Facebook
YouTube
LinkedIn
You are here: Home » Archive by category "Short Sales"

NEW SHORT SALE RULES

Short sales have gone from being the bulk of our market to being somewhat rare. However, there are still some homeowners out there that may be considering a short sale. Not all short sales are the same. Each lender will have their own guidelines and rules. If your lender participates in the government HAFA program, there are some new rules that are very interesting.

 

When HAFA first started they would pay $6,000 to the 2nd lender. Then they upped it to $8,500. Under their new rules they will pay up to $12,000 to a 2nd lender. This should help many short sales that are “stuck” because the 2nd lender wants more than the first lender would give them.

 

The next issue is in regards to the homeowner getting money at close of escrow as an incentive and/or for relocation expenses. At first almost no lenders would allow short sale homeowners to receive any funds at closing. But then some homeowners figured out that they may be better off to just sit in the home and live rent-free for months and months and maybe even have the lender pay them “cash for keys” after foreclosure. HAFA came out with a $3,000 relocation incentive to the homeowner for a while to solve this problem. Under their new rules they’ve increased that to where the occupant (whether the homeowner or tenant) could be eligible for up to $10,000 in relocation expenses. I just got a short sale approved where the homeowner is getting $10,000 for relocation and $5,000 as a further incentive to do the short sale. (Please note that I’m not advocating whether this is a “good” or “bad” use of our tax dollars or whether this is the “right” thing to do for some borrowers. Just passing on the info so you are aware.)

SHORTER WAITING PERIODS

In years past, it was pretty rare to have a short sale or foreclosure on your record. Because of that, mortgage lenders weren’t in a big hurry to lend to people that had one of those. They would often make someone wait 5-7 years until they would approve them for a mortgage loan again. This worked out OK for the lenders back then because they could still make all the loans they wanted.

 

Fast forward to when the mortgage meltdown happened and a huge swath of Americans experienced a distressed sale of their home. The market appears to be in a recovery now, and lenders are now much more willing to lend money than they were just a few years ago. But they are finding that many of their potential customers don’t qualify because they are still within the 5-7 year waiting period.

 

I’ve been expecting lenders to start to shorten their waiting periods. A few of them did a year or so again, and now more of them are following suit. There was a recent announcement that one of the major lenders that used to have one of the longest waiting periods is now shortening from 7 years down to 4 years. And there are many other lenders that have dropped their waiting periods to 2 years. I also know of one aggressive lender that has NO waiting period after a foreclosure or short sale. However, that lender only offers adjustable-rate loans for that situation. Most people really want to lock in a fixed rate loan right now. But still it’s nice to know that if you had a distressed sale in the last 5 years, you now have a lot more options to buy a home again sooner than in the recent past.

WHAT IF INVENTORY KEEPS CLIMBING?

The number of homes for sale is rising. It is still historically low, but on a percentage basis, it’s a remarkable increase. So far it doesn’t appear to be hurting the market too much, although now that buyers have a little more to choose from, the multiple-offer-bidding-wars seem to have calmed down.

Inventory in Brentwood has almost doubled since the first part of the year. What if it doubles again? What if it keeps going up, up, up? Are we in for another crash? My guess would be no. (Although that’s assuming we don’t have a “black swan” event like a terrorist attack on US soil, stock market plunge, interest rates going to 15%, etc.)

The last time we saw inventory spike back in 2005-2006, the real estate market was VERY different than it is now. Many homeowners owed as much or more than what their home was worth, and they really couldn’t afford their payment. However, since values had been skyrocketing, they found a way to make that payment. But when home values stopped appreciating, and then dropped a bit, lots of people put their homes on the market, and started dropping their prices quickly because they HAD to sell, and they were usually a short sale, so they thought it was the “banks’ money” anyways.

This time, many buyers paid cash the last few years, or if they got a loan, the mortgage payment is affordable. And many of these people bought at 20-40% less than what homes are worth today. So my thought is that if inventory does continue to increase, and prices do soften, many of these sellers will simply take their property off the market, because they can afford the payment, and they don’t HAVE to sell. I’m guessing many are selling just BECAUSE prices are up, but if they can’t get their price, they won’t sell.

