Fannie Mae has just updated their timeframe for defaulting borrowers who wish to qualify for future conventional loans.  This update includes the waiting period for Deed in Lieu and Short Sale on conventional confirming loans effective on or after July 1, 2010.  No changes have been made to bankruptcies or foreclosure so the current guidelines will apply.  Why is this important?  Before this update, there were a handful of sellers looking to get out of their “underwater homes” via short sale and turn around and purchase a new property with instant equity.  Since every lender is different, some lenders do not require sellers to necessarily show a valid hardship or be behind in their current mortgage therefore some sellers could instantly qualify for immediate repurchase.  Fannie Mae is putting a stop to that after July 1, 2010.

 According to Fannie Mae:

When a seller uses a Deed-in-Lieu of Foreclosure the new waiting period is as follows:

• 2 years from completion date, Max LTV 80%
• 4 years from completion date, Max LTV 90%
• 7 years from completion date, follow standard LTV chart
• *Special Exceptions for Extenuating circumstances Deed-in-Lieu of Foreclosure = 2 years from completion date, Max LTV 90%

When a seller uses Short Sale in lieu of foreclosure the new waiting period is as follows:

• 2 years from completion date, Max LTV 80%
• 4 years from completion date, Max LTV 90%
• 7 years from completion date, follow standard LTV chart
• *Special Exceptions for Extenuating circumstances Short Sale in Lieu of Foreclosure = 2 years from completion date, Max LTV 90%

This does not apply to FHA or VA loans, only conventional loans

One of my most popular questions is regarding the foreclosure process and what are the steps leading up to foreclosure.  While it is important to understand that timeframes between each step vary from state to state and lender to lender.  Some states are judicial and some are non judicial states.  GA is a non judicial state meaning the bank does not have to file a lawsuit or go to court in order to foreclosure on the property.  It would also be helpful to put a disclaimer right here that states:  Always contact an attorney, tax professional or retain a real estate professional for specific advice about your situation. 

Now that legalities are out of the way, let’s get started with the steps to foreclosure:

1.  DELINQUENCY – A Delinquency occurs when you are up to 30 days late on your payment

2.  DEFAULT – The loan goes into default once payments are OVER 30 days late.  At this point the lender will contact you to see if this is a short or long term problem and will work accordingly.

3.  LOSS MITIGATION – Once the bank realizes that the default is a long term problem (job loss, ARM adjustment, illness, etc) then the lender will offer the homeowner some options to avoid foreclosure to include:

• Loan Modification
• Forbearance (grant a few missed payments)
• Negative Settlement
• Deed in Lieu
• Short Refinance
• Short Sale

4.  FORECLOSURE – If Loss Mitigation fails then lender will foreclose, evict borrower and put property up for auction

5.  REO (Real Estate Owned) – If the property is not sold at auction then it will revert back to the lender as a REO which is then prepped and sold on the market

YES, a short sale contract IS a binding contract once buyer and seller agree to terms and both sign off.  The home is still owned by the homeowner, the homeowner can and will sign the contract if it meets the desired terms.  The bank does NOT need to sign the contract to make it binding.

It is very important to understand that the National Association of Realtors states that a short sale contract is no different than any other real estate contract.  A short sale contract is written contingent upon 3^rd party final approval and that contingency carries the same amount of weight as a financing, appraisal or inspection contingency.  During the term of the contract the seller and listing agent will work with lender to procure short sale approval.

REALTORS® received guidance today from the Internal Revenue Service on what constitutes a “binding” contract by May 1, 2010 for home buyers to be able to take advantage of the federal tax credit.

The IRS stated:  “A binding contract is a contract that is enforceable under state law.  A contract may be enforceable under state law even if it contains certain contingencies, such as for home inspection, financing, appraisal, and short-sale lender approval.  Taxpayers who enter into a binding contract to purchase a home before May 1, 2010, and close on the contract before July 1, 2010, can take the credit if they qualify as a first-time homebuyer or long-time resident of the same main home.”

For all the short sale info you could ever want read:

Buying a Short Sale FAQ

Selling a Short Sale FAQ

Six Steps to a Short Sale

Questions you should ask before submitting an offer on a short sale

As well as many of my short sale Blogs

Every state has different real estate laws and procedures and this blog is written for Georgia’s procedures of purchasing AS IS short sale and foreclosure properties.

In the GAR (Georgia Association of Realtors) standard contracts, there are two ways to purchase real estate:  Due Diligence and AS IS.  Since the bulk of real estate transactions currently are some form of distressed properties (REO Bank Foreclosures, Short Sales, Pre-Foreclosures) it is very important to understand the difference especially when the contract instructions state that property is sold AS IS.

