5 Mistakes Agents Make When Doing Short Sales

Short sales require  special skills of real estate agents. To be an effective short sale agent,  an agent should seek as much education in the short sale arena as possible.

Most real estate agents can learn to do short sales and most are well intended, but without a proper background in short sales, an agent can do damage without even realizing it.  Being well intended does not translate to being competent.

There are 5 mistakes agents make when doing short sales:

1.     Agents think they can do any short sale that comes to them:  This is not true. In some cases the property in question may have too many liens against it to realistically think a short sale can be accomplished.  Since all lienholders must sign off to close a short sale, the more the  liens, the less the chance for consensus making closing a multi-liened property extremely difficult or impossible.

2.    Agents do not understand the process: It is important for an agent to understand the process, as the closing of a successful  short sale depends so much on an agent understanding the process. An agent needs to know what tasks the bank should be doing and what the time frame for completing those tasks is, so the file can be escalated to a senior management person,  if the bank is not being responsive.

3.   Agents do not know how to properly submit a short sale package: Most lenders have a particular order in which they like their short sale package submitted. Not submitting a short sale package to the lender’s satisfaction can cause a big delay or the file winding up being discarded with no response to the agent.

4.   Agents don’t understand the BPO (Broker Price Opinion): The opinion of value can be a pivotal point in the short sale process.  If the value comes in too high, the agent must know what to do to save the transaction.  This can be mitigated by the agent doing his/her own price opinion and a gain loss analysis before ever submitting a short sale package.

5.   Agents give up too quickly: Most agents give up, because the process seems to take too long. The process takes more time than an equity sale, but understanding the process will help the agent to short-cut the process.

Is there such a thing as commitment anymore??

I don’t know about you, but I am , frankly, sick and tired of hearing  how Tiger Woods and Jesse James and other men of note are cheating on their wives. I watched the Oscars as Sandra Bullock was paying a heartfelt tribute to her husband, Jesse James, whose eyes were glassy with tears. Now days later we hear  he has been involved in an 11 month affair. I could throw-up.

All the covers of the tabloids are awash with accounts of how this one and that one are having affairs or have been caught cheating.  Wake up America!  What is going on here?  Where is there any level of commitment? What kind of an example are we setting for our children? I can tell you. We are setting an example that cheating is all right. In fact, it is being glorified by the media. Look! If you can’t respect your commitments………….don’t make them. It is far too easy today to live in “disposable” land.  If I am not happy with you, you are “disposable”. I will just go out and get myself a new toy. So what, if it hurts your feelings. I’m unhappy. Me, me, me.  Grow up! Let’s just abolish marriage. You don’t really respect it anyway.

I’ve heard over and over again about the poor celebrities and athletes who have females throw themselves at them all of the time offering sexual favors for a “romp in the hay.”  I have no doubt that the temptation can be HUGE, but what about “NO?”   Just say “NO”. We ask our kids to Just say “NO” to drugs. How about parents ? How about Just Say No to infidelity.

The beauty of maturity is that you realize what is really important. Strip away money, power and beauty and what is left?  Values and close relationships are what are left, because these are the things that sustain the human spirit.

It is a sad commentary on our country.  Not only are we in a devastating economic crisis, we are in a moral crisis, as well. Don’t make a commitment you cannot keep. Better not to be a person upon whose word no one can count. You are only as good as your word. Once you break your word, what do you have?  A reputation as someone who does not keep their word. I think when I was growing up, we called them “liars.”

What is a Deficiency Judgement?

  What is a deficiency judgment?

  A deficiency judgment is a judgment obtained by the lender in court against the borrower for the difference between the unpaid balance of the secured debt and the amount produced by sale or the fair market value of the security, whichever is greater, in a judicial foreclosure. (Cal. Code Civ. Proc. § 726 (b).)  A lender may obtain a deficiency judgment only with a judicial foreclosure.  With a trustee’s sale foreclosure, the lender cannot go after a deficiency judgment.   
 
Can a real estate lender obtain a deficiency judgment against a defaulting borrower following foreclosure?

