Arizona Short Sale “Experts” Abound in 2010

Homeowners searching for help with a short sale might be unnerved to find that almost all of the real estate agents advertising in their city are promoting themselves as “Short Sale Specialists” or “Short Sale Experts,” or some other exemplifying adjectives. With so many experts out there, how can a homeowner be sure they actually have an “expert” to help them? Let’s start out by stating unequivocally, there simply is not any licensing or certification from any governing body anywhere that places restrictions on who can process a short sale, nor are there universal standards on how they can or should be done. Finding a good short sale agent to help you involves the search for knowledge and experience. They’re gonna need both.

It might be helpful to define the word “expert” itself. I suppose common sense dictates that anyone claiming to be an expert at anything would have to exhibit the following qualities:

1.) A deep and current knowledge of the subject

2.) Plenty of current experience with the subject

How much knowledge is enough? Consider this: if you had to hire an attorney, a CPA, a doctor, or a mechanic, how much would you expect them to be “up-to-date” on current trends, law, or practice in their subject? My guess is, most folks would like it if their representative was as current and cutting edge as possible. Until 2009, there was virtually no formal educational training for agents in short sale negotiations. Now, there are many training/coaching/certifying entities. Some agents have been certified by the Distressed Property Institute (CDPEs) to handle short sales, others get trained and certified as “Master Short Sale Consultants,” while other agents may have no certifications because they don’t really need any; these might be agents who are either research hounds, or are very experienced and engaged in the practice.

In regards to the subject of experience, consider the same example. How many cases like yours would you like for the attorney you hire to have tried? How comfortable would you be if your mechanic reassured you that he had dealt with exactly this same problem on numerous occasions? Experience also has a shelf life. If I was a short sale expert back in the late 80s, I might have a foundational knowledge of the subject, but might be well behind in the current methods being used to perform short sales. So, how is the homeowner to select a true expert? By getting the answers to just a few questions, when interviewing short sale experts:

1.) Ask them to tell you about the latest laws and programs that are in place to help you in your situation.

*Here, you’ll want to carefully gauge to the agent’s overall knowledge on the subject. Does he or she speak with authority and confidence on the subject, or can you hear lots of paper shuffling in the background? How much detail is he or she able to go into? When there’s an expert on the other end of the line, you can definitely tell.

2.) Ask them for records of actual success.

*Here, you’ll want actual records of success. Not stories, not letters of reference from beaming clients, actual records. The specific document you want is called a “Closed MLS Plano.” Ask them to show you at least a few recently closed short sale transactions. On an Arizona Regional MLS Plano, you’ll see the following data strip (click image for larger view) near the bottom of the page:

 

The highlighted portions show that it was a short sale (Short Sale Apprvl Req), it took 144 days to complete, and it closed escrow on 12/14/09. Ask for the agent to show you at least 3 of these that are fairly current.

If you can get a good feel for the knowledge level of the agent, and be assured that they actually have experience, you’ll be well on your way to selecting a good representative. That’s not to say the experience is guaranteed to be good, but at least you can be confident that the person is really at least experienced. Beyond this, it all comes down to customer service. At the bare minimum, I think decent service dictates that your representative be able to educate you, answer your questions, communicate with you on progress, and guide you along the way.

Here’s to hoping you never need a short sale expert!

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or by Email: therealtybutler@gmail.com

*Disclaimer: We DO provide loan counseling services and process short sales for our clients. Please also remember: I am NOT an attorney, and neither do I play one on TV or the Internet. None of these pontifications should be construed as specific legal advice. If you need specific legal advice regarding your personal situation, give us a call. We can help you ourselves, or provide a list of housing counselors that are free!

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Arizona Short Sale Process

TRANSCRIPT:
PART II: Pre-foreclosure Options (SS Overview)

Hello Again, and welcome to The Butler Blog. As always, I am your intrepid host, Allen Butler, managing director of TRBLLC and agent of West USA Premier Properties.

Today we’ll continue with our series on pre-foreclosure help for Arizona families. Last time, we talked about loan modifications and the problem with negative equity. Let’s review that for just a moment:

Remember, if you want to stay in your home, you can either bring your account current, or you can modify your loan to make it more affordable. Loan modifications are a personal choice that should be taken cautiously, and with an eye to the future. Also remember, the payments will go up again, and you may be in the home for quite awhile.

