New Government Short-Sale Guidelines (HAFA) - Don’t Believe the Hype

The Treasury Department released a 43-page document in November 2009 that outlines a proposal for streamlining short-sales across the banking industry. It’s supposed to go into effect April 5, 2010.  This document is being talked about as if it were the answer to all of America’s short-sale problems. The National Association of REALTORS(R) has been celebrating since the announcement and REALTORS(R) all over are being trained that this document will solve all of our problems and that the banks will be so much more pleasant to deal with.

Well, that sounds all nice and dandy…but is it more hype than help?

Rather than me breaking down and analyzing the document and its true effect on short-sales and the real estate market, I’m going to point you over to a series of excellent blog posts on this topic that have already been written by a fellow REALTOR(R) and friend of mine.

As Sarah Stelmok puts it so eloquently,

REALTORS(R) all over are being trained that this document will be the savior of the real estate market and that the banks are going to start playing nice, and rainbows and kittens will fall from the sky, and we will all reap riches from the bounty of this document.  I hate to be a Debbie-Downer, but when’s the last time our government proposed guidelines that were actually effective when it came to the banking industry.  Ahhhh, that’s right, after the S&L scandals. Didn’t that take years to recover from?  Well, it will take years to recover from predatory lending and a pretty little 43-page document can not fix 7 years of bad lending decisions.

So, let’s dissect the document so that a layman can understand what it says…

Sarah’s three-part series on this topic is excellent and funny and you should definitely take the time to check it out whether you’re a home owner considering a short-sale or a REALTOR(R) (if you’re a home owner considering a short-sale, click here to contact me so we can discuss your specific situation and options).

1. Part One - Proposed Short-Sale Guidelines (HAFA)
2. Part Two - Proposed Short-Sale Guidelines (HAFA)
3. Part Three - Proposed Short-Sale Guidelines (HAFA)

If you would like more information about the proposed guidelines or are thinking about doing a short-sale yourself and are located in Northern Virginia, click here to email me or call me on my cell - 703.582.6900. If you’re located in the Fredericksburg, VA area, click here to contact Sarah Stelmok, REALTOR(R), Coldwell Banker Elite.

P.S. If you can name the most popular person in the group pictured in the photo at the top of this post and the year the song came out, you get a prize!

How Long Do Short-Sales Take?

A very common question people ask me is, “How long does a short-sale take?” There is no exact answer to that question because short-sales are not a perfect science. Short-sales are like a trip to Vegas - you may come back with more money than you left with or you may come back broke, but you won’t know till the end of the trip. You won’t know when you will get the response from the bank(s) until the day you actually get one.

Average Time

The average - and I stress average time to hear back from a bank(s) on a short-sale - is 3 months. I don’t suggest using any amount of time in planning when you’ll hear back on from the bank(s), but if you really must, 3 months would be your best bet.

Fastest

The fastest response on a short-sale I’ve ever seen is 4 weeks. Unless “you’re in” a loan officer or loss mitigation officer at the bank you’re dealing with that can “fast track’ the short-sale (contact me offline for more info on this), don’t bank on this (pun intended).

Longest

There are short-sales still sitting waiting on a response from the bank(s) that went under contract over a year ago. Yup - a year ago. You REALLY have to love the house you’re buying and have all the time in the world to wait around this long.

Don’t forget settlement preparation time

Don’t forget about the time needed from short-sale approval to settlement date. Once the short-sale has been approved (not before) the buyer’s loan officer can tart finalizing the loan approval and everything that goes along with it (appraisal, title work, underwriting, etc). This takes at least 2 weeks, but more like 30 days.

To recap…the average time from ratifying a contract to settlement date is 4 months (3 months plus 30 days). The shortest is 2 months (4 weeks plus 30 days). The longest is over a year.

If you have would like more information or have specific questions regarding short-sales as a buyer or seller, click here to email me or call me at 703.582.6900.

FHA 90-Day “Anti-Flipping” Rule Waived - Yes and No

Many of you have gotten excited about the FHA “waiving” their 90-day “Anti-Flipping” rule beginning February 1, 2010. But hold on a second because that’s not what really happened.

In case you don’t know, the FHA “Anti-Flipping”  rule prevents you - the ready, willing, able and honest home buyer - from buying a perfectly good and renovated home that was last bought within the last 90 days (bank-owned properties do not fall into this category). It has also prevented investors who have bought, renovated and flipped a property within the last 90 days  from being able to sell it to home buyers that are using FHA financing.