2013 In Review

Back at the end of 2012, we were wondering if the market was going to be able to sustain the recent gains, or was it a “head-fake”? Many people were predicting that the “shadow inventory” was finally going to burst through in 2013 as banks finally released all the homes they were supposedly hanging onto. There were also predictions of a rise in short sales as people finally gave up hope that their bank would ever approve a “good” loan modification. We started the year with only 42 homes on the market in Brentwood. The surrounding towns also had very low numbers of homes for sale.
Inventory did rise in 2013, peaking at just over 140 homes in Brentwood in the first part of October, but then began to steadily fall again. We ended 2013 at less than 100 homes on the market. So the flood of bank-owned homes never materialized. In fact, bank-owned homes and short sales almost disappeared in 2013. This happened quite rapidly and we got back to regular sellers who had (some) equity. I attribute this shift from distressed sales to regular sales to two main factors. First, I heard of many people finally getting good loan modifications, even after multiple failed attempts, and some even with principal reductions. So they were able to stay in their home with an affordable payment.
The second reason is the rise in prices, which probably had more to do with this shift than anything. 2013 was one of, if not the BIGGEST gain in equity over any 12-month period. Prices went up anywhere from 20-30% depending on the area and how you figure it. This took a LOT of homeowners out of being upside-down and into having some equity.
So 2013 was great if you already owned a home, but distressing if you were looking to buy a home. So where will we go in 2014? And are we entering another bubble? You’ll have to wait for my next article for those answers.
If you have questions on this review or any other real estate topic, call me at (925) 240-MOVE (6683). #1 in Brentwood listings sold since 2000. To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty.

1099 Court Case

If you had a short sale, foreclosure, deed-in-lieu or loan modification with principal reduction in the last few years, this may interest you. In each of those situations I noted, you probably “enjoyed” some kind of principal reduction and you are probably wondering if your lender can pursue you for it. There is a wrinkle in regards to the issuance of a 1099 that I’ve been keeping my eye on that just got really interesting…

Let’s say that your lender tells you verbally, or even in writing, that they will allow the short sale, loan mod, whatever, to proceed, but they ARE going to pursue you for the deficiency at some point in the future. But then in the mail you later get a 1099-C from them, which is meant to advise the IRS (and you) that the debt was “cancelled” and that you may have to pay tax on it. Now, let’s put aside the TAX issue for a moment, but let’s look at what just happened. Your lender is telling you and the IRS that they have, wait for it….CANCELLED the debt. On top of that, you may have to pay tax on that CANCELLED debt. I’ve always wondered in that situation if the lender were to pursue you later, couldn’t you bring that 1099-C to court and show that the debt was, in fact, “cancelled?” There was a recent bankruptcy court case in Tennessee that is VERY interesting where the judge decided that the 1099-C “reflects” that the lender did, in fact, cancel the debt and incur a possible tax liability. The judge said that regardless of whether the borrower actually had to pay any tax on the forgiven debt was irrelevant.

Now, this court case doesn’t apply exactly to California, but at least it’s a start! So if you’ve received a 1099-C from your lender and then they are trying to pursue you for that deficiency, be sure to hire a good attorney and mention this court case: William Reed case (Eastern District of Tennessee, Bankruptcy Court, Number 12-30049, decided May 14, 2013).

I AM NOT A LEGAL OR TAX EXPERT. PLEASE CONSULT ONE IN REGARDS TO YOUR SITUATION. If you have questions on any other real estate topic, call me at (925) 240-MOVE (6683). #1 in Brentwood listings sold since 2000. To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty.

Short Sale Credit Reporting

Distressed homeowner usually prefer a short sale over a foreclosure because it is supposed to be better on their credit and you can usually buy a home again sooner. However, some people are alarmed to find out that their lender has actually reported their short sale transaction as a foreclosure instead of a short sale. This is happening frequently enough that both the Federal Trade Commission and the Consumer Financial Protection Bureau are investigating this situation.

