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Is Now the Right Time to Buy?

As you might have seen or heard, the summer ‘selling season’ is in full effect and the real estate market continues to have a tremendously low amount of inventory for sale. According to the California Association of Realtors, annual home sales are now down about 6 percent while the median home price is up 24 percent – with a record low inventory. What is interesting is that the number of real estate agents saying that now is a good time to buy has declined, while the number of agents saying now is a good time to sell, has spiked dramatically. While prices have soared in the last year, sales have not. According to C.A.R., inventory is down about 60 percent from 2007 – when we started seeing the housing bubble in full bloom. With record low interest rates, buyers are more incentivized to buy – it’s only human nature to want to get ‘in on the game.’ But because of these low interest rates and a lack of homes for sale, we are seeing bidding wars driving up sales prices and usually the winner is an ‘all cash buyer.’ This is not to discourage the financed buyer because there are homes out there for the taking – they (homes) just need to acted upon fast and be willing to pay above or at true market value.

According to Stan Humphries (Zillow’s Chief Economist), The housing market is… recovering quite nicely, trying to get back to normal, Humphries said. “But there two big factors distorting the market… The first is negative equity… and the second big distortion is incredibly low interest rates. However, just being above water may not be enough to comfortably sell because of down payments, real estate commissions, taxes and other fees tied to sales, Humphries said. Having at least 20 percent positive equity, Zillow analysis says, is especially important for those who are selling to move to a home of equal or greater value.” In short, as we start seeing interest rates creep back up, and with sellers building more equity, we will start to see the market level out a bit – seeing a truer market that accommodates both buyers and sellers somewhat more equally.

So, is it the right time to buy? Yes – if the deal is right! Interest rates are bound to go up eventually, so take advantage of these record lows now.

- Abe Woody, Managing Negoitator, ShhortSale.com

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Short Sales Increasing, Foreclosures Decreasing

As we’ve all read and heard, the overall real estate market is improving – slowly and steadily – but a shift is underway. Real-estate data firm RealtyTrac, which specializes in foreclosure information, has released its 2012 U.S. Foreclosure and Short Sales Report and it indicates that short sales are supplanting foreclosure-related transactions (in this example – in the state of CA).

A short sale is, in essence, a kind of foreclosure without the the bank getting stuck with the property. It also, statistically, generates more money for the bank compared to a foreclosure, because they do not incur legal costs, rehab costs, holding costs, and even further opportunity costs of their capital. In a short sale, the lender agrees to accept less than what’s owed on a home — but the homeowner (their RE Agent) locates a willing buyer. One thing I’ve learned from closing nearly 500 short sales and having a current pipeline of many more, is that the process can take a while. But for borrowers who are underwater on their loans a short sale can be one way out of a bad financial situation. It can also delay the foreclosure process, generate money for the seller at closing (between $3k – $35k), and mitigate the overall negative effects on one’s credit (compared to a foreclosure).

RealtyTrac reports that short sales boomed during the third quarter of 2012. They increased 20 percent from last year and accounted for 14 percent of all residential sales. Today, we see statistics stating the foreclosures are down a whopping 17% since last year! This is due in part to short sales preventing them.

But the dreaded fiscal cliff could “stifle this trend,” RealtyTrac’s Daren Blomquist said in a statement. That’s because the Internal Revenue Service can forgive the difference between what short sellers owe and what they sell for. But if we go over the cliff, the IRS could ding them come tax time. We are set to do so at the end of this year, so now is the best time ever to short sell.

Jeff Grant, President, ShhortSale.com

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Great News for 2013!

Great News! As of January 1, 2013, the Mortgage Debt Forgiveness Act was extended until December 31, 2013. Thus, continuing to protect short sellers from paying taxes on the deficiency of their short sale. If the bill had not been extended, homeowner’s electing to short sale, would have to pay taxes on the ‘short’ amount between the difference of the sales price of their home and their loan amount. For example, if a homeowner takes out a loan for $400k and a few years down the road sells their home for $300k, then they would be liable to pay taxes on the $100k of ‘forgiven debt.’ If a homeowner cannot pay the mortgage in the first place, then how will they be able to pay these taxes? Answer: they can’t. By extending the Debt Relief Act, the government is sending a message to lenders, distressed homeowners, and real estate professionals that short sales are the preferred method to assist homeowners in getting rid of a mortgage they can no longer afford. The tax exemption, along with lender incentives (some banks will give incentives from $3K up to $35K to short sellers), encourage homeowners to be proactive about avoiding foreclosure. Fewer foreclosures will help stabilize home prices and less homeowners in default will mean a decrease in the shadow inventory.

As of late, we have started seeing home prices slowly creep back up – adding validity to how this extension benefits our real estate market. We are very excited about 2013 here at Shhortsale.com and if you would like to explore your options about a possible short sale, we are here to help.

