scott craig’s Blog

In my recent experience, Bank of America is very cooperative and efficient in negotiating and approving short sales. On the other hand, Chase seems to be slow but they did come through nicely in the end.

SHORT-SALES ISSUES FOR BUYERS TO BE AWARE OF    1. The asking price on the listing may have no basis in reality. Buyers mistakenly believe that if they offer the asking price that they will get the property- and this may not be true. The current lien holders (the bank or banks who hold the current loans) do not specify any asking price; this comes solely from the current owners and the listing agent. Sometimes listing agents list the property well below current market pricing just to get offers very quickly so they can be submitted to the current lien holders, as the entire short sale process does not even start until an offer gets submitted to the lien holders. If the lien holders do agree to the short sale (and there is more information below on why a short sale may or may not be approved) the lien holders will do their own appraisal and will then specify the sale price; and this may or may not be the asking price.  2. Buyers, and their deposit money may get tied up, on-hold, for two to six months.   While the lien holder, or lien holders, evaluate whether or not they will approve the short sale, the buyers just have to sit and wait for information coming from the listing agent regarding the status of their offer. The Short-Sale Addendum must be used when making an offer and I suggest giving the buyers an œout after 30 days if they do not get written approval from the current lien holders.  3. Buyers offer could get declined, even after buyers have waited for months. If another better offer gets submitted to the lien holders, even while the buyers are patiently waiting, those lien holders retain the right to select any offer for what ever reason they chose.  4. With two lien holders (a first and a second or HELOC) things get more complicated. It is very common for there to be two lien holders involved. The junior lien holders are typically settling for 10% of the existing balance as a pay off. A typical scenario is that there is a $100,000 balance on the HELOC and that lien holder wants 10% ($10,000). The first lien holder will typically pay $3,000 – $5,000 toward the pay off but that leaves a gap of $5,000 – $7,000 and that money has to come from somewhere or the sale will never get approved. This money usually comes from both Realtors kicking in some of their commission, from the buyer (in addition to the sale price and it has to be cash that is above and beyond their down payment) and sometimes the current owners (sellers) may kick in some cash but not all lien holders will allow this.    5. The short-sale may never get approved. (A) Sometimes, especially with the junior lien holder, if they are not able to get their 10% (and often they want much more than 10% as a pay off) then they will not approve the short sale and they will just wait until the first lien holder forecloses so they can file a judgment against the sellers, for the entire balance. (B) The current owners (sellers) must have a financial hardship and it is entirely up to the lien holders to decide this. (C) Many sellers of short sales are also attempting to get a loan modification at the same time. So an unsuspecting buyer could submit an offer in good faith and after waiting several or many months for short sale approval, get blind sighted when their offer gets cancelled and the property comes off the market because the bank approved a loan modification and the sellers are going to stay in the home.  6. Back HOA dues and Utilities. As the short sale lenders are taking more steps to reduce their loses they are often times not paying back HOA dues. Some sellers have moved out of the home a long time ago and have unpaid utility bills that the lenders are not paying either. So the buyer will typically have to pay these.   © scott craig 2011

Red Alert Update

SB 1178 Passes Senate!

Victory for REALTORS ® and Their Clients!

SB 1178 was just approved by the Senate, over lender opposition, with a vote of 30 to 4.

Thank you to the over 5,000 REALTORS ® who made a difference by contacting their senator to support the bill! For more information on the vote, see the list below.

C.A.R. is sponsoring SB 1178 (Corbett) to extend anti-deficiency protections to homeowners who have refinanced “purchase money” loans and are now facing foreclosure. Most homeowners didn’t even know that when they refinanced they lost their legal protections, and now may be personally liable for the difference between the value of the foreclosed property and the amount owed to the lender.

Here is how senators voted today.

“Yes” votes: Aanestad, Alquist, Ashburn, Cedillo, Cogdill, Corbett (author), Correa, DeSaulnier, Ducheny, Florez, Hancock, Hollingsworth, Huff, Kehoe, Leno, Liu, Lownenthal, Negrete McLeod, Oropeza, Padilla, Pavley, Price, Romero, Runner,  Simitian, Steinberg, Wolk, Wright, Wyland and Yee.

“No” votes: Calderon, Denham, Strickland and Walters.

Not voting: Cox, Dutton, and Harman.

Absent (not in Sacramento that day due to health reasons): Wiggins.

Thank you to everyone who made a call to their senator. Facing lender opposition, many of those who ultimately voted for the bill, may not have done so if they hadn’t received so many calls from REALTORS ®.

Distressed homeowners no longer have to pay California state income tax on debt forgiven in a short sale, foreclosure, or loan modification.   Enacted into law yesterday, Senate Bill 401 generally aligns California’s tax treatment of mortgage debt relief income with federal law.   For debt forgiven on a loan secured by a “qualified principal residence,” borrowers will now be exempt from both federal and state income tax consequences.   The existing  federal exemption is for indebtedness up to $2 million, whereas the new California exemption is for indebtedness up to $800,000 and forgiven debt up to $500,000.“Qualified principal residence” indebtedness is defined as debt incurred in acquiring, constructing, or substantially improving a principal residence.   It includes both first and second trust deeds.   It also includes a refinance loan to the extent the funds were used to payoff a previous loan that would have qualified.The tax breaks apply to debts discharged from 2009 through 2012.   Californians who have already filed their 2009 tax returns may claim the exemption by filing a Form 540X amendment.
 
