San Jose Short Sale Agent: Silicon Valley Foreclosure Prevention Specialists

What exactly is a Short Sale?

Simply put, it is when you sell a home for less than what is owed on it with the lender’s approval and the lender forgives you for the difference (what is short) between what is owed and for what it ultimately sells.  The Federal Government is now pushing for this option for homeowners who are unable to obtain loan modification and offering lenders financial incentives to permit homeowners to choose this route.

Why would the lender agree to do this?

Money.  It’s always about the money isn’t it?   Typically, it is cheaper for the lenders if the house is sold prior to getting into foreclosure and being sold at auction.  There are costly expenses associated with foreclosing on a home (aside from the fact that owners who are going through foreclosure typically destroy the homes before they are evicted); but with short sales, it takes less time (meaning less carrying cost for the lender) and makes more economic sense for lenders if the homeowners have an interest in and participate with the lenders in selling their homes, rather than fighting with them.  The lender saves money because they don’t have to pay for eviction, go through an auction only to have to take the property back because the auction did not meet their floor price or no one attempted to bid, make repairs and then pay Realtors to sell it as a bank owned (REO) property which typically gets deeply discounted by buyers anyway, in the meanwhile, still paying for taxes, insurance, association fees, etc… that the seller failed to pay.  A home where the seller still resides and maintains will fetch a much higher selling price than an abandoned eye-sore type of property.

Why would it be good for the seller?

It allows them to have control over their economic future and sense of dignity.  Let’s face it, if you are contemplating foreclosure, that means your financial situation will not be changing for the better in the immediate future.  Don’t let others dictate your financial future; get involved and control and participate in your own financial outcome.

The most important facet to the short sales process is that it permits you to have control over your financial future.  If you are forced into a foreclosure situation, your credit score will be devastated as you had no participation with the lender to help address the situation.  The net result will be more devastating than bankruptcy from the Fannie Mae Underwriting Guideline point of view and you will not be able to buy a home or apply for a credit card for many years; additionally, now more and more employers are doing credit checks on prospective new hires and a foreclosure on your credit history may put you in jeopardy, especially if the job requires security clearance status, is a government position or involves handling of money. And once you are forced out of your home, you will need to rent a property; with a foreclosure on your credit record, you will learn that finding a rental property will become more difficult and the down payment requirement will dramatically increase compared to people who don’t have foreclosure on their record.  If you choose to take control and complete a lender approved short sale, you will be able to salvage your credit by more than halving the seasoning requirments (only 2 years) for Fannie Mae Underwriting Guidelines for re-establishing credit and give yourself the opportunity to be in a situation to buy a home again in a relatively short time.  Naturally, individual sitautions will vary in results.

A mis-perception floating around out there is that the short sale Realtor works for the lender.  That is absolutely wrong.  The listing agreement is a contractual relationship between the seller and the Realtor; the lender is not a party to the contract and has no relationship with the Realtor.  WE WORK FOR YOU and have a contractually obligated,  fiduciary relationship with you!  We look out for your interests.

Who pays for the commission?

Because you are facing financial difficulties, the lender is required to pay for the commission and associated closing costs for completing the short sale.  (This is why some people believe the Short Sale Realtor works for the lender).

Here is an interesting article about how the BBB (Better Business Bureau) rated the major loan servicing companies which handle loan modification and short sales.  It’s was an interesting read for me because I was having a lot of difficulties recently with Chase, they have been ruthless and unreasonable in their demands, especially when they are in junior positions.  It used to be that Bank of America was the bank that everyone doing short sales bad mouthed; but my feeling was Chase was getting up there.

I was far from surprised to discover that Chase had received an “F”  from the consumers who were dealing with them.  The interesting fact is that Bank of America, which used to be at the bottom has now received an “A+”!  I can attest to this change  as well, because with the implementation of Equator into their short sale business and with their executive, Matt Vernon’s, committment to change the way they approached short sales,  their level or service and the speed with which they handle matters have changed  180 degrees.   They are one of the best to work with right now.

