The Good & Bad on Loan Modifications

Good news on the loan modification front! Loan modification approvals are up 69% in the 3rd quarter of 2009. Why are banks increasing the approval rate?

a) they have the Christmas spirit
b) they have so much money they are giving it away for the holidays
c) they are getting heat from the government and media

I think we all know what the answer is. There is also bad news. All approved loan modifications have had a 40% default rate. Why? Well, because a lot of the loan mods have the same or higher payment amounts than the original payment that was defaulted on! It's all about manipulating the numbers to make it look good when the government regulators start asking questions. My advice, keep up the pressure and write to your local Governor, Senator, and Representatives, and pull your money out of from the likes of B of A and Wells Fargo!

Upon further review... New short sale program lacks teeth!

I posted a couple of weeks ago about the government passing a new streamlined short sale program. I'd like to go over my thoughts on the program now that I have had some more time to evaluate it.

The key aspects of the program are:
1. The banks participating in this program have 10 days from a submitted offer to accept or deny the offer. Currently this time frame ranges from 30 days on the good side to 2 yrs if its Bank of America.
2. The banks would have no recourse after the acceptance of the short sale. Currently, if the short sale approval does not have the correct "verbiage" the bank can and will on occasion sell the deficiency to a collection agency.

This is a start and I have been preaching about reform for 3 yrs. The problem with this program however, is it does not address secondary lien holders which are in many cases the banks themselves, that usually hold up the transaction. The program allows secondary lien holders to receive a maximum of $3k. Right now secondary lien holders are asking much more than $3k. This is also a voluntary program, how realistic is it to think that the banks are going to be nice and agree to $3k when they are owed $100k and they know they can hijack the deal unless someone gets them some additional money? That will never happen. I applaud the government for trying but this program lacks the teeth that is needed when dealing with the likes of Bank Of America!

New guidelines for banks for carrying out short sales

I have been preaching for 3 years now about the callous and deceptive practices of banks. In the last 2 days, we see the Government finally setting rules for banks to follow regarding loan modifications and short sales. Tuesday, I posted an article about loan modifications and today here is the article for short sales.

http://www.dsnews.com/articles/treasury-releases-guidance-for-making-home-affordable-short-sales-2009-12-01

I am hopeful that this will help quicken the response time for banks regarding short sales decisions but I can already see quite a few things regarding the guidelines that concern me. I'd like to go deeper into the possible problems in a future post but I'm still glad to see at least they seem to recognize that the problem exists. Let's hope we see some positives from the new guidelines!

Stricter regulations for banks, finally!

So I got a call from a local politician asking me if my bozo bank videos were based on real stories. I told him absolutely and after about a 2 hour conversation, where he was amazed that such practices were happening even here in Portland, he thanked me and told me to keep up the good work. Honestly, it was a satisfying feeling for me to know that maybe the message is starting to get heard by the higher ups.

I came across this article yesterday and it seems the white house is going to be cracking down on banks to push forth more loan modifications with stricter regualtions. Now obviously there is no connection regarding my phone call with my local government official, but I thought the timing was pretty intriguing. Let's hope they are starting to listen to the masses and we will see if this is just political hyperbole or the start of real change.

Here is the full article: http://www.dsnews.com/articles/servicers-face-penalties-ill-repute-as-administration-rallies-for-more-modifications-2009-11-30

Is the uptick in home sales for real?

Home sales shoot up in October. The expiring tax credit, low interest rates and affordable prices all contributed to the uptick nationally as well as locally here in the Portland real estate market. I personally sold 15 homes in the month of October.

What looms ahead? I think we will see a seasonal lull with February and March of 2010 being big months with the April deadline for the extended credit. It is the months following that are a little worrisome. Is the tax credit keeping prices up and when that goes away, will we see like in the car industry a screeching halt?

Here's the full story: http://www.bloomberg.com/apps/news?pid=20601068&sid=at8txtF7KVaA.

Home buyers tax credit extension!

This week, the Senate is expected to pass an extension of the tax credit that was originally going to expire Nov. 30. Buyers who sign a purchase agreement by April 30th and close no later than June 30th can now claim the credit. The extension will apply to higher income buyers. Previously, the credit was available to individual filers making $75,000 a year or less. For couples the limit was $150,000. The new income limit will be $125,000 for individuals and $225,000 for couples.

There’s also something in it for move-up buyers: Before, you couldn’t claim the credit if you owned a home in the past three years. Now, if your last home was your primary residence for at least five years, you can claim $6,500 in tax credit if you buy a new home. However, the new house can’t cost more than $800,000. Hip hip hooray! I think that this is one of the few ideas that our government has actually made a good decision on. You might say: "Of course you do Nick! You are a Realtor!" But why should I, as a tax payer that is not buying a home, have to pay the bill? History, my friend. Every recession and boom has led with housing, and trust me this will help sales.

In the last three months we have had a giant increase in sales on Portland homes priced under $300k, and that is the general feeling across the country. With the added tax credit for buyers upgrading, low interest rates, and a hot market under $300k, this will spur sales in a price point that was dead. So my vote is for giving the stimulus money to the American people and let us take ourselves out of this recession. We all know the national banks are not going to.

Shadow inventory. What? Where? When?

Shadow inventory. We wrote about this 2 months ago. Where is it ? What is it? It is around the corner like the experts say? This is where the banks do not re-list properties that they have foreclosed on, or they just don't foreclose at all. The debate is about if this is the right thing to do. I think it might be one of the only smart things the banks are doing right now. Common sense says why flood the market when that will only drive prices down instead of limit the inventory. Look at the diamond industry, diamonds are not rare stones and I would say they have done a pretty good job at keeping prices high. Is it ethical? I will leave that up to you!

BofA Implements Equator (REOTrans) Platform, as Short Sales Gain Ground

This is good news, because the truth with Bank of America is that you could not get any worse. I have clients that want their Portland home to go to foreclosure, and B of A won't foreclose even though it has been two years since they made a payment. I have over 50 short sales in with B of A and on average it is taking 172 days to get a response. By that time, generally the first buyer is gone, and if you have a new buyer the process starts all over again! It just doesn't make sense.

Full story here: http://www.dsnews.com/articles/bofa-implements-equator-reotrans-platform-as-short-sales-gain-ground-2009-10-22

What do I think about the $8000 tax credit?

My take on the $8,000 tax credit is extend, extend, extend! If the government is giving out money - $700 billion in TARP funds - with no accountability, then by all means give it to the people directly. That's better than some bureaucratic waste machine that gobbles up 70% of the money, and the little that is left over goes to the people.

First time home buyers here in the Portland real estate market have comprised a very large portion of the closed transactions, and they all want an extension of the credit. From my conversations with people around the country, all across the board they agree that this should continue! The key is to have a deadline: 6 months maximum. Otherwise, without it, it will be a very interesting Winter!

http://www.bloomberg.com/apps/news?pid=email_en&sid=aslwB9Jb8FCY

Get your handkerchief because this will make you cry

I am a simple guy trying to work hard and get through this difficult time. I work in a world that I would currently call Bizarro World, and that is because I work with the banking industry. Right now, this is an industry that is making huge profits from free money, aka TARP funds, that our government is giving out under the assumption that the banks will loan money and keep people in their homes. My role is to help people navigate the land mines of loan modifications and short sales. In the real world, if money is given out, there are expectations. In Bizarro World this is just not the case! Let me give you some examples...

Example 1: B of A, the largest recipient of TARP funds (taxpayers’ money). I have worked on hundreds of files with them and I am amazed that even when state laws say there is no way for them to come after homeowners that foreclose, they still insist that if they approve a short sale that nets them more money than a foreclosure, they still will not release the client from the deficiency. Huh? Real World = More money good. This is clearly Bizarro World.

Example 2: Washington Mutual. I had an approved short sale scheduled to close October 16th, purchase price $445k. Washington Mutual foreclosed and sold the property for $305k. The investor called me up and he sold it to the buyer. That's 140k less, why would you do that!?! Real World = Bad for bank. Bizarro World = Good for bank

Example 3 is the worst of all: The FDIC sold IndyMac to a group of Wall Street insider billionaires like George Soros and Michael Dell, and in the Real World the terms for the purchase were unbelievable. Let me put it in terms like this: Let's say I am a gambler and the casino said “Ok Nick, gamble a million with us, and if you win, you keep all the profits, but if you lose this is what we will do: The first $200k you lose we will give all of that money back, the next $100k we will give you back 80% and after that we will give you 95% of your money back if you lose. The worst of it is if you are a homeowner trying to do a loan mod with IndyMac, what would be the incentive for them to approve you? They make more money if you default. Wow!