Now, for those who can’t keep their homes there are other options to minimize foreclosure damage. Today, we’ll deal with one option, and that’s a short sale.

A short sale is nothing more than selling your home for less than you owe the lender. You are asking the lender to allow you to do a “short payoff” or short sale on the home.  Here is an example.

If you owe $250,000 to your lender on your home, and you can no longer pay, you can get permission from your lender to place your home on the market at the current fair market value and find a buyer.

In Arizona, negative equity is tremendous, and it’s not uncommon for a home like this home to be listed on the open market for $120,000. Once an offer is secured, this offer is submitted to the borrower’s lender, and the lender agrees. They’ll allow you to sell it for $120,000.

However, there is still $130,000 left on the loan balance. What will happen to this “extra debt” you owe the lender? Many times, the debt is simply forgiven and written off by the lender. Of course, there is more to this, as there are lots of legal, credit, and tax pitfalls to look out for. We’ll deal with those in future episodes, but remember, these are serious topics for qualified professionals.

The question begs itself at this point: why would a lender do that? Why wouldn’t they just foreclose on the home and sell it themselves? It’s a good question, and one that we’ll answer in a moment, but first: why would a HOMEOWNER do a short sale? What are the benefits to THEM?

First, for homeowners facing foreclosure, a short sale can

1.) Minimize credit damage resulting from foreclosure

2.) Avoid a foreclosure on credit and/or public records.

3.) Make the foreclosure process less disruptive to personal life.

4.) May allow the borrower to make a new home purchase much quicker.

Now, as to why a lender would do a short sale, it helps to understand the inner workings of the foreclosure process from the lender’s perspective, and it’s ALL about money and finance.

1.) First a lender has to spend LOTS of money to remove a homeowner from their home.

2.) Second, lenders will have to spend thousands on maintenance and holding costs.

3.) Third, lenders can SEE what a home is worth TODAY, but cannot know what the home will be worth later. If prices continue to fall, lenders will lose even more money.

4.) Finally, every time a lender forecloses on a family, it causes further depreciation of the market and THEIR OWN loan portfolios.

A short sale actually benefits both homeowners AND lenders, and is probably the best idea if you simply can’t stay in your home. Let’s take a look at eligibility requirements.

1.) First, any homeowner who has a verifiable hardship can pursue a short sale.

2.) Second, the home has to have negative equity to pursue a short sale.

These really are the ONLY two requirements to pursue a short sale. However, how a short sale is processed and how it works is considerably more complex. One of the most serious complexities is the tax, legal, and credit considerations. Let’s look at those briefly.

1.) Sometimes, due to special circumstances with second lien-holders, insurance companies, or a HELOC, the homeowner may be asked to contribute to the loss, either up front, or with a promissory note.

2.) For some, the Mortgage Debt Forgiveness Act of 2007 may not protect them from having to pay taxes on the discharged debt from the lender.

3.) In rare cases, the lender may demand that the homeowner waive their rights under the Arizona Anti-Deficiency Statutes.

4.) The credit damage arising from mortgage default can also be substantial in cases where short sale processing is anything but “short,” and drags on for almost a year.

These are SERIOUS potential consequences, and you absolutely MUST protect yourself.
1.) First, always talk to trained, certified, professionals about your specific circumstances.

2.) Seek a real estate agent with short sale experience, and at least 3 short sale references from clients with completed short sales.

3.) Know and understand the tax and deficiency laws in your state.

4.) Never pay anyone for help. Almost ALL reputable loan counselors and short sale agents DO NOT charge ANY fees to the client, ever.
Now, this has been a brief overview of the short sale, and in our next installments, we’ll break down short sales even further. Next time, we’ll deal with verifiable hardship, and the immediate actions to take when hardship comes.
Please, if you have questions or concerns about loan modifications, I encourage you to call our offices, or simply send an email. We are always here to help. Also, remember, these broadcasts are just my own personal opinions. The things I say should NEVER be construed as specific legal, credit, or tax advice. If you have questions regarding your specific set of circumstances, I encouraged you to call my offices, and also to seek the appropriate professional counsel.
Until Next time, this is Allen Butler, Managing Director of The Realty Butler LLC, and agent of West USA Premier Properties, signing out.

