01 – Credit Score from Matt James Inc on Vimeo.
Short Sale Resource
Mortgages, Short Sales and Market Forces
Are You Eligible For a Short Sale?
04 – Eligibility from Matt James Inc on Vimeo.
Updated Short Sale Department Contacts
Here ya go. The latest information we have on where to call and fax so that you can avoid extended “hold” times and calling the wrong department.
9 Crucial Questions to Ask About Short Sales
Somehow, despite my best efforts, (partly joking) some agents are still confused about how to handle short sale listings. This, 4 years into the Great Recession, still leads to trepidation and confusion regarding short sales and leads buyer’s agents to sometimes navigate a wide berth around short sales with their clients. I have a simple solution for you buyers agents who want smooth transactions and still want to show short sales to your clients.
If your client wants to see a short sale, explain to them the pros and cons and let them know that you will be happy to show them short sales so long as it is structured properly and represented by a competent agent. To determine that, simply ask these 9 crucial questions before showing (or at least before writing a contract) so that you can avoid the types of short sales that drag on for several months without any progress:
Question #1: How many liens are there? If the agent doesn’t know, hang up immediately. If more than 2, tread carefully. If more than 3, run away.
Question #2: Who are the lien-holder(s)? Some banks are better than others, refer to this post to prepare your clients for the timeline
Question #3: Do you have a complete short sale application package? This should already be done.
Question #4: What communication have you had with the bank(s)? The agent may have already done a lot of the prep work to get the deal approved. This is the type of info your clients should factor when considering writing an offer.
Question #5: Have you had, or do you have any other offers? What happened to them? What is the status of them? Get a straight story about the history of this property. If the last offer was declined, and your offer would be lower, then your clients may want to look elsewhere.
Question #6: Will you be presenting multiple offers to the bank? You don’t want that. Write it into your contract that they can’t.
Question #7: Where are your clients and how accessible are they? Long distance or hard to reach clients can behave like monkey wrenches in a transaction like this. You want to hear that they are nearby and/or very cooperative and accessible.
Question #8: How many short sales have you successfully completed? Realtors can be like fisherman when it comes to this. Try to get a straight answer. If the Realtor is very experienced, it could be useful in getting your clients off the fence and writing an offer.
Question #9: Are you using a negotiation service or are you handling this yourself? If they are using a service, try to find out who they are and if they are any good. If themselves, consider how long it took them to return your call and how easy they are to communicate with. If you have a tough time catching them, a bank will have an even harder time.
Happy house hunting.
New Third Party Authorization Rules
Just a quick “heads up” post. Most banks have recently updated their policies and will no longer accept third-party approvals with just business names on them. For example, if your third party authorization says just “REMAX Such and Such” or the “Highest and Best Real Estate Team” and does not have your name on it, your authorization will be declined. Just last month that was not the case with most banks. So, keep this in mind as you send authorizations to banks on behalf of your clients…..or to us on behalf of your clients. The names of any individuals who will be handling the negotiations and processing will need to be on the authorizations in addition to their business names.
Suspicious Short Sales
I’ve finally had the chance to review Corelogic’s 2011 short sale study and condense some of the results for you. The studies purpose was not to inform Realtors or the public about short sales, but we can still glean some nuggets of knowledge from the contents.
The purpose of the study was to analyze the risk of unnecessary losses that lenders occur in “suspicious” short sales and recommend ways lenders can mitigate these losses.
We’ll consider how you as a Realtor can avoid suspicious short sales as well…but first some numbers.
1. The study finds that short sales have more than tripled in the last 8 quarters!
2. The study finds that short sales are expected to rise 25% this year.
3. By the way, another recent study pointed out that home prices are down 7.5% over last year, an indicator of a strong short sale market.
