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Category Archives: Short Sales

But I Want to Keep my House

A conversation with the nice lady who was referred to me this morning was a reminder of why so many properties go to foreclosure auction unnecessarily. I feel bad for her. Her common law husband passed away around this time last year and with him what little income they were surviving on. She has been trying to get on disability income since that time. Meanwhile the house payments are far enough behind that the bank began sending back the payments she was able to scrape together.

At this point she is five weeks away from the foreclosure sale date. There is about $50,000 equity in the property. She doesn’t even need a short sale. We could sell her home and she would walk away with thousands of dollars which she and her 9 year old son desperately need. Instead she is going to attempt to find someone to help her get the bank to work with her even though they have refused for the past year. It’s bad enough to see a struggling homeowner have an unnecessary foreclosure when they could have avoided it with a short sale on their property, but this is much worse.

I know there are many reasons why a distressed homeowner wants to hold on to the home they are losing but it’s hard to watch. It’s hard to watch because I know the inevitable outcome; despite the time, energy, and emotion I’m sure she will put into trying to save her home, and it is devastating. It is a hard reality to accept but sometimes things just don’t end up the way we had envisioned. However, trying to force something that is not realistic can often times result in a worse outcome than just leaving the home you love. In many cases that outcome may haunt a person much longer than necessary. This is usually the case with a distressed homeowner who refuses to let go of their house and be proactive in avoiding foreclosure.

I have found that people who are struggling with an unmanageable mortgage do one of two things. Either they become proactive and are able to avoid foreclosure, resulting in a better scenario with less recovery time down the road. Or they bury their head in the sand and find themselves in a worse situation down the road than when they first realized they were headed for foreclosure. It is up to each individual homeowner which way they want to go. Unfortunately many times doing the right thing includes the difficult decision of letting go.

“Grant me the courage to change the things I can, serenity to accept the things I can’t, and the wisdom to know the difference.”

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Bank of America FHA Short Sale Process

The US Housing and Urban Development Administration term for an FHA short sale is Pre-Foreclosure Sale. There are specific guidelines and documents required for an FHA pre-foreclosure sale. The basic guidelines as well as the short sale approval come from the HUD administration.

The Key Benefits to a Homeowner of an FHA Pre-Foreclosure Sale:

  • No Deficiency Judgement
  • Up to $1,000 Relocation Assistance

The following is an overview of the sequence of events and tasks in the FHA Pre-Foreclosure process for Bank of America and the Short Sale Specialist Real Estate Agent:

1. Agent – Have the distressed homeowner call the Customer Relations Manager number (1.800.669.6650) to request the FHA pre-foreclosure program.

2. Bank of America – Reviews the request to determine if the borrower is eligible for the program.

3. Bank of America – Assigns a short sale specialist to the file and sends out a welcome package to the borrower and the short sale specialist realtor.

4. Agent – Review the welcome package and supply requested documentation.

5. Bank of America – Orders title, appraisal, and issue (ATP) Approval to Participate.

6. Agent – Facilitate access for appraiser. Review appraisal and dispute if necessary.

7. Agent – Send executed Listing Agreement and MLS sheet to short sale specialist. Market property and update MLS sheet every 30 days.

8. Agent – Once an offer is received on the property, send executed contract, HUD-1, and Buyer Disclosure to short sale specialist.

9. Bank of America – Verify accuracy of all documents and issue closing instructions.

10. Agent – Email preliminary HUD-1 and closing docs on close of escrow.

11. Bank of America – Confirm closing date and issue Approval letter.

The following Documents will be required:

  • Bank of America Third Party Authorization form
  • Recent 30 days consecutive pay stubs for all borrowers
  • Recent 60 days bank statements
  • Hardship letter explaining the reason for default
  • Occupancy certification

Very important to make sure all documents requiring a signature are signed and dated.

NOTE: Beginning in the second quarter of 2013 Bank of America short sales will be processed online on the Equator system. The short sale specialist realtor must have an account set up on Equator to process the FHA short sale.