The FDIC Fact Sheet states:
“The FDIC has agreed to share losses on a portfolio of qualifying loans with New IndyMac assuming the first 20% of losses after which the FDIC will share losses 80/20 for the next 10% of losses and 95/5 thereafter.”


If I read this right…Uncle Sam takes on 100% of the first 20% of loan losses, then takes 80% of the next 10% and finally takes 95% of any and all losses after that.

It’s times like these when I wish to live in the real world again.

Price matters in the 'rebound'

Nationwide, properties under $250,000 have been selling well, but the picture above that price point is still not very pretty. In our Portland real estate market, properties under $300k are competitively sought out by buyers, especially first time buyers who are taking advantage of the current $8,000 tax credit. Lots of Portland short sales and foreclosures have encouraged people to find great deals below market value, but overall there are only so many buyers for mid-priced to luxury homes at this time. If you have bought in the last five years and want to upgrade, chances are there is little or no equity in your home, and that makes it very difficult for most people. So consequently the middle of the market is slow because upgrading is a challenge for those buyers. Financing luxury homes, the expensive top 10% of those listed, is very difficult and the buyers are few. Buyers expect deep discounts right now on these high end properties, so unless you are willing to sell it at a reduced price or your Portland home is unique, it may not sell in a reasonable amount of time.

http://money.cnn.com/magazines/moneymag/moneymag_archive/2009/10/01/105855726/index.htm?postversion=2009092410

Attorney General and the Department of Justice cracking down on fraudulent negotiation companies!

Amen - When is the first indictment? Oh, I forgot the banking industry has great lobbyist and government backing so they won’t be targeted - This my issue with the whole crack down. If it wasn’t for the national lenders making it so difficult for people to do loan modifications and short sales, you would not have companies that provided this type of service. I agree 100% that no one should pay any upfront fees for having someone help modify their loan or do a short sale. Why? First, the success ratio for loan mods is less than 12%, so your chances are slim to none of getting approved at all. Secondly, if a company is effective at negotiating short sales, they should have the confidence to get their fees at the close of the transaction.

We the taxpayers are funding these banks through the government bailout, and I am appalled at the lack of ethics, standards and accountability that our government and politicians are making the banks follow. I deal with hundreds of distressed home owners in the Portland real estate area on a monthly basis and I deal with the lenders daily. You would be shocked at the callous and deceptive practices that they follow. I support a full crackdown of fraudulent companies, but start at the top.

Commercial Loan Modifications, Get Some Help

If you thought residential Portland real estate was complicated, commercial Portland real estate also has it share of issues in the current market. Locally, I have received numerous phone calls this month about commercial property defaults and the tax implications involved. The article below outlines some very positive news from the government, who is trying to slow down the steam roller that is headed towards businesses in a hurry. The government will now make it easier for commercial real estate loans to be modified and also keep their tax status. The question is of course, will the Big Bad Wolves, aka the Banks, work with the borrower?

http://online.wsj.com/article/BT-CO-20090915-709931.html

Another plan - This time from the FDIC

The FDIC covers some of the losses incurred by failed banks, so to help homeowners avoid foreclosure, they are encouraging banks to reduce mortgage payments for the unemployed struggling to pay their notes. This is basically a 3-6 month forbearance, with the balance payable over the life of the loan. The FDIC will cover the difference for the lenders, if any lenders agree to cooperate. http://money.cnn.com/2009/09/11/news/economy/forbearance_unemployment/index.htm?postversion=2009091118

The government and it's related agencies can implement 100 programs to help Americans, but if they can't deliver on these programs effectively, it's nothing but hyperbole. Let's keep these plans simple and effective. These programs need to be easy to understand for everyone, loss mitigators and homeowners alike, so that we can get loan mod approvals up from 12%. Yesterday, I met with an attorney who had no idea about a new law here in Oregon: HB 3004. Simply, if the 1st and 2nd purchase money mortgages on a home are with the same lender, the 2nd can no longer seek a deficiency judgment against the homeowner if they fail to perform. In this case, the client had US Bank holding both mortgages, and he literally skipped out of the restaurant with a big smile on his face.

Is the Obama Plan Working?

Maybe. Personally, we have seen a better response time from the lenders on short sales and loan modifications just recently, the approval time has decreased by about 12 days on average. Their cooperation with us has improved and that's a step in the right direction, but this is still an arduous process. Loan modifications are up 3% in the last 2 months to an average of 12% of eligible homeowner receiving approvals. That's still pretty rough, but any improvement is welcome. Here's a good example of a success story: A client just received an approved loan modification on a $1 million balance from 6.37% to 2.5% for 5 years! That's what is needed, since we all know these lenders really don't want to foreclose on these high end homes. Contact us anytime for answers to your Portland real estate questions in this unique market.

I was approved for a short sale! I am off the hook!

Not so fast. In all reality, that is where the negotiations start. Are the banks releasing you from the debt as well, or are they just releasing the lien and expecting you to pay the remaining balance? For example: We are helping a local attorney with the short sale on his home. He only had one loan and the bank verbally told him they would not seek a deficiency. I explained that the wording in the approval letter did not state that, and that he should not close until they included the appropriate verbiage in the approval letter. He decided to close the transaction. (Remember - This is an attorney). 3 weeks later he called me up explaining that his credit report showed a balance owing. Hate to say I told you so! First - Understand the laws of your state. Is it a non-deficiency state or a recourse state. That knowledge will give your negotiating strength over the bank. Second - Always have things in writing, verbal agreements do not work. Third - Make sure you are working with someone that has extensive experience in these type of transactions. In the real estate field, the new term is Certified Short Sale Specialist. This is important, because at least you have the fundamentals, but if that person has not closed at least 50 short sale transactions they are a rookie!

We have closed hundreds of short sales and would be pleased to discuss your unique situation to show how we can help out. Give us a ring at 503-594-0805 or email me at nick@oregonhomesaver.com


Written by Nick Shivers

The Good, Bad, and Ugly

The Good, Bad, and Ugly

We have written recently about loan modification, and the lenders' ineffectiveness and disinterest in getting them done. Who holds your loan greatly affects your ability to get your loan modified. Here's our ranking of the major servicers and their overall percentages of approving loan mods for eligible loans since the government program was instituted:

The Good

Aurora: 21%
Chase: 20%
GMAC: 20%
Saxon: 25%

The Bad

CitiMortgage: 15%

The UGLY

Bank of America: 4%
National City: 4%
Ocwen: 5%
SLS: 3%
Wachovia: 2%
Wells Fargo: 6%
Wilshire: 1%

Written By Nick Shivers

My House is upside down. I am walking

Strategic Defaults

Deutsche Bank is estimating that 48% of all Americans with mortgages will owe more than their home is worth. That is 25 million people! Zillow reports that 20 million were already underwater at the end of first quarter 2009.

Who's suffering the worst?

Option-ARM Borrowers. Also known as negative amortization loans: 77% are underwater.

Subprime Borrowers with bad credit: 50% are underwater.

No-documentation loans, which did not require proof of income: 49% are underwater.

Prime Jumbo Loans for that large purchase: 26% are underwater.

Basic Conforming Loans requiring money down: 16% are underwater.


In light of these devastating reports, is it clear that not every homeowner will choose to keep their home. Expectations have always been that real estate is a great way to build wealth slowly over time, but with the recent accelerated run up and decline in home prices, people are scared. If half of homewners have no equity in their homes, many are looking for a way out of what they see as a bad investment. Voluntarily walking away from your mortgage, but not immediately from the home, is going to be a very popular choice. As we have discussed in earlier blogs, foreclosure is a time consuming process and many homeowners are staying in the home without making payments for 8+ months. Regardless of being able to pay their note, some feel that there is no promise that their house deed will be worth anything of value to them in the near future. If you don't know which way to turn in this uncertain time for real estate, our best advise is to consult with professionals like us who fight for you on the front lines everyday.

Written by Nick Shivers

Where's our $75 Billion?

Where's our $75 Billion?

Apparently not in loan modifications yet, since the numbers are lousy so far. Only 9% of homeowners who are delinquent on their mortgages have been assisted with trial loan modifications so far. 15% of borrowers have been offered modifications, which only translates to just over 400,000 homeowners. Who holds your mortgage can GREATLY influence whether or not you are getting this offer. Saxon has 25% of delinquent borrowers in modification, whereas Wells Fargo and B of A only have 5-6% in modification. Yuck. So the first four months of this program have been rough, and Washington D.C. wants to see 500,000 loan modifications by November 1st.

