6 Questions and Answers on Short Sales

 

After answering several short sale questions on Trulia Q&A, I decided to share some of the questions I’m asked regarding short sales from my clients.

Q. Does a lender have to approve a sale if the offer price is equal to or above the listing price?

A. NO.  The listing price is set by the seller, not the bank. The bank has to approve any price.

Q. Can the lender foreclose on a home even if there is a short sale offer submitted to the lender?

A. YES. If timelines and legal procedures have been followed a bank can foreclose on the home.

Q. Can a lender decide on the close of escrow date?

A. YES. They usually do. Buyers need to be ready to close once approval is given.

Q. Can a lender cancel the contract if the sale doesn’t close on the appointed escrow date?

A. YES. This stipulation is usually written into the Demand Letter from the lender.

Q. Can the buyer legally walk away from a contract if the lender changes the contract?

A. YES. Assuming a Short Sale Addendum is used.

The Short Sale Addendum, What You Should Know!
https://esoderlundrealestate.wordpress.com/2011/03/01/the-short-sale-addendum-%e2%80%93-what-you-should-know/

Q. Are short sale homes worth looking at as a buyer?

A. YES. Short sales make up too much of the market to simply ignore.

https://esoderlundrealestate.wordpress.com/2011/03/09/east-bay-short-sales-six-things-to-do/

Here is some additional information on short sales. Your questions and comments are welcome. Please contact me at EricS@steven-anthony.com

Is a Short Sale Right For Me?
https://esoderlundrealestate.wordpress.com/2011/03/03/when-is-a-short-sale-right-for-me-how-to-do-i-begin-a-short-sale-in-california/
How Do I Prepare My Home For a Short Sale?
https://esoderlundrealestate.wordpress.com/2011/03/05/how-do-i-prepare-to-sell-my-house-as-a-short-sale-part-2-of-2/
The Short Sale Addendum, What You Should Know!
https://esoderlundrealestate.wordpress.com/2011/03/01/the-short-sale-addendum-%e2%80%93-what-you-should-know/
Short Sales, How The Process Works
https://esoderlundrealestate.wordpress.com/2011/03/01/the-short-sale-addendum-%e2%80%93-what-you-should-know/
Short Sales in the Bay Area, Start To Finish
https://esoderlundrealestate.wordpress.com/2011/02/26/short-sales-in-the-san-francisco-east-bay-start-to-finish/

Best Regards,

Eric Soderlund

Realtor, GRI, SRES

Purchasing Short Sales, Six Things To Do

When an investor or home buyer hears the word short sale visions of dread often enter their mind. We have all heard the stories of a buyer waiting 6 or even 9 months before they heard from the bank. And worse, what they heard was No Deal or the home was suddenly up for auction after the bank accepted their offer. These stories have turned many would be buyers off to the idea of short sales. I even know of fellow realtors that won’t show their client’s short sale homes or discourage them from entertaining them as a purchase.

I am certainly not one of those realtors. I have been the agent for buyers and sellers of short sale properties and while some of them have been challenging, they have all been successful in the end. I have helped investors purchase short sales as their first rental property, assisted renters buy shorts sale homes where their mortgage was less than they were paying for rent and helped home owners sell investment properties and primary residents that were over $100,000 underwater.

Short sales are a reality in today’s market and they will be for quite some time. In fact, lenders are realizing that they are better off letting a home be sold as a short sale than letting it go into foreclosure. And by better off I mean it saves them money and gets the property off their books sooner.

I strongly believe that investors as well as someone looking for a place to call home should include short sales to their options. That said, there are certain steps that need to be taken in order to avoid being one of those stories that I mentioned above.

