San Jose Short Sale Agent: Silicon Valley Foreclosure Prevention Specialists

Ask anyone who does a lot of short sales about what is becoming a troubling trend in the industry and my guess is a majority of them will bring up the fact that the junior lien holder (or the second mortgage) is refusing to cooperate and demanding unreasonable amounts of money for them to agree to a short sale; or some of them even asking for illegal kickbacks in the form of payments made without being disclosed on the HUD1.

What does all of this mean?  Well, the junior liens have been receiving pennies out of the dollar, sometimes getting paid $3,000 on a loan with a balance of $100,000.  Yes, the loss is huge, but the junior lien holder has very little alternative, as a foreclosure means their loan is wiped out.  Hence, the senior loans have been successful in pressuring the juniors to take the lesser of the two evils, pennies or nothing.

Many junior lien holders are not taking this lying down now.  They have figured out they can combat the pressure from the senior liens by refusing to agree to the short sale. They are holding out until they can negotiate better terms.  They are simply saying to the senior lien holders: “if we don’t get a better offer, we won’t let the short sale happen; you will be forced to into foreclosure and your net will be much lower in a foreclosure sale than a short sale.”  They are simply playing a game of chicken.  Remember, if there are two loans in a short sale, both of the lien holders have to agree to permit the sale to proceed.

Or the other tactic is, some junior liens are demanding that the sellers pay them a settlement fee outside of escrow so that it will not show up on the HUD1.  A HUD1 discloses to all parties who is getting paid what.  By making a payment outside of the HUD1, the junior lien holder is getting paid without the senior lien holder finding out.  This is illegal, by the way; mortgage fraud, a Federal Offense from what I am told.

We all understand what the junior lien holder is trying to accomplish, but the problem is that in their game of chicken, the majority of the parties are suffering. We have one party who wants the property; the other party who wants to sell and move on with their lives and get out from under the banks; the senior lien holder who is also taking a huge loss, but because the junior lien holder, who knows they can get nothing if they force the transaction into foreclosure is hell-bent on forcing a foreclosure because they want to get a little bit more: even by illegal means.  They pressure the sellers to such an extent, the sellers are sometimes choosing to accept foreclosure rather than to give into what is being demanded.   Remember, the collective goal right now for the country is to reduce foreclosures, not to encourage it.

Because this problem is becoming more common and have reached critical mass, Barney Frank, the Chairman of the House Financial Services Committee has sent out a petition to the largest banks to voluntarily take action to permit second lien write downs; or else.

The same banks who are junior lien holders are also senior lien holders on other loans, so in the grand scheme of things, they will benefit if they prevent foreclosures.  So what are these guys  doing?  They are hurting their own bottom line and taking everyone else down with them; it makes no sense.

Now they can move on with their lives and leave behind the difficult phase of their lives.   Feels good to be a part of the solution.

As a San Jose Shot Sale Agent, I have evangelized about the benefits and importance of short sales in comparison to foreclosures.  However, the volume of short sales relative to the rest of the distressed properties has catapulted into number one position according to Campbell Surveys.   This will come as no surprise to buyers who are in the market right now in Silicon Valley as First Time Homebuyers are snapping them up like hot cakes.

Unfortunately, until we resolve California’s double digit unemployment rate, we will continue to have a steady flow of  short sales for possibly years to come.

This is an excellent article about the general overview of how short sales are reaching into the mainstream of the real estate industry.

The article, however, leaves a false impression that the REO listings are receiving more money because they close at 99% compared to 91% for short sales. However, there are plausible explanations for the differences in those two closing ratios.

1.  Short Sales generally have to start off at market price and require systematic price reductions which must be justified to the lenders for them to agree to the sale. Because buyers want deals but the lenders want to start with market price, price reductions are inevitably built in to the process.  Whereas in a REO, the bank and its accountants have pre-determined their bottom-line net price, which is typically below market rate.  Because they are dealing with bottom-line net prices, the banks will rarely agree to accept prices that are far off their list price, if at all.  By contrast, there is a bit more latitude in negotiating price in a short sale.

2.  In addition to having to start off at market price, comparable short sales generally list at a higher price point because owners typically live there and take better care of their homes where their family still resides; compare that to an REO where the owners often destroy many components of the house during the eviction process.  Short sales show better so are also more popular because they are closer to move-in condition that REOs.

So despite the impression that short sale properties receive less money, the reality is that short sale properties, sell at higher price points for comparable properties, yet close at a lower ratio relative to list/sold price because of the lenders demands to list at or near market price.

