Category Archives: Real Estate

Modern Real Estate: The Buying

What Everyone Needs to Know About Short Sales

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By DOUGLAS G. FRANK, Staff Writer

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The following is the second part in a two-part series on the short sale process. Part one is right here, and contains valuable information for homeowners interested in short selling their property. Part two includes the skinny on what to expect when buying a short sale property.

Ahh, the home buying process. The American dream, so to speak. Buying a home is probably one of the most daunting, complicated, drawn-out things an average American will go through in their lives, that is, unless they’ve gone through a bankruptcy, divorce, or any other procedure that involves our lovely court system. ‘Oh no, Mr. Frank, it’s not tough at all. My Realtor found us a wonderful home and we got it for a great deal and everything was real easy.’ Bullshit. Just because you got to sit back in your comfy chair and watch TLC all day while your little toy Chihuahua sits in your lap and licks his balls doesn’t mean that everything went hunky-dory behind the scenes.

Your real estate agent has to write up a contract that is anywhere between 9-20 pages long depending on all the addendums and counter offers he or she has had to negotiate the hell out of before you got the deal you wanted. He also probably has at least 2 other deals going on at the same time (and he has to if he wants to make that car payment). Not to mention your mortgage broker is busy securing underwriting and weeding through paperwork that is at best twice as much as a standard purchase contract. And he has to have at least 10 other clients at the same time if he wants to feed his family.

Anyway, my point is that these things are not easy. That’s why you hire an agent to handle all the crap for you. There’s so much work involved in a standard property transaction, who would be sadistic enough to want to triple the workload? Enter short sales.

Short sales, as readers of my last article already know, occur when a homeowner needs to sell his property for less (MUCH less) than he owes on it. The banks are open to doing these right now, so why not jump on the bandwagon and get a great home for a decent price? Right?

A lot of people think that short sales and foreclosure homes (also called “lender owned” or “REO’s”) are the same thing. The logic is there, they are both forms of distressed properties. But that is where the similarities end. With short sales you are still dealing with the owner of the property. The bank hasn’t kicked him to the curb yet. Once you reach a deal with the owner he has to take it to the bank and beg them to accept it in lieu of full payment of his mortgage. With a foreclosure, you are dealing with a lien holder, and they are not the easiest to negotiate with. The listing agent in a short sale can be a very good ally, which is refreshing in a property deal. This is because in a short sale rather than being buyer vs. seller, the circumstances are buyer & seller vs. the bank.

Short sales usually are good deals, I will give them that. They are priced a little below market value because they are lived in, a little rough in most cases, and are being sold as-is. The funds from the sale are used to settle a debt, not satisfy a debt. You can settle a debt for $1 if you had a good enough negotiator. If you have a good agent, he or she will be able to recommend a strategy for getting the best deal possible.

Notice I said if you have a good agent. I’m not gonna lie; there are not a lot of us good guys out there. Most of the agents I find are absolute idiots. You’d be surprised how many of them don’t know basic fundamental concepts of their profession. Seriously, at least once a week a fellow agent will make me cock my head like a spaniel and do a very Tim-Allen-ish grunt, “Errrm-Huuungh?” Actually the stupidity can get so annoying in the course of contract discussions sometimes that I want to scream or throw something, or make fun of them. Most of the time, however, it will be one thing, just one thing that just is so ridiculous and unreasonable, coming out of left field at 90 miles per hour, that just stops the conversation in its tracks. I have that awkward moment when I realize to myself that the person I am talking to is a complete ninny, so I just stand there, mouth agape, then drive home later completely silent, unlock the door, take all my clothes off, sit down in the leather chair in my front room… and cry. It’s what’s wrong withAmericatoday: Stupid, unreasonable people lacking common sense are handed responsible decision-making positions and we are left wondering why things never get done inWashingtonDC.

If you want to buy a short sale, mmm, meh… just don’t. Seriously, I’m not kidding. “Oh, Mr. Frank, but the house is perfect!” OK… if you must, you must. I can’t stop you. But hear me out.