 

 
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Posted by on March 25, 2013 in Short Sales

 

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How to Prepare a Successful Short Sale Package

When I negotiated my first short sale transaction back in November of 2004 there were very few systems in place and some lenders didn’t even seem to know what a short sale was. I can remember automatically faxing the same short sale package once a day for several days to certain lenders because it might take 2 weeks for the package to show in their system. If that one fax didn’t go through or was lost or shredded by the lender it would be another 2 week delay for them to receive the next. Over time most lenders have become more sophisticated in their methods of receiving and processing short sale packages. However, receiving short sale packages via fax is one thing that has not changed for many lenders. Bank of America began several years ago using the Equator online system to upload documents and process most non FHA short sales. Wells Fargo, Chase, and a few other lenders have recently jumped on board with the Equator process, but it is best to contact the lender and find out if they require faxing the package or receive it by some other method.

When you make the call it is a good idea to ask if they have proprietary documents you are required to complete or if they will accept the short sale specialist realtors generic forms for items like Borrower Financial Information forms, Third Party Authorizations, etc. There may also be specific required documents depending on the type loan and short sale program the borrower qualifies for such as FHA or HAFA (Home Affordable Foreclosure Alternatives).

The following is a list of documents that are generally required by most banks when submitting a short sale package:

Third Party Letter of Authorization

It is best to submit this document as soon as possible by itself first and include it again with the short sale package. Again, call the lender if you are not familiar with their practices because some lenders have a separate fax line for this and others use the same fax number as used for submitting the other short sale documents. Sometimes this document has to go through an approval process before it is available in the system allowing the short sale specialist realtor to speak to the lender about their client’s account, and negotiate the short sale. Include any support staff and escrow officers who may need to speak with the lender during the process. For example I have my assistant and title closer on the authorization form so they can speak to the lender for various aspect of the process they are involved with.

Hardship Letter

This all important piece of the short sale package allows the borrower to tell the story to their lender of how they got into the situation they are presently in, what they have done to try to remedy the situation, and why a short sale is the best solution to avoid foreclosure. It must be signed and dated by the borrower, with the loan number at the top of the letter.

Borrower’s Financial Information Sheet

Some lenders require their proprietary form to be used and others will accept a generic version. This document will show the borrower’s income and expenses. In most cases when a seller is applying for a short sale this form is going to show that the expenses exceed the income and thus the mortgage payment is no longer affordable. The document needs to be signed and dated by all borrowers on the loan subject to short sale.

Listing Agreement

In Colorado, this will be the Real Estate Commission approved Listing Agreement including the name of the Brokerage firm, individual broker, names of sellers, full property address, list price, terms of listing including commission, signed by all sellers on title and the listing broker. All pages should be initialed as well. It is typically a good idea to have some clause written into additional provisions stating that the contract is contingent upon the lien holder’s approval. Some lenders (and HUD for an FHA loans) have specific language they need included. We also add the verbiage “Sold as is”.

Fully Executed Purchase Contract

Check with the lender to see if they will accept electronic signatures. This will save a delay in having to go back to the parties for wet signatures and initials. Short sales on FHA loans must be wet signatures. It must be signed by all parties including both real estate agents, and initialed wherever required.

Proof of Funds

A pre-approval letter from the buyer’s lender, or Proof of Funds in the case of a cash buyer, must be submitted along with the purchase contract. This shows the short sale lender that the buyer can perform once short sale approval is obtained.

Last 2 Bank Statements

The last 2 bank statements for all bank accounts must be submitted along with the short sale package. Checking, savings, business (if self employed).  All pages front and back, even if they are blank. This is not a printout of the online account. They must be the actual monthly statements. The pages of most statements are numbered so don’t leave any pages out or they will assume you are hiding something and you will be required to submit missing pages. This is another common delay in the process. If there are large deposits or withdrawals provide a written explanation of what they are.

