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You probably have heard that a short sale can take a long time to get approved and close. Try 353 days from the date on the contract to the closing date. Let’s call it one year. Since I represented the buyers on this short sale, I know the history of this transaction.
A short sale is the sale of a home that is upside down. In other words, the home sells for less than the balance of the mortgage, and that requires the bank to agree to take a loss by getting paid less than what they are owed. As a buyer, you might ask why a short sale would take any longer than a regular sale? (more…)
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I act as a short sale agent representing buyers from time to time, and it’s the toughest job I have. Short sales are very difficult to get through the bank approval process in the Sequim and Port Angeles area.
I wrote an offer for buyers from Washington D.C. as their short sale agent 293 days ago, and we are still waiting for the bank to approve the offer that was accepted by the seller. A big part of success in any short sale is the experience and competence of the short sale agent for the seller, or the short sale negotiator. If a listing agent acts as the negotiator, he or she better know what they are doing. Few agents ever acquire specialized short sale experience necessary, and that is why I recommend a full time experienced short sale negotiator. In this case where we are still waiting after nine months, I asked the seller’s agent to get her seller to approve bringing in a short sale negotiator, but that did not happen. There are other variables as to why a short sale can drag out, but I always bring in one of the best negotiators in the country. I pay the negotiator out of my commission, but it is well worth it. (more…)
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Can a seller really walk away with money from a short sale? You wouldn’t think so, since the bank is taking a loss when they agree to a short sale. The seller logically would not get a single dollar upon the sale if he is asking the bank to take a $20,000 loss or a $70,000 loss or a $200,000 loss. But guess what? Truth really is stranger than fiction. Here’s how it works.
Banks are all about money. At least you would think so. Sometimes that is true. Sometimes it’s not true. For example, banks will often reject a good offer and suffer a severe loss after they foreclose a year later. For example, in one case a bank refused a decent offer in which they would have lost $15,000, but they rejected it, went through a lengthy foreclosure, and a year later sold the home for a $75,000 loss. If they were all about money, they wouldn’t make decisions that lose so much money.
But there’s a flip side to the coin, and it does focus on making money with decisions that don’t necessarily seem logical, but in unusual twist of events may end up being the more profitable decision for a bank. Such is this scenario where a seller may walk away with money from a short sale.
Some sellers are getting paid out of the sale proceeds to cover their moving expenses, like $10,000 or $20,000 or more. Apparently, someone at the banks figured out that they can make more money, or sustain smaller losses, if they pay the seller to move after the short sale closes. This doesn’t mean they will agree to this in every short sale. On the contrary, it is rare, but it is happening. Who would ever have guessed that a seller could walk away with money from a short sale!
What if there is a tenant in the home, and the mortgage payments are in default by two months, and the seller wants to sell the home as a short sale? Can a tenant get money to move from the bank via the sale proceeds? This is happening too. Again banks are thinking about what it might take to go through the foreclosure process, which takes almost a year, not receiving any payments during that time, and all the while there is a tenant living in the home. Once the foreclosure is complete at the Trustee’s Sale, there is still a tenant in the home. It would then take an unlawful detainer action (an eviction) to get the tenant out, and that could take months. It might be cheaper to just give the tenant money to move. Does $20,000 sound good? This is how a tenant can walk away with money on a short sale.
Truth is stranger than fiction, and today one of those truths is that a seller or a tenant might just walk away with money from a short sale.
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Short sale fraud is mortgage fraud when a homeowner applies for a short sale with their bank and misrepresents their assets in their hardship letter and the bank reduces the balance of the loan in reliance on those representations. A Michigan Supreme Court Justice has been accused of committing short sale fraud and her Florida home is now subject to seizure.
In 2010, Hathaway and her husband, Michael Kingsley, submitted a hardship letter to ING Bank seeking a short sale on their home in Grosse Pointe Park, a Detroit suburb. The couple did not disclose that they had put their home in Windermere, Fla., in the name of Kingsley’s daughter, the government said. After the short sale in Michigan, which erased $600,000 in mortgage debt, the Florida home was transferred back to Hathaway and Kingsley, according to the lawsuit, filed Monday. “Hathaway and Kingsley systematically and fraudulently transferred property and hid assets in order to support their claim to lNG that they did not have the financial resources to pay the mortgage on the Michigan property,” the government said. [Source: Huffington Post]
Many homeowners around the country are struggling financially, and dealing with a home that is upside down. They owe more than it is worth in this real estate market, and the opportunity to apply for a short sale to get the mortgage reduced could solve a lot of financial problems. The Hathaway case points out that it is short sale fraud or mortgage fraud if you misrepresent your financial resources to get the mortgage reduced.
I’ve written several earlier articles about the short sale process in this market, including:
A short sale is a very complex transaction, and short sale fraud can be committed by good people who do not intend to commit fraud. Avoid short sale fraud by working with a professional who understands the process. Remember that pleading ignorance is no defense, and arguing that you relied on your Realtor’s advice is also no defense for fraud. If you are selling a home and you believe you need to do a short sale, make sure your Realtor knows the legal short sale process and how to protect you from short sale fraud.
