Pacita Dimacali - e-PRO, SRES, CDPE, MBA East Bay, North CA real estate

In a previous post, I relayed the story of sellers who are gaming the system and did not intend to sell or move out. This is not an isolated case, and others have also told about their own experience in being interviewed for, or taking a short sale listing.

These sellers may use the short sale tactic to delay being foreclosed or evicted while they find another way to keep, or stay in the house.

RED FLAGS to watch out for, and I invite others to add to this list for future reference.

While discussing the short sale listing:

• Sellers don't want a lockbox
• Sellers don't want a for sale yard sign
• Sellers won't give you a duplicate key
• Sellers won't give you the code to the security system and insist that they want to be at the house for all showings
• Sellers give very strict times to show, like only on Mondays between 6-7 pm
• Sellers won't give you letter of authorization to contact the lenders
  • If you do have the authorization, you should check frequently to see if the sellers are doing a loan modification. That's a dead give away that they won't or don't want to sell.
    
• Sellers delay providing essential information to complete the short sale package that will necessitate their personal financials (tax returns, pay stubs, bank statements, income/expense statement)
• Sellers are too picky about how to write the hardship letter, the photos and property description
• Sellers make it hard for you to take photos because the house is a freaking mess
• Sellers will argue about your list price, insisting that the price be at, or close to what they paid for it even though you show proof of current market value
• Sellers will argue about your commission even though you tell them the short sale lender will make the final decision about it

And when you do get the listing:

• During showings, and if the sellers are there, they talk so much about "problems" with the house to discourage would-be buyers
• Sellers do not make any attempt for up-keep
  • If they do want to sell it, they would make it presentable and appealing to buyers
• Sellers don't make themselves available to look at, much less discuss offers

When you have offer(s):

• Sellers insist on countering offers, sometimes, over the silliest details
  • For example, they will want to uproot certain plants (that Myers lemon tree in the back of the house) because of "sentimental" value
• Sellers won't accept an offer AT the list price --- that's a HUGE RED FLAG --- and nitpick the offer
  
• Sellers don't provide a complete disclosure package regardless of how many times you explain they need to provide this info. Their only reason: it's an AS IS sale, take it or leave it
• Sellers say they need to consult with this or that person who aren't on title

When you are in touch with the short sale loan negotiator

• Sellers won't respond to request for updated financials the loan negotiator needs (the file wasn't opened for 2 months, the previous financials are old) because they say they already gave that information once before, and don't want to do it again

When you are ready to close

• When the short sale is approved by the lenders, and it's time for the buyers to have appraisals and inspection done, sellers aren't available at the requested times
• Sellers don't show evidence of packing to move out
  
• Sellers don't want to move, and ask if they can rent the place
  • Or worse, Sellers don't want to move, and want Cash for Keys
  • They dare you to evict them
• Sellers keep asking for postponement of closing, and going through the drama of not finding a suitable home to move to
• And....when checking with the lenders, you find out that:
  • the sellers filed for loan modification
  • the sellers filed for bankruptcy

What have you run into?

Have you heard people do this?

A beautiful house has been offered for sale a couple of times the last two years starting in June 2007. First, it was offered as a regular sale, then withdrawn. Re-listed as a short sale. Withdrawn. Re-listed again.

My co-realtor wrote an offer on behalf of his clients and their offer was accepted by the seller. For nearly three months, the listing status is shown as "pending subject to lender approval."

UNCOOPERATIVE SELLERS

But from the time the sellers signed the offer, the buyers and their agent ran into numerous problems. The sellers were always unavailable to sign off on disclosures. Wouldn't produce required documents to complete the short sale package. Wouldn't allow inspections or appraisers. Were uncooperative about showings. Wouldn't return phone calls or emails.

GAMING THE SYSTEM?

For two years, they didn't pay their monthly mortgage payments. So essentially, during that time, they have lived in the house for FREE. They managed to use all kinds of delaying tactics to fend off notices of default.

Supposedly, the sellers went through the motions of getting their loans adjusted, perhaps even modified. Then they decided to try a short sale.

Finally, the truth came out: THEY HAD NO INTENTION OF SELLING!

BANKRUPTCY

While the property was offered for sale, the sellers were already talking with a bankruptcy attorney and then filed for bankruptcy. Depending on the type of bankruptcy, their personal assets, including their home, are protected from seizure. See Do-It-Yourself Bankruptcy which states:

"Generally, you may file a bankruptcy and retain all of your personal belongings, including your house, your car and all household goods. Even if your property is worth more than what is owed on it, usually you can use the state bankruptcy exemptions to protect these items. You may be more at risk of losing property if you don't file bankruptcy, as creditors can sue you and attach your bank accounts, garnish your wages and attach and seize your property. As a result, you may miss rent, mortgage or car payments, making it difficult to provide even your most basic necessities."

NO FULL DISCLOSURE

It wasn't until recently that the bankruptcy was disclosed.

The buyer and the buyers' agents are hopping mad. And the listing agent is red-faced, saying that she had no idea this is what the sellers are doing or have done.

As of this writing, the listing is still showing as pending subject to lender approval. The sellers haven't made themselves available to sign a cancellation of escrow and cancellation of listing.

As if dealing with short sales isn't challenging enough.

A fellow REALTOR is trying to get her offer accepted on a property fo a client who is using an FHA loan. We discussed several things to help this first time buyer. As I went through a list, I thought that perhaps this is another opportunity to inform our clients that help is on the way!