On a lighter note - Without proper staffing at the lenders, they simply cannot handle the deluge of requests. Here's a suggestion for the Obama Administration if they want to get serious about solving this problem: The banks have had ample time this year to take action and keep people in their homes, and they are fumbling around and not getting it done. If the government wants to create jobs, let them hire thousands of people to be loss mitigators outside of the lenders. The positive result is twofold: New jobs created and more people getting their loans modified!

We encourage you to call these loss mitigators at the lenders yourself if you need help making your payment. Our specialists can coach you and give you some good information to help you help yourself, but most companies just want to take your money and run. Don't pay someone to do it for you, they will get you similar results! Even if they don't modify your loan, the worst case scenario is that it slows down your foreclosure and keeps you in your home longer!


Written by Nick Shivers

The upside of the Portland market compared to the West

The upside of the Portland market compared to the West

Nationwide, we have finally seen a raise in median sales price in June which is very encouraging. And locally, we have reasonably good news as well. Our inventory of homes in the Portland Metro area has dropped to 8.2 months, which is the lowest level since August 2007. A comfortable inventory is around 4-5 months, which is the amount of time it would take for the current active listings to be sold. As well, according to DataQuick, foreclosed properties have only accounted for 17.2% of our total home sales in the last 12 months, whereas in the Western states, foreclosures have been HALF OR MORE of all resale activity!
Combined with the data that our median price drop in May has only been 12.7%, compared to vastly higher numbers in AZ, NV, and CA, we are in relatively good shape.

The Big Bad Wolf of Short Sales

The Big Bad Wolf of Short Sales

Would you let a wolf guard your sheep or count on a trained and loyal sheep dog?

This is what a lot of homeowners are doing when they allow an investor to sell and negotiate their short sales. They are called investors because they want to make money on the deal. In my opinion, this is perfectly ok! We live in America! But I, as the home owner, would not want them to make their money on me!

Here's an example: One of my clients received a call from an investor the other day explaining to them that they would buy the home and resell it and not charge any Realtor fees. This sounds great, but here is the truth: The investor will try to get the home at a discount so he can resell at a profit. Depending on the homeowner's situation, this could harm the client. Secondly, 90% of all short sales are not good investor’s purchases, unless the property is in major disrepair. The investor tries to get such a low price for the home that the banks will never take the deal and the home usually goes to foreclosure.

This is my advice - Find a real estate agent that is an expert in short sales. Remember the buzz word in the real estate community right now is "expert short sale agent", so everyone is claiming to be an expert. Here are two very important questions to ask an agent before you list your home with them: How many short sales have you successfully closed on the listing side? If the answer is below 50, I would keep looking. Secondly - Who does the negotiating? If the agent says that they do, be very careful, because they better have a team behind them doing everything else because short sales are very labor intensive. I don’t believe you can be an expert and not have a staff behind you. My team has successfully completed hundreds of short sale negotiations and we learn something every day.

There are times that investor purchases make good sense. If the property is in bad shape, if the seller's main goal is to stay in the house as long as possible, or the sellers of the home are going to or have filed bankruptcy. In some cases it does not matter what the home sells for, so investor low price purchases are fine. But in most cases, find a real estate agent that is a true expert.

Written by Nick Shivers

The Strategic Foreclosure

The Strategic Foreclosure
If you have money in the bank but can barely make your payments, maybe you are considering negotiating a loan modification with your lender. Unfortunately, these are taking forever to get approved and the likelihood of them lowering the principal balance is very low. So what can people do that are $50,000, $100,000 or more underwater on their homes, but that could continue to scrape by and make their payments?
We're not attorneys, but we speak from experience, having handled hundreds of short sale transactions in the past three years. We can't advise you to use this approach, but many of our clients have used a certain strategy with their upside down properties, especially when they are wanting to stay in their homes. We are located in Portland, Oregon and have helped people all over the country with their short sales. It is critical that you and your Realtor know the state laws relating to foreclosure. In Oregon (and in many other states), this is a non-deficiency state, so the 1st mortgage lender has no recourse after the foreclosure or short sale. Consequently, we can use this to negotiate a full release of debt with your lender, so you can sell your home for less than is owed and avoid a foreclosure on your record. The reality is that this process takes time, and auctions are normally postponed when there is an offer on the home. Some homeowners we have worked with haven't made a payment in 2 years while we have continued to negotiate with the lender.
The bottom line is if you are in trouble financially and anticipate not being able to make your payments comfortably, immediately make contact with Realtors like us who know the in's and out's of the foreclosure and short sale process. We can come up with creative solutions that will ultimately give you favorable results and make the best out of a tough situation.

Written by Nick Shivers

Confusing and Contradictory Reports

More Confusing and Contradictory Reports about Oregon

In contrast to the last national news article that we wrote about, at least one writer thinks Oregon is positioned for a rebound. A new report from Moody's Economy.com and msnbc.com states that Oregon is one of 5 states that is well positioned for a job recovery in the last quarter of 2009. This is well ahead of the projections for the other 45 states, and this is mainly due to the high-tech industry centered in the Portland Metro area. There has been less spending throughout 2008 and 2009 in high-tech, and the expectation is that businesses on the sidelines of needing to upgrade their technology will be coming back into the arena with their dollars. The Silicon Forest is ready and waiting for those funds, and will respond in kind with new jobs and new opportunities. With our unemployment currently at 12.2%, this is welcome news! However, with all this confusing speculation in the media, what's the best way to make sense of the market? This is another reason to be certain that you are working with Realtors like us who are thriving in the local market and know the great opportunities right here in our community.

Written by: Nick Shivers

http://www.msnbc.msn.com/id/30991972/

Is Portland real estate really a bad investment?

Is Portland real estate really a bad investment? No way!

Let's be honest, Oregon's unemployment numbers are terrible. With 11.6% of the population without a job in April, this has a powerful impact on our housing market. This is the leading factor in some people's condemnation of our investment potential, but let's take a step back and look at the big picture of what makes the Portland Metro area unique: Relocation of California residents to our area accounts for a fair share of what fueled the local housing boom in past years. This will continue indefinitely, with an estimated increase in Portland's population by 1 million people by 2020. Our quality of life is excellent and is a magnet for those looking to upgrade to lovely communities without the huge coastal price tag. The Urban Growth Boundary restricts sprawl (see Phoenix, AZ for contrast) and preserves rural areas. Quality mass transit is ever expanding, and we continue to be a model for cities worldwide in our 'Green' developments.

We have properties listed at every price point, in every city in the Metro area, and we get offers on all of them. People want to live here! The Northwest did not experience much of the extreme highs of the housing bubble, and was over a year behind the nation in experiencing a downturn. Nationally, people are coming to grips with real estate being a long term investment rather than a get rich quick scheme. And when it comes to great places to live, Portland continues to get lots of positive media attention and deservedly so.
The long term outlook for this area is very strong, and most likely this will be the time period everyone looks back on and says: "If only I had bought then". Consequently, the best choice you can make is putting a qualified real estate professional on your side that understands the art of negotiation. We're here to help you get that great deal!
Written by: Nick Shivers

