I came across and interesting article in the New York Times this past Sunday and I thought it might be worth addressing a couple points – especially for those of you out there contemplating a short sale and are not sure if it’s worth the effort.
Regardless of what you might hear from the person who’s done a short sale, the agent who’s handled a couple short sales or the guy who knows a guy who knows a guy who attempted a short sale, banks are accepting them – and from our experience, at a very high rate.
Generally speaking, over 85% of short sale offers that we submit to the lenders are accepted. Overwhelmingly, we lose more deals to buyers walking, than we do to lenders denying them.
Naturally, there will always be instances when offers – good offers at that – are inexplicably denied. However, “no” isn’t always the final answer. More often than not (as Ms. Sweetland found out in the article), it’s only the first response. If you’re working with someone who knows what they’re doing, the odds of “no” being the final answer are greatly reduced.
If anything, now more than ever short sales should be even more attractive to buyers. While the brief halt to foreclosures has since seen most lenders return to business as usual, it’s left a lasting impression on potential buyers. Many tend to believe that lenders simply saying that their foreclosure practices are “sound” won’t be enough to convince potential buyers. Given the choice between a short sale and a foreclosure, the short sale is now the significantly safer bet. After all, purchasing a short sale doesn’t run the risk of being told a year from now that the home you purchased was foreclosed on illegally and you have to move out.
While the article is accurate in its description of the hesitation lenders and investors – especially Fannie Mae – seem to have when considering a short sale, it’s important to remember that a short sale is always going to cost them less than a foreclosure. Sometimes, they just need a reminder - a detailed BPO (Broker Price Opinion) or a well-written hardship letter certainly can help them get past their “hesitation”. More than that, the lender needs to know that you’re serious about walking away. Many lenders seem to be under the impression that if they deny your short sale request, you’ll simply resume making payments. Slowly, they’re learning that is not the case. When we let them know that it’s between accepting our offer or us mailing in the keys, the former tends to be the lenders choice.
Of course, we’ve completed many short sales where no significant, or at least traditional, hardship was present, but that’s where a contribution might be necessary from the borrower. For as much as I hate defending banks, they do have a contract with you and you do have an obligation to them. If you have significant assets or high income (or both), it isn’t realistic to think they’ll let you walk without paying anything. But if you’re willing to pay something – typically 20-25% of the deficiency – odds are, it’ll be worth their while to accept the short sale. At that rate, they’re likely making more than they would if they pursued you, when factoring in their legal fees, costs of carrying the house and chances of recovering the full amount owed.
The bottom line is, a short sale is really only resisted when not properly presented and pursued. If you have the right people working with you, you can still walk away from your home knowing you made the best of a bad situation and saved yourself and your lender(s) tens of thousands of dollars. Whether they want to believe it or not…
Saturday, October 30, 2010
Saturday, October 16, 2010
Selling Short While Paying On Time
I’ve touched on this topic before, but it’s worth taking a moment to discuss one of the more prevalent short sale myths that I’m repeatedly asked about – that a short sale wouldn’t be accepted (or even considered) if the borrower were still paying their mortgage on time.
Not true.
We’ve processed many short sales where the borrower was still making their payments. In fact, I can only think of one or two instances where the lender wouldn’t work with the borrower for that reason.
Generally speaking, the hit you’ll take to your credit will be more sever when 60 and 90-day delinquencies start popping up. Without them, you can limit the damage a short sale will do to your credit.
Certainly, I understand the argument that the lender won’t take you seriously – that the urgency isn’t there – if you’re still paying on time every month. And there’s some truth to that, but that hasn’t prevented lenders from working with our clients in the past.
If you can still afford to do so, keep making your payments – at least, until your lender tells you otherwise. If the short sale isn’t accepted, better to be able to say your lender told you to stop paying, as opposed to making the decision on your own…
Not true.
We’ve processed many short sales where the borrower was still making their payments. In fact, I can only think of one or two instances where the lender wouldn’t work with the borrower for that reason.
Generally speaking, the hit you’ll take to your credit will be more sever when 60 and 90-day delinquencies start popping up. Without them, you can limit the damage a short sale will do to your credit.
Certainly, I understand the argument that the lender won’t take you seriously – that the urgency isn’t there – if you’re still paying on time every month. And there’s some truth to that, but that hasn’t prevented lenders from working with our clients in the past.
If you can still afford to do so, keep making your payments – at least, until your lender tells you otherwise. If the short sale isn’t accepted, better to be able to say your lender told you to stop paying, as opposed to making the decision on your own…
Friday, October 8, 2010
Will fear from the foreclosure fiasco push buyers to short sales?