- Abe Woody, Managing Negoitator, ShhortSale.com

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But, What if I Don’t Have a Hardship?

Generally, sellers need a verified hardship to do a short sale however; there are ways to do a short sale without a hardship. First, understand there is no guarantee that a bank will agree to accept a short sale and release the loan under circumstances that involve a hardship, much less those without a hardship. Every bank is different and Investor guidelines vary from file to file. Here are some types of hardship: Unemployment, curtailment of income (new job, pay cut, partner’ loss of job), illness or medical emergency, job transfer (voluntary or involuntary), divorce (separation or marital difficulty), exotic mortgage terms and military service.

In some cases, a hardship is a matter of perception. A hardship is defined as a condition that is difficult to endure and it could entail some sort of physical or mental pain. You don’t have to be living in a cardboard box under a bridge to have a hardship. In one case, we proved to the bank that the neighborhood in which our client lived had a high crime rate, thus causing them great stress. Hardship. We got short sale acceptance.

So, what about a financial hardship in a short sale? Maybe you own an investment proeperty that is ‘underwater’ due to whatever reason. Or, maybe you voluntarily took a new job in another city and you had every intention to pay the current mortgage, but due to the ‘down’ market and a large loan you were forced to short sell? If we can show the bank a homeowner’s insolvency (expenses outweighing income), we are able convey the inability to pay the mortgage. This is an honest and ethical strategy that we will use to your advantage, one that will validate a hardship!

Abe Woody, Managing Negoitator, ShhortSale.com

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Buying a Short Sale: Separating Yourself From The Pack

So you’re in the market to buy. Interest rates are low, and prices are more-affordable than ever. Though statistics show that distressed listings (short sales and REOs) are only 30% of the overall market, trying to find a home to buy makes it feel like over half of the available listings are! So, how do you buy one of these short sales? What are ‘tricks of the trade’, and what will give you the best chance at getting one?

The first important point to understand in buying a short sale is that for the most part, sellers and their respective listing Agents are not focused on selling price (as long as the offer price is justifiable to the bank!). What is more important is working with a buyer who is patient, flexible (in contract terms and even price), and who has hired a buying agent who is cooperative, responsive, and who knows short sales.

The second most-important part of buying a short sale is to react in a timely manner. As a listing agent myself, I’ve learned to value quick responders as it is typically indicative of how they’ll be moving forward in the transaction. Short sales have unique hurdles such as updated proof of funds, affidavits/addenda the banks require, and sometimes unrealistic response requirements set by the bank. The quicker the response, the better chance I have at closing the short sale.

Another important point with short sales is to not validate listing/asking price as much as one would in a traditional equity sale. Many times I have to list a short sale high simply because the bank has required me to. My frequent price drops from there is a strategy to prove the true market value to the bank. On the other hand, I may list a short sale for an aggressively low price if the seller has a foreclosure date of only a few weeks away, and I must procure an offer ASAP in order to delay it.

The fourth point worth discussing in regards to buying a short sale relates to the closing costs. Though every buyer would like the banks to permit/pay for a home warranty and other miscellaneous fees, most of the times they do not. Offer accordingly. If your offer is contingent upon the bank approving those fees, you are probably offering too much.

Last (and most important?) point in buying a short sale is to work with an experienced Buying Agent. It is no secret that many Agents are scared of short sales, though few will actually say it (considering us Agents are compensated only when a transaction closes, many agents will say whatever they must in order to get the business). It is critical to work with an Agent who knows the ins-and-outs of short sales including how a bank values the home, the responsiveness required by the bank, the specific lender traits and idiosyncrasies, the value of successful communication, and more. When an Agent who understands the value in all of those points presents an offer, they will be greatly valued – sometimes even more than an offer for a higher amount.

Jeff Grant, President, ShhortSale.com

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Short Selling With the Holidays Approaching?

As the summer draws to a close and the holidays quickly approaching, you can expect even more short sales to enter the pipeline with both distressed homeowners and lenders trying to work out an agreement so that both enjoy a win-win situation. Just to remind you – a short sale is considered to be the best foreclosure alternative as it allows the homeowner to leave the home without much repercussion as a result of mortgage default. On the other hand, more and more lenders are accepting short sale proposals especially since their books are already overflowing with foreclosure inventory, which are considered to be non-performing assets.

The timing is certainly right to consider a short sale. Lenders are being pressured by the federal government to work with the owner instead of foreclosing and are more likely willing to negotiate. Sellers are also working double time to have their short sale proposals accepted especially since there is the risk of losing the tax break incentive (Mortgage Forgiveness Debt Relief Act) which is set to expire by the end of the calendar year.