Article for the post

5 Housing Markets That Have Further to Fall
By Sarah Morgan, SmartMoney.com
Jun 30th, 2009
Think twice before buying a house in these cities any time soon.
Home buyers looking for a bottom in the real estate market may have been encouraged by housing data released earlier this week. Sales of existing homes rose 2.4% in May, according to the National Association of Realtors. The increase was a little less than most analysts had expected, but it represented the second straight month of improvement. Meanwhile, sales of new homes dipped 0.6% in May, continuing a trend of fairly flat months so far this year, according to data released by the Commerce Department.
Don’t get too excited – it’s still too early to say the housing market bottomed out, analysts and economists say. Distressed properties still account for about a third of all sales, and 29% of sales were to first-time home buyers, who are currently benefiting from an $8,000 tax credit.
The sales trends are telling. “You’re not really seeing a lot of move-up buying,” says Richard F. Moody, chief economist and director of research at Forward Capital, LLC. “There are so many vacant homes and so many foreclosures that [there’s] not the normal trade-up pattern that you would have traditionally seen,” Moody says.
Housing prices fell nationwide during the first quarter, according to Standard & Poor’s Case-Shiller Index. The decline appears to be slowing: in February and March, the annual rate of decline did not set a new record, but home owners should take little solace in those numbers. “Based on the March data… we see no evidence that that a recovery in home prices has begun,” David M. Blitzer, chairman of the Index Committee at Standard & Poor’s, said in a statement.
All of this less-than-terrible news has left analysts cautiously optimistic that much of the country will start to see housing prices rise sometime in the next year or two. Looking at the nation as a whole, today through the spring of 2011 may be the window for those looking to buy a house at the bottom of the market, says Gary Hager, president and founder of Integrated Wealth Management, a New Jersey-based financial planning company.
A few markets where the housing crisis started earliest have already shown signs of bottoming out. Early-suffering cities like Denver and Boston are now seeing slower declines in home prices, which could indicate they’re already poised for a comeback.
And in some areas, buyers have seized on rapidly falling prices. Existing-home sales rose 9% in the Midwest in May, according to the National Association of Realtors.
“There will be regional differences in the turnaround,” says Maureen Maitland, vice president of index services at Standard & Poor’s. “Most economists I talk to are expecting the beginning of the turnaround to be sometime next year,” she says. However, she added, “the last market may not turn around for two or three years.”
For those hoping to buy at the best possible price, we’ve got a list of five cities where home prices may still have farther to fall. But keep in mind, getting a house at a discount is still not necessarily a house you can afford.
“In light of the housing market boom and bust, consumers should feel very comfortable financially” before deciding to buy, says Lawrence Yun, chief economist for the National Association of Realtors. “They should not try to overstretch their budget to get their dream home.”
1) Detroit
Housing prices fell 4.9% in Detroit in March, according to the latest reading of the Case-Shiller Index. That marked the city’s largest monthly decline since January 1991, when S&P’s backlogged data begin. Houses in Detroit are currently selling at 1995 prices – and with prices still falling so fast, it’s hard to say when the city will rejoin the 21st century.
“Detroit is Detroit because of the auto industry,” says Maitland. The whole Midwest is hurting from car companies’ woes, but Detroit is hurting the most.
2) New York City
Anyone who was hoping to see Wall Street suffer from the financial crisis can relax. New York may have avoided the nationwide implosion in home prices early on, but the city saw its largest-ever monthly decline in March, at 2.5%.
“New York may not be out of the woods,” Maitland says. “Because of what’s going on with the financial markets and the layoffs on Wall Street, New York may be one of the last places to turn around.”
3) Phoenix
Home prices in Phoenix have fallen 53% from their peak in June 2006, and the 2009 data suggest they’ve got farther to go. In March, prices in Phoenix fell 4.5%.
The Southwest has been one of the hardest-hit regions in the mortgage crisis. The region still faces a glut of recently-built homes.
“In Phoenix, you had some of the worst excesses,” in terms of overbuilding, Moody says. “The surplus of houses is so great that it could take two or three years” for prices to turn around. However, a steady influx of new residents into the region suggests the long-term prospects for the market are sound, he says.
4) Portland, Ore.
In the Northwest, median home prices are down but they remain above the national average. Portland’s prices fell 2.1% in March. Home prices in Seattle were down 2.0% for the month.
“Portland’s still going down,” says Dave McCarthy, president and chief executive of Integrated Asset Services, a real estate valuation and asset disposition and management company that collects data on the housing market.
The city “has remained pretty strong but they’re starting to feel some of the effects,” he adds.
The local labor market may be playing a role, Moody says. Portland’s unemployment rate was 11.6% in April, according to the Department of Labor. That’s well above the national average for the month (8.9%).
The Pacific Northwest bubble was among the last to burst, which could mean the market will be among the last to recover.
5) Minneapolis
Housing prices in Minneapolis fell 6.1% in March, the largest monthly decline of any metro area since data tracking began in 1987.
More than half of all March home sales in Minneapolis were due to foreclosure or short-sale activity, according to the Federal Reserve Board’s Beige Book, which gathers information on regional economic conditions. Foreclosed homes tend to drive prices down because “the bank’s best interest is to get the asset off their books” as quickly as possible, Maitland says.

Making Your Home More Affordable ( In Theory)

The Making Home Affordable program has just released a statement today saying that they will now refinance any Fannie Mae and Freddie Mac loans with a Loan To Value Ratio of 125%. This is only open to eligible homeowners with loans backed by them and begins on September 1st. The LTV limit was formerly 105%, and this opens up doors for millions of homeowners to take advantage of low interest rates even though they have no equity. Those homeowners with private investors holding the loans are still out of luck for the time being.

AND REMEMBER - ONLY 12% of all eligible loans that are currently be reviewed by the lenders are being approved!


Written by:
Nick Shivers

Banks Defrauding Banks

In short sale negotiations, we often run into a very difficult situation when there is a 1st and 2nd lienholder on a property: The 1st agrees to provide a small sum to the 2nd from the proceeds of the short sale, but the 2nd tells us that they will not agree to release the lien unless they get thousands more. The 1st refuses to provide any additional funds and tells us that they don't care where the money comes from for the 2nd, but it isn't coming from them. The seller is broke, the buyer wants a bargain, and consequently the property cannot be sold without the 2nd getting more funds. If the purchase price increases, the funds to the 1st increase, but the amount for the 2nd stays the same. No deal = Foreclosure.

These funds have to come from somewhere, and the 2 lenders are asking us to work within some very challenging and grey areas. We work for the seller and we need to get the home sold, so this requires creative solutions and, very often, financial sacrifices on our part to get it closed. If only the lenders could be cooperative and honest with each other to get these off their books.

The Mortgage Industry's 'Shadow Inventory

The Mortgage Industry's 'Shadow Inventory'

Due to our extensive experience with handling short sales, we encounter a wide variety of interesting situations involving lenders and their distressed properties. Some are surprising in a good way, but others are just surprising. Especially in the $500k+ end of the market, we have recently seen some unique situations that beg the question: What are the lenders up to?

A client for whom we had listed a short sale called us a week or so before his auction date saying that he no longer wanted to wait for the sale to go through and that he wanted the bank to take the home back and file bankruptcy. Complying with his wishes, we informed the prospective buyers that this sale was not going to go through and that we would soon cancel the listing. Through no action of ours, a curious thing happened: The bank did not foreclose, they postponed the date 30 days. Normally our sellers want us to postpone their auctions so that we can continue negotiating the short sale, but this was a unique situation. He was upset at us, thinking that we had done the postponing, but we let him know that this was done directly by the lender. What's their motive here?

Some of our clients have not made mortgage payments in a year, two years even. No auction date, no foreclosure. To foreclose or not to foreclose is usually a question based in math for the lenders when considering a short sale. They look at what is the most cost effective action to take that helps their bottom line. But to delay foreclosure, or not even start the process for certain higher end properties seems to reveal one consistency: Just because the lender forecloses doesn't mean that getting it off their books is going to be inevitable or timely. Few homes are bought at auction, so most go back to being bank owned. And they may continue to own it for a while...

The 'Shadow Inventory' is a nice way of describing the homes that the banks take back but have not listed for sale. The numbers are staggering, with RealtyTrac estimating it at over 600,000 homes nationwide. Clearly, if they listed them all at once, inventory would skyrocket and prices would spiral down. On the other hand, not listing them temporarily and artificially inflates prices, which is manipulating the market.

So perhaps the lenders are onto something. Don't foreclose on valuable homes and at the same time, drag your feet when considering short sales. Anyone that's attempted to negotiate a short sale or loan modification knows that the red tape and time line are enough to make you scream. If the big picture for them is really to let delinquent homeowners stay in these expensive homes, waiting for the inventory to decrease and prices to rebound, they must have a math equation at the heart of it. Perhaps that's because they are collectively controlling the market's 'Shadow' and can imagine and create the future by doing so.
Below I have included the article from the San Francisco Chronicle.

