Our last segment on Short Sales and Foreclosures.

By Elizabeth Weintraub, About.com

A short sale transaction can be very stressful for all parties involved.

A short sale in real estate is not always a pleasant transaction.There are many ways to lose a home but signing away ownership in a manner that destroys credit, embarrasses the family and strips an owner of dignity is one of the hardest. For home owners who can no longer afford to keep mortgage payments current, there are alternatives to bankruptcy or foreclosure proceedings. One of those options is called a “short sale.”More than half of sales in 2006 to 2012 have been short sales. That’s how prominent short sales have become. In recent years, even sellers who are not delinquent might qualify for a short sale, which has opened many more short sale doors.

 

When lenders agree to do a short sale in real estate, it means the lender is accepting less than the total amount due. Not all lenders will accept short sales or discounted payoffs, especially if it would make more financial sense to foreclose; moreover, not all sellers nor all properties qualify for short sales.

If you are considering buying a short sale, there could be drawbacks. For your protection, I suggest that all borrowers:

• Obtain legal advice from a competent real estate lawyer
• Call an accountant to discuss short sale tax ramifications

As a real estate agent, I am not licensed as a lawyer nor a CPA and cannot advise on those consequences. Except for certain conditions pursuant to the Mortgage Forgiveness Debt Relief Act of 2007, be aware the I.R.S. could consider debt forgiveness as income, and there is no guarantee that a lender who accepts a short sale will not legally pursue a borrower for the difference between the amount owed and the amount paid. In some states, this amount is known as a deficiency. A lawyer can determine whether your loan qualifies for a deficiency judgment or claim.

Although all lenders have varying requirements and may demand that a borrower submit a wide array of documentation, the following steps will give you a pretty good idea of what to expect.

• Call the Lender   You may need to make a half dozen phone calls before you find the person responsible for handling short sales. You do not want to talk to the “real estate short sale” or “work out” department, you want the supervisor’s name, the name of the individual capable of making a decision.

• Submit Letter of Authorization     Lenders typically do not want to disclose any of your personal information without written authorization to do so. If you are working with a real estate agent, closing agent, title company or lawyer, you will receive better cooperation if you write a letter to the lender giving the lender permission to talk with those specific interested parties about your loan. The letter should include the following:
  • Property Address
  • Loan Reference Number
  • Your Name
  • The Date
  • Your Agent’s Name & Contact Information
• Preliminary Net Sheet   This is an estimated closing statement that shows the sales price you expect to receive and all the costs of sale, unpaid loan balances, outstanding payments due and late fees, including real estate commissions, if any. Your closing agent or lawyer should be able to prepare this for you, if you do not know how to calculate any of these fees. If the bottom line shows cash to the seller, you will probably not need a short sale.

• Hardship Letter   The sadder, the better. This statement of facts describes how you got into this financial bind and makes a plea to the lender to accept less than full payment. Lenders are not inhumane and can understand if you lost your job, were hospitalized or a truck ran over your entire family, but lenders are not particularly empathetic to situations involving dishonesty or criminal behavior.

• Proof of Income and Assets   It is best to be truthful and honest about your financial situation and disclose assets. Lenders will want to know if you have savings accounts, money market accounts, stocks or bonds, negotiable instruments, cash or other real estate or anything of tangible value. Lenders are not in the charity business and often require assurance that the debtor cannot pay back any of the debt that it is forgiving.

• Copies of Bank Statements   If your bank statements reflect unaccountable deposits, large cash withdrawals or an unusual number of checks, it’s probably a good idea to explain each of those line items to the lender. In addition, the lender might want you to account for each and every deposit so it can determine whether deposits will continue.

• Comparative Market Analysis     Sometimes markets decline and property values fall. If this is part of the reason that you cannot sell your home for enough to pay off the lender, this fact should be substantiated for the lender through a comparative market analysis (CMA). Your real estate agent can prepare a CMA for you, which will show prices of similar homes:
  • Active on the market
  • Pending sales
  • Sold from the past six months.
• Purchase Agreement & Listing Agreement   When you reach an agreement to sell with a prospective purchaser, the lender will want a copy of the offer, along with a copy of your listing agreement. Be prepared for the lender to renegotiate commissions and to refuse to pay for certain items such as home protection plans or termite inspections.