1. Use a realtor that is experienced in short sales. These transactions use additional addendums and disclosures and lenders require very specific information. The realtor working with the buyer needs to understand what lenders look for in a short sale offer and the listing agent needs to be diligent in their efforts and communications with the lender.
2. Understand what you are getting into. This is not a regular real estate transaction. I will definitely take longer even if everything goes perfect. Additional communication is required with your realtor. They need to explain the process and the timeframes involved.
3. Make offers that are solid and likely to be accepted. Short sales are not bargain homes. The lender is not going to sell the property for less than market value or pay for items that buyers traditionally pay for. They are already taking a loss. The person in charge of deciding whether to accept the offer or not has strict guidelines that they must follow.
4. As the seller, list the home for market value and don’t accept offers that are too low. This is a huge waste of time and may delay the sale to a point where the home is foreclosed on.
5. Be proactive and respond quickly. Gather required information ahead of time, your realtor will help you with this. If something additional is required or a document needs to be updated, get on it. Show that this is a priority to you and the lender is more likely to make it a priority to them.
6. Work with your realtor to set certain deadlines. If there is no progress in the sale, be prepared to move on. As the buyer, keep looking at the market.  Understand which direction prices and mortgage rates are moving.

Short sales make up a large percentage of the inventory in the East Bay. To exclude these homes severely limits your chances of finding the “perfect” home as an investor or family looking for a place to live.

I hope this information was of value to you. Check out my other posts regarding short sales listed below. Your comments and questions are always welcome. Contact me at
EricS@Steven-Anthony.com

When Is a Short Sale Right For Me?
https://esoderlundrealestate.wordpress.com/2011/03/03/when-is-a-short-sale-right-for-me-how-to-do-i-begin-a-short-sale-in-california/
How Do I Prepare My Home For a Short Sale?
https://esoderlundrealestate.wordpress.com/2011/03/05/how-do-i-prepare-to-sell-my-house-as-a-short-sale-part-2-of-2/
The Short Sale Addendum, What You Should Know
https://esoderlundrealestate.wordpress.com/2011/03/01/the-short-sale-addendum-%e2%80%93-what-you-should-know/
Short Sales, How The Process Works
https://esoderlundrealestate.wordpress.com/2011/03/01/the-short-sale-addendum-%e2%80%93-what-you-should-know/
Short Sales in the Bay Area, Start To Finish
https://esoderlundrealestate.wordpress.com/2011/02/26/short-sales-in-the-san-francisco-east-bay-start-to-finish/

Best regards,

Eric Soderlund
Realtor, GRI, SRES
Steven Anthony Realty
EricS@Steven-Anthony.com

How Do I Prepare To Sell My House as a Short Sale? Part 2 of 2

Eric Soderlund, Steven Anthony Realty

In part 1 of this 2 part post “Is a Short Sale Right For Me?” we left off with speaking to a real estate attorney and tax specialist. I’d like to go a bit deeper into this due to its importance.

Bankruptcy, foreclosure, selling your home in a short sale or draining savings and retirement accounts to keep your home are major events/decisions. Each option will carry its own set of consequences and some will affect you longer than others. I certainly realize that sometimes decisions are made for use due to our life situations. However, there are times when we feel there are no options when in fact there are. The only way to be sure what is best for you and your family is to get assistance from professionals. In this case, tax specialists, real estate lawyers and knowledgeable realtors. As a realtor, I can not advise you on what option would be best for you. What I and other realtors experienced in short sales can do is get you pointed in the right direction early on and assist you in executing your decision after you have chosen the best course of action.

Let’s say that you have received professional counseling and a short sale is the right choice for you. What next? The first step if you haven’t already done so is to choose a realtor. Choosing the right realtor to assist in your short sale in critical, I recommend using a realtor that has experience in short sales. The realtor that assisted you in buying your home won’t necessarily be the best choice for your short sale. These transactions require additional forms such as the Short Sale Listing Addendum, Short Sale Information Advisory and the most important addendum the Short Sale Addendum. A clear understanding of this document is crucial. There are options within the addendum that affect the transaction. (Read:The Short Sale Addendum-What you should know).