For those who have been following the mortgage/real estate meltdown, the announcements that Bank of America, JP Morgan Chase and GMAC (Ally Financial) would be postponing foreclosures states didn’t come as huge surprise. For months now – years even – stories have circulated about lenders rubber-stamping foreclosures, without properly reviewing the paperwork to see if they are legally able to do so.
It’s been no secret that those lenders (and many others) have retained foreclosure mills – law firms that represent the lender and process massive numbers of foreclosures in a given city or region – to do the lenders dirty work for them, often it appears, fraudulently.
Even Fannie Mae, the quasi-government agency that owns or guarantees just over half of the United States mortgage market (and many of those serviced by BofA, Chase & GMAC), has been equally guilty of such practices. As noted in The Huffington Post last week, Congress has been left asking how a company propped up on taxpayer dollars could do this to the very people keeping it solvent.
Make no mistake these stories are huge. But the question they have left many people asking is: what does it all mean? The answer leads to a larger story.
On the surface, it means that many people who purchased foreclosed homes might want to keep the number of their moving company handy. If it turns out homes were foreclosed on illegally, the original owner might be able to challenge the legitimacy of the foreclosure and the person who is currently living there might be forced to move out.
However, the story of greater significance appeared on the USA Today website last weekend, when they reported that Old Republic Title Company would stop writing policies on some of these foreclosures.
Whereas this scandal to date has been limited to the lenders, their clients and those who have purchased foreclosed homes in recent years, the announcement from ORTC could eventually affect every neighborhood in the U.S – especially if other title companies follow their lead.
By many estimates, lenders are currently sitting on over 3 million foreclosed homes, with still record numbers of homes waiting to be foreclosed on. If title companies won’t issues policies on them – for fear they were foreclosed on illegally, placing the title company themselves in a murky situation – then what? Will lenders be forced to sit on these homes, care for them, pay taxes, association dues, etc., until this mess is cleaned up? What will happen to both the value and curb appeal to those homes and their communities? I think we can all assume that the odds of these homes being cared for the way someone living in them would, are low.
Sure, there is the possibility that lenders would insure the title themselves, but they’d still be looking at a lengthy road to cleaning up the paperwork, before even they’d feel comfortable selling a foreclosed home with any degree of confidence that they followed the process legally.
With foreclosed homes as the pariah of the real estate world, short sales suddenly become a far better option… for everyone.
For the buyer, a short sale is a safer bet. Sure, the process is long, but the buyer is protected. The home hasn’t been foreclosed on; therefore a title company independent of the seller’s lender will perform a title search, insuring clean title.
For the seller, this could mean better offers for their lender. If title companies stop insuring title on a large number of foreclosed homes, the available inventory will be significantly reduced, which would be a boon for anyone listing a short sale.
For the community, it will likely mean a dramatically shorter turn-around from underwater homeowner to new neighbor – and equally as important, far less of a chance that the home would fall in disrepair, squatters might move in, or any other concern a vacant home might bring to the block.
And of course, the lender might benefit most of all, since a successful short sale would mean one less potential foreclosure for them to pay/care for…
It’s been no secret that those lenders (and many others) have retained foreclosure mills – law firms that represent the lender and process massive numbers of foreclosures in a given city or region – to do the lenders dirty work for them, often it appears, fraudulently.
Even Fannie Mae, the quasi-government agency that owns or guarantees just over half of the United States mortgage market (and many of those serviced by BofA, Chase & GMAC), has been equally guilty of such practices. As noted in The Huffington Post last week, Congress has been left asking how a company propped up on taxpayer dollars could do this to the very people keeping it solvent.
Make no mistake these stories are huge. But the question they have left many people asking is: what does it all mean? The answer leads to a larger story.
On the surface, it means that many people who purchased foreclosed homes might want to keep the number of their moving company handy. If it turns out homes were foreclosed on illegally, the original owner might be able to challenge the legitimacy of the foreclosure and the person who is currently living there might be forced to move out.
However, the story of greater significance appeared on the USA Today website last weekend, when they reported that Old Republic Title Company would stop writing policies on some of these foreclosures.
Whereas this scandal to date has been limited to the lenders, their clients and those who have purchased foreclosed homes in recent years, the announcement from ORTC could eventually affect every neighborhood in the U.S – especially if other title companies follow their lead.
