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  • Is Real Estate Still The Best Place To Put Your Money?

    Historically, people have assumed that real estate is a safe place to put their money to help increase their wealth with minimal risk.  After all, in the Seattle area, the last time we saw year over year price declines was back in 1981, when mortgage interest rates topped 18%.  And even then, the price decline was minimal and the market quickly recovered.

    When the real estate market in Seattle came crashing down the second half of 2007 and continued its downward spiral for the next four years, many people began to wonder about the reliability of real estate as a solid long-term investment.

    If we look at how real estate has performed in the Seattle area (King County) since 2000 compared to the stock market, real estate has significantly outperformed the stock market even accounting for home value declines during the recession.  

    With Seattle area home values increasing 75.4% since 2000 and outperforming the stock market during the same period, real estate is still a good long-term investment even if the market adjusts from time to time.  The Seattle real estate market is still strong, and while we may not continue to see large year over year home value appreciation like we saw over the last 18 months, we're definitely in the up trend of the traditional real estate cycle and should continue to see strong housing demand in the Seattle area as we move into the new year.

    Authored by David Monroe, Realtor®, Master Certified Negotiation Expert®
    Phone:  (206) 905-8590

    Copyright (c) 2013 by The David Monroe Team at Keller Williams Western Realty.

  • Translating Real Estate Marketing Lingo

    Real Estate JargonReal estate agents often times have creative ways of describing undesirable home features.  We've all read those marketing descriptions that make a property sound great, just to show up at the house and wonder if you arrived at the wrong address.

    To help understand the real estate lingo used in marketing descriptions for homes, I've created a short glossary that explains some commonly used real estate marketing terms to assist you in accurately translating these descriptions.

    "Cute" - This is another way of saying "really tiny".  For example, "Cute rambler..." probably means that you can cook dinner, change laundry, tuck in the kids, and answer the front door all while standing in the same spot.

    "Cozy" - This is one way of describing a room that's smaller than the box that your big screen TV came in.

    "Needs TLC" - Major fixer.  It's also not uncommon for the property listing to only have one photo of the outside of the house, because if you saw the inside you might run the other direction.  A gas mask may also be in order.

    "Unique" - There's nothing else like it because nobody in their right mind would have designed a house like this.

    "Well Maintained" - Old house that has never been updated.  Everything works, including the 1950's range, antique fridge, and coal furnace that takes up half the basement.  The dark brown carpet is 50 years old but still in good condition, and the wood-paneled walls look as good as they did 40 years ago.

    "Tons Of Potential" - You'll need to be super creative to figure out how to make the house livable.  If you tear it down to the foundation, that potential might be realized.

    "Better Than New" - The do-it-yourself owner completed lots of "upgrades", and because his work was so much better than a professional contractor could do, it justifies the $50,000 over market value that they're asking.

    "Peek-A-Boo View" - If all of the leaves fall off the trees and a snow storm breaks several branches off the trees in front of the house this winter, you can see a speck of water or mountain if you stand on top of the chimney.

    "Good Bones" - Be prepared to tear the house down to the studs, which are apparently the only remaining good features of the house.

    Did I miss any good terms?  If so, feel free to leave a comment.

    Authored by David Monroe, Realtor®, Master Certified Negotiation Expert®
    Phone:  (206) 905-8590

    Copyright (c) 2013 by The David Monroe Team at Keller Williams Western Realty.

  • How Do Real Estate Agents Get Paid?

    Where Does That Real Estate Commission Really Go? 

    Many people outside the real estate industry have a perception that real estate agents take home large commission checks each time they sell a property.  Often times when I've spoken to someone who thinks that real estate agents get paid more than they should to sell a house, I've found out that they believe the agent is receiving a check for 6% of the purchase price.  However, this isn't how real estate agents get paid.

    First, let's clear up one common misconception--The assumption that real estate agents are employed by the real estate brokerage they're affiliated with.  This generally is not the case.  Most real estate agents are independent contractors and pay all of their own business expenses, including phone, transportation, advertising and marketing, continuing education, insurance, association dues, office equipment, technology, accounting and tax preparation, administrative staff, etc.  As independent contractors, real estate agents affiliate themselves with a particular brand and work under the general supervision of the brokerage firm.

    To illustrate where the real estate commission goes, we'll use an example of a listing agent charging a 6% fee to sell a $250,000 house.

    $250,000 x 6% = $15,000 total commission paid by the seller

    Out of that total commission, the listing agent will typically split their commission with the buyer's agent, offering the buyer's agent a 3% commission.
    $250,000 x 3% = $7,500 paid to buyer's agent

    This leaves $7,500 on the listing side.  A typical real estate brokerage will keep approximately a third of the commission (some keep significantly more and some keep less, but we'll use a third since it's fairly common).
    $7,500 x 33% = $2,500 paid to the real estate brokerage (approx.)