First allow me to define the differences:

DUE DILIGENCE – means the purchaser would have a mutually agreed upon period of days to inspect the property and its surroundings.  This includes the actual inspection of the home structure, systems, roof, etc.  It also includes any additional tests the purchaser may want to perform during this time period:  termite inspections, radon gas, soil tests and inspecting the neighborhood and surroundings.  The later would include research for any landfills, high voltage power lines, registered sex offenders, etc.  The costs and work of these are the sole responsibility of the buyer.

AS IS – means the purchaser is forgoing all inspections purchasing the property AS IS with any and all faults whether known or unknown.  The Seller will not perform repairs of any defects.

What becomes confusing is when the Bank/Seller advertises the property AS IS.  This does not mean that the Seller will not allow inspections to take place as it is the right of the purchaser to inspect the premises.  What this means is that after the inspections have been completed, the purchaser understands that no matter the outcome, the seller is stating they will not make any repairs.  In distressed sales (foreclosures and short sales) purchasers should always choose the “due diligence” route and perform inspections knowing that within the timeframe they can either accept the property “as is” OR terminate the contract and receive their earnest money back (within the due diligence time frame).

Now with that being said, if a purchaser submits an offer on a bank owned foreclosed property and inspection finds issues that would not allow purchaser to move forward with the property through their VA or FHA appraisal, I have seen instances where banks did in fact complete repairs.  You may be saying that this is in direct conflict of what is written above and you are correct!  Since the end of 100% financing in 2008, the two most popular financing options have become FHA and VA loans due to their lower required levels of down payment.  As of 2010, VA still offers 100% financing and FHA offers 96.5% financing.  Since the majority of current buyers are using these two types of loans, if the home does not pass FHA or VA minimal inspection guidelines then the bank realizes it will take longer to sell therefore the required repairs must take place to get these homes off their books.  There are two common solutions to this problem: 

1. Some banks will pay for the repair costs out of their own budget
2. Some banks will repair however roll the repair costs back on top of the sales price

It is important for the purchaser or purchaser’s agent to inquire before submitting an offer whether the property will pass FHA or VA inspection.

The Obama Administration is attempting to assist homeowners stay in their homes by budgeting $75 Billion dollars in funding to help reduce foreclosures.  The first program to be discussed is HAMP which is the Home Affordable Modification Program.  This program temporarily allows eligible homeowners to lower their mortgage payments to 31% or lower of their pretax income through a loan modification.

Technically the adjustments are labeled as “temporary” however do become permanent once the homeowner makes 3 consecutive on time mortgage payments.  As an additional bonus, if you make all of your loan payments on time for five years you will also receive a $5000 credit on your first mortgage principal balance.  To qualify:

1. The home must currently be a primary residence meaning this is not a rental/investment property
2. Your first mortgage must be less than $729,750
3. There must be some kind of hardship (divorce, job loss, chronic illness, ARM adjustment, etc.)
4. The mortgage must have been obtained prior to January 1, 2009
5. The mortgage payment must be more than 31% of the mortgagee’s gross income.

If these qualifications are met, you must contact your service provider (who the mortgage is serviced with ie. Bank of America, Wells Fargo, Suntrust, EMC, etc) to see if they participate in the program.

Next is HAFA – the Home Affordable Foreclosure Alternatives Program.  This program began very recently on April 5, 2010 and is designed for homeowners who meet the above terms for HAMP but cannot keep their homes.  This program ends on December 31, 2012.

In summary, HAFA is designed to provide incentives to homeowners to short sell their properties as opposed to allowing the property to go into foreclosure.  The following are some outlines of the program:

1. Borrowers must be HAMP eligible however unable to keep their home
2. Allows homeowners to receive pre-approvals for short sales (including the minimal acceptable net proceeds the bank will accept for a short sale)
3. Allows homeowners to be fully relieved of responsibility for the first lien.  What this means is that the first loan cannot ask the homeowner/seller to be held liable for the loss, sign a promissory note or bring additional cash to closing.  It is important to note that this does not cover any additional liens such as second loans, home equity lines of credit, etc.
4. Provides financial assistance for homeowner relocation costs (up to $3000); $1500 for service providers to process the short sale; up to $2000 for investors who allow a minimum of $6000 short sale proceed distribution offered to a subordinate lien holder (2^nd mortgage)
5. Loans must be conventional loans, the HAFA program does not apply to FHA or VA (both government backed loans)

What does this mean to home owners, home buyers and Realtors?  The HAFA program is set up to assist in streamlining the short sale process (which in some instances there is nothing “short” about it).  Shortening approval processes, higher short sale approval success, guaranteeing Realtor’s commissions and eliminating future liability for Seller’s first liens.

If you have any questions regarding any of these programs OR want to discuss the possibility of avoiding foreclosure with a short sale, please contact us for more information.

