Short Sale Guidelines Are Making a Difference

By Sheila A. Rasak, SFR

The theory behind short sales seems simple enough: If a homeowner owes more money on a house than the house can sell for, and the homeowner is struggling to pay the mortgage, the lender will allow the house to be sold for less than is owed.

For obvious reasons, lenders are not big fans of short sales and often make it a complicated process. More and more we are finding that lenders are getting on board as they realize the over 80% of the few loan modifications they’ve granted end up in default.

In April 2010, The Home Affordable Alternatives Program (HAFA) released new guidelines designed to streamline the short-sale process and allow more delinquent homeowners to sell their homes and move on with their lives.

In its first year, participating servicers initiated 12,266 HAFA agreements and completed 5,447 transactions. Many loan servicers opted out.

According to the National Association of Realtors, the share of distressed homes—bank-owned properties and pre-foreclosure short sales— in April 2011 dropped to 37% of total sales volume, down from 40% in March and an average of 39% over the first quarter.

HAFA complements the Home Affordable Modification Program (HAMP), a loan modification program designed to reduce delinquent and at-risk borrowers’ monthly mortgage payments by providing alternatives for borrowers who don’t qualify for or don’t complete a trial modification.

“[HAFA short-sale guidelines] are designed to help people who are unable to keep their home under the HAMP loan modification program,” said Jeff Lischer, managing director for regulatory policy for The National Association of Realtors. “Let’s say you can’t keep your property under HAMP, the next step is a short sale, which is better than a foreclosure.”

It’s estimated that lenders lose about 40% of a property’s value on a foreclosure, whereas the figure is reduced to about 19% on a short sale. Moreover, the short sale is a graceful exit from the ownership, which can often be better for people’s credit scores and tax liability as foreclosure is a taxable event.

New rules also add incentives for the short-sale process. One incentive helps sellers relocate by providing them with $3,000 for moving expenses. A second incentive is for mortgage servicers, who receive $1,500 from the federal government for each completed short sale. Under new guidelines, homeowners can secure a short sale approval in advance from the bank representing a minimum net amount the bank will accept.

Lenders participating in the HAFA program maintain the following requirements for homeowners considering short sale: The loan must be less than $729,750, made before Jan. 1, 2009, and the home must be the owner’s primary residence. Also, the homeowner must be delinquent and unable to pay the mortgage, and the homeowner’s mortgage payment must be more than 31% of his or her before-tax income. For some of my clients, missing payments are their last resort as they struggle to salvage what’s left of their credit rating in hopes of returning to the housing market while prices are still low. Many loan servicers prefer that the borrower not skip their payments if they can find a way to pay while going through the short sale process.

Sheila can be reached at (805) 628-2898. www.SheilaRasakEstates.com Prudential California Realty is an independently owned and operated member of Prudential Real Estate Affiliates, Inc., a Prudential company. Equal Housing Opportunity.

but for some reason you're still living in La La Land and you think your property is never going back to the bank because we're playing Monopoly? I regret to inform you that you cannot pass go and you're not going to collect $200 if you tie my hands behind my back.

I'm a dedicated professional and enjoy my work. I work harder than I've ever worked before because of the current economic climate, but I still persevere. I meet buyer and seller objections on a daily basis and work hard at negotiating your contact so that you and the other party enjoy a mutually beneficial outcome even when you're facing foreclosure. In fact, especially when you're facing foreclosure because this is a serious event and I'd like to see you and our nation recover.

How is it that you've been listed on the MLS for over 80 days, have not reduced your list price, have employed one of the best selling agents in the county, and yet managed to make your home unavailable for showings because you don't want to be inconvenienced?

Bottom line, I'll not be showing your home anytime soon to my qualified buyer who can help you. There's a house next door that is open and is showing with a keysafe, has listed at or is slightly below market level, and the people inside have trusted their Realtor to do the best job they can and actually listened to sage advice.

Off to open escrow...

Waking up this morning I got to thinking (after a cup of coffee) about Labor Day and the meaning of the day. I've got a special connection with Labor Day, in fact, so many holidays seem to be laced with a story behind it for me; mostly good connections like becoming engaged to my husband on Valentine's Day and married on Memorial Day weekend.

As for me, I tend to stay in my groove and continue to labor with various odd tasks such as client follow up, lead generation, blogging, tweeting; you get the picture. But tomorrow I will take a little "me" time to rest and rejuvenate and also reflect on that special Labor Day in September, 1987... when I gave birth to a beautiful baby girl named Meagan Kate. She's truly a labor of love. Like her mother and father, Meagan is considering a career in real estate and we couldn't be more pleased. Should she decide to pursue a career in real estate, she'll be an asset to the community, as she's been brought up on the ideal that no matter what, the client she represents comes first.

Okay, back to work for me, it's not Labor Day yet! ;-)

Sheila Rasak Estates on Facebook www.avoidcamarilloforeclosure.com MktTrends on Twitter

Every once in a great while I find myself unscheduled. By that I mean the weekend is rapidly approaching, I'm not scheduled to show property AND I have not scheduled an open house for one of my listings. So here I am thinking to myself that I had better get on it and schedule my time.

By all means sometimes we all need to just take a weekend off like regular folks, but lets face facts here, we're not regular folks!

Our job is to keep the ball in motion not only by staying motivated but by lead generation and get ourselves out there to meet and greet the public thereby introducing ourselves to our communities.

Just curious here, what do you have planned?

www.SheilaRasakEstates.com MktTrends on Twitter Sheila Rasak Estates on Facebook

I don't know about anyone else here, but the market is indicating a huge slowdown and I personally am starting to feel it and am thinking that because we enjoyed an early spring selling season, we're melting down to an early end.

I'm finding it more and more difficult to connect with potential clients who are facing foreclosure and looking for answers. I've expressed to quite a few clients during the month of March that short sales don't happen overnight and it will take months of negotiating with the lenders to obtain desired results. These people are clearly underwater and with substantial hardships. I would imagine the situation is not getting much better but haven't heard from them and their properties are not listed on the multiple listing service.

When I work with a short sale client I get results. I'm not speaking of typical results from your so called traditional short sales like just limiting FICO score damage and avoiding foreclosure. I'm talking about the back and forth negotiations that I do on behalf of my clients to obtain the best results with the lien holder.

Quite often the lender attempts to get tricky during the last minute of our negotiations (like in their approval letter) and ask for a promissory note on non-recourse loans. In a polite way I pretty much ask them what part of 'no' don't they understand? They then digress. If they're a lender that is still following HAMP or HAFA guidelines there needs to be an offering of moving assistance from them to your client. Your client must be willing to fill out a little more paperwork, but isn't it worth it for up to $3,000?

Although opportunities are drying up for the average short sale homeowner (if there is such a thing as each case is unique unto itself), there still may be a few buyers left. We can guarantee one thing though, the market will continue to decline and buyers will be in the driver's seat and as Realtors we will have to convince Mr. Lender that property values will continue to be in a downward spiral especially when the holiday season begins.

If you're a short sale specialist, how do you reach the public and share with them the benefits of avoiding foreclosure? And if you as a Realtor are not willing to tackle this time consuming project yourself, why not pick up the phone and refer it out to a specialist?

www.avoidcamarilloforeclosure.com (805) 628-2898 - Sheila A. Rasak, SFR