    This leaves $5,000 for the listing agent.  Out of this remaining amount, approximately half is typically spent on marketing and servicing the listing, as well contributing to other behind-the-scenes costs like administrative support staff, office expenses, dues (MLS dues, Realtor dues, etc.), continuing education, insurance, business travel, technology tools, etc.
    $5,000 x 50% = $2,500 for marketing, servicing, and operational costs

    This leaves approximately $2,500 pre-tax that the listing agent retains on a $250,000 sale.

    To bring it all together, here's the summary of where the money goes:

    $15,000 Total commission paid by seller ($250,000 x 6%)
    - $7,500 Amount paid to buyer's agent
    - $2,500 Amount retained by brokerage firm
    - $2,500 Marketing, servicing, administrative, insurance, office, etc.
      $2,500 Amount retained by listing agent
    - $1,075 Taxes (assumes 28% tax bracket, plus 15% self employment tax)
      $1,425 Listing agent's take-home pay on a $250,000 sale

    So you may be asking, "How much does the buyer's agent keep in the same transaction?"  For the buyer's agent, the numbers are fairly similar except for the marketing and servicing costs.  Since the buyer's agent doesn't incur costs like signs, flyers, additional marketing, key box, etc., the buyer's agent may retain a bit more of the commission.  However, the buyer's agent will typically spend more money on transportation, and since many of the services performed by a buyer's agent cannot be delegated to other support staff, the buyer's agent will be more limited in the number of homes that can be sold each month.

    So now that we have established how much a real estate agent actually makes on the sale of a home, I'll be posting a follow up blog post soon that shows the duties and activities that a real estate agent actually performs.  You may be surprised by the amount of work that goes into selling a house.

    Authored by David Monroe, Realtor®, Master Certified Negotiation Expert®
    Phone:  (206) 905-8590

    Copyright (c) 2013 by The David Monroe Team at Keller Williams Western Realty.

  • Short Sale and Foreclosure Waiting Periods

    Performing a short sale can be stressful time in a homeowner's life, and when additional financial distress is involved, it can sometimes be difficult to see the light at the end of the tunnel.  Financial distress that results in foreclosure can also make it challenging to be optimistic about the future.

    However, I've recently had several clients come back to me one, two or three years after we completed their short sale, having recovered financially, and now they're interested in purchasing another home.  Not only are they interested, but they also have the financial ability to purchase another home.  This is reassuring since it wasn't long ago that some of those clients had wondered if they would ever buy again.

    I've experienced many situations where people have been financially able to buy a home again before the necessary short sale waiting period has passed.  This has led a lot of people to inquire about short sale waiting periods, or the amount of time they must wait after a short sale before they can get financing to buy another home.

    The table below summarizes the required waiting periods after completing a short sale or after a foreclosure before someone can acquire financing to buy another home.  These short sale and foreclosure waiting periods may change from time to time and there may be other loan options available with shorter waiting periods, but this should serve as a good starting point for most home loans.  One recent change was the FHA short sale waiting period, which was changed from three years to one year.

    Loan Type / Product Waiting Period After a Short Sale or Deed In Lieu Waiting Period After a Foreclosure
    FHA ONE YEAR from completion date if borrower qualifies for the FHA "Back To Work" program. Otherwise 3 years.

    ONE YEAR from completion date if borrower qualifies for the FHA "Back To Work" programOtherwise 3 years.

    VA Not clearly defined.  Assume foreclosure rule of 2 years to be safe. 2 Years from completion date
    Fannie Mae 2 Years with max 80% LTV ratio
    4 Years with max 90% LTV ratio
    7 Years with over 90% LTV ratio
    7 Years from completion date
    Freddie Mac 4 Years from completion date 7 Years from completion date
    USDA Rural 3 Years from completion date 3 Years from completion date 
    Jumbo Varies based on specific investor guidelines Varies based on specific investor guidelines


    Authored by David Monroe, Real Estate Agent and Short Sale Specialist
    Access Seattle area short sale help and find out 8 Things You Must Know Before You Attempt a Short Sale.
    Phone:  (206) 905-8590

    Copyright (c) 2013 by The David Monroe Team at Keller Williams Western Realty.

  • ONE YEAR Waiting Period for FHA Loans After Short Sales

    The FHA recently changed its post foreclosure and post short sale waiting period from three years to one year for eligible borrowers.  Their new "Back To Work-Extenuating Circumstances Program" reduces the waiting period for people who had a foreclosure or completed a short sale or deed in lieu of foreclosure during the recession as a result of a decrease or loss of income.

