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.

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

A Seller’s Guide to the Short-Sale Process

Some of you may be wondering how you can go about selling your home the “short-sale” route, but aren’t sure how it works. Well, here’s what I call a “Seller’s Guide to the Short Sale Process”…

First and foremost, let’s define “short-sale” as it relates to real estate today:

A short sale is a sale of real estate in which the proceeds from the sale fall short of the balance owed on a loan secured by the property sold

If you’re not sure whether you’ll be “short” if you sell the house, hire an appraiser or ask a Realtor to do a CMA for you and deduct the balance of your mortgage(s), any line of credit(s), other lien(s) and cost of sale from the estimated market value of your property. Once you’ve done that, you’ll have a good idea of whether you’re “short” (assuming the appraisal or CMA are accurate).

Let’s assume that you’re “short” and want to move forward with a short-sale. What are the next steps.

Well, fellow Virginia Realtors and bloggers Sarah Stelmok and Jeremy Hart beat me to the punch by about 24 hours with their posts on short-sales. So, with their permission,  I’m going to cite their explanation about the process to save some time.

If you are a Seller considering a Short Sale in your property, you will need to gather the following information:

• All lien holders names and contact information
• All loan numbers
  
• A Third Party Authorization Form - this will allow the bank to discuss your short sale with your REALTOR.  It needs to be agent and loan # specific and have an indefinite end date Some banks have their own form; others will accept any form you prepare.  You need to get this to the bank as soon as you hire a REALTOR.
• Listing Agreement - this should include a CMA of the property to justify your list price
• 2008 and 2009 W-2s - or the tax forms that you filed if you do not get W-2s.
• A Profit/ Loss Worksheet for 2009
• Last 2 Month’s Bank Statements
• Proof of Disability or Unemployment or Job Transfer (if applicable)
  
• Hardship Letter - this explains why you want to short sale and why the bank should allow you to short sale

Once you have all of these items, the next steps are…

1. List the property for sale– Some banks want the property listed for the amount that is owed first, and they will be willing to drop to a more realistic price after a period of time.  The listing agent will need to back up their list price with a good CMA!  Remember, a BPO will be called out as soon as they receive a contract.

2. Receive and ratify a contract – needs to be ratified by the seller and buyer.  Some banks want one contract at a time; others want to see them as they come in.  Another reason to contact the bank ASAP.

3.  Send Contract to Bank - get confirmation from the loss mitigation offer at the bank and preferably written proof of receipt

4.  You will also need to send – all of the paperwork including the hardship letter you gathered/prepared prior to listing your property for sale (see earlier part of this post). The bank may ask for other items not listed here. They may also send you additional forms and paperwork for you and/or your agent to sign.

5.  Be persistent, but patient - Make sure you ask how long it will take for a contract to work its way through the system.  You want to hear it will take 30-45 days, but they may tell you that it will take just that long for them to even look at the file as is the case with CitiMortgage.  You also want to ask about the likelihood the loan will be sold.  They like to sell the loans right before they give you approval, and you’ll have to start the process all over if they do.

6.  Stay as current as possible - Make sure you don’t get more than 2 months behind.  Some banks will allow you to get up to 9 months behind, but they are harder to negotiate and keep off the auction block. If you don’t know what their policy is, ask.

These steps will need to be done for each bank that is involved and each bank has their own process. Some banks that are in 2nd position (2nd trust/mortgage) will only start processing their short-sale after they’ve received written short-sale approval from the 1st trust. This means that the overall short-sale approval process may take twice as long with two trusts/mortgages.

If you are considering pursuing the Short Sale route to sell your home, it is important that you consult an attorney that is familiar with the process. It is also important that you use a REALTOR who is trained in the short-sale process and has experience in Short Sales.

So I hope that this helps you out (thanks again Sarah and Jeremy). If you’re in a situation where you’re about to fall behind on your mortgage and/or are considering a Short Sale, contact me to chat about it and see what options you have.

Related Articles

Short Sale (real estate) - Wikipedia

Percentage of Short-Sales Being Approved Increasing

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

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

It’s like the Wild West right now when it comes to short-sales in Loudoun County (and the entire Northern VA area). Some take 60 days to settle while others take 6 months (if they settle at all). Some are handled by agents, title companies and negotiators that know what they’re doing while others are not. The list goes on…

That’s why every buyer (and buyer’s agent) should ask the listing agent/broker (or seller if FSBO) the following 10 questions before they write an offer on a short-sale…

1. Have you received any other offers that you are waiting to hear back on from the bank?
2. How many trusts are involved that will be “short”?
3. How many total banks/creditors are involved in the short-sale and which banks/creditors are they?
4. Have you requested and received the short-sale package from the bank(s) including the hardship letter?
5. Have you sent the package and confirmed receipt?
6. Has the asking price been approved by the bank(s)/creditor(s)?
7. Who is negotiating the short-sale with the bank(s)/creditor(s) - you, a negotiator, a lawyer, the title company or….?
8. Has the seller/borrower completely stopped making payments on their loan(s)?
9. Is the seller willing to hold a note with the bank for the difference? (much better for their credit score)?
10. How many short-sales have you (the listing agent) closed within the past 12 months?

