Foreclosure & Short Sale

8 Reasons Why You Should Work With a REALTOR®

Not all real estate practitioners are REALTORS®. The term REALTOR® is a registered trademark that identifies a real estate professional who is a member of the NATIONAL ASSOCIATION of REALTORS® and subscribes to its strict Code of Ethics. Here are five reasons why it pays to work with a REALTOR®. 

1. Navigate a complicated process. Buying or selling a home usually requires disclosure forms, inspection reports, mortgage documents, insurance policies, deeds, and multipage settlement statements. A knowledgeable expert will help you prepare the best deal, and avoid delays or costly mistakes.

2. Information and opinions. REALTORS® can provide local community information on utilities, zoning, schools, and more. They’ll also be able to provide objective information about each property. A professional will be able to help you answer these two important questions: Will the property provide the environment I want for a home or investment? Second, will the property have resale value when I am ready to sell?

3. Help finding the best property out there. Sometimes the property you are seeking is available but not actively advertised in the market, and it will take some investigation by your REALTOR® to find all available properties.

4. Negotiating skills. There are many negotiating factors, including but not limited to price, financing, terms, date of possession, and inclusion or exclusion of repairs, furnishings, or equipment. In addition, the purchase agreement should provide a period of time for you to complete appropriate inspections and investigations of the property before you are bound to complete the purchase. Your agent can advise you as to which investigations and inspections are recommended or required.

5.  Property marketing power. Real estate doesn’t sell due to advertising alone. In fact, a large share of real estate sales comes as the result of a practitioner’s contacts through previous clients, referrals, friends, and family. When a property is marketed with the help of a REALTOR®, you do not have to allow strangers into your home. Your REALTOR® will generally prescreen and accompany qualified prospects through your property.

6. Someone who speaks the language. If you don’t know a CMA from a PUD, you can understand why it’s important to work with a professional who is immersed in the industry and knows the real estate language.

7. Experience. Most people buy and sell only a few homes in a lifetime, usually with quite a few years in between each purchase. Even if you have done it before, laws and regulations change. REALTORS®, on the other hand, handle hundreds of real estate transactions over the course of their career. Having an expert on your side is critical.

8. Objective voice. A home often symbolizes family, rest, and security — it’s not just four walls and a roof. Because of this, homebuying and selling can be an emotional undertaking. And for most people, a home is the biggest purchase they’ll every make. Having a concerned, but objective, third party helps you stay focused on both the emotional and financial issues most important to you.

Who Profits From Short Sales

For home sellers who owe the lender more than their home is worth, it’s not as bleak as it might sound. Negotiating a short sale with the lender could be the solution.

This means the seller or the seller’s agent sells the home to a buyer at market, or slightly below market value, and the lender agrees to accept the proceeds as payment in full on the mortgage, even though the sales price is less than the existing encumbrances.

The downside is lenders are not required to negotiate discounted payoffs, and there is no guarantee your lender will let you do a short sale.

Who Makes a Profit on a Short Sale?

The question is if the seller isn’t making any money on a short sale, who is making money? Because you know that somebody is going to come out ahead. And it’s not going to be the seller. The truth is everybody under the sun will make money on a short sale except the seller.

Let’s look at who profits from short sales:

• Existing Mortgagee Gains An Advantage But Not Necessarily a ProfitThe existing lender avoids filing foreclosure, avoids carrying the property on the books when nobody bids at the auction and avoids the time on market looking for its own buyer.
• Listing Agents and Buying Agents Profit From a Short Sale.Granted, the agents may take a hit on the commission because the lender will insist on a fee reduction, but the bottom line is the agents and their brokers get paid for selling the property.
• Title Companies Profit From a Short SaleThe tile company issues an owner’s title policy in favor of the new buyer and an ALTA policy in favor of the new lender. In some states, title companies provide abstract services instead, but, regardless, they get paid.
• Escrow Companies Profit From a Short SaleIn states where escrow companies act as an independent third party in real estate transactions, these companies come out ahead, too. They get paid by the lender or the fee is divided between the lender and the buyer.
• Real Estate Lawyers Can Profit From a Short SaleSellers of short sales should always seek legal advice before entering into a contract to sell on a short sale. So, the lawyers get paid. Some lawyers specialize in negotiating short sales and charge for that service.
• Tax Consultants and CPAs Profit From a Short SaleSellers of short sales should always seek tax advice before entering into a contract to sell on a short sale. There could be tax ramifications due to debt forgiveness.
• The Internal Revenue Service May Profit From a Short SaleThe IRS will collect its fair share if the lender issues a 1099 to the seller, providing the seller is subject to taxation on the short sale.
• The Buyer May Profit From a Short SaleIt is likely the buyer purchased the property at or a bit below market value, which lowers the buyer’s basis in the property and lowers its future taxation by the tax assessor. As a result, the buyer’s mortgage payment is reduced because the loan is less.
• The New Lender Makes a Profit on a Short SaleThe new lender makes money because a new loan generates new business and new revenue. A new loan pays the underwriter and loan processor as well.
• The Appraiser Profits From a Short SaleEven though the property may be selling for less than market value, the new lender will require that the buyer obtain an appraisal. Appraisers can earn $250 to $650 for an appraisal.
• The New Mortgage Broker Profits From a Short Sale.If the buyer’s loan involved packaging by a mortgage broker, that person will be paid points on the loan. Plus, the YSP could yield even a bigger paycheck to the mortgage broker.
• County Tax Assessor May or May Not Profit From a Short Sale.In areas where property is reassessed upon sale, the tax assessor will continue to collect property taxes on a timely basis and perhaps at a higher assessment value due to the resale value. Refinancing a loan does not ordinarily affect tax assessments.
• Insurance Companies Profit From a Short SaleThe buyer’s insurance company picks up a premium for insuring the buyer and the new home. In addition, the insurance agent earns a commission on the homeowner insurance policy.

However there is one really good reason for a seller to do a short sale. Short Sale Affect on 

Questions and Answers About the Simplified Short Sale Process

What is a Short Sale? In a Short Sale, a lender agrees to let a homeowner facing financial hardship sell a home for less than the amount of the mortgage owed. A Short Sale is an attractive alternative to foreclosure, and typically not pursued until after other efforts to keep the owner in the home have been exhausted. There are potential tax consequences that should be discussed with a tax professional.

Why is a Short Sale better than foreclosure? A Short Sale can be less damaging to the borrower's credit. The former owner can qualify for a mortgage backed by Fannie Mae or Freddie Mac to buy another home in as few as two to three years – far sooner than if there had been a foreclosure. Short Sales also help protect other property values in the community by keeping the home out of potential disrepair.

Why has the U.S. Treasury issued new Short Sale guidelines? Because of the challenges many homeowners have faced in their attempts at Short Sales, RE/MAX International has worked closely with major lenders, the U.S. Treasury and other federal agencies to streamline and standardize the process. The new guidelines are in response to this advocacy by RE/MAX and others in the industry. Short Sales are seen as a critical component in stemming the increasing number of foreclosures and stabilizing the housing market.

What's been improved in the Short Sale process? Under the Treasury's Foreclosure Alternatives Program, mortgage servicers have 10 business days to respond to a Short Sale offer. In the past, a lack of timely response has been one of the main reasons for delayed or derailed Short Sales. Also, paperwork and documentation are now standardized. Previously, such procedures varied widely between lenders. Various deadlines in the Short Sale process also have been standardized.

What's improved for the homeowner? Under the Treasury program, a successful Short Sale will release the borrower fully from the primary mortgage obligation. This lender may not pursue a deficiency judgment. Additionally, homeowners who complete Short Sales are eligible to receive $3,000 to offset the expense of moving from the home.

What's the incentive for a primary lender to approve a Short Sale? Using program guidelines, lenders will determine a minimum acceptable offer for the property. Typically a lender's loss on a Short Sale is less than the loss it faces should the property go into foreclosure. Through the Treasury program, mortgage servicers receive $1,500 for every Short Sale successfully closed.

