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Lauren Schenke

Your Partner in Real Estate

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Short Sales

Faster Bank of America Short Sales? Yes Please!

I just read an article about how Bank of America is putting into works methods to streamline and speed up their short sale process. My response – awesome! My reality – doubtful. A while back, the government challenged the banks to the HAFA short sale which had the intention of speeding up the response time to 45 days. Reality was that nothing much changed and short sales were still horribly long.

If this does actually work, this is great news for buyers and sellers. It’s great news for sellers because they won’t have months and months of the negative impact to your credit score as the bank sits on the short sale application. It’s even better for buyers because they’ll be able to move into the homes they want to be in even quicker than they are now!

We’ll have to wait and see – I’ll keep you posted!

Read the article on Inman News for more information.

http://www.inman.com/news/2012/04/10/bank-america-streamlining-short-sale-procedures

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Short Sales & Valid Hardships…

A common misconception is that anyone at all can qualify for a short sale and not have a valid reason for it, while the truth is that this is most likely the exception to the norm. Although you may know someone who had their short sale request accepted with no apparent reason or hardship, I would have to argue that 99% of successful short sales have what is called a “valid hardship”. A valid hardship is a valid and tangible reason why a homeowner cannot make their mortgage payments anymore. These would include but are not limited to the following:

  • Job loss (Unemployment)
  • Change in employment causing decrease in earned income (Underemployment)
  • Divorce or legal separation
  • Death of borrower or one of main income earners
  • Medical illness causing extreme hardship due to excessive bills
  • Long term disability
  • Relocation of job far enough away that homeowner cannot commute
  • Business failure

Simply not wanting to keep a home that is now underwater is not a valid hardship, or an accepted reason, for a bank or lender to agree to a short sale request. Also, if one of the above situations does not create enough of a hardship, the bank may also not agree to the short sale. If an individual earning a $200K per year salary is getting a divorce and has a $1,000 per month mortgage payment, the bank or lender will very well come back and let that homeowner know that they should cut down on their vacation and shoe shopping habit and continue to pay their mortgage….because they can definitely afford to do so.

The Invasive Short Sale Application

A short sale is a very invasive process, and the lender will require piles of personal information to be submitted with the short sale application. Upon hearing these requests, a homeowner may decide to not provide this information and choose to walk away from their home instead. Going through this process is typically lengthy, frustrating, and ultimately a huge test of one’s patience. In addition to the listing agreement & purchase offer, some of the documents a lender will ask for as part of the short sale process will include, but are not limited to the following:

  • Pay stubs for the past 2-3 months
  • Income statements for Social Security, disability, pension, unemployment, rental property leases, etc if applicable
  • Bank statements for the past 2-3 months
  • W-2 statements for the past 2 years
  • Tax returns & attached tax schedules for the prior 2 years
  • Hardship letter describing current situation
  • Death certificate, copy of Trust, or other legal documents
  • Financial worksheet where you outline your monthly income and expenses – including utilities, grocery bills, gas, etc, etc, etc.
  • You may also be asked for a breakout of your assets and liabilities, including the amount you have in any savings accounts, CDs, stocks/bonds, retirement accounts, and personal property. An asset rich individual may not be approved for a short sale because they can afford to keep their home, but are simply choosing NOT to.
  • Estimated HUD statement from your Escrow Company outlining the net income the bank will receive after commissions and taxes, escrow & title, etc are paid
  • Check with your bank or lender to see what additional information they may ask you for!

