short sale

Suspicious Buyers: Multiple Offers, Highest & Best, Sold for Higher than List Price

Placing offers and negotiating is a complicated thing. We are coming off an age of negotiation where people became comfortable putting in low ball offers hoping for a bargain and prepared for a counter. Today, however, the situation is much more complicated, the list prices are not so negotiable and bidding wars are stressful. Maybe you don’t know for sure what kind of interest your potential house is getting, but I can tell you that in this market today, multiple offers, bidding wars, and higher than list price sales are happening commonly. The house next door to me is an example of what  has been going on in real estate, all that has gone wrong, and who has been hurt.

The Tragedy and the Multiple Offer

I watched the house being built.  I snuck in on a regular basis and checked out the progress when no crew was present. In fact, I have B&E’d just about every house on my street.  When we moved in here, ours was only one of a handful of houses built. I wasn’t a real estate agent back then so I didn’t think in terms of laws, safety concerns and private property. Just neighborhood curiosity. I didn’t bake muffins or bring welcome baskets to my new neighbors, but I did assess their property before they moved in. The house next door was no exception.

So I watched it being built and we made fast friends when the new family moved in in 1999 ish.  Even confessed to the trespassing! The Mrs. and I talked about our kids together,  bought hanging baskets for each other when planting time came, attended each other’s home parties, and gladly sent our husbands off to play together shooting clays and such. It might have been 2001 when they had their third baby.  Jonathon with the full head of black hair… I can still see him and smell him in my arms. Too bad it was only two weeks later that Hubs and I were eating fruit on the back deck early on a Sunday morning when Mr. Neighbor came walking across the yard- his head held low with the news that baby Jonathon had died.

We tried desperately to hold them together over the next several months but the loss was too much and Mr. & Mrs. Neighbor split up. They had paid almost $250,000 for the house only two years prior at the height of the market, and it was already declining in value – they couldn’t sell it. In 2003 it was listed at 160k and sold for 168,500. There are two things to pay attention to there… 1) the drop in price and 2) it sold for more than it was listed. I highlight that because so often buyers are suspicious of the “highest and best” scenarios and claims by agents that other offers are coming in.

Rental Fraud and the Multiple Offer

So the new neighbor moved in. We were all in awe of what a fantastic deal the house was at 160k, yet also pessimistic about the affects on the value of our own homes. It was the first of many foreclosures to come.

Now this neighbor was not as ideal as the Mr. & Mrs.  Much gossip and silly behavior eventually led to her moving to Florida with a fella. The house couldn’t sell because she owed too much so she took in a renter.

GREAT! (sarcasm) A renter. We had already had bad experiences with renters in the the neighborhood and were not looking forward to having one next door. Guess what! She was awesome! She owned a business downtown Flint and was one of those sunshiney people that made you smile when she drove by or was out in the yard when you pulled in.  Too bad the owner of the house, Silly Pants who moved to Florida, had been taking her rent payments but let the house go into foreclosure. My new wonderful renter neighbor came home one day to a notice of eviction. We stored some stuff for her catering business in our garage until she made arrangements for everything.  More heart break on Meadowlane Ct.

So the house went into foreclosure again and in 2009 was listed at 92k. NINETY TWO THOUSAND DOLLARS! That plus all the other repos that had come and gone in the hood sealed our fate.  We were actually naive enough to think that we would never go negative.  Now we are, which is not a huge deal because we don’t have to sell and we’re fine with our payment. But we feel a little too close for comfort to the misfortune that has crippled the Flint area. And I am pretty cheesed that I can’t sell and get a piece of that $8000 home buyer credit if I’m being really honest. Anyway…

As it turned out the house sold for 109k, thank goodness for another multiple offer, highest and best situation. How do we know it was a true multiple offer situation? I wrote one of the other offers and we lost it because that buyer didn’t believe she really had competition. Too bad for her but what a fantastic deal for the new owner. Another great neighbor, by the way. My daughter interviewed her and her son one day when they were scouting the property before their closing. She determined that they were nice people and that we should give them a potted plant to welcome them and clear away some of the negative juju that may have accumulated.  So we did.