Once you choose your realtor, you will want to put together the information that your lender or lenders will require. Many times, your lender will have “Short Sale Request Packets” available online. It’s a request packet because the lender must approve the sale.
This packet of information is extensive and can take a while to put together. Don’t wait until you get an offer to put this information together. If you have stopped making payments, the clock is ticking and the process takes long enough. You are now ready to move forward with your short sale. To understand the workings of the transaction and approval process read my blog “Short Sales – Start to Finish“.

While selling your home in a short sale is emotionally difficult, getting professional advice beforehand will provide some comfort. You will know that you are making an educated decision that is best for your situation. If you are behind on your mortgage or your financial or life situation has changed in a way that will impact your ability to make payments in the future, don’t wait to take the first step. Get professional advice immediately. Get informed, know your options.

I hope you have found this information of value. Your comments and questions are welcome. Contact me at EricS@steven-anthony.com

Best Regards,

Eric Soderlund
Realtor, GRI, SRES
Steven Anthony Realty
www.ESoderlund.com

When Is a Short Sale right for me? How To Do I Begin a Short Sale in California?

Eric Soderlund, Steven Anthony Realty

When Is a Short Sale right for me? How To Do I Begin a Short Sale in California?

Part 1 of 2
Know your options

It’s something that in years past seamed unimaginable, our Bay Area homes being worth less than we owe on them and the threat of foreclosure looming. Yet for thousands of Californians, this is today’s reality. The statewide share of Short Sales increased to 22 percent in January 2011, up from 20 percent in December and up from 19 percent in January 2010.

County/Region               Dec-10  Jan-10  Jan-11
REOs                                 37%       30%      32%
Short Sales                       19%       20%      22%
Total Distressed Sales    56%       50%      54%

County/Region               Jan-10  Dec-10  Jan-11
CA                                     56%       50%       54%
San Diego                         34%       28%       33%
Marin                               37%        34%       43%
Orange                             41%       38%        43%
San Luis Obispo              49%      46%        47%
Los Angeles                     54%      50%        54%
Mendocino                       49%      57%        55%
Napa                                 68%      54%        59%
Sonoma                            54%      55%        61%
Kern                                 69%      71%         70%
Sacramento                     68%     66%         73%
Riverside                         78%      67%         73%
San Bernardino              76%      72%         74%
Solano                              76%      74%         81%
(The above table comes from market Data from the California Association of Realtors http://www.car.org/marketdata/data/distressedsales/)

The American dream of home ownership has become a nightmare for many.
With unemployment, wage cutbacks and Mortgage Modification being more of a myth than reality, for some the options are few. Reduce savings and dip into retirement funds? Walk away from the home and let it be foreclosed on? Or sell the home as a short sale? All 3 of these options come with an emotional and financial price.

While draining your savings and retirement funds seems morally correct, it may just be delaying the inevitable if ones income or expense situation doesn’t change, leaving families with no reserves. This can and I believe often does lead to families running up credit card debt further diminishing security and options and possibly leading to bankruptcy. Not to mention that prematurely taking funds out of our retirement accounts comes with a huge Penalty.

Walking away from the home and letting it go into foreclosure is rarely the best solution although many are doing just that. On a personal level, foreclosure devastates ones Credit, affecting everything from purchasing items such as cars, renting homes after you leave the home and in some instances making employment more difficult. In the larger picture, foreclosures can bring down the values of surrounding homes and have negative emotional affect on the residence that live in the area.

 This leaves a short sale as the final option for many. While a short sale also has consequences, the damage and duration on one’s credit is less severe in most instances. The first thing to should do when deciding on what is best for your unique situation is speak to qualified professionals. Tax Advisors and Real Estate Attorneys can give you solid advice on what would be best for you and help you understand the consequences of each option. Initial consultations can be free or relatively inexpensive, especially when you understand the real cost of making a poor decision. DO NOT go off of the advice of a friend or family member even if they have gone through it themselves. No two situations are the same and their good intentions may lead you down the wrong path with devastating results.

