Pets - Impossible or Possible?

RISMEDIA, January 21, 2009-With people moving worldwide for work, Boxers are going bicoastal and cats are clearing through customs on a daily basis. Moving isn’t just stressful for people, it’s equally stressful for pets. So when it comes to moving pets, pre-planning is very important as animals can be very sensitive to changes in their surroundings. So we went to the expert Rachel Farris, Relocation Specialist at PetRelocation.com. Farris offered three top things to keep in mind as a pet owner moving with pets.

1. Make Friends with the Travel Crate-Whether you travel by car or by air, the crate your pet travels in will be his “home” during the trip and it’s crucial that your pet feels comfortable in it ahead of time. According to Farris, “As soon as you know you’re moving, it’s a good idea to get the crate,” Farris said. “That way, you can start getting your pet used to it well in advance. This will help your pet’s stress levels on your move date.” She also pointed out that many pet stores offer crate training classes. Additionally you can try feeding your pet in the crate on a daily basis to help ease the transition.

2. Pick a Frequent Fido Flier-Why should you get extra leg room for yourself but not for your pet? Select an airline that offers first-class accommodations for pets traveling in the cabin or under the plane. “At PetRelocation.com, we only work with pet-friendly airlines that keep pets in climate controlled conditions throughout the flight,” says Farris. “This ensures that every pet will arrive safely at its destination.” According to Farris, Continental and Northwest are both known for their superior pet-safe cargo programs in the US, and Jet Blue just introduced their new JetPaws program, which caters to pets traveling in-cabin.

3. Arrange a Jet-Setter Check Up With Your Vet-If you’re making a trip across state lines or international borders, you’ll need a health certificate issued the week before the flight. “Most states require pets to be current on their rabies shots,” Farris says, “and for international trips, the documentation for importing or exporting pets can be even more complex.” Planning ahead and consulting a professional pet relocation company can ensure that your trip goes smoothly.
No matter if your move is big or small it is important to do your research and make plans accordingly when moving pets. This can make all the difference, resulting in a well transitioned pet and a less stressed pet owner.

Contact Move Advocate today for more information and for help in moving your clients and their pets safely.