Another interesting point that the article tackles is the bait and switch loan mods that we are beginning to hear about.  Homeowners being strung out for months on these “temporary modifications” and while waiting (and paying) getting foreclosed on without notice.  At first, these instances sounded like anomalies, but the frequency of these instances is increasing; thereby indicating some sort of concerted effort rather than mere fluke incidents.

See what grade your loan servicer received.

http://www.shamethebanks.org/jorge/bbb-f-grades-to-chase-litton-ocwen

I get upset when people don’t try their best.  I realize everyone is different and has different personalities, but we, as Realtors, are all in the business of representing the best interests of our clients.  As Realtors, we have a fiduciary duty to our clients: this means we are to put client’s interest ahead of our own.  We must do our best for our clients.  I’ve heard too many Realtors cave into the lenders without putting up much of a fight.

With the economy still in its anemic state and unemployment level still hovering near historic high of 10% (11.5% here in Silicon Valley), the prospect of depleting the inventory of distressed properties in the immediate future does not seem feasible.  The high level of unemployment and implementation of HAFA with the support of Fannie Mae and Freddie Mac means the next few years will be busy years for short sale.

If, you therefore, choose to make a living helping distressed homeowners fight foreclosures, then by all means go out and fight for them because they need all the assistance you can provide.  This often time means pushing on even when the lenders say no or put up road blocks in your path.  The negotiators working for lenders are not highly compensated and are often over-worked, so they simply do not care and are often willing to send homeowners into foreclosure because of minor technicalities.  Some will help out homeowners by going out of their way to help your clients, most will not.  It’s the nature of the bureaucratic systems in which they work.  It doesn’t mean they are bad people, it just means there is little or no incentive for them to go out beyond what is expected of them.  So it is up to us, the Realtors to step up and earn our commissions.

As a San Jose Short Sale Agent, I recently received a call from an attorney friend of mine who wanted me to help his client because the East Coast lender/servicer denied their loan modification request and would not agree to extend a trustee sale which was scheduled some three weeks out.   He got tired of dealing with this lender and wanted to know if I could get the sale date extended and complete a short sale.  Three weeks to stop a foreclosure was a tall order, but I thought I could help.

Getting a bona fide buyer took longer than I anticipated and we had only one week left before the scheduled trustee sale.  I immediately contacted the lender to advise them we had a solid offer and that I had just submitted a short sale packet.  The curt response I got was that their investor had a policy not to extend Trustee sales unless the short sale packets were submitted at least 10 days prior to the sale date: I was three days too late. She would not even consider looking at the offer or the packet. 

I had worked too hard during the past two weeks to simply be told that due to some arbitrary deadline; my clients were going to be thrown out in the street when we had a perfectly good buyer wanting to purchase their home.   I escalated the matter to the negotiator’s supervisor.  She simply reiterated their investor’s policy and told me there was nothing she could do.  I wasn’t going to be stopped by these bureaucrats who didn’t want to lift a finger.  I searched the internet and found the Corporate Communication Director’s contact information.  This time, I was going to use my ace card: my client’s hardship was his wife’s cancer. While she was receiving treatment, she eventually lost her job and the second income which was required to meet their mortgage obligations.

By the time I got the number and the email address (they are in the East Coast), the office was closed, but I left a voicemail and sent an email explaining my situation and that I would contact the local media and explain that the big East Coast lender, because of an arbitrary deadline and because it was inconvenient, would rather throw a cancer victim out into the street, even where there is a willing bona fide buyer, because we missed an arbitrary deadline by three days!   I was not going to let my clients get thrown out into the streets when we had a willing buyer.

The following afternoon, I got a call from the executive office.   They were more receptive and cooperative then the loss mitigation department employees.  The helpful woman said she would get in touch with the appropriate person at the loss mitigation department and do everything she could to get an extension on the sale date.

The next day, I got a call from someone who was a VP at loss mitigation, she began to tell me that the sale date could not be extended because it was the investor’s policy and therefore, they could not deviate from it and began to tell me all the reasons why her hands were tied.  This was a completely different response than the woman from the executive office.

