A SHORT SALE SAGA

Negotiating a short sale is complex. Every transaction is custom-made depending on the seller’s loan, the seller’s lender, the negotiator, the seller’s situation and the buyer.

A negotiator of a short sale transaction is similar to a conductor conducting an orchestra. All instruments in a symphony must come together in harmony, just as all parties in a short sale must come to terms to allow a short sale to close.

Six months ago, I started negotiations on a short sale with one of the biggest banks in North America. It is by far the most horrible bank with which to negotiate a short sale. The bank’s reputation is such that, in some cases, Realtors will not put an offer in on a home if the seller’s loan is with this bank.

The bank took 30 days to upload the documents in the system. The file then was transferred to the first phase negotiator to check for completeness of the file. Then, it got transferred to a phase 2 negotiator who decides whether to approve or decline the short sale. I emailed and called one to three times a week, but the negotiator never picked up her phone. She did not answer any emails either.

I escalated the file to the supervisor and the next day I got a secured email saying that the file was transferred to a different phase 2 negotiator and the 15-day period for review was reset to Day 1. What the heck?!?

Three months into the short sale, the new negotiator again did not respond to my weekly emails and phone calls. Customer service would not escalate the file until Day 15 had passed. I escalated the file anyway to a supervisor and a new email came in from the newest Phase 2 negotiator. After two escalations in a row, the newest negotiator came back with the investor’s guidelines, dictating that the lender would not cover many of the title fees and would ask for the commission and closing costs to be reduced, and so on.

Regardless of the changes, I was happy to finally get a response from the negotiator. I called the buyer’s agent to share the great progress, only to find out that the buyer was under contract with another home and walking away from the deal. I would have retained the buyer if the seller’s bank did not waste too much time changing negotiators.

In the fourth month of negotiation, a new offer came in. I presented the new offer to the seller’s lender but they told me that the file was already closed because the additional documents they requested were not submitted to the bank I argued that it was submitted so they reopened the file. I took a deep breath, glad to have a second chance with this offer. But wait… I had to start all over with the new offer and wait for the bank to assign yet another Phase 1 negotiator. What the heck?!?

A week later, the new Phase 1 negotiator was assigned. It was clear to me that the negotiator could not spell or write in clear English. But regardless of his literacy level, he had the power to decline the short sale as it was only a few days before the foreclosure date. Sure enough, he declined the file because the seller wouldn’t pay a $3,400 extension fee. I was so furious. I sent the negotiator a well-deserved critical email with copies to his supervisors. He reversed his decision in response to the email and extended the foreclosure date for a month.

We are now on the sixth month of the short sale and still going. The file was assigned to a Phase 2 negotiator who seemed better trained than the others. After review of the file, the Phase 2 negotiator countered $7,000 more on the purchase price. The buyer declined the counter offer.

The negotiator suggested I put the house back on the market and get a higher price. I convinced the negotiator that the market value she was basing the counter on was incorrect and sent comps to prove my case. She then agreed to submit the current offer to upper management for approval. So, that’s were we are for the moment. The file has gone through six negotiators, closed and reopend twice, one counter offer, and lost the first appraisal report six months into the short sale without conclusion. It’s been a roller coaster ride.

All the short sales I’ve done in the past have successfully closed, but this one is a particular challenge. The bank has a poor system of processing short sales and a lack of trained and qualified negotiators to determine the fate of a $500,000 home and the future of a homeowner. The bank’s practice of passing the file among several negotiators does not allow ownership and accountability; no one claims responsibility for the file if it is lost or badly-handled. Short sales are a menacing process which I have learned to accept and deal with successfully. It is THE dominating category in the current real estate market and will be for some time. Handling these sales is not for every Realtor, but for someone who has the tenacity and care for their customers to survive.

FORECLOSURE SEMINAR EDUCATES THE PUBLIC

A power cast of speakers were put together in a seminar dubbed “Avoiding Foreclosure” held on Tuesday, January 12, 2010 at the Downtown Chandler library. The panelist included Tracy King – Wachovia short sale manager, Tim Hensley – HUD certified counselor, Mark Winsor – Real Estate Attorney, Paul Sundin – Certified Public Accountant, Reginald Givens – Coordinator of the Home Stabilization program, Real Estate Broker and Mark Taylor – Mortgage Consultant.

