HAFA

10 Mistakes Home Buyers Make with Simi Valley Short Sales

Simi Valley Short Sales have been a big part of my business for the last couple of years. These transactions are very complex and not every real estate agent is equipped to handle these transactions. It is easy to get a seller to agree to list their home, but working with the Seller’s bank to get short sale approval is another story. Many of the licensed agents that take short sales listings have no business doing so. It is easy to attend a seminar and get a certification, but each and every short sale I have worked on is different with it’s own set of circumstances, nothing can be substituted for hands on experience.

Understand that the representative at the bank has a typical work load of over 100 properties on their desk in various stages of the approval process. My job is to keep my client’s file at the top of that stack and any time the bank representative throws a condition at us, we need to answer quickly and be able to state a case in support of my Seller.

A big part of my success is using a 3rd party negotiator on my team. My negotiator is Real Estate Attorney and Licensed Broker, while he is acting only as a negotiator, the years of experience between the two of us has proven to a 100% track record in getting approvals. We have completed traditional Short Sales and Short Sales under the HAFA program.

Your biggest obstacles as a buyer in a Short Sale are mostly going to be related to having unrealistic expectations. Some will be generated on your own and the rest will be generated by the real estate agent representing you.

#1. Not understanding Market Value – You will write a Low Ball offer for several unsound reasons

First unsound reason – The bank already has written this property off at a loss, if they don’t take my offer they will lose even more money down the road.
Second unsound reason – They are getting more from me now then they will if they foreclose.
Third unsound reason – By the time I fix up the house after I buy it, I will have $50,000 into it, so my offer needs to be $50,000 below asking.

The bank has send appraisers out and paid other real estate agents for market opinions. The Seller’s lender has a very good idea what the surrounding homes have sold for. Additionally, I will price my Short Sale Listings at Market value and this is one of the direct reasons why my Short Sale Listings not only get approved, but they also close escrow successfully. Typically the Seller’s Lender will come back and ask the buyer to come up with additional money if the Seller’s Lender thinks the offer is low compared to the market value.

#2. Asking for Repairs – You or your agent will think that you can ask repairs after an inspection. The seller is in a Short Sale because they are broke and out of money. They probably barely have enough money for a deposit on a rental when escrow closes and if your agent puts in your head that you can ask for repairs, you might want to look for a new agent before looking at other homes. Short Sale Lenders do not care that the water heater relief line does not exit to the outside of the home, they don’t care that the screens are broken or that the pool is green. No they don’t care that the GFI’s are missing in the bathrooms. The Short Sale Lender has a bottom line number in their approval and if the buyer cant work with that number, then the approval will not be issued. The bank’s bottom line number and your low ball offer will not be compatible. Seller is broke so that means you the buyer gets to pay for the repairs.

#3. Ask for Termite – Your agent tells you to ask for termite inspection and repair. Once you put it in the contract now your lender is going to require the work be done, but remember the Seller’s bank isn’t going to pay for it and the Seller is broke so the only person left to pay, is you the buyer.

#4. Ask for Home Warranty – Once again the Seller’s bank isn’t going to pay for it and the Seller is broke so the only person left to pay, is you the buyer.

#5. FHA & VA financing - Try a Short Sale at your own risk, because FHA and VA will inspect the house and come up with a list of Lender required repairs. See #2 and remember the Seller’s bank isn’t going to pay for it and the Seller is broke so the only person left to pay, is you the buyer. FHA & VA buyers have bought Short Sale properties, they just had to come out of pocket for Lender required conditions and repairs.

#6. Closing costs – Your Lender or Real Estate Agent told you to ask for $10,000 in closing costs. The Seller’s bank isn’t going to pay for your closing costs and the Seller is broke so, the only person left to pay for your closing costs is you the buyer.

#7. Unrealistic about time frames – Short Sales take a long time. I have obtained approvals in as short as 3 weeks to 6 weeks, but the majority of the approvals are taking 90 to 120 days. If you don’t know how to sit and wait for a long time with little information on the status, then you should not be writing offers of Short Sale properties.

#8. You have a home to sell – While I might be the only listing agent in Simi Valley to complete a Short Sale with a buyer who was selling their home and needed the proceeds from that sale to complete the purchase of my Short Sale; I have not had any other bank agree to this. The timing on these short sale approvals is so drawn out and consuming, it is very difficult to hold all the buyers together and wait for approval. The representative for the Seller’s Lender know this and they do not approve offers that are contingent on the Buyer selling their property first.

#9. Attempt to flip or the old Double Escrow – You want to negotiate with the Seller’s Lender so you can turn around and find another buyer and make a quick profit. My seller has no motivation or obligation to help you make a fast profit off their loss. Keep in mind that the Seller’s Lender may have deficiency rights against may seller, so my seller would be crazy to take on larger future tax and deficiency obligations for your investment plans. I wrote “Beware of Short Sale Flipping” which explains this better, but it can be illegal and FBI has been going after investors that are concealing their profit schemes from Short Sale Lenders.

#10. Not understanding THE SELLER IS BROKE and THE SELLER’S LENDER IS NOT GOING TO AGREE TO PAY FOR THINGS YOU DEMAND. You should realize by now that there could be as much as $1,000 or even $2,500 of issues on a Short Sale property and if you are not prepared (as a buyer) to deal with those issues, you probably should not be writing offers on Simi Valley Short Sale properties.

The Seller’s Lender has a sale price they are willing to accept for the property that is going to be very close to market value. The Seller’s Lender will try to get the buyer to pay over market value. The Seller’s lender is going to try every possible thing they can to to minimize the the costs to sell the property which is why buyer demands are not the concern of the Short Sale Lender.

