Short Sale Blog

If you have negative equity in your house, First American CoreLogic estimates that you will not have positive equity until late 2015 to early 2016. In some severely depressed markets, the typical borrower may not experience positive equity until 2020 or later.

CoreLogic, based on it's calculations, is stating that 11.3 million - or 24% - of all U.S. residential properties had negative equity in the last quarter of 2009.

They are making their recovery projections based on a 3% annual home price increase. If calculated at a 5% annual appreciation, the first markets would recover by 2013, but CoreLogic states that 5% appreciation is much higher than the historical average.

While it might be assumed that price appreciation would be the main factor in reducing negative equity, it turns out that the amortization of the loan, and paying down principal actually accounts for the majority of the reduction in negative equity.

It is the negative equity problem that is making many homeowners choose the short sale route. The short sale route allows the homeowner to both reduce their monthly housing payment by moving into a more affordable living situation, and avoids spending 5-7 years making mortgage payments on an asset that isn't valuable. Many homeowners are choosing to cut their losses, and move themselves and their money into a more affordable, more rewarding situation.

A month ago, I started posting all of the Seattle Short Sales, Inc. approval letters on our website. I just checked and we are up to 19 in the last 27 days. You can find them here:

http://seattleshortsales.com/approvals.htm

Here are a few tips for getting your short sales quickly reviewed, approved, and closed:

1. Take the approved closing costs from the approval letter and use the same formula for the next submission to that lender. Anytime the negotiator can just forward the HUD to the investor without changes, the more happy they will be to work on your file.
2. Have your seller and buyer agree to have the contract sent to the lender for an amount slightly less than the buyer is willing to pay. That allows for an immediate counter to the negotiator, if necessary.
3. Include a bpo in the short sale package that validates the offer price.
4. Provide that bpo to the lender's bpo agent.
5. As soon as you have any word from the negotiator, start prepping your buyer for closing. Tell them that the approval letter will only have a 30-day window of opportunity, and it is best that they have everything ready to go for a quick closing. If they want to pro-actively spend money on an inspection and appraisal, so much the better. They just need to understand that there isn't mutual acceptance yet, and that their money is at risk. Another positive about having the appraisal done early is that it can also be sent to the lender if there is a value dispute. In the eyes of the negotiator, a professional appraisal is the gold standard for valuations.
6. Use a professional negotiator. On our staff, we have one person who only audits all submissions from agents and homeowners. We only work on perfect files, with 100% timely and accurate data and financials. We have one person who prepares all submissions to the lenders. This creates a uniform, professional standard for communications between our company and the lenders.
7. Avoid having the agent or homeowner every speak to the lender. In the eyes of the lender, the agents and homeowners have vested interest in pulling the wool over their eyes. We position ourselves as a professional, third-party facilitator, and can work with the lender on analytical, economic grounds, and not emotional. It is very common for agents and homeowners to become emotional about the short sale process. While it is understandable, it is generally not helpful. It is best to have a positive, pro-active, professional rapport with the lender. You will attract more bees with honey.

To learn more about Seattle Short Sales, Inc. and how we can help you, please contact us.

Homeowners click here.

To Your Success,

Ross Kilburn
Seattle Short Sales, Inc.
http://www.SeattleShortSales.com
O. 800-603-3525
F. 888-860-1314

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Responding to concerns that homeowners are not finding relief through loan modification efforts, the federal government is rolling out a new short sale incentive program on April 5th.

At the heart of the program are incentives and cash payments, directed at the loan servicers, junior lien holders, and homeowners. The loan servicer will now receive $1,000 for a short sale, up to $3,000 is available to the junior lien holder, and $1,500 is available for homeowners, for 'relocation assistance.'

The program is not without challenges and potential large problems that will hold is back from being truly effective.

First, the program is voluntary. While loan servicers might be more open to processing short sales, due to the financial incentive, the final approval for a short sale transaction is still made by the investor who owns the loan.

Second, the junior lien holders can kill a deal if they want more money than the $3,000 that is allocated to them. At Seattle Short Sales, we find that here in the Seattle area, many homeowners have HELOCs and seconds with balances of $75,000-$100,000. Typically, those lenders are asking for 10% or more of the principal balance, in order to release the lien. So, in many cases we may see a situation where the lien holder wants $4,000-$15,000 more than they are being allowed by the foreclosing first lien holder.

Third, in the federal short sale program, the junior lien holder is instructed to release the borrower from any deficiency balance. I don't see that happening in any great scale. If a lender is holding a $100,000 HELOC note, it is highly doubtful that three thousand dollars will compel them to give up the rights to collect $97,000. In Washington state, in a trustee sale, only the foreclosing senior lien holder loses their deficiency rights. The junior lien holder retains their deficiency rights. And, we have found, in the short sale approval letters granted by junior lien holders, they typically retain their deficiency rights.

So, there is some good news to the new federal short sale program. Homeowners may receive a payment, and some lenders will be compelled to approve more short sales.

In the end, in order to get junior liens released, it will be back to the grindstone for short sale negotiation companies. The use of creative deal structuring where the buyer brings in additional funds to contribute towards the excess demands of junior lien holders will continue to be very important.