Short Sales

What You Need To Know About Buying Distressed Properties

by Lisa Udy on April 26, 2011

Distressed PropertiesToday’s real estate market is full of distressed properties and what I mean by distressed properties, is short sales and foreclosures.

Now, when buying a home you go through a few steps such as negotiating an offer, negotiating repairs, getting the home appraised and so forth.

All of these are still viable with a distressed property purchase, but they may come in a different order and could be a little more difficult to accomplish. Here are a few things to watch out for when buying a distressed property:

What You Need To Know About Buying Foreclosures

With so many markets these days having foreclosures, it seems more buyers are looking for that awesome deal. Foreclosures sales used to be primarily for investors but now with so many to choose from, buyers are wading the foreclsoure waters. But it’s not all sunshine and roses on the foreclosure front, there are a few potential downfalls to be aware of.

First of all, banks aren’t going to give the home away. There in the business to make as much money as possible at all times, and giving away foreclosures below market value isn’t in the plan. Be aware that a low initial price on a foreclosure is a tactic to increase buyer activity. A bank will price low in order to receive multiple offers and drive up the price. Don’t be fooled into thinking you won’t have any competition.

Homes Are Sold As-Is

Homes are sold as-is with no warranties from the bank. Be prepared to put in some sweat equity in order to get the home livable. Foreclosures have usually spent many months sitting vacant and prior to vacancy, the homeowner probably didn’t have the cash to keep the up in good shape. Repairs may be minimal but they could also be quite drastic, so buyer beware.

Watch out for declining neighborhoods. Yes, that foreclosure may be a great deal, but how is the neighborhood performing? Is every other home on the block also a foreclosure? Remember, distressed properties bring down home values of a neighborhood and how’s that HOA doing? Are they in financial trouble because no one is paying their bills? These are a few things to look into before purchasing a foreclosure.

What You Need To Know About Buying Short Sales

I’m going to say it, Short Sales Suck! LOL – Okay, in all seriousness, they really do suck. Here’s why. First of all, the short sale process is entirely up to a third party who really doesn’t care if the home gets sold or not. There aren’t any standards in the short sale industry or regulations banks must follow, and last but not least, they take FOREVER!

Short sales are just more difficult than a normal sale, but let me tell you, if you get the right agent on both sides of the transaction they can be completed.  Here are a few things to watch out for in a short sale transaction:

Short Sale Process Is Different

First of all you need to understand what a short sale is. A short sale is where the homeowner owes more on the property than what the current market will bare. The home is “underwater” as they say, and in order to complete a sale, the holder of the mortgage (usually a bank or large investor) must agree to forgive part of the loan amount. However, just because the lender is taking a loss, that doesn’t mean the home is going to be a screaming deal either.

Short sales will almost always sale at or close to market value. So, if you can find a home similar to a short sale, you may as well go for that instead and here’s why. Short sales take a long time to close. The average is three to six months, and I’ve even seen some take longer than a year. Seriously. It takes a long time to get a short sale to close, so be prepared to wait and wait and wait.

Negotiating With A Third Party

Negotiating with a third party is, simply put, a nightmare, especially if you’re dealing with a large bank. These banks have huge departments that deal with short sales, and many times the file gets passed around to numerous negotiators. And the kicker, most of the negotiators don’t have the power to approve anything. It’s a little ridiculous. So, if you plan on negotiating repairs, you can almost forget about it. If you want to negotiate a better price it’ll take weeks.

Okay, enough negativity. There is a positive in buying a short sale. The homeowner can avoid foreclosure and it should help with neighborhood property values. Even though as a buyer this doesn’t matter to you, I still feel it’s good for the overall health of a real estate market to decrease as many foreclosures as possible.

Still want to buy a distressed property? Excellent, we can help you with that. You can view all Cache County Foreclosures and Cache County short sales by visiting those links. We update our property lists everyday and even though I’ve ranted about the process, we are very knowledgeable in the short sale buying process. You can see what I mean by visiting the related links below describing those processes in more detail.

Related Short Sale Links

How To Compose A Short Sale Package

Can You Short Sale With A 401k?