Arizona Short Sales: Shorty “The Short Sale ‘Expert'”

In Arizona right now, we have two kinds of homes selling. Those that are in the foreclosure process, and those that have already gone through the process.  My own anecdotal evidence suggests that these are really the only two types of listings that are selling. There undoubtedly are a few (very few) homeowners who have both the equity and the stomach to price their homes in line with foreclosures, and are selling. What does this indicate? What it has always indicated: if you price the home to sell, it will sell.  In June (remember June? It was just a few days ago), 5265 homes sold. That means that there ARE people buying homes. And those numbers are actually very good compared to January, where only 2471 homes sold. Literally, home sales have very close to doubled in the last few months.  This great news leads me to my next point: the pricing of short sales in Arizona.

As an agent who handles both short sales and lender owned homes, I see the following scenario played out on a weekly basis.  I get a call from a lender indicating that they want me to sell a home for them that they have just “taken away” from some unfortunate homeowner.  When I go into the data systems to examine the property, about half the time I find the subject property is actively for sale still as a short sale. Needless to say, the short sale didn’t work for those poor people. I immediately find out why though, and it’s not pretty. A ficticious conversation will illustrate nicely:

Me: “Hi. I was calling about your listing at 12345 W. Elm St.”

Shorty the “Short-sale expert”: “Yes! That property is still available. Would you like to see it?”

Me: “Actually, I have seen it. I met your nice homeowner, and informed him that he needs to leave the home. It doesn’t belong to him anymore.”

Shorty: “That’s news to me! Who are you anyway? Do you work for the bank?”

Me: “That’s right. I do work for the bank. It appears that your short sale effort has not paid off. The lender has taken your client’s home away.”

Shorty: “And you are the lender’s new listing agent?”

Me: “That’s correct. I’ll need you to cancel your listing, and remove your sign and lockbox from the property. Also, you may want to help your client find a new place to live.”

Shorty: “The short sale negotiator from XYZ Bank told me that if the home went to foreclosure that they would give me the listing to sell for them.”

Me: “Uh. . .you might want to call that person back and see what they say now. Sorry about the confusion. Good luck to you. . .”

Now,  what does this conversation illustrate? A few things, actually, none of them good for the poor homeowner who lost his home to the bank. First, the fact that Shorty tried unsuccessfully to complete a short sale over a period of six months strains the bounds of credulity. How does one fail at short sales? By over-pricing. Same as any other failed home-sale attempt.  A home will simply not sell if it’s over-priced. Doesn’t matter if it’s a short sale, foreclosure, builder spec home, or traditional sale. If it’s over-priced it won’t sell.  Period.

Second, it seemed to me that Shorty the short sale expert had more hope of getting the REO listing from the  lender than he did of completing the short sale.  Can you spell F-I-D-U-C-I-A-R-Y? In a nutshell: you place the client’s needs needs above your own. Period. 

Let’s look at the home in question. The short sale was listed at $249,500. When the bank called me to sell the property for them, they asked me what I thought it was worth.  I did my research, and determined that the home was worth $150,000, tops. The lender (not having any emotional attachments, simply wanting the home sold) agreed with my assesment, listed the property at $147,900, and had it sold within two weeks. 

Seems like common sense, doesn’t it? So how did Shorty miss this? The short sale listing sat on the market for 6 months, without having had a price reduction once. Wouldn’t the lack of people going to see the home have been one clue? How about other properties selling all around this one for far less? A second clue perhaps? Or how about the fact that the lender kept calling asking for an offer on the property? Where was Shorty? Did he go on vacation? What was he telling his client this whole time? I don’t know. It was frustrating for me to see. And now, I have to kick this poor guy out of his house!

Bottom line? You MUST price your short sale to actually sell! My own policy? Price it at what you think the market will bear. If you don’t get an offer in the first two weeks, drop the price. Repeat and rinse. Price drops every two weeks until sold. Works every time. See, here’s the thing: if I can’t sell it for a certain price, the lender won’t be able to either. Whatever the price is that someone’s willing to pay, they’ll pay whether its for sale as a short sale, lender owned, or owner sale.