Last 2 Tax Returns

Submit all pages of the federal tax returns, signed and dated for the last 2 years. If taxes were filed electronically the form needs to be signed by all parties on the tax form and dated in the required spot before submitting to the lender. If the tax returns have not been filed a signed and dated letter of explanation along with extensions needs to be submitted along with the 2 most recent tax returns actually filed.

Last 2 W2’s

Last 2 years W2s need to be submitted for every W2 wage earner on the loan to verify wages reported to the IRS by the employer. If self employed provide 1099s and a Profit and Loss statement.

Last 2 Pay Stubs

Initially submit 2 pay stubs no matter how frequently you are paid. Another good question to ask the lender is if they want the last 2 or for a time period. Some lenders will say the last 30 days for example. If there is an unusually high amount of income on a pay stub because of a bonus or over time that is not typical, it is a good idea to provide a written explanation of that.

Preliminary Estimated HUD-1

The HUD-1 is a document used at closing to show all of the expenses, money coming in, and how it is dispersed. An estimated HUD-1 is used with the short sale package to show the lender an estimate of expenses for the transaction that will be taken out of their proceeds from the sale and the net amount that will be paid to them after closing. This is normally prepared by an escrow or title company closer. It must be completed with the full property address, seller’s names, buyer’s names, buyer’s lender information, and an estimated closing date. Because some of the expenses on this document increase over time it is a good idea to make the estimated closing date about 3 months out, since we don’t know how long it will take to get an approval on the short sale. A HUD is not an easy document to understand and was complicated even more by revisions in 2011, so it’s not a bad idea to include a worksheet to assist the individuals reviewing the short sale package in understanding the HUD.

Additional Documents for your Short Sale Package

Because of so much fraud in the past most lenders require a signed and dated IRS form 4506-T to be submitted. This allows the lender the ability to check the IRS records and see that the tax forms submitted are the same as those filed with the IRS.

It is a good idea for the short sale realtor to provide a CMA or at least 3 comparables for the property that substantiate the value. Once listed on your local MLS a copy of the MLS listing sheet and listing history for the property should be submitted by the Short Sale Specialist Realtor.

If repairs are needed on the home, provide 3 estimates for repairs and photos of the damaged areas needing repair. Also photos to show condition if carpet needs to be replaced, etc. is a good idea.

Specific types of loans such as FHA and short sale programs such as HAFA will require additional forms specific to those programs. Check with the lender regarding those documents.

Common Delays in the Process

The most common delays in a short sale process are missing or incomplete documents and missing signatures, dates, and initials. I could write an entire article on the detailed items that cause delays on each of the major lender’s proprietary documents alone. The thing to be aware of here is the fact that any missed signature, signature not dated, or missing initial where required, will cause a delay. Do not leave blanks empty. If the appropriate answer is N/A fill it in.

Also realize that a delay in the short sale process for something as simple as a missing date or initial is not a delay of a few hours or even a day. When a processor at the bank rejects a document for a missing item, that requires the short sale realtor to get the document to the responsible party for completion, the return of the document, and the document to be resubmitted by the short sale realtor. The document then must be uploaded by someone in the document imaging department of the bank, where it waits for a week or more until the file comes back up in the queue for the processor to once again review the file. During this time other documents are becoming stale and may need to be updated by the time the file is reviewed again.

As you can see there is much to be said for submitting a complete package in the beginning, and not giving that employee of the bank any excuse to set the file aside. I am a short sale specialist realtor in Denver Colorado.  If you have questions regarding the short sale process feel free to contact me. I am most familiar with the process in Colorado, but I will help you any way I can.

 

 
 

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Chase’s Proactive Short Sale Program

JP Morgan Chase, like several of the larger banks is taking a more aggressive approach to short sales to avoid foreclosure. In addition to offering thousands of dollars in cash incentives at the closing table, Chase is now sending out letters to some of their borrower’s, offering a cash for short sale opportunity to underwater homeowners.