Why Short Sales Fail & How To Avoid Short Sale Denial

Common Short Sale Questions Answered

The Short Sale Process – Approval Time Frame – Withdrawal Period – Writing A Short Sale Offer

Common Short Sale Myths

Related Foreclosure Links

How To Avoid Going Into Foreclosure

Buying Logan Utah Foreclosures At Public Auction

Contacting A Distressed Homeowner To Buy A Pre-Foreclosure

Logan Utah Foreclosures Process And Overview

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How To Compose A Short Sale Package

by Lisa Udy on October 22, 2010

In our previous post we talked a little bit about short selling a second or investment property.  We also discussed, that in order to qualify for a short sale, you would have to document some sort of hardship, and the tax consequences of a short sale. In this post I wanted to go into greater detail on the short sale package you and your real estate agent will need to submit to your lender.

Short Sale PackageThe Short Sale Package

Hardship Letter – A hardship letter gives you the chance to explain your situation in your own words to the bank. You should communicate three key points in your letter. They are:

  • I’m Sorry
  • Your Circumstances (Job loss, Medical issues, Divorce, etc.)
  • You Have Tried Everything And Foreclosure Is Your Only Other Option

Keep your hardship letter clear and to the point. It only needs to be approximately a page long, and should be hand written in legible writing.

Authorization To Release Information Form – This form gives your negotiator, whether it’s a Realtor or attorney, the authorization they need to gather information for you. However, a power of attorney may be needed depending on the route your negotiator prefers. A power of attorney allows your Realtor and/or attorney the ability to force the lender to “work in good faith,” giving them more power to negotiate for you.

Supporting Financial Information: Assets, Liabilities, Monthly Expenses, Pay Stubs, W-2′s, Employment History, Bank Statements, and Credit Card Reports.

- Assets

  • Real Estate (Any real property you own, not just the home you are selling.)
  • Stocks, Bonds, Mutual Funds, 401k (Any type of investment in money market accounts.)
  • Bank Accounts (Accounts and at least 2 months of bank statements.)

- Liabilities

  • Real Estate Loans (All loans associated with any real property you own.)
  • Personal Loans (Car loans etc.)
  • Credit Card Debt
  • IRS Liens (Back taxes of any sort.)
  • Judgments (Overdue bills with a judgement against you.)
  • Lawsuits

Short Sale Information Packet- Monthly Expenses

  • Monthly Credit Card Bills
  • Utility Bills
  • Car Payments
  • Insurance Payments
  • Food And Clothing
  • Medical Bills
  • Child Support
  • Tuition
  • Any Other Monthly Expense

- Employment Information

  • 2 Most Recent Pay Stubs (Possibly more depending on lender requirements.)
  • W-2′s/Tax Returns (Last 2 years of documentation, possibly more.)
  • Employment Record (Years worked, laid off, loss of job, current employer.)

Comparative Market Analysis – When submitting your short sale package to the bank, your Realtor should include their market analysis to justify your listing price and the accepted offer on your property.

Marketing History – Your Realtor should provide a complete marketing history to the lender. Including showings, feedback from agents, and all advertising. You need to show the lender that you and your agent are doing everything possible to get the best price on your home.

Accepted Offer – You and your agent submit this package to the bank only when you have an accepted offer you’re comfortable with. Although final approval is provided by the bank, you still get to choose the best offer.

As you can see, a short sale is a complicated process. You need the expertise of a qualified short sale agent to ensure you get an approval. Our team has years of experience and we have a 95% approval rate. If you need short sale help, please contact us immediately to get started.

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I Have Equity On Another Property, Stocks, And 401K – Can I Still Short Sale My Property?

by Lisa Udy on October 16, 2010

This is a tough question and a very complicated situation that I will do my best to explain. Being a Logan Realtor, I am not allowed to give tax, financial, or legal advice in order to comply with the Realtor Code of Ethics. This information is hypothetical and should be taken with a grain of salt. Please consult with your accountant or attorney for tax and legal advice.

First off, let’s define a short sale. A short sale is; selling a property for less than what is owed. The remaining balance is usually forgiven by the lender, but not always. The bank may file a deficiency judgment if you have a recourse loan.

What Type Of Loans Do You HaveWhat Type Of Loan Do You Have?

In a recourse loan, you retain all liability for any deficiency after a short sale or foreclosure, and the bank has the right to pursue your personal assets by obtaining a judgment.

In a non-recourse loan, the lender is limited to whatever funds are available from it’s security interest in the property itself. Which means, they can only pursue the collateral given in the loan.

