Understanding short sales as a way to avoid foreclosure

The foreclosure problems we continue to hear and read about are affecting us all – whether you’re a seller personally involved in a foreclosure situation, or a borrower dealing with more stringent lending guidelines.

Lenders are under increasing pressure to avoid foreclosure and contain losses, but there are limits to what they will do. Short sales have been around for a while, but recently have become more prevalent as a tool to deal with the foreclosure crisis. However, the short sale process is complicated and can be time-consuming, given the volume of requests coming from the marketplace.

In recent months, I’ve had several buyers offer full price on short sale listings only to find out weeks later that the lender never considered short selling the property. Finding a REALTOR® who understands the short sale process, and its value as a sales tool, is critical.

What is a short sale?
The working definition of a Short Sale is: A mortgage default workout procedure in which the lender accepts less than the full balance on the loan and the borrower works with the lender to sell the property quickly.

Not a sure thing
To determine if a seller qualifies to take a short sale on their property, most lenders require certain information. This usually includes:

• The seller proving they do not have the means to repay the mortgage. This may include: pay stubs, bank statements, tax returns, (non) employment verification, evidence of divorce proceedings, doctor or hospital receipts, proof the seller must move to another location, etc.
• The seller proving their change in ability to pay is the result of new circumstances and not something the seller concealed from the lender when they originally applied for the loan (concealment of these application facts could be considered mortgage fraud).
• An appraisal or Brokers Price Opinion (BPO) to verify the value of the property has either decreased, the offer price is the maximum price obtainable and/or the property listing has exceeded average days on market.
• Verification that the seller has met with a HUD-approved Counselor (see below) and other options (i.e., refinancing, loan modifications, etc.) are not viable.
• Proof of repairs needed with qualified estimates for repair costs.
• A preliminary HUD-1 with all estimated costs, including required restrictions on REALTOR® commission and title agency fees paid from the sale.

Procedurally, short sales have no set guidelines or guarantees. It takes the combined effort of the seller and the agent to find out as much as possible about: (1) the lender's requirements, (2) who to submit the offer to, (3) an estimated wait time, (4) compensation to agents, (5) any closing costs or other considerations. Once these issues are addressed, the likelihood that a short sale can be completed grows exponentially.

If the seller’s request is accepted, the lender will give a conditional approval to allow a short sale. This approval doesn't usually agree to a price, it simply confirms the lender will consider lower-than-mortgage-balance offers.

Here are some other helpful information to keep in mind:

• There may be special requirements for submitting offers to the lender, and a few lenders require specific clauses and/or disclosures to be included with the Purchase and Sale Contract. Don't rely on a lender representative's verbal statements regarding the terms of the short sale - - get their terms and responses IN WRITING. This can help cut down on vague stall tactics such as "just start sending offers, then we’ll respond."
• The Private Mortgage Insurer (PMI) is an ally to the seller in these circumstances because the PMI doesn’t have to pay unless the property is foreclosed upon. On the flip side, the lender typically won't settle for a short sale that is substantially below what the lender would net from an auction and PMI payout.
  
• If there is more than one mortgage, ALL lien holders MUST agree to the sale.
  
• The lender won't say how low they will go to sell the property, but you may be able to search online (or investigate with your preferred loan processors) to get an idea of the range and average maximum discount a specific lender has traditionally accepted.
  

The seller may still owe the IRS
At present, the seller will likely owe the IRS some taxes on the amount of any forgiven debt, or the lender may require the seller to sign for a new loan to pay back the shortfall. Even if the lender approves the short sale without a loan payback, that lender may impose “requirements” that attempt to pressure the seller into a loan for repayment, pressure the buyers to pay more cash, and/or pressure the REALTORS® to forego or reduce their commissions. However, changes have been proposed at the federal level that may diminish or even eliminate the shortfall debt – without further cost to the buyer, seller or agents – depending on the circumstances.

Help is available
The Department of Housing and Urban Development (HUD) has Housing Counselors who offer FREE advice to homeowners and help them understand the law, review refinance or sale options, and organize the qualification process. Best of all, these Counselors will also assist in negotiations with the lender. The short sale process will likely go more smoothly and quickly with their help.

You can find contact information for HUD approved Counselors located near you at: www.hud.gov or call 800-569-4287.

Courtesy of Jon White, GRI, RECS, Broker-Owner
White Gate Realty www.WhiteGateRealtyTeam.com

Simple Tips for Sellers to More Easily Keep Their Home Show-Ready

When selling a home, there are several things that sellers know will be necessary – but not necessarily pleasant – to do. One of the least enjoyable is the need to keep the house show-ready, which can become particularly onerous for a family with children, or more than four household members.