First Time Home Buyer Tax Credit -

The qualified home buyer can receive credit UP TO 10% of the list price of the property (maximum of $8,000). However, this program expires Dece,ber 1, 2009, which means the property must close escrow by that time. There is a bill proposing an extension. So keep an eye on this development.

FHA

• How to use the tax credit toward downpayment - REALTOR.org article about potential first-time buyers have yet another reason to consider purchasing a home: the monetization of the tax credit. Here are four ways to get access to those funds for upfront costs.
  • NOTE: This is not available in all states. Go to National Council of State Housing Agencies website to see if this applies to your respective states, or click HERE
  • California Association of REALTORS has been informed that no lenders in California are offering the monetization of the tax credit. C.A.R. will continue to follow this issue and work to convince lenders to make these products available to borrowers.
• Why ask for an FHA Loan? May be a recourse for buyers with limited funds for a down payment. However, some bank-owned property listings have stated that they will not accept offers from buyers using FHA loans. Most of the time, the reasons are because the properties were so trashed or looted that these won't pass FHA guidelines
• Common Questions from First Time Home Buyers
• Local Homebuying programs by state
• Descriptions of Single Family Housing Programs
• Minimum Property Standards FHA borrowers and their agents need to know what properties can be approved following FHA's strict guidelines
• 203(K) Rehab Mortgage Insurance - some buyers may need another resource to rehabilitate a property. This is another resource to look into.

CALHFA - A Mortgage Protection Insurance Program (California)

According to this program, "HomeOpeners is designed to make up to six monthly mortgage payments if the borrower becomes involuntarily unemployed, is receiving California Employment Development Department unemployment benefits, and is seeking re-employment. The borrower does not have to repay this money. Most conventional loans that are mortgage insured by CalHFA Mortgage Insurance Services automatically include HomeOpeners. This is offered as part of primary mortgage insurance at no additional cost to the borrower or lender."

Federal Tax Credits for Energy Efficiency - if the property needs a new furnace, looking into this program may entitle the homeowner to recoup up to 30% of the cost of materials.

RELATED POST: "Can I use the first time buyer tax credit as my down payment?"

Whether you're taking a new listing or getting ready to write an offer on a new short sale, it may help to set expectations on what you're up against.

ForeclosureRadar posted its take on the best (FIVE STARS) and the worst lenders to work with, according to Mortgage Resolutions Services who provides regular updates. And YOU can add your own rating and comments. Here's their Short Sale Report.

And here's an excerpt

HSBC - Five Stars

1sts - You can usually get someone to talk to. Experiences seem to be uneven - some o.k., many not so o.k. Not fast movers, budget over two months for an approval.

2nds - For some reason HSBC uses Century Credit to collect documents on junior liens - then Century Credit starts calling for file updates. Go figure. Watch out for the HSBC recovery department after a "charge off." Not very nice overall on 2nds. Frequently takes the position that if the homeowner doesn't give a pound of flesh they are going to punish them with a foreclosure.

HOW DO THEY STACK UP?

FIVE STARS

• Wells Fargo
• Wachovia
• First Horizon
• HSBC
• Litton
• Ocwen
• Option One
• Radian Mortgage Insuance
• Saxon
• Wilshire

FOUR STARS

• Citi Mortgage - 4 stars
• Specialized Loan Servicing

THREE STARS

• Bank of America - 3.4 stars
• Chase - 3.3 stars
• American Home Mortgage - 3 stars
• Washington Mutual - 3 stars
• First Franklin - 3 stars
• Countrywide - 3 stars
• Greenpoint - 3 stars
• Old Republic - 3 stars

TWO STARS (And the worst!)

• National City - 2.5
• Downey Savings - 2.3

A San Francisco agent referred a couple to me who are first time buyers looking to buy their first home in the east bay. Yesterday, I invited them to come into the office to discuss their wants and needs and their resources. I gave them a Home Buyer Guide that could be their "bible" as they traverse the way to home ownership.

Wish List: Naturally, they are looking for a 3 bedroom/2 bath home with a garage and a yard. And they'd like to buy in Alameda, east of San Francisco.

Financials: They've saved $4,000. They are pre-approved for $310,000. They want to keep their mortgage payments to $1700 per month. And they're counting on getting $8,000 for the First Time Home Buyer Tax Credit.

And there's the first opportunity to educate: that the first time home buyer tax credit is 10% of purchase price, up to $8,000. And that this program expires Dec 1, 2009 so they need to close escrow by that time.

Reality Check: We went through some scenarios if they use FHA or Conventional Loans.

Upon seeing these comparisons, they are better informed about what they will need for a down payment and for closing costs. And so their first order of business is to get their finances in order.

Setting expectation: This was a good way to introduce them to other cities where we can find suitable homes within their budget range (Alameda isn't one of them).

We browsed through the MLS for properties in their budget range, and discussed several that appealed to them. They know now that their plan to buy a 3 BR/2 BA house with $4,000 down is, simply put, not realistic nor achievable. At least not where they want to live.

Readiness to buy: This morning, they informed me that after sleeping on it, they decided to "put the house hunting on hold until we can confirm our down payment."

Straight Talk: A bit of time spent educating the clients was a good way to get them focused on what they need to do. They may not be ready to buy now, but the straight talk left an impression. When they're ready to buy, they know whom to call.