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How much of a loss will banks accept in a short sale? The question is not as speculative as you might think. Here’s what I used to think, and this may be what most people are thinking–that a bank will accept a loss, but the loss has a limitation based on the dollar amount or a percentage of the loss to the total loan. But that would be wrong.
A bank will accept a short sale if 1.) the owner establishes that they are experiencing a hardship, i.e. that they are broke and have no money anywhere to pay the mortgage, and 2.) based on the bank’s valuation of the home in the current market, it is only worth the price offered.
The bank’s valuation is based on a BPO, a broker price opinion. Banks don’t actually hire the brokers for this purpose. Instead banks hire a third party company who reaches out to Realtors and solicits a BPO from any agent. These solicitations come in the form of mass emails to all the Realtors in an area. The agent who is selected for the BPO doesn’t have to have any BPO or short sale qualifications. The company pays $50 to $75 for the BPO, which requires photos and a detailed written report with an analysis of comparables. (more…)
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Sequim shorts sales are chaotic. I’ve written before about the very unorganized short sale process and all the parties involved. Because of the chaos, I’ve written more than once that the first place you should look as a buyer is anywhere but the Sequim short sales. Here’s a brief update on what I am seeing in Sequim short sales.
I had two short sales transactions flip this week. One house was on the market for a little over $90,000. That was the listing price, and it had been reduced from a higher price because there was no interest. Supply and demand drove the listing price down so that this first time home buyer finally made an offer. The seller accepted it, but when it went to the bank’s negotiator, here was the crazy response. This response from the bank’s negotiator is why I say to buyers that Sequim short sales are not the best place to look for a home. Often you can’t buy a short sale even when you offer full listing price. Notice the incredible arrogance of the negotiator. He also adds completely new terms for the buyer without any negotiating.
Please review counter. I have countered to $134,000.00 the lowest contract price I can accept from the buyer in order to approve this short sale (based on the fees provided. If additional fees are added, this contract price may be adjusted). This is the only counter you will received with regard to this short sale offer. Any contract price that is lower is subject to be reviewed by the investor, and/or immediate denial. Any decision by the investor will be considered final. Do not submit any offer other than buyer’s highest and best, final offer.
A contribution from the seller has been requested in the amount of $7,500.00, (or promissory note for double the amount). This amount is 10% of the investor’s expected loss based on this short sale offer. This amount can be accepted, or countered by the seller, based on their participation capability. However, a contribution may be required for short sale approval. With an appropriate contribution, the investor will waive the deficiency balance following closing of the short sale.
The buyer had pre-qualified for a 100% first time home buyer USDA loan, so it is just beyond unreasonable for the bank’s negotiator to demand a price that they could not get for the past year while it was listed, and then to require the home buyer to come up with $7,500 to boot. This deal is dead. So much for Sequim short sales.
The other short sale that flipped for me this week was also strange. My clients also offered full listing price. The person in second refused to negotiate the amount owed to her, which was about $18,000. Instead, the first will probably be foreclosed, and the second will be wiped out, at least the security interest. In other words, the person holding the second loan on the property just shot herself in the foot, because she will now get nothing after the bank forecloses on the first mortgage.
This is more proof that Sequim short sales are chaotic and very difficult to buy even when you offer full listing price. Now if you see the one dream home and it happens to be a short sale listing, that doesn’t mean you should not make an offer. It does mean that you should get ready for a challenging two to three stressful months, and don’t pin your hopes on this home, because the negotiator may kill the transaction even if it makes no sense for him to do so. And lastly, I strongly urge that you work with an experienced buyer’s agent who does know how to work through the labyrinthian process of buying a short sale. And there you have it: Sequim short sales.
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Should I buy a short sale? This is a popular question lately. With the rumors of incredible foreclosure and short sale deals, who wouldn’t ask. I’ve lived in Sequim for 18 years, but if I were moving to Sequim to buy my dream home for the next phase of my life–retirement–I would ask, “Should I buy a short sale?”
Let’s make sure we’re all on the same sheet of music. A short sale is the sale of a home that is worth less than the balance of the mortgage or mortgages. The bank or banks must agree to take a loss, or the transaction cannot close if the seller doesn’t make up the difference.
True story. I sold a home in Sequim, and it was a short sale. My client asked in the beginning, “Should I buy a short sale?” This home was exactly what my client was looking for, and although it was a short sale, my clients figured by making a full price offer, they would be first in line. It was worth a try, right?
This home was listed for about $170,000. There was a first for the same amount, a second to another bank for $50,000, and the IRS had a Federal tax lien for roughly $80,000. In a case like this, the bank in second knows there won’t be enough proceeds for them, so they end up taking a full loss if they agree to let the transaction close. After all, the bank in first could foreclose and wipe out all subordinate liens. The IRS has a system in place to enforce or waive Federal liens, and procedurally they have 45 days to enforce or waive. They will typically waive in a case like this. The tax lien is not extinguished, but this property is no longer security for the lien.
Once we had mutual acceptance between my buyer and the seller, the documents went to the banks and the IRS for their stamp of approval. Since my client offered full price, and since a prior offer had been approved by the first bank for a little more than my client’s offer (that buyer walked away for other reasons), this offer had a good probability of getting approved.