It depends.  California has “anti-deficiency statutes” that protect certain borrowers from deficiency judgments.  Under those circumstances, a lender would opt for a trustee’s sale foreclosure which is quicker and less expensive than a judicial foreclosure.  A trustee’s sale foreclosure does not involve the courts. Generally, there are five situations in which a deficiency judgment is prohibited:

1)  Purchase Money.  If the loan is obtained to purchase a residential 1-4 unit dwelling all or part of which is owner occupied and the loan is secured by that property, the lender may not obtain a deficiency judgment against the defaulting borrower. This loan is entitled to “purchase money” protection.  (Cal. Code Civ. Proc. § 580b.)  Note, however, that should the buyer refinance the home, the new loan is no longer “purchase money.”  Thus, the buyer would lose the protection against a deficiency judgment in the event of a default.

2)  Seller Carryback.   If the purchase money loan for any type of real property is financed by the seller and secured by that same property, the lender/seller may not obtain a deficiency judgment against the defaulting borrower/buyer. (Cal. Code Civ. Proc. § 580b.)

3)  Trustee’s Sale.   A lender may not pursue a deficiency judgment against the borrower should the lender opt to foreclose by a trustee’s sale foreclosure (a non-judicial action).  (Cal. Code Civ. Proc. § 580d.)

4)  3 Month Time Limit.   An action for a deficiency judgment must be brought within 3 months from the time of judicially-ordered sale.  (Cal. Code Civ. Proc. § 580a.)

5)  Fair Value Limitations.   A deficiency judgment is limited by the difference between the amount of the indebtedness and the fair market value of the property, unless the actual sale price exceeds that value.  (Cal. Code Civ. Proc. §§ 580a, 726 (b).)

When a deficiency judgment is permitted, the lender may obtain one only following a judicial foreclosure, or when the security has become valueless (such as when security for a second trust deed loan is wiped out when the first trust deed lender completes its foreclosure).  Holders of a junior deed of trust (second, third, etc.) should note that if the “wiped-out” junior lien is not purchase money or seller carryback, then the junior lien holder may sue on the note and the borrower on the junior loan may be personally liable.  (Roseleaf Corp. v. Chierighino, 59 Cal. 2d 35 (1963).)

  Can a lender avoid the foreclosure process and just sue the borrower on the note (i.e., treat it as an unsecured note)?

  No.  A lender cannot sue on a debt secured by a mortgage or trust deed except for a judicial foreclosure.  This is called the “one action rule” or “one form of action rule.” (Cal. Code Civ. Proc.  § 726.)  One exception to this rule is if the security for the loan has become “valueless” after the lender’s security interest was recorded (e.g., a “wiped out” junior lien holder).  In this case, the lender can sue directly on the debt (note) unless the borrower’s loan is a purchase money loan or a part of a seller-carryback.

A Lender’s Options When a Borrower Defaults on a Home Loan

This will be the first of many blogs talking about  “What Happens When A Borrower Defaults on a Home Loan.” When a borrower is no longer able to make payments on a mortgage on his/her home, the bank has 4 basic options in dealing with that property   

Loan Workout:  Basically, a loan workout is any resolution of a problem loan between the lender and borrower that modifies the original loan agreement.  Some of these options include forbearance (e.g. forgiving a portion of the debt or late charges); deferment; renegotiating interest rate, monthly payment amount, principal amount, maturity date; or the enforcement an acceleration clause in the loan. 

Deed in Lieu of Foreclosure:  After the borrower is in default, the borrower voluntarily delivers title to the lender for consideration and the lender accepts the conveyance of the property in full satisfaction of the mortgage debt.  Using this method, the lender saves the costs of foreclosure and the borrower avoids having a notice of default on his/her records.  (Hamud v. Hawthorne, 52 Cal.2d 78 (1959).)
 
Short Sale*:  A short sale is a transaction in which a lender allows the real property securing the loan to be sold for less than the remaining mortgage amount due and accepts the proceeds as full payment of the loan.  A lender may accept a short sale when the borrower is in severe financial straits and market conditions make a short sale the best choice to mitigate the lender’s damages.  Like a deed in lieu of foreclosure, this saves the lender the costs of foreclosure and the borrower avoids having a foreclosure on his or her credit report. 

Short Payoff*:  With a short payoff, the lender accepts less than the remaining mortgage amount as full payment of the loan.  The property need not be sold. 

*Note:  Some lenders do not differentiate between a short sale and a short payoff.

Any of these options can used by a lender.  We will discuss Short Sales in detail in upcoming blogs.

