Tag Archives: Short Sales

Are Short Sales Affecting our Home Prices?

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This downturn in real estate is so much different than the one we ‘older than dirt’ agents experienced in 1980’s. Then, with inflation over 12% and interest rates over 20%, we knew why we were in so much trouble and saw only long term effects since it was a problem with our national economy. We were using rubies, horses, businesses, anything we could use for exchange for a down payment and doing ‘mushroom closings’ where the sale wasn’t recorded to avoid paragraph 17 of the note to kick in. (before you judge, let me mention that this was with attorney guidance!)

This time, it’s been very very confusing since our national economy is healthier, inflation appears under control and here in the Puget Sound area, there is low unemployment and signing bonuses are again being offered for qualified high tech employees.

So, the big question here in the northwest (I’m only referring to the NW, specifically King, Pierce and Snohomish County and of course, there’s Wenatchee), is, is this a short term or a long term correction.

And, is the effect of the short sale inventory going to be a drag on our home prices. There are phenomonal discounts right now in short sale properties. However, are they really affecting the price of normally marketed properties? Do buyers see these short sale properties as good homes for them to purchase, or are we only attracting fix and flippers and other investors to these properties.

The nwmls statistics show that in King County, there are 71 short sales, trustee, or foreclosures in the entire county. Of these, 27 are active, with an average price of $397,000 and average days on the market of 134.

21 are under contract either sti or pending and only 1 is sold in the last 6 months. So, with 27 active, and 22 sold or under contract in all of King County, compared to 8355 active, 1731 sti or pending and 10126 sold in the last 6 months, is there really a measurable effect? or is this just a temporary hiccup?

Foreclosure or Buyer Remorse?

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Well, I promised I’d report in if I saw anything really good sitting around with no offers, or signs of foreclosure woes, on “the Eastside”.

As to good properties sitting around with no offers…not!  I showed a few properties on Sunday, turned around and one went STI two hours later.  Of course, very close to Microsoft.  A few others left over there, but doubt they will last.  Even then, those were not of the quality I would recommend.  The best of day was a For Sale by Owner and not in the MLS at all.  Interesting day.  Literally only 5 to show from Juanita to Issaquah in the price range.

But today, I was shocked!!  An agent asked me, “What does this mean ‘commission may be modified by lender'”? I said, “WHERE?”  They said Kirkland.  I said, Oh No!

Then I took a closer look.  Who the heck bought that piece of crap at that price last year?! What lender did 100% funding in there?  Don’t they know there was a huge suit against the builder for basically irresolvable drainage problems?

That’s not a foreclosure.  That’s someone who walked into the bank and said, “Here!  You can HAVE it BACK!

Now don’t ask me where it is.  I can’t point fingers, but I promised to tell you if I saw “a short sale on the Eastside”, so here’s the first one I’m seeing.  Based on the purchase date, there’s no way this should be selling for less today.  But it will.  Someone overpaid for it back then, never should have bought in there with the problems, and some lender wasn’t paying attention.  Some Buyer Agent as well.  Buyer Agents should have stripes so we can “strip them of their stripes” when they are responsible for someone buying a distressed property, for too much money, with zero down.

When you didn’t spend a dime on it, no downpayment, stacked closing costs, your credit was already crap which is why it was subprime…why not just walk away if you decide you don’t want it?

That wasn’t a foreclosure…it was a RETURN! No need to ask for their money back.  They had not a penny invested in the first place.  Don’t like it…walk away and bring the key to the lender.

That one was easy to figure out.  But let’s keep our eyes open, because even though there seems to be a frenzy with three offers on one unit in that condo conversion up in Bothell on Sunday, it is definitely time to proceed with extreme caution.  Make sure the value is there, before you buy.

Short Sales

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A short sale is when a homeowner in financial distress owes more against the home than what the home is worth, and the homeowner MUST sell.

If the homeowner does not have to sell, or does not want to sell their home, there are MANY options available to homeowners. They could [photopress:shorts_1.jpg,thumb,alignright]move into a more affordable home and rent out their existing home, they could take on a roommate, they could refinance (although this is not always the best path. Homeowners in a short sale situation are often in financial distress, which means higher rates and fees because you’re seen as a higher credit risk to a new lender), they could talk with their existing lenders to re-configure the terms of the loan. Homeowners who do not want to sell or do not have to sell ought to seek out a HUD-approved housing counseling agency that offers default counseling. Why? Because at bare minimum, SOMEONE, in this case our federal government, has deemed the housing counseling agency competent. What a homeowner should not do is to blindly trust that the signs by the side of the road are from reputable folks. In fact, the assumption ought to be that if a deal looks and sounds too good to be true, it is. There are no angels on earth. Homeowners, you can be easily taken advantage of by these folks. Wake up and keep reading.