One way to maintain a positive attitude is to establish a reasonable expectation of what show-ready” really means. It means having the home to the standard of clean you’d achieve if you were having your boss and his/her spouse coming over for dinner. It doesn’t mean that the house has to look un-lived-in, but it should allow a potential buyer to mentally “move in” and picture themselves comfortably living in your home.

As important as it is to maintain a show-ready home, it truly can be accomplished with minimal effort. With enough initial preparation, your home can easily go from lived-in to show-ready with perhaps 15-20 minutes’ notice. Here’s how…

Spend time prior to the first showing to de-clutter and clean your house. Go room to room, preferably with a friend or advisor who can objectively look at your home and help you emphasize each room’s positives (e.g., high ceilings, beautiful flooring, wainscoting, crown molding, etc.). Pack up your highly personal items such as photographs, excess books or bric-a-brac, and store the boxes in an out of the way place. Reposition essential furniture to optimize space and store – or garage sale – furniture that is not immediately needed, or that you don’t intend to take with you once you move. This will help make the space look larger, brighter and more inviting. And you have the added benefit of starting your packing, saving time later when the offer is accepted.

Additional cleaning tips, prior to your first showing (which likely won’t need to be cleaned again while marketing your home):
· Keep lampshades looking better and dust free longer. Clean the lamp shades with a dry sponge. Then rub the lampshade with a fabric-softener sheet. This will reduce the amount of dust it collects.
· Use warm soapy water to clean built-up grime on small items used as accents around the house. Simply gather these items in a colander and submerge them into warm soapy water for a few minutes. Pull them out, rinse them off and allow them to air dry.
· Let the sun shine in. Get those windows sparkling now. Not only will it give the whole house a bright, clean feeling for potential buyers, but you’ll enjoy the nice appearance in the meantime.
· Remove pet hair on furniture. You can more easily vacuum pet hair from furniture if you spray the surface with a light coat of static remover. Wait a few minutes and vacuum it up. Most of the hair and dander will be captured in the machine. Once cleaned, throw sheets or towels over the areas where the pets rest, so that you can pull them up and showcase your clean furniture when it’s time for a showing.

Don’t clean everything all the time, but certain things more frequently. Little-used rooms rarely need more than spot cleaning, and unless you have a particularly messy family, carpets don’t need to be vacuumed for every showing. Floors should be swept or mopped if there is noticeable dirt, pet hair or splatters, but don’t always have to be clean enough to eat from.

The three types rooms that will have the most impact on buyers (and therefore need the most attention) are: kitchen, bathrooms, bedrooms. By keeping up a simple routine on a daily basis, even these most-lived-in areas can be ready in a flash when potential buyers want to stop by.

IN THE KITCHEN…
· Keep the microwave looking clean, inside and out. After than the refrigerator, the microwave is typically the most used appliance in today’s kitchens. Wipe down the microwave after every use. If it’s particularly messy and hard to clean, heat 2 cups of water in the microwave for 5 minutes to create steam that will loosen tougher, dried-on splatters and make it easier to wipe clean.
· Keep your dishwasher empty. If you have a dishwasher, remember to load (and unload) on a regular basis. An empty dishwasher is a great for last-minute calls – you can put those dirty dishes on the counter in it, even if you don’t run it right away. And, if you remember to check it before you turn it on later, it’s a great spot to temporarily hide other items from your countertop to make your kitchen look less cluttered.
· Attend to spills/splatters/stains right away. Don’t let spills become bigger problems by leaving them for another time. They’ll also be easier to remove if cleaned up immediately.

IN THE BATHROOM…
· Wipe it down and pick it up. Every few days, when the bathroom is steamiest right after a shower, take a small hand towel, wipe the shower to get some moisture, then use the damp towel to wipe down vanities, toilet seats, floor, etc. Just a few extra moments’ work will save you time when the phone rings. Also, remember to pick up discarded clothes, towels, etc. from the bathroom floor and put it into a hamper – if you don’t have one, get one, even it it’s an inexpensive plastic basket. Oh, and flush the toilets.

IN THE BEDROOM…
· Make the beds every morning, or have an extra-large duvet/comforter on standby. Believe it or not, there are many people who don’t think it’s necessary to make a bed every day. If you’re one of these people, that’s fine, but just remember, there will likely be many others who consider an unmade bed nearly as distasteful as a dirty kitchen or bathroom, and may simply walk away rather than try to picture themselves in the room (with a made bed). If making a bed daily is truly a challenge for you or perhaps for that teenager living in your home, purchase an oversized duvet or comforter for the bed that can be folded at the foot until needed, then thrown over the bed at a moment’s notice when the showing call comes, hiding whatever rumpled sheets and blankets are underneath. Also a great place to temporarily hide the dirty clothes on the floor and furniture that didn’t make it into the hamper.

Courtesy: Jon White, White Gate Realty
www.WhiteGateRealtyTeam.com

Free Report Helps You Avoid Mortgage Mistakes Before You Buy

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