Starting Your Short Sale Process on the Right Foot

The first step in the beginning the short sale process is for you to determine and document your reasons for falling behind in your mortgage payments. Most often the hardship is due to the loss of a job, medical expenses, divorce or the sharp increase in the interest rate. Once it has been determined that you have a legitimate hardship then there are two steps that can be taken simultaneously; the first is to call the lender and the second is to call a realtor.

Calling your lender takes time and patience but is necessary to begin the short sale process. Because short sales are so prevalent, banks have entire departments dedicated to handling incoming calls from homeowners on this issue.  Once you have a bank representative on the phone, express your desire to begin the short sale process. There are so many programs that you may qualify for and I will begin to discuss each one in subsequent posts; so just know that you have options as you begin this process.

At the same time that you are calling your lender, you will need to find a realtor that has experience with short sales. Your home must be listed with a realtor in order for the bank to process your short sale request. Because short sales are a specialty area, you need to find a realtor that is experienced with the process. There is a widely recognized certification for realtors – the Certified Distressed Property Expert or CDPE – whcih means that the realtor went through intense training to understand the short sale process. Often times, realtors will team up with attorneys and allow the lawyers to process the short sale once a contract is received. In either case, ask the realtor what process they use and what are the results. You have to be very comfortable with this realtor because as you will see, they will have access to personal family documents.

At your initial meeting with the realtor, they will assemble the ‘short sale’ package.  Included in this package are the following documents:

• Hardship Letter & Supporting Documentation
• Two Years Tax Returns
• Two Months Bank Statements
• Two Months Pay Stubs
• Listing Agreement
• Homeowner’s Association Contact Information
• Last Monthly Mortgage Statement

Be prepared to sign off on the following documents at the initial meeting:

• Authorization letter – authorizing the realtor (and attorney) to discuss your account
• Financial Worksheet detailing your monthly income and expenses
• IRS form 4506T- EZ authorizing the bank to pull your tax returns on file with the IRS
• Short Sale disclosure form – detailing the issues surrounding the short sale

This can be an overwhelming process. It may seem like a lot of forms to sign and documents to bring but the lender wants to be able to evaluate your total financial picture when determining the strength of your short sale request. Also, remember the lender can refer back to your initial financial documents presented when you originally applied for the home loan as well as any refinance documents submitted at the time. Make sure you present a consistent financial picture.

The key to starting your short sale process on the right foot is twofold. First, notify your lender right away if you are falling behind or anticipate falling behind on your mortgage. Sometimes the lender will notify you if a previous program did not work and they will initiate a short sale. But don’t assume that no news is good news – they can foreclose quickly in the state of Georgia.  Second, get your documents ready for your first meeting with the realtor. Different lenders want information in various stages so you want your realtor to be prepared to hit the ground running from the first day of the listing. Don’t make them have to call and wait for you.

There are several types of short sales and I will begin to cover each one in subsequent posts. Bookmark this blog and tell others.

Can I Still Sell My Home in Today’s Market?

Not in recent history has there been a more uncertain time in the real estate market. We have record numbers of foreclosures, some of which are being challenged because of unclear documentation and possible fraud, as well as the introduction of short sales on a massive scale. Short sales bring uncertainty because none of the parties involved know exactly what the bank will do as far as accepting the terms of the contract and releasing the homeowner from any future liability. We have homeowners “under water” meaning that they owe more on their homes than the homes are worth and many of these people are simply choosing to walk away. We have home sitting on the market longer and selling for less if they sell at all. When was the last time that the terms ‘house’ and ‘depreciate’ were mentioned in the same sentence?

It is in this environment that I am frequently asked by homeowners if they can still sell their home given today’s market. My answer is “YES” but only in certain circumstances. If the seller can answer ‘yes’ to three of the four following questions, then they are in a position to sell their home; otherwise they have to stay put and wait for the market to fully recover. (Whatever that means).

Question #1 – Do you have sufficient ‘equity’ in your home? We used to include appreciation in our calculation of equity meaning that your equity was the difference between what the home could be sold for on the open market and what was remaining on the loan. This is still the calculation of equity but now we have to be realistic about the value of the home. Very few people have any equity if they purchased their homes in the last 5-8 years and marginal equity if they purchased in the last ten unless they had a substantial down payment. However, if you have owned your home for a while and know for sure that you can answer ‘Yes’ to having sufficient equity, then you are one step closer to being able to sell your home.