With shadow inventory being held by the banks (foreclosures owned by the bank, but not place on the market for sale), the market is being inundated with buyers – creating a lopsided seller’s market. A short sale can sell for 10-20% below market value which can create a feeding frenzy for buyers looking to get a steal. With all of these factors – lack of inventory, increase in buyers, the possibility of the mortgage debt forgiveness act expiring, and the thought of getting a home for 10-20% below market value – right now could be the best time ever to short sale your home.


Abe Woody, Managing Negoitator, ShhortSale.com

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Price Inflation Due to Low Inventory

Probably the most important factor affecting real estate price inflation, as most real estate brokers and agents can attest, is the relationship between supply and demand in the real estate market. A brief refresher…A buyers market –  one where there is an influx in homes to be bought; i.e. more listings. A seller’s market –  one where the inventory is low thus, increasing the demand for homes to be bought/sold. i.e. a shortage of homes for sale. In today’s market, there is a huge shortage of listings/inventory, encouraging buyers to become more aggressive. Recently, we have seen buyers involved in bidding wars, resulting in many offers way above asking price. In San Diego, this does have a lot to do with the ‘summer buying season’ but, bidding wars in what is supposed to be a ‘down economy?’ What gives?

Although supply and demand in the RE market is affected by a multitude of factors: employment, investment, savings, population growth, taxes and so on, the demand for real estate is fundamentally produced by the availability of mortgage funds that are facilitated by lenders. BUT, do not be fooled by low interest rates of late. YES, interest rates are low at the moment, but as educated buyers, one has to assess the underlying factors that create these low rates. One example: With more homes being in default than any other time in our country – thus, more foreclosures creating more REO’s right? nope – we are not seeing many REO’s for sale these days. The banks have strategically created a shadow inventory (held but not for sale) to manipulate a market geared toward buyers and can control – to an extent – how many homes are for sale on the market at a given time. Lowering interest rates during a shortage of homes for sale only increases the urge for hungry buyers in ‘their’ market. All in all, low interest rates and a lack of homes for sale has created a market different that any other market we have seen in quite some time. An educated RE professional can help steer you toward your buying/selling goals.


Abe Woody, Managing Negoitator, ShhortSale.com

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Call with U.S. Treasury’s Director for Homeowner Preservation

I just finished a conference call with the U.S. Treasury’s Director of Policy for Homeowner Preservation, Laurie Maggiano. The conversation was in regards to the Government’s new plan to stimulate short sales, and she shed light on the effectiveness HAFA. No surprise, it’s not working well. That said, she encouraged us to be patient, and reminded us that HAMP did not initially work either, but has since become more-effective.

The initial goals of HAFA were to streamline the short sale process, and make things more-efficient in regards to what documents to submit, and who to submit them to. HAFA also intended to provide timelines, roles for all parties involved, and essentially remove the veil that banks seem to intentionally keep over the process. Other intended benefits of the HAFA program for Sellers include the release of deficiency liability, and placing money into Seller’s pockets upon closing ($3,000!). But what has REALLY happened since the HAFA program came out in Q4 of last year?

The answer so far is: Not much. In fact, professionals ‘in the trenches’ like me even scoff at the HAFA program, as it’s frankly made our professional efforts less-effective, and caused us unnecessary headaches. To expand on what I mean, the biggest obstacles of HAFA really are the jr. liens (2nds, 3rds, HOAs, etc.), and them releasing their deficiency rights (when applicable). In the beginning they lead us to believe that they will cooperate with our efforts, but when it comes down to it, they do not. The time it takes to discover this though we’ve lost valuable time, collected an extensive amount of unnecessary documents from the seller, and have possibly lost the buyer as well.

According to Laurie Maggiano, they are fixing this problem. How? First, required and dedicated Escalation Teams within each lender. Second, they are requiring a certain level of participation from each lender, instead of the program being voluntary as it has been in the since initiated in Q4 of last year. Last, they are listening to RE Brokers for suggestions on who to improve their systems, since we are the ones dealing with them on a daily basis.

Let’s hope these adjustments to HAFA work, making all of our efforts just little bit easier…

Jeff Grant, President, ShhortSale.com

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Next Generation: Cooperative Short Sales

In the beginning of this new year, big banks are adapting to what they call Cooperative Short Sales. These new processes are being put in place to expedite short sale files, respond to buyers more-quickly, and in turn preserve RE values. This charge is being led by Bank of America, and also participating is Chase, Wells Fargo, and Citi.

Cooperative Short Sales are essentially letting us Negotiators and Brokers initiate short sales and submit supporting docs (financials) before we even procure an offer. Similar to HAFA, this will lay the foundation for the transaction up front, and get much of the busy work out of the way. In comparison, we currently can’t do much on a short sale until an offer comes in. This takes a lot of time, risks losing the buyer, and overall compromises the deal if the buyer is not educated in short sales or becomes impatient.