Here’s why I hate them:

First, they take too damn long. The average short sale takes about 12-16 weeks to get approval. Add another 4 weeks for closing, and you have a transaction that could take up to 4 months before you even hear anything. You’d have to be a real trooper to hold out that long for a house when there are others on the market that will close in 30 days or less.

Second, they are risky. You have to be a real gambler to take the odds on a short sale. It’s not that a majority of them don’t close or anything like that. No, it’s just that there are variables in a short sale transaction that are not in any other transaction. For instance, a bank does not have to do a short sale. When you are going into a short sale, make sure to ask if the short sale has been approved yet or not. If not (which is usually the case, since most major banks won’t even start short sale proceedings until they get a signed contract), then that means the seller has to now get approval, which is what takes so long in a short sale transaction. There is no guarantee that the seller will get that approval, and it could take you months for you to find that out. Months you could have been looking for other homes.

Third, delinquent mortgage means looming foreclosure. It’s not a bad idea to check with the seller how far behind they are on their payments. Many a short sale has been cut short by a foreclosure and trustee’s auction. The reason this happens is because the banks that are too big for their own good have 2 departments, a short sale department and a collections department, and neither on talk to each other. So yes, the left hand doesn’t know what the right is doing. If there is a scheduled foreclosure date, consult with your agent to see if it is enough time to get the short sale done. Sometimes the trustee sale date can be extended in favor of a short sale. Also, if the homeowner is behind on his payments, he may also be behind on his taxes or HOA fees. Be aware that these fees are there and half to be paid by someone at close.

Finally, As-Is means AS-IS. You are not getting any improvements done on a home that is listed for short sale. Usually sellers have to prove hardship to be approved for a short sale. However if they lived there, they do have to give you a disclosure report. But you are paying for anything that isn’t up to par. Sometimes it’s worth it, sometimes it is not. I highly recommend that you get a qualified Home Inspector to do a complete check on any As-Is property you are interested in. Remember, you have about ten days after a contract is agreed upon to withdrawal from that contract for reasons related to condition of the house. Make sure your agent uses this time wisely.

Okay, that’s my take on them. I haven’t had much luck selling them because my buyers usually want to close fast, and short sales are not feasible. But there are some good deals out there if you have the time and patience to wait it out. Good luck to you all, and happy buying.

And that’s my giving a damn.

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Douglas is a concerned citizen, and practices real estate in the Southwestern region of the United States.

More from Douglas:

»Modern Real Estate: The Selling

»Why to Not Buy Real Estate Right Now

»Political Sexism in America

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Modern Real Estate: The Selling

What Everyone Needs to Know About Short Sales

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By DOUGLAS G. FRANK, Staff Writer

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This is the first part in an exclusive two-part series on the short sale process. This first part has valuable information for homeowners interested in short-selling their property. Check back next Thursday for part two, where I will cover what to look for when buying a short sale.

If you haven’t heard about short sales yet, then you have most likely been living under a rock for the past five years. But it’s okay. I’m guilty too.

Well, not guilty in the ignorant sense. But I did ignore short sales for the first few years for a number of reasons that are still relevant today, and I will go over that briefly. What changed, you might ask? Well, I realized that two-thirds of the properties going on the market were distressed properties (i.e. foreclosures or short sales), and that I was closing myself out of that much of an active marketplace, so I quickly changed my ways.

But I vowed to do it right. Mainly, I didn’t want to get sued down the road. But believe it or not, I also believe that in a majority of cases, it is the right thing for the homeowner.

Short sale properties are properties on the market that will sell for less than the homeowner owes on the mortgage(s). When you foreclose on a property, or any loan for that matter, you give the lender the right to repossess your property in lieu of payments. However, when you short sell, you settle the mortgage for the sales price of the property. The bank takes its own steps to make sure the sell price is current market value, so a settlement is usually reached.

When you settle, it doesn’t show up on your credit report as a foreclosure, it just says “paid in full as settled”. A settlement is a significantly less severe ding on your credit than a foreclosure. But, you will still have to wait a few years before getting another mortgage.