The San Francisco Chronicle:
Lenders nationwide are sitting on hundreds of thousands of foreclosed homes that they have not resold or listed for sale, according to numerous data sources. And foreclosures, which banks unload at fire-sale prices, are a major factor driving home values down.
“We believe there are in the neighborhood of 600,000 properties nationwide that banks have repossessed but not put on the market,” said Rick Sharga, vice president of RealtyTrac, which compiles nationwide statistics on foreclosures. “California probably represents 80,000 of those homes. It could be disastrous if the banks suddenly flooded the market with those distressed properties. You’d have further depreciation and carnage.”
In a recent study, RealtyTrac compared its database of bank-repossessed homes to MLS listings of for-sale homes in four states, including California. It found a significant disparity - only 30 percent of the foreclosures were listed for sale in the Multiple Listing Service. The remainder is known in the industry as “shadow inventory.”
The number of foreclosures is not going to decrease any time soon. Sean O’Toole, Founder and CEO of ForeclosureRadar.com, told me that out of the 9 million mortgages in California, 2 to 3 million are upside down, which means their houses are worth less than what they owe on the bank. On top of that, anywhere from 700,000 to 900,000 households have stopped making payments and somewhere around 250,000 are scheduled to be foreclosed.
This adds up to a staggering number: a total of 3 to 5 million homes, one quarter of the 12 million households in California, are going to flood the market very soon. Nationwide, there is a two-year supply of unsold homes, twice what official statistics estimate.
To put it simply: banks are limiting supply in order to keep inflating the bubble. Keeping properties off the market makes sense for two reasons: it allows banks to engage in another round of brazen ripoffs by selling at least some of their properties at artificially high prices to a new wave of sucker investors (many of which are first-time home buyers). But more importantly, it allows the banks to avoid recording a loss on their balance sheets, making them look more profitable then they really are
It looks like the banks are all in on this racket together. Earlier this year, the industry had accounting rules changed to make this kind of market manipulation possible (meaning, profitable.) That’s what those new “mark-to-model” accounting rules back in April were all about. Instead of having the market determine prices, the changes allowed banks to value their assets based on a future projected worth to be determined by the banks themselves.
The change was pushed through with an aggressive lobbying campaign by the financial industry. For a measly $30 million in lobby fees, banks inflated their worth by tens of billions of dollars, instantly. Wells Fargo said the change boosted its capital by $4.4 billion in the fist quarter. In the second quarter, it is expected to increase banks’ earnings by an average of 7%.
It might be legal now, but it’s still fraud and flagrant market manipulation.
Here’s an account by the WSJ of how it went down:
The rules had required banks, securities firms and insurers to use market prices to help assign values to mortgage securities and other assets that don’t trade on exchanges — to “mark to market.” But when markets went haywire last fall, financial firms complained that the rules forced them to slash the value of many assets based on fire-sale prices. That contributed to big losses that depleted their capital and left several of the nation’s largest firms on the brink of failure.
Earlier this year, financial-services organizations put their lobbyists on the case. Thirty-one financial firms and trade groups formed a coalition and spent $27.6 million in the first quarter lobbying Washington about the rule and other issues, according to a Wall Street Journal analysis of public filings. They also directed campaign contributions totaling $286,000 to legislators on a key committee, many of whom pushed for the rule change, the filings indicate.
Rep. Paul Kanjorski, a Pennsylvania Democrat who heads the House Financial Services subcommittee that pressed for the accounting change, received $18,500 from coalition members in the first quarter, the second-highest total among committee members, according to Federal Election Commission records. Over the past two years, Mr. Kanjorski received $704,000 in contributions from banking and insurance firms, the third-highest total among members of Congress, according to the FEC and the Center for Responsive Politics.
The one obvious connection that is not being made is that this change in accounting, linked up with the shadow real estate inventory, is the shady base supporting our entire economy. Without the new rules, banks wouldn’t be able to pad their books in order to appear profitable. And without fudging the numbers, banks would never pass Geithner’s “stress test” or ever hope to to appear even slightly solvent.
It’s a twisted sort of logic, but it’s legal. It’s also very frightening. To think that all these empty homes I see around me are what’s keeping the US economy from total meltdown… If they had For Sale signs on them, the economy would tank even further. For now, these zombie homes don’t officially exist.
Ain’t the free market great?

An introduction to Short Sales

Well? Here I go.


I'm a lot more of a face-to-face people person. Those who know me will report that I'm all about the hand-shake, the slap on the back, and so on. It's not that I dislike technology; I love it, in fact. It's just that this Internet blog stuff hasn't been my style...until I realized it was needed.

Regardless, this spring break I realized just how busy I am, and how that limits my ability to reach out and share all that I've learned. So here I am: blogging. Who knew?

For better or for worse I've elected to specialize, focusing on spending the past few years learning everything I can about just one topic (real estate short sales), and as a consequence, I'm today mobbed by people, across the US, seeking advice and assistance. We are saving families every single day.

In response I created a team, and expanded that team's ability to quickly answer inquiries, via web, phone, and email. That's a good thing, in that: we are able to help home owners develop a needed competency. Our Fridays are a real celebration, where the group hoops and hollers about how another week has elapsed without a single foreclosed home.

But being busy has proven a frustration in the way it's caused increasing difficulty for me to directly share all the little things we learn on a daily basis. And, like I said: I'm a real people person, who enjoys reaching out and touching people directly.


So here I am: blogging. A 21st-century solution for a fellow who enjoys doing business the 19th century way: face to face. We make the most with what we have.


Ok....where to start? How about at the beginning?

Let's acknowledge that short sales and loan modifications are very complex and confusing for many people. This blog will serve as a reference for those who seek a short-cut for becoming "short sales experts" in their own right, thus enabling them to better respond to challenges they may be facing.

The blog entries on this site will boast a language and style that reflects our most current understanding of how to maximize success while minimizing stress, based on our experience. However, as a person who enjoys learning, I warmly welcome your comments regarding how to streamline or improve upon some of the steps or recommendations. Even though people have taken a fancy to calling me an "expert," I know that one only remains so by keenly listening to others.

In other words: your feedback is valued.



The mission of my team (Short Sale Connections) is assist you (the home owner) in processing a request for a short sale or loan modification with the lenders. Please keep in mind that my team's employees are not real estate transaction coordinators, and your agent is responsible for obtaining documents from you, the homeowner, as well as any and all real estate documents from all parties. Just to make sure we are understood, assuming that at some point we decide to enter into agreement with each other.

That aside, let me tell you that your participation is critical in this process! Many people on the verge of foreclosure tend to procrastinate, and you know what? That's absolutely and completely understandable. I would bet that most people don't purchase a home, and get emotionally vested, only to lightheartedly let it go a year or two later.

More likely, you purchased your home, and life served a reversal, or a series of reversals, you didn't anticipate. At first the bills are paid late, then the mortgage gets behind, and you developed a coping skill of lending a blind eye to things that, normally, they'd assign proper attention. You're undoubtedly not proud of this behavior, but it's an extremely common byproduct of the financial situation responsible for the current situation.


It's extremely helpful to communicate that a short sale is a process where we work with the lender or lenders to accept a payoff for less than what you owe. This means that the lender, if they choose to approve, will accept a lower offer than what you owe on your mortgages. Explaining it in this way may help alleviate some stress, shame, and pressure you may be experiencing:

With as short-sale, we leverage current market data to demonstrate to their lender that the market may no longer bear what you owe on your home. From the lenders perspective, offering to pay them less what is owed, but still consistent with the property's real market value, is often a vastly more attractive option to foreclosure. In other words: we're facilitating a win-win proposition for all parties, taking into account contemporary market realities.

You will qualify for a short sale by demonstrating you have a financial hardship which has caused you to no longer be able to make the requisite monthly payments. In the event that you request a loan modification, we will work with your lender(s) to modify the terms of their existing loan(s) so that you could possibly keep your home. This is subject to the lender or lenders’ approval, but still: in most cases these few facts will make you feel a heck of a lot better. We are buying you time, and allowing you breathing room.

Currently, the industry standard to complete a short sale is 60-90 days from a complete short sale submission. A tight and functional relationship between you and my team enhances our success rates and expedites our ability to close.

Frequently, homes that are offered as short sales need repairs, and may have had the utilities shut off due to lack of payment, and again: this makes sense. The last thing a person decides to pay is their mortgage. Chances are, you've let your health insurance go, your utilities, and so on. It's not unreasonable to find a home that requires some repairs.

Please keep in mind that the reason why someone is requesting a short sale is due to a serious financial hardship. Accordingly, sellers will not have the funds to make repairs needed for the property, nor will they be able to turn the utilities back on, and in this regard these kinds of transactions are a little different than what most agents and buyers may be used to. It is therefore the buyer’s responsibility to turn on utilities and to make any necessary repairs to the property. Buyers need to be aware that the property is listed “as-is” and everything is “Subject to third party approval”.

It takes resourceful, committed, and caring Realtors to succeed at short sale negotiations. It can be a long and drawn out process! However, given the need of many clients, developing this market competency will greatly increase your business, because let's face it: from the buyer's perspective "short sale" properties represent a compelling alternative to "full retail" homes also on the market.


Hey, assuming this blog transitions you and I into colleagues, I sincerely appreciate your time, hopefully your business, and patience throughout this transaction. I look forward to working with you to obtain a positive result for you and your family.




Nick.

A Quick Lesson in Broker's Price Opinion (BPO)

A Quick BPO Lesson

The BPO (Broker’s Price Opinion) is the most pivotal element of the short sale, since the lender’s valuation of the property is determined by this appraisal.

Whatever value is provided to the lender from the BPO will be the number from which they will decide what they will sell the property for. Consequently, the agent or appraiser that performs this valuation has the future of your deal in his or her hands!