I wasn’t going to simply accept her explanation, I simply would not accept that they had zero influence in extending the trustee sale; I didn’t fall off a turnip truck yesterday.  I called the executive office and again threatened to call the local consumer affairs reporter.  This time the helpful lady told me to disregard what I was told by the loss mitigation employee because she was going to pull strings and get it done.  She asked me to trust her and to call the attorney service the next day and confirm for myself that the extension was granted.  I had no choice as we were down to four days before the sale date.  I called the attorney service the next morning and got the news I was waiting for: we received a 60 days extension.

Between the attorney friend and myself, we were told on four different occasions that the trustee sale could not be extended.  They were simply refusing to lift their fingers to help out the borrower.  I had no choice but to refuse to accept their answers because doing so  would mean that my clients would literally be thrown out into the street when we had a willing buyer to take their home.   I was not proud of exploiting my client’s cancer condition, but I had to protect their interest by any means necessary.  In the end we persevered because I refused to listen to them when they told me no.   I guess I am hard headed in that way; but my clients are thankful and that is good enough for me.

This important legislation (SB 1178) passed the California State Assembly and is now heading to Gov. Schwarzenegger’s desk for his signature before it becomes law.   This particular legislation is immensely important during these economically difficult times where homeowners are often facing foreclosure.

This legislation attempts to protect homeowners who, in an effort to obtain lower interest rates through re-financing their loans, lost an important legal protection that limited the lenders to no more than the collateralized property during the foreclosure process. The loss of this protection essentially gave the lending institutions a second bite at the homeowners; not only were they able to take their homes through foreclosure, but they reserved their right to come after the homeowners for the full deficiency value between what was borrowed and what the property eventually sold  for.   The fact that the lenders would not take into consideration the depreciated market value of the property was an additional slap on the face to the distressed and now homeless borrowers.

As a matter of clarification, it is important to point out that this legislation protects the status of those who re-financed their purchase money loan to obtain lower rates.  It DOES NOT protect those homeowners who obtain cash-out loans and do other things like pay down credit cards or start businesses; activities unrelated to the purchase or maintenance of their homes.

As a San Jose Short Sale Agent, I see this heart-breaking scenario more than I care to mention.  Homeowners who simply wanted to lower their interest rates find out during the foreclosure process that they had given up this incredibly important anti-deficiency protection; a protection they certainly would not have given up had they been made aware that a re-finance would trigger said loss.   This is one of those legislations that is the right thing to do.

It’s about time something like this took away these incentives which were often not disclosed to the borrowers.  It is my humble opinion one of the major reason why we had the sub-prime and the Option ARM mess was primarily due to this practice: paying loan brokers a bonus for steering their clients into high risk loans which they knew would not benefit their clients.  This was the classic case of agency going awry: the agent was looking out for his own interest to the detriment of his client. A serious conflict of interest.

My philosophy is simple: always know how people get paid to determine their motivation.   My commission structure is written out in our listing contract; there is no room for undisclosed bonuses.   My clients know exactly how I get paid, so they know my motivation from the start.  Imagine if I got a huge bonus from the buyer’s lender if I chose their offer over another and steered my clients into accepting their offer, which was a less than favorable offer because I was influenced by said bonus.  Would this be a conflict of interest and would the client have taken my advice if they knew of this secret bonus?

How did the Realtor Associations avoid this type of conflict of interest?  By the use of the Agency Relationship Disclosure document(CAR form AD).  This document laid out exactly the contractual obligation of the agent vis a vis his client.   It states, I owe my sellers or my buyers (depending on whom I represent): “A Fiduciary duty of utmost care, integrity, honesty and loyalty in dealings with the Seller.” (or buyer, if I represent the buyer).

What does Fiduciary duty mean?  According to dictionary.com fiduciary duty is:

“the legal duty of a fiduciary to act in the best interests of the beneficiary”

Best interest of the beneficiary, or my client.  I have to put my client’s interest over my own.  Hence, even if I were to be offered a secret bonus, I could not take said bonus if it would not be in the best interest of my client.  Naturally, I could accept such a bonus if I revealed it to my client and they still thought said bonus would be in their best interest.