1. Initiate the Short Sale -  Every lender is different as some lenders will want the homeowner to call and verbally initiate it whereas some lenders will not initiate the beginnings of a short sale until an offer has been submitted.
2.  Collecting Homeowner’s Financials – Gathering a bunch of financial documentation isn’t always easy, especially if you are packing up the house or have already moved.  What banks are looking for are two years of taxes, 60 days of bank statements, last couple pay stubs, all other financial statements (investments accounts, retirement accounts, etc).  You will also need to provide a hardship letter stating why you are seeking a short sale.  Hardships can include:  job loss, chronic illness or injury, reduction in income, increase in interest rate, divorce, death.
3. Submitting the Offer – Most of my short sale listings are taken immediately after first contact so upon listing the property for sale, I immediately introduce the homeowner to my short sale coordinator to obtain the above stated financial documents ASAP.  I try to set the goal to have all documentation in within the first 48 hours of listing the property.  Sometimes an offer comes in before we have all our financials uploaded and sometimes an offer comes in after everything has been submitted and properly uploaded into the system.
4. Valuations Process – This is the very slow and quiet time, typically the time where uneducated buyers and buyer’s agents with unrealistic views of the process walk away.  The valuations process can take 30-60 days with little or no contact from the bank.  During this time the lender is ordering appraisals and/or BPOs (Broker Price Opinions) and evaluating the current state of market, local comps and getting a very specific idea of what the property is worth at the present time.
5. Offer Review and Approval – this is what I consider “Rock n’ Roll time”.  After periods of long silence from the lender a flurry of activity ensues.  Lenders ask for updated seller financials and updated Buyer’s preapproval letter.  This is typically the second tier negotiator who is getting the file complete to present to the investor of the loan for final short sale approval.
6. Closing – Once final short sale approval is granted, there is typically a 30 day window to close the sale.  This is the period where the buyer will inspect the property, lock interest rates, order appraisal and generally get the loan ball rolling.  A good short sale agent (like myself) will begin all contingencies (appraisal, financing, inspection, etc) at time of final short sale approval.  In essence, the last 30 days are what typically happens in a normal resale closing.

For more information on Short Selling your home in Georgia, please visit our Short Sale FAQs for Buying Short Sales and Selling Short Sales.  There is also a lot of information in previous Short Sale Blogs.  The Walker Derby Team specializes in short sales throughout the following areas in Georgia:  Acworth, Atlanta, Austell, Canton, Douglasville, Hiram, Kennesaw, Lithia Springs, Mableton, Marietta, Powder Springs, Roswell, Sandy Springs, Villa Rica, Vinings and Woodstock.

Ah, Short Sales!  There is so much public confusion when it comes to short sales and that should be expected since there is also a lot of confusion in the industry as to short sales.  Sometimes I read on message boards where buyers are frustrated with time frames and their agents aren’t exactly clear on the procedure and what to expect.  This blog is written not only to the public but also to other agents in the industry as a helpful guide of questions to ask before submitting an offer for a short sale property. 

1. What kind of experience does the listing agent/team have with short sales?  A Short Sale Certification doesn’t cut it!  I have sat in numerous “short sale classes” and none have prepared me for what I see out in the field.  Every bank, every bank negotiator, every hardship and every investor is different!  Just because an agent sat through a 3 hour continuing education class does not mean they are now ready to handle a short sale.  When you or your agent asks the listing agent this question you should hear a definitive response such as “we have closed $10 million in short sales”.  (The combined total of the Walker Derby Team has closed close to $100 Million in short sales)
2. How many short sales have you closed in the last 18 months?   Simple question and make sure you aren’t hearing how many they have listed or under contract, you want to know how many have successfully closed.
3. What is your percentage of successful short sale approvals?  This question really piggy backs on question #1 and #2.  There has to be extensive short sale experience and closings to answer this question.  The Walker Derby Team has a 90% success rate in short sale approvals.
4. Who is the service provider?  This is probably one of the most important questions to ask after you find out the agent’s experience in handling a short sale.  Some service providers are amazing with short sales.  For instance, Wells Fargo is really an innovator in processing short sales in a timely fashion.  We have a 100% success rate in Wells Fargo short sale approvals and all of them have happened in under 60 days from submitting binding contract (many under as little as 40 days).  Small banks are also fantastic in handling short sales.  In December of 2009 we obtained final short sale approval from a smaller bank in 17 days!  Of course where there are good success stories, there are also some providers that struggle with the efficiency of short sales, mainly BOA.  I have Bank of America short sales that have taken 5 months to approve (right now that is a healthy average) however I also have some BOA short sales that we have been working for 7 months with still no answer!  I could go into a lot more detail on this so I will hold off and do a separate blog about this very subject.
5. How many liens are on the property?  What this means is how many loans are on the property (1 or 2) and whether there are any liens on the property.  One loan is much easier to get short sale approval with over two loans.  Two loans with the same provider are easier to obtain approval rather than two loans with separate providers (ie.  1st loan is with Suntrust and 2^nd is with EMC).  The first loan will offer the second loan a “settlement offer” which the second loan may or may not accept.  If they do not accept then your deal is dead.  Liens such as HOA liens (for nonpayment of HOA dues or HOA violations) are rarely approved by the first loan so the seller may have to pay out of pocket for those.  Same with liens with the local city for ordinance for lack of property maintenance or upkeep
6. How do you handle the contract?  Binding or multiple offer?  According to the National Association of Realtors, a short sale contract is a BINDING contract and contingent upon final bank approval.  That contingency is no different than a financing or appraisal contingency.  If the listing agent is submitting multiple offers to the bank and not selecting one to go binding then RUN AWAY!  I cannot make that any more clear!  There are a lot of great and successful agents out there making this rookie short sale mistake and I assure you, the buyer and seller will gain nothing but frustration from agents that work short sales in this manner.  If the EXPERIENCED short sale listing agent feels it is an acceptable offer and the seller signs off on it then it is a BINDING contract, it is removed from active standing and it is submitted to the bank.  Multiple offers do nothing but lengthen the timeframe and make the banks a bit more greedy.