The “catch”, which kept me from pursuing short sales from 2008-2010, was that many states did not have separate law for recourse in collecting the deficient balance in a short sale. In the state that I work in, there is a “Non-Recourse” law on the books for foreclosures specifically, but short sales fell under the thumb of “secured debt”. That means, by law, a lender can come after you for the remainder balance of the debt for up to 6 years. If I wasn’t aware of that, and I was blindly peddling short sales, I could be accused of negligence and fraud. Enter lawsuit.

Well, a lot of things changed over the first couple of years. The federal government introduced 2 measures aimed at distressed properties. First, the Mortgage Forgiveness Debt Relief Act was introduced to keep people from being financially responsible for paying taxes on income received from the forgiveness of debt on a residence. When you foreclose or settle a debt, the amount (or difference in a short sale) gets written off and reported to the IRS as income to you. Then you’ll get a 1099 in the mail for $100,000+, making you shit bricks instantly and frantically call whatever tax/CPA/financially-smarter-than-you friend freaking out. Thanks to this relief act, these poor souls don’t have to pay a dime in taxes, as long as certain criteria are met.

Second, Congress introduced the Making Home Affordable program, which has several programs to help distressed homeowners. One of them is called HAFA – Home Affordable Foreclosure Alternatives – program. Under HAFA, any homeowner who meets the criteria can get a guarantee from the government from lenders collecting on the deficient balance of a short sale, and even pocket $3000 for moving costs and other expenses. The criteria includes having 1 or 2 non government mortgages which must have been used for purchase money only, a clear, demonstrated hardship, and other smaller criteria.

Homeowners interested in seeing if they qualify for a HAFA program could call their lender or local Short Sale Specialist.

It is important when deciding to short sell your home that you have all your facts in order. Real Estate Agents are not lawyers, and are not qualified to give financial advice. I highly suggest you contact a lawyer first if you are facing foreclosure or a short sale. A lawyer would be able to review all your options, and give you the best advice for your situation.

A few warnings, because, as you know, in the end I have to be a cynic:

First, check out your Real Estate Agent. He or she may have “Short Sale Specialist” printed next to their name, but that doesn’t mean they know what they are doing. Ask who will be doing the negotiations on your behalf. Ask how many short sales they negotiate on a regular basis. Watch out for any “up-front fees”. There should be NONE. In a short sale, the agent gets his commission paid by the lender.

Also, here’s a shout out for the new guys: Everybody needs a start sometime. If you have an agent who is very knowledgeable but has very little experience in short sales, it is up to you whether or not to use them. But rest assured, your short sale may be the only thing they are working on at the moment, so you can be sure your transaction will get their utmost attention. Just make sure they are either partnered with or using someone, such as a lawyer or a title company, to negotiate with the bank.

The agent should present you with a list of paperwork needed to process your short sale. If they do not do this, this is a major red flag. Getting all of your paperwork up front is essential to completing a timely short sale. If they don’t do this, be ready for a lot of back and forth, endless calls and requests from your agent, and a short sale that could take up to 6 months.

Finally I’ll leave you with this. The major danger of a short sale is that SHORT SALES DO NOT STOP A FORCLOSURE UNTIL THE SHORT SALE CLOSES. Many people have been under contract thinking that they are about to get a deal done, only to find that the auction came and went and the bank now owns the property. The collection departments never, ever, ever talk to the short sale departments, without a reason to. It is up to a skilled negotiator to make sure all parties are informed, and that foreclosure is negated. And there is never a guarantee that a home will sell, making a foreclosure inevitable anyway. So please choose your options carefully.

Next time I will discuss the buying side of a short sale process, and the many headaches involved.

And that’s my giving a damn.

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Douglas is a concerned citizen, and practices real estate in the Southwestern region of the United States.

More from Douglas:

»Why to Not Buy Real Estate Right Now

»Political Sexism in America

Afterwards is back tomorrow for Part 9 in a massive FOUR DAYS LONG extravaganza weekend of storytelling!!  CATCH UP NOW: »1  »2  »3  »4  »5  »6  »7  »8

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