Cathy McAlister, Sacramento

Short Sale Fiduciary - what do you think it means? Me, it's a position of trust to my "Seller" not the short sale bank.

I was reading an earlier post today in which a comment stated that due to fiduciary obligations they were submitting ALL short sale offers to their seller's lender. I disagree with this view and can only ponder why they would think this.

Fiduciary: ...requires the highest level of good faith, loyalty and diligence of a fiduciary, higher than the common duty of care that we all owe one another. ... - TO YOUR SELLER - NOT THE BANK. The bank is not the principal.

The position of the bank is obviously very important for a successful closing on a short sale. But dealing with them is no different that dealing with any other creditor when you are trying to accomplish a negotiated amount that Best Serves All Concerned. Think of it as if you had an IRS lien or a judgment and the seller wanted to negotiate a lesser payoff than the stated amount (this happens all the time) - it would never cross our minds to provide those creditors with copies of all possible contracts. It is NOT their home to sell and NOT the banks position to choose.

By providing the lenders with ALL OFFERS we have effectively minimized and/or harmed our seller's negotiation position in the transaction. Additionally, we may very well damage the transaction to such an extent that it may never close.

How could we possibly say that the fiduciary obligation to the seller is served in this situation?

In many ways, the hardest part of a short sale transaction is the process leading up to your decision. Heart-wrenching and difficult, it usually comes after much thought and deliberation. I am presuming that you have already consulted with three professionals; an attorney, your tax adviser and a Realtor. All of which should be well versed in the short sale process. These three individuals will provide you with the most comprehensive information for potential legal/tax/sales consequences and also have you prepared for the paperwork and timeline portions of a short sale.

As to the house itself you need to view your listing and sale just as you would any other sale. You need to get it on the market and you need it to sell. Buyers are a bit more skeptical and weary of a short sale purchase. They know they have to wait a long time for an answer and it may not be approved. There are some things you can do to help your situation. Remember the goal is to attract a buyer that will stay with you for the long haul - someone that will bond to the house and transaction - and be there when short sale approval arrives. There are some short sale lenders that require a complete restart of the process if a new buyer is brought into the middle of the process.

1. Begin immediately to make the mental change from seeing your house as you home to a place that will continue to provide you shelter until close of escrow.

2. Just like any sale, you need to depersonalize the home. Minimize photos, clutter, keep it clean and tidy to the extent you can. This are not expensive items - just good habit and something that can make or break the relationship with the buyer YOU NEED.

3. Keep your yard up, Mow the lawn and water. Once the short sale lender has delivered written approval, the buyer's lender will need to do an appraisal. In this market, the more you do as a short sale owner to assure the buyer can get their loan and complete the deal, the better for you. REMEMBER, the idea is to KEEP the buyer.

4. Without breaking the bank or spending anything excessive, try to complete any minor repairs that the buyer's lender might have a concern with. Such as operational smoke detectors or strapped water heaters. The idea is to minimize delays to an already long process.

5. If you have an HOA and can afford to keep up your payments, do it. Most short sale lenders will NOT approve payments to HOA's for delinquent payments. Besides, a non-payment to the HOA will do nothing to hurt the short lender but is very hurtful to the other homeowners in the complex. Either you or the buyer could face this bill at close of escrow. Most buyer's find it unsettling to learn this at the end instead of knowing up front. Remember you NEED AND WANT TO KEEP YOUR BUYER. Minimize surprises.

6. If you have any potential liens or judgments that may be coming up, notify your listing agent. There are ways that the effect of these liens can be minimized, but each situation is different. Again, waiting to the end can hurt or kill the transaction.

7. Stay in close contact with your listing agent. Ask questions, provide documentation, help them to help you. The truly knowledgeable short sale agent will have a high percentage of completions and will be best able to guide you through all the steps.

These are just a few suggestions to helping you achieve and close a successful short sale transaction. They are an exercise in extreme patience but provide certain homeowners the opportunity to close one chapter of their life and begin another.

As I prepare for open houses today and tomorrow, I am excited about the possibilities for each of them. Both homes are priced in the lower range, and one will likely receive multiple offers.