If the listing agent balks at answering these questions, it’s either because the seller does not wish to disclose the information and/or the listing agent may not know what they’re doing. Either way, if you don’t have the answers to all of these questions, you can’t make a very educated decision as to whether it’s worth writing an offer on the property or not.

Why? Here are just a few of the reasons…

• Different banks have different approval percentages and varying time frames for processing the short-sale. For example, if you have to move within the next 60 to 90 days, a short-sale being negotiated with CitiMortgage may not be something you want to pursue. If the short-sale is being negotiated with IndyMac, you will be talking to folks in a call center in another part of the world (literally) that care little about your short-sale (or IndyMac for that matter because IndyMac no longer exists)
• If the agent, title company and/or negotiator has not negotiated/closed many short-sales, they may not know what they’re doing which lowers the chance of the short-sale being approved and you being able to actually buy the property.
• If there is more than one trust, the total approval process time doubles because the second trust typically does not start their approval process until they have written approval from the first trust.

The 10 questions listed above are very similar to the 10 questions that Frank Llosa recommends asking before seeing a short-sale in one of his (excellent) posts. One question that Frank has on his list that I don’t have on mine is…

• How long do you estimate that the lender will take to provide an answer to an offer?

The reason why I don’t have it as one of my questions is because I’ve found that some agents just throw a date out there that they pulled out of thin air. For example, one agent told me the other day that she could have an approval and settle on the short-sale “within 45 days at the most” despite the short-sale being through Countrywide who is running way behind on short-sale approvals due to their recent merger with Bank of America which involved physically moving many offices, computers, files and employees.

Forty-five days? Riiiiiight… And I have a great deal on some ocean-front property in Arizona. No, really!

Rather than relying on what the listing agent tells you, your Buyer’s Agent should know and be keeping up with the nuances and latest news regarding each individual bank/lender’s short-sale approval process and how long it typically takes. This includes anything and everything that could affect the length of time it could take (such as the Countrywide/BoA example above).

Important: If a Buyer’s Agent tries to get you to blindly write an offer on a short-sale without asking these questions first or the listing agent is not willing to answer them, be wary and look at your other options.

On a related note…I will be writing a post on which banks are the fastest at approving short-sales, which are the slowest and which banks are the easiest to deal with from a sellers and buyers standpoint. Keep an eye out for that later this week.

Search for short-sales in Loudoun County

Foreclosure, Bank-Owned, Short-Sale Properties Bulk of Loudoun Home Sales

Foreclosure, bank-owned and short-sale properties make up over half of total home sales in Loudoun County. This has been the case for some time now and will most likely continue through at least the end of 2009, if not longer.

A few things I’ve noticed…

1. The percentage of foreclosure/bank-owned properties to total sales has decreased. This probably has to do with the foreclosure moratoriums that were in place from the end of 2008 to March 31 of this year.
2. The percentage of short-sale properties to total sales has increased. This is due to banks becoming more willing to accept short-sales and because more sellers are trying to take the short-sale route rather than being foreclosed on.
3. The increase in short-sales has left more home buyers frustrated than every before. The short-sale process is long, requires a lot of patience and has less chance for success than a foreclosure/bank-owned and traditional sale.

We should start seeing more foreclosures come on the market now that the foreclosure moratoriums have been lifted and Fannie/Freddie and other banks are back at it foreclosing on delinquent borrowers. In one way, this is a good thing because it will give home buyers more straight-forward and less stressful inventory to choose from. In another way, more foreclosures on the market could be bad because it could put downward pressure on prices. It all depends on the rate at which banks release all their foreclosure properties on to the market.

Loudoun Foreclosure, Bank-Owned, Short-Sale Market Statistics - April 2009

Here’s a look at Loudoun County foreclosure/bank-owned and short-sale market statistics for April 2009:

Total Sales/Buyer Demand 

• The number of foreclosure/bank-owned and short-sale property sales in April 2009 were almost exactly the same as in March 2009 (325 vs 323)
• April 2009 sales were up 29 percent over April 2008

Inventory/Supply

• April 2009 had 273 new foreclosure/bank-owned and short-sale listings come on the market versus 289 in March 2009, a decrease of almost 6 percent (In comparison, April 2008 saw a 23 percent increase in listings from March 2008)
• April 2009 had 273 new listings come on the market versus 360 in April 2008, a decrease of  24 percent

Translation…

Buyer demand for foreclosure/bank-owned and short-sale properties has increased tremendously from last year. But the rate of new inventory/listings on the market is way down. This means more buyers competing over fewer properties which has lead to price stabilization and many multiple/competing offer situations.

