By Tom Branch, on April 13th, 2011 Another short sale closed! The sellers avoided foreclosure, the buyers purchased a nice home at a discount, and the lender did not have the losses involved with a foreclosure.
Many people feel that the nation’s economy rises and falls with the housing market. While this is often true, we believe the current housing crisis is a direct result of the economic downturn and massive job loss across the nation.
In the Short Sale community, the vast majority of homeowners did not get a bad loan or buy more house than they could afford; they’re just good, hardworking Americans who fell on bad times.
All indicators point to Short Sales being on the real estate horizon for the foreseeable future, at least through 2012, and maybe longer.
We encourage homeowners across the United States to get educated on the options available should they become financially distressed. Short Sales are a great tool, providing relief to all parties.
Just remember to choose a REALTOR® with a proven Short Sale track record to negotiate on your behalf. Making the right choice can mean the world of difference to your financial future.
By Tom Branch, on March 19th, 2011 Another short sale closed! The sellers avoided foreclosure, the buyers purchased a nice home at a discount, and the lender did not have the losses involved with a foreclosure.
Many people feel that the nation’s economy rises and falls with the housing market. While this is often true, we believe the current housing crisis is a direct result of the economic downturn and massive job loss across the nation.
In the Short Sale community, the vast majority of homeowners did not get a bad loan or buy more house than they could afford; they’re just good, hardworking Americans who fell on bad times.
All indicators point to Short Sales being on the real estate horizon for the foreseeable future, at least through 2012, and maybe longer. Industry experts see another wave of distressed homeowners surfacing when the once popular Pay Option Adjustable Rate Mortgages (ARMs) begin to adjust in the coming months.
These mortgages allowed the borrower to essentially “pick a payment” that fit their budget in order to get into the house they wanted to purchase. These loans have the potential to negatively amortize and the rate will adjust upward – it’s just a matter of time. Pay Option ARMs were widely used in California and will begin adjusting soon.
We encourage homeowners across the United States to get educated on the options available should they become financially distressed. Short Sales are a great tool, providing relief to all parties.
Just remember to choose a REALTOR® with a proven Short Sale track record to negotiate on your behalf. Making the right choice can mean the world of difference to your financial future.
By Tom Branch, on January 26th, 2011 It’s that time of the year again. Many of us are picking up our mail and trying to get our tax documents together so we can prepare and file our 2010 returns.
 Licensed from iStockPhoto If you completed a Short Sale of a house in 2010, you will likely received an IRS Form 1099C showing the amount of debt that was cancelled in the Short Sale process. Don’t panic! The Mortgage Forgiveness Debt Relief Act applies to debt forgiven in calendar years 2007 through 2012.
According to the IRS website:
The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.
The best course of action is to contact your tax preparer or CPA, or you can download IRS Publication 4681 for guidance on the topic.
By Tom Branch, on January 16th, 2011 According to the Distressed Property Institute, more than 80 percent of distressed homeowners who go into foreclosure have never contacted their lender or a real estate professional for help. That’s a staggering number when help and relief are available.
 Licensed from iStockPhoto Without fail, our phone rings off the hook near the end of every month from desperate homeowners looking for help. After checking the local foreclosure lists, we often find that the house is already scheduled for foreclosure the following week. At that point, it’s nearly impossible to get a Short Sale in place to stop it.
An important thing to understand about Short Sales is that the process is anything but “short.” The only thing “short” about a Short Sale is the payoff to the lender. The sooner the homeowner contacts someone for help, the more time is available to work the Short Sales process.
We encourage homeowners across the United States to get educated on the options available should they become financially distressed. Short Sales are a great tool, providing relief to all parties.
Just remember to choose a REALTOR® with a proven Short Sale track record to negotiate on your behalf. Making the right choice can mean the world of difference to your financial future.
Based on “Avoiding Foreclosure – The Field Guide to Short Sales” © 2010 – Tom Branch and Gina Branch
By Tom Branch, on January 3rd, 2011 A couple of weeks ago a lender ordered an appraisal on one of my Short Sale listings. He had been hired by the lender to set the value. He was an out-of-area appraiser and did not have a SUPRA key, so one of us had to meet him at the property.
 Licensed from iStockPhoto As we went through the property together, we noted the overlay roof with rotting decking and soffits, carpets that would need to be replaced, deteriorating siding, and rotted beams on the front of the house. I suspect that the buyer will have to pay cash or perhaps a 203(k) rehab loan due to the roof and rot.
As we talked, he shared his comparables. I asked him why he did not use the three foreclosures on the same street rather than going into another subdivision to find sales. He told me that the lender’s directions were “not to use foreclosures or Short Sales” as comparables. Of course, when the value came in it was at least $20k too high.
If this was a normal mortgage, you can be sure those three foreclosures would have been used to determine value but in a Short Sale, they will not. This process almost guarantees that the home will go into foreclosure.