This scenario is further complicated by one salient fact, and the fact that drives the entire short sale process: the only reason to do a short sale is to salvage your client’s credit. Every month that your client misses a payment is another “ding” to their credit. The longer it takes, the more damage your client suffers. You pricing their property above what someone is willing to pay is simply destroying your client’s credit! Don’t do it.

Short Sales For Agents–Multiple Offers?

So,

As the short sales go rumbling along in our various real estate markets, a question has arisen, and the answers are varied and contradictory. The question is: how do I, as the listing agent, handle a multiple offer situation on a short sale?

Make no mistake, however you decide to handle it, people are going to be upset. It’s just like any multiple offer situation. There are winners, and losers. There are essentially two views of how to handle this scenario with short sales. We’ll assume for the sake of clarity, that these multiple offers come in, not all at once, but successively, over a period of a few weeks.  If they all come in at once, it’s a no-brainer. Your seller chooses the highest and best offer, with the most likelihood of passing lender scrutiny. However, even if a bunch of offers come in, and you pick the best one, another one is probably going to come in after this initial flurry, and what are you going to do with that one? Suppose it’s higher than the highest and best you have in hand?

One group of agents will simply take the next offer that comes in, and submit it to the lender also. If any offers come in, each offer is simply passed along for the lender for consideration. Some agents will not even take the highest and best of the bunch of initial offers; they’ll just submit them all. As justification, they say that they are “serving the interests of their client”.

I personally believe that not only is this operating unethically, I also believe it is damaging to the interests of your selling client. Let me explain:

First, when your seller and a buyer sign a contract for purchase, it is LEGALLY BINDING. Just because there is a caviat that indicates the contract is subject to the ultimate purview of the lender does not make it any less valid as a contract. Remember in real estate school when your professors talked about “VOID vs VOIDABLE?” This contract, because it is subject to lender approval is voidable. And, it is not VOID unless the lender, in their ultimate wisdom, deems it such.  You cannot simply take each successive contract and send it to the lender. Why not? Because the first buyer could sue you, your brokerage, and your client, and rightfully so.

So, how do you handle it? You have two options. You can:

a.) have each buyer who submits a contract sign a waiver relinquishing their right to positional heirarchy. This means that each buyer who submits a contract understands that all offers will be submitted to the lender, and that the lender will choose the best one. This, in my opinion, is the coward’s way to handle contracts.  You are going to run into all kinds of disclosure issues. What is each buyer’s question?

“How much are the other offers? I want mine to be the best.”

Unless you have a signed agreement with your seller to disclose the details of offers, you simply can not do this. It is a violation of contract law. You can ONLY disclose the existence of offers, not their respective details. Do YOU want to get into making full disclosure of every offer to every buyer’s agent, and have them simply fight it out? Don’t do it. It’s a recipe for disaster. You can also:

b.) handle multiple offers with honesty and integrity.  If an offer comes in that you think has a chance of getting through the lender’s scrutiny, send it to them. When other agents call to inquire as to availability, simply say what you would in any such circumstance:

“I have an offer on the property at this time. You are more than welcome to submit your offer for consideration in a back-up position.”

Now, that wasn’t so hard, was it? Simple, efficient, to the point. And it’s LEGAL! What are the benefits of doing it this way? You protect your client from a lawsuit by an outraged buyer, and you increase your chances that the lender will approve the sale.  I can hear you scratching your head. How does this help my client’s chances of having the sale approved by the lender? Simple: if you send multiple offers to the lender, you’ll simply confuse them. They’re confused enough already. Don’t help them. Sencond, by sending multiple offers, you might unwittingly be creating the impression that you’ve got a hot little property on your hands that might be worth more money. This is going to make the lender cocky. Their demands for money are going to go up, and worse yet, they may get the impression that it’s a better idea to take the property away from your client and sell it themselves for more money!

Frankly, unless your seller client is going to be liable for taxes and/or definciencies, they could care less how much the property sells for. They’re off the hook if the property sells, period.  By “accepting” multiple offers, you are violating contract law, and doing your clients a disservice.