    Prior to the introduction of the program, FHA had a three year waiting period after a foreclosure, short sale, or deed in lieu of foreclosure, and a two year waiting period after a Chapter 7 or Chapter 13 Bankruptcy.  However, now borrowers who experienced a qualified "adverse economic event" and have since recovered may be eligible for the new program.  A qualified economic event may include:Post Short Sale Road To Recovery

    • Short Sale
    • Pre-foreclosure Sale
    • Deed in Lieu of Foreclosure
    • Foreclosure
    • Loan Modification
    • Loan Forbearance
    • Chapter 7 Bankruptcy
    • Chapter 13 Bankruptcy

    In addition to recovering financially, you must attend a HUD-approved home ownership counseling course.

    Additional requirements include:

    • You must be able to document at 20% decrease in household income
    • The decrease in income must have been six months or longer and must have occurred around the same time as the economic event.
    • You must demonstrate satisfactory credit history since the economic event, showing on-time payments for the period following the economic event.
    • You may need to demonstrate good credit history prior to the financial hardship that led to the economic event, with credit that was damaged as a result of that financial hardship.

    Other conditions may apply, but this is a huge opportunity for anyone who experienced a short sale, foreclosure, or other similar event recently but is now financially able to buy a home again.

    Authored by David Monroe, Real Estate Agent and Short Sale Specialist
    Access Seattle area short sale help and find out 8 Things You Must Know Before You Attempt a Short Sale.
    Phone:  (206) 905-8590

    Copyright (c) 2013 by The David Monroe Team at Keller Williams Western Realty.

  • Is A Boom On in Seattle Housing Market?

    The Seattle housing market finally had a decent lift-off in 2012.  The shortage of home inventories, the record low interest rates, the positive belief that the market has bottomed out, and general hiring by large and midsize local employers (i.e. Amazon and Microsoft) makes 2013 have a higher potential of growth than last year.  

    The median price of a single family home in NW Seattle (Ballard, Fremont, and Green Lake) rose from $399,000.00 to just over $425,000.00, a 6.5% increase.  The average on market time decreased from 42 days to 32.  Most realtors use the rule of thumb, that a 90 day or longer supply of homes is a buyer's market and anything less a sellers.   We had the supply of homes in 2012 in NW Seattle decrease from a three month average in 2011 to 1.4 months in 2012.  The trend for 2013 seems to be stable or lower time on market.  Add this factor to expected continued low interest rates, low housing inventories, and competitiveness of popular neighborhoods like NW Seattle and we seem to have a recipe for a housing boom

  • Seattle Foreclosure - General Processes

    In pursuing good business practices in a Seattle foreclosure process one needs the opportunity to stop foreclosure at any time, deal with lender, and learn of the advantages of a distressed sale.  A distressed seller should also check on the ways a foreclosure may be stalled.  A truly experienced distress sales realtor can help eliminate and explain all possible contingent deficiencies.  They can direct you to people who can answer any legal questions that may pop up at any juncture of sale.   Finding a realtor experienced and qualified in distress sales is the key ingredient  to take as much pain and heart-aches out of the process.   An experienced distress sale professional can identify all discounts possible from any local lender.  

    With an experienced distress or short sale professional a distressed seller has the best opportunity to eliminate high mortgage payments,  

    expand monthly cash flow, and relieve hundreds, even thousands of dollars of debt.  The right realtor could help a distressed seller to enjoy an elimination of debt (getting rid of collectors phone calls and visits--forever).  Most Seattle short sales are full settlements (note that if you have a second mortgage, a distressed real-estate pro is needed even more, for many times a foreclosure is needed to relieve additional debt (i.e. the second mortgage  or taxes on unreleased settlements.  An experienced distress pro will;l refer seller to accountant or attorney for total relief.  

  • Bank of America Short Sales Improving

    At this time last year, Bank of America was on my black list for short sales.  I would still work with short sale clients that had Bank of America loans, but I had to make an extra effort to mentally and emotionally prepare sellers for a process that could take six months to a year from signing the listing to signing closing papers.

    Seattle Short Sale Real Estate AgentSeveral months ago, Bank of America started using the Equator system (formerly REOTrans).  Equator is the technology platform used by many of the top lenders nationwide for handling bank-owned property transactions.  Equator built a short sale portal to be used by Bank of America (and eventually other lenders) to help streamline the short sale process.

    While the transition to the Equator system had its challenges, Bank of America’s implementation of this online system for processing short sales has been one of the biggest steps in the right direction that I’ve seen from a large bank in the short sale industry.  That doesn’t mean there aren’t still a lot of problems with Bank of America short sales, but it is a massive improvement from where they were a year ago. 

    Short sales that would have previously taken 6-8 months to negotiate with Bank of America can usually be completed within 60-90 days now when processed through the Equator system.  It can still be a painful experience at times, but it’s kind of like pulling a bandage off your arm:  It’s going to hurt whether you pull it off slowly or quickly, but isn’t it better to get the pain over with quicker?

  • So You Stopped Making Your Mortgage Payments -- Now What?

    Short Sale Real Estate Agent - Behind on Mortgage

    Have you stopped making your mortgage payments?  Are you considering it?  If you’re just considering it and haven’t already stopped, read the post, Should You Stop Making Your Mortgage Payments?

