They have since been resistant and perhaps even defiant in wanting to proceed with foreclosures.  That is the concern.  Will the banks allow these additional requirements to impede their ability to get homes to market?  While they may not be pleased with the process and it will cost them more time and money, I think they will get their procedures in order and eventually we will see the market stay on its course.

That means that while we are in the holiday season and approaching a new year, the number of foreclosures will remain low, but they will pick up in the first or second quarter of next year and the inventory will continue to remain at the levels we have seen in the last 30 months.

The impact on homeowners desiring desire to short sale their homes is still unclear, but the banks have all concluded that short sales are far more favorable than Foreclosure and this legislation will certainly not change that opinion.

When we receive a low offer on our listings, we will counter back to a price that we deem a good value to the buyer and reasonable to the lien holder.  We also counter out the costs that we know the lien holder will not allow and we counter with information to the buyer and buyer’s agent that enables us to know that the buyer fully understands the nature of short sales.  Sometimes the buyer decides to reject our counter.  That’s OK because it’s likely that buyer wasn’t going to be patient enough to endure the process.  We would rather leave the home on the market to attract another buyer that will endure and help us to close the escrow.  If the buyer agrees to our counter offer, then we know we have a quality buyer that will be there when we get an approval from the lien holder.

When I’m working with a buyer that chooses to make an offer on a short sale, I will pull the comparable sales to evaluate the fair market value just like the lien holder will do upon receiving the offer.  This gives my buyer the information well ahead of a counter we may get later in the process.  My buyer will be prepared for the idea that the lien holder will likely counter back at a number that is close to fair market value and my buyer is prepared to accept that counter and proceed.  If the lien holder doesn’t counter and accepts my buyer’s offer, even better!  My buyer gets the great deal!

The way we have succesfully moved forward under these circumstances is to encourage the buyer to accept the counter and invest in an appraisal from their own lender.  We sometimes extend the buyers additional diligence so they don’t have to spend money on an inspection if they don’t go forward on the deal.  What this does is gives us an actual appraised value on the home and the lender that has to approve the short sale is faced with the reality of that appraisal.  The short sale lender has reduced to the appraised value each time we have done this and the buyer has been able to close the deal at a true value.

There is some risk on behalf of the buyer, because if the appraisal comes in at the inflated number, then the buyer has to choose whether to move forward or not.  I would point out that if an appraiser brought in the value, it is most likely accurate as most appraisers these days find it very easy to bring values in low.

Just another twist in our ever evolving real estate market!

Each state has different rules regarding deficiency judgements, but here in Nevada, the banks can file deficiency judgements on either a foreclosure or a short sale.  They have more time on first trust deeds when you do a short sale but the time they have on seconds or HELOCs is the same with either a short sale or a foreclosure.

Ultimately each individual homeowner must evaluate their own circumstances to make the correct decision, but remember that just because you go through bankruptcy doesn’t mean that foreclosure is your best option.  Please consult with your attorney and remember you can choose your own Realtor to do the sale and you should select someone with good experience at short sales and someone that has a good record of success with short sales.

I heard a statement from an attorney friend of mine recently and I thought it quite poignant: “Short Sales aren’t about homes or about mortgages, they are about life and moving forward”.

The banks are getting better at handling short sales, but they are still not actually efficient yet.  They will get more efficient and when they do, seller’s are going to have to come to terms with the following question:  Do I want to wreck my credit for the next couple of years or pay the bank back what I owe them?  The next logical position for the bank is to allow the borrower to sell, but make them pay the shortfall back over time.  We are seeing some of this now, but I think it will become much more prevalent in the coming months.  When the banks get to this point some seller’s are going to be resentful and wonder how those that have done it before got away without paying the bank back.

One of the questions I ask sellers these days is:  Do you think your home will appreciate to a point where you won’t have to do a short sale in the future and/or how long do you think that will take?  The answer is very often “Way too long in the future”.  If that is the case, why not get the Short Sale over with now and get to a point in the future where your finances recover sooner rather than later.  Take your medicine now and be fully recovered in a couple of years or wait and take your medicine later.  It’s a tough question.  I’m certain the answer is not the same for everyone.

The fact is that if you live here in Southern Nevada , you will most likely be facing these questions in the near future, if you aren’t already.

In May of last year we took a listing.  It was a short sale and the owner was very concerned about the time it would take and the toll it would take on her life.  We received an offer in June and submitted the package to the bank for approval.  We toiled for 5 months with the bank and got re-routed, re-started, re-negotiated and just regurgitated until in December we caught a break. 