According to Chase Bank Vice President Bill Carr, the lender is looking to close short sales in 30 days or less. In a recent webinar sponsored by HousingWire, Carr claimed they are doing everything they can to avoid foreclosure.

Like Wells Fargo, Chase recently began processing short sales on the Equator platform. Bank of America has been processing short sales on Equator for several years now. Originally developed for processing Bank owned REO properties, Equator offers more accountability and potentially better communication for all parties involved. I will talk more about the benefits and how to’s of working a transaction on Equator in a future post.

Under the Short Sale Accelerator Program Chase offers their borrowers substantial cash incentives and deficiency waivers (portfolio specific) to list and sell properties. Other benefits include preapproved offer acceptance, providing a preapproved price for sellers and their short sale realtors to advertise which Chase agrees to accept. This cuts down on the time buyers have to wait for an approval of their offer with a better chance for a successful transaction.

A few things Chase recommends Short Sale Specialist Realtors can do to help provide a smoother short sale transaction:

  • Set reasonable  expectations regarding timelines and valuations.
  • Know your seller. Properly prequalify your buyer!
  • Submit complete short sale request prior to receiving a contract or at time of listing – do not wait for a buyer! Start the process!
  • Return required documents promptly (within 3 days of request)
  • Ensure proposed transaction I “at arm’s length” and there is no potential conflict of interest.

Chase Short Sale Resources:

Short Sale Hotline: 866-233-5320

Chase.com/foreclosure alternatives or chase.com/hafa

 

 

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Better to Buy Denver Area Bank Owned or Short Sale?

As we have discussed before, Short Sales are on the rise as a better alternative to Foreclosure. Definitely a better deal for the Distressed Homeowner and the lender. What about the Buyer?

Realty Trac’s Foreclosure & Short Sales Report for the fourth quarter of 2012 which covers over 900 metro areas in the United States shows that Denver is not in the list of top metro areas for the best deals in either category. This is good news for our local real estate market on our way to recovery, but maybe not so much for investors looking for the best deals out there.

A recent article by the Realty Trac staff shows the 15 metro areas they found to be the best buys in the two categories. Santa Barbara, CA topped the list of Short Sale Best Buys with an increase in short sales of 52%, an average price of $283,825, and average amount short of ($178,201), and at the bottom was Detroit, MI, with an average price of $97,233. At the top of the 15 Best Markets for Buying Bank Owned Foreclosure properties was Cleveland, OH, with a 141% change in REO sales, average sale price of $57,782, and 56% discount off Non-Distressed sales, while #15 was Sarasota, Fl, with a 19 percent change, and average price of $127,181.

In our own Denver, CO metro area there were 9,072 residential properties sold in the fourth quarter of 2012. Short Sales made up 8% of the total at 724, while 8.3% were Bank Owned foreclosures, 762 of the total properties sold. The average sale price for Bank REO’s was $210,347, a 35.5% discount from Non-Distressed properties, and Short Sales sold for an average of $224,543, a 31.2% savings. The average days on market for a Bank Owned property was 77, while Short Sales were 159. This statistic reveals the additional time it takes for a short sale transaction to be approved by the lender.

Of course there are other factors to be considered in the purchase of a distressed property. Bank owned properties in almost every case have sat empty for some length of time. Some for a year or more. This allows for more chance of pipes bursting from winter freezes, along with a myriad of other potential damage to the property, including vandalism. A much higher percentage of foreclosed properties have been stripped or damaged by the previous homeowners, angry at their circumstances and having to leave their home under duress. Short sales in most cases have been occupied by the homeowner until closing. While there may be some deferred maintenance due to financial constraints, most homeowners have a certain pride of ownership and are grateful for the more dignified approach of selling their own home with the blessing of their lender in a short sale transaction to avoid foreclosure. These homes are likely to be in better shape once acquired at closing, requiring less of an investment for repairs.