From what I understand, some lenders and credit bureaus actually have no code in the credit reporting systems for “short sale” specifically. What I often see instead is where the lender will report it as “settled for less than full balance” which is similar to a charge-off. But in some cases lenders are opting to use the code for “foreclosure” because the foreclosure process had been started, even though the final resolution was a short sale.

The major lenders and insurers of loans (Fannie Mae, Freddie Mac and FHA) all view short sales and foreclosures differently, and for the most part allow people to apply for a new home loan in as short as two years after a short sale but it can be three to seven years after a foreclosure. (There are some extenuating circumstances and new loan programs that can shorten both of these drastically.)

If you have had a short sale in the recent past, it would be a REALLY good idea to get a copy of your credit report (www.annualcreditreport.com is one option) to verify how it was reported. If you aren’t sure how to read it, contact me and I’ll be happy to sit down and review it with you. In addition, if you are applying for a new purchase loan, be sure your lender knows you did a short sale so they don’t just go by your credit report in case you are one of the ones with the incorrect reporting. If you find that your short sale was incorrectly reported as a foreclosure, you can file a complaint here: www.consumerfinance.gov (although there is no guarantee that will fix the issue).

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE (6683). To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

Another Short Sale Benefit

If you are faced with losing your home, it’s generally considered more beneficial to do a short sale versus a foreclosure. Most of the time the hit to your credit score is usually less, and you can buy another home sooner after a short sale than a foreclosure. The other big benefit is that after a short sale, it appears that California law now forbids lenders from pursuing you for the amount of the deficiency, where in a foreclosure they may be able to. There is also an argument to be made that a short sale could have better tax implications for some borrowers than a foreclosure, although I don’t have room to go into those details here.

But recently another benefit has come to my attention that I wanted to let you know about. If your loan is an FHA or VA loan, it’s possible that the FHA or VA may be able to pursue you for the deficiency after a short sale or a foreclosure. Note that they are the ones insuring your loan, so they are separate from your lender, who may be forbidden by California law from pursuing you. So this could be a big problem for many people who thought they were all done with their lender after the short sale or foreclosure.

However, the good news is that I was just reading through some major fine print on a FHA short sale, and I saw a small comment that if the borrower at least attempts a short sale, then the FHA may not pursue them for the deficiency, whether it winds up foreclosing or if the short sale is successful. I couldn’t verify if VA has a similar policy or not. But if you have an FHA or VA loan, this would be something to consider before you let a property foreclose. It may be worth making a good-faith effort at a short sale first.

I AM NOT AN ATTORNEY. PLEASE CONSULT YOUR OWN TAX EXPERT FOR YOUR SITUATION. If you have questions on any other real estate topic, call me at (925) 240-MOVE (6683). To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

Flopping

“Flipping” refers to someone buying a home for less than market value through legitimate means like at a foreclosure auction for cash and then fixing it up and selling it for more. “Flopping” is a new term that relates to flipping a short sale, but with the negative connotation that the home wasn’t fully exposed to the market, and that’s why it sold for less than market value, giving the “flopper” room to make a profit at the short sale lender’s expense. What we are seeing quite often is a home goes on the market as a short sale, but no showings are allowed, or gaining access to show is VERY difficult, and then soon after, literally sometimes minutes after it hits the market, the home goes pending. Then after a few months it closes escrow at less than market value, and even less than other offers that were submitted by other buyers. Soon after, it goes back on the market at a much higher price, sometimes with almost no fix-up work.

The “floppers” claim this is legal and ethical because no one is hurt, it’s up to the bank to determine if their offer is a good one or not, and no one ever gets caught. My argument would be that just because a bank is a faceless corporation doesn’t mean it’s OK to defraud them out of tens of thousands of dollars. There are actually state and federal laws against loan fraud, and concealing material facts (like the fact that the home wasn’t exposed to the market, or that the seller passed over much higher offers) is considered loan fraud. And while the bank will order an appraisal, there is no substitute for exposing the home to the market to find out what other buyers may be willing to pay. In addition, many lenders require all parties to sign a short sale addendum where they certify that the home was exposed to the market and that no material facts are hidden from the short sale lender. Lying on this form is also considered loan fraud. There are also many examples of people going to jail over this practice, and many more cases being investigated currently.