I am happy to report now that although there are some foreclosures scattered throughout the sub, our street is filled with home owners. And with a note of optimism I point out that the house right behind me, slightly inferior to the house next door, listed 7k higher at 99k.  Perhaps a sign of inching higher value? In a bittersweet accomplishment, though, I rushed in with a full price offer… no need to over bid because I urged the buyer to be fast to avoid a highest and best situation… yay for her, but there’s a few more bucks off my square foot value. What a complicated business.

Life and real estate negotiation may be hard but you know what is a no brainer decision? BUYING right now if you have nothing to sell first. There is money with your name on it right now and prices are ridiculously low. They won’t stay here. There are already signs of rising values across the country. You only have ten days left to make an offer and get it accepted. Hurry!

short sale

Short Sale Assistance

Thinking about pursuing a short sale transaction on your house? Let’s start with what you already know.

1. You are unable to keep up with your house payment.
2. You owe more on the house than it is worth right now meaning you cannot sell it.
3. You are headed for foreclosure – You can live rent free in your house for a few months, wait out the foreclosure process, lose 200 or 300 points on your credit score, and forfeit your right to buy another house for 5 to 7 years. Maybe get hit with a deficiency in the future.
4. As an alternative to foreclosure – You can cooperate with your bank in marketing and negotiating a short sale on the home, lose about 100 points off your credit score, be eligible to buy again within 2 years, and the bank forgives your deficiency.

Now what? If foreclosure sounds like a good solution for you the first thing to do is find out if you qualify. Every scenario is different but basically to qualify for a short sale the bank is going to be looking at 4 things.

1. Home Value. You will be required to provide proof in the form of sales comparisons that the house is worth less than is owed on the mortgage.
2. Payment Status. Until recently banks would not consider a short sale until the mortgage was at least 3 months behind, but in light of today’s economy and real estate market they are open to reviewing all cases and cutting their losses to avoid more trouble down the road.
3. Seller Hardship. It is the seller’s responsibility to prove to the bank that they are unable to keep up with the mortgage AND that they are unable to pay the deficient amount if the house sells. Banks tend to understand things like job loss, divorce, illness, death, and bankruptcy. Things like adding to your family, lifestyle changes, or living outside your means are all “choices” and banks don’t tend to see those as “hardships”.
4. Assets. Sellers will have to provide income, banking,  and asset information proving that they do not have access to the cash necessary to pay the shorted amount.  If assets are discovered the seller might be denied OR required to pay the shorted amount back over time – sometimes at a discounted amount.

Documentation. Good communication and cooperation is essential to a successful short sale transaction and it begins with that phone inquiry to start the process.  Although similar, each bank has its own guidelines for its short sale process and the necessary documentation.  Between you and your real estate agent, your package should look something like this…

1. SELLER –

• 2 years tax returns with W2
• 3 months bank statements
• current monthly budgetT
• all mortgages and account numbers
• pending bankruptcy if applicable
• hardship letter
• last 30 days of payment stubs if applicable

2. REAL ESTATE AGENT -

• Letter of Authorization, signed by seller
• Letter of facts regarding the property
• Market Analysis
• Photos (remember, the idea is to project low value, not glamour)
• Copy of all showings with dates and feedback.
• Copy of listing contract.
• Copy of Purchase Contract

Of course there is always the chance that the right buyer won’t come along, but if everyone  is on their toes and does their job properly, the odds of a successful short sale transaction will be increased.  Your real estate agent can help you along the way during the process and provide any real estate market information required.

ADDITIONAL INFORMATION

Tax Consequences of short sale -Although they are forgiving the deficient amount of the loan, the lender may still have the right to issue the Seller a  1099 for the shorted amount, according to the IRS code for debt forgiveness. However, The Mortgage Forgiveness Debt Relief Act of 2007 should in most cases protect you from that. Talk with your tax attorney to be sure.

