Just read a great article in Inman news.  The buyer was absolutely frustrated with the way her short sale was going, losing her bid to a LOWER offer after waiting all that time, which raises common questions I get when working with short sales.

People entering the market (those who haven’t kept up with the news and buzz about short sales and bank foreclosures), many think that short sales [often referred to as quick sales by those new to the experience], are quick and easy with the banks.  To many of you reading this, it’s probably a review, but I still uncover many would-be buyers in my travels who are still unfamiliar with the process or even the definition of a short sale.

As a listing agent of over 20 short sales at the present, I find myself answering many questions again and again on the short sale process.  The primary being, “what is the offer, I’d like to offer higher and beat the existing offer.”

In their minds, and even my own, this strategy makes perfect sense.

But why doesn’t it work?

I think Tara-Nicholle Nelson at Inman nailed it on the head (with several points), although I’m not in agreement on the point about the commissions.  We have first hand experience working with banks, and we’ve actually tried substituting a higher offer to the bank… only to fail miserably.

A little background…

The 22SS form in Washington State has several VERY IMPORTANT clauses which can allow the seller to continue to accept and submit higher offers to the bank.  The second important clause can allow the buyer to walk at any time and keep their earnest money – watch these carefully (or hire me and I’ll do it for you…).  I’m more concerned about the first clause, if the seller can accept additional higher or better offers and submit them to the bank the buyer runs the risk of not getting the home they offered on and have been waiting a LONG TIME to receive a response.  This was the case on our experiment, too.

Back to the experiment…

We had an offer, and for easy numbers lets say it was for $90,000 on a short sale.  The offer and package was submitted to the bank and we were patiently waiting for the bank to respond.  Several weeks had gone by and now we’ve received another offer from a “got to have it now buyer,” who generously offered $105,000.   Having the ability to accept and submit higher offers, we contacted the bank, swapped the offer and then…

The bank started completely over.

“What the heck!” we thought.  but what are you going to do, they started over, six weeks wasted and we burned an otherwise great buyer who offered at $90,000.. only to start over.   Lesson learned.

In my opinion (and school-of-hard-knocks-experience), it’s best to hold onto the offer that is not necessarily the highest, but the one that is most likely to hang in there for the long term and buy the property despite hoops, tunnels and acrobatics required by the bank to get it done.  Accept the most likely to succeed candidate and put ALL others in backup.  Thinking back to my three simple rules of real estate “Location, Location, and TIMING,” it’s often one of the backup offers who gets snuck in at the last moment (but even then to switch a buyer out in a short sale, we have to re-approve a large portion of the file).

The facts:

1. Shorts sales are anything but short.
2. The banks call the shots, you wait and jump
3. You NEED a great agent to navigate you through (however I firmly agree that MOST aspects are beyond the agents control in the short sale negotiation process, having an agent familiar with the process is like having an experienced captain navigate treacherous waters – your chances of success are far greater).
4. As a buyer, negotiate your ability to walk any time (on the WA 22SS) and keep looking.  There’s no guarantee the bank will approve your short sale offer so keep it as your ace in the hole and keep looking.

Questions?  Sound off in the comments or contact us!  We’re passionate about this.

Tags: How To, In The News, Spokane Real Estate by Spokane Home Guy (509) 990-7653
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As many of you may know, the deadline to close in compliance with the First Time Home Buyer Tax Credit was extended through 9/30/2010 on July 2nd 2010 when President Obama signed the bill.  There has been a lot of confusion floating around and I wanted to set a few things straight.

The primary being: 

If you are not currently under contract that is dated prior to 4/30/2010 this extenstion means nothing to you.

Statistics from the National Association of Realtors claim that nearly 180,000 homebuyers will be affected by this extension providing more time to close and relieving the stress placed upon Title & Escrow companies across the nation.

The leading culprit to delayed closings is the ever present Short Sale.  A short sale (with relation to real estate) is defined as the sale of a property in which the proceeds do not cover the liabilities against the property.  In most cases, lien and mortgage holders on the property are asked to take a reduced amount to settle the debts often being less expensive for the banks to resolve the issue than foreclosure.

Short Sales can take up to 3-6 months to complete, although our average is around 90 days on most traditional 1 or 2 mortgage properties.  

I can imagine there are some very relieved agents out there with the passing of this extension…

Tags: Idaho Real Estate, In The News, Spokane Real Estate by Spokane Home Guy (509) 990-7653
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 Here is some great information and a great breakdown of the D4L program by my Guest Writer: Chris Thorman.
Guest Writer:
Chris Thorman
Chris@SoftwareAdvice.com
(512) 364-0118

 

The Federal National Mortgage Association, more commonly known as Fannie Mae, recently announced a new program designed to keep mortgage-challenged borrowers in their homes. The Deed for Lease (D4L) program allows qualified borrowers to relinquish the deed to their property and rent their home at the market rate for 12 months.