I get testimonials from my clients here and there.  But this one touched me, because we did have to go through a lot with Bank of America and for a very long time, but in the end it came out all right.  I was very happy that she and her family could go on without having to look over their shoulders and just go on with their lives since they had moved.  Truly, this is what I mean by trying to help the foreclosure crisis, one family at a time.  Helping people like Becky makes me feel like I am contributing in my own way.

As everyone knows, the volume of FHA loans funding first time home purchases has increased dramatically in the past two years.  It went from 3% to about 50% of the mortgage market today.  It is a great product for first time home buyers who want to capitalize on the current first time homeowner tax credit offered by the government.

However, because the down payment requirment is 3.5% of the purchase price, many buyers who use this product often have limited access to additional cash that may be required to address some of those unforeseen situations that sometimes arise when purchasing a home.  This is especially true when they are trying to compete on multiple offer situations and they need additional funds to later for repair work.    From my own experience, most FHA buyers walk away from certain homes they like because they simply do not have funds for repair work.

However, this does not necessarily have to happen.  What their agents are failing to inform them is, there is something called a FHA 203(k) loan which was designed specifically with this type of need in mind.   The 203(k) is a repair program which can be rolled into one single loan.  It is the lifesaver for those who want to buy a home that may require repair work.

I am a real estate expert, so I will not get into the specifics of this loan product, but a good loan agent should be able to explain thing in detail about this wonderful product which escapes the radar of many home buyers.  If you are in Silicon Valley and don’t know a good loan agent who can explain this useful product to  you, then contact me and I can set up introductions.

I know what I am about to say will be controversial and some Realtors will not be happy with me pointing  this out, but it is something I feel passionate about and feel is an issues which should be raised and addressed.

I noticed just recently that some Realtors I know were advertising themselves as “Experts” in Short Sales.  Nothing wrong with those claims on their face; they appear mature and experienced and seem to have certain certifications which would lead a person to believe they were very good at this specialized practice. Again, nothing wrong with the claims on their face…..until you know the back stories.  This one particular agent has never bought or sold a single property all of last year. Yet, they advertise themselves as a Short Sale Expert who can stop your home from going into foreclosure…… Another had closed one transaction all of last year, yet they also profess to label themselves a short sale expert.  What is wrong with these pictures?

My purpose of this post is not to disparage these particular Realtors.  That is not my right.  But it does raise a question about their professional integrity when they make questionable claims during these difficult time in hopes of gaining clients and how they simultaneously tarnish the image and reputation of their fellow colleagues.

Everyone knows the last couple of years have not been easy for many Realtors.  Loans were difficult to obtain and people simply stopped selling or buying homes for a good full year or more.  Many of us faced difficulties making a living. Many Realtors have left the business and others are hanging on in the hopes of making it through another year.  Again, nothing wrong with Realtors working hard to survive another year.

But let’s look at this through the glasses of the homeowner who is facing foreclosure.  Of course a homeowner wants to find qualified Realtors who can help them fight one of the most devastating situations they will encounter during their lives.   When dealing with people facing foreclosure, Realtors must handle these sellers with kid gloves because there is so much emotional pain association with the process. It is not simply another transaction or a paycheck for these homeowners.  You cannot simply take the house off market and put it back on when market dynamics change.  If the Realtor messes up, the homeowner is foreclosed and their credit history is ruined.  It is a matter of deep family pride and the very real possibility of people becoming homeless if the supposed “expert” Realtor doesn’t know what they are doing. Remember, a Realtor has a fiduciary duty of “utmost care, integrity, honesty and loyalty in dealings with the Seller” (Disclosure Regarding Real Estate Agency Relationship). Are these two Realtors living up to their agency responsibilities when they embellish their supposed “expertise” with one having sold only one property and the other selling none for an entire year?

I do not claim to be the best in this niche market, but over the years, a combination of specialized, continual education and actual, hands on experience selling and negotiating with banks to stop foreclosures has given me the “technical know how” to be able to stop foreclosures through short sales in a majority of cases I take on each year.  Let me point out from my own experience, that the education alone was not sufficient to give me that “know how”; the education had to be combined with the practical experience to make the experience complete.  Theoretical study simply was not enough.   A salesperson who reads books about selling cannot claim to be an expert salesperson unless they have actually sold many products.

Let me make it clear that I am not trying to make myself look good by stepping on others to rise over them when they are encountering a difficult year.  However, this is my chosen profession, and I do not want the reputation of the entire profession denigrated because someone is desperately trying to reel in an unsuspecting client.  That charade cannot last will be exposed quickly, only to the detriment of the unsuspecting homeowner who wanted to believe.