For the purpose of this discussion we will say that you spoke to a tax specialist and real estate attorney and it was decided that
A: a short sale is right for you
And
B: you are a likely candidate for being granted a short sale by your lender.

My follow-up post will cover how to get the short sale process started. I hope you found this information of value. Your questions and comments are welcome. Please contact me at EricS@steven-anthony.com

Best Regards,

Eric Soderlund
Realtor, GRI, SRES
Steven Anthony Realty
www.ESoderlund.com

The Short Sale Addendum – What You Should Know

Eric Soderlund, Steven Anthony Realty

The Short Sale Addendum (SSA) is a document specifically designed to deal with the unique circumstances that a short sale creates. The basic premise of the Short Sale Addendum is to set a deadline for the acceptance of the short sale by the lender and to delay the start of certain Contingency Periods within the Residential Purchase Agreement (RPA). This is about as much as the average buyer or seller knows about the SSA. There is a lot more to it. Let me step you through this Addendum.

Part I

1A of the contract deals with what I discussed above. It states that the contract is contingent upon lender approval and sets a deadline for this approval. The standard duration is 45 days, however, this can be extended to any number of days agreed upon by the buyer and seller and usually is. As the listing agent, I will advise my client counter a SSA that only allows for a 45 day contingency. From experience, I know that the lender will generally take 60 days or more to approve the short sale. The significance of this is that once the timeline is up, the buyer can legally walk away from the contract. This is a huge waste of time for a seller that may have a deadline to sell the home before it goes into foreclosure. A buyer that is willing to allow 60 or 90 days for this process is more dedicated to the transaction.

The other relevant item in this first part of the SSA is that neither party is obligated to change the terms of the contract (RPA) to meet lender requirements. For example, if the lender comes back with a different price the buyer OR the seller may legally cancel the contract in writing with no further negotiations. For this reason, I make sure the offers being presented to lenders are going to make sense for them to approve.

Part II

Part II speaks to the time periods within the Residential Purchase Agreement (RPA). It states that unless otherwise agreed upon, (This is a key phrase throughout the Short Sale Addendum) the contingency periods such as Appraisal, loan and inspections will not start until the buyer receives written acceptance of the sale from the lender. This keeps the buyer from spending money on inspections and appraisals until they know the lender will approve the sale.

Part II goes on to explain that other timelines agreed to in the RPA such as pre-approval, deposit requirements and proof of funds for not be delayed until lender approval. This is to ensure that the buyer is qualified and can close the transaction.

Part III

This section of the SSA deals with the buyers deposit check. In a non-short sale transaction, the buyer’s deposit check or Earnest Money is required to be placed in an Escrow Account within 3 days of the Seller accepting the offer. However, Part III of the SSA states that the 3 days begins after the lender approves the offer unless the box is checked that states “As specified in the agreement”. This means that the buyer has no funds being held in escrow.

When I am the buyer’s agent, I don’t check this box. Having my client’s money in an escrow account before the offer is approved by the lender is both a poor use of my client’s money and ads additional risk. In order to remove money from escrow, both the buyer and the seller must approve the release of the funds. If my buyer decides to back out of the transaction, even with just cause, the seller may feel wronged and delay or deny the release of funds. This may cost the seller in the long-run but in the mean time my client has funds that are tied up and can’t be used until the situation is resolved.

Now as the sellers agent, I definitely try to get the earnest money put into the escrow account as soon as possible. A buyer that has funds in escrow tends to be more dedicated to the purchase and gives my client a little leverage if not just perceived leverage. I will never advise my client to hold a buyers funds captive in escrow unless they have been wronged, have incurred loss due to the buyers actions and it is in my clients best interest. An example of this would be my last short sale transaction. The buyers backed out of the contract after lender approval without just cause. We could have held their funds in escrow and sought damages. However, this would have delayed the sale to any other buyer and my client’s home may have been foreclosed on. Instead, I found a new buyer that would pay the same price for the home which was already approved and we were able to do what is called a buyer swap. We closed the deal 30 days later!

