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Short Sale Hell
Still Doing Business With a Bank? Read On…..
I have a client who recently went through a hell of an ordeal with their lender in attempting to sell
their home short.
These folks have had a rough 2 1/2 to 3 years. They are in the real estate industry and started feeling pinched financially in late 2006 to early 2007. The market had turned sour and he was unprepared for how to deal with the changes in the market opportunity at the time.
His wife had steady work but the reduction in his income left them short and they ended up in debt trying to keep their home life stable.
They continued to think that the economy would get better and they could recover their situation but the market and economy got worse.
And worse. And worse.
Time to Stop the Bleeding
Seeing that the situation nationwide was not getting better and the local economy in dire shape, in April of 2009 they made a conscious decision to completely restructure their financial life to start over.
For them, that meant bankruptcy to wipe out all debts and getting rid of the house. It was worth $125K less than they owed and they determined it would be years before that value would come back.
They had already waited too long for the market and their fortunes to turn back in their favor. They had to take action to get back on the road to financial recovery.
The Bank Says “No Problem”
Because they had intended to give the house back to the bank, preferably selling the home short, they stopped making their payments as the bank wouldn’t talk to them until they were late.
After a couple of months, they approached the bank about a loan modification and were told that it was possible however the investor wouldn’t lower the principal loan amount.
They declined to even try to get the loan modification as anything other than a principal loan amount reduction did no good for long term financial stability.
They asked the bank about a short sale and were told to fax in a documentation list and they would review it.
He called the bank several times over a 60 day period to make sure they stayed in and each time he spoke to someone different who told him something different than the last person he spoke with had told him.
Because the bankruptcy was now finalized, the bank continued to push toward a loan modification seemingly ignoring the fact that they had clearly said, repeatedly, that this wasn’t an option for them as the principal loan amount would not be reduced.
Trustee’s Sale Scheduled
The bank had scheduled a trustee’s sale to sell the home at auction. When the notice was posted on their front door, they called the bank to ask if they were still going to be able to sell the home short.
They were told the trustee’s sale would be postponed.
The day before the trustee’s sale was to occur, they called the bank to follow up on the paperwork and to inquire about the postponement of the sale.
They were told that they were going through with the trustee’s sale and the home would be auctioned off the next day.
No one anywhere along the line, in all the calls to the bank, ever gave the impression that they would be foreclosed upon provided they got their information to the bank.
For some reason, the bank would not even attempt to cancel the sale.
The next day the property sold to the highest bidder at auction. The buyer at the auction said to my client “not to worry, we’ll work something out so you have time to move”. That evening, they were served with a 3 day notice to vacate or be faced with a lawsuit.
When you are foreclosed upon, the homeowner has NO rights at all. They are required by law to move out immediately. If a renter were in the property they would have rights but not the homeowner.
Understandable but you’d think the decent thing would be to work with the homeowner to get them out as quickly as possible without adding undue stress to their situation.
This is the reason so many people who go through the foreclosure process destroy the home before they leave. They are in financial trouble, they are lied to all along the line and finally snap ripping up everything in sight.
My clients are not that kind of people but just wanted to get the hell out of the house and get on with their lives.
They were lied to by the bank. They were lied to by the investors who purchased the property. All this on top of feeling guilt for walking away and having to move out on short notice.
Are the better off? Absolutely they are but not without having to go through hell to get there.
What They Learned
In talking with them, I learned that they hadn’t attempted to go through the loan modification process with the bank. They didn’t know about he HAFA program and that the bank is compensated by the government to allow homeowners to sell short. The caveat is that you’ve got to go through the loan modification, or HAMP, process first, reject it then you can go through the HAFA program to sell short.
This coupled with the fact that they have a monthly income surplus was probably the reason the
short sale request was ultimately denied.
They had a surplus only because of the bankruptcy.
During the final stages of the process, the bank said that they had to have a hardship in order to qualify for a short sale. My client said to them that they had just finished a bankruptcy and wasn’t that considered a hardship? The bank said no as now you have no debt and can pay your mortgage!
My clients, with a bankruptcy on there credit report, won’t be able to get financing for a home purchase for 2 to 4 years yet the bank didn’t consider it to be a hardship. Amazing.
The Moral of the Story
There is no rhyme or reason to what the banks do. None. If there is, only they know it and they’re not talking.
My clients had an offer from an investor for $220K. The house sold at auction for $199K. The opening bid was $190,800. In this case, this was probably about the same amount to the bank. Usually, it’s far less.
My clients have said that they will never do business with a bank again if they can avoid it. They’ve closed all banking accounts and gone to the local credit union.
I don’t blame them one bit. Now we know why people used to, and some still do, hide money under their mattresses. It’s safer!