I AM NOT AN ATTORNEY. PLEASE SEEK LEGAL COUNSEL. If you have questions on any other real estate topic, call me at (925) 240-MOVE (6683). To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

Unintended Consequences

The California Homeowner Bill of Rights went into effect Jan. 1 of this year. It was promoted as a way to protect California homeowners against their lender foreclosing improperly before the homeowner has a chance to fully attempt a loan modification or short sale. Since it passed, we have seen a HUGE reduction in the number of foreclosures in California. But we’ve also seen a big reduction in short sales, too, as  loan servicers scramble to adjust their practices to conform to this new law. They are supposed to provide one point of contact for the borrower through the process. The loan servicers are also forbidden from what is called “dual tracking” where they work on a short sale or loan mod, but at the same time continue to pursue and then complete a foreclosure action. They are supposed to stop as soon as they receive a complete loan modification package or a short sale is approved. If the servicer violates this new law, it also gives the borrowers new powers to sue the servicer. One provision of the law that the banks were most worried about is that if the borrower has at least a “reasonable justification” to believe that the servicer violated a material provision of the law and then sues the servicer, the servicer may be responsible for all the research and legal costs. This is true even if at the end of the process it’s determined that the servicer did NOT violate the law. This could cost the servicer tens of thousands of dollars in legal fees and 6-12 months in delay even if they were foreclosing correctly and that is borne out by the courts.

Well, some legal experts are worried that the new law is so onerous against lenders that it could backfire in a way for some borrowers. There are two general types of foreclosure, a trustee’s sale and judicial foreclosure. Apparently this new law only applies to trustee’s sales. So the concern is that some lenders may opt for judicial foreclosure if that option is open to them. In some cases that can be really, really bad for the borrower but historically we rarely see judicial foreclosures. We’ll have to wait and see if these fears are valid or not.

SEEK LEGAL ADVICE FOR YOUR OWN SITUATION. I AM NOT AN ATTORNEY. If you have questions on any other real estate topic, call me at (925) 240-MOVE (6683). To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

Need To Expose The Home

First, I need to define some terms, and that would be an “efficient” market versus an “inefficient” market. An efficient market is one where all information is readily apparent to all parties and the price of the item in question is easy to determine. An inefficient market is the opposite. So if you had a shopping mall that had a Target, Wal-Mart, Office Depot and Staples side by side, the price of a 12 pack of Ticonderoga #2 pencils would be pretty easy to figure out.

Our real estate market is a horribly inefficient market. Not only are no two houses exactly alike but not all information is available to everyone. We can look at the MLS data for guidance, but the Solds are by definition “old news,” the Actives haven’t sold yet, and we don’t know what price all the Pending homes are pending at, or if they’ll even close. There are many, many factors at play and no one, I repeat NO ONE, can tell you exactly what a home will sell for, not to even within a few thousand dollars.

So here is where I get all righteous and climb up on my soap box. Let me first put on my helmet and shield to get ready for the arrows…OK, I’m ready. Based on the above, it is my contention that the best way to really find out what is the most that a home will sell for is to expose it to the open market, allow all potential buyers in to see it, then wait at least a few days before the seller responds to any offers to find out what the market will bear. Otherwise, if you take an offer WITHOUT exposing it to the market, or if you take the first offer through the door, you’ll never know if you are leaving money on the table if you had only waited a few days for another offer. This is why I’m not a fan of “pocket listings” where only I or my office knows about the home being for sale. Sure, the seller may save a little on commission, but I think the odds are high that you could “net” more money on the open market. If you are doing a short sale, this actually DOES apply to you because I believe you have a legal duty to only accept and submit a market value offer on your home.

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE (6683). To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

Next Page »

Return to top of page

Contact Us

  • Sharp Realty
  • 320 Fairview Ave.
  • Brentwood CA 94513
  • P: 925.240.6683
  • F: 925.524.2302
  • E: info@SharpHomesOnline.com
  • DRE# 01858431