Sounds a lot like a “lose-lose” situation, doesn’t it? That’s because it is.

Well, the FHA has realized that it’s hurting home buyers and has made some changes to their “Anti-Flipping” rule. No - they have not canceled, repealed, gotten rid of or any such permanent thing when it comes to the rule. They have simply made some temporary small changes to the rule which allow for a small window of breathing room. But it’s ain’t much of a window.

Here are the highlights of the changes to the FHA “Anti-Flipping” rule…

The exception to the FHA 90-day “Anti-Flipping” rule is only for properties that do not have a 12 month history of flipping. The properties must have all the renovation and rehab closely documented. And the increase in sales price must be less than 20 in order for the property to qualify. If the sales price is 20 percent or more, a full home inspection and 2nd appraisal must be conducted.

And here’s the kicker…

Banks and financial institutions must adopt this exception before you, the home buyer or investor, can take advantage of it. So far, I have yet to hear of any bank or financial institution adopting it. And even if they do, they may add their own extra rules to the exception on top of the FHA’s so who knows what the final “exception” to the rule will be - if there’s one at all.

Sorry to burst your bubble folks, but better you know the real truth now rather than finding it out the hard way later.

If you have specific questions or concerns as a home buyer or investor, email or call me - 703.582.6900.

You can also read the HUD announcement and get further details regarding the changes by checking out the document below (click here if you don’t see the HUD press release regarding changes to the FHA 90-day “Anti-Flipping” rule below)…

Changes to FHA 90-day Anti-Flipping Rule 2010 -

How Short-Sales Affect Your Credit and Other Ramifications

A question on many people’s minds that are considering a short-sale is, “How will a short-sale affect my credit and what are some of the other ramifications?” There is no one right answer because every short-sale negotiation is different, every seller’s situation is different and every bank is different.

Sarah Stelmok, a Realtor in the Fredericksburg, VA area and an expert in short-sales did a great job summing it up in one of her latest blog posts…

How will the short sale affect my credit score? – This is a tricky question. I’ve seen some credit scores hit as little as 90 points. I’ve seen others hit a couple of hundred points. It will really depend on how the bank will report the short sale to credit agencies and how delinquent you already are on your mortgage payments. An agent experienced agent will know that this is a case-by-case answer and won’t make any guarantees or promises.

Besides my credit score going down, what are some other ramifications of a short sale? – Many banks are now trying to mitigate their losses by having the defaulting party sign a promissory note. Each promissory note is different, there are no standards. Your agent may be able to help you negotiate your way out of signing a promissory note. It will depend on your situation. We’re not quite sure how lenders will look at credit histories with short sales on them. Some people may be able to obtain a home mortgage in as little as a year; others will have to wait much longer than that. There could also be tax penalties for short selling your home.Your agent should recommend a good real estate attorney to you, as well as an accountant to go over all the pitfalls of short sales.

Though this may give you a general idea of what Sarah and I have seen personally, remember that Sarah, myself and all other Realtors are only Realtors - you should contact a real estate lawyer, accountant, bank employee and/or the credit bureaus for guidance in this matter. And every person’s situation is different so just because someone else got “XYZ deal” doesn’t mean you will and vice versa.

If you have questions regarding short-sales, whether as a seller or buyer, contact me at any time (click here for contact information).

What is the Usual Condition of a Foreclosure/Bank-Owned or Short-Sale?

If you haven’t bought a foreclosure/bank-owned or short-sale property in a while (or ever), you probably don’t know what the typical condition of such a property is. Here’s an idea of what to expect…

I’m working with a buyer who is buying a foreclosure/bank-owned property and did a home inspection this past Tuesday - here is what the inspection revealed:

1. Exterior wood rot on upper rake and gutter boards, front window and door
2. Gutter is falling - re-secure nails and gutter
3. Re-wire attic fan
4. Re-connect dryer vent in attic
5. Repair 2×4 lateral brace by chimney
6. Replace leaking interior hose bib shut-off valve
7. Upper bathroom has loose toilet and tank - repair
8. All windows are currently painted shut (thank you to Cheryl A for catching my previous typo - oops!) - free up for operation
9. Repair small leak on lower powder room vanity trap
10. Replace house roofing - interior attic system has severe black mold buildup - replace shingle and plywood - treat or clean attic trusses