How “New” tires can kill you!

When I saw a video about how “New” tires can kill you, I was completely surprised and realized just how ignorant a consumer, who otherwise might be a very bright person,  could be to the dangers lurking in the most unsuspecting of places. For any of us who has driven a vehicle to the point of needing new tires, I think we all wonder just what tires we should purchase, which are the safest, do we really need to spend top dollar for them and how long will they last?  Have you ever considered the possibility that the tires you purchased, as new, could be years old? Neither had I.  After seeing the revealing video about the danger in “so-called” new tires, I decided the word must get out on as broad a scale as possible and that I must do my part.

When you shop for tires it is important to note that they all come with a special code (non-consumer friendly) on the wall of the tire that usually will help you identify the REAL age of the tire. Until a year ago this code was on the inside wall of the tire. It follows the Department of Transportation long line of numbers and shows up at the end as a 3-4 digit code i.e. 2404 which would mean the tire was made in the 24th week of 2004. A tire with 231 would indicate a tire was made the 23rd week of 1991.  A tire with 1306 would indicate the tire was made during the 13th week of 2006. Even Ford motor company recommended that tires should not be sold when they hit 6 years of age. In Great Britain it is a law. The tire industry has not wanted us to know about this, because of the potential of lost revenue in removing expired tires from the market.

Why does this make a difference? As tires age they become brittle and dry. As they become brittle and dry they begin to shred and tear apart. Have you ever seen pieces of tires on the roadway? Those pieces of tires have probably come off of old and brittle tires. The scary thing is that these tires (never used) are allowed to be sold as new, so the consumer thinks he/she is all right and goes merrily on his/her way completely oblivious to the danger of the tires. Should you or a loved one be the driver in a vehicle with aged tires and one of the tires begins to shred, you are in serious danger of being killed. The video I saw showed a test driver, who knew the tire was going to shred, having a difficult time getting his vehicle under control. The reality is you don’t stand much of a chance, if any, of controlling your vehicle, if your aged tire decides to shred.

There is NO expiration date required on tires. I ask why not? If a six year old tire on the shelf can be sold as a new tire when it is clearly an aged and deteriorating tire despite its new look, why is there not a public notification as to the danger of purchasing such tires? It is clearly a pattern of corporate neglect and government inaction. Check your tires and those of  your family and pass this information along. It could easily save your life or the life of a loved one.

If you would like to see the video I saw that spawned this blog, go to http://abcnews.go.com/Video/playerIndex?Id=4826897

What information should you disclose about your home?

You should disclose anything about your home that might cause a potential buyer to have concerns or give them reason to consider not purchasing your home. The best way to approach it is to put yourself into the shoes of the buyer. What would you want to know?  Everything, right? It is better to have a buyer make a decision to walk-away from the purchase of your home then to wind up in court with a nasty lawsuit, which you will undoubtedly lose.

Anything that might materially affect the value of your home is an item for disclosure. There are even things that could affect the value for one buyer and not another. A rather obvious example would be a train that passes by the property at certain scheduled times of the day. One buyer may care about the noise factor, while another may not. It must be the buyer’s decision…..not yours. Disclose, disclose and then disclose some more. The moment you feel as if disclosing something might “kill the deal”…….disclose it and do it now.

I do legal expert witness testimony in real estate trials and it is my experience that somewhere around 90+ percent of plaintiffs win in lawsuits where there has been non-disclosure. Those odds are too high to take on that kind of risk. FInd a buyer who can live with your disclosures.

The “Buy and Bail” Foreclosure

After I wrote the blog on the new type of foreclosure where people are buying a new home and walking away from a former home that is now underwater, I got a comment posted from Jay Kunkle, a lender friend of mine. The information he provided me is worth passing on to you.

This new type of foreclosure is called the “Buy and Bail” foreclosure. Owners of home number one decide their current residence is so upside-down it has become a “bad investment.” While their credit is still good, they go out and purchase home number two and then “bail” on home number one.

Here is how the banking industry is trying to deal with the situation. First of all they are requiring the owners of the departure home to have 30% equity in their homes and have a signed lease in place before they are allowed to offset any of the debt service on the departure home with the rental income OR they must be able to qualify for the debt service on BOTH homes. This has stopped many a “Buy and Bail” situation, but has hurt other folks who have had no intention of walking away and cannot qualify for both the departure residence and the new residence.