Determining your loan type will give you an idea if a bank can pursue your financial portfolio in a deficiency judgment. The best way to determine your loan type, and what a lender can or can not go after, is to consult with a real estate attorney. Trust me, you need an attorney to help you figure out the best path to follow in your situation.

Can you still short sale a property if you have other assets such as a 401k, investments, or another property with equity?

Short Selling An Investment PropertyIt depends. In order to short sale a property, the property has to be worth less than what is owed, and the owner must have sufficient evidence of a true hardship. And even if you are eligible for a short sale, the bank may still deny your request at their own discretion.

Will the bank consider you in a hardship if you still have sufficient money in liquid assets? Most likely not, but it has happened before. Usually, what happens if you have liquid assets is, the bank will require you to pay all or a partial amount of the short sale deficiency.

Some people seek relief through bankruptcy during a short sale, which could protect them from certain deficiencies depending on the bankruptcy terms. I won’t go into this because you should consult a bankruptcy attorney to find out what’s best in your situation.

You also need to keep in mind that each lender has its own protocol when it comes to short sales. Being able to short sale if you have other assets such as a 401k, investments in money market accounts, or equity in another home, is fully dependent on your lender.

Short sales come with tax consequences, and in order to understand these consequences, I would recommend you talk to an accountant. There is one thing I can give you some information on and that is The Mortgage Debt Relief and Emergency Economic Stabilization Act of 2008.

The Mortgage Debt Relief and Emergency Economic Stabilization Act of 2008.

Government Short Sale Tax ProgramsThis piece of legislation allows you to avoid being taxed on the debt forgiven in a short sale. Before the legislation in 2008, this forgiveness of debt was considered taxable income. However, this legislation only protects you on a principle residence.

So if you short sale a property that is not your principal residence, you may also face tax claims from the debt forgiveness in the short sale. This tax must be paid, and if you don’t pay it, the IRS will come after your liquid assets.

As a general rule of thumb, if you have the ability to pay back all or any part of your mortgage, it’s going to be hard for you to pursue a short sale. In fact, I can almost guarantee you will have to pay some of the deficiency when the property is sold if you do a short sale.

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Why Short Sales Fail And How To Avoid Short Sale Denial

by Lisa Udy on September 24, 2010

Failed Short Sale!!Short sales are complicated, time consuming, and stressful to all parties involved. Depending on the bank you’re dealing with, it could take up to a year for a final approval on a short sale.

The fact that it takes so long makes it that much more difficult to find a buyer who is willing to wait months before they know if they can even buy the home.

In 2009, it was believed that only 20% of short sales were approved and finalized. That stat tells you, getting a short sale approved is not easy for anyone, let alone someone who is inexperienced. Plain and simple, many short sales fail to be finalized, and here are the common reasons why.

Why Short Sales Fail And How You Can Avoid Short Sale Denial

Incomplete Short Sale DocumentsIncomplete Or Fraudulent Short Sale Package – A short sale package is submitted to the lender when you receive an offer and accept it. The short sale package must be complete with everything the bank requires.

If it is not complete, it could delay the process. Many of the lenders out there won’t even call and tell you what’s missing. They will set the package aside and it will be handled later when they have the time, which will end up delaying the process, and you could end up in foreclosure because of it.

All information in your short sale package better be true or you can kiss your short sale approval goodbye. One example would be to lie about your financial situation. Hiding money in different accounts, pulling out cash to hide it from the bank, or giving money to relatives to hold onto during the short sale could end up costing you big time. Banks do not have to approve your short sale. If they find out you’re not telling the whole truth, you will be denied.

Short Sale Package Not Submitted Properly – All lenders are different and they each have their own protocols when dealing with short sales. Your agent must submit the package exactly how your lender requires it.

If they want it faxed, it better be faxed. If they want it scanned and emailed, it better be emailed. If they want 10 copies, they better get 10 copies! How a short sale package is submitted isn’t you or your agents decision. It’s the lenders, and it better be followed to the T!

A young woman sitting in a cafe opening her empty purseOffer Too Low – It is the job of your agent and you to secure the best possible offer on your property when submitting it to the bank. Each lender has their own formula for accepting offers, but one thing they all agree on is getting the most money possible.

It is the job of your short sale agent to give you an accurate analysis of the market and the value of your property. It is their job to counsel you to counter any offer to establish the best price and terms possible prior to accepting it.