Our team at Property Management Software Advice has broken down the program to show you what to expect for borrowers, tenants and property managers.

How Deed for Lease Works

Before a borrower is eligible to rent their home under Deed for Lease program, they must have a deed-in-lieu of foreclosure agreement (DIL) in place with Fannie Mae. This agreement means that the borrower has agreed to give the title to their property back to Fannie Mae in order to satisfy the terms of their mortgage.

Basically, it’s an agreement that says, “Take my house and we’ll call it even on the mortgage.”

Penalties may apply – a ding on the borrower’s credit report for one – but those penalties will be less harmful than a normal foreclosure.

Once a borrower is deemed eligible for a DIL agreement, that gives the Fannie Mae the green light and they will contact a property manager to initiate the D4L process with the borrower.

If a borrower agrees to renting his home, the property manager will:

• Review the leasing conditions;
• Determine if the borrower qualifies under the terms of the D4L program (see below);
• Inspect the property; and,
• Approve the lease.

The property manager will also be the one who sets the rental rate for the next 12 months.

Essentially, Fannie Mae will outsource the administration of the new leases to a third-party property management company.

If the borrower does not qualify for D4L, the property manager will inform the borrower and the normal DIL process continues. The borrower will lose their home and not be able to remain there as a renter.

Who is eligible?
In order to be considered for the Deed for Lease program, a borrower must meet these requirements:

• Have a Fannie Mae mortgage that is in a deed-in-lieu of foreclosure agreement;
• Requested a loan modification and been turned down;
• Show proof of income that the rental rate will not exceed 31 percent of the borrower’s monthly income (e.g., If the rental rate is determined to be $1,500 a month, the borrower must show proof of a monthly gross income of at least $4,838);
• The borrower can’t be involved in bankruptcy proceedings; and,
• At least three payments have been made on the property from the time the loan started or since the last modification. The borrower also cannot be more than 12 months past due on their payments.

As you can probably imagine, thousands of borrowers around the country are potentially eligible for the Deed for Lease program.

What about the property?
In addition to the requirements for the borrower, the property itself must also meet certain requirements:

• Be in good condition;
• The property in question must be a primary residence (not a second home or a vacation home);
• In compliance with local rules and laws; and,
• Not targeted for any corporate, government or community plan that will need the property for non-residential us.
• The property manager hired by Fannie Mae will determine if the property meets these requirements.

What about properties that are already being rented out by their owners? Fannie Mae will work with the borrower to determine if the tenants are interested in renting through the Deed for Lease program. If they are, the property manager assigned to the property will work with the tenants to execute a lease. The property owner will give up his or her property and the property manager assigned by Fannie Mae will become the tenants’ landlord.

If either the tenants don’t want to work within the Deed for Lease program or a tenant does not qualify for the program, the property will not be eligible for the D4L program. Basically, the tenants, not the owner, must agree to the program for it to move forward.

Own to rent: Do the numbers make sense?

How much immediate relief can someone who enters the D4L program expect to get by renting?

Since housing prices vary greatly from one region to the next, it would be difficult to pin down a single set of numbers that describes the potential savings of moving from renting to owning across the country. We’ve gathered data on the top ten metropolitan areas in the United States by population to cut the widest swath.

Here’s our methodology for calculating how much a borrower could potentially save each month by agreeing to the D4L program:

• The length of the loan is 30 years;
• The APR is a 6.18%, the December 2006 average from Fannie Mae;
• The median home price for the metro areas is based on the National Association of Realtors’ 2006 single family home report;
• The monthly mortgage amount was calculated using HSH.com; and,
• The average rental rate comes from Zilpy.com.

As you can see, every household would hypothetically save money each month by trading in the deed to their property and renting it out.

Yes, they still have to give up their property to Fannie Mae and lose the equity in their home. But they wouldn’t have to move during an undoubtedly rough transitional period and would avoid hefty security deposits if they were to move to a new rental unit. It’s a desirable solution relative to immediately foreclosing on a home and having to search for a new place to live.

Your turn: How will this affect borrowers, tenants and property managers?

This is where you come in.

Do you think that the Deed for Lease program makes sense for Fannie Mae, the borrower or property managers administering the new leases?

What problems do you foresee?

Tags: In The News by Spokane Home Guy (509) 990-7653
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