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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

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

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

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

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

- Abe Woody, Managing Negoitator, ShhortSale.com

- Abe Woody, Managing Negoitator, ShhortSale.com

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

- Jeff Grant, President, ShhortSale.com

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.

- Jeff Grant, President, ShhortSale.com