How does this inspection compare to others? I have seen much worse and greater items on foreclosure/bank-owned and short-sale properties than this. Items 1 through 9 are typical if not less-than average. Item #10 is big item that is cause for serious concern though it’s not the end of the world. Check out photo of the mold below…

The good thing is that, even though foreclosure/bank-owned and short-sale properties are sold “as is”, banks are typically willing to fix mold issues. And once the necessary repairs have been made, the mold will no longer be an issue. The word “mold” is very scary to banks for a variety of reasons. Banks may either repair the mold issue or credit the buyer the amount to fix it themselves.

This home inspection is just one example of what issues you will come across. Here’s a partial list of some other common items you may see…

• water damage in ceilings/walls from leaky/busted pipes
• water damage in basement due to sump pump not working because property has no electricity
• missing appliances/fixtures
• electrical outlets not functioning
• window seals broken/leaking
• AC condensation line is leaking
• hot water heater is leaking
• bath tub stopper not working properly
• shower diverter not working properly

In the end, you have to add up the cost to purchase with the cost to fix and see whether it’s still a deal or not in the end. Foreclosures/bank-owned and short-sale properties should already be discounted to reflect the cost of fixing them up, but do the math and double check yourself before proceeding with the purchase of the property. Better safe than sorry.

One more thing…if you’re looking for the “perfect” foreclosure/bank-owned property or short-sale with no issues, good luck. If it were in that good of a condition, it would be more expensive to reflect the repairs and condition. You’re not going to get a foreclosure/bank-owned or short-sale property (or any property for that matter including new construction) that does not have at least a few issues that need attention.

Hope this helps. Let me know if you have questions or concerns or if you would like me to go into more detail about anything.

CLICK HERE TO SEARCH FOR FORECLOSURE/BANK-OWNED PROPERTIES IN LOUDOUN COUNTY

CLICK HER TO SEARCH FOR FORECLOSURE/BANK-OWNED PROPERTIES IN THE FAIRFAX COUNTY AREA

Buyers/Sellers: What Does Few Foreclosure/Bank-Owned Properties on the Market Mean To You?

The other day, I talked about how few foreclosure/bank-owned properties there are on the market in Loudoun County and Northern Virginia (click here if you missed the post). But what does having only a very few foreclosure/bank-owned properties on the market really mean for Loudoun/Northern Virginia home buyers and sellers?

Buyers

• If you would like to settle quickly, your only options are traditional resales and foreclosure/bank-owned properties. Either can typically settle within 3 to 6 weeks (less if cash offer) of when the contract is accepted and ratified
• Since there are so few foreclosure/bank-owned properties, the overwhelming majority of properties you’ll see will be traditional resales
• Traditional resales are typically in better condition and require less work than foreclosure/bank-owned properties, but you’ll pay more for them up-front in the purchase price
• If you have the time (3 to 6+ months) and patience and want to spend less money up front, but don’t mind doing some work to the property, then you may want to consider a short-sale
• If you’re trying to take advantage of the first-time home buyer tax credit, you’re looking at only foreclosure/bank-owned properties and traditional resale (click here for more information on what I mean by that)

Sellers

• If you are a home owner selling your home as a traditional resale (not a short-sale), you’re in a great position
• When there were a lot of foreclosure/bank-owned properties on the market, buyers who needed to settle quickly could choose from a foreclosure/bank-owned property or a traditional resale. Now…their options are pretty much limited to traditional resales, which is good for you

CLICK HERE TO SEARCH FOR LOUDOUN FORECLOSURE/BANK-OWNED PROPERTIES

Anyone Seen Where All the Loudoun Foreclosure/Bank-Owned Properties Have Gone?

Two years ago, you couldn’t walk out your front door in Loudoun/Northern Virginia and not see a foreclosure/bank-owned property for sale. But something interesting has been going on for the past 12 months…the number of foreclosure/bank-owned properties on the market has been quickly dwindling.

As of today, there are only 60 active foreclosure/bank-owned properties on the market in Loudoun. That’s a total of only 6 percent of the total existing home inventory on the market in Loudoun County. This is a far cry from what we were seeing in 2007, 2008 and even the beginning of 2009.