Having knowledge about how the process works can be the difference between a closing and a lot of work for nothing. Here’s a brief description of the process and some tips to make it successful:

You will receive a phone call from the agent or appraiser who has been contacted to do the BPO on your listing. Please be as responsive as possible and return the phone call as soon as you can. Be polite, respectful, and friendly to this person, and accommodate their request for an appointment in a timely manner.

Normally, they will have a specific date and time by which the BPO needs to be back with the lender, and if this is not met, the appraisal could be assigned to another BPO agent, or worse, the file could be closed.

You need to attend the BPO! The BPO agent will not request for you to be there, but he or she needs to gain access to the property, so let them know that you are the only one that can get them in. They may be real estate agents with access to RMLS lockboxes, so assure them that you are the only one with access to the property.

It is imperative that they meet with you at the property so that you can properly advocate for your seller. Otherwise, they will not learn the background of the situation, the distressed nature of the property, have the right comps, or know the repairs required. You must provide this data and information, so have low comps, a contractor’s repair bid, and a smile when you arrive at this appointment!

Be at least 15 minutes early to the appointment, since BPO agents often arrive early to do outside measurements of the home. Being prompt is respectful and gives everyone the opportunity to do their job and then move on to the next order of business.

Befriend the BPO agent, provide them with your data, and let them know that it is a short sale. As well, tell them the offer price currently on the home. BPO agents will come in all personality types, so do your best to read your audience and let them know about the sad situation the seller is in.

Don’t be pushy or aggressive, just be a helpful person with information that helps the seller and yourself get a favorable valuation of the home. Building relationships with these agents is crucial, since you may see each other again and again, and you will want to work well together for positive results.

Short Sales: Frequently Asked Questions (FAQ)

1) "What should I do if I cannot find the homeowner after listing the property?"

You will need the FULL cooperation of the homeowner(s) to successfully negotiate the closing. In the event the homeowner(s) is unavailable or uncooperative, you may want to consider releasing the listing. This should be at your discretion and your broker’s.


2) "Can the seller just sign a Deed in Lieu (DIL)?"

The requirements for a DIL are similar to the short sale requirements and need much of the same documentation.

• In general, the lender will not accept a DIL on an investment property
• The property must be listed at least 90 days with no offers
• Clear Title/No second lien hold or other liens
• Full financial package (same as the short sale package)
• Foreclosure sale date cannot be within 30 days or request


3) "How long does it take to get a short sale closed?"

The lenders have asked us to give them 3-4 weeks after submitting the offer with the short sale package to make contact. Once submitted, the lender will contact my team (Short Sale Connections) for access to the property. A member of my team will notify you when we receive this call. The BPO takes 2-3 weeks to be returned to the lender and reconciled. Once the BPO has been returned and reconciled, please allow another 2-3 weeks for the lender to review the offer.

The industry standard, at this time (Q1 2009), is 60-90 days total.


4) "How is the seller’s credit affected?"

Completion of a short sale may appear on the Sellers/Borrowers credit report as: Settled, paid, short sale, or offer and compromise.


5) "What is a short sale?"

A short sale is a real estate transaction in which the lender allows a property to be sold for less than the amount owned on a mortgage and takes a loss.


6) "What is the difference between a foreclosure and a short sale?"

The negative impact for a foreclosure on a credit report is greater than the impact of a short sale. If the homeowner lets the property be foreclosed on they can be subject to a deficiency judgment. Generally, if the short sale is approved, the lender will not pursue a deficiency, although my team cannot guarantee that the lender will not pursue a deficiency.


7) "What are the tax implications on a short sale or foreclosure?"

Both can be a taxable event. This topic is currently subject to new legislation and therefore the homeowner should consult their tax professional for the most current, accurate information.


8) "Why can’t I call the lenders directly?"

We have our own contacts with the lenders, and to have more than one contact person on a file can further delay the process. It can also greatly anger any representatives of the lenders as they don’t have the time to relay the same information to multiple individuals.


9) "Can I send in a “Low Ball Offer” and have the lender counter?"

Unrealistic offers will be rejected quickly. Even worse and more likely, due to the outstanding work load that the lenders have, the offer will be ignored since the lender will feel that the buyers are not serious buyers and the negotiator will not respond at all for weeks or months. The lenders do not have the time or the man power in this market for “fishing expeditions” from the buyers.


10) "Why does OHS request up to 48 hours to return calls or emails regarding status updates?"

Each of our negotiators has up to 350 files at any given time. We request that we are given this time so that we can meet the needs of all agents on all of the files that we work on.


11) "Why do short sales take so long?"

A short sale requires the lender to review the homeowner’s financials in order to determine if the homeowner has the ability to pay any or all of the debt, similar to a buyer qualifying for a loan in reverse. The lender must determine the value of the property and weigh that against the amount owed. They compare what they think they would net from a foreclosure sale to the net proceeds of a short sale. The amount paid to the lenders is not always the determining factor. Sometimes an uncooperative second lien holder will cause the senior lien holder to foreclose just to clear the title.


12) "Why do lenders foreclose?"

Lenders are corporations driven to make money. They must answer to their shareholders just like any other company. These corporations do not want to own property. The only reason they foreclose is to gain control of the property or asset and recover as much of the principal loan balance, accrued interest, late fees, penalties, taxes they paid on behalf of the homeowner, as well as court costs and attorney fees. In most states, the laws are written so that the lender can only recover these widely accepted losses.


13) "Why does Your Team (Short Sales Connections, or more specifically: Oregon Home Savers, LLC) charge a fee?"

This fee is to pay for the services of a full time staff of negotiators. The seller has agreed to use its services. Oregon Home Savers, LLC is not a real estate company and does not engage in any professional real estate activities, e.g., the marketing or sale of the property, and solely works with the seller’s lender(s) with respect to outstanding encumbrances against the property. This is a professional short sale company that has one of the highest closing ratios of short sales in the industry. It has excellent personal relationships with lenders, and a wealth of experience in this field. Agents around the country use the services of OHS to get deals done that they otherwise would not have accomplished on their own.


14) "How is this fee paid?"

The buyer pays this fee and it is identified on the purchase and sale agreement. In the past, agents have done it one of two ways: They have asked for $3,999.00 from the seller to cover the cost, or they have lowered their offer by that amount, understanding that their buyer will pay the fee. Under no circumstances will my team agree to share in any agents’ fees in lieu of the Consultant Fee.


15) "How should I write that into the Earnest Money Agreement?"

If you are asking for the seller to pay the fee, on Page 1, Line 39, after describing the loan or payment option, include “Seller to pay $3999.00 in buyer’s closing costs.” And, in every case, on Page 2, Line 55, under Additional Provisions, include “Buyer to pay $3,999.00 to Oregon Home Saver, LLC.” If your buyers are obtaining an FHA loan please contact my team to discuss how the fee will be paid.


16) "If we do not close the transaction on this property, will my buyer be charged the fee?"

Absolutely not.


17) "How long will it take to obtain lender approval?"

This varies greatly according to each specific case. Each seller’s financial situation is different, and some are more complicated than others. A general estimate from the time you submit your offer would be 30-90 days to receive a response, either acceptance or counter, from the lenders. If your offer is not accepted by the lender, they generally do not provide a written response. Make sure your buyer understands this timeline so that everyone has reasonable expectations.


18) "Can more than one offer be submitted to the lenders?"

Frequently, multiple offers will be obtained on a short sale. Listings are kept Active in RMLS until there is written lender acceptance of an offer. Lenders will not provide a written rejection to your offer, only a verbal rejection. A written response is provided only in the case that your offer has been accepted.


19) "What are the steps in negotiating the short sale?"

It's illustrated here.

An offer is presented to the lender, and generally in the next 2-4 weeks a loss mitigation representative is assigned to the file. A BPO (Broker’s Price Opinion) is ordered by the rep. Once the BPO is completed, it normally takes 14-21 days for that to appear in the lender’s system.

If there is more than one lender, there may be more than one BPO, and sometimes more than one per lender. Once the loss mitigation rep has reviewed the completed file and done his/her’s due diligence, the lender will make a decision on that offer. This process needs to take place at each lender in order for them to make a final decision.


20) "There is an auction date next week, is the property being foreclosed on? What’s happening to our offer?"

Most short sales have auction dates, and if in the middle of negotiating the short sale, the auction date arrives, my team will make every attempt to postpone the auction while negotiations continue. Most lenders wait until the last minute to postpone auction dates, and this is very normal and typical. However, there is no guarantee that a lender will postpone the foreclosure sale, and my team does not warrant that a foreclosure sale will be postponed.

Whew!


