Monday, March 2, 2015

There's more than one type of short sale.

You should be aware by now that I am not a great fan of short sales.   However you also need to be aware that, like most things in life, the world of short sales is more complicated than it appears at first glance. So here is a "brief" analysis of the different types of short sale you may run across, and what it means to you as a prospective buyer.

Let’s start by separating them into to 2 main categories. APPROVED and UNAPPROVED.

UNAPPROVED means that the lender who has to agree to discount the loan in order to make the deal happen has not yet done so.

Within this broad category are 3 sub divisions we need to consider.

UNAPPROVED OWNER OCCUPIED. The owner of the property is still living in it but is “intending” to do a short sale. Note the quotation marks. If someone stops paying their mortgage, fairly soon the bank is going to start foreclosure proceedings. One of the best ways to put a hold on the foreclosure is to tell the bank you want to do a short sale. If the lawyers do their job the foreclosure goes on hold.

In order to start the process they need an offer from a buyer. The seller’s agent is going to set the price at a level which will guarantee an offer quickly, so they can get the process started. The seller is then required to submit piles of paper to justify the fact they stopped paying and show there is a genuine hardship. There’s a very good chance the contract price is going to be well below what the lender will accept, so even if you thought you had bought the property there might be a nasty shock waiting when the valuations and appraisals come in.

The other issue is that the owner is now living rent free, and has very little incentive to move this along quickly. They may send incomplete packages or respond very slowly to requests for information. They may also make it very difficult to get to see the property, and be unavailable for showings. They might also change their mind and decide to opt for a loan modification to delay matters even further. As a result you have no idea when you can close or what the eventual price will be.

There’s only one scenario worse and that’s an UNAPPROVED TENANT OCCUPIED short sale. Tenants have right especially if they have a lease and weren’t told their home is being foreclosed. It’s very difficult to get them to agree to show the property and the lender knows the deal probably can’t be closed until the lease runs out. There is also likely to be some issues about who the rent should be paid to, not to mention complications with taxes, HOA fees etc.

A slightly better situation is an UNAPPROVED VACANT short sale. In the case the owners have already moved out. With a bit of luck they are still in touch and are cooperating, so there is a chance the transaction will get closed. Comments about pricing still apply, and there is the risk they will leave town and the whole process will grind to a standstill, but at least you can be reasonably certain there won’t be further damage to the property.

The best scenario is an APPROVED short sale. Doesn’t really matter whether or not it’s occupied, because the most important factor is that the parties, especially the lender agreed to do a deal, and now we know what the price is. The only time (and it’s very common) we see an “Approved” short sale, is because the original buyer got tired of waiting and when the agent went back to them, they were no longer interested in proceeding.

Almost always when we are dealing with a approved short sale the first question is how much will they come down off the price. Here’s a hint. The short sale is APPROVED at a specific price, and that’s the price. You can offer less if you wish, but that’s going to start the whole process over again, and it’s likely one of 2 things will happen. Either someone else will come along and offer the APPROVED price, or time will run out and the property will get foreclosed

Friday, February 27, 2015

Are foreclosures still important in today's market

These days foreclosures are not making the headlines the way they were a couple of years ago.  This got me wondering what is going on in our local market so I decided to look at the numbers.

Before we go any further please understand this is a snapshot of a relatively small area of South West Florida.  These numbers may not relate to where you live or are looking to buy but I’m willing to bet if you are anywhere in Florida something similar is going on.

Anyhoo.  These statistics relate to the day this is being posted namely 27 February 2015.

Currently there are 1840 single family homes for sale in Charlotte County.  Of these only 126 or around 6% are foreclosures.  Note that single family homes represent the biggest majority of home sales in this area.

However if we look at sales for the last 6 months it turns out that of 1986 sales a total of 456 or 23% were foreclosures.

Incidentally we can also derive from these numbers that the inventory of homes for sale represents about a healthy six month supply.

However it gets more interesting if we look at homes priced below $150K which is about the median price point in our area.

Then we see that foreclosures represent 21% of the homes for sale (78 out of 365) and a whopping 36% of homes actually sold (362out of 984).  Note that the inventory is now just over 2 months indicating this is a very hot market.

Even more striking is the fact that the inventory of foreclosures priced under $150K, which sell at a rate of 60 a month is just 39 days.


Foreclosures still matter in Charlotte County.

Wednesday, November 12, 2014

Who should NOT buy a short sale.