4. Over 45,000 single family short sales were completed in Q1 this year and over 60,000 in Q2.
5. The study reminds us that 23% of mortgages are underwater.
Now, on to suspicious short sales. Basically, that term is used for a short sale where the lender lost more money than they should have. Any short sale that is subsequently resold in under 6 months is viewed with a suspicious eye and may be reviewed by the lender. Any short sale that closes on the same day to another buyer (called back-to-back, or A to B to C closings) will be reviewed in the coming years by lenders. I do not yet know what remedies the lenders will have to pursue, but I don’t wouldn’t want to find out the wrong way.
The numbers indicate that a high percentage of suspicious short sales have LLC’s as buyers. That doesn’t mean that all LLC’s are bad, but you should be cautious. If you have a short sale listing that is in perfectly good shape, you may not want to accept a discounted offer from a LLC. They may have the perfectly normal impulse to buy low and sell high, which is fine in capitalism, but not fine in short sales (at least to the lenders, which means it is not fine for the sellers).
One thing that I always look at is their financing type. If they are a cash buyer, or are approved through a reputable bank, I am likely to consider them a legitimate buyer. If however, they have some form of short-term transactional funding or a “hard money” loan, I will look things over with a more careful eye. Not all “hard money” is bad by any means. Some quality investors employ this funding source. The thing you want to avoid is selling to a “flopper” who is not going to add value to the home and still try to sell it at a profit. This places greater potential liability at the feet of your seller client and these transactions are far more likely to fail than your average short sale.
In the past I thought, “why does the bank care if the buyer makes some quick money off the sale?” and “the seller won’t make any money either way, so why would they care?” I should mention that I had these thoughts in the role of an investor. Now that I have been working in short sales for several years and work exclusively for sellers and their agents, I realize it simply isn’t in the clients best interest.
Remember, if the house needs some work, there has to be some profit to incentivize a buyer to take the risk of performing that work. That is not what this report is talking about. This report is about those who want to earn money without providing any value. In the long run, that is never a good business plan.
Cheers
The Short Sale Deal Saver
One of the threats to any short sale transaction is the condition of the property itself. Since all banks require that short sales be “as-is”, and nearly all sellers are not in a position to do repairs on the property, deficiencies or defects discovered by the home inspection can quickly derail an otherwise fantastic transaction. The bank is never going to pay for repairs, probably won’t re-do a BPO based on them, and the seller can’t really get them done.
This exact scenario occurred recently on one of our short sales. The repairs needed weren’t bad enough to deter the borrower, but were flagged by the appraiser as necessary for the home to appraise at contract value. We were at an impasse.
Enter the deal saver. In this case, it was my friend Joseph Arroyo with Fulton Mortgage Company that let me know about this loan product that would save the day. (I don’t usually give shout outs on this blog, but this one it well deserved.)
In short, this program allowed the buyer to escrow from their loan proceeds and perform the repairs after closing….I am sure that you can see the value in that. This isn’t really a short sale specific loan, by the way. I am sure you can see how valuable your knowledge of this product can be to your business and clients in this real estate environment. So many sellers are either distressed, on a really tight budget, or are banks. If the buyer is getting a good enough deal, this product can save the day for your clients and save your payday.
Check out the specifics by clicking the link below and don’t hesitate to contact Joe if you have a deal in jeopardy.
The FHA Short Sale Cheat-Sheet
Do me a favor and share this on your Facebook, your Twitter or any other outlet you think will find other agents and Realtors. This is vital information that they need to see.
FHA and HUD short sales are about as common as any other short sale. They can be serviced by any number of banks (Bank of America has a lot of them) and they represent a number of unique challenges. If you know that the loan is an FHA loan (if you are the listing agent you better know, and if you are the buyer’s agent you better ask) you can be prepared for the “do’s” and “don’ts”, positives and negatives, that are unique to these short sales.
Throw all the rules you know about short sales out the window when dealing with an FHA short sale and adhere to these guidelines instead.
POSITIVE: FHA will pay up to a $1,000 seller incentive to the seller for completing the short sale. They can use that money however they choose, including to pay closing costs.