Nick

Who's Who in the Short Sale Process

Just so you understand the players:


The Role of the Agent
The Real Estate Agent will act in accordance with the rules and regulations imposed on them through the Division of Real Estate and Board of Realtors in their area. The Agent/Broker is the one who contracts with the homeowner and requests all documents from the homeowner.

The Agent/Broker has the same fiduciary duty to the Seller/Buyer they would have with any other listing or transaction.

The Agent/Broker is responsible for meeting the appraiser or BPO agent.

It is the responsibility of the Real Estate Agent to advise the Seller to accept, counter or reject all offers presented on the property. All offers do not have to be presented to the lender. My team will then engage in the negotiation with the lenders.

Please provide the complete package as soon as possible to my team.

The agent is responsible for all communication with the buyer’s agents. Please DO NOT give other agent’s any contact information for my team, which includes phone numbers or email address without my team's expressed permission from my employees.

We do one thing, and we do it really, really well. The main focus of my team is to be constantly available to the lenders when they call without notice. If we miss a phone call from a lender to work on a file due to a call checking status, your file may be delayed by weeks. Note: my team, and their employees are not Real Estate Transaction Coordinators.



The Role of the Area Manager
The Area Manager has a general understanding of the Real Estate rules and regulations and specifically with short sale and modifications. He/She will work hand in hand with you to provide updates and to keep you aware of what stage of the process your file is currently in.

He/She will also notify you if the lender requests any updates as well as when the lender(s) make a decision on your file. He/She is the main point of contact for agents, though please allow for a 48 hour reply time in your request for updates. The Area Manager confirms that your package is complete, submits the initial package to the lender, and he is the person that you need to provide your entire complete package to.




The Role of the Loss Mitigation Department
The role of our most important department is to work with the lien holders to approve the short sale. This department calls on each and every file every few days to check for updates and to make sure that your file has not been placed at the bottom of the lender’s huge pile.


The Role of the Lender
The sole function of the lender in a short sale is to determine the amount that they will accept from the homeowner as a payoff on the loan or note secured by the subject property.

The homeowner must receive written approval of the lender’s order to deliver clear title on the contract they executed with the buyer.

The lender has no other authority or responsibility. They do not sign the listing or any other paperwork as the seller. They do not determine the listing price, except as to provide a minimum amount they are willing to accept in regard to the loan amount.

They do not make repairs or authorize repairs prior to closing. They will secure the property in order to protect the property from further deterioration through the foreclosure process.



Nick.

The Short Sale Process: The Demand / Approval Letter(s) / Closing

Once all approvals have been received from all lien holders, my team will review all approvals and submit them to escrow and agents. The approval letters will have an expiration deadline that the file must fund by. When you receive the approvals, please order the inspection (if buyers did not waive inspection) and appraisal.

Once the lenders issue the approvals there can be no changes to the HUD, or the lenders ALL have to re-approve the new numbers and issue a new approval. This is also true for a change in buyers. Expect further delays if either the numbers on the HUD change, or if the buyers decide not to proceed with the short sale.


The escrow officer will schedule a time for signing after the buyer’s loan documents have been received. Signings need to occur no later than 3 business days prior to the approval expiration date to allow enough time for the lenders to receive the final HUD and accept the wire.



Nick.

The Short Sale Process: Negotiation

You know? I might just come back and create an illustration for this, just so you can better understand what happens.

Once the appraisal or the interior BPO is returned and reconciled with the lender, there is a 2-3 week review period that the lender will need to process the short sale package and review the offer. After the review period ends, there are three possible outcomes:

1) The lender approves the offer and issues approval letter(s) within a 1 week period.

2) The lender declines the offer, as they feel the offer is too low for the true market value and counters your offer to a higher offer.

If this happens the lender will give you a time frame to reply by (normally within 2-4 business days). Please respond quickly or lender may close the file and then file will need to be reassigned to a new negotiator, which delays the file by weeks.


If the buyers are willing to increase their offer, please draft an addendum and submit it to OHS with all parties’ signatures. My team will submit the buyers increased purchase price to the lender for the new decision.

- Please allow 1-2 weeks minimum to hear from the lenders if the buyer’s higher offer was accepted. (Please keep in mind that anything less that what lender counters needs to be approved by managers and investors).

- If the counter is accepted, lender will issue approval within 5 business days.

- At this point, lenders may reduce commissions or decline to pay fees, OHS will notify you if this occurs.


3) The lender declines your offer and does not counter you.

This happens when the offer was so low and the lender feels that this was a “low ball” or “fishing” offer. File is closed and you have to start the process all over. This is a perfect example why “low ball” offers should not be submitted to a lender.



We always requests that a full satisfaction of debt is approved, HOWEVER lenders have the right to allow a lien release only, require a promissory note be signed by the sellers, or not fully release the debt and charge the remaining balance off as a collectable balance.

If any of these items occur you will be notified. We tend to see that a full satisfaction of debt may not be approved for non-owner occupied properties or properties where the sellers have obtained a cash out refinance.

Always recommend to your client to contact a tax professional with regards to the possibility of adverse tax implications that might be associated with a short sale.

All of the negotiation will be handled exclusively by my team (in the event, of course that you elect to use our services).


AGENTS - DO NOT interfere with this process as it angers the lenders and make the lenders less likely to work with you on a file. Remember, lenders will only allow one main contact per file!

Node the bold and italics? Important stuff, that. In my experience, nothing gums up the works more than too many cooks in the kitchen....did I just mix my metaphors? Hope not.


This process of negotiation is the same process for EACH lien on a property. This means first, second, third mortgages, judgments, IRS liens, HOA back dues, etc.. The time frame may increase substantially as each lien must approve in writing the others transaction.



Nick.

The Short Sale Process: The Offer

If the property is priced correctly, it should generate multiple purchase offers. The lenders will only entertain legitimate offers to purchase.

PLEASE ONLY SEND IN THE HIGHEST AND BEST OFFER.

Can you tell how important that is? I'm just wondering if the bold and italicized letters tipped you off to how this is critical. Are you wondering why?

In the event of multiple purchase offers, the agent must present all offers to the seller. However, we are not required to present all offers to the lenders, as doing this would greatly delay the short sale process and confuse the lenders.

Unrealistic offers will be rejected quickly. Even worse and more likely, due to the enormous work load at the lenders, the offer will be ignored and the negotiator will not respond, at all, for weeks or months. The lenders do not have the time or the man power in this market for “fishing expeditions” from buyers.

When the agent receives an offer, they should instruct the homeowner to accept, counter, or reject the offer. If it is a “low ball offer”, the agent should use their expertise and skills to work with the seller to generate a counter that will net the highest price for the sellers.

Continue to actively market the property while the offer is being reviewed, if no offers are received in 7-10 days, drop the price and continue to do so every 2 weeks until you receive an offer. Any time you receive an offer, notify Short Sale Connections.


The following fees will NOT BE PAID by the lenders. Please do not submit an offer to my team with any of these fees requested on the EMA, or on addendums to the EMA.

1) Home Warranty/Home Protection Plan
2) Home Repairs **PROPERTY IS SOLD AS IS**
3) Inspection Fees, Pest Inspections, Pest Repairs
4) Fees normally paid by the buyers
5) Survey Costs
6) Junk Fees
7) Utility Bills

The following fees MAY BE CONSIDERED FOR PAYMENT BY THE LENDERS

1) Property taxes
2) Owners Title Policy
3) HOA fees
4) HOA transfer fees
5) Country documentary transfer fees (if applicable)
6) Escrow fees
7) Commissions **MAY BE REDUCED BY LENDER**
8) JR Lien Holders/Judgments/IRS Tax liens
9) Seller Concessions ** Most lenders will only pay up to 3% of the purchase price in seller’s concessions to the buyers. If you submit an offer with a request for higher than 3%, please notify the buyers that we can not guarantee that the lenders will approve higher concessions than 3%.


What's next? Negotiation, discussed here.


Nick.

Short Sale: Estimated Time Lines

From the time the offer and complete short sale package is sent, it will take 3-4 weeks for the lenders to set the file up in their systems, assign it to a negotiator and order the BPO (Broker’s Price Opinion, discussed later).

Seven to fourteen days later, the lenders will have received and reconciled the BPO. Within the next 30 days, a Demand/Approval letter SHOULD be issued. This timeline varies depending on whether the sale needs approval from an underlying investor, Fannie Mae/Freddie Mac, PMI (Private Mortgage Insurance) Company, or if there is more than one lender/lien on the property.

When also negotiating a release on a second, third, IRS lien, or judgments, the time frame may increase substantially as each lien must approve in writing the others transaction.

At this time, the industry standard to complete a short sale is 60-90 days.