Now, if everything goes well, the lender will approve your short sale. As part of the negotiation, you might ask that the lender not report adverse credit to the credit reporting agencies, but realize that the lender is under no obligation to accommodate this request. Credit report status is not always negotiable.

Buyers pursue short sales to get a good deal. So when you see a price listed for a home that you think is too low for the neighborhood, before you jump on that price like hot fudge on a sundae, ask your agent to call the listing agent to find out if the home is a short sale.Because you might want to think twice about making an offer on a pre-foreclosure, short sale home. It’s not as simple as you may believe, and very few can close in 30 days or less.

What is a Short Sale?

A short sale means the seller’s lender is accepting a discounted payoff to release an existing mortgage. Just because a property is listed with short sale terms does not mean the lender will accept your offer, even if the seller accepts it.Be aware that the seller need not be in default — to have stopped making mortgage payments — before a lender will consider a short sale. A lender may consider a short sale if the seller is current but the value has fallen. The seller may have over-encumbered, owe more than the home is worth, so a discounted price might bring the price in line with market value, not below it.

Check the Public Records

Do your research before making an offer to purchase. Your agent can find out who is in title, whether a foreclosure notice has been filed and how much is owed to the lender(s). This is important because it will help you to determine how much to offer.If there are two loans, you could have a problem. The first mortgage lender’s position is protected by the second lender, unless the second lender does not want to foreclose. If a seller owes $160,000 on the first and $40,000 on the second, offering $160,000 leaves nothing for the second. The first will need to give something to the second to gain its cooperation.

Hire an Agent with Short Sale Experience

It’s one strike against you if the listing agent has never handled a short sale, but it’s even worse if your own agent has no experience in that arena. You need an experienced short sale agent.An agent with experience in short sales will help to expedite your transaction and protect your interests. You don’t want to miss any important detail due to inexperience or find out your transaction is not going to close on time because no one has followed up in a timely manner.

Qualifying the Property and Seller for a Short Sale

A lender is unlikely to agree to a short sale unless the seller has no equity and is unable to repay the difference between your sales price and the existing loans. Sellers need to provide a hardship letter to the lender. Sellers may also owe taxes on the amount of debt that is forgiven.A seller I know once demanded that the buyer slip the seller $1,000 to be given the right to purchase the seller’s property. We said no. This is fraud. The lender legally pursued that seller. Do not be lured by sellers who suggest this practice. In a short sale, the seller receives no money because the lender is losing money.

Submit Documentation and Purchase Offer to Lender

Once the seller has accepted your offer, send it to the lender for approval. You do not have a deal until the lender accepts. Also, send the lender a copy of your earnest money deposit. Do not be astonished if the lender asks you to increase it.In addition, the lender will want to see that you have your own loan available and you are preapproved. Send a preapproval letter to the lender. It will help if your agent sends a list of comparable sales that support the price you are offering to pay for the home.

Give the Short Sale Lender Time to Respond

Make your offer contingent upon the lender’s acceptance. Give the lender a time frame in which to respond, after which, you will be free to cancel.Some lenders submit short sales to committee, but most can make a decision within two to three months. Get a name and phone number for the appropriate contact at the lender. Don’t send an offer blindly to a department.

Understand Short Sale Commissions

Regardless of the commission the seller has agreed to pay, the lender is actually the entity paying the commission. The reason is the seller is not receiving any money with which to pay a commission. Since the lender is losing money, the lender will likely negotiate the commission directly with the listing broker, who will then share the commission with your agent.If you have signed a buyer’s broker agreement with your agent, ask if the agent will waive the difference due or you might have to pay it out of your pocket. Some brokers feel it is unfair to penalize the agent, but the lender is calling the shots.

Reserve the Right to Conduct Inspections

Generally, the lender will not pay for customary items that a seller would pay. These include home protection plans for the buyer, buyer credits of any kind and pest / termite inspections. A buyer will be asked to purchase the property “as is,” which means no repairs. It is extremely important that a buyer obtain a home inspection.