How is this possible despite record foreclosure filings throughout the US?

One possible reason is that the bans are holding on to their inventories on purpose. Releasing them all at once would sink the market and the value of all properties (including the ones the bank are holding to) would fall. This means that the overall worth of the properties the banks are holding on to would fall - not something banks or their shareholders want to see.

Another reason may be that the government is buying up these “troubled assets” so that they don’t get released on the market and sink it. Just look at the millions the government is spending buying up Mortgage Backed Securities (MBS).

Will we see a flood of foreclosure/bank-owned properties hit the Loudoun market in the near future?

I’d say “not any time soon” for a variety of reasons including political ones. But I don’t have a crystal ball so don’t take what I say to the bank.

Either way, the majority of homes on the market in Loudoun and Northern Virignia in general are short-sales and traditional resales. Practically speaking, this means that buyers who need to settle within 30 to 90 days have pretty much only traditional resales to choose from (blog post on this coming next week).

CLICK HERE TO SEARCH FOR LOUDOUN FORECLOSURE/BANK-OWNED PROPERTIES

Short-Sale Approved! Now What?

Congratulations! You’ve waited patiently for a response on your short-sale offer from the bank(s) and you just got word that it’s been approved - half the battle has been won!

So now what?

To best understand what happens next, let’s quickly go over a part of the short-sale process…

The majority of what needs to be done (loan processing, appraisal, title work, termite, etc) can’t be done until the bank(s) has approved the short-sale - in writing. The reason for waiting until  then is that all of those things cost money and no one wants to spend the money and resources before knowing for sure that the short-sale will be approved.

And as far as timing, you typically only have 2 to 4 weeks from when the short-sale has been approved to get all these things done because that’s how long the typical short-sale approval from the bank(s) is good for. If you run past the deadline, you have to ask for an extension and/or a new approval. While this is more than possible, it’s a hurdle best avoided if possible.

Is it tough to get all those things doe and settle within that time frame?

Two weeks is cutting it close, but four weeks is not a problem with the right lender on your side.

Now back to answering the question, “So now what?”…

Here are some things you can expect as a buyer once the short-sale approval comes in:

• Schedule the settlement date and closing time based on the short-sale approval deadline(s) and when the lender can have the loan done and ready for funding
• Provide your lender with updated pay stubs, bank statements, financial statements, etc.
• The lender will now order an appraisal on your behalf
• If you haven’t already done so, you should set up a home inspection (click here for more about home inspections on “as is” properties)
• Order the termite inspection (sometimes it’s the seller’s responsibility and sometimes it’s yours)
• The settlement/title company will now order the title search, title work, survey, etc.
• If you’re renting, now is the time to put in your notice to the landlord/management company
• Obtain home owner’s insurance on the new property
• Contact the moving company if you’re using one (or call your friends/family and start bribing them with favors now)
• Put in for time off from work for the final walk-through and settlement (these can only take place during normal business hours Monday through Friday)
• About 2 weeks out, but not less than 1 week out from settlement date, transfer the utilities into your name

See..not too bad at all! Short-sales are a “stop and go” process. But, as many short-sale sellers and buyers will tell you, it’s well worth it! The seller ends up avoiding foreclosure and an even bigger ding to their credit while the buyer gets a great deal on a new home.

***CLICK HERE TO SEE ALL ACTIVE SHORT SALES IN LOUDOUN COUNTY***

Short-Sales Wear the Crown in Loudoun County

This time last year, foreclosure/bank-owned properties were King by making up the largest percentage of distressed properties on the market. Today, it’s the opposite.

Short-sale properties now wear the crown out-numbering foreclosure/bank-owned properties for sale almost 4 to 1 and accounting for almost 20 percent of the total homes for sale in Loudoun County.

This dramatic shift is due to the foreclosure moratoriums that were in place at the end of last year and the beginning of this year (which seem to be voluntarily continued) along with banks becoming more open to negotiating short-sales (whether on their own free will or government coercion).

What does this mean for Loudoun home buyers and sellers?

For sellers, it means that, if you’re thinking about selling your home “short”, now is the time to do it. Banks are more open to negotiating with home owners and buyers are receptive to buying a short-sale. In addition, the U.S. Government is offering to pay the second trust in a short-sale up to $1000 to get the deal done.