Selling short means you’re asking the underlying lender(s) to accept less than their payoff in order to facilitate a sale of the home, instead of foreclosing on the home.

Foreclosure is expensive for a mortgage lender. Mortgage lenders are not in the business of foreclosing on houses. Banks and lenders are in business of making loans. They don’t want the house back. This is a business decision for the lender. Which means it has to make rational, logical sense.

Homeowners, you will be asked to prove financial distress. This means you will have to submit proof that you don’t have the money to make up the shortage. If you do have the money, this is no longer a short sale, the industry calls this a “seller to bring cash in at closing” sale. If you ask your real estate agent to help you in hiding assets, an agent cannot assist you with defrauding a lender.

[photopress:bartangel.jpg,thumb,alignleft]If an “angel” investor offers to ‘take over the payments’ and lets you pay rent until you’re back on your feet, and then asks you to sign a quit claim deed, transfering title to the investor, stop everything and go get some legal advice immediately. You might be thinking: I’m in financial distress; how can I afford legal advice? Contact your local bar association for a referral to free legal aid. A quit claim deed transfers interest but not liability. This means you are still liable to make sure the mortgage is paid, and further, transfering yourself out of title means your lender might decide to call your note due and payable. There are many foreclosure rescue scams to be careful of. If the rent is set too high, thus not allowing you to really get caught up at all, this has a name: equity skimming. Go see an attorney.

Homeowners, you will be asked to pay back the shortage. That’s right, your lender will ask you to sign a brand new unsecured note in order for you to pay back the difference in monthly installments. If, out of the goodness of their heart, (don’t count on it) the lender “forgives” the debt, then the IRS sees this as a taxable event. Homeowners: Go see your favorite tax attorney or CPA for tax advice if you are in a short sale scenario.

Homeowners, the worst mistake you can make is to go into denial and stay in your “happy place” and not make those hard decisions. Let’s review. The best steps you can take are preventative. When you see yourself getting close to needing to sell in order to avoid foreclosure:

1) Decide if you absolutely must sell or if you’re better off riding out the financial tough road. If there’s a light at the end of the tunnel, and you don’t want to sell, perhaps you’re better off not selling.

2) Talk to a HUD-approved housing counseling agency that offers “default” counseling.

3) Don’t ignore letters or calls from your lenders. I recommend renting and watching the movie “House of Sand and Fog” to wake you up from your state of denial. Talk to your lender.

4) If you’re committed to selling, interview three licensed real estate agents. If one of them offers to purchase the house right there in your living room…..ask the agent if that’s ethical and legal and see what they say. Real estate agents have an obligation to put YOUR interests ahead of their own interests. State agency laws vary, but this is a core concept of agency.

5) Always seek legal counsel if you are a short sale homeowner. There are things attorneys can do that real estate agents cannot do.

Real estate agents: The best steps you can take are to educate yourself about how to present your firm offer to the underlying lien holder(s). In a short sale, title is transferred using a warranty deed (in some states it is called a different sort of deed like a bargain and sale deed) which means title must be clear of all liens and encumbrances (except for items that will run with the land like easements, real estate taxes, and the like.) This means you might have to present the firm offer to more than one lien holder. Example:

Sale price: 300,000
First mortgage payoff: 250,000
Second mortgage payoff: 100,000
Real estate agents: In the above example, if you’re trying to work with the first mortgage lender and they’re not giving you the time of day, it’s because they are expecting to get all $250K because they’re in first lien postion. Your work will be with the second lien holder, who has much to lose should the first foreclose and everything to gain by negotiating with you NOW, before foreclosure.

Real estate agents, check your local Multiple Listing Service (MLS) policies and procedures about disclosing the “short sale” terms to the other members of your MLS.

Real estate agents, the lender(s) will ALWAYS ask you to cut your commission. Always, always, always. It is their duty to mitigate losses. That means asking everyone to cut their fees. Don’t take it personally. So, should you cut your commission? These transactions are difficult, time consuming, gut-wrenching, and ulcer-inducing. Why on earth would you accept a low fee? When asked to slice your fee to the bone, say “no.” The lender needs you more than you need them; the lender does not want to foreclose.

Sometimes real estate agents tell me they wouldn’t touch one of these deals because of the increased liability and the hard work. To that I ask, “Well, what if you were the one who sold them the house?” Then the room usually falls silent.

Real estate agents should always ask the homeowner this simple question: “What are your plans for housing once the home sells?” If the homeowner is in financial distress, often their plans including moving in with relatives. If not, you may wish to connect the homeowner with social services sooner rather than later.