Buyer Not Financially Strong Enough – Lenders want to see contracts that have a strong chance of closing. A pre-qualified buyer is not as strong as a pre-approved buyer. It is your agents duty to follow up with the buyers lender, or even better, you may want to have a lender you trust qualify the buyer as well.

If it’s a cash buyer, you will need proof of funds and proof of the ability of the buyer to access those funds in the time needed to close.  Any contingency in the contract could end up costing you the deal. It is best to remove as many contingencies during contract negotiations as possible before submitting to the bank.

Short Sale Buyer Backing OutBuyer Backs Out – This is probably the number one reason short sales fail. Buyers get tired of waiting, or they find a better house and back out of the deal.

This can be avoided by asking for a substantial earnest money deposit prior to acceptance of the contract. If the buyer has more skin in the game with say a $5,000 earnest money check, they will be more reluctant to give that up.

Your agent should counsel the buyers agent, or the buyer themselves, on how long short sales typically take to close. Keeping the lines of communication open on a weekly basis between your listing agent and the buyers agent can help keep the deal together. Buyers tend to stick around longer, at least in my experience, if they know what’s going on at all times.

Inaccurate Market Analysis/Appraisal/BPO – If  the BPO (Broker Price Opinion) was inaccurate, it could delay the closing. Lenders request BPO’s on short sales that are completed by third parties, whether it’s another real estate agent or an appraiser. Inaccuracies could give the lender a distorted view of what fair market value of the property is, this could influence the lender’s approval.

It’s important for your short sale agent to to ask the negotiator how the BPO compares to their market analysis. If your agent believes there are discrepancies with the BPO, it’s important for them to prove their point of view. Adding photos, better comparable properties, and any other information to support their claims.

Short Sale Clown!Incompetent Short Sale Agent – To avoid having your short sale denied, it’s extremely important to hire a Realtor that knows what they’re doing. Inexperienced and incompetent short sale agents should be avoided with one of the most important financial decisions you will ever make.

Some sellers end up facing foreclosure due to the lack of effort from their agent, and it’s a terrible situation for all parties involved.  Research real estate agents thoroughly before hiring them. Do not use a friend because they are your friend. You could end up going into foreclosure do to the lack of experience of a new short sale agent.

Don’t Let Your Short Sale Fail! Educate Yourself And Choose An Experienced Short Sale Agent!

When short sales fail, it’s the homeowner left holding the bag. Most likely, the homeowner will go into foreclosure, which is the last thing anybody wants.

Foreclosures devalue neighboring properties, cost banks tens of thousands of dollars, but most of all; a failed short sale will ruin your credit for 7-10 years, will cause you to lose your home, and will severely limit your access to credit for many years to come.

Please research short sale agents, put together a full and accurate short sale package, and follow all lender protocols when trying to short sale your home. If you do everything you can to avoid these common mistakes, you have a great chance for a short sale approval!

Related Articles:

Short Sale Investors Committing Fraud?

Common Short Sale Questions Answered

The Short Sale Process – Approval Time Frame – Withdrawal Period – Writing A Short Sale Offer

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Short Sale Agents And Investors Committing Fraud?

August 26, 2010

We all have our bad apples in our industries, and Realtors are no exception. With the uprise in the amount of short sales in today’s real estate market, there is more and more short sale fraud being committed by unsavory agents. A very good friend and colleague of mine Bill Gasset, a Massachusetts Realtor, recently wrote a blog [...]

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Common Short Sale Questions Answered!

June 15, 2010
Common Short Sales Questions

After writing a few blogs about short sales, I have been bombarded with questions, and I figured it would be easier to write a blog post with as many answers as I can give saving you and me time. So here we go: Answers To Common Short Sale Questions What is the average time frame [...]

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Short Sale Process: Writing The Offer – Short Sale Approval Time Frame – Withdrawing Your Offer

June 10, 2010
Short Sale Questions

Short Sale Process: Submitting An Offer To The Seller Just like a regular real estate transaction, if you want to purchase a home that is being sold as a short sale, your first step is to write an offer and submit it to the seller. Questions to ask your agent before submitting a short sale [...]

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Stomping Out Common Myths Associated With Short Sales

May 19, 2010
Women Looking Worried

A short sale can be a great way for a distressed homeowner to sell their home if they owe more then the home is worth. However, there are many myths regarding the short sale process, and I wanted to stomp some of those out with this post. Short Sale Myths Myth – It’s better for [...]

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