Sections IV and V

These sections are disclosures/acknowledgments to the buyer and seller dealing with possible costs and the understanding that the lender must approve the short sale and that there are no guarantees that they will. For the sake of your time this is all I will say regarding these sections. There are no options to consider here.

Section VI

This is an important item of the SSA. In general, it states that even after the seller has accepted an offer they may continue to market the home for backup and additional offers. It further states that the seller may present additional offers to the lender for acceptance. While this is great for the seller it is a huge negative for the buyer.  A buyer could be waiting months for an approval only to have a higher offer come in and bump them out. In practice, I have not found this to be the norm but it is important to know that it is a possibility. It is important to remember that this can be omitted from the contract with the use of an addendum.  When I am the buyer’s agent, I definitely try to have this option removed from the offer. As the seller’s agent, I will want to keep this option in the contract. If an offer comes in that is significantly higher I want to have the option to present it to the lender.

Section VII

This is the last section of the Short Sale Addendum and it is specifically directed at the seller. It advises the seller that a short sale can have a negative impact on the seller’s credit and advices them to seek professional advice. This is advice that needs to be heard and acted on by the seller. It is imperative that sellers know their options and the effects that a short sale will have on them.

So there you are. This is the nuts and bolts of the Short Sale Addendum. This document can radically change dynamics of a short sale. I hope you found value in this information. Your questions and comments are most welcome. Please send them to EricS@steven-anthony.com

Best Regards,

Eric Soderlund
Realtor, GRI, SRES
Steven Anthony Realty

Short Sales: How the Process Works

Short Sales in the San Francisco East Bay: How the Short sale process works (Part 2 in a 3-Part series).

By Eric Soderlund, Steven Anthony Real Estate

Following up to my lost blog on what is a short sale, this time we’ll talk about how it works.

A short sale starts off like any other transaction. Let’s say a buyer looking for homes in the Livermore area finds a home that is being sold short and presents the seller with an offer. As with any real estate sale, the seller can accept, counter or reject the offer. One addition to the offer will be a Short Sale Addendum . It is vital that both the buyer and the seller understand how the Short Sale Addendum affects the sale. We are going to assume that the seller accepts the buyers offer.

The lender will require a Short Sale Request Packet be sent with the contract. Each lender will require different documentation. (Gathering this information for my client is one of the first things I do in a short sale transaction. Remember, you are not in this alone. It is your agent’s job to walk you through the sale.) The seller’s agent sends the contract along with the Short Sale Request Packet to the lender or lenders. Often, when the file is first sent, there is no real contact and no timeline set. It can be weeks before the agent hears anything. Note: The listing agent carries the burden of moving these transactions forward. For example, at this stage I call every 2 days to get an update. I get mini updates that I pass on to my clients and the buyers agent who then updates the buyer. This keeps all parties in touch with the transaction and buyers will be less likely to get frustrated and walk away from the deal.

The file will eventually find its way to a real person. It more than likely won’t be “The Person” but still a person. Things are moving forward. This person will act as a Coordinator. They will go through the file to make sure everything is there that the “Decision Maker” will need. If it’s not, they will ask for it. The file will go no further until the requested documentation is delivered and while at this point there is no Close of Escrow (COE) date, the clock is ticking. If the seller has stopped making payments, it is a matter of time before the lender proceeds with a foreclosure. If that happens, the contract is void and everybody loses.

As the listing agent, I do nearly all of the additional work that a short sale creates. For example, I assist my sellers in putting the short sale request package together, submit all documentation to the lender and do all the negotiating. That said, the buyers agent needs to be able to explain the short sale process to the buyer and understand what lenders are looking for in an offer. Both buyers and sellers need to understand the short sale process. There are additional risks involved that do not exist in a non-distressed sale.