Need short sale advice? Just fill out the form below and we’ll get back to you promptly.
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Have You Received a Notice of Default?
Time Is Of The ESSENCE!
If you’ve received a Notice of Default and are in the beginning stages of the foreclosure process, you have a small window of opportunity to sell your home short and avoid the trustee’s sale.
If you don’t get the documents to the bank very early in the process, they could deny your sale and your home could go to auction.
Once the house sells at auction, you’re rights to stay in the home are gone and you’ll need to move almost immediately upon the close of the auction.
My recommendation is to have the required documents to the bank 30 days prior to the trustee’s sale to make every attempt to get a postponement.
What You’ll Need To Get It Done
Selling your home short is a stressful process but foreclosure is worse. You can make it easier by being prepared upfront before you communicate with your bank about your desire to sell your home for less than you owe.
Your lender is going to require that you substantiate your reason to sell short and they are going to want all of your personal financial information upfront as well as documentation regarding your situation and the listing of your home.
Here is a brief list of what is commonly asked for from most lenders.
List of Required Documents
Most lenders, with few exceptions, will request a list of documents from you much like the list below. This information is personal but you’ll want to provide everything as concisely as possible so that you’ll be considered for a short sale.
Selling your home short is a far better option than going through the foreclosure process.
- Bank Statements – If you’re are employed, you’ll need two months. If you’re self employed you’ll need 4 months.
- Financial worksheet monthly expenses – The lender or bank is going to want to know where your money is going.
- Copy of your homeowners insurance policy.
- A hardship letter signed and dated – Lenders need to see why your can no longer afford your home.
- Two recent pay stubs.
- Two of your most current year tax returns.
- 1099’s or W-2’s for the last two years.
- Proof of occupancy – utility bill of some kind.
- 4506T request for tax transcripts
At the same time you send in these documents, you’ll want to also show that the house has been listed for sale and that you have a contract pending their approval of the sale as well as all of the buyers documents.
Loan Modifications
What I’ve found is that the larger lenders want their borrowers to go through the loan modification process first to find a solution rather than go directly into a short sale. Once you’re in the loan modification process, everything from a foreclosure sale perspective stops.
While this isn’t always the case that they want you to go through the loan modification process, it doesn’t hurt even if your intention is to sell short regardless of the outcome.
At this point, lenders/investors haven’t been willing to reduce principal loan amounts to keep people in their homes. Reducing principal loan amounts is the only viable solution for the homeowner for the long term but for the banks, they’d rather foreclose or sell short than to lower the principal loan amount.
This makes NO SENSE but there must be a reason for it on their level. I know no one who has any rational idea of why this is.
Now What?
After you have all of your very personal information together, you’ll need to have someone knowledgeable about the process put the house on the market and help negotiate the sale for you.
You don’t want to do this on your own as it is VERY frustrating and could stress you beyond your rational limits.
It’s always better, especially if it costs you nothing, to have a Realtor handle the short sale for you.
We have a professional negotiation team handle all our short sales and we close a very high percentage of them as a result. We keep you updated weekly so that you know every step of the way where we are in the process.
Looking to sell short? If you’d like more information on how we handle short sales, please fill out the form below for additional information and we’ll get back to you promptly.
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QUICK STATS: Rocklin Short Sale Closings Increase 23%
Quarter over Quarter Results
From the first quarter to the second quarter of 2010, short sale closings has increased by 23%.
More and more people are seeing selling short as a viable option and the banks are cooperating to get them closed.
Most banks are now approving short sales without the borrower being late on their payments.
Our feeling at SellState Realty First in Rocklin is that borrowers are getting over the stigma that once existed about keeping a home that is hopelessly underwater with no sign the investment will appreciate in the short term.
The fact of the matter is that even if a borrower sells short, it isn’t the end of the world. While it’s stressful in the short term, in the long term, it’s a viable option for borrowers who are underwater.
While there are short term financial consequences, they are pale in comparison to waiting 10 years for the investment to be worth what is owed on it versus being in a equity position over the same amount of time by selling short and then buying again in a few years. (click here for this scenario)
Considering selling short? Please fill out the form below and we’ll get back to you promptly.
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Time to Sell Short in Rocklin Decreases
Quarter over Quarter Results
The time it takes to get a short sale* closed in Rocklin has decreased by 68 days from the first quarter to the second quarter of 2010.
That’s a 32% decrease in the time it takes to get a borrower on their way out of a bad financial investment.
With the government providing a solution to the failed loan modification program, short sales have become easier than ever to get closed.