Taxpayers who do not qualify for the above exemptions (e.g., second home or rental property) may nevertheless be exempt under other provisions.   Most notably, taxpayers who are bankrupt are exempt from debt relief income tax.   Also, taxpayers who are insolvent are exempt from debt relief income tax to the extent their current liabilities exceed current assets.For more information about mortgage forgiveness tax consequences, go to California Franchise Tax Board’s Mortgage Forgiveness Debt Relief Extended  webpage and the Internal Revenue Service’s Mortgage Forgiveness Debt Relief Act and Debt Cancellation  webpage.   The full text of Senate Bill 401 is available at www.leginfo.ca.gov.  

CALIFORNIA  LEGISLATURE  EXTENDS  HOMEBUYER  TAX CREDIT; lawmakers  voted to extend a $10,000 tax credit for first-time homebuyers. The credit will apply to first-time buyers who purchase new or existing homes between May 1 and Dec. 31 2010. It is for 5 percent of the purchase price, or up to $10,000. The bill received bipartisan support and will be sent to Gov. Arnold Schwarzenegger.  Copyright 2010 The Associated Press.

In this challenging economy and tough real estate market, I am pleased to announce that we sold a nine unit apartment building in West Hollywood. It was actually an 8 unit building, built around 1926, with a free-standing unit in the back. The biggest challenge was getting the freestanding unit permitted. The seller started the process and the buyer will continue to work with the city to obtain a permit for the unit. The entire building has old-world charm with hardwood floors, fireplaces, and architectual accents dating back to a  classic period of the “roaring 20′s”.  The building has always been able to command higher rents due to the historic and classic look and feel to the apartments.

It has become common knowledge that short sales are, at best, an excercise in frustration and are trying on one’s patience. I’m happy to report that we just closed another  short sale; this one was a single family home in Menifee, CA. The home was only a few years old and the owners purchased it at the peak of the market with 100% financing. So when they were transfered out of state and were forced to rent the property the entire process bacame a nightmare and a huge cash drain.

I’m pleased to say that Bank of America, who held both of the loans, was very cooperative and fair in the negotiations. And they were even very cooperative in giving us three extensions to close as the buyers loan took longer than anticipated. That’s the good news, the bad news is that B of A has so many files that it took from August, when I submitted the entire 125 page short sale offer package, all the way until November to get a negotiator to even look at the file. Once I submitted the offer package,  I made follow-up phone calls to B of  A two or three times a week – every week. And once a negotiator was assigned the process moved quickly.

On the buyers end, the loan process was frustrating; and Bank of America was also the new lender for the buyer. So the current state of lending is still slow and complicated, especially if the buyer has income from many sources and several properties or anything that is a little complicated to track down as far as verifying assets and income. Buyers with clean W2 income seem to breeze through a lot easier.  

The buyer was an investor and we were able to find excellent tenants very quickly. And the CAP rate is almost 9 so it is an investor’s dream. I could have rented this home 10 times as there was so much interest.

So the bottom line is that short sales do happen: you have to have a seller who is honest and willing to hang in there and to keep the property in decent condition. And you have to have a buyer who is commited to but the property. And you have to have a listing agent or negotiator who knows how to put a complete offer and financial package together, the way the bank wants to see it.  And the listing agent or negotiator has to really stay on top of the bank and to be very responsive if the bank requests additional information.  When  I list short sales I  become the negotiator for the seller and I have had good success in doing that as I am fully involved  with the seller directly and the banks.

So short sales can work if everyone involved is commited to making it happen. And you have to have an  excellent support system  including the buyer’s lender, an experienced and responsive title officer and a real dedicated and experienced escrow officer.  

 SHORT-SALESISSUES FOR BUYERS TO BE AWARE OF    

1. The asking price on the listing may have no basis in reality. Buyers mistakenly believe that if they offer the asking price that they will get the property- and this may not be true. The current lien holders (the bank or banks who hold the current loans) do not specify any asking price; this comes solely from the current owners and the listing agent. Sometimes listing agents list the property well below current market pricing just to get offers very quickly so they can be submitted to the current lien holders, as the entire short sale process does not even start until an offer gets submitted to the lien holders. If the lien holders do agree to the short sale (and there is more information below on why a short sale may or may not be approved) the lien holders will do their own appraisal and will then specify the sale price; and this may or may not be the asking price.

2. Buyers, and their deposit money may get tied up, on-hold, for two to six months.   While the lien holder, or lien holders, evaluate whether or not they will approve the short sale, the buyers just have to sit and wait for information coming from the listing agent regarding the status of their offer. The Short-Sale Addendum must be used when making an offer and I suggest giving the buyers an œout after 30 days if they do not get written approval from the current lien holders.

3. Buyers offer could get declined, even after buyers have waited for months. If another better offer gets submitted to the lien holders, even while the buyers are patiently waiting, those lien holders retain the right to select any offer for what ever reason they chose.

4. With two lien holders (a first and a second or HELOC) things get more complicated. It is very common for there to be two lien holders involved. The junior lien holders are typically settling for 10% of the existing balance as a pay off. A typical scenario is that there is a $100,000 balance on the HELOC and that lien holder wants 10% ($10,000). The first lien holder will typically pay $3,000 – $5,000 toward the pay off but that leaves a gap of $5,000 – $7,000 and that money has to come from somewhere or the sale will never get approved. This money usually comes from both Realtors kicking in some of their commission, from the buyer (in addition to the sale price and it has to be cash that is above and beyond their down payment) and sometimes the current owners (sellers) may kick in some cash but not all lien holders will allow this.

 5. The short-sale may never get approved.

(A) Sometimes, especially with the junior lien holder, if they are not able to get their 10% (and often they want much more than 10% as a pay off) then they will not approve the short sale and they will just wait until the first lien holder forecloses so they can file a judgment against the sellers, for the entire balance. (B) The current owners (sellers) must have a financial hardship and it is entirely up to the lien holders to decide this.  

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