Question #2 – Do you have substantial savings to cover a shortfall? If you did not answer ‘yes’ to the first question but can answer ‘yes’ to this one, you are still in business. Perhaps you have enough money saved to cover any shortfall at the closing table meaning that if your home sells for less than your loan balance, you can make up the difference. Some people will pay the difference because they are getting a tremendous deal on the home they are moving into.

Question #3 – Can you price your home aggressively and continue to adjust the price until the home is sold? When a home is priced correctly, it will attract buyers and ultimately an offer. When it is priced above the current market, it will sit without notice. As a matter of fact, an overpriced home will actually help to sell other homes as buyers will use it for comparision purposes. If you can afford to price your home aggressively (at or slightly below market) and can also afford to adjust the price until an offfer is received, then you can still sell your home. By the way, price adjustments are usually in increments of at least $5,000 per adjustment depending on the price point of the home and community.

Question 4 – Can you afford to modernize/update your home? One of the hardest jobs of a realtor is to market a home that is not in ‘show ready’ condition particularly in this market. Outdated wallpaper, light fixtures, personal photos, massive collections all amount to clutter and expense to a potential homebuyer. If you can not afford to have the home professionally cleaned (particularly carpet) and freshly painted, then at a minimum remove all clutter including personal photos, collections, etc. When a buyer goes through a home that is outdated, they begin to see massive costs in modernizing it. As realtors, we used to be able to offer allowances but many lenders will not allow this. If you have lived in the home so long that you can no longer be objective, bring in a friend or ask a realtor for an evaluation. Be ready for the truth and be ready to take action. Remember your overall goal.

If you have answered ‘Yes’ to three of the four questions, then you are in a position to sell your home. A properly priced updated home will draw attention and offers. In this world of uncertainty, a buyer may welcome a chance to purchase a home without the risk associated with a foreclosure or the wait associated with a short sale.

WAYS TO IMPROVE YOUR CREDIT SCORE BEFORE YOU SEARCH FOR A HOME

I get calls everyday from prospective buyers asking what they need to do to get into a home. The answer is always the same – they have to start with a lender, pull their credit, talk about their debts and then get “pre-qualified”. Once I get this information from the lender, we can begin the homebuying process. If you believe that there are ‘issues’ on your credit, the following article by Paige Tepping will give you some great tips to straighten them out before you begin the home search.

RISMEDIA, September 8, 2010–Many prospective homeowners find out the hard way the importance of a good credit score when they apply for a home mortgage, especially after the subprime loan crisis. If you are considering buying a home in the near future, it is a good idea to give your credit score a check-up and then take positive steps to improve your credit score if you find problems. Ideally, it is best to begin working on improving your credit score at least six months before you plan to start shopping for a home.

According to the experts at Buy-and-Sell-House-Fast.com, the following tips will help you improve your credit and should be taken before you begin your home search.

The first critical step in taking care of your credit is to check your credit report. Unfortunately, many people fail to take this all important first step. Instead, they wait until they have applied for a mortgage loan to find out from the lender that there are problems with their credit scores.

By checking your credit score before you apply for a mortgage loan, you gain the opportunity to find out if there are problems which you can correct and discrepancies that need to be removed. When you check your credit report, make sure you check all three of the national credit reporting agencies: Experian, Trans-Union and EquiFax.

Review your credit report carefully for items that may be erroneous. If you believe that an item on your credit report is reported in error, you have the right to contest it. To do so, you will need to contact the credit reporting agency and explain why you believe the item is inaccurate. Supporting documentation such as receipts and cancelled checks can help your claim. Alternatively, you can engage a credit report repair services firm to fix your credit report.

If there are derogatory items on your credit report that are accurate but which could cause problems in your loan application, you cannot have them removed; however, you can take positive steps to counteract them. In the event that you have missed payments in the past, take steps now to get your bills current. Even if it means tapping into money that you might be planning to use for a down payment, it is essential that you get your accounts current and keep them that way. Begin by immediately making your payments on time. There is nothing which can lower your credit score more quickly than late payments. Ideally, make an attempt to begin sending in your payments a few days ahead of time to make sure they arrive on time and you do not have any more late payments on your record. If necessary, begin taking advantage of electronic payments in order to make sure your payments are made on time. Over time, this can make significant difference.

Keep in mind that eradicating all of your credit balances is really not the solution. In fact, credit can be your friend when you are looking to make a big purchase such as a home. The key is to make sure your credit is positive, not negative. Toward that end, avoid actually closing out your accounts. Instead, make an effort to pay down your balances and keep them paid down well below the minimum or completely paid off, but do not close the account. When your lender runs your credit to make a decision on your mortgage application, he or she will want to see that you have had a long credit management history.