Caution and Disclaimer: I am NOT an authority on contract law, although I like to pretend that I am.  All questions about such issues should be addressed to and by your individual broker or firm’s legal counsel. This is their job, along with taking a hefty cut of your money.

The Latest on Arizona Short Sales

Hello Again, Folks,

I know it’s been a few weeks since I’ve been able to post anything about short sales and the like, and I wanted to keep you up-to-date on the current state of this aspect of the Arizona market. The reason I have been unable to post? I’m up to my eyeballs in short sales and foreclosure homes! So, what’s been going on?  I have determined a few things that may be helpful to both homeowners and real estate agents dealing with these nasty bits of real estate practice:

a.) If you can help it at all, stay the heck away from Countrywide if pursuing a short sale! I have written about the Blundering Nincompoopery of Countrywide before, and nothing has changed. These guys are the most inept bunch in the industry. For example, I have a short sale that was just accepted by Countrywide, in which the offer on the home was sent to Countrywide on February 19th, 2008. By the time this file closes escrow, it will have taken . . .uh. . .too long. WAY to long!

Interesting side-note: The last two short sales I completed with Countrywide were of a very interesting nature, and probably shouldn’t have been accepted in the first place.  On the first one, the homeowner never missed a single mortgage payment, and on the second, the homeowner never sent in any financials. No bank statements, W-2s, tax filings, income statements, not even a financial worksheet. Just a hardship letter. Do not try this at home. It will not work for you; I am simply THE MAN ;>)

Really though, and this brings me to point b:

b.) Short sales are won, or lost, on the tenacity of the listing real estate agent.  If you EVER take “No” for an answer, you are sunk.  I don’t know why, but I have always enjoyed having my way with bureaucrats. Some fun and pleasant memories: The power company calls to say that the power is being turned off for non-payment. By the end of the hour-long conversation, it is their fault, they are apologizing, waiving all fees, and I have a credit balance of $278.  Calling the credit card company, and demanding that they lower my rate from 13% to 6%.  Leasing an Infinity G35 for $187 per month, with no money down, and a full maintenance package thrown in, for uttering the magic words: “Oh. . .I thought you guys were a LUXURY car dealership!” 

Ass-holish? Maybe. Love to parlay? Absolutely! Maybe I should have been an attorney. In any event, don’t give up!

Allen

Making The Case For Blundering Nincompoopery.

Did I spell that right? Hope so. . .

So anyway, I’m back with more “tales from the dark side.” I am going to continue on my  Saga, while throwing Papa John’s Pizza into the mix. Let me just state flat out, in as clear a way as I know how, that CountryWide’s loss mitigation department is the most incompetent group of blundering nincompoops that I have ever seen.

Case #1: I have a certain short sale that Countrywide has had in their possession since February 19th. Two loss mitigators later, and they just ordered the appraisal yesterday.

Case #2: On another active file, newly minted, fresh outta loss mitigation school comes Paul Romero (the name has NOT been changed, so as to shame the guilty) . Now Paul, bless his little heart, indicates that he’s gonna “send the file to the investor” to get their response. Uh. . .Paul? Countrywide owns the loan.  He calls me back two days later to indicate that he was wrong. Problem? He’s suddenly discovered that there is PMI on the loan, and he’s “sending the file to them immediately.” That’s great Paul, but their is no PMI on this loan. He argues with me for awhile and says he’s gonna send it to the PMI company to get their response. In the meanwhile, I’m off to demonstrate conclusively that there IS NO PMI on this loan. Within about 3 hours, I have written confirmation that there is indeed NO PMI on this loan. Fast forward 24 hrs. Here’s Paul on the phone again: “Uh. . .the PMI company has denied the short sale. They think the property is worth more than the offer you have given them”. Ok. Paul, let me explain this to you again, real slow. . .: There is no pmi on this loan. He proceeds to tell me that he’s sorry, but the short has been denied. Okay Paul. Give me the policy number, inception date, & contact information for the person handling the case at the PMI company. “Uh. . .I don’t have that information.” Well then how did you send them our offer? “Uh. . .I’ll have to get back with you. Click.