*Caveat: To earn the full $1,000 incentive you must close within 90 days of beginning the short sale. After that the incentive is dropped to $750
POSITIVE: FHA does allow for a 6% commission. I have been bold-faced lied to about this in the past (by banks), so it is helpful to know the letter of the law. The offer must meet the minimum net proceeds.
POSITIVE: Clear net minimum proceeds guidelines. They go like this
If the bank receives an offer within the first 30 days of marketing they can approve an offer at 88% of current fair market value (CFMV).
If the bank receives an offer within the 31-60 day range of marketing they can approve an offer at 86% of CFMV
If the bank receives an offer within the 61+ day range of marketing they can approve an offer at 84% of CFMV
NEGATIVE: The bank will not pay for some otherwise normal closing costs including a home warranty (most banks aren’t any more), lender’s title insurance or discount points for the buyer.
MUST KNOW: I’ll repeat it. This is a must-know facet of FHA short sales. Banks are not allowed to approve buyer closing costs…..more specifically, refer to the rules below:
Banks are allowed to approve a 1% buyer closing cost credit if the buyer is using an FHA loan to purchase the home
Banks are not allowed to approve closing costs for any other buyer.
If closing costs are necessary, the bank must send the file directly to HUD to apply for an exemption, a process that will add a minimum of 3-4 weeks to your approval process. KEEP THIS IN MIND AS YOU NEGOTIATE CONTRACTS AND COMMUNICATE WITH OTHER AGENTS.
NEUTRAL…..LEANING TOWARD POSITIVE: The bank must procure an FHA appraisal to determine FMV instead of a BPO. I find that these are more frequently accurate than BPO’s are, but not always
POSITIVE: You can successfully submit appraisal dispute documentation to your negotiator in a situation where the appraisal seems outdated or incorrect. They will send it to the appraiser for review and, if you have a case, they will re-appraise the property.
POSITIVE: About 95% of the time there will only be one lien to negotiate…this saves time;)
All this is available straight from the FHA in the link provided here: FHA HUD Short Sale Rules
Remember that kind Realtors share (things like this) with their neighbors via email, Facebook and Twitter! Are you kind?
BTW, does anyone know if it should be “an FHA” or “a FHA”? Obviously the former just feels right.
FICO Reveals Exact Effect of Short Sales on Credit Scores
Yesterday’s post regarding the credit implications of short sales garnered a lot of interest and feedback. One of my readers, Luis in Jacksonville, FL sent me the following charts that actual details exactly what the effects of a short sale will be on your credit AND how long it will take to regain your former credit score.
Before I provide those charts I want to make one thing clear, there are two different issues when it comes to the credit effect of short sales.
The first is your actual score. As the chart below details, your credit SCORE will take pretty much the same hit on a short sale as it would in foreclosure.
The second, more essential issue, is your borrowing ability. As the Fannie Mae chart we previously linked to (and other information previously provided information indicates) your ability to borrow, especially for a home mortgage, is much better in a short sale scenario vs. a foreclosure, deed-in-lieu or bankruptcy scenario.
If a seller wants to be homeowner again, sooner rather than later (and by the way it seems home value will still be pretty great in two years), a short sale has a much more favorable credit outcome than any other option even though the immediate effect on their credit score may be the same.
So, now we can paint a realistic scenario of the tangible benefits of a short sale for our clients. It goes something like this.
“Client, your credit score is likely going to drop quite a bit no matter what you do. But, as FICO has revealed in their chart, you can rebuild back to your current credit score in as little as 3 years……..and, according to Fannie Mae guidelines, you will be eligible for a mortgage loan again in two years. Even though your score alone may recover on a similar time frame with a foreclosure, you would not be eligible to purchase a home again for 5-7 years in the case of a foreclosure”
Even if some of the luster has worn off homeownership, data indicates that, in the long run, homeownership is vital to building wealth and provides stability and well-being for homeowners, it just has to be done the right way (i.e. low loan-to-value ratios, fair mortgage rates, low debt-to-income ratios)