After reviewing your credit history, if you see that most, if not all of your credit cards are maxed out or nearly maxed out, it is time to sit down and plan an aggressive strategy for paying some of them down. One of the critical factors that often determine your ability to be approved for a mortgage loan is your debt to income ratio. In addition, high credit card balances can drag down your credit score. Therefore, it is important to look at paying off some of your balances.

It is generally better to begin with your highest-rate balances first. Many consumers are tempted to move around balances when they receive an offer from another bank that is good; however, before you do this, remember that the worst thing you can do when you are trying to make a major purchase is to open new accounts.

By following these guidelines, you can improve your credit score and improve your chances of being approved for your home mortgage loan.

NAVIGATING THE MAZE of PURCHASING A HOME IN ATLANTA^ – PART IV: The Buyer Brokerage Agreement

 

I am not a lawyer nor do I play one on TV but I will take a few minutes to discuss the Buyer’s Brokerage Agreement. First of all, the state law in Georgia prohibits a Broker from representing a buyer as a client without first entering into a wrtitten agreement with the buyer. The key word here is “client”.  A Realtor can only work with a buyer in two ways – as a ‘client’ or as a ‘customer’. There are significant differences between the two.

When a Realtor works with a buyer as a “customer”, they are limited to performing what are called “ministerial acts”.  For example, an agent can identify property for sale, show the buyer the property, provide pre-printed real estate contracts, complete the forms at the direction of the buyer, and assist the buyer in completing the purchase process. The Realtor, however, can not provide any advice in purchasing a home, make any recommendations or offer counsel in any way. The Realtor-Customer relationship is very difficult for all but the most savvy buyers because the Realtor can not offer any advice at all.

In most cases, the Realtor works with the buyer as a “client” which means that they can not only provide the above services but make recommendations, suggestions and offer advice.  The buyer is still required to do their own due dillengence meaning that they have to get the home inspected, make the best choice of a lender and check out the neighborhood and surrounding areas however, the Realtor is not limited in the amount of information they can provide.

When a buyer chooses to work with a Realtor as a “client” they are required to sign a Buyer Brokerage Agreement. The roles and responsibilities for the agent and the buyer are laid out in this agreement. The agent is responsible for finding the buyer an acceptable property and working within all of the state laws and guidelines to assist the buyer in purchasing this property. The buyer is required to do seven things once this agreement is signed:

1. To work exclusively with this Realtor throughout the contract term. The buyer can terminate this agreement but must do so in writing.
2. To be available to see properties
3. To respond to all communication in a timely manner
4. To provide the agent with accurate financial information
5. To inspect the property and become familiar with surrounding areas
6. To become familiar with the Purchase and Sale agreement and all other documents which they are required to sign.

In Part V of Navigating the Maze, I will discuss the other issues in the Buyer Brokerage Agreement and make sure that you are aware of the right questions to ask your agent.

NAVIGATING THE MAZE of PURCHASING A HOME IN ATLANTA – PART III: Buying a Condo

 

I know I promised to continue this series with ‘Understanding the Buyer Brokerage’ agreement but I have to pause and address another issue.  I have had several people ask me about the rules of buying condos and townhomes and I wanted to make sure I spoke to this issue quickly. Buying a condo or townhouse in Atlanta is very different than purchasing a single family home. The financing rules are different unless you are purchasing with all cash. Most buyers right now are using the government backed FHA loan program because the down payment is 3.5% versus the 10% or greater with conventional financing. Because most buyers are going FHA, they are subject to the governments’ rules regarding condo purchases.

First of all, not all condos will qualifiy for FHA financing. There is a section of the HUD website that you can plug in the condo name, city and state and find out if you can purchase your particular unit with FHA financing.  The link is https://entp.hud.gov/idapp/html/condlook.cfm   Why does the government care about the condo or townhome unit that you purchase? There are four main reasons:

1. Lack of Occupancy – There are quite a few developments in the Metro Atlanta area that were started and not completed. The occupancy rate may be under 50% with a lot of vacant units or sections that have to be finished. In this current housing environment, many builders have gone out of business and the timeframe to complete these developments and get them sold is uncertain. The government is not willing to take the chance on financing in this situation.
2. The Financial Position of the Homeowners Association – A strong condo association is what drives any community. The board is responsible for managing the upkeep on the property, ensuring that the residents follow the covenants and maintaining the overall welfare of the community.  Any weakness in the financial position of the board can create an instability in the community and again the government weighs this before backing the loans.
3. The Rate of Foreclosure in the Community – A high foreclosure rate causes instability in the condo community and again is one of the areas that the government examines prior to approving the condo for FHA financing.
4. The Number of Rentals in the Community – A high number of rentals is a red flag for the government because it also signals a lack of stability. Renters come and go but homeowners are committed for the long haul.