To understand the short sale process better please read

I’d Like To Buy Your House For Cash – Beware of Short Sale Flipping

A series of news reports over the last few years are covering a problem that has hit the Short Sale Market. As in any market, if there is an opportunity, the opportunist go to work. This time they are trying to create screaming deals out of Short Sale properties.

These flippers target houses on the verge of foreclosure and persuade banks and mortgage companies to accept lowball buyouts, sometimes by using questionable appraisals and not disclosing that a quick sale at a higher price has already been arranged, experts say. (source: Herald Tribune The New Flipping:Short Sales)

If you are having trouble with your mortgage, have been trying to get a Loan Modification and you have fallen behind in your payments, now is the best time more than ever to be skeptical of anyone who approaches you about your home.

Once you get behind on your loan payments, here in California it won’t be long before your lender will file a Notice Of Default (NOD). The NOD is a public record filed at the county recorder’s office and there are several private companies that mine these records and provide a subscription to interested parties. RealtyTrac and ForeclosureRadar are two of the better known services. Investors, home buyers and real estate brokers subscribe to these services.

Real Estate professionals use the public filings on properties in foreclosure to find more business as a means to see if those in foreclosure would like to try and Short Sell their homes.
Investors are looking to get homes below market value so they can clean them up and put them on the market for a profit.
Home buyers typically believe they are going to get a home significantly below market if they can contact a home owner in foreclosure directly.

Once an NOD is filed against your property, expect your phone to ring and possibly people come to your door. If they are offering to buy your house and help you avoid foreclosure this should be a very big red flag. Let’s assume your house has a market value of $400,000 and you owe $500,000. You have know way of knowing the true market value of your home without getting an appraisal or broker price opinion (BPO) from a disinterested third party. The person standing at your front door or calling you on the phone is coming to you directly cause they want your property below market value and the farther below market value the better for them.

Here is the rub, if they promise to handle everything and work with the bank to short sell your home, if they then can convince the bank to take an amount significantly below market value, that could be seen as defrauding the bank. In this article from Bloomberg, Banks face fraud from short sales as home flopping spreads you can see that the banks and FBI are catching on to this scheme.

Two Connecticut real estate agents found a way to profit in the U.S. housing bust: Buy low, sell fast. Their tactic was also illegal.

Sergio Natera and Anna McElaney are scheduled to be sentenced in Hartford’s federal court in August after pleading guilty to fraud. Their crime involved persuading lenders to approve the sale of homes for less than the balance owed –known as a short sale — without disclosing that there were better offers. They then flipped the houses for a profit.

The Federal Bureau of Investigation, the California Department of Real Estate and mortgage finance company Freddie Mac have warned that such schemes may be spreading after a plunge in values left homeowners owing more than their properties are worth.

When you get approached directly by people trying to make deals, they aren’t at your door for charity. Also other promises such as selling you back the property, letting you stay as a renter or that they will give a cash incentive after escrow closes are all signs of more trouble. Every single Short Sale transaction I have worked on in the last year has involved a document from the Short Sale Lender, that is signed and notarized by both buyer, seller and all real estate agents involved. This document has all parties acknowledge that the transaction is at “Arms-Length” and that the Buyers are not getting money at or after closing (there is one exception I will explain later), there are other terms as well.

If a Real Estate Professional approaches you to help you with Short Sale, then interviewing properly is very very important. A Short Sale transaction is complex and not for just any agent. Those of us who have completed many Short Sale Transactions will tell you that each and every one is different. In my opinion there is no possible way to claim to be an expert or specialist in Short Sales because no two short sales are the same. Experience, closing percentage and the agent’s support structure are some of the better indicators to show if the agents you are interviewing can get the job done. Unknown to the consumer, real estate agent email in-boxes receive offers for short sale training every week. Each course offers a designation of “specialist”. While there is value in these classes, nothing beats the experience in putting these transactions together. There is no cookie cutter formula, it is good old fashioned negotiating and doing the legwork necessary to get an approval.

I have experience in closing HAFA and regular Short Sales with most major banks, including Wells, Chase, IndyMac (One West), GMAC, HBSC, HOME EQ etc. I have closed Short Sales in as few as 60 days from offer to close of Escrow with the typical short sale talking 120 to just under 180 days from offer submission to closing. I use a third party negotiator who is a licensed Real Estate Broker and practices Real Estate Law. We have closed every single one of our Short Sale Transactions we have worked on together. It takes a coordinated effort to keep the loss mitigator’s attention on my client’s file and be able to deliver information in a timely manner to assist the bank in expediting an approval decision.

I have represented buyers on Short Sale purchases and this is why I believe I am qualified to offer the advise that not every real estate agent is cut out to work on a short sale. I wrote about Short Sales from a Buyer’s point of view in Simi Valley Home Buyers 3 Important Concerns with Short Sales Offers

A good review would include:

If your trying to modify your loan, contemplating a Short Sale and you are getting calls from investors and real estate agents to help you with your house, proceed with Skepticism and Caution. Consider that if you are in danger of losing your home to foreclosure, what benefit is it to you to help someone pull a fast one on the bank so they can get control of your property and flip it for a profit? We are seeing, as in the articles I quoted above that the FBI and the banks are watching, is it worth the risk? If Short Sale is your only other option beside a foreclosure, I can help you move through the process discreetly. Many times my clients have not want for sale signs in their yards and want to keep this part of their financial life as low key as possible and I try to accommodate that where I can.

Disclaimer: Seek advise from a Tax professional and Attorney as there may be issues related to Loan Modification, Short Sale or Tax Implications. Keller William Exclusive Properties & Ted Mackel is not associated with the government, and our service is not approved by the government or your lender. Even if you accept an offer and use our service, your lender may not agree to change your loan. If you stop paying your mortgage, you could lose your home and damage your credit rating.