If you ever have any questions about the short sale process, we are just a phone call away!

There are a lot of misconceptions out there in regards to short sales.  I spoke a little about the misrepresentations of the terminology “pre-approved short sales” in my section about What to expect when Buying a Short Sale.

 Short Sales can be a lengthy process and unfortunately there are fewer buyers that can afford to expend the timeframe and wait.  Most buyers have a certain deadline to meet:  relocating in 60 days, lease is up in 45 days, tax credit deadline approaching and short sales are not an option.

This post is to comment about how short sale listings are presented in the MLS.  In Atlanta FMLS there is a new option under “Special Circumstance” that includes the option of “potential short sale”.  I don’t put a lot of weight on that selection.  Let’s face it, the multiple input data entry can be performed by hurried agents, their assistant or office staff therefore it is not uncommon to see mistakes and omissions.  What I want to place focus on are the public and private remarks.

Public remarks are where agents detail selling points of the property (Large frml living & dining*2 story family rm*).  Private remarks are withheld from the public and only viewable by agents (usually including special showing instructions).  The term “short sale”  should be included in BOTH sections.  There are some uses of “pre-approved / approved short sales” however there are a lot of listings that withhold that information.  I would also like more information on “possible or potential short sales”.  Every short sale is a potential short sale until you receive written final approval from lien holder(s).  Once again we as agents need to give a little more detail to what is involved in this transaction.  I feel it is unfair to the public and ourselves to market a home without full disclosure of the status.

I love being a Realtor (specializing in resale listings) however since the turn of the market I began focusing on short sales which seemed like a two sided logical choice really:  restructure my business model on what is selling while actually trying to help some clients avoid foreclosure.  While I am so happy to report that I have made a real difference in my client’s lives by short selling their home and obtaining full lien satisfactions, I have also stumbled into some interesting (and ironic) stories that are worth sharing.

While the scenerios below are not common occurances during my prequalification phase, they are instances where I walked away without taking the listings:

1.  Seller’s home has depreciated almost 90k in the last year and a half.  Seller has decided she shouldn’t be responsible for loss and called mortgage company to tell them they needed to refinance her at not only a lower rate but also so her loan amount is more in line with market value.  When they denied her request, she stopped making mortgage payments and is now having garage sales attempting to sell everything in the home INCLUDING the kitchen cabinets!  When I tried to explain to her that we are all in the same boat she responded “I don’t care what kind of situation YOU are in, I just care about me and I will not put up with this!”

2.  When taking photos of a recent listing I was about to take the seller nonchalantly mentioned ”Would these rooms look better with new furniture?  I just bought all new furniture but the store is holding my purchase as it didn’t make sense to deliver it only to move it again if the house goes to foreclosure auction.”

3.  In my prequalification interview the seller told me she has decided to sell a rental home in the suburbs.  When I ask if it has been difficult to rent, seller replies “not at all, I’m just tired of being a landlord and figured since I just bought a new Mustang I won’t need my credit for a few years” so she just stopped making payments.

4.  When speaking over the phone the seller says that home ownership was more than they planned and were behind on payments.  They have owned the home for a year but haven’t made any payments for six months.  When I arrive at our appointment, the seller drives up in a brand new Mercedes with the vanity tag “RICH DADDY”.  When I explain that they will need to show financial hardship for a short sale to be approved they let me know that all their cash is funneled through a corporation so they can adjust their numbers to make it work.

*shakes head*