Many people came either because their home is upside down or they are facing imminent foreclosures. What I gathered from the panelists is, loan modification will not help everybody and is not the best solution for everyone. More than half of those who were granted a loan modification went back in default after a few months. Also, find out the legal and tax ramnifications of doing a short sale or loan modifications prior to beginning the process.

It was a great seminar that helped a lot of people know more about the options available to their homes. One question still remains among homeowners is – “Who will listen to my problem and care enough to help me.“ The lenders, loan modification companies and HUD certified counselors have a huge volume of short sale or loan modification applications and cannot respond quickly enough to get homeowners out of foreclosure. If you are not getting anywhere with your bank and don’t know who to turn to, don’t hesitate to contact me at 480.650.0075. I can connect you to professionals who would be able to help you and answer any questions you have regarding the options available for your home.

n the world of Real Estate, every Realtor is DIFFERENT!

The differences can be as huge as black and white or day and night. There are Realtors who work full-time, others who work part-time; Realtors who care and those who pretend to care.

Realtors hang their license with several different brokerage firms that differ in depth of knowledge, experience, liability coverage, resources and support system. To find out which Realtor is right for you will be dealt with in a future blog entry. For the time being, let me focus on recent events that lead me to believe that in the industry that I live and breathe, there are Realtors to avoid.

1. I recently hit the complaint button on the Multiple Listing Service (MLS) website — my first time to do that, by the way — to address a complaint toward a Realtor who posted ZERO photos and NO remarks on a listing after 18 days on the MLS. MLS rules require at least one exterior photo be posted within five days of entering the listing on the MLS. If I were the seller of that home, I would fire the Realtor! How can you sell a house without MLS photos and remarks? The days already on the market have been wasted, and the seller will eventually have to drop his price because the listing is stale. This can impact home values throughout our neighborhood, as well.

2. I was recently out valuing a property for a new listing in Chandler. One of the direct comparables in the same neighborhood showed that the house recently sold for $112,000. My listing got an offer fairly quickly, but was appraised for $9,000 LESS than what the offer was because the comparable that we thought sold for $112,000 actually sold for $105,000 — the Realtor had failed to enter the correct sold price of $105,000 on the MLS. My sellers ended up netting less than what they had hoped, thanks to the incorrect data provided by that Realtor.

3. I have emailed several Realtors to remind them to change the status of their listings to either AWC (??), Pending or Sold. MLS rules dictate that Realtors have 72 hours from contract acceptance to change the status to pending or ACW. Otherwise, a report can be filed to the Arizona Multiple Listing Service and a fine can be issued, depending on how many history violations the Realtor had.

These and many more incidents create a bad public perception of Realtors as a whole and reduce the level of respect for the professionals in the industry.

On the flip side, there are very good, reliable, honest Realtors who conduct business professionally. I have surrounded myself with these professionals and as a result, I also became one. Like the saying goes, “Birds of a feather flock together.”

When choosing a Realtor, it is good practice to ask for references, recommendations, and ask the right questions during an interview. Also, check the Realtor’s website. These steps will help you determine whether a particular Realtor is professional and is right for you.

SHORT SALE – A WARNING ABOUT HIGH-COST THIRD PARTY NEGOTIATION FEES

Sellers who are thinking of selling their homes short should be careful who they pick to negotiate with the lender on their behalf.

Here’s the reason why: I recently represented a buyer who got under contract with a home that was marketed as a short sale. The seller hired a Realtor who hired a third party negotiator to negotiate on behalf of the Realtor and the seller. The third party negotiator boasted of short sale success and so on, but charged an extravagant fee of $4,000 to negotiate the short sale on a low cost $60,000 condominium.

What happens when the seller hires a negotiator that charges an exorbitant fee? Somebody has to pay the $4,000 negotiator’s fees on top of the commission, title fees, taxes, HOA, buyer’s closing cost and so on. If the seller’s lender does not approve of the extra fee (which normally happens), most likely the buyer or seller ends up paying it. In this case, my buyer was asked to pay $930 toward the negotiation fee. It is absolutely wrong for my buyer to pay such a cost. The seller hired the extra negotiator, not the buyer, so the seller should pay the cost. My buyer’s closing cost assistance was also narrowed from 4 percent to 2 percent to accommodate the negotiator’s fees. Whose interest is the negotiator looking after – the seller avoiding foreclosure or his own?