One of the most controversial topics in today’s economy is foreclosure. For many consumers, deciding what to do once payments get behind is an agonizing choice. Do you try to work a deal out with the lender or simply let the house go and live rent-free for a year or more?

In some counties of the hardest hit markets such as South Florida and California, the foreclosure process can take years while homeowners live in limbo both emotionally and financially. Why is the decision so hard to let a home go?

I do not understand this train of thought logically. If you are really upside down on your home and behind on your mortgage, all roads to a new home loan are quite unlikely due to the recent damage of your credit score and loan modifications only help short term. They rarely reduce the amount of money you owe – just how you pay it.

If the impact of falling baseball card values contributed as much damage to the U.S. economy as mortgages have, people would simply leave their baseball cards on the side of the road and move on. But when it comes to defaulting on a mortgage, is it unethical?

Ethics are Subjective

How is defaulting on a mortgage any different than letting a credit card go or defaulting on a student loan? A lot of consumers come across hard times and no judgment is made by the masses about how unethical the decision was to have an account go to collections and settle. In fact, student loan and credit card companies know this risk and it’s one of the reasons why they charge 20 percent interest or more. It’s simply a numbers game for a bank but for a homeowner… how dare you!

Isn’t the job of every man and women to protect the financial status of their family and do what is best for their own home? Is this selfish? Of course, but it’s also how we are all built and human nature is far from perfect. Thankfully, the desire to protect a family’s finances are much less selfish than the profit-churning banks who want to charge $3 for a $20 ATM withdrawal. Many people seem to forget how consumers get abused every day by banks and accept it just as business – never questioning how ethical it is.

What about insurance companies and local state agencies who want to raise property taxes and insurance? Where does it all stop?

Renting is a Pretty Good Alternative Short Term Solution

Let’s say you purchased a home using 100 percent financing for $600,000 in Miami a couple years ago where property taxes are around 2 percent of your home value and another 1 percent or more for insurance.

The same house today is worth somewhere around $350,000 and you are probably $200,000 or more upside down.  The cost of carrying your current $600,000 mortgage is:

• Property Taxes at 2 percent of home value = $7,000

• Home Insurance of 1 percent – $3,500

• Maintenance (at $500 a month) = $6,000

• Annual Mortgage Interest (at 6%) =  $30,000 +

So, before you pay any thing towards the principal of your house, your monthly nut just to enjoy the title of “homeowner” is $46,000 or more.

Sure, there is a huge tax benefit of home ownership, but if you are essentially spending $46,000 a year on interest and other fees.  Why would you want to continue to pay a $600,000 mortgage when the house is only worth $350,000?

Many people enjoy the year or two or three it takes to foreclose saving money from free rent and socking it away. In  two or three years these people will have almost $100,000 cash and (if done right) no liability from having a house underwater.

Ethical or not – their families will live a comfortable life while others continue to scratch their head.  Is there a mortgage calculator to figure this out? Not really, but some common sense can sure help.  The NET cost of renting vs. owning can be calculated for many by this simple formula:

Step 1 – Calculate Total Cost of NON-Principal Payments

Total the cost of any items which do not go directly to paying down the prinicpal mortgae balance and would not be required if you rented a home such as:

• Property Taxes

• Homeowners Insurance

• Maintenance

• Mortgage Interest

Basically all the money you have to spend before actually paying down your mortgage.

Step 2 – Learn about Renting.

Determine the cost of renting a comparable home that suits your family lifestyle.

Step 3 – Calculate the Difference  Calculate the difference between Step 1 and 2.

If your fees of owning a home are $4,000 a month (when you include interest) but you can rent a comparable house for $2,500 a month then seriously, why are you sticking around a sinking ship?

A $1,500 difference can quickly add up when you sock it away and in a year or two from now have a down payment for another house without all the negative equity.  (Not to mention the money saved from a year or so free rent that comes with not paying a mortgage)

Honestly, I don’t get it.  Sure, there are tax advantages to owning a home and possible legal and financial responsibilities from a foreclosure but most consumers can let a mortgage go with NO LIABILITY using the right steps.