This triggers an observation I have had as to whether Cash is really King and will always win out in a negotiation.

As sellers sit down to review their offers, they ask us for guidance and advice. We help identify the strengths of each offer from a real estate perspective only. Net to the seller (or their lender if its a short sale), timing, strength of the buyer, etc. But at the end of the day, it is up to the seller to make the final decision.

We have all seen a few of our seller's struggle over acceptance of investor cash offers over owner occupied financing. Paricularly where the seller feels a sense of obligation to their neighborhood. In our current times, are we seeing a trend where the neighborhood is a larger factor in the seller's decision.

If you are a buyer of REO property here in Sacramento, you should know about an interesting "quirk" in our utility and tax billings that could cost a buyer time, money and aggravation.

When homeowners are losing their property to foreclosure many of them stop paying their utility bills. The water, sewer & garbage portion of these utilities are billed by the City or County of Sacramento and they have a unique process to insure payment for delinquencies. This method has caused many REO buyers to deal with utility liens/billings after close of escrow.

Here is a summary version of the process. If there are delinquent amounts on the property by mid summer the utility companies"roll" the delinquent amounts over to the property taxes. The tax assessor will add this amount to the next years tax bill and it will appear on the annual property tax bill as a utility lien. If the lien was for $600.00 then the tax bill is increased the same amount. For example if the property tax bill would normally be $2000, it would now show as $2600.

Back at the utility department, the account is now considered in current status as the collection of the delinquency has been assured. If you call the utility departments - they will tell you it is paid current. The Escrow industry in our area is very familiar with this issue and they will ask "have you rolled any amounts over to the taxes". They also make a written inquiry.

The challenge for the REO buyer is understanding the time gap between Mid summer and when the property tax bill is actually issued (October). Additional to be on the alert for escrows that are being processed out of our area. Those title/escrow companies could not possibly be well versed enough in the "quirks" of every county in California. This is the danger zone for REO utility liens.

Knowledgeable agents are very familiar with this and we make sure to doublecheck with the our local water/sewer/garbage bills for liens. Particularly, when we know the lien will appear on the taxes we notify the escrow officer to verify a credit will appear from the REO lender to the buyer for that inflated amount.

The reason this is critical is the language commonly found in addendums used by REO sellers::

Examples:

... Buyer acknowledges that the preliminary title report may not contain every item affecting title... Seller shall have no obligation to cure or remove any item... which the buyer disapproves.

... all pro rations ...including utilities...as reflected on the settlement statement are final... no adjustments or payments will be made by the seller after closing. Tax pro-rations shall be based on the last ascertainable actual tax bill.

... Assessments now a lien shall be paid current by the seller, any payments not yet due are to be assumed by Buyer.

At the end of the day, it is all about the discovery. A couple of phone calls will usually identify the issue. Since utility bills average $70-$100 per month, this could represent a substantial amount if left to the tax bill.

It has been challenging, to say the least, for first time buyers in our Sacramento market. Most need FHA financing and are buying under $200K. It is the most competitive segment of our market and my buyers have been very patient in writing more than a few offers in order to obtain a home.

I wondered how they were feeling not just about the competitiveness, but also the increase in rates and the immense challenge of acquiring a home in this unusal times. The first time buyers are the most enthusiastic segment of the buying market and (other than state workers) I am just not seeing any pullback from them. I was most curious about their views.

Many of them tell me that the market conditions and interest rate while important, is just part of the process. They are not afraid. They all have to have housing and with payments now in line with rent - they would much rather "own their shelter". They are very interested in learning and understanding the process, procedures, timelines, obligations and all the what-if's. They are more prepared than ever with down payments and an understanding of the loan process. They get excited at house inspections and learning everything they can about their homes. They are loaded with tons of great questions!

I would be interested in hearing from other members on your experience with Young buyers and if you are seeing similar trends. I believe we currently have more buyers than houses in the under 200K range and if the banks start releasing more homes - we may be able to put more these New brand of homeowners into our neighborhoods. What a great thing that would be!

Cathy McAlister, GRI

Ashley Real Estate

Sacramento, CA