    If you have stopped making your mortgage payments, either because you can no longer afford to pay or for some other reason, here’s what you can expect:

    First Mortgage
    First mortgage lenders are typically much easier to deal with if you fall behind on your payments.  They typically won’t harass you by phone, but they’re likely to fill up your mailbox with letters reminding you that have haven’t made your payment. 

    If you speak to your first mortgage lender on the phone, they usually won’t use high-pressure collection tactics.  That doesn’t mean they won’t ask for a payment, but the collection effort over the phone is not likely to go past that level.  They will make a lot of effort to determine if there’s a way to bring the loan out of default status by offering a loan modification, payment moratorium, or some other workout solution.  However, these workout solutions are rarely successful, since most borrowers just get lost in the system.

    This low-pressure collection strategy may not apply if your loan was sold off to someone that specializes in purchasing loans that are in default for pennies on the dollar.

    Second Mortgage
    If you stop making payments on your second mortgage, this can create a bit more of a challenge.  Not only will the second mortgage lender fill up your mailbox with threatening letters, your phone is likely to ring off the hook as well. 

    I put second mortgage lenders in the same collection category as credit card collectors.
      Second mortgage lenders have a lot more to lose, especially if the first mortgage lender forecloses.  Therefore, they tend to use high-pressure, threatening, and sometimes unethical collection practices.  They may try to contact you at work or they may try to contact your relatives, although you can request in writing that they not do this. 

    They may lie to you.  They may tell you that they won’t approve a short sale or loan modification if you’re behind on your payments.  This is not true.  If you challenge something that they tell you and they offer to have you talk to their supervisor to confirm, don’t take the bait.  Their “supervisor” is most likely just the collector in the cubicle next to them.

    Letters In The Mail
    Short Sale Real Estate Agent - Past DueDuring the first 90 days or so, your mailbox is going to fill up with letters from your lender.  They may start out friendly, offering lots of options and telling you how much they want to help you, then they will start getting more threatening.  Usually around the 60 day mark, they’ll send letters by certified mail as well.  They’ll use terms like “Acceleration Warning”, “Notice of Intent to Foreclose”, “accelerate the maturity of the loan”, “declare all sums immediately due and payable”, “commence foreclosure proceedings”, “take legal action”, etc.  They're trying to get your attention.  Just remember that no matter what they say, there are specific procedures and timelines that they must follow (see Foreclosure Process and Timelines in Washington State).

    Two Notices To Take Seriously
    If you’re receiving so much correspondence from your lender that you’ve given up even opening your mail, there are two letters (or notices) that you should pay particular attention to.  The first one is the “Notice of Default”.  This will usually be sent by regular mail, certified mail, as well as a hand-delivered copy (usually taped to your front door if you’re not home).  This notice warns you that the bank may start the foreclosure process if you don’t cure the default within 30 days.

    The second notice is the “Notice of Trustee's Sale”, which is sent 30 days or more after the Notice of Default.  Like the Notice of Default, this notice is also sent by regular mail, certified mail, and hand-delivered.  This notice means the bank has scheduled the foreclosure auction for your property.  The foreclosure auction will be at least 90 days from the date of the notice.  The bank has the ability to postpone the auction at their discretion if you’re in the process of a short sale, loan modification, or some other workout option.

    As always, if you’re concerned about your legal rights or legal implications, you should consult with an attorney. 

    This is just a brief overview of what to expect, and it may differ slightly from lender to lender.  Feel free to share your experiences.

  • Will HAFA Improve The Short Sale Process?

    HAFA Short Sales

    On April 5th, the government implemented the Home Affordable Foreclosure Alternatives (HAFA) program, designed to standardize and streamline the short sale process.  I'll give a brief overview of the program, along with some additional comments (and opinions).

    HAFA is an extension of HAMP (Home Affordable Modification Program).  The HAMP program was a major failure, helping only a very small percentage of eligible borrowers.  Out of 4 million eligible borrowers, the HAMP program has produced less than 70,000 permanent loan modifications to date.  The problem with HAMP is that it was loosely written, so many banks made little effort to implement the program as it was designed.  After reading and studying the 43-page HAFA Supplemental Directive, I think we're likely to see many of the same problems that people experienced with the HAMP program.

    The HAFA program provides voluntary guidelines for lenders to streamline the short sale and deed-in-lieu of foreclosure process by offering financial incentives to loan servicers, investors, and borrowers.  It establishes an acceptable sale price for the property prior to listing it for sale, allows up to 120 days to sell the property, sends the borrower off with $1,500 at closing, and pays the loan servicer $1,000 for processing the short sale.  Sounds like a great deal, right?  Well, don't get too excited yet.