I am not saying all Realtors are angels, but because they had to sign these disclosures which contractually obligated them, it removed any temptations.  The same can be said of loan brokers; I am not accusing all loan brokers of this despicable practice, I’m sure most didn’t engage in such practices.   However, because there was no mandatory requirement for the use of such instrument as the Agency Relationship Disclosure, it made it tempting for those brokers who may have decided enriching themselves was more important than looking out for the best interests of their clients.

To control the practice of such steering, the Federal Reserve chose to simply remove the temptation by banning the practice of paying such bonuses all together.  One way or another, the borrower’s best interest will now be better protected and that is a good thing.

Perhaps someone has been reading my posts about the impact of unemployment in the distressed markets.    It may not be the direct help that is required (i.e. more employment) but it is assistance in the form of up to $1,500 to those who are unemployed and at risk of foreclosure.  42,000 of California’s unemployed may  benefit.

California is earmarked to receive $476M to help the unemployed.

As with any Federal program, the particulars will be announced in the future, but it looks like November 1 is when the program is slated to go live.

www.keepyourhomecalifornia.com

Stay tuned……

Once again, with poor economic forecast and what I consider to be the twin pillars of  real estate distress (unemployment and negative equity) continuing to remain problematic in most of the country; and the Federal Government’s HAFA program being encouraged for those who cannot qualify for loan modifications, we should hardly be surprised that Short Sales are increasing in popularity in California and the rest of the country.   It simply makes financial sense for a lot of homeowners, lenders and investors at the moment.

What we have learned from the article below is that short sale transactions have tripled since 2008 and California accounts for about 25% of all short sales in the nation. Until we eliminate these distressed properties from competing in the marketplace with normal, non-distressed properties, we cannot expect the housing sector to come out of its current funk.

We all wait with hopeful anticipation of positive long term housing news which seem to elude us in favor of uncertain or often times confusing short terms trends.   Depending on the day of the week, we can get information that we are heading in the right direction or in the wrong direction. No one can predict with any amount of certainty whether we are out of the housing slump or not.

As I have said over and over, like a broken record, until and unless we can address the unemployment issue, the housing sector will not come out its current mess. Those people who are out of a job are more willing to give up their homes and those who have jobs are afraid of being laid off and will not consider buying a new home or moving up to larger homes.  So we have a situation where the unemployed are unloading properties, but the employed who can afford to buy are too afraid to buy.   It’s a sticky mess we are in.   Unfortunately, add to that the issue of  what many call the shadow inventory, and we are looking at many years out into the future where distressed properties will continue to affect the real estate space in a negative manner.

Yes, Short Sales will continue to soar in California, but that is not necessarily good news.

http://www.latimes.com/business/la-fi-short-sales-20100811,0,7193924.story

But that appears to be good news as that number is an improvement over from the past quarter.    However, that is not the full story…..

“But don’t cheer about the slight gains in the past three months. Most of the improvement comes because so many people lost their homes to foreclosure “

The twin pillars of destruction in the real estate market still remain: high unemployment and negative equity.  As long as the homeowners do not see the light at the end of the tunnel, they will be more inclined to walk away from their homes.

http://money.cnn.com/2010/08/09/real_estate/fewer_underwater_borrowers/index.htm

The two GSEs (Government Sponsored Enterprise) Fannie and Freddie Mac have tremendous impact on the housing industry.  Unfortunately, they also have in their portfolios, a lot of distressed loans where homeowners are severely under-water and do not know what to do.

They have attempted to deal with the situation by providing better options like short sales and deed in lieu programs.  As with any government programs, there is a lot of bureaucracy, so to streamline the process and have one website where the homeowners can obtain all of the options available for a Fannie Mae loan, the former has created this website.

www.knowyouroptions.com

It is a one stop shop to learn about all of your options if you have a Fannie Mae loan.

Freddie Mac still has not announced their own website, but these two organizations often operate in unison, so it would not be a big surprise to see it announce a similar website in the near future.

As a service professional, I am of the belief that we must always  be learning.  We must not only participate in the required  continuing education courses, but go beyond by obtaining specialized training to differentiate ourselves from the average Real Estate Agent.  Only by becoming better educated, can we serve our clients better by utilizing the latest changes in laws and policies.