End of the story: My buyer and I walked away infuriated about the negotiator fees and reduced closing cost assistance. This shows what could have been an easy approval that would prevent the seller from foreclosure can quickly turn into a denial. These actions by some Realtors and so-called professional third party negotiators has to stop! These negotiators are putting their interests first, not their clients’. This is contrary to the National Association of Realtors (NAR) code of ethics.

If you come across people who do business like this, you can get a copy of the HUD statement from the title company to find out how the expenses are presented to the seller’s lender and compare with other short sale HUDs.

I have used the services of a third party negotiator before — at minimal cost — but found them to be unreliable. I found it best to do my own short sales so I have control of the transaction for my client and am able to communicate every update and not charge additional fees that could hurt the NET PROFIT of the seller’s lender. I am accountable to my seller regarding the outcome of the short sale. Since using the third party negotiator that one time, I have successfully closed every short sale transaction that I took on. I am happy to know that my tenacity has helped my clients avoid foreclosure.

It’s a Great Market for Investors

Investors are making good in today’s market. Buyers who are frustrated about being outbid on lender-owned properties, don’t have reserves to do repairs or cannot wait for a short sale approval end up turning to investor-owned “fix-and-flip” properties.

These investor properties are remodeled and often look like new. It is an easy and simple transaction for the buyer, with quick response and a guaranteed close of escrow date. First-time home buyers who are looking to benefit from the $8,000 tax credit or repeat buyers who can benefit from up to $6,500 in tax credit find fix-and-flip properties appealing because they provide a scheduled, certain close of escrow date.

I recently helped a client investor purchase a 3 bedroom, 2 Bath home in Chandler for under $50,000. The client fixed the home up, listed it for $118,000, and received multiple offers on the property. The home is now under contract for $121,000, just three months after my client initially purchased the property. That’s a better-than-100-percent return on investment, minus remodeling costs, commissions and taxes. That’s a handsome profit.

In another transaction, I represented a buyer in purchasing an investor-owned custom home in Southwest Mesa. The seller purchased the home in a trustee sale for $102,000 and sold it to my buyer for $155,000 in less than three months’ turnaround time. There were four offers on the property and my client was the successful purchaser.

Making money on fix-and-flips is simple and easy if you find a house that’s easy to sell at a great price. Consult with a knowledgeable and competent Realtor who can simplify the process for you. Otherwise, you may end up losing money instead of growing money.

As always, I am available to answer all your questions about short sales, investment properties and fix-and-flips. Please call me today at 480-650-0075 for information on these or any other real estate questions you have.

What is the Future of Short Sales in the Greater Phoenix Real Estate Market?

I was fortunate recently to be in the same room with Mike Orr, author of the Cromford Report, a widely-respected publication with current real estate market analysis information. Mr. Orr was one of the guest speakers at a class that focused on “The Future of Short Sales in Real Estate.” Based on compiled data based heavily on the Multiple Listing Service (MLS), Mr. Orr observed the following regarding the Greater Phoenix real estate market:

1. There is no evidence of shadow inventory as others project. In other words, the lenders are not hoarding foreclosed properties. It just takes time for the lenders to sell the houses to the public. There is no sign of “new wave of Foreclosures.”

2. Far fewer Notice of Trustee Sales (NOTS) are turning into foreclosures in 2009.

3. Short sales are five times more likely to succeed in 2009.

4. Loan modifications are being accepted in 2009 – around 500 to 600 successful loan modifications monthly.

5. There is a 20 percent increase in sales of properties bought at the Maricopa County Courthouse.

6. As of this date, the inventory of homes for sale is made up of 39 percent short sales, 13 percent lender-owned, and 48 percent are traditional sales.

7. Average days on the market for short sales is 139 days and 34 days for lender-owned homes.

8. Lender owned properties have been rising in price since April but are currently stable. Normal sales experience a sharp decline from June onwards. Short sale prices declined between May and September but are showing more strength. Current average price per square foot is: Normal sale – $114.18, Short Sales and Pre-foreclosures – $87.55 and Lender owned – $69.45

Conclusion: The impact of lender owned homes reached a peak in the winter season 2008/2009. While these were available in large quantities and at falling prices, buyer interest was focused almost entirely on them. Supply was sufficient to keep REO prices declining until early April 2009.