Let me understand the situation. We created HVCC to allow appraisers to operate without influence. The AMCs are usually owned by the lenders, so now the lenders are telling appraisers how to value properties!
So all we’ve done is to have the appraisers work for the lenders (through the AMCs) rather than the borrowers. This has driven up the cost to the borrower, reduced the income of the appraisers, and increased lender profits.
By Tom Branch, on December 29th, 2010 Dave Liniger, Chairman and Cofounder of RE/MAX International recently published an article titled, “Selling It Short” in DS Magazine. The article is a report card on Short Sales in general and where he thinks we’re headed in 2011.
 Licensed from iStockPhoto Dave focuses on three major areas; avoidable problems, untrained agents, and good ideas.
“…it’s time for avoidable problems such as lost files, conflicting responses, and inadequate communication to be minimized or eliminated altogether,” he wrote. While we don’t see much of this these days, the delays as the file gets bounced from negotiator to negotiator can be very frustrating for the agents, seller, and the buyer.
In our book titled, Avoiding Foreclosure – The Field Guide to Short Sales, we wrote, “If you are in the position to buy or sell a house through a Short Sale, ONLY work with a real estate agent who is well-versed in the Short Sale negotiation process.” Dave had the same thoughts when he wrote. “Unprepared agents who enter this arena – where even the simplest sale is still a complex, multilayered transaction – do a disservice to consumers and the industry as a whole.”
The real jewel in Dave’s article was his thoughts on “Good Ideas”. He wrote, “The best idea might be the frontloading of lender decisions regarding acceptable terms. A listing agent who knows that the required net proceeds have already been determined can take the leap and proceed with good faith and confidence that a reasonable offer will be considered seriously. Using this as a starting point, rather than the submission of an offer, gives the agent a valuable edge in marketing the property as well as managing the expectations of the servicer, the seller, and the potential buyers. It’s a better way to go.”
As a major Short Sale listing broker, I have to agree that this would be a great idea. We already do it with FHA Short Sales. The only issues we run into here are poorly completed BPOs or appraisals where the value is so out of line with what the market that it makes selling the property impossible. Lenders should have processes in-place that will allow us to challenge the values rather than leaving us stuck with that value for 120 days.
We encourage homeowners across the United States to get educated on the options available should they become financially distressed. Short Sales are a great tool, providing relief to all parties. Just remember to choose a REALTOR® with a proven Short Sale track record to negotiate on your behalf. Making the right choice can mean the world of difference to your financial future.
By Tom Branch, on December 25th, 2010 December 23rd was the frustrating end to a five-month attempt to complete a short sale. We listed the property in July and executed a contract in early August. While we worked the package with both lenders, our first buyer walked. We quickly found a new buyer who was more than willing to wait for us to get this done.
 Licensed from iStockPhoto There were two liens with two different banks. The second was fine with $3000. The first (who will remain nameless) was willing to work with us but bounced our file from negotiator to negotiator. Of course, we continued to provide updated documents and various affidavits. We also had to release the home form the bankruptcy so we could move forward. While slow, we were making progress.
In the final week, things took a turn for the worse. The negotiator took the last two pay statements we provided and came up with a monthly income that was $1000 over what we had submitted. One of those two pay statements showed $800 in overtime pay. The seller is a police officer and had moonlighted at some local football games to make a few extra dollars.
The bank averaged the two pay statements and added the extra income from the football games to arrive at a net monthly pay. I discussed the issue with the negotiator and her supervisor. They declined to reopen the file and it will be sold at a Trustee Sale on January 4th.
Let’s look at their logic.
The December pay statement with the overtime pay showed YTD gross overtime of $2200. Clearly overtime was very rare. An originating lender would have not allowed it to qualify for a mortgage so why should we use it to undo a mortgage? I argued that $2200 gross was about $1750 take home and if they felt the need to include it, they should divide it by 12 and add the result to the monthly figure. This would have added $145 to his monthly take home.
The football pay is $195 gross for 10 games or $1950. After taxes, the take-home is about $1500 or $125 a month.
Neither overtime nor the football pay may exist in the future and we would have ignored it on the origination side unless we had a letter from the employer stating that the pay would continue.
I’m normally very supportive of the banks, but in this case they have applied a dual standard to accounting for income. If they had followed the origination standard they would not have allowed any of the income. Even if they used the annual figures (converted to monthly), the seller would have been negative cash flowing and they would have approved the Short Sale.
Lose, lose, lose, lose. The seller has a foreclosure on his credit report, the bank has to foreclose and incur the costs to sell the property (likely for less than the Short Sale offer), the investor takes a greater loss, and the current buyer has wasted 3 months waiting on this to be approved.
This is the kind of thing that winds up in a lawsuit…
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