Click here for more on Loudoun’s housing market conditions and how they affect you as a home owner, seller or buyer.

Percentage of Short-Sales Being Approved Increasing

Yes, there is actually good news when it comes to short-sales - more and more short-sales are being approved!

I've had 4 out of my last 6 offers on short-sale listings get approved. Is a 66% approval rate on short-sales a fluke? Perhaps. But it still is what it is and my clients and I will take it!

In speaking with other agents, they're also seeing short-sales going through at a higher percentage than before. Considering that the national average for short-sales being approved is said to be around 20%, anything more than 20% is great.

What's leading to more short-sales being approved? Here are some of the reasons…

1. Banks are finally realizing that accepting a short-sale is a way to avoid the inevitable (foreclosure)
2. Not having real estate inventory (foreclosures) on their books allows banks to lend and make more money
3. Short-sales are typically less expensive than foreclosures because they don't have to go through the foreclosure proceedings, incur carrying costs, etc
4. Short-sale properties typically have people still living in them which means that they will generally be in better condition than if they sat vacant as a foreclosure for 3, 6, 12+ months. This means that the bank will get more money for the property if sold as a short-sale than as a foreclosure
5. Public sentiment is helping push banks to "work with borrowers" as much as they can to avoid foreclosure, part of which includes negotiating and accepting short-sales
6. More sellers, real estate agents and title companies are using short-sale negotiators to help negotiate the short-sale. Many of these negotiators once worked as bank loss mitigation officers (the folks who work for the bank who approve/reject short-sales) themselves so they know exactly how the process works

Note: Though the chances of a short-sale being approved have increased, it doesn't mean that yours will or that they're any easier to maneuver through. Whether you're a seller trying to negotiate a short-sale or a buyer trying to buy a short-sale, you still have to know what you're getting yourself into and what you're doing (as does your agent).

Related Articles

"The Type of Property You Can Buy May Depend On The Time You Have"

"The Issues With Short-Sales"

"Do You Know What The Bank Addendum REALLY Says?"

The Type of Property You Can Buy May Depend On The Time You Have

Many home buyers start seriously looking for a new home about three to six months before their preferred move date. Some give it even less time. But is two, three, even six months enough time? And does it affect what type of property you can try to buy?

Six, three, even two months may give you enough time to search for a new home, write and offer, go through the negotiation process, come to an agreement (ratify the contract) and then proceed to settlement - IF the property is a traditional resale or bank-owned (foreclosure). But it may not be enough time for a short-sale.

Though the time from which the offer is ratified to when settlement occurs is similar regardless of what type of sale it is, the negotiation process varies drastically especially when it comes to short-sales.

Here's the breakdown…

Traditional resales

A traditional resale is a sale in which the property is not bank-owned nor is the seller attempting to do a short-sale (definition of a short-sale later in this post). The owners are selling it directly to a buyer without needing final approval from a bank or other creditors.

Traditional resales typically take anywhere from a day to a week from the time you present an offer to when the negotiation process is complete.

If you've given yourself between 3 and 6 months, you'll be fine even if you don't get the first or even second or third house you've made an offer on.

Bank-owned properties (aka "foreclosures")

Bank-owned properties have been foreclosed on and are now being sold by the bank on the open market.

Bank-owned properties typically take a few days to two weeks to negotiate. The reason for them taking longer than a traditional resale is that you're dealing with the bank's asset manager - they have hundreds of files on their desks at one time and they don't work nights, weekends or holidays.

If you've given yourself between 3 and 6 months, you'll be fine even if you don't get the first or even second or third house you've made an offer on.

Short-sales

Short-sales are situations in which the seller/borrower is attempting to sell the property for less than what is owed on it (they're "short") and the seller/borrower is trying to get the bank/creditor to agree to take the loss. The bank/creditor must give final approval on the offer in order for the deal to take place. (For a more detailed explanation of what a short-sale is, click here)

The average response time from the bank on a short-sale is 3 months though I've seen responses take as long as 6 months. And here's the kicker…only about 20 percent of short-sales are approved.

If you've only given yourself 2 to 3 months before having to move, you're outta luck - short-sales are not for you. Even if you've given yourself 6 months, you may be cutting it close because it may take the full 6 months to hear a response. But…if the bank doesn't approve the short-sale, you're back to square 1 and you've lost an average of 3 months (if not more) of house-hunting time. 

If you'd like to look at short-sale properties, you should give yourself enough time to find a home PLUS another 4 to 7 months (average response time plus time to close).

The home buying process is stressful for many - especially first time home buyers. The last thing you want to do is feel rushed or, even worse, find yourself having to double-move or living out of a hotel. That's why knowing the timing involved with each type of property and planning accordingly is so important.

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