Incentives for Certain Situations In SOME circumstances a Seller may be eligible to receive a monetary incentive to complete the short sale transaction, according to the HAFA (Home Affordable Foreclosure Alternative) Program that was implemented on April 5, 2010 and will continue through December 31 2012.  In addition to potential incentives, the HAFA Program claims a quicker, cleaner transaction which will make home buyers less hesitant to pursue short sale homes.  The HAFA Program is available to homeowners who qualify for the HAMP (Home Affordable Modification Program).

Now remember, neither I nor my fellow Streeters are  accountants or bankers so make sure you refer your specific questions to the appropriate expert. We are happy to answer any real estate questions for you, though, and point you in the direction of those who have the answers when we do not. Email us, call us, chat online with us… you can almost always catch one of  us online waiting to help you.

short sale

The Seller’s Short Sale Transaction: Avoiding Foreclosure

You know what? It brings me into a dark and melancholy place to write about short sales, foreclosure, an unhealthy real estate market, and all the people and things that are affected by it all. As unpleasant as it is for me to simply write about it though, I have no idea how to multiply the darkness to get a sense of the stress it wreaks on the folks going through it. Facing the possibility of losing your home can carry with it some heavy emotions and distractions. Don’t let those things defeat you.  You have an option called a short sale that could turn things around for you, but it takes focus, patience, and work. If you truly are unable to make your monthly mortgage payments and you see foreclosure in your future, a short sale could be a good solution for you AND your mortgage holder.

Homeowner Short Sale Benefits vs. Foreclosure

You can’t make your house payment and have gotten to far behind to catch up – so you are looking at something like this … After 3 to 6 missed payments, you are already considered to have begun the foreclosure process and you will receive a notice of default. In 6 to 12 months you will receive a notice of eviction giving you 30 days to vacate the premises. You will have a foreclosure on your credit report and be unable to purchase another house for 5 to 7 years and THEN only if you raise and maintain the acceptable credit score of the day.

There are a lot of question marks and gray areas in that foreclosure time line. Every case is a little different and not only are you living with the stress of not knowing exactly what is going on and how long you have to try and make things right or find other housing, but you will be dealing with phone calls, letters, and legal notices that further burden you and prevent you from focusing on rebuilding your life. This is where the short sale offers some relief.

First of all, in addition to the embarrassment associated with losing your home, there is a degree of integrity that drives people to make things right. I don’t condone walking away from your mortgage obligation, but I do have to bring attention to the obligations to self and to family.  Forget about how a person gets in this position… once he’s there, his income is reduced, and his house is suddenly worth less than he paid for it… what can he do? How “honorable” is it to continue paying from a savings account that will eventually be empty,  leaving the homeowner with a foreclosure anyway? With no means to move on rebuild his life? Lose-lose!

A short sale offers the opportunity to honor your financial obligation and feel good about being proactive in the process to make things right, as opposed to ducking phone calls and ignoring scary foreclosure documents that come in the mail.  Instead of a year or two of question marks and worry associated with the foreclosure time line, your short sale experience involves living your life, keeping your house tidy, and showing it to potential buyers – just like a regular for sale scenario. When it’s all said and done you will not have a foreclosure on your credit report, your credit score will have dropped about 100 points (about a third of a foreclosure’s penalty) and an ability to buy when you get your score back up.  Less stress, less penalty, and less embarrassment knowing you worked with your lender to fulfill your obligations, rather than simply walking away from them.

The short sale process has been a bit of a mystery and it has been tough to advise distressed home owners whether or not it was a good option. Having observed it for a while now there is one thing we know for sure – In a case of real hardship, a short sale transaction is a good option to deal with your mortgage situation and put you on the fast track to rebuilding and ENJOYING your life again.  Read here to find out how to get started.