    Loans that Qualify

    To qualify, the loan must be a first lien mortgage originated before January 1, 2009 from a participating lender NOT owned or guaranteed by Fannie Mae or Freddie Mac.  VA and FHA loans are also excluded.  It is estimated that well over 50% of loans will not qualify for the HAFA program.

    Effective Dates

    The HAFA program is effective from April 5, 2010 through December 31, 2012.

    Borrower Eligibility

    The borrower must meet the following eligibility requirements:

    • The property is the borrower's principal residence;
    • The mortgage is delinquent or default is reasonably foreseeable;
    • The current unpaid principal balance is equal to or less than $729,750;
    • The borrower's total monthly payment exceeds 31% of the borrower's gross income;
    • If there is mortgage insurance on the loan, the mortgage insurer must approve;
    • The borrower must be evaluated for a HAMP modification prior to being considered for HAFA.  (In other words, you'll have to spend several months running in circles trying to get the bank to respond to a loan modification request, even if you know you'll be turned down.)
    Short Sale

    Prior to approving a borrower to participate in a HAFA short sale, the loan servicer will determine the minimum net sale proceeds that they'll accept.  What's interesting is that there is nothing in the 43-page document that would prevent a loan servicer from establishing an unreasonable amount for the minimum sale proceeds.  For example, the loan servicer can require the property to sell for 10% more than the estimated value and the borrower can't dispute it.  While that is a bit extreme, the minimum sale proceeds through the HAFA program could be higher than what they would accept on a traditional non-HAFA short sale.

    Once a minimum amount is set by the loan servicer, the borrower signs a Short Sale Agreement (SSA), and a real estate agent markets the property and procures a buyer.

    A Request for Approval of a Short Sale (RASS) is submitted with the buyer's offer, and within 10 days, the loan servicer must approve or reject the proposed sale.  However, while 10 days may seem like a great timeframe for short sale approval, it could take up to three or four months to get to this point.  Also, if the loan servicer is unable to comply with the 10 day timeline, they can just reject the offer and make up a reason like "insufficient information available".  They're supposed to approve the sale if it meets the minimum net sale proceeds that they had previously set, but they'll find loopholes to get around it.  Trust me, they will.

    During the term of the SSA, the borrower may be required to make monthly payments of up to 31% of their gross monthly income.  Since this would be less than the full payment amount, the loan servicer can still report the payments as late on your credit report.

    Deed-In-Lieu Of ForeclosureHAFA Deed in Lieu

    If a short sale cannot be completed within 120 days, the borrower will be required to transfer the property to the bank via a deed-in-lieu of foreclosure (DIL).  So if the buyer's financing falls through at the last minute and there's not enough time to procure a new buyer, the bank could require the borrower to sign the property over to them without the additional time and legal fees necessary for the standard foreclosure process.  Sounds like a great deal for the bank.

    Second Mortgages And Other Lienholders

    Things start to get complicated is when there is more lienholder involved.  For a short sale to be approved, any subordinate lienholders (like a second mortgage) must agree to a payoff of no more than 3% of the unpaid principal balance (up to an aggregate of $3,000 for all subordinate lienholders) in exchange for a lien release and full release of borrower liability.  In other words, if there's a $30,000 second mortgage, the second lienholder will have to agree to a payoff of $900 and forgive the borrower of the remaining deficiency according to HAFA.  This will kill a lot of HAFA short sales with second mortgages, as many second lienholders won't agree to those terms.  The HAFA program only applies to first mortgages, so second mortgage lenders are not required to comply with the HAFA guidelines.

    Final Thoughts

    While some of the intentions behind the HAFA program may be good, the program is not likely to see much success.  Some borrowers may benefit from doing a short sale through the HAFA program, but most borrowers are likely to see better results through a traditional (non-HAFA) short sale.  The HAFA program doesn't necessarily change the way short sales are done--It just offers another option for those who may qualify.

  • Should You Stop Making Your Mortgage Payments?

    House Under WaterAs short sales are becoming more common, I’m finding that a higher percentage of people who contact me regarding a short sale are still current on their mortgage(s).  Many of them have just made the last mortgage payment that they can afford to make, while others are trying to develop a strategy that will produce the best results for their situation.

    While I typically recommend paying for basic necessities like food, shelter, utilities, clothing, and basic transportation first, sometimes it’s just not possible to continue paying a mortgage payment that is well above an affordable level.  While I cannot advise anyone on whether or not they should stop making their mortgage payments, here are ten things to consider:
    1. If your mortgage is FHA insured, you’ll typically need to be at least 31 days behind on your mortgage before they’ll consider a short sale.

    2. For other types of loans, some lenders will approve a short sale if your payments are current, and some will not.  It depends on the underlying investor, and some banks service loans for many different investors.

    3. The short sale process may take longer if you’re current on your mortgage payments.  The bank usually won’t feel that there’s a risk of getting the house back if you’re current on your payments, so they may not be as motivated to work on a reasonable timeline.  A good real estate agent with short sale experience may be able to assist you with the wording in a hardship letter so the bank understands that even though your mortgage is current now, default is imminent.