You should also make sure that the Listing Agent you hire has successfully completed numerous short-sale transactions within the past 6 to 12 months (anything further back than 6 to 12 months doesn’t count because the rules today are much different than they were more than 12 months ago let alone in the history of real estate).

For buyers, it means that the majority of the “great deals” are short-sales. This means that you have to shift your thinking and “life plans” from moving in 30 to 45 days to moving in 4 to 7 months from now. This is because short-sales have a much longer turn around time and a smaller chance of success (unlike ordering a Whopper from Burger King).

The typical bank-owned property takes a few days to 1 week to get a response on while a short-sale typically takes 3 to 4 months (sometimes 6+ months). And even when you do get a response, it could be a counter-offer from the bank(s) or even worse, a plain old, “No - we’re not accepting a short-sale” and you’re S.O.L.

As a buyer, you should know what you’re getting yourself into with short-sales and have a Buyer’s Agent working for you that knows the ins and outs of the short-sale transaction. This will maximize your chance for successfully purchasing a great deal and actually getting to the settlement table.

If you’re a seller thinking about doing a short-sale, but aren’t sure what a short-sale is all about or where to start, pick up the phone or email me and I’ll be glad to help answer any questions or concerns you may have.

If you’re a buyer thinking about buying a short-sale in the Loudoun/Northern Virginia area, email or call me so we can chat about your specific needs and see how I can be of help.

***CLICK HERE FOR A LIST OF ALL ACTIVE SHORT SALES FOR SALE IN LOUDOUN COUNTY***

Local Government and Banks Discuss Short-Sales, Foreclosures and Loan Modifications

The Dulles Area Association of REALTORS® hosted a symposium yesterday with banks and REALTORS® to foster a greater understanding of the mortgage options for troubled homeowners and challenges arising from complicated real property transactions such as short sales. The event was held at George Washington University’s Ashburn campus and featured Congressman Frank Wolf and “top dogs” from HUD, the FHA, Bank of America and the Virginia Mortgage Lenders Association.

I wasn’t sure what to expect of the event because I was afraid politics and “prepared speeches” would get in the way of actually getting things accomplished (or at least discussed openly and honestly). There was a discussion/Q&A session at the end, but not much commenting came from the “top dogs”. And as far as the “advice” given, none of it was anything many of us didn’t already know.

It seems the people near the top of these organizations/companies are out of touch with what’s really going on in real life. Or maybe they do know, but don’t want to admit it or do anything about it.

For example, one agent commented how bank negotiators never return phone calls nor emails regarding the status of a short-sale in process. The response was, “Be patient. We get 180,000 phone calls per day and we don’t have the manpower to support the volume.”

So you want people to sit around for up to 6 months before you bother to get back to them? That’s your advice?! Gee, thanks. I feel much better now

How about this…You received TARP money (aka millions of tax payer dollars) plus you’re saving thousands of dollars by working out a short-sale rather than going the foreclosure route - so hire more (competent) people!

Another example (which I have been fortunate enough NOT to experience) is that the short-sale and foreclosure departments at the same bank don’t communicate with each other. Banks have been known to foreclose on a property in the middle of a short-sale negotiation (with the same bank). It’s 2009 - there are land lines, cell phones, email, IM, text, Twitter, Skype, etc. There is no excuse for such a lack of communication between two departments within the same company.

They defended the new HVCC appraisal guidelines quite a bit even though every agent and most sellers, buyers and those trying to refinance since May 1 have a horror story (or five) to share thanks to the HVCC.

And not too much new was talked about working out a loan modification. Things such as term length increases were number one on the list of possibilities with lowering the interest rate close behind. Either way, you have to prove to the bank that you can’t afford your current (or soon to be adjusted) monthly payment due to some form of hardship.

The point is…there are lots of issues and new problems arising from foreclosures, short-sales and the new appraisal process and not much is being done about it. As a consumer, make sure you’re properly educated and be prepared for hurdles along the way. And if you’re selling your house “short” or buying a foreclosure or short-sale property, make sure you have an experienced agent who knows what they’re doing when it comes to these types of transactions (I may know of one).

Related Articles

A Seller’s Guide to the Short-Sale Process

10 Questions To Ask Before Writing an Offer on a Short-Sale

10 Things to Look Out For With Bank-Owned Property Contracts

Do You Qualify for a Loan Modification?

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