Just following up on the previous post.  There are some people who should simply not consider buying a short sale.  If you fall into one of these categories short sales are probably not for you.
1   You have limited time or you need to close by a specific date.  Short sales are notorious for not adhering to time frames.  Sometimes they go fairly quickly but often the sale will drag on for months and months or fall flat at the last moment.
2   If you need to know exactly what the price will be.  The price on a short sale is determined by the bank, not the buyer or the seller or the appraiser.  If you don't have the ability to be flexible about the price then don't go there.
3   If you don't like uncertainty.  There is nothing certain about a short sale.  All kinds of things can change especially in the last couple of weeks.  Real Estate purchase has a lot of variables to begin with, but a short sale adds several new dimensions.
4   If you have alternatives.  If you can find a property that meets your requirements and is not a short sale then go for that and don't mess with the short sale. 

Friday, October 31, 2014

Why do Short Sales take so long.

I’ve been strongly promoting the idea of buying Bank Owned properties and avoiding short sales like the plague. This is my justification for that stance.

An explanation of the process will probably help. Many home owners today are “upside down in their home. That is, they owe more on the mortgage than the house is worth, generally because they took advantage of loose lending guidelines and bought with 100% (or close) financing or refinanced an existing property and took all the equity out of it.

At some point, for whatever reason, they find they can no longer pay the mortgage, and often will try to sell the home. After they miss about 3 mortgage payments the bank(s) will launch foreclosure proceedings, and generally it will take about another 9 – 12 months (in South Florida) before the actual foreclosure sale.

During that period the price on the home is steadily reduced to the point where offers start coming in, but of course the sale cannot be completed because the seller owes far more than the offer and has no cash to bring to the closing table. At that point a third party, generally the realtor, opens a conversation with the bank(s) about forgiving part of the mortgage so the deal can go through.

Now, the bank is not about to roll over and write off tens of thousands (maybe hundreds of thousands) of dollars so a big negotiation begins. In some cases the mortgage was covered by Mortgage Insurance so the bank is going to get paid anyway, and so has little incentive to negotiate. Good luck trying to find a contact in the MI company to talk to.

Firstly there may be several lien holders involved. Maybe 2 or more mortgages, HOA, probably property taxes, and maybe some other liens. A specialist known as a loss mitigator is called in, and they have to get agreement on who is going to take what percentage of the loss.

Then the creditors are going to want to know why the seller can’t pay and will require a detailed review of the sellers finances. The seller will have to submit tax returns, income statements, credit card statements, and so on and will have to justify every penny they spend. They have to prove beyond a shadow of a doubt that they cannot afford to pay the mortgage

Then an independent review of the value of the property has to be made, and unless the sale price is higher than the market value, the deal may be rejected. A full appraisal needs to be done and they will also look at the other properties on the market, recent sales and properties under contract, and complete a careful analysis of the property to establish a “Fair Market Value“. That is the price at which the sale will go through.

If the offer is below the market value they will reject the offer, probably without renegotiating the price. At that point the deal is dead. It is very difficult to “steal a deal” on a short sale.

Also it’s likely that Real Estate agents will be asked to cut their commission. Often the agent will agree, but then their broker will nix that idea and the transaction might fall through for that reason.

Finally the seller has to agree to the deal. You’d be amazed how many sellers still think they are going to walk away with cash or refuse to agree “because my house is worth more than that“. Often they will just get tired and frustrated with whole process and walk away.

The net result is that after the contract is written, there will be a delay of generally at least 90 days and up to 120 days before you know if your offer is accepted. In addition only about 20% of short sale contracts make it to closing.

By the way the bank will probably require at least a 5% deposit which they will hold during the negotiations.

Once the contract is agreed, you get a short period, often only 14 days, to close and if you don’t the your deposit is at risk.


If you wait a little longer the bank will be forced to complete the foreclosure and remove the seller from the house Now they have a problem, because the house is standing empty and deteriorating. Not only that, because they are now the owners they have to pay the taxes, HOA fees, insurance etc. It’s costing them money.

They will usually put the home on the market immediately. Sometimes they’ll clean it paint it and fix it up a bit, more often they don’t, so the property looks like c**p and no one wants to buy it.

They generally price the property just below competing homes on the market. However they don’t wait long before they start knocking big chunks off the price. They’ll keep price cutting till someone makes an offer. It doesn’t matter what market value is, or what an appraiser says, they take whatever they can get.

Generally it’s not worth trying a low ball offer. I find they won’t accept anything below 90% of the current asking price. They might put your offer in a hold file and come back later but that’s not likely. However you will get an almost instant response, sometimes just yes or no, but usually a counter.

This where I come in. I’m tracking around 200 bank Owned properties at any time.  I know many of the listing Realtors. They are generally not very ‘user friendly’ because they are working for the bank.  They don’t like showing homes, and just want to process offers.