Because of the stress homeowners face when facing foreclosure, they often find themselves to be more gullible and less guarded than they typically may be otherwise.  People in distress hear what they hope to hear or want to hear.  Due diligence is required when hiring someone to help you with your short sale.

You have the right as a consumer to know exactly who you are hiring to provide you with a service.  1.  Ask for past client references.  If they are truly good at what they do, then they must have some happy clients.  2.  Ask for performance data. If they are “experts” they must have successfully sold something recently.   If they cannot provide these two types of information for you, then a red flag has been raised.

It does not matter whom you choose to help you stop your foreclosure, but it would make sense to go with someone who has both the educational and the practical experience to back up their claim of their expert status.   We are not now sitting in a bar telling embellished  fish stories where the exaggeration has little or no consequence; a little exaggeration about what someone can do may mean the difference between saving and losing a family home.   Yes, a little exaggeration can hurt people.

As the adage goes: A little knowledge is a dangerous thing.   And learning about short sales without actually having the benefit of practical experience can be a dangerous thing.

Someone asked me today why I didn’t mention anything about the Deed In Lieu of Foreclosures (or simply Deed in Lieu) portion of HAFA (Home Affordable Foreclosure Alternatives) in my previous post.    The answer is simple: because of the requirement to be free of  liens.

A Deed in Lieu simply means you are telling the bank that you can no longer afford to keep up with the mortgage payments, so you offer to turn over your deed to the lender in exchange for you getting out from underneath the note.  If you can find a lender who agrees to this, that may be a quick way out of the impending foreclosure mess, but the hitch is that the property must free free of liens.   Free from liens means you cannot have a second loan against the property or have any other liens like unpaid property taxes or unpaid HOA dues.  A big problem for most distressed homeowners.

In expensive California (and more specifically here in Silicon Valley), a majority of  homes are purchased utilizing a combination of  first and second loans.  Many people who could not afford to come up with the 20% down payment, financed the down payment with a second loan.    The vast majority of people who are in distressed situations now are those who have both first and second loans.  But to add insult to injury, once people are unable to pay their mortgages, they are often also equally unable to keep current on their property taxes or HOA dues.

So for most of Californians, when we talk of HAFA, we really are talking only about a Short Sale because it is the only viable option with no restrictions against having liens on properties.

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It’s  about time!

Those of us who specialize in short sales obviously know, believe and have been evangelizing about the fact that short sales not only help the homeowners but the lending institutions as well.  Unfortunately, there is a lot of misconception and misinformation floating about out there (especially on the internet by unenlightened, so-called “authorities”) who try to contradict these facts and – for whatever reason – plant seeds of doubt in confused homeowners’ minds.    Unfortunately these doubts germinate into inaction and often end up denying a perfectly viable alternative (inaction leading to foreclosure) to distressed homeowners who need them most, out of their difficult situations.

Now the Treasury has finally taken a position and set things straight with HAFA (Home Affordable Foreclosure Alternatives):  short sales are better for homeowners than foreclosures because: 1) they preserve the homeowner’s credit rating, especially in obtaining Fannie Mae loans in a much quicker manner and 2) they are also better for the lending institutions because the former typically gets higher prices than foreclosed properties.  These are truly win-win situations for the homeowners and lenders and that is precisely why the Treasury is pushing to make them easier to complete if a loan modification is not viable.

This program tries to address a lot of what is wrong with the short sale process, however, in my opinion, it addresses the single biggest enemy of short sale practitioners: the dreadfully drawn out approval process by many lenders. (Although prior to HAFA, some lenders decided on their own to streamline the approval process.)  It is not uncommon for the approval process to take 3+ months due to a combination of inadequate staffing and simple bureaucracy.  It will be manna from heaven to reduce the approval timeframe to only 10 days, as opposed to months.  Short Sales get a bad reputation because buyers often walk out of a deal because they are simply tired of waiting for the lender approvals and buy different, unencumbered properties.   An approval or denial within 10 days will save many, many short sale deals and give the distressed homeowners dignified resolutions to their financial ordeals.

Granted, HAFA, like HAMP (Home Affordable Modification Program) cannot be forced on the lenders, but at least it will lend political and social pressures on these mega-lending institutions which have been given so much assistance during their difficult times by the Treasury. This is definitely something in the right direction in addressing our foreclosure fiasco by the Obama Administration.