My client, the seller, met a lady that knew someone that knew someone else that might be able to help us.  At first I thought it was just a hoax to get my client to send a check to someone, but it wasn’t.  The man we found out was a big shot at the bank and he looked into the deal and got it approved in about 48 hours.

We proceeded to closing with great haste as we thought we were just dreaming and didn’t want the bank to re-something to us again.  The good news is the deal closed in December.  You would hope this story would end at this happy albeit drawn out point.  Unfortunately it doesn’t end here. 

Just today 1/25/2010, I get a call from the buyer’s agent.  She is panicked and doesn’t know what to do.  The buyers have received a letter from the bank telling them that the home is going to be auctioned on the courthouse steps on February 12, 2010.  The buyers naturally told the bank that they had just purchased this home from them and they paid cash.  The bank told the buyers, they must be mistaken and they should bring the account current or suffer the consequences of a foreclosure.  The buyers spend the better part of the day talking to various people at the bank and trying to get them to understand that they are making a horrible mistake.  The bank continually reminds them that they need to get the balance paid or suffer the ordeal of being put out on the street.

When the buyers agent called me to tell me this story, I let her know that I wasn’t sure what we could do, but we would certainly try to explain the situation to the bank and get them to understand.  I had heard of a similar circumstance from a colleague, but I wasn’t really certain what to do.  We called earlier today and they sent my assistant on a wild goose chase of transfers and disconnects.  I then called the bank myself and was subjected to the same typical re-routing.  I eventually got a person to actually listen to the situation.  She then, to her credit, got her supervisor involved and I got to have a civil conversation with a person that would save them from terrible embarrassment, not to mention potential litigation.

The supervisor dug into the file and discovered that the negotiator that was handling the Short Sale never closed the file.  She never let anyone else know that the money was received and the home had been recorded in the new buyers name.  This is the same negotiator that dragged the process on for more than 5 months with no progress.  I know the banks have it tough with so many people attempting to sell their homes as short sales, but they must be more professional, and they must be at least efficient enough to actually close a file properly and not subject a buyer to this kind of scare.

The buyer is very relieved and actually having a good chuckle about it now, but I would be willing to bet the bank wouldn’t be laughing had they actually sold the home again and put this owner out.  I bet the bank would have been subjected to a significant financial hardship of their own.

 The homeowner purchased her home at the height of the Las Vegas boom.  She scraped together her down payment and stretched her budget to the max.  Times were good and it seemed like the right way to go before the prices got higher and homes were out of her reach.  She was able to afford a $250,000 home.  Her mortgage was adjustable and the payment barely affordable, but with both her and her husband’s salaries, they could make it.  Of course, her credit was spotless.  The American dream was realized.

 After they settled into their home, they worked hard on finishing it with backyard landscaping, a covered patio, and all the things they felt they needed to make it a home.  Things were going great.  Then, WHAM! Las Vegas was changing- times were tough, business was off, and consequently, her husband was laid off.  She was lucky – she had a great boss who cut everything else but kept her at her current salary.  In addition to her husband’s layoff, her loan rate adjusted and her payment went up.  Her neighbors also hit on hard times and abandoned their homes.  The average $250,000 price in her neighborhood dropped to $95,000.

 She was in a quandary.  Should she join the group of neighbors and go into foreclosure or try to do the “right thing”?  She had heard about this new thing called a “loan modification”.  She contacted The Big Bad Bank and the process began.  She filled out all the paperwork and had the right qualifications.  It looked like a sure thing.

After several months, lo and behold, her loan modification was approved!  Her payment was reduced $500!!  Now, remember her loan period was extended another ten years, but it still seemed like the right thing to do.  She began to pay the lower payment as they instructed.  Being a vigilant person with regard to her credit, she decided to check her credit report after three months.  The Big Bad Bank had reported her late to the credit bureau THREE TIMES!

When she called, she was told that her loan modification was a “trial” or “temporary” modification.  She said, “But I paid what you asked!”  The Big Bad Bank said, “But you paid less than your original agreement.  We accepted it but it was not what you agreed to when you bought the house.”  The homeowner is disputing the late payments with the credit bureau and is hoping for the best.

This homeowner was trying to do the right thing.  The moral of the fable “The Wolf and The Crane” is “In serving the wicked, expect no reward, and be thankful if you escape injury for your pains”.  The moral of my story is “When you try to do the right thing, the wolf still may eat you”.

By the way, This story is NOT fiction…