After the second quarter of 2009, REO became much harder to find and with competition for them very fierce, short sales have become far more important. Given the large number of homes in distress and the banks’ apparent determination to avoid foreclosure if possible, we expect short sales to become the most important segment in the market over the next few years.

Greater Phoenix suffered a very significant price decline which prevailed between May 2006 and April 2009. So the majority of non-lender homeowners who wish to sell their home and have a deed of trust on their property are going to find themselves in a short sale situation for the foreseeable future. Fortunately, lenders are now devoting more effort and resources to short sales and many Realtors are learning the tools and techniques to bring them to a successful conclusion.

As properties get purchased by new buyers at the new lower prices, and prices stabilize and then increase, we will eventually see a peak in short sales and a long slow decline in their importance. However that peak is still ahead of us and the next several years are likely to be remembered as the “Age of the Short Sale.”

*Information obtained from Mike Orr of Cromford Report

What Does the First Time Home Buyer Tax Credit Extension Mean to our Economy and our Future?

It looks like the Congress is on the verge of extending first-time home buyer tax credit of $8,000 through April 30, 2010. The Obama administration has said they support an extension. In addition, repeat buyers who have owned a home for at least five years and buy a new house will receive a $6,500 tax credit under the Senate version of the bill.

What does this mean for the economy and for our future?

More taxpayers’ money is being handed out to anyone who buys a home for the first time or to those repeat buyers fitting the qualifications. The government has yet to release close to $8 billion in housing recovery effort under the stimulus package. In the end when the economy turns around, lawmakers could ask for higher taxes from responsible taxpayers to pay for everything else and make up for their lavish spending. Our pain is just about to begin.

Our country is awash in debt. By some estimates, the total cumulative debt for each American may be around $700,000, according to discussion on the topic at wikipedia.org. Money has been borrowed from many foreign countries, chiefly China and Japan. When the loans come due, what will we give them? Trade concessions; military concessions; land? Anything but money, because we don’t have it. Whoever has the most money holds massive power. America is financially strapped and may not hold on to the power it has for so long.

But back to the matter at hand — will the housing market recover faster with or without the $8,000 home buyer tax credit? Given the correct approach and perception, the housing market would recover without the $8,000 or with a reduced tax credit. The perception that home buyers should buy a home because of the tax credit is flawed. Instead, lawmakers should encourage home buyers to buy a home now because it is good for them and good for their future. If they buy a home now, they get ridiculously low prices. Some prices are below building cost, interest rates are very low and home buyers get instant equity with their home purchase. These are more than enough reasons to buy NOW. To add a whopping $8,000 tax credit to the deal is to spoil home buyers for doing something that already benefits them!

Anyway, why an $8,000 tax credit? Why not $2,000? How did Congress come up with the figure? For all the benefits that home buyers already get in this market, $8,000 for every home purchase is way too much.

In the end, the lawmakers should focus on increasing home values more quickly instead of increasing sales. If potential home buyers realize that prices are moving convincingly higher, they will feel a sense of urgency to buy a house now, before prices move higher, which will fuel a recovery in the housing market. That is much better than an $8,000 tax credit and would save taxpayers a lot of money.

Breaking News – Home Buyer Tax Credit Extended and Expanded

The U.S. Senate has agreed to extend and expand the home buyer tax credit. Do you think this is a good move?

I don’t know where our government is getting all this money to hand out to home buyers. It seems to me our lawmakers work without any budget and that they think money falls from the sky. Our country has trillions in debt and is giving away more money, obviously spending way more than its means.

Home prices are historically low, interest rates are extremely low and equity is instant. These alone are enough reasons to buy a home NOW. I think our government should stop spoiling home buyers and let them realize the built-in benefits of buying a home NOW. Let potential buyers know that buying a home in today’s market is good for them and stop bribing them unnecessarily. It’s like giving a child candy for being good. The child should realize that behaving well is good for him or her and for his/her future.

Lawmakers — if you decide to extend the home buyer tax credit, be discreet enough not to increase our taxes.

For a full story on this news, click here.

What will it take for Metro-Phoenix’s Home Values to Rise Faster?