The result will surprise you, and may cause you to ask, “Should I buy a short sale?” The IRS was no problem. But the bank in first and second came back demanding about $35,000 more. After waiting for over a month, my clients had an answer.
The Result: Not only did my clients walk away, but no one else will buy this home at this new ridiculous price. I’ve written elsewhere about how inexperienced most asset managers are. Do not assume that the people involved in handling or approving a short sale are experienced in real estate. Many asset managers, short sale negotiators, and bank employees have very little experience in real estate, yet they are handling millions of dollars in short sales all over the country. I know, it’s crazy, but welcome to the world of short sales.
Many buyers experience similar disappointments when trying to buy a short sale. If you ask me, should I buy a short sale, I would say look hard at all other listings before getting on that merry-go-round.
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Many buyers have experienced frustration and anxiety while trying to buy a Sequim short sales home. A short sale involves selling a home for less than the balance of the mortgage. This is the classic “upside down” situation. Years ago we often used that phrase when talking about a car that was upside down, but today the phrase is being used when talking about homes that are worth less than the mortgage.
There are 10 Sequim short sales MLS homes available as of today. That’s not very many. There are a total of 403 homes for sale in the MLS in Sequim. Many Sequim couples have found themselves frustrated when trying to buy a home that is listed among the Sequim short sales. Here’s why.
There is a process for handling a short sale, an SOP (standard operating procedure) for writing an offer, reaching mutual acceptance with the owner, and working with the bank to get the short sale approved and closed. Unfortunately, there is a lot of confusion about the process, and both sellers and their listing agents have a tendency to try to re-invent the wheel and create their own process. This can create many problems, and there are many scenarios that take the buyer and seller down a labyrinthian bunny trail for months without ever reaching a final agreement.
The language for contracts for Sequim short sales has been meticulously drafted and worked out by many lawyers and the banks and their lawyers, and this language is part of the Short Sale Addendum. The language includes specific instructions to all parties, including these two paragraphs:
Too many buyers who decided to write an offer on a short sale have been asked to get on a Merry-Go-Round for weeks and months, precisely because the seller’s agent does not follow the standard operating procedures in the industry, including the contract language cited above. Here is the standard procedure when making an offer on a short sale property: (more…)
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Should I try to do a short sale or a deed in lieu, or should I let the bank foreclose on my house? This is a question I got yesterday. In this market this is a question that you may be asking yourself? Many are unable or financially unwilling to continue to make mortgage payments on a property that is upside down, and there are only three options: do a short sale (if the fair market value is less than the mortgage balance), let the bank foreclose, or get the bank to take a deed in lieu of foreclosure.
A short sale is a sale of your home for less than the mortgage balance, and your bank must agree to the sales price because they will take a loss. I wrote in an earlier article on the Short Sale process, “Banks only accept a loss and approve a short sale if certain conditions are met. Sequim short sales require that sellers complete an extensive application, and they must persuade the bank that they have little or no assets to their name, no financial resources from any other source, and their income must be insufficient to continue to make the full mortgage payments. The sellers have to provide written third party proof with bank statements, tax returns, and often a great deal of additional documents.”
The short sale process is uncertain, because you have to list your home for sale, hope a buyer will make an offer, and hope the bank will accept that price. All of that could take six months or a year or two years. It’s quite unpredictable.
The foreclosure process is quite involved and takes a minimum of 6 months and more often 12 months. As a Realtor I don’t list foreclosures, but I do act as a Foreclosure Buyer’s Agent, and in that capacity I owe my clients full disclosure on the state of the foreclosure market and the risks inherent in buying a foreclosure. The process to foreclose a property is a statutory process in Washington [RCW 61.24]. When I was still practicing real estate law, I created a detailed checklist for the foreclosure process, and as you can see from this foreclosure process checklist, it is quite detailed and cannot be compromised. [Read my article entitled The Truth About Foreclosures and the foreclosure process.]
The short sale process is very slow and uncertain. The foreclosure process is painful, too. The deed in lieu of foreclosure may be the best option for a homeowner if your bank will accept the deed. Not all will accept a deed in lieu, but if you have time and you have a beautiful home in a beautiful area, you may want to start the process of listing your home and trying to do a short sale early.
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Getting Sequim short sales approved is about as likely as winning the lottery. Well, not quite, but trying to get Sequim short sales approved is not for the feint of heart. Why is a listing that clearly states it is a short sale such a risky and uncertain proposition for buyers? I’ll give you the short answer. [This article does not apply to large short sale markets like Las Vegas and Phoenix where short sales occur every day.]
A short sale is a sale in which the lender takes a loss. In other words, the bank takes less than what is owed on the balance of the mortgage because the house is upside down. In a short sale the sellers always net zero, and could end up owing the bank for the loss, unless the bank agrees to let them off the hook. There may also be tax owed on the amount forgiven under the IRS Code, although congress has temporarily waived that crazy provision.
Banks only accept a loss and approve a short sale if certain conditions are met. Sequim short sales require that sellers complete an extensive application, and they must persuade the bank that they have little or no assets to their name, no financial resources from any other source, and their income must be insufficient to continue to make the full mortgage payments. The sellers have to provide written third party proof with bank statements, tax returns, and often a great deal of additional documents.