Additionally, any tax advantages are not so big to make any real difference when a person is hundreds of thousands of dollars upside down on a mortgage so this argument does not carry a lot of weight either.

Most lenders are waiving any kind of liability should you short sale a home, courts are so busy a foreclosure can take years to happen (free rent) and many real estate experts predict the housing market will suffer for years and the odds of ever getting your home back to 2005 to 2006 values is quite likely a decade or more away, if ever.

Additionally, deals are everywhere and in many areas some of your neighbors most likely just bought a comparable house for one-third of what you paid.  What shame is there in taking advantage of the system when the banks did the same thing with the bailouts, a lender is more than willing to short sale a home to someone else instead of giving the current homeowner a break or how counties are now raising your property taxes because they need the money?  It’s ok for all the corporations and government to do “unethical acts” but individuals need to feel shame?

I’m confused… Who told us letting a house go was unethical?  Oh yes, the banks.

By Tisza Major-Posner

 If you are listening to the news, reading the papers or watching the Internet you have probably run across the term “Short Sale”.  But, what is a Short Sale?  Is it a good thing or a bad thing?  And, most importantly, if you are facing one, what is the good news about the situation and what is the bad news.

What is a Short Sale?  A Short Sale is the selling of a property for less than you owe on it and also requires asking the lender’s to forgive the difference between what they are owed and what the property can currently be sold for.

With property values fluctuating and with lots of folks with adjustable rate mortgages seeing their interest rates resetting themselves from barely affordable to out of the ballpark, the Short Sale is fast becoming a fixture in the purchasing landscape.

Is a Short Sale a good thing or a bad thing?  Well, I guess that really depends upon which side of the fence you are viewing it from.  If you are a homeowner facing the loss of your home and your investment and the utter devastation that a foreclosure will reek upon your credit for the next seven to ten years, then a Short Sale is indeed the lesser of the two evils.

Don’t misunderstand, a Short Sale does have negative repercussions and will do harm to your credit.  But, it will only remain on your credit report for around three years as opposed to the Foreclosure which has a much longer negative life span.

If you are a lender faced with forgiving a portion of the debt owed to you in lieu of facing additional losses while waiting for the distressed property to go through the entire foreclosure process and then having to also absorb the cost of the foreclosure sale as well, then a short sale is a preferable solution.

If you are a buyer looking for the home of your dreams, you may find it via the Short Sale market, but be warned – Short Sale’s do not run on the same time-frame that an average sale does.  What you may realize in savings on the home, you will pay for with the extra time necessary to complete the sale.

Remember, in a Short Sale there are three parties minimum in the decision making process – The Seller, The Buyer and The Lender or Lenders.  Even after the buyer and the seller have arrived at an agreement the lender or lender’s need to agree to whatever the seller accepted offer is, since it is ultimately the lender whose money is involved and ultimately the lender who is being asked to forgive the outstanding debt.

So, here’s some of the good news in a Short Sale… Because it takes time for the Lender to respond after the offer is sent to them, it means that until the Lender says an offer is accepted the games continue.  After the offer is accepted by the lender then the time-frames usually observed in a normal sale apply.

Short Sales are challenging and can try your patience, but the reward out ways the irritations.  Saving yourself years of credit repair, helping the lender’s recover some of their losses and helping the buyer find a home they are happy with can make this lemon of a situation into lemonade.

So, if you are in over your head with no end in sight, don’t let your home go into foreclosure, call an agent like me with experience in the Short Sale process and see if I can help you.

The next generation of homebuyers has different expectations of the real estate process, and who can blame them?

They are facing a different set of realities from their parents.

The average Gen Y currently has, on average, $27,000 in college loans to repay, which they may spend the better part of a decade doing — exactly at the same time when past generations were usually saving up for a down payment, writes Doorsteps, a real estate search site.

As a result, the real estate industry has to revamp itself and reimagine how the home selling process will transition in the coming years.