1. Job creation and stability: Buying a home is not only about location, it is also about financing. People need decent jobs that they can hold onto in order to buy homes. The state’s jobless rate dropped slightly to 9.1 percent in September, the Arizona Department of Commerce reported this week; the rate was 9.2 percent in July. That improvement, while modest, is good news for Arizona and the nation as a whole. If people have better-paying jobs, they are more likely to be able to afford bigger homes in higher price ranges. Cities around the valley could also work towards attracting businesses that will employ high-salaried employees, not just service workers.

2. Lender-Owned Pricing: The sooner banks price the homes they’ve taken ownership of at market value rather than below market value, the sooner we will see prices go up. At the moment, banks list their lender-owned homes at 10,000 to 15,000 below market value – for a reason: This elicits multiple bids, which usually ends up driving the selling price to a level at or above market value. It would help the market rebound if the banks price homes close to market value. Of course, this is a double-edged sword for the banks. If banks price homes higher, they would probably not get above-list-price offers. However, when they price below market value, it stalls the housing recovery. But banks don’t really care about the housing market – only profits.

3. Loan Modification Approval: If qualified borrowers are allowed by their banks to modify their loans to terms that are beneficial to homeowners in the long-term, the number of foreclosed homes would be reduced. However, not all homeowners can afford to pay for their homes despite loan modification and therefore may still end up in default. And these homeowners are likely to short sale their homes down the road.

4. Short Sale Pricing: Short sales are dominating the Metro Phoenix market. The homeowner sells his or her home for less than what it is owed, which requires lender approval. The success rate of short sale approvals have increased by half. If we are to see home values rise much sooner, lenders would need to be more careful about approving short sales at very low prices. This quarter, the short sale purchase prices have decreased to levels comparable to foreclosure prices. A bank typically approves a short sale offer which is 10 percent less than the broker’s price opinion. To keep home values from going down, banks probably should think of approving sales at a level not less than 5 percent below the broker’s price opinion. Realtors listing short sales should price homes based on their value, not simply to elicit a quick offer. Some Realtors’ strategy is to price their listings lowest within the neighborhood to get a quick offer, even if the home could realistically sell for more. This practice may turn the sale over quickly for the agent so he or she can move on to put other homes on the market, but it is not helping home values go up sooner.

In a crazy market where short sales and foreclosures are dominating, nobody really seems to care about overall home values. The homeowner who short sells his or her home is not getting a single penny from the sale. So, it does not matter to him what the home is priced as long as he avoids foreclosure. The lenders are so overwhelmed with selling millions of properties, they are happy to sell their inventory quickly and for less. Similarly, some Realtors, not wanting to spend a lot of time or effort with each listing because of the reduced fees they are earning, look for quick sales without regard for the cumulative effect these low prices are having on the market and future sales prices.

Obviously, the best thing that can happen for everyone with direct or indirect ties to real estate – homeowners, banks and Realtors — is for prices to go up. An increase in traditional real estate sales where the homeowner is selling to profit from the house will help home values to improve. These homeowners care about home values and would like to sell for a good price.

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Arizona Real Estate Market Great For Canadian Buyers

Earlier this month, a story in a prominent newspaper in Canada reported how many Canadians are taking advantage of the incredibly low prices of homes in Phoenix while the Canadian dollar is really high.

Prices on houses in some areas of Metro Phoenix are 50 percent lower than they were in 2005. Canadians can purchase a home in Arizona for an average 35 percent down payment, depending on the institution they get a mortgage from – or they can pay cash.

Canadians may purchase a home for investment purposes, as a winter home, or both. Phoenix averages 320 sunny days per year and is the golfing capital of the United States – both strong selling points to our friends north of the border.

There are also many active-adult communities available to those who are at least 55 years or older. These communities offer state of the art amenities and activities including exercise rooms, ballrooms, swimming pools, billiard halls, golf courses, tennis courts and more. These developments are very popular areas as second homes among Canadians in their senior years. In addition, affordable neighborhoods with varying age groups including families and seniors are also great options for those looking for a different lifestyle. Most Canadian visitors – often dubbed “snowbirds” – visit Arizona during the cool months of November through May, then return back to Canada in the summer.

With the Canadian dollar strong and home prices at historic lows, now is a great time for those snowbirds who haven’t already invested in their own home in Arizona to consider doing so.

I occasionally have the pleasure of working with Canadian buyers and sellers and enjoy helping them with their specific needs. If you have questions on how a Canadian or other foreign buyer can purchase a home in Arizona, please feel free to contact me at (480) 650-0075.