When a home is listed as a short sale, it is the Realtor and their client who come up with a number out of thin air. Granted, it should be a number that is below FMV if they want to get it sold, and in this market that may mean the listing price is below the balance of the mortgage, or at least that the net proceeds for the bank after selling costs would mean they take a loss.
But banks do not pre-approve short sales, so the listing price for a short sale is just a price with the hope that the bank will approve the sale and take a loss. It doesn’t take a rocket scientist to know that is a risky proposition, especially when banks are routinely rejecting deals and others are taking months to even respond. Most buyers will not sit around for months waiting for a bank to respond, especially when the answer is often no.
Sequim short sales are risky propositions, because buyers have absolutely no way of knowing whether the price they agree upon with the seller (mutual acceptance price) will be approved by the bank, and the banks will NOT give us any indication of how long it will take them to make a decision. [In Las Vegas, for example, banks have worked out organized systems for handling large numbers of shorts sales, but such systems are not in place on the Olympic Peninsula.]
This doesn’t mean that you should strike all Sequim short sales off your list. It does mean that you should seriously try to find a house where you can submit an offer and get a response within a couple of days. Those are not Sequim short sales.
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How to do a short sale, that is the question. Homes that were bought at the peak of the market in 2005 or 2006 and mortgaged with a maximum loan to value ratio may be underwater, meaning that the FMV (fair market value) may be less than the current balance of the mortgage. In order to sell the home, the price will have to be reduced to the FMV, and that will require the bank’s cooperation. The bank will have to agree to accept a loss in order to facilitate the sale. But most people and Realtors are wondering how to do a short sale.
In this short video on how to do a short sale, you can take a look at the online short sale engine that helps organize and manage all of the documentation needed to coordinate a short sale with all of the parties involved. Simply go to Short Sales Online.
Getting a short sale done is no task for the uninitiated. I kid you not, short sales are difficult to get done with all the paperwork required and all the coordination required over a period of weeks or months. Many short sales fail, and there are a dozen reasons short sales fail. If you have a home for sale in Sequim or Port Angeles, and it needs to be a short sale, email me for assistance. I’d be glad to help answer your questions on how to do a short sale.
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If you have a home that you are selling and it must be a short sale (sold for less than the current mortgage balance), you need to have the right forms, the right application process, and an system that brings together every document and every party involved to get bank approval. There is such a system, and Chuck Marunde is pleased to share that system with his clients, and other real estate agents, mortgage reps, and attorneys can also use this system online for their clients.
Getting a short sale approved is no small task. Anyone who has tried to get a short sale approved knows how difficult it can be (some would say “impossible”). Banks have not, I repeat “have not,” been cooperative in getting a short sale approved even when it made very good financial common sense for the bank. I have had short sale offers fail when it was obviously a best case scenario for the bank. I had a listing in which the bank rejected a very reasonable offer, and today, 8 months later, the house has been abandoned, is run down and not maintained and soon the bank will have to go through a formal foreclosure. Until they foreclose on it, they have no right to maintain it or protect their interests. The seller was willing to cooperate with the bank in a short sale, but the bank was not. The offer was $225,000 and the bank was owed $253,000 at the time. At the Trustee’s Sale this home will most likely only bring the bank $100,000 to $150,000. How smart was that? These banks on the east coast or in the midwest are truly unequipped to handle short sales without a very good system that helps them make the right decisions.
One of the reasons banks have not been cooperative involves the chaotic nature of the current short sale and foreclosure market. Banks and their loss mitigation departments have been completely unequipped to deal with foreclosures and short sales with this volume. They have not had the short sale experts, nor the staff to even know how to develop systems to handle short sales.
Short Sale Online System
Leave it up to private entrepreneurs to develop a powerful online short sale engine that handles the entire short sale application process. Watch this video to learn more about how to get your short sale done. Encourage your Realtor or your attorney to use this short sale system. Homeowners can also retain me. For more information, simply email me at firstname.lastname@example.org. Having practiced real estate law for 20 years I understand foreclosures and short sales, but this online short sale system is fantastic. You can also learn more from the short sale website at Short Sales.
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If your home is either in foreclosure or will be soon, you can save yourself by immediately doing a short sale. If you know someone who is in this situation, you will do them a favor by emailing them a link to this article. This is the answer to a foreclosure that very few know about, and few have the tools I’m about to share with you. (Read more about Foreclosures.)
Most people understand what a foreclosure is. If payments are in default on the mortgage, the bank will foreclose. But many people do not know what a short sale is. A short sale is the sale of a home for less than the current balance of the mortgage. Banks are agreeing to accept less than the balance of the mortgage balance when a home is sold at current fair market value (FMV) all around the country.
The short sale process has been chaotic at best, and a nightmare at worst. Homeowners who want to sell their homes don’t know how to do a short sale, so they price their homes so they will net zero, but for many homes that is still over priced, which means the homes simply don’t sell and ultimately go into foreclosure.
You might say, “Well, Realtors know how to do a short sale, so I’ll list my home with a Realtor.” Nationwide very few Realtors know how to do a short sale. The problem has been that there has not been a standard for the forms and information required by a bank, nor has there been a bank standard for the requirements to approve a short sale.