Doorsteps, a real estate search site that develops relationships between buyers, sellers, lenders and service providers, has created a very informative info graphic to show the shifting landscape.

Based on data presented, it seems first-time homebuyers are more willing to compromise on the house, but not on the neighborhood.

And many first-time homebuyers cut out luxury items (42% of those surveyed) and entertainment (35%) to save for a home.

The average age of the first-time homebuyer is 31, so for those of us right out of college pursuing the American dream of owning a home, we have a ways to go.

Finally, first-time homebuyers are extremely open to considering buying a home in foreclosure — a whopping 65% — in fact, even more so than repeat buyers.

By Bankrate.com

The kitchen is still considered  the heart of the home. For a few hundred dollars, you can replace the kitchen  faucet set, add new cabinet door handles and update old lighting fixtures with  brighter, more energy-efficient ones. If you have a slightly larger budget, you  can give the cabinets themselves a makeover. Rather than spring for a whole new  cabinet system, which can be expensive, look into refacing the ones you have.  Many companies will remove cabinet doors and drawers, refinish the cabinet boxes  and then add brand-new doors and drawers at a price considerably less than new  cabinets. Unless the cabinets are mica, a fresh coat of paint can also do the  trick.

2. Give appliances a face-lift

If your  kitchen appliances don’t  match, try ordering new doors or face panels from the manufacturer. Many  dishwasher panels are white on one side and black on the other. It can be as  simple as removing a couple of screws, sliding the panel out and flipping it  over.

3. Buff up the bath

Next to the kitchen,  bathrooms are often the most important rooms to update. They, too, can be  improved without a lot of cash. Simple things like a new toilet seat and a  pedestal sink are pretty easy for homeowners to install, and they make a big  difference. You can replace an old, discolored bathroom floor with easy-to-apply  vinyl tiles or a small piece of sheet vinyl — often applied right over the old  floor. If your tub and shower look dingy, consider regrouting the tile and  replacing any chipped tiles. A more complete cover-up is a prefabricated tub and  shower surround. These one-piece units may require professional installation,  but still can be cheaper than paying to retile walls and refinish a worn  tub.

4. Paint

New paint makes everything look  clean and bright again. And don’t forget the ceiling. Paint the trim a  contrasting color. Another option: Paint a wall three different shades of the  same color. Measure equal sections and use painter’s masking tape to mark off  each area. Do the bottom of the wall first with the darkest shade. Once it  dries, do the middle section with the next lightest shade and so on.

5. Step up your storage

Old houses, particularly, are notorious  for their lack of closet space. If you have cramped storage areas, add  do-it-yourself wire and laminate closet systems to bedrooms, pantries and entry  closets. Firms such as ClosetMaid allow you to measure and redesign your closets online. You can also get design  details and parts for these systems at many large home-improvement stores. Most  closets can be updated in a weekend or less. In the end, your closets will be  more functional while you’re living in the house and will make your home look  more customized to potential buyers when you’re ready to sell.

6. Mind the mechanics

Finley Perry in Hopkinton, Mass., advocates spending a few bucks on  nitty-gritty stuff. “It’s often very worthwhile to hire an electrician and  plumber for a couple of hours to look over your electrical services, wrap or fix  loose wires, fix any faulty outlets, and check for and fix any water leaks,”  Perry says. “Those details tell a buyer that someone has really taken care of  the home and can really influence its price.”

7. Look underfoot

Carpeting is another detail  that can quickly update a home and make it look cleaner. A professional carpet  cleaning is an inexpensive investment, especially if your rugs are in good shape  and are neutral colors. If your carpet is showing serious wear, cover it with  inexpensive, strategically placed area rugs. Most real estate agents don’t  suggest replacing wall-to-wall carpeting right before you sell your house unless  it is truly hideous. The new homeowners may want to choose their own  carpeting.