Again, if you are considering the purchase of a condo, visit the HUD website and plug in your particulars. Find out before your commit money, time and energy only to find out later that you can not purchase the unit with FHA financing.

In Part IV, I will discuss the Buyer Brokerage Agreement and what it means to you.

NAVIGATING THE MAZE of PURCHASING A HOME IN ATLANTA – PART II: The Buyer Consultation

 

So you have decided to buy a home and you have selected a Realtor. Now what … what are the next steps?  Remember, not all realtors are the same but here is what I normally do next with a buyer. Step one – on the phone, I usually get the following general information:

• The area of town the buyer is interested in
• Type of home desired; singe family, townhome, condo, etc.
• Size of home – bedrooms, baths, etc
• Price range as well as desired monthly payment
• Timeframe for moving
• Age of home (Year built)

Step Two: I like to e-mail a Buyer  Consultation Form to the buyer. It is a fairly lengthy form (about 5 pages) but it makes the buyer think of all the items that are important in the home purchase. It also helps me understand the buyers’ motivation when they tell me that they need certain items. For example, a buyer may ask for a bedroom on the main level; this is very important if their 80 year old mother is living with them. The bedroom then becomes a real need not just a want.  I ask the buyer to complete the consultation form and have it ready for our first face to face meeting. (A copy of this form can be downloaded from the “Buyer Documents” box below)

Step Three: I schedule an appointment with the buyer, usually in my office. All parties involved in the purchase should be at this appointment so that we start off on the same page.  This meeting normally takes about an hour and we cover the basic items such as:

• The buyer’s needs and wants in a home based on the completed Buyer Consultation form
• Timeframe for moving; any obstacles in making this happen
• The entire homebuying process from A-Z including shopping for home, inspections, appraisals, etc.
• Understanding the complexities of buying a foreclosure, pre-foreclosure (short sale) a traditional resale or HUD home. Each type of purchase comes with its’ own set of rules that the buyer needs to be made aware of prior to beginning the search
• The upfront cost of buying a home – loan application fees, inspections, earnest money, etc.
• Finances – loan programs, down payment assistance, etc.
• The Buyer Brokerage Agreement

Sandwiched in between step two and step three is normally having the buyer contact a lender for a preliminary discussion of their ability to purchase. The lender will want to pull your credit in order to give an accurate answer as to buyers’ ability to buy now, how much and approximate monthly payment. The lender will also be able to discuss any first time homebuyer programs that fit the buyers’ profile.

Once we complete the initial meeting, we can schedule a time to begin viewing property.

Next Blog: Navigating the Maze: Part III – Understanding the Buyer Brokerage Agreement

NAVIGATING THE MAZE of PURCHASING A HOME IN ATLANTA – PART I: Selecting a Realtor

 

I spend a great deal of my time working with first time homebuyers which means alot of hand holding. No problem – that’s my job. Buying a home can be an overwhelming endeavor and scary in some respects. It certainly will be the most expensive purchase you will ever make and therefore, it requires thought, deliberation, questions and prayer. I am often asked about the process from beginning to end and I have become an expert at explaining it well. Again, no problem – that’s my job. My task here is to give you insight into the buying process and hopefully answer your questions in the process. This will take time so make it a plan to walk with me for a while.

Imagine that you have decided to move out of your apartment and would like to purchase a home. What is the first thing that you would do? Who is the first person you would call? Lender, Realtor, friend…?  There are usually three ways that potential buyers find realtors – on-line, referral from a friend or randoming calling them from signs in yards. No matter how you find your realtor, here are three issues that you need to consider.

1. While it is great to know how long a realtor has been in the business, what you really want to know is their level of expertise.  A new agent that has hit the ground running and has sold 10 houses in 4 months is a good agent.  Ask about recent sales, past clients, etc.
2. Try to find an agent that is knowledgeable about the area that you are considering moving to. This is really important as you explore schools, accessibility, travel times and home values.
3. Find an agent that you are compatible with. You don’t have to be best friends with the agent but this is a long process and you need to feel comfortable talking with them. The chemistry has to be right.

Next blog:  In Navigating The Maze – Part II I will discuss what happens in the initial meeting with the agent.