The result is that attempts to do a short sale have been frustrated by chaotic procedures around the country, inconsistencies in the process, differing standards among banks, loss mitigation departments without clear guidelines, and Realtors who have all but given up trying to get short sales through.
If you have a home you need to sell, and you expect to net zero anyway, and if it does not get sold fast you will end up in foreclosure, you ought to get serious about doing a short sale. I recommend two things.
1. Find a Realtor who understands how to market a home in this Internet marketing age, and who understands how to do a short sale; and
2. Use the most powerful short sale engine in the U.S. What is this short sale engine? It is an entire online short sale software system that will help you organize and manage the entire short sale process from beginning to end. It includes all the forms and letters, and allows each participant to log in and play their part. That means your Realtor, your bank (and their loss mitigation department), the buyer, and an attorney (if you or your buyer have one) can all login and facilitation an efficient and quick short sale.
My associate is getting 85% of her short sales approved, which is unheard of across the country, and some of these transactions are getting approved within a matter of two weeks. This is the single most powerful software to get a short sale approved.
You can use this short sale engine online now no matter where you live in the United States. The database connects to banks around the country. Go to Nationwide Short Sale Engine. If you live in the Sequim or Port Angeles area, I recommend you hire me as your Realtor and we will use this short sale engine to get your home listed and sold quickly and get the short sale approved with your bank quickly. You can go to SequimShortSales.com or PortAngelesShortSales.com.
There are potential tax and credit score consequences to both foreclosures and short sales. Foreclosures are often done as non-judicial foreclosures, but banks are also doing judicial foreclosures to obtain a personal judgment, and short sales have potential taxes on the amount of the mortgage forgiven, although legislation may eliminate that issue. For tax and other financial advice, I recommend you consult your tax account or see an attorney for legal advice.
Time is of the essence if your home is upside down or is approaching a foreclosure. A short sale may be the best answer to get your home sold quickly.
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Finally, a short sale system that really works and helps sellers and buyers get transactions through in the least amount of time with all documentation required by the banks. Chuck Marunde is pleased to announce the first online short sale engine for the State of Washington and the entire Northwest. Chuck has been working with a group of short sale experts from Florida for about three years, and the final product is now complete and ready for buyers and sellers to use. This is the first and only powerful online short sale engine in the entire Northwest and on the Olympic Peninsula and in Sequim and Port Angeles. What does it do?
For too long the process of getting a short sale through has been a nightmare, and many clients and their Realtors will say that is an understatement. When a home’s fair market value is less than the balance of the mortgage on the home, the house is upside down, and if a buyer and seller can reach mutual acceptance on a fair price in the current market, it may mean the bank must accept less than the mortgage balance. This is what we call a short sale. But trying to get banks on the east coast (or anywhere) to cooperate on a short sale in Sequim or Port Angeles has been nearly impossible. I’ve had several short sales go south simply because we could not get the bank to work with us on a short sale, and much of that had to do with documentation and the timely processing of all documentation by the responsible parties.
Banks have been ill-equipped to handle the massive volume of foreclosures and short sales, and their loss-mitigation departments were not staffed or trained to handle the defaults and short sale process. In fact, there were no systems set up for handling large volumes of short sales, nor were there even standards upon which to make decisions regarding short sales.
While banks have been unequipped to handle short sales necessary to get houses sold in this recession, real estate agents have been thrown into the lion’s den in terms of trying to figure it out how to handle a short sale, with agents all over the country doing whatever they heard might work, sending in wrong documentation, insufficient backup documentation, and in many cases not knowing to whom to send the documents and requests to.
Finally, someone has created a short sales system that is being used effectively to complete short sale paperwork, assemble a professional package to submit to banks, and a system of organization and management of the entire process from beginning to end so that all parties involved (buyers, sellers, banks, their Realtors, and their attorneys) can log in to the online account to facilitate the transaction. There has been nothing like this available until now, and Chuck Marunde is pleased to announce this launch of the areas first online Short Sales Engine. The system includes:
If you are a buyer of a home that must be a short sale, contact Chuck Marunde. As your buyer’s agent, he can use this Short Sales Engine to push your offer through to acceptance faster than anyone without this incredible system.
If you are a seller that must list and sell your home as a short sale, this is the system you need to accomplish what has been confusing to so many across the country. Although previously Chuck has not been accepting listings that necessitated a short sale, Chuck is now accepting short sale listings because this system is so efficient. This short sale system gives Chuck a huge advantage in getting a short sale through, and that advantage plays out in favor of his clients who list their property with him. It doesn’t hurt that Chuck was a real estate attorney for 20 years and understands the foreclosure and short sale process from his own professional experience.
“I’m very pleased to finally have this short sale system up and running after three years of behind-the-scenes work with the most knowledgeable short sale experts in the country. While I am rolling this system out for everyone in the State of Washington, I am pleased to make this announcement first to Sequim and Port Angeles residents right here,” says Chuck with obvious enthusiasm. “I’m grateful to be able to bring something so needed and so beneficial to buyers and sellers on the Olympic Peninsula. This online short sale tool is going to help a lot of people get their homes sold so much faster in cooperation with their banks.”
