Vermilion Realty Blog » Short Sale

Program To Emphasize Short Sales

Don Grafues — Wed, 10 Mar 2010 15:10:47 +0000

April 5 marks the start date for a new program to help homeowners facing foreclosure. There is a concern that if foreclosures continue at a high rate, the effect could be catastrophic to an economic recovery. Read the full article here.

Don Grafues
Resource: REALTOR.org & The New York Times

A Bit Of Irony

Don Grafues — Mon, 08 Feb 2010 18:37:12 +0000

The Mortgage Bankers Association was underwater on its loan for their 10 story headquarters building in Washington, D.C. Utilizing a short sale they sold the building for $41.3 million after paying $70 million in 2007.

Many of the members of the Mortgage Bankers Association are credited with the bad lending practices that brought on the current crisis.

Conventional Loan Guidelies

Don Grafues — Sun, 13 Dec 2009 17:30:39 +0000

Blue doors to an old building

Our friend Scott Simmons of Desert Empire Mortgage Company in Palm Springs, CA. recently sent us an email that summarized conventional loan guidelines. This the first time we came across this information in a consolidated and concise form. So we pass his message to you, our readers.

SHORT SALES

Minimum 2 years or more from short sale completion date required by Fannie Mae before a borrower may be eligible for financing again. Individual lenders may require a longer time period.

FORECLOSURES

Minimum 5 years or more from foreclosure completion date before a borrower may be eligible for financing again.

The following requirements for borrowers with foreclosure completion dates of more than 5 years, but within 7 years from the credit report date:

The purchase of a principal residence will be permitted with a minimum down payment of 10% and minimum representative credit score of 680.
The purchase of a second home or investment property will not be permitted.
Cash Out refinances will not be permitted for any occupancy type.

DEED IN LIEU OF FORECLOSURE

4 Years or more for a deed in lieu of foreclosure before a borrower may be eligible for financing again.

Principal residence purchase transactions with a Loan to Value (LTV) greater than 90% where a borrower has a deed in lieu of foreclosure action that was completed more than 4 years, but within 7 years will be Ineligible.

BANKRUPTCIES

The following bankruptcy guidelines apply;

Chapter 13 bankruptcy requires 2 years from date of discharge and/or 4 years from date of dismissal before a borrower may be eligible for financing again.
All other bankruptcy types, (chapter 7 for example), requires 4 years or more from date of discharge or dismissal before a borrower may be eligible for financing again.

TOTAL EXPENSE RATIO

Maximum allowable total income to expense ratio will be revised downward to 45%, with flexibilities offered up to 50% for certain loans with exceptionally strong compensating factors.

MINIMUM CREDIT SCORE REQUIREMENT

A 620 minimum “representative” (middle) credit score is required. This is a minimum credit score requirement. Higher scores may be required depending upon property type, classification, loan to value, and other factors, and credit score may determine interest rate available.

Don Grafues
Resource: Scott Simmons, Desert Empire Mortgage Co., Inc.

Banks Making Short Sales Tougher

Don Grafues — Mon, 12 Oct 2009 16:14:24 +0000

Banks are backing away from short sales, forcing sellers to pay extra at closing or demanding a promissory note for the amount due. One-third of borrowers owe more on their mortgages than their properties are worth, according First American CoreLogic.

When their situations were really tough, most banks preferred short sales because they were their best opportunity to get the most money back. But with an improving economy, and because the losses on many of these properties have already been written off the books, banks are increasingly reluctant to negotiate a short sale.

Today, banks demand 9.5 weeks to respond to a short-sale request, compared to 4.5 weeks a year ago, according to research firm Campbell Communications. Their reluctance is frequently stymieing sales and frustrating real estate practitioners.

“It drives me up a wall,” says Robert G. Hertzog of Summit Home Consultants in Phoenix. “[The bank is] holding my client hostage.”

Source: BusinessWeek, Christopher Palmeri (10/09/2009)
© Copyright National Association of REALTORS^®, Reprinted from REALTOR.org with permission.”

Distressed Properties: Still More Pain Than Gain?

Don Grafues — Tue, 06 Oct 2009 14:31:10 +0000

Foreclosures and other distressed property might look like a good deal, but some buyers are discovering that they just don’t have the stomach for the problems that come with it.

Buyers of distressed property often must deal with severe vandalism, unpaid water bills and home-owner-association dues, hidden second mortgages, and mechanics liens.

Lenders are trying to make these purchases go more smoothly. J.P. Morgan Chase & Co. has twice as many employees as before handling short sales, while Bank of America Corp. now allows real estate practitioners to submit short-sale documents online. The U.S. Treasury Department is expected to soon issue streamlined guidelines to lenders on short sales.

An experienced real estate practitioner with training in selling foreclosures and short sales can make a big difference, but in the long run, buyers who don’t have much cash or aptitude for home repairs should think hard before trying to buy a distressed property.