The team welcomes your phone calls and emails to check status of the short sale process. However: please be aware that frequent phone calls and or emails delay not only our response times in replying to your questions, but also takes our staff away from working on your files so please allow 48hrs to return an email or phone call.

We greatly appreciate your patience!


Buyers should be aware when they submit an offer that this process takes more time than a regular transaction. Frequently, it can not be expedited as the lenders have specific time lines in reviewing a short sale package. Short Sale Connections will do all that we can within lender’s guidelines to expedite processing of your files. If an offer terminates at any time during the negotiation, with many lenders the process starts over, even if the offer is better or if the file was initially approved at the same or better offer. Please keep this in mind when communicating with buyer’s agents.

The foreclosure process will continue while the property is listed and even during the negotiations of a short sale. Short Sales Connections will request a postponement of the foreclosure sale if a legitimate offer is pending. We cannot guarantee approval of postponement of auction as any postponement is subject to lender approval.


Nick.

Short Sales Documents

Man, I am on a roll! Ok, where were we? Oh, yes. The documents you'll need to ensure this is a smooth process.


For each short sale, there will be required paperwork that must be obtained from the seller. Start gathering this information as soon as possible, as lenders WILL NOT consider offers without a FULL short sale package.

See my prior blog "Short Sale Document Checklist" for a full list of what you'll need.


All short sale paperwork MUST come through our office. If you send the offer or package directly to the lenders we cannot quality check it for you to assure that it meets the lender’s guidelines. Therefore, we cannot guarantee it will be reviewed.

If it is sent directly to the lenders without our knowledge or support and you need our help, or the property is foreclosed on, there is nothing that we can do.

If you contact the lender during the negotiation process, this will delay the process and in many cases will cause the lenders to cancel and close the file. They will only allow one main contact on a file at a time to minimize confusion.

All documents should be submitted to Short Sale Connections as soon as possible. Once all documents and an offer have been sent, the time line for the short sale process starts with the lenders. The sooner we obtain this information the better for everyone involved.

Please submit these items at least 3 weeks prior to an auction date to Short Sales Connections or we cannot guarantee lender will delay the foreclosure of the property.


Nick.

Instructions: Submitting Offers on Short Sales (handled by Short Sale Connections)

It may help to reference this illustrated timeline when reading the following. Rather, it will help if you are a tactile, visual person like I am.


Short Sale Connections Fee
Short Sale Connections (Oregon Home Savers, LLC) is the professional short sale company that does all the negotiation and processing for this short sale, and it charges a $3,999.00 fee for its services (the “Consultant Fee”). The seller has agreed to use its services, and this fee is charged to the buyer. Understand that if the transaction on the property is not closed, no fee will be charged to either the buyer or the seller.

Purchase Agreement
The Consultant Fee will need to be included on the Purchase Agreement, payable by the buyer. On page 2, Line 55, in the Earnest Money Agreement under Additional Provisions, include “Buyer to pay $3,999.00 to Oregon Home Savers, LLC.”

Short Sale Addendum & Summary
Download the most current forms from RMLS and have your buyers sign them at the time of writing an offer to avoid having to obtain these signatures later. Please submit the Short Sale Addendum with the offer.

Closing Date
To avoid having to submit extensions while waiting for the lender’s response, please write the contract this way: “Upon written lender approval, buyer has 30 days to close”.

Contingencies
Short sales have a third party contingency already, so contingencies from the buyer, such as requiring sale of a home, are generally not acceptable to financial institutions.

Escrow & Earnest Money
A promissory note is an effective tool in short sales and is recommended. Until you have written lender acceptance on your offer, not just the seller’s acceptance, you should not deposit earnest money or open escrow.


Important: the following documents must be included when submitting an offer:

• RMLS Short Sale Addendum (download the most current version from RMLS)
• Buyer’s Pre-Approval letter or proof of funds

Loan Documents / Loan Locks / Financing:
Buyer’s financing should be completed up to inspection and appraisal so that closing can move quickly. Loan documents, appraisal, and inspections should not be ordered until ALL approvals are obtained from all lenders/lien holders. If a buyer chooses to lock in their interest rate prior to third party approvals, Short Sales Connections is (are?) not responsible for rate extensions, expirations, or costs that may occur to the buyers regarding rate/fees.


Nick.

The Short Sale Process, Step 1: The Listing

Ok, I'm going to attempt to work through this process, one step at a time. Why not start at the beginning?

When pricing the property for sale, list it at fair market value in the property’s “AS-IS” condition. As discussed earlier, this is because the seller isn't going to be in a position to make repairs.

To determine a favorable listing price, perform a comparative market analysis (CMA), summarize the estimated repair costs, and adjust your calculation accordingly. Document the condition of the property for the justification of your listing price and forward this information with the listing agreement to whomever handles your short sales process (hopefully, my company: Short Sale Connections). For any needed repairs to the property, prepare a list of repairs and/or a contractor’s bid and provide that to whomever is handling your short sale (us!).

Please see this example below of how to determine fair market value:


1.) Comparative market analysis (CMA) = $300,000

2.) Contractors Bid or Repairs = $100,000

3.) Estimated at:

$300,000 - $100,000 = $200,000 (Then multiply this figure by 95%)

$200,000 x 95% = $190,000 (this is the fair market value, or your list price)


Make sure you get the listing contract signed by the seller with the listing price filled in. Also obtain an addendum signed by all sellers allowing you to automatically make price reductions every 2 weeks until sold. Acknowledge in the remarks section on your multiple listing information sheet, as well as in the Seller and Buyer Disclosures or Addendums that this transaction is “SUBJECT TO THIRD PARTY APPROVAL”, and that all negotiations will be handled by whomever handles your short sale process (us, right?). Obtain buyers and sellers signatures on a fee agreement to the firm handling the short sale negotiation. Earnest money will be in the form of a Promissory Note.


All listing contracts need to be for a 12 month period since it takes several months to obtain bank approval. Many times the first offer submitted is either not accepted or the first offer elects not to continue to wait for the process to proceed.

My team has prepared a document of agent instructions that may help you in speaking to buyer’s agents regarding the short sale process, which I posted in a prior blog....which I would link to from here, if I wasn't still learning how to blog.


Cursed learning curve! Well, anyway. This is fun!


Nick.

The Short Sales Process: Illustrated

I thought I'd try and illustrate the process, just to give real estate agents some visual reference point. I'm a visual person, and for me: this is best.

I just need to see how well this is going to work out....(Click it to see it in its full size).


Hopefully everyone can see that ok. The timeline reads from left to right, across the bottom, approximating a 60-90 day cycle for short sales.

I break it into three "phases" or periods, the first being the preparation phase, where we collect as much information as possible as we prepare to make the most of the next phase: negotiation.

At this point there's a lot of interaction between my team (Short Sale Connections) and the lender (or lenders), and how well we do during this phase depends upon a lot of factors, which I'll describe in another blog post.

Finally, closure. The thing we've all been waiting for.


Ok, look that over and I'll post some blogs for each one of the above steps.


Nick.

Short Sale Document Checklist

I figured there's value in posting something we use internally: a checklist of all documents you'll need to keep track of. I'm currently working on a blog post that highlights the entire process, just so people can come to visualize and see it the way I do.

• Listing Agreement with price included and comps (CMA) to justify listing price

• Purchase Offer (EMA) signed and dated by all parties

• Buyer’s Pre-Qualification Letter

• Authorization to Release Information, signed and dated by the sellers

• Financial Worksheet. (This form itemizes assets and liabilities, signed and dated by all sellers)
  

• Two years of most recent tax returns, with all schedules. (If the seller(s) have not filed taxes for the last 2 years, please have clients sign a waiver stating this)

• Two months of the most recent paycheck stubs for all sellers. (If the sellers do not receive paycheck stubs, please have clients sign a waiver stating this.)

• Hardship letter, signed and dated by all sellers

• Copy of all most recent mortgage statements for 1st and 2nd mortgages and/or contact information for any judgments or additional liens that may be listed on their property. This means federal tax liens, etc.

• RMLS Listing printout and history

• Contractors bid or list of items needed to be repaired on property

• Two months of bank statements (all pages, front and back). (If seller(s) does not have bank accounts, please have them sign a waiver stating this)

• Divorce Degree (if applicable)

• Power of Attorney (if applicable ~ Short Sale Connections needs to have an original and needs to be approved by escrow officer to use)

• If title is held under a business name, we will need for title purposes a copy of the operating agreement for the Corporation or LLC. (This does not apply for most clients)

Ok, let me get back to working on the follow-up blog post, which I think will put a lot of this in context.

Nick