No one is to say which is the better choice for a particular buyer, but it is good to consider all that is involved in the acquisition of a distressed property beyond just the price. The good news is there are opportunities for many buyers with different objectives.

 

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Short Sales Triple Foreclosures in 2012

Short Sales nearly tripled the number of foreclosed property sales in 2012 according to RealtyTrac spokesman in a recent interview with CNN Money. 32 percent of all residential sales were short sales while only 11 percent were bank foreclosures. A good indication that both banks and struggling homeowners are recognizing the benefits of a short sale over a foreclosure.

In a short sale the lender agrees to accept less than the full amount due on the mortgage note on the sale of a property in cases where more is owed than the property is worth. Typically, the homeowner is required to show they are dealing with a hardship that prevents them from continuing to pay the mortgage payment. This allows the homeowner to deal with everything involved in the sale of the property, saving the lender the expense and time consumed in a lengthy foreclosure process, just to be sold as a bank owned (REO) property in the end. A typical foreclosure process and resulting REO property sale costs the lender tens of thousands more dollars resulting in an even bigger loss. The short sale is a much more dignified approach to a difficult situation for the homeowner, who many times walks away owing nothing on the underwater property, and may even put a few thousand in their pocket for relocation expenses. In most cases the short sale option has a less devastating impact on their credit rating as well.

“We’re seeing fewer of the most disruptive sales, the [bank owned foreclosures], hitting the market but there are still a lot of distressed property sales,” said Daren Blomquist, spokesman for RealtyTrac. “They’re shifting to short sales.”

This also helps rebounding property values. RealtyTrac reports an average discount on bank owned foreclosure properties of 39%, while the average short sale sold for 23% below market in the fourth quarter.

One important aspect for any distressed homeowner considering the short sale option is to find an experiences short sale specialist realtor to guide them through the complex issues surrounding a short sale transaction, and negotiate effectively on their behalf with the lender(s).

 

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Rooney’s H.R.839 Bill (Prompt Notification of Short Sales Act) to Streamline Short Sale Process

Probably the most aggravating aspect of short sales for everyone involved in the transaction is the length of time some lenders and servicers take to move through the approval process and each lethargic step along the way. Although there have been numerous steps by governmental entities as well as some of the banks themselves to find a cure to this time dilemma, there is still much room for improvement.

For those of us heavily involved in short sales, the bill proposed by Congressman Tom Rooney, H.R. 839 ‘Prompt Short Sales Notification Act’, would be a welcome addition to other guidelines previously initiated. If passed H.R.839 would require a lender or servicer of a home mortgage, upon a request by the homeowner for a short sale, to make a prompt decision whether to allow the sale. This bill contains some similarities to the guidelines initiated by the US Treasury Department in the HAFA (Home Affordable Foreclosure Alternatives) Program, but presumably would apply to all lenders and servicers. Currently not all lenders participate in the HAFA program and there is some latitude for those that do to alter the guidelines a bit.

Following are the primary guidelines set forth in H.R. 839

Notification – once the lender receives a written request for a short sale from the borrower they have:

  •               3 days to acknowledge receipt
  •               5 days to give notice of any missing or incomplete information required by the lender
  •               30 days to provide a definitive response approving or denying the short sale

In exceptional situations the 30 day response time can be extended to 60 days, but the lender must notify the borrower that the application is still under review and provide weekly status updates including a reason why the review is extending beyond 30 days.

Civil Actions – Violations are subject to $1,000 per violation plus attorneys’ fees.

“By streamlining short sales, we can help keep homes out of foreclosure, fuel growth in the housing market, and deliver a needed boost to Florida’s economy,” Rooney said in a statement to the media.

The more people like Congressman Rooney become aware of the dilemma’s facing so many distressed homeowners in America and take this type of action the better chance we have to assist these homeowners to avoid foreclosure and accomplish a more dignified, less devastating option such as a short sale.

 

 

 
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Posted by on March 3, 2013 in Short Sales

 

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