I can generally get a response without giving them a deposit check.  Sometimes they will share the current status with me and hint at what it will take to get an offer agreed.  Usually I can at least find out if they have other offers.

The offer always has to be in writing and the bank generally have their own set of contract forms. The package has to be complete before they’ll submit it to the bank, and the less hassle they get the more helpful they are. In most cases we get an answer within 24 hours and we can then either continue to negotiate or move on to the next one.

Once a property hits it’s sweet spot, there may be several offers come in close together. Price is not the main consideration, although obviously it’s a factor. The most important thing is to convince the bank you can and will close if the offer is accepted. Proper presentation at this time is vital.

So in summary, you should prefer Bank Owned over Short Sales because,

Much higher probability of success.

Better Price

Fast response

Much less stress

Friday, October 24, 2014

Reverse Mortgage foreclosures

This note is about reverse mortgage foreclosures.
A reverse mortgage is a mortgage where the bank pays the owner of a property rather than the other way around.  Anybody over the age of 62 may qualify for a reverse mortgage, and may use it either to purchase a new property or may use it as a refinance to cash in equity on the property.
A reverse mortgage does not have to be repaid until after the last occupant leaves the property to move on to a better place.  At that point the heirs may either pay off the mortgage and take possession or they walk away and the bank repossesses the property as a foreclosure.
Now you might be wondering how this effects you as the buyer of a property.  Well here's the thing.
If you see the magic phrase sold under 24 CFR206.27 then you might also find these words in the small print..
i) this applies when the mortgage is a reverse
mortgage insured by HUD, (ii) it describes the process for what
happens when the mortgage becomes due, either because of death or
another reason, and (iii) much of the rule is irrelevant to buyers. But
item (g) at the end of the rule is relevant to buyers: it means that (a)
the lender that now owns the house isn't going to make any repairs
unless they are required by local law or HUD standards for HUDinsured
properties, and (b) the property cannot be sold to a buyer that
has a family, ownership, employment or other relationship with the
lender. (Seller can't accept offers below list price)
In other words nothing, especially the price, is negotiable on this one, so don't ask.
Now if you are over 62 (the more over the better) and a little short of cash, you should definitely consider buying with a reverse mortgage.  They give you the some of the cash and you don't have to make any payments.

Wednesday, October 22, 2014

Where are all these foreclosure properties.

One of the most common questions I get is "where can I find all these foreclosure properties".

Guess what?  They are hiding in plain sight!

The simple truth is that all the foreclosures that are available to purchase are listed on the Multiple Listing Service (MLS) operated by your local Real Estate Board.   This is simply the most comprehensive, most up to date, most accurate database of property for sale on the planet.

ALL bank owned foreclosure properties offered to the general public are listed on the MLS.  There is no secret list available only to insiders, that common mortals can't see.

Now yes, you can look on Zillow or Trulia or a hundred other real estate websites, and, heaven forbid, even Craigslist and find REO property for sale.  But guess what?  They all get their basic information from the same place. The Multiple Listing Service.

And contrary to popular belief, anybody can get access to the MLS very simply.  If you go to my website you will find you can search directly for property right on the MLS, and there's even a way to specify bank foreclosures.

However the very best way to get foreclosures in your email is just to ask.  Use the link below to access the request form and I will set it up for you.  No charge.  And I'll do it for any county in Florida.  What a deal!!

Tuesday, October 21, 2014

What's the 90 day flip rule and why is it still bugging me?

I may be about to get bitten by this one again.

Before the great mortgage meltdown, FHA had a rule in place that said in effect, "if you buy a property and then try to flip it within 90 days for 20% more than you paid for it, then we won't approve a mortgage for the purchase!!".

The purpose of this rule was primarily to prevent evil property investors, buying foreclosures (usually HUD homes) dirt cheap, cleaning the carpets and painting the walls and then selling to unsuspecting first time buyers for twice what they paid for it.

Since those days the whole process of selling REOs has got a whole lot more sophisticated and giant profits are a whole lot harder to come by for flippers.  In any case about 3 years ago HUD "suspended" the rule because with the mountain of foreclosed property on the market the powers that be were looking for any way at all to reduce the pile and investors were deemed not to be so evil after all.

Just to be clear the 90 rule says you can't write a contract within 90 days, so effectively the seller is likely to have to hold the property for at least 4- 5 months.

Now as I said before FHA suspended the rule a couple of years ago and although they've threatened to reinstate they haven't done so yet.  HOWEVER, one of the results of the recent persecution of the mortgage industry has been a level of paranoia on the part of underwriters that results in an additional layer of rules being overlaid on the FHA guidelines by individual lenders, so that apparently the rule is still going to affect one of my sales, unless we can find a way around it.

Any ideas?