“Today I talked with one of my associates who is a Realtor and used this system to help one of her clients. After completing the online documentation from the checklist, she hit the button that assembled the entire short sale package for the bank, creating a cover sheet, a table of contents, and all of the documentation and letters required by her client’s bank. She said it was about an 80 page package. She sent the package that was created within the Short Sale Engine while online directly to the designated point of contact at the loss mitigation department on a Friday. That same afternoon, that bank employee called my associate and said, ‘I got your package and it is so professional. Everything we need is there and labeled nicely. Since you’ve given me everything I need to make a decision, let’s get this done right away. I’d like to get this file off my desk.”
This short sale system works.
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If you are buying a home in Sequim or Port Angeles involving a short sale, here are three proven steps to making that purchase a huge success. If you’re not familiar with the term “short sale,” it involves buying a home at a price that is less than the current mortgage balance. Most people are familiar with the concept of a car being upside down when the car isn’t worth what is owed on it. Until the recent real estate recession, we didn’t have homes that were upside down. Around the country many homes have had to sell as short sales. Of course, this requires the bank’s agreement to cut their losses and take a payoff on the loan that is less than what is owed.
Short sales are closing every day in cities like Las Vegas and Phoenix, but not in Sequim and Port Angeles. The procedure and the steps to accomplish a successful short sale here are different than the template for the short sale hot spots around the country. As a real estate attorney who handled many foreclosures and short sales, and now who represents buyers in short sales as a real estate agent, I’ve articulated three steps to a successful short sale in Sequim or Port Angeles. If you do complete these three steps, you still have no guarantee, but if you miss one of these steps, you are guaranteed to fail or end up with a nightmare scenario.
3 Steps to Buying a Short Sale Home
1. Know the process and save yourself from disillusionment. Know that negotiating a short sale in Sequim or Port Angeles will be a slow and tedious process, and the bank can leave you waiting, literally not responding for months. The process can drive a normally patient person to say, “Forget it, I’m not going to sit around waiting, not knowing when or if anyone will decide to respond to my offer.” [Again, this is not the same in Las Vegas where there are currently 700,000 loan modifications in process.]
2. Find a Professional Short Sale Buyer’s Agent. Buying a home that must be a short sale is not something you want to do without an experienced professional who has been there, done that many times. There are many nuances and many traps for the unwary. I picked up many clients as a real estate attorney who thought they knew all they needed to know, but subsequently found themselves in deep trouble. When I represent a client as their Short Sale Buyer’s Agent or their Foreclosure Buyer’s Agent, I cost my clients absolutely nothing. Sounds too good to be true, doesn’t it? But it is true. The seller pays all my fees as well as his agent’s fees. What I give my clients is a lifetime of real estate experience, including many short sale and foreclosure transactions.
3. Do Your Due Diligence. You’ve got a lot of due diligence to do when buying a home in a new area, and a short sale or a foreclosure will require some additional due diligence because of unique problems associated with distress sales. Also in this process, the bank will submit certain documents to you, in addition to the standard real estate forms used in Washington, and these forms will require legal interpretations as you will be asked to sign them. Some entities representing banks in this process have put together forms that were not drafted by an attorney and give them complete access to all of your personal financial accounts and identity. That is not only inappropriate, but dangerous, and yet many who don’t know or aren’t getting good advise are signing such documents. [I know this because I have reviewed these documents and advised my clients.]
Your ideal home may be in the MLS and listed with an agent, and it may or may not necessitate a short sale, but if it does, know how to go through the entire process and come out a winner.
I hope this information is helpful. If you do find a home that is for sale, and it is either a foreclosure, or was, or it must be a short sale, you can hire me as your Short Sale Buyer’s Agent or Foreclosure Buyer’s Agent. Contact me by email, email@example.com, or call me at 360-775-5424. I would love to represent you.
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A number of Sequim and Port Angeles homes have been for sale subject to short sale approval. This means that the selling price agreed upon by the buyer and seller will require the bank holding the mortgage to agree to accept less than the balance of the mortgage. The practical problem here and in many parts of the U.S. is that we can’t get these short sales approved through the banks if our lives depended on it. I’ve written about how impossible it is to get bank cooperation, even when the offer is very reasonable.
The Feds have compiled new guidelines for banks to implement a short sale, which take effect in April of 2010. This may be good, although I’ve seen the guidelines, and even though I was a lawyer, I dreaded the idea of having to read this massive document full of legalese and bureaucratic phraseology. I’m not going to read it. If you want to, here it is: Short Sale Guidelines.
I will cut to the chase for those of you who want the 411 without further ado.
Basically, these guidelines, which are voluntary, will allegedly provide a template of procedures for banks to use around the country, so we can get these short sales done in a reasonable period of time with some sort of standard.
Two points of interest to me. First, the guidelines are to provide standardized forms, procedures, and timelines to allow the borrower to receive pre-approved short sales terms prior to the property listing. Wow! That would be a miracle if it actually happens.
Second, the borrowers are to be fully released from future liability for the debt. Wow! That would be miracle two if that happens. According to the guidelines, these are supposed to happen, at least for the banks that agree to voluntarily participate. Let’s hope they all do.
You can read more about short sales, the process and the challenges at Sequim Short Sales.