The long term effect of “Buy and Bail” could certainly be significant given the already depressed state of the real estate     market and the economy. It is this writer’s opinion that the lending institutions need to get more creative to keep people from “bailing” on their homes.

My agent sends me lists of properties and tells me to drive-by.

Recently my real estate partner obtained a new buyer client who was “fed-up” with her former agent. The client was so “fed-up” with the agent’s lack of professionalism she decided to interview agents to represent her as her buyer’s agent. Congratulations to my partner who was the successful choice after six interviews with six different agents.

The previous agent was sending her lists of properties, telling her to drive-by and let the agent know, if any of them suited her. My partner’s new client wanted an agent who actually cared enough to go out and look at the properties for her and then recommend to her properties that she might want to see based on a certain set of parameters. No kidding! What services should one expect from a buyer’s agent? Together we saw over 100 homes. Are we crazy? No. This is our job. We found her the perfect home. There were many that sounded fantastic in the multiple listing printout, but were a great disappointment on our initial visit. We did not waste our client’s time and when you calculate the actual number of hours worked to close a transaction with her, I can assure you our hourly wage would make most folks happy.

FHA Changes you should know about

1. The upfront mortgage insurance premium (UFMIP) will increase to 2.25 % up from 1.75% and FHA will continue to allow the financing of the UFMIP.
2. Borrowers with a credit score below 580 will be required to have at least 10% down payment. Borrowers with credit scores over 580 will remain at 3.5%. FHA will seek legislative authority to increase the annual premium which is now capped at .55 percent. If FHA can increase the annual premium, it may be able to reduce the up-front premium.
3. Seller concessions will be reduced to 3% from 6%.

FHA will make the following lender enforcement changes:
1. FHA will implement credit watch terminations at lender underwriting.
2. A public reporting of a lender’s performance using a scorecard system will be implemented.
3. FHA will implement, using notices and comments, indemnification against lenders. Indemnification will be expanded beyond fraud and misrepresentation.
4. FHA will seek legislative authority to enforce indemnifications against direct endorsed (DE) lenders.
5. FHA will seek legislative authority to sanction lenders nationwide based on performance of local branch.

The FHA is an integral part in continued recovery of the real estate industry and the overall economy. The National Association of Realtors will continue to work with FHA, the current administration and the Congress to ensure the FHA can fulfill its mission while providing for the safety and soundness of the insurance fund. It will be important to balance risk management while creating homeownership opportunities across the US.

How is the market??

How is the market?? Are you a buyer, a seller, an investor or a renter? It is different for each of you.
As a buyer, you are probably wondering, if you should be buying now? Ask yourself the following question. Are the interest rates “true rates” or are they “incentive” rates? It is my opinion they are “incentive” rates to get buyers to purchase. Where are rates headed? There is only one way they are headed and that is higher. When will this happen? Probably the first quarter of 2010. Why will they head higher? There are a couple of reasons. One is the bond market and the other is the weak dollar. What does that mean for you, as a buyer. It means you should probably seriously consider buying at this time.
As a seller, how is the market? Today’s news is that home sales and home prices are rising. How can it be that home sales and home prices are rising when there are so many short-sales? That is exactly why they are rising. Buyers are perceiving short-sales as great values. This is generating multiple offers and the properties are selling for over the listed price as buyers clamor for a “deal.” This is setting new and higher price points, so sellers, knowing that the interest rates are going to rise and a certain percentage of your buyer audience will disappear, it is my opinion you should be realistic about your price and sell. After all, you can go out and find yourself one of those wonderful deals, as a buyer, before they are all gone.
As an investor, you are having a heyday. When have you seen properties in higher end markets cash flow? You just can’t spend your money fast enough. Good for you! Cash is king and, if you have cash……..invest and invest.
What about renters?? Normally in times when foreclosures increase, rental prices increase. As more people need to rent homes the law of supply and demand ususally creates higher rental prices. Well, that is not what I am seeing in the marketplace at this time. In fact, I am seeing a decrease in rents. Landlords, if you have a good tenant, keep that tenant. You may not be able to replace that tenant with a like-paying one. So, how is the market?? It is different for each of you, depending on how you classify yourself.