Bank of America made some changes to its short-sale procedures which are supposed to shorten decision times on short-sale offers to 20 days, down from 45 days or longer.
Bank of America’s short-sale management platform, Equator, was revamped and now enables short-sale negotiators to conduct tasks like document collection, valuations and underwriting simultaneously. In addition, when buyers walk/back out of their contract, agents will have 5 days instead of 14 days to submit a backup offer.
As part of the change in their short-sale approval process, Bank of America is requiring a new third-party authorization form for short sales initiated as of April 14, 2012. In addition, there are now 5 specific documents which are required to process short sales initiated with an offer. Once these five specific documents have been submitted, Bank of America should have a decision made on the short-sale in 20 days.
If you’re a homeowner thinking of doing a short-sale or a buyer considering purchasing a short-sale, I’d be happy to give you the details and chat more about the short-sale process - click here to contact me.
Short-sales are getting tougher for sellers and buyers and banks are more willing to foreclose now than before. Compared to just 6 months ago, banks are putting greater demands on short-sale sellers and buyers and are becoming less hesitant to foreclose if sellers (and buyers) don’t agree to their terms. This practice is hurting sellers experiencing true hardship and honest buyers who just want to buy a place to call home.
Banks are putting greater demands on short-sale sellers. Here are some examples…
- Bank’s guidelines for “hardship” are becoming more stringent (and unreasonable in some cases).
- Banks are demanding more money out of the sellers’ pocket at closing - money the seller does not have.
- Banks are less willing to forgive the remaining debt especially in states such as Virginia.
- If there are multiple loans and banks involved in the short-sale, the individual banks are becoming less willing to work with each other (i.e. the first trust bank is not willing to give the second trust bank any money like they used to).
- Second and third trust banks are requiring more money (they used to be happy with $3K) and are less willing to forgive the remaining debt
By putting these demands on the sellers, buyers are being forced to pick up some of the burden for the seller or walk away from the deal and start their house hunt over from scratch. And if the buyer walks away and the seller doesn’t almost immediately get another buyer that will agree to the terms, the seller runs out of time and the bank forecloses.
In addition, banks are becoming more willing to foreclose rather than work out a short-sale deal. A well informed and reliable little birdie told me that at least one big bank (first initial “B”) is moving toward a policy of foreclosing rather than accepting short-sales. Considering my latest short-sale dealings with this and other banks, I agree.
Maybe this has to do with the banks being tired of those who are “strategically defaulting”. Maybe it has to do with the banks being bailed out and knowing no matter what they do, they’re too big to fail. Maybe it has to do with them thinking the market has stabilized so they’re holding on to inventory until prices go up and the home is worth more then than it is today. Maybe it has to do with plain old greed and arrogance. Regardless of why, it is what it is.
Banks foreclosing rather than accepting short-sales is not only hurting sellers, it’s hurting buyers. Imagine being a buyer who patiently waited 3, 4 even 6 or more months for a final response from the seller’s bank only to hear, “The bank is foreclosing. Sorry it didn’t work out.” That’s time and money wasted that you can’t get back.
If you want to best position yourself for success, do your homework, be prepared and put yourself in good hands (a good lawyer, accountant, real estate agent, etc). And have a Plan B because there is no guarantee that the short-sale will be approved at the terms you (the seller) want.
This is true if you’re a buyer as well. Make sure you know what short-sales are all about and that you’re at the mercy of the seller and bank agreeing to terms. Your Buyer’s Agent should do as much prying as is legally possible to find out the seller’s short-sale situation and circumstances surrounding it. This will give you a better idea of the chances of the short-sale being approved and whether you should move forward with placing an offer on the property or move on to something else.
This short-sale market has been “interesting” to say the least. And it’s about to get even more interesting.
Short-sales make up 20 percent of Loudoun County homes for sale. As in, for every five “For Sale” signs you see, one of them is a short-sale.
What does that mean in regards to the Loudoun County housing market?
First, let’s go back to August 2009… In a post entitled, “Short-Sales Wear the Crown in Loudoun County”, I ran the numbers and the percentage of short-sales to total homes for sale in Loudoun County was the same - 20%.
Based on a comparison of August 2009 and today, it means things are not getting worse. But they’re not getting better either.
It also means that buyers should know exactly what they’re getting themselves into when buying a home in the area and have a real estate agent that is experienced in short-sales and can walk them through every step of the process.
When will see a decline in short-sales and a return to a “normal” market?
Once the general economy stabilizes and prices go up. Many people are underwater on their homes and can’t afford to come to the settlement table with a check for $20K, $50K or even $200K+. This means that their options are to 1) stay in the home until prices appreciate and/or they have the money to cover the loss, 2) let the property go into foreclosure or 3) try to negotiate a short-sale with the bank(s).
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).
- Part One - Proposed Short-Sale Guidelines (HAFA)
- Part Two - Proposed Short-Sale Guidelines (HAFA)
- 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!
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.
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.
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).
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.
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).
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:
- Exterior wood rot on upper rake and gutter boards, front window and door
- Gutter is falling - re-secure nails and gutter
- Re-wire attic fan
- Re-connect dryer vent in attic
- Repair 2×4 lateral brace by chimney
- Replace leaking interior hose bib shut-off valve
- Upper bathroom has loose toilet and tank - repair
- All windows are currently painted shut (thank you to Cheryl A for catching my previous typo - oops!) - free up for operation
- Repair small leak on lower powder room vanity trap
- 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.
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.
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.
Imagine this… The first trust (bank who the first/primary mortgage is with) approves their short-sale within 45 to 60 days, but the second trust takes 4, 5, even 6+ months to respond. And when they do, the response is, “Sorry, but we didn’t approve the short-sale” or “Sure, but we want $XX thousand cash from the seller due at settlement.”
And picture this… The first trust finally approved their short-sale 4 months ago. But, since the second trust has not given a response on their short-sale after a total of 6 months, the first trust says “enough waiting around” and forecloses. The contract then becomes void and, after 6 months of waiting around, the buyers are back to square one looking for a place to buy and live.
Pretty crappy, huh?
Unfortunately, these are real life examples happening here often and everywhere. And it’s killing short-sale transactions and frustrating home buyers and sellers everywhere.
The chances of the you actually getting to the settlement table and buying the house are much smaller when there is more than one trust or bank involved as compared to only one trust being involved. And the time it takes to get a response can double (or triple in some cases) when there are two trusts involved.
What’s the solution?
There isn’t one at the moment. But, you can protect yourself and manage your expectations by knowing what you could be getting yourself into. Part of doing that is making sure you ask the right questions including, “How many trusts/creditors are involved in the short-sale?” - before you write an offer on the property. You’ll avoid a lot of disappointment and frustration down the road.
On a related note, the Obama administration is attempting to address this issue by agreeing to share the cost of the loss with second trust/lien holders (aka banks/creditors). We’ll see if that pans out and what effect it will have…