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The success or failure of your short sale depends on where you live. It should not be, but it is. How banks are handling short sales varies dramatically based on where you show up on Google maps. I’ll explain.
A short sale is the sale of a home at a price less than the current mortgage balance. While a buyer and seller may agree on a price that is less than what is owed on the mortgage, obviously in order for such a transaction to close, the bank has to agree to accept less than what they are owed. Without their agreement, they will not issue a reconveyance of the deed of trust extinguishing the promissory note on the debt.
Bank short sale departments have been totally overwhelmed by the volume of short sale requests (let’s not even get into the foreclosure chaos that has also overwhelmed the banks). They did not gear up for this, which means they do not have systems in place to manage short sale requests. A bank has a lot of due diligence they are obligated to do in the process.
They must process an offer from a Realtor and coordinate with the seller, their client. This means having an organization that can manage files, computer database records, and compile all loan and value information from various sources (which exceeds the capacity of many bank databases at this time). They must put together a checklist of information and documents they need to process a short sale request, and as one short sale clerk told me,
“Sir, we have multiple checklists, depending on who is the supervisor at the time, and I’m sorry but it’s chaos in our short sale department. I’m not supposed to talk like this. Our investors are demanding that we require certain items, no matter how impossible it may sound, and we have no flexibility. We have requirements, which vary as I said, and we apply those nationally. I’m so sorry but our investors are requiring this, and I have no authority to help you, no matter how reasonable your request may be in your market, if you cannot meet all of our [multiple] checklist requirements. And I cannot promise you that the offer will be considered within any particular time period. We usually take 30 to 90 days to process a request, but it could take any amount of time, but we have files we haven’t been able to get to in months.”
The result of such chaos and lack of good organizational systems is that bank short sale departments have implemented systems on a regional basis. So Las Vegas and Phoenix short sales (and foreclosures) are handled much differently than a small out-of-the-way market like mine in Sequim and Port Angeles on the Olympic Peninsula in Western Washington. Short sales are being approved daily in the Vegas market, but not here. It is like pulling teeth to get a bank to cooperate on a short sale here. I take that back, because it is much harder than pulling teeth.
Do the bank short sale departments specifically and intentionally create different systems around the country? I seriously doubt it. I think the more likely explanation is that they reach the practical limitations of manpower, money, and other organizational resources. Their pipeline is getting clogged up in numerous places, so where do they focus their resources first? In the larger markets that have crashed with thousands of homes in foreclosure and thousands needing to be sold prior to foreclosure as short sales.
The reason this is important to understand is that rules and principles for handling short sales that work in one part of the country may not work so well in another part of the country. While many are out making millions selling their short sale secrets and systems, for the Realtors among us who get involved with short sales, it is important to know that what worked in Miami might not work in Tacoma or Sequim. The process, the paperwork, and the people will all be different. As with every real estate transaction, every short sale must be handled on its own merits and each client given the highest customer service to work through the unique issues in that transaction. Be prepared to spend between three (3) and five (5) times as much sweat and labor on a short sale as you would on a regular sale.
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There are Sequim spec homes for sale, homes that builders built anticipating they could sell those homes to buyers during or after construction. During a strong real estate market a Sequim spec home would sell within a reasonable period of time, provided the location was good and the floor plan was what the majority of retirees want when they move here. There have been a few speculators who built homes that were just plain weird, and those homes sit on the market a long time.
Being a good carpenter and being good at marketing are two different things entirely. New contractors often get in the market just as it starts turning down. A Port Angeles builder who was not a novice had about 24 spec homes foreclosed upon this past year. What a disaster that was, but it was obvious he was sailing against the wind when the real estate market crashed and he kept on building like there was no tomorrow. Those of us who have been in real estate for a few cycles anticipated his foreclosures, because there were no buyers and he had massive lines of credit.
There still are some spec homes on the market, and not all have been foreclosed. Some are in default to be sure, and will have to be sold as short sales if they are to be sold at all. But as I have written elsewhere, there is a major problem trying to get a short sale through these days.
This is a true story, although I have changed the numbers slightly and not revealed any names to protect the guilty, although in this case most of the players are innocent victims of a banking system out of control. (This is not to suggest that the seller is not responsible for his speculation and mortgage debt, because he is.)
I represented some great retirees from the east coast, and having found the ideal home, which happened to be a spec home, I drafted the offer on behalf of my clients, and it was accepted by the seller subject to the bank’s acceptance of less than the balance owed on the mortgage. The seller had some inkling from his bank that they would accept this price, and my buyer clients were excited to be getting the home of their dreams at a price less than what it would cost to buy the lot, develop it, and build the same quality home. The seller was glad to get this home out of his inventory and move on to put out some other fires in his portfolio.
A short sale is a necessity today if a bank is to get a house that is in default out of it’s bad loan inventory. The reality is that the fair market value of homes is low enough and far too many homes were over appraised and refied, so many homes are upside down. In this case, the buyers and sellers agreed on a price of $329,000. The balance owed the bank was about $405,000.
Immediately after the parties reached mutual acceptance, the agreement was sent to the seller’s bank for their stamp of approval, and then the agreement would go to escrow for closing in about 30 days.