By many estimates, lenders are currently sitting on over 3 million foreclosed homes, with still record numbers of homes waiting to be foreclosed on. If title companies won’t issues policies on them – for fear they were foreclosed on illegally, placing the title company themselves in a murky situation – then what? Will lenders be forced to sit on these homes, care for them, pay taxes, association dues, etc., until this mess is cleaned up? What will happen to both the value and curb appeal to those homes and their communities? I think we can all assume that the odds of these homes being cared for the way someone living in them would, are low.
Sure, there is the possibility that lenders would insure the title themselves, but they’d still be looking at a lengthy road to cleaning up the paperwork, before even they’d feel comfortable selling a foreclosed home with any degree of confidence that they followed the process legally.
With foreclosed homes as the pariah of the real estate world, short sales suddenly become a far better option… for everyone.
For the buyer, a short sale is a safer bet. Sure, the process is long, but the buyer is protected. The home hasn’t been foreclosed on; therefore a title company independent of the seller’s lender will perform a title search, insuring clean title.
For the seller, this could mean better offers for their lender. If title companies stop insuring title on a large number of foreclosed homes, the available inventory will be significantly reduced, which would be a boon for anyone listing a short sale.
For the community, it will likely mean a dramatically shorter turn-around from underwater homeowner to new neighbor – and equally as important, far less of a chance that the home would fall in disrepair, squatters might move in, or any other concern a vacant home might bring to the block.
And of course, the lender might benefit most of all, since a successful short sale would mean one less potential foreclosure for them to pay/care for…
Legislating Short Sales
On September 15th 2010, Representatives Robert Andrews (D-NJ) and Thomas Rooney (R-FL) introduced H.R. 6133 - a bill that would require lenders and servicers to speed up the short sale approval process.
The full detail of the bill can be reviewed here, but essentially it requests that the lender render a decision on the short sale within 45 days. While it’s encouraging to finally see congress addressing short sales, the bill doesn’t go far enough.
But, it’s a start.
After three years of dealing with the current mortgage/housing crisis, most banks have made very little progress – if any at all – in streamlining the short sale process. While I’ll be the first to concede that a short sale isn’t the most desirable option for a lender, it’s far better than what is frequently the alternative - foreclosure.
Every time a home is foreclosed on, it brings the value of neighboring properties down as well, forcing people who borrowed responsibly and have remained current on their obligations, underwater. In a poor economy with high unemployment, more and more people find themselves needing to move, but are anchored to a home they now owe more on than is worth. They’re trapped and if the bank can’t execute a short sale in a timely manner, the borrower will likely be foreclosed on, thus continuing the cycle.
In the history of homeownership, it has not been unreasonable to believe you could buy a house and sell it if need be, without filing for bankruptcy. That is no longer the case.
With many still predicting home prices dropping another 15% or more over the next few years, we could be a decade or longer away from prices returning to where they once were. Banks have been given plenty of time to figure out how to deal with this problem, but they’ve failed. Foreclosures are still rising at a record pace and banks have taken more homes back then they know what to do with. The current process does not work.
So while I understand this bill isn’t likely going to go far, it’s a necessary first step in helping fix a huge problem - and you’ve got to start somewhere…
The full detail of the bill can be reviewed here, but essentially it requests that the lender render a decision on the short sale within 45 days. While it’s encouraging to finally see congress addressing short sales, the bill doesn’t go far enough.
But, it’s a start.
After three years of dealing with the current mortgage/housing crisis, most banks have made very little progress – if any at all – in streamlining the short sale process. While I’ll be the first to concede that a short sale isn’t the most desirable option for a lender, it’s far better than what is frequently the alternative - foreclosure.
Every time a home is foreclosed on, it brings the value of neighboring properties down as well, forcing people who borrowed responsibly and have remained current on their obligations, underwater. In a poor economy with high unemployment, more and more people find themselves needing to move, but are anchored to a home they now owe more on than is worth. They’re trapped and if the bank can’t execute a short sale in a timely manner, the borrower will likely be foreclosed on, thus continuing the cycle.
In the history of homeownership, it has not been unreasonable to believe you could buy a house and sell it if need be, without filing for bankruptcy. That is no longer the case.
With many still predicting home prices dropping another 15% or more over the next few years, we could be a decade or longer away from prices returning to where they once were. Banks have been given plenty of time to figure out how to deal with this problem, but they’ve failed. Foreclosures are still rising at a record pace and banks have taken more homes back then they know what to do with. The current process does not work.
So while I understand this bill isn’t likely going to go far, it’s a necessary first step in helping fix a huge problem - and you’ve got to start somewhere…
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