Besides potentially making the clients I work for and my life as a Negotiator much easier, these ‘cooperative short sale’ programs will bring attraction back to short sale listings. Currently, many Buyers and Buying Agents consider short sale listings less attractive than buying a home out of bankruptcy (which is not fun!). This will in turn create move turnover, and should have a positive affect on home sales prices and value preservations in our neighborhoods and cities. All in all – great news!

This is a great change in the industry, and I hope indicative of more positive changes to come as this year unfolds!

First Horizon, FlagStar, GreenTree, Aurora, EMC, E-Trade, HomeEq, PNC, Saxon, and call Credit Unions, I hope you are taking notes…


- Jeff Grant, President, ShhortSale.com

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Junior Liens Causing Major Trouble

In a short sale, all lien holders – those with interest in the property – must agree to release their interest in the property for a negotiated amount. Positions ‘in front’ of them must approve that amount and give a certain amount of time to do so, so it’s a harmonious mix of greed, cooperation, and timing between them all. We’ve closed transactions with as many as four liens/encumbrances, but most short sales only require one or two to deal with. These are typically banks on the first, seconds, and thirds, but can also be HOA liens, mechanics liens (roof or pool repair company who wasn’t paid), child support liens, bankruptcy liens, and more. The group of liens on any home is structured as a hierarchy – first in senior position, and all following in junior positions according to structure, position, and date filed.

Side note: all lien holders can foreclose. When that happens though, senior liens are paid off first (including all late fees and attorney fees), then the next lien in line, then the next, etc. This is worth noting because in a short sale, the firsts are rarely made whole – so any threat of foreclosure from a junior lien is laughable. That would be incurring the legal costs of foreclosure, but not getting a dollar from it.

The senior liens – the firsts – are relatively cooperative in the short sale process. Though I would’ve never said that three years ago, they’ve really come around in their cooperation and timeliness in giving us approvals. The seconds though, well that’s another story…

When we see a deal with the same lender in the first and second position, we know that it is a deal that we can probably close. Though some banks handle them on in the same and others treat them completely separate, on average they tend to cooperate with one another and we get the answers and approvals that we need. On the other hand, a deal with two or three different lenders can get quite hairy. On average, the second lender will want 10% of what is owed to them from proceeds in the short sale (again, the first must approve this). If they do not get whatever it is that they want, they can make a Negotiator’s life quite difficult.

Why is this worth blogging about? These seconds have been a real pain, and continue to be. There are companies who are simply buying the non-performing debt for pennies on the dollar, then turn around and hustling these homeowners for payment, deficiency collection, cash contribution, and more. This is where RE Agents lose their commissions, and sellers are asked to contribute money to the 2nd at the last minute…because the seller is facing a hardship and most-likely cannot contribute. (though I’d really enjoy calling-out those company names here, I don’t want to give them an ounce of attention)

Why is this a problem? At a certain point and depending on how costly the seconds make the SS negotiation process, it may be advantageous for the seller to foreclose. For example I have two deals right now in states with anti-deficiency laws where we have approvals on the first, but the seconds are demanding to include a clause in their acceptance letters similar to “The remaining obligation due under the note shall remain fully due and payable.” In other words, closing this short sale is an agreement that the lender may come after you for the balance in the future. Though I certainly intend to get these clauses removed from the acceptance letters, the seconds would be blocking the short sale entirely if not.

Why would they do this you ask? It’s just a numbers game, and it’s their business model. They might lose 75% of their deals to foreclosure, but make 2x-10x what they have in it on the remaining 25%. If they work with ignorant Negotiators, Agents, and sellers without Attorneys (that don’t know how to protect a seller), it can be quite profitable for them. That, my friends, is what is crazy. On one hand the 2nd wants to squeeze every dollar out of the deal as they can. On the other, they will get nothing if the deal forecloses and it’s in their model to let that happen! It’s up to Negotiators like myself to get all parties involved to agree to the terms, and move forward with closing.

Lastly, the personality type of the Negotiators on these junior liens tends to be crass, impatient, and entitled. This group tends to say things that aren’t always true, so it’s important to know when to call them on it and use it to the deal’s advantage. As an effective Negotiator, it helps to know when then are just being manipulative like this, and to know what makes them tick. This includes how their compensation is structured, what their internal timelines are, how many deals are in their pipelines, and even how their monthly bonuses are paid.

So what’s being done about this ongoing problem in short sales?

State Governments are starting to catch on and passing bills that protect short sellers from deficiencies, but right now most are applicable only to first liens. We are hopeful that second liens are next, but only time will tell. In the meantime, junior collection efforts are still the Wild West, so make sure you have a gun-slinging Negotiator on your team!


- Jeff Grant, President, ShhortSale.com

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