The HAFA program has put the banks on notice that the government would rather not see any more foreclosures. Due to this, banks are approving short sales even with an notice of default filed and a trustee’s sale scheduled.
Now, we’re also seeing some lenders, most in fact, approving short sales without the borrower being late on ANY payments.
Wells Fargo/Wachovia has come out and told me personally that a borrower doesn’t have to be late to be considered for a short sale.
On their portfolio holdings, Chase has said that they don’t want ANY foreclosures. None!
While the individual borrower is not portfolio, I can tell you that Chase is pretty easy to work with in approving short sales. So is Bank of America.
This is the best possible scenario for homeowner who can see that the underwater mortgage they are holding onto is a bad investment. You can now get out of that bad investment without completely destroying your financial situation.*
Values Hold Steady
So far, values have held steady in the Rocklin area this year. This appears to be the direction the market is going in the short term.
Don’t look for wild or even gradual appreciation anytime soon. (for an appreciation scenario, click here)
For the next few years at least, it appears that, unless something crazy happens with our local and statewide economy, that our market will stay steady if not lose a little more value now that the homebuyer tax credits have expired.
This makes holding onto a mortgage that is underwater an even worse decision. If the market were looking to appreciate in the short term, then we’d have a “wait and see” attitude toward it.
No economic analyst worth their weight in tomatoes is saying that real estate values will increase in the short term, 2 to 4 years, and when they do begin to appreciate, it won’t be 8% or 10% per year but more like 2% to 5% per year or around the national average.
Not good for those who purchased from 2000 to 2007. Unfortunately, a large part of the new homes sold in Rocklin per purchased in that time frame.
Are you thinking about selling your home short? or If so, please fill out the form below and we’ll get back to you promptly.
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*Selling your home short comes with financial consequences. Before making a decision to sell your home short, please consult your personal financial advisor.
Rocklin Short Sale Statistics
Days On Market Decrease Since HAFA
The problem with short sales has been that they take so long to get done. The average days on market for a home in short sale status has been over 200 days in Rocklin since we started seeing them a
couple of years ago.
HAFA is changing all of that. Banks are now processing short sales faster as they have learned that short sales save them money.
Additionally, if you must sell and you’re underwater on your mortgage, as roughly 70% are in the Sacramento region, selling short a better option over foreclosure as it’s less damaging to your credit scores and financial situation.
You could call it a “win-win” scenario considering the overall housing conditions currently.
As the graph shows, short sales are now averaging about 154 days on the market vs. 205 days on the market in the 4th quarter of 2009. This is a significant decrease in the amount of time it’s taking to get a short sale through the system.
Have short sale questions? Please feel free to fill out the form below or call us for more information.
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Related articles
Short Sales Getting Easier (video)
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Information for graph provided by Metrolist Services, Inc.
Short Sales Getting Easier
HAFA Pays Lenders To Allow Homeowners To Sell Short
Selling short has never been easier. Lenders are more cooperative than they have ever been. Approvals are easier to get and the percentage of short sales that close has gone up exponentially.
Enjoy the video!
Thanks for visiting!
Foreclosure Cancellations Continue To Rise
Short Sales, Loan Modifications Reducing Foreclosures
A report today from ForeclosureRadar.com confirms that banks are favoring short sales over foreclosure. Foreclosure cancellations are at all time highs and the result is fewer foreclosed homes coming on the market and an increase in short sales available for sale.
While short sales and loan modifications aren’t the only reason for the reduction in the foreclosure inventory of homes for sale, this is a clear indication that the governments efforts to stem the tide of foreclosures is working.
Foreclosure Time Frames Also Rise
The time it takes the banks to foreclose is also a sign of short sales and loan modifications are being favored over foreclosure.
The time it takes to foreclose on a home in default has increased from 163 days in November of 2008 to 239 days in April of 2010. That is a 46% increase in a year and a half time frame.
Lenders and servicers are giving homeowners more time to get either a short sale or loan modification done.
The fact is, foreclosing costs more money than keeping a homeowner in the home or allowing them to sell it short. Selling short is just a better financial decision for everyone involved.
1) It costs the investor who holds the mortgage less.
2) It costs the homeowner nothing to sell short.
3) Homes don’t sit in neighborhoods vacant for vandals to abuse. An occupied home isn’t a target.
4) Homes in better condition sell for more money. Short sales are better taken care of than bank owned homes. This helps to maintain values in neighborhoods.
5) Time frames have shortened and the lenders/servicers are making it easier to get a short sale closed.
The acceptance of short sales is the pathway back to a normal market in the Sacramento region. While this housing crisis is not even close to being over we can see the light at the end of the tunnel from here.
Need short sale information? Please feel free to contact us or fill out the form below and we’ll contact you.
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