As Jerrold Horning, a homebuyer in El Cajon, Calif., said, “I don’t think it’s worth the hassles.”

Source: The Wall Street Journal, M.P. McQueen (10/01/2009)
© Copyright National Association of REALTORS^®, Reprinted from REALTOR.org with permission.”

Thinking of Making an Offer on a Short Sale? What You Need to Know

Don Grafues — Wed, 23 Sep 2009 13:35:22 +0000

On August 11 we published a post with a link to a new report on Short Sales available on our “Reports” menu tab. That report is directed towards the seller and outlines some of the steps and cautions involved in a short sale. This post is directed towards the buyer.

Are you looking to buy a new home? Are you thinking that now’s a great time to find bargains? That’s true, but it pays to know a little about the seller’s situation before you make an offer.

If a home is being sold for below what the current seller owes on the property—and the seller does not have other funds to make up the difference at closing—the sale is considered a short sale. Many more home owners are finding themselves in this situation due to a number of factors, including job losses, aggressive borrowing against their home in the days of easy credit, and declining home values in a slower real estate market.

A short sale is different from a foreclosure, which is when the seller’s lender has taken title of the home and is selling it directly. Homeowners often try to accomplish a short sale in order to avoid foreclosure. But a short sale holds many potential pitfalls for buyers. Know the risks before you pursue a short-sale purchase.

You’re a good candidate for a short-sale purchase if:

You’re very patient. Even after you come to agreement with the seller to buy a short-sale property, the seller’s lender (or lenders, if there is more than one mortgage) has to approve the sale before you can close. When there is only one mortgage, short-sale experts say lender approval typically takes about two months. If there is more than one mortgage with different lenders, it can take four months or longer for the lenders to approve the sale.

Your financing is in order. Lenders like cash offers. But even if you can’t pay all cash for a short-sale property, it’s important to show you are well qualified and your financing is set. If you’re preapproved, have a large down payment, and can close at any time, your offer will be viewed more favorably than that of a buyer whose financing is less secure.

You don’t have any contingencies. If you have a home to sell before you can close on the purchase of the short-sale property—or you need to be in your new home by a certain time—a short sale may not be for you. Lenders like no-contingency offers and flexible closing terms.

If you’re serious about purchasing a short-sale property, it’s important for you to have expert assistance. Here are some people you want to work with:

Experienced real estate attorney. Only about two out of five short sales are approved by lenders. But a good real estate attorney who’s knowledgeable about the short-sale process will increase your chances getting an approved contract. Also, if you want any provisions or very specialized language written into the purchase contract, a real estate attorney is essential throughout the negotiation.

A qualified real estate professional¹. You may have a close friend or relative in real estate, but if that person doesn’t know anything about short sales, working with him or her may hurt your chances of a successful closing. Interview a few practitioners and ask them how many buyers they’ve represented in a short sale and, of those, how many have successfully closed. A qualified real estate professional will be able to show you short-sale homes, help negotiate the purchase when you find the property you want to buy, and smooth communications with the lender. (All MLSs permit, and some now require, special notations to indicate that a listing is a short sale. There also are certain phrases you can watch for, such as “lender approval required.”)

Title officer. It’s a good idea to have a title officer do an initial title search on a short-sale property to see all the liens attached to the property. If there are multiple lien holders (e.g., second or third mortgage or lines of credit, real estate tax lien, mechanic’s lien, homeowners association lien, etc.), it’s much tougher to get that short sale contract to the closing table. Any of the lien holders could put a kink in the process even after you’ve waited for months for lender approval. If you don’t know a title officer, your real estate attorney or real estate professional should be able to recommend a few.

Some of the other risks faced by buyers of short-sale properties include:

Potential for rejection. Lenders want to minimize their losses as much as possible. If you make an offer tremendously lower than the fair market value of the home, chances are that your offer will be rejected and you’ll have wasted months. Or the lender could make a counteroffer, which will lengthen the process.

Bad terms. Even when a lender approves a short sale, it could require that the sellers sign a promissory note to repay the deficient amount of the loan, which may not be acceptable to some financially desperate sellers. In that case, the sellers may refuse to go through with the short sale. Lenders also can change any of the terms of the contract that you’ve already negotiated, which may not be agreeable to you.

No repairs or repair credits. You will most likely be asked to take the property “as is.” Lenders are already taking a loss on the property and may not agree to requests for repair credits.

The risks of a short sale are considerable. But if you have the time, patience, and iron will to see it through, a short sale can be a win-win for you and the sellers.

¹ Not all real estate practitioners are REALTORS®. A REALTOR® is a member of the NATIONAL ASSOCIATION OF REALTORS® and is bound by NAR’s strict code of ethics.

Note: This article provides general information only. Information is not provided as advice for a specific matter. Laws vary from state to state. For advice on a specific matter, consult your attorney or CPA.

© Copyright National Association of REALTORS^®, Reprinted from REALTOR.org with permission.”