    4. If you stop making your mortgage payments, it will have a negative effect on your credit.  Therefore, you should make sure you handle anything that would be impacted by negative credit before you stop making payments--And that doesn't mean going out and buying a new car or furniture on credit then not make your mortgage payment.  Securing a place to rent could be impacted by negative credit, but this is usually done much later, and you may be able to explain the circumstances to a prospective landlord.

    5. If you have significant liquid assets (cash in the bank, CDs, whole life insurance policies, or other investments), the bank may require you to put up some cash at closing or sign a promissory note as a condition of approving a short sale, regardless of your mortgage payment status.  IRAs and other retirement plans are typically exempt, but that won’t necessarily stop the bank from trying to ask for these funds.  I’ve heard of situations where sellers were tricked into borrowing from their IRAs to pay back mortgage payments or cover deficiencies on a short sale.

    6. If you stop making your mortgage payments, the bank will attempt to collect the back payments.  If you have two mortgages, the second mortgage lender will probably harass you much more than the first mortgage lender will.  The second mortgage lender is also much more likely to use unscrupulous and unethical collection tactics.  Be prepared.  It’s a lot easier to deal with if you know what to expect.

    7. If you have a second mortgage and stop making your mortgage payments, the second mortgage lender may tell you that they won’t approve a short sale if the second mortgage is delinquent.  This is a collection tactic and is not true.  In fact, the exact opposite is often the case.

    8. Borrowing from a credit card to make your mortgage payment is not recommended.  I have yet to come across a situation where this actually ended with a positive outcome.

    9. If you stop making your mortgage payments, it could eventually lead to foreclosure if you are not able work out something with the bank or have a short sale approved.

    10. If the bank determines that you have enough income to make the mortgage payments, they may not approve a loan modification or a short sale.  However, the bank may make an exception in special circumstances like divorce or an out of area job transfer, where staying in the house may not be an option.

    If you also have credit card debt, here are some things to keep in mind:

    • Credit CardsIf you’re unable to continue making your mortgage payments and intend to do a short sale, staying current on other debt outside your mortgage (car payments, credit cards, etc.) will typically make it easier to secure a place to rent after the short sale is complete.  It will show a prospective landlord that although you had stopped making your mortgage payments because the payments were more than you could afford, you are able to make lower rent payments, and the mortgage situation was an isolated incident.  Many people in short sale situations would have sold their house before they fell behind on their mortgage payments if they would have been able to sell their house for enough to pay off their mortgage.

    • Some banks may check your credit before approving a short sale.  If they find out that you stopped making your mortgage payments but have stayed current on your credit card payments, they may reject the short sale offer.  I’ve only heard of this happening once, and it was with Bank of America.  It’s unclear whether it was just a threat or if the underlying investor actually required that.  However, consider this a warning—It could happen.
    Make sure you understand the foreclosure timelines.  See my blog post, Foreclosure Process and Timelines in Washington State for timelines in Washington State.

    In the end, the decision is up to you.  There may be risks and consequences regardless of your decision.  Just make sure you have all the facts so you’re making an educated decision.
  • Foreclosure Process and Timelines in Washington State

    Washington State is a non-judicial foreclosure state, meaning that the lender is not required to sue the borrower in default in order foreclose.  Most home loans in Washington State are based on a deed of trust (mortgage instrument) with a “power of sale” clause that pre-authorizes the sale of the property to pay off the balance of the loan in the event of a default by the borrower.  When this clause exists, the power given to the lender to sell the property is usually executed by the lender’s representative, typically referred to as the trustee.

    While Washington State has minimum timelines required by state law, this is the timeline typically followed by most lenders:

    90 days after the first missed payment:  Lender sends a “Notice of Default” to the borrower.  The notice will be posted at the property (usually taped on or near the front door) or delivered to the borrower in person.  The notice may also be mailed to the borrower, usually by certified mail.  The borrower has 30 days to respond before the actual foreclosure process is started and the property is scheduled for public sale.

    120 days after the first missed payment:  Lender records a Notice of Trustee Sale with the county recorder, stating the scheduled sale (auction) date.  The notice of sale must be recorded at least 90 days before the sale date.  The notice of sale is also posted at the property or delivered to the borrower in person, and mailed to the borrower and any other affected parties (such as additional lienholders).

    Approximately 7 months after the first missed payment:  Property is sold at public auction to the highest bidder, who must pay in cash at the time of the auction.  If nobody bids the minimum bid amount set by the lender, ownership of the property will revert back to the lender.  The winning bidder, or the lender if there were no bids, can take possession of the property 20 days after the foreclosure sale.  The borrower has no right to redeem the property after the foreclosure sale.  Foreclosure sales are usually held on the county courthouse steps each Friday, or the next business day if Friday is a holiday.