So, I call today. The case has indeed been rejected. Case closed. The peons at the loss mitigation department can’t seem to figure out why, based on Paul’s notes. About an hour or 6 later, I get a call from Paul’s boss:

“We’re sorry Mr. Butler; there was a mistake. There is no PMI on this loan. We’ll have this file ready for you in a few days”.

Huh. I’m speechless.

Then there’s Papa John’s. My wife has unfortunately fallen in love with this new pizza they have. So I ordered some . . . . . . . . . .and waited for almost 2 full hours to receive it. When I did receive it, it was cold. THAT’S FABULOUS! So I call. They offer to deliver a new one. “When? A couple of hours from now?” No sir, it’ll be there in 30 minutes. Great. How about you throw in a little 2.99 desert thingy to make it up to me and my family? Sorry sir. The manager says no. FABULOUS.

I guess my point is this: when someone actually gives even adequate customer service, they are heralded as “amazing” and people marvel. What has the world come to?
Allen

Arizona Short Sales Not For The Faint of Heart

I’ve commented before about short sales on this blog, but not to much extent, and I haven’t seen many of the other contributers do it either. I wonder why? Does everyone abhor them? Are they afraid of them?

I have taken a lot of advice around here, and one of the best pieces of advise I have gleened is to write about something that interests me, and build a long tail. Well, the long tail has actually been working. I have written on my home blog about The Ins & Outs of Arizona Short Sales, and lo and behold, people started coming out of the woodwork. And I don’t mean a few. Let us just say it’s been a fabulous return on investment.

I have agents calling me from around the country asking for short sale help. I have homeowners calling me (from around the country, no less) about the possibility of doing a short sale on their home. I refer them out. (Incidentally, if you are from some other state than AZ, and you are familiar with short sales, send your contact information to me, I may have clients for you.)

I would like to first give a shout out to the new Barry. His Real Estate Radio USA has been very cool and helpful for me professionally, and is entertaining to boot.

When I say that short sales are not for the faint of heart, I mean that in two distinct ways: for realtors, and for sellers.

Realtors are running up against brick walls with “The Gate Keepers.” That’s what I call the people who protect the actual “loss mitigators” like the Swiss Guard protects the Pope. Loss mitigators are behind bullet-proof glass, tucked away somewhere in a bunker under the Potomac river, without email, which out phone lines, whichout fax machines; they are completely incommunicado. They send messages between the bunker and the outside world by carrier pigeon. The particular brand of pigeon they use is not one of the kind where you separate it from its home turf by a thousand miles, thow it up in the air, where it circles a few times and “goes where it knows.” The kind they use soars into the air, flies crazily for a few weeks, and then lazily makes its way to where ever it happens to be open season for pigeons. This is enough to drive any semi-sane realtor into a nut house.

Then there are the sellers. They come in a few varieties. The first is the charming couple who believes that because their home is worth less than they own against it, they are eligible for a short sale.

The second is current on their mortgage, and will use credit cards for as long as necessary to “stay afloat” while they continue to pay their mortgage, while at the same time, pursue a short sale, hoping that the lender will look favorably on their “diligence.” This is in fact true, as the lender does indeed look favorably on the payment of mortgages. In fact, the lender’s advice to the homeowner at this point is predictable: “Keep it up! You’re doing great!Keep sending us your money!”

I think I’ll pause here and offer some advice for those unlucky homeowners who happen to read this blog, and fall into category two. Mortgage debt can be forgiven. Credit card debt cannot. Unless you want to go to foreclosure AND declare bankruptcy. If you are truly screwed, and are digging yourself a hole of unsecured debt to continue to pay the mortgage on a house you will ultimately loose, STOP IT! You’re throwing your money away. Just come to grips with the fact that you are losing your home. The sooner you face this reality, the better.

The final type is the truly destitute homeowner, who truly CANNOT pay his or her mortgage any more. They have come to face the fact of the loss of their home, and are ready to proceed with their lives. They have a real hardship, they are ready to provide all the documentation needed to demonstrate this, and they are already moved on to a new rental home. This is the golden client. This is where short sales actually work. This is where the realtor has some reward for his or her (copious) labour.

Short sales are definitely not for the faint of heart, whether seller or realtor, but they do work. Unfortunatey, in Arizona, that’s where the market is. The Land of The Lost Equity.