Alas, after waiting and waiting for weeks and over two months, the deal is dead. Why? Because like the other four short sale transactions I’ve been involved with this year, the banks simply won’t respond for months and months until at last the parties just move on with their lives, and eventually the banks foreclose. In this case, the bank actually did something even more interesting. After making us wait two months with no response at all, they suddenly raised the price to $405,000. (Obviously, they forced the seller’s hand here, and made him raise the price, since they would not accept less than what they were owed.)
That’s right. The fair market value of the home is $329,000, plus or minus, because that is what a ready, willing, and able buyer will pay, and it is the price at which the seller is willing to sell after having this spec home sit on the market for about two years. (One could argue it is worth $340,000 or even $370,000 maybe, but the market is really weak right now, and this home has been on the market for two years. My client’s offer was the only show in town.)
Isn’t it amazing that the bank raised the price to $405,000, the amount they are probably owed? Why would they do something so ridiculous, effectively killing this transaction or any other transaction on the horizon? This home is doomed to sit empty for another year or two at $405,000, at least in my opinion.
The answer is that the “system” has caught up with the seller (and my buyers), and the system is now in control. Let me explain. The bank that originally had this loan was taken over by the FDIC and all the customers and accounts have been assigned to another bank. But the toxic loans are kept and managed by the FDIC, in this case a Seattle administrative office.
The banking and federal deposit insurance rules and regulations are very complicated, and there are things the FDIC case manager simply does not have legal or administrative authority to do. He may not have authority to sell a house for less than the amount owed on it. The FDIC is not a bank or a mortgage institution. It is governed by different rules, rules that do not necessarily address the facilitation of short sales.
What the FDIC has told me is that they will be wholesaling toxic loans to other financial institutions for pennies on the dollar, maybe only 25% to 50% of the loan balance. But that will take time. Maybe in a year or two this Sequim spec home will have finally worked itself through the labyrinthian bureaucracy, at the end of which it will probably sell for less than $329,000, since it will have been sitting vacant and appear to be rundown and worth less.
My argument to buyers is that the best buys in this market are not Sequim spec homes for sale, because these homes are often short sales disasters. There are many better deals to be had in the multiple listing service in Sequim and Port Angeles, homes for sale by homeowners who are not in default, but are selling at extraordinary prices.
There are some beautiful homes that are not spec homes that are listed as short sales. If you make an offer on one of these homes, be sure you have a buyer’s agent who knows the process and how to walk you through it. It is a labyrinthian path for the uninitiated. I recommend a professional guide.
You can search all Sequim spec homes for sale and all other homes listed for sale here.
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Some Sequim homes are in foreclosure or need to be sold for less than the current mortgage balance (short sale). Fortunately, Sequim and Port Angeles have far fewer homes in distress than most of the country. There is some confusion among homeowners in financial distress and even among real estate agents about what happens and how to work through the process.
If you’ve read my articles on this blog about the foreclosure process and short sales, you may be familiar with the way things work. You’ll find a series of articles on this real estate blog on foreclosures, the foreclosure process, costs and fees in a foreclosure, the short sale process, and getting a short sale through.
I’m told by mortgage bankers and insiders working inside the loss mitigation departments of mortgage companies that a short sale will not even be considered by a bank until a loan is in default at least two months. Of course, that’s not real sensible on the part of the banks, but that’s the way it is.
I have a listing that will be a short sale, and to sell it the bank will end up taking less than the current mortgage balance. If they do not agree, it will simply go to foreclosure and they will end up taking even less. They know this, and this is why short sales are being accepted.
Buying a house in foreclosure or trying to structure a short sale requires knowledge about the process. Frankly, it is much harder than handling a regular listing and a regular transaction. I recommend reading the series of articles in the above link before making decisions.
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Question. My name is (name withheld) and I allowed myself to write to you after hours spent on the real estate blogs. We sold our house in Lake Stevens, WA in November 2008 in a short sale. My husband acted on my behalf and signed a promissory note with second lender for $8600, with payments of almost 75 dollars. My husband signed a note because we were informed by our broker and a Escrow Company, that this note will stay in our file (whatever it means), until we purchase our next home, and then the second lender can go after assets from our new home. We understood that we will not be personally liable for this note, so even after a judgment my husband’s wages cannot be garnished. We cannot find any info about that on any blog, so we would really appreciate any thought.
Answer. I’ll share a few thoughts about the law on promissory notes and your obligations, but I don’t know all the facts of your case, and I have not seen your documents. I am retired from law practice, so what I do share is not rendering a legal opinion, and I would recommend you see an attorney to address the legal issues and your financial obligations. I will talk generally about notes and the obligation on notes.
When you sign a promissory note, you are personally obligated on that note under the specific terms of that note, which in your case apparently was $75 per month. According to the terms of most standard notes, if you do not make the monthly payment, you are in default. The company that holds the note and to whom you are obligated to make payments could sue you and obtain a judgment in court if you are in default. With that judgment they could enforce their legal right by attaching your assets (those not exempt) and garnishing your wages.
If you sign a promissory note, you are obligated, and it doesn’t matter where they put the note (in a file, in a drawer), the note is still a legal obligation that they can enforce against you.
I know that probably doesn’t alleviate your difficulties, but I hope this information is helpful.
Chuck E. Marunde, J.D.
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