    The timelines above are the most common timelines.  Actual timelines specified by Washington State are:

    • The foreclosure sale must be scheduled a minimum of 190 days from the date of default.
    • The borrower has up to 11 days before the foreclosure sale to stop the foreclosure process by paying the past due payments, plus expenses and legal fees.
    • The lender may postpone the foreclosure sale at their discretion.  This will often times occur when loan modification, short sale, or other agreement is being negotiated with the bank.
    • The lender or the high bidder at the foreclosure sale can take possession of the property 20 days after the foreclosure sale.
  • The Pre-Approved Short Sale Fallacy

    Short Sale ApprovalI’ve received many calls from prospective buyers interested in my short sale listings asking if the listing price has been approved by the bank.  On a short sale, the seller owes more than their house is worth, so the seller’s lender(s) must approve the sale price and accept a discounted loan payoff in order for the house to be sold.  However, is it not common in these situations for banks to pre-approve a listing price for a house.

    Because there are so many short sales on the market, buyers are searching for short sale information on the Internet and finding a wealth of information and advice on how to handle short sale situations.  I did some searching myself, and while there was some good information available, I found a lot of incorrect or incomplete information. 

    Many websites advised buyers to ask the listing agent if the list price had been approved by the bank.  However, buyers aren’t necessarily getting the whole story.

    Here are some situations that may lead a listing agent to claim that the bank has approved the listing price, along with some things to consider:
    1. The seller’s loan is an FHA loan, and HUD has sent the seller a letter stating the minimum net payoff proceeds that they would accept.  This can be fairly reliable as long as all of the conditions set by HUD are satisfied.  In this situation, you also need to know the following:

      1. When is the deadline for obtaining a signed Purchase and Sale contract from a buyer?  The HUD pre-approval is only valid for a specific period of time, usually around 90 days.

      2. What is the appraised value of the property?  The pre-approved price set by HUD is based on a percentage of the appraised value, usually 88%.  Since this is the net amount after all selling expenses (including commissions and closing costs), that translates to a purchase price of approximately 97% of appraised value.  However, HUD will often times accept less than the pre-approved amount depending on how long the property has been on the market—A buyer’s agent that specializes in short sales will know when you can make a lower offer that will net HUD less than their pre-approved amount and still have it approved by HUD.   If your agent doesn’t know this, you could be paying more than you should for the house.

      3. How long has the property been on the market?  This relates to Point (b) above—HUD may accept a lower payoff than their pre-approved amount depending on how long the property has been on the market.

    2. Verbal Short Sale ApprovalThe bank has verbally approved a listing price or has verbally disclosed the minimum payoff that they’ll accept.  This is possible, but rare.  Banks want the property sold at the highest price possible and don’t want to leave money on the table.  If they approve a listing price of $300,000 and the property could have been sold for $320,000, then they haven’t done their job of mitigating the loss.  Most banks prefer to receive an offer, then determine if the price offered is acceptable.  Also, if the price approval was not in writing, there’s no guarantee that they’ll follow through with their verbal commitment (banks are notorious for “forgetting” verbal commitments that they’ve made).

    3. The bank has given written approval of the listing price.  As in Point #2, banks rarely approve a price prior to procuring a bona-fide buyer for the property.  If the listing agent claims to have written approval of the listing price, ask them to send a copy to you in writing.  If they say they can’t because it contains confidential information, ask them to black out the confidential information with a marker and send a copy to you (make sure they don’t black out the borrower’s name or property address).  If the letter states an approved price, make sure it also states the net payoff proceeds that the bank will accept.  The bank is less concerned about the sale price—They’re concerned about the amount of money they’ll end up with after the deal is done.  You’ll want to avoid potential situations where the bank approved a listing price but comes back in the eleventh hour and says something like, “That price was based on 4% in real estate commissions, not 6%,” or “That price didn’t account for prorated real estate taxes, homeowner association dues, etc.”

    4. A previous buyer’s short sale offer was approved by the bank, but the buyer backed out or could not complete the transaction.  This situation would seem like a slam-dunk since the bank had already approved another buyer’s offer.  But beware—Just because the bank approved another buyer’s offer at the same price doesn’t guarantee that they’ll approve your offer.  The previous buyer may have had different financial qualifications and the terms of the previous offer may have been different than the terms that you’ll offer.  Maybe the previous offer didn’t include an inspection contingency, and that made it desirable to the bank.  Also, short sale approvals are usually good for up to 30 days, or sometimes 45 days.  If the bank finds out that a different buyer was substituted, they could reject the short sale.

      I had a recent transaction where we had a short sale approval (approved specifically for the original buyer), we sent in a new offer to the bank for approval at the same price, and the bank changed their mind and decided they wanted a higher price.  We had to fight with the bank for the next month to get them to come back down to the original price that they approved the first time around.