How does the program work? If the owner of a principal residence does not qualify for refinancing and has exhausted Making Home Affordable loan-modification options – or if they make a direct Short Sale request to a lender in the program – the lender determines if a Short Sale is possible. If it is, the borrower is given at least 120 days (up to a year, depending on local market conditions) to sell the home using a real estate agent experienced in the local market. Meanwhile, the foreclosure process can move forward, but it cannot be finalized until after the marketing period has expired. During the marketing period, lenders must respond to a fully completed "request for approval of a Short Sale offer" within 10 business days.

Does the borrower continue to make primary loan payments during the Short Sale marketing period? Yes, in some cases. The amount is determined by the loan servicer in accordance with terms of the Treasury guidelines. If there is a payment, it cannot exceed 31 percent of the borrower's gross monthly income.

What if there's a second mortgage, home equity line of credit or other junior lien? The borrower is responsible for either paying off such debt or negotiating release from the debt and any potential for deficiency judgment. An experienced RE/MAX Short Sale expert can help you with this process. The Treasury program provides some financial incentive for junior lenders and investors who hold such loans to participate in the Short Sale and release the liens.

Are there restrictions on who can make a Short Sale offer? Yes. Among the program's many restrictions are requirements that the property not be sold to a relative and not be occupied or repurchased by the former owner. The buyer may not receive any funds from the transaction and cannot sell the property for at least 90 days after closing.

Is a Short Sale the only alternative to imminent foreclosure? If a Short Sale is not successful, the lender can opt to accept a "deed in lieu of foreclosure." In this process, the homeowner gives clear title to the property to the lender. Under terms of the Treasury program, the borrower is released from the remaining mortgage obligation and can still receive the $3,000 for relocation expenses. The borrower then has 30 days to vacate the property. In some cases, it's possible to pursue a "deed in lieu of foreclosure" without first pursuing a Short Sale.

Is there an expiration date for the Treasury program? Borrowers have until Dec. 31, 2012, to enter into a Short Sale or deed-in-lieu agreement with their lender under terms of the Treasury program.

Are Short Sales still possible for borrowers and lenders not covered by the Making Home Affordable Program? Yes. Short Sales remain possible for borrowers with mortgages not covered by the Treasury program's incentives and guidelines. RE/MAX agents with Short Sale expertise can help such homeowners pursue a Short Sale with their mortgage servicer or investigate other possible options.

Government Plan Will Help Homeowners Avoid Foreclosure

Homeowners across the United States who are undergoing financial hardship could avoid foreclosure under a plan announced by the U.S. Treasury Department. Under the plan, which is in effect as of April 2010, millions of at-risk homeowners could be free of mortgage debt without going through foreclosure, and given $3,000 for relocation.

The Treasury plan provides incentives for lenders and homeowners to complete Short Sales – transactions in which the lender agrees to a sale price that’s less than the borrower owes on the mortgage. Short Sales are preferred to foreclosure because homeowners take less of a hit on their credit and lenders realize a smaller loss.

However, Short Sales often get bogged down because of the complicated nature of the transaction. Deals can fall through because the process takes too long.

Under the plan, which speeds up and simplifies the Short Sale process, mortgage servicers have 10 days to approve or reject a request for a Short Sale. And when the sale is done, the borrower must be fully released from the debt of the primary mortgage.

Read more details of the Treasury plan.

The plan is a positive step for the real estate market and for communities across the country, RE/MAX International CEO Margaret Kelly says. RE/MAX has been advocating simplified Short Sales for more than a year and has been actively working with U.S. government officials, including legislators and the Obama administration.

“Foreclosures have played a major role in keeping housing values down,” Kelly says. “This will help the market return to normal, stabilize prices, improve neighborhoods and prevent hundreds of thousands of homeowners from suffering the agony of being evicted from their homes. It should also play a role in the continued recovery of the economy.”

RE/MAX has been training its agents to help homeowners avoid foreclosure by offering courses on Short Sales. More than 10,000 RE/MAX Affiliates hold the Certified Distressed Properties Expert designation – over 50 percent of the total U.S. CDPE-holders – and more than 1,300 hold the Short Sales & Foreclosure Resource designation. Many other RE/MAX Associates have extensive experience with foreclosures and pre-foreclosures.

If you’ve fallen behind on your mortgage payments or received a pre-foreclosure letter from your lender, contact us!  With over 15 years of experience in foreclosure & short sale transactions, we can help.