Lenders want a clean offer that is going to close. Insisting that agents ask for credits at closing or asking the lender to pay fees generally paid buy the buyer is a good way to have short sale offers denied or countered by the lender. Either way this will delay the sale and the home could go into foreclosure before a new offer is accepted by the lender or the lender can move on to another offer if one has been submitted.

Once all of the documentation is delivered we will be passed on to the “Decision Maker”. This is the final stage of the approval process. This person must follow a very strict set of rules and regulations set by their company. They are not very flexible regarding certain conditions and timelines of the sale. If something is requested by this person, it needs to become the agent and client’s top priority. As the listing agent, I have found it beneficial to stay in contact with this person as much as possible. Forming a good working relationship and fulfilling requests quickly keeps my client’s sale a priority and “on top of the pile”. Now we are ready for the final stage which I will discuss in my next post “Closing of a Short Sale”.

Your comments and questions are welcome. If you have any questions please contact me at EricS@Steven-Anthony.com.

Best Regards,

Eric Soderlund
Realtor, GRI, SRES
Steven Anthony Realty

PART 1 – What Is a Short Sale?
PART 2 – How the Short Sale Process Works (this post)
PART 3 – How a Short Sale Is Approved and Closed

Short Sales in the San Francisco East Bay Start to Finish: What is a Short Sale

This is the first post in a “Short Sales” blog series for buyers and sellers explaining how the process works. My focus is on California cities in the San Francisco East Bay such as Livermore, Dublin, Pleasanton, San Ramon, Danville and Walnut Creek.

By Eric Soderlund, Steven Anthony Real Estate

Short sales in the East Bay are here to stay, for a while anyway. Notices of Default continue to rise in Livermore, Pleasanton, Dublin, San Ramon and most areas in the East Bay. While short sales have become an everyday occurrence, I find that most people have only a vague idea of what happens during a short sale transaction.  I have worked both as the buyer’s agent and the listing agent in short sale transactions throughout the East Bay. Some of these transactions have gone smooth and others were a challenge the entire time. But in every case the sale was completed. The buyer was in a new home and the seller avoided foreclosure! Short sales require a great deal of follow up and knowledge. You want an agent that is proactive and is looking out for your best interests. I’m going to step you through the short sale process so you will know what to expect during a short sale transaction whether you are the buyer or the seller. I have divided this process into four parts to make it easier to understand.

PART 1 – What is a Short Sale?

In a short sale, the lender has not taken possession of the property. In fact, the home owner may be current on their payments and property tax. The term short sale simply means that the home is being sold for less than is owed to the lender. It’s important to remember that the lender must approve a short sale before title can be transferred. There generally needs to be a legitimate “Hardship” before a lender will approve a short sale request. Some of the hardships accepted by lenders are job loss, reduction in wages, job transfer, death of a borrower and divorce.

Lenders require approval for short sales to ensure that the home is sold for market value and nothing less. This means that the seller must set the sales price appropriately and only accept offers that will make sense to the lender. Likewise, a buyer must be realistic about what price to offer when bidding on a home that is being sold short. An offer that is too low for the lender to accept but is accepted by the seller is a waste of time for all concerned. I have found that by educating my clients and preparing required documentation up front there are few surprises and delays.

So either you’ve come across a home that you’d like to buy and it’s a short sale or you are in a position where selling your home makes good life sense even though you owe more on the loan than the home is worth. What next? My next post will cover How The Short Sale Process Works?

Your comments and questions are welcome. If you have any questions please contact me at EricS@Steven-Anthony.com.

Eric Soderlund
Realtor, GRI, SRES, SF0
Steven Anthony Realty

PART 1 – What Is a Short Sale? (this post)
PART 2 – How the Short Sale Process Works
PART 3 – How a Short Sale Is Approved and Closed