8. Let there be light

If you have boring  recessed lights in your dining and living rooms, consider replacing one of the  room’s lights with an eye-catching chandelier. Home stores offer a wide range of  inexpensive, but nice-looking, ceiling fixtures. Add accent  lighting instead of sticking with the two ordinary lamps that flank both  ends of the sofa. Spotlights that plug into existing outlets can direct light to  features you want to emphasize, like art or plants. If you have a ceiling fan  and light, you can also buy replacement fan blades (leaving the fan body in  place) to update the fixture’s look.

9. Reframe your entry

It’s the first thing  you, and your guests, will see. Repaint or refinish that front door. If you have  a basic steel front door that has gotten dented, consider replacing it with  either another inexpensive steel door or a fiberglass, wood grain door for  a slightly higher cost. Next, replace that worn, flimsy little knob on your  main entry door with a more substantial-looking handle-and-lock set. A nice, big  piece of hardware signals newcomers that this is a solid home. Then, place two  large planters on either side of the front door, with a profusion of healthy  plants spilling out. Look for foliage colors and blooms that complement each  other. Go for different heights and textures, mix perennials and annuals,  blooming and nonblooming varieties. If you want to add another touch, tie it in  to the front door with a coordinating wreath.

10. Consider curb appeal

Although it sounds  obvious, a nicely mowed lawn, a few well-placed shrubs and a swept walkway make  a great first impression. As the saying goes, you never get a second chance to  make a first impression. What buyers see when they first drive by your home is  tremendously important. No matter how nice it is inside, they may never come  back. If you don’t have a green thumb, consider hiring a landscaper to install  some new sod, plant a few evergreen shrubs and give your front yard a good  cleanup. These kinds of changes can instantly change people’s perception of your  home and, therefore, increase its value and your neighbors will love you for it,  too.

Working in real estate, I’ve learned that many buyers will drive by a house before they even call for a showing. It makes sense. After all, if the buyer doesn’t like the outside of the house, why would they want to buy the inside? Unfortunately, properties going on the market often have poor or sparsely landscaped fronts that don’t appeal to buyers.

Case and point, I’m helping a former client sell her house. The house is great on the inside, but hasn’t drummed up a lot of interest. She’s on a limited budget, so I had to create some curb appeal without spending a lot of money. Thankfully, I came up with a few curb appeal ideas for under $100.00

Clean up the Landscaping

When my client first put her house up for sale, the yard was overgrown and the landscaping was infested with weeds. Fortunately, cleaning up the front yard is one of the cheapest things you can do to add curb appeal. The client purchased a rake and a bottle of weed killer and got to work. A few hours later, the yard was mowed and free of leaves. And the landscaping didn’t have a weed in sight.

Total Cost -the client paid $14.99 for the rake and $3.95 for the weed killer. This large project only cost $18.94

Replace Mulch

My client has lived in the house for several years, and the mulch landscaping around the trees is almost gone. He purchased six bags of mulch in a more modern black color. He then laid the mulch in a circular pattern around the trees and landscaping in the front yard. The landscaping popped against the dark color of the mulch and added curb appeal.

Total Cost - He paid $4.97 for each bag of mulch. This project cost $29.82 in total

Add Flowers and Bushes

My client’s home already had bushes and a few larger flowering plants along the front of the house, but the landscaped area had some noticeable bald patches where older bushes had died out. Instead of replacing the entire area with new plants, she added a few new bushes in the empty areas to fill out the layout. She chose the Purple Butterfly Bush over a more traditional leaf. This plant has different shades of white, pink and purple, which added some color to the front lawn and stood out against the darker mulch.

Total Cost – She paid $6.98 for a 3-quart container of Purple Butterfly Bush. It took four containers to fill in the empty spots in the landscaping. She spent $27.92 on this project.

It’s that simple, yet most overlooked project, and impacts how well and fast your home sells. Try driving by your house, slowing down on your street, and take a look around at the neighbors’ homes… spot which ones catch your attention and hold it, and why it does? Most of these improvements can be made for less than $100.00, and add so much more to your home’s value and appeal to buyers. The next question should be, how badly do you want to sell it?

With REO sales making up roughly 11% of total sales, it’s important for Realtors to know the short-sale market well, said Ashley Bean, when leading a panel discussion at the REOMAC 2013 Summit & Expo in Dallas.