Navigating Short Sales: What to Do When the Sale Price Leaves You Short

Don Grafues — Mon, 14 Sep 2009 15:22:04 +0000

If you’re thinking of selling your home, and you expect that the total amount you owe on your mortgage will be greater than the selling price of your home, you may be facing a short sale. A short sale is one where the net proceeds from the sale won’t cover your total mortgage obligation and closing costs, and you don’t have other sources of money to cover the deficiency. A short sale is different from a foreclosure, which is when your lender takes title of your home through a lengthy legal process and then sells it.

Consider loan modification first. If you are thinking of selling your home because of financial difficulties and you anticipate a short sale, first contact your lender to see if it has any programs to help you stay in your home. Your lender may agree to a modification such as:
- Refinancing your loan at a lower interest rate
- Providing a different payment plan to help you get caught up
- Providing a forbearance period if your situation is temporary
When a loan modification still isn’t enough to relieve your financial problems, a short sale could be your best option if:
- Your property is worth less than the total mortgage you owe on it.
- You have a financial hardship, such as a job loss or major medical bills.
- You have contacted your lender and it is willing to entertain a short sale.

Hire a qualified team. The first step to a short sale is to hire a qualified real estate professional and a real estate attorney who specialize in short sales. Interview at least three candidates for each and look for prior short-sale experience. Short sales have proliferated only in the last few years, so it may be hard to find practitioners who have closed a lot of short sales. You want to work with those who demonstrate a thorough working knowledge of the short-sale process and who won’t try to take advantage of your situation or pressure you to do something that isn’t in your best interest. A qualified real estate professional can:
- Provide you with a comparative market analysis (CMA) or broker price opinion (BPO).
- Help you set an appropriate listing price for your home, market the home, and get it sold.
- Put special language in the MLS that indicates your home is a short sale and that lender approval is needed (all MLSs permit, and some now require, that the short-sale status be disclosed to potential buyers).
- Ease the process of working with your lender or lenders.
- Negotiate the contract with the buyers.
- Help you put together the short-sale package to send to your lender (or lenders, if you have more than one mortgage) for approval. You can’t sell your home without your lender and any other lien holders agreeing to the sale and releasing the lien so that the buyers can get clear title.

Begin gathering documentation before any offers come in. Your lender will give you a list of documents it requires to consider a short sale. The short-sale “package” that accompanies any offer typically must include:
- A hardship letter detailing your financial situation and why you need the short sale
- A copy of the purchase contract and listing agreement
- Proof of your income and assets
- Copies of your federal income tax returns for the past two years

Prepare buyers for a lengthy waiting period. Even if you’re well organized and have all the documents in place, be prepared for a long process. Waiting for your lender’s review of the short-sale package can take several weeks to months. Some experts say:
- If you have only one mortgage, the review can take about two months.
- With a first and second mortgage with the same lender, the review can take about three months.
- With two or more mortgages with different lenders, it can take four months or longer.
When the bank does respond, it can approve the short sale, make a counteroffer, or deny the short sale. The last two actions can lengthen the process or put you back at square one. (Your real estate attorney and real estate professional, with your authorization, can work your lender’s loss mitigation department on your behalf to prepare the proper documentation and speed the process along.)
Don’t expect a short sale to solve your financial problems. Even if your lender does approve the short sale, it may not be the end of all your financial woes. Here are some things to keep in mind:
- You may be asked by your lender to sign a promissory note agreeing to pay back the amount of your loan not paid off by the short sale. If your financial hardship is permanent and you can’t pay back the balance, talk with your real estate attorney about your options.
- Any amount of your mortgage that is forgiven by your lender is typically considered income, and you may have to pay taxes on that amount. Under a temporary measure passed in 2007, the Mortgage Forgiveness Debt Relief Act and Debt Cancellation Act, homeowners can exclude debt forgiveness on their federal tax returns from income for loans discharged in calendar years 2007 through 2012. Be sure to consult your real estate attorney and your accountant to see whether you qualify.
- Having a portion of your debt forgiven may have an adverse effect on your credit score. However, a short sale will impact your credit score less than foreclosure and bankruptcy.

Note: This article provides general information only. Information is not provided as advice for a specific matter. Laws vary from state to state. For advice on a specific matter, consult your attorney or CPA.

Short Sale Info & Report

Don Grafues — Tue, 11 Aug 2009 19:58:34 +0000

A new report entitled “Short Sales Tips for Sellers” is now available under the “Free Reports” tab on our site. Here is a synopsis of the report:

If you’re thinking of selling your home, and you expect that the total amount you owe on your mortgage will be greater than the selling price of your home, you may be facing a short sale. A short sale is one where the net proceeds from the sale won’t cover your total mortgage obligation and closing costs, and you don’t have other sources of money to cover the deficiency. A short sale is different from a foreclosure, which is when your lender takes title of your home through a lengthy legal process and then sells it.

Read the entire report to gain more information on the short sale process, timing and risks.