      My point here is that just because the bank approved an offer from another buyer doesn’t necessarily mean that you can just substitute a new buyer and expect the deal to go through.  The only way to assure that the bank will go through with the deal after the approved buyer backed out is to submit the new offer and get a new approval.  Depending on the bank, this could take anywhere from several days to several weeks.

      If you find yourself in this situation, ask the listing agent to send you a copy of the short sale approval letter.  Make note of the deadline.  Many banks will issue an updated approval letter for the new buyer but won’t change the date that the approval expires (the deadline for closing).
    Keep in mind that I’m not saying that you should completely discount any claim that the price of a property has been approved by the bank.  Just make sure you know the facts behind the claim, so you’ll be able to set the proper expectations.

    Most banks won’t start short sale negotiations or discuss any price they’ll be willing to accept until an offer is received from a buyer, although there are exceptions.  As time goes by, we’ll probably see more banks opening up to the idea of pre-approving prices for short sales to speed up the process.
  • Unlicensed Third-Party Short Sale Negotiators - Washington Department Of Licensing’s Official Stance

    Many real estate agents in Washington State use unlicensed third-party negotiators to handle their short sales.  I have always discouraged that practice (see my March, 2009 blog post, Is Your Real Estate Agent Breaking The Law?).

    Third-Party Short Sale Negotiators In WashingtonThe Washington State Department of Licensing has now taken an official stance on this.  On their website under “New Real Estate Law Frequently Asked Questions”, they state that short sale negotiators must hold active real estate licenses or be appropriately licensed by the Department of Financial Institutions, and work under the authority of their designated broker.  The department of licensing is currently investigating complaints of unlicensed short sale negotiators (see Real Estate Commission Meeting Minutes).  Real estate agents who are using unlicensed short sale negotiators can be charged with aiding or abetting unlicensed activity and are subject to disciplinary action, according to the Department of Licensing.

    Unlicensed third-party short sale negotiators are responding by stating that they’re really “facilitators”, not “negotiators”.  That may technically be true, but that doesn’t mean that the state sees it that way.  I certainly wouldn’t want to be standing in front of a judge trying to explain the difference between “facilitating” and “negotiating”.  And as a real estate licensee, I wouldn’t want to risk my license being suspended while my relationship with an unlicensed short sale negotiator is being investigated.

    I use an experienced short sale attorney to handle my short sales.  My attorney also happens to have a real estate license, in addition to being an escrow attorney.  He was working with short sales before most real estate agents even knew what a short sale was.  If you’re a real estate agent in the Seattle-Tacoma-Everett area reading this, I would be happy to refer you to the short sale attorney that I use, no strings attached--I can’t receive any payment for an attorney referral.  (See Short Sales For Real Estate Agents for more information.)  As real estate agents, we need to keep our business practices above-board and eliminate opportunities for any bad press relating to real estate agents.  Would you put your license at risk?
  • Is There Such A Thing As An Unsellable House?

    Is there such a thing as an unsellable house?  There’s a wealth of information available on preparing and staging a house to sell, but what about situations where the house can’t be properly prepared or fixed up to sell?  I work a lot with short sales and pre-foreclosures, and in many of these situations the houses aren’t in great condition.  Often times the seller has no motivation to fix up or clean up the house.

    One house I recently sold was no exception.  It was in foreclosure and we had to sell it quickly.  The house was only 13 years old and needed new flooring, interior paint, and some landscaping work, but it looked much worse.  The owner had multiple large dogs that were allowed to go in and out as they pleased and the house smelled like a wet dog.  Nearly every room in the house had boxes, clothing, and other personal belongings stacked floor to ceiling, and some of these rooms were so cluttered that it wasn’t even possible to get inside the room.

     Cluttered House
     Cluttered House

    In the listing, I requested that agents contact me prior to showing so I could warn them of what they were walking into and help set the proper expectations.  I could see the potential of this house, but most buyers and their agents could not.  Some buyers turned around and walked out as soon as they opened the front door.

    Critical Feedback

    I always request feedback from agents that show my listings.  I received several scathing comments about this house from other agents:  “Get it off the market!”, “You should be embarrassed for listing this house”, “It stinks!”, not to mention some of the direct insults to the seller even though the agents had never even met the seller.

    Seller In Distress

    The seller was actually a very nice, thoughtful, intelligent, and hard-working couple.  They got in over their heads on a couple projects, and as a result had a lot of distress in their lives.  They were spending so much time putting out fires in their lives that taking care of the house became a low priority.  Many people are quick to judge because they’ve never been in true distress.  They don’t understand that most people make different decisions when in distress than they would in normal situations.

    In the end, this house did sell—The short sale was approved and the bank took a $190,000 loss.  It was sold to a retail buyer, not an investor as many people might assume.  This buyer saw great potential in this house and ended up getting a great deal.
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