Consult a Real Estate Attorney, a CPA, and a Realtor

When considering completing a short sale or a foreclosure, I always recommend that a homeowner speak with a real estate attorney to discuss their personal situation. A good real estate attorney will sit down and discuss the impacts to the homeowners life…including the impacts to their credit scores, possibility to purchase or obtain a loan again in the future, or even the impact to their careers! Yes, some careers may even be terminated over a foreclosure – so it’s imperative you know all the facts. My local real estate attorney referral for the Sacramento area would be Steve Beede. (See vendor page for contact info.) Steve has an affordable one time personal consultation where he will discuss your situation so you know how best to move forward. A short sale is not always the best answer for every homeowner…but neither is a foreclosure. As I mentioned above, an asset rich individual may not be approved for a short sale because they could afford to keep their home but are choosing not to. It’s best to consult with a real estate attorney, a CPA, and a realtor before listing your property.  It pays to know the facts, figures, and impacts to you and your family.

Contact Your Lender for More Information

For more detailed information on your specific lender, check out these links to some of the major lenders’ short sale sites:

Wells Fargo / Wachovia
Bank of America
Chase / Washington Mutual
Citigroup
US BankGMAC
Nationstar

Buying a Home After a Short Sale or Foreclosure

I met yesterday with one of my favorite lenders, Brad Brockett at Summit Funding, and we were chatting about life after a short sale or foreclosure. I was pleased to hear that the timeline isn’t nearly as dire as I thought it would be. Here’s the breakout as it currently stands with today’s underwriters:

Life after a Short Sale or Foreclosure

  • The general rule of thumb – for FHA guidelines –  is a waiting period of 3 years after a short sale or foreclosure before the buyer can purchase a primary residence.
  • This time period can possibly be reduced by 1 year due to events such as a major illness or job loss. Divorce and reduced work hours don’t typically count towards this reduction.
  • Buyer needs a minimum of a 640 credit score…a 620-640 may be possible but the lender may broker the loan to a different company.
  • If the buyer is using a down payment assistance program, the lender will likely require a minimum of a 640 credit score.
  • These requirements could qualify you for FHA financing. Conventional loans would likely require a 5 year waiting period to qualify.

Life after a Bankruptcy

  • The general rule of thumb – for FHA guidelines –  is a waiting period of 2 years after the discharge of a bankruptcy before the buyer can purchase a primary residence.
  • The other requirements are similar to the short sale/foreclosure guidelines above.

 

As you can see, there will probably be many buyers coming up in the future who will soon qualify to buy again! If you’re interested in talking with a mortgage lender about your qualifications, check out my “vendor” page for some great references! These lenders can help you through the mortgage process…once you are pre-approved and ready to look at homes, I’m here to help! Good luck!

What exactly IS the status “Short Sale Contingent”?

I often get asked, “What exactly does ‘short sale contingent’ mean in MLS?” Great question.

First of all, let’s start with answering the question of what a short sale is. A short sale is where a homeowner is under water in their loan(s), or in other words, their loan(s) total MORE than what their home is currently worth. This homeowner is attempting to sell their home at a LOSS to the bank. For this short sale to be accepted, it is completely up to the bank as to whether or not they will agree to accept the loss and sell the home.

One of the main qualifiers of an approved short sale is that the homeowner must have a valid hardship. A valid hardship would be something tangible that affected the homeowners’ income. It could be a job loss, an expensive medical issue, a death, a divorce, or something along these lines that the bank would approve as a valid reason why the homeowner could no longer pay their mortgage anymore. I can see you thinking right now….but so and so did a short sale and they didn’t have any of those reasons! Yes, everyone knows someone who had their short sale approved and didn’t have a hardship, but my response would be that this is a rare situation, and/or perhaps you are unaware of a hardship that exists for the seller. Many of these reasons are very personal.

Now, what is a home that is short sale contingent? This is a home that is attempting a short sale that was listed in MLS and now has an offer on it. This offer has been accepted by the seller – ie, the homeowner – and has been submitted to the bank for acceptance. Since the bank is taking a loss on the property, it is up to the bank to accept the offer in the end. This is limbo land. This is an unknown period of time where the bank is reviewing the seller’s short sale package, determining market value, negotiating with any second or third loans on the property, and determining their decision. This process may be as short as a few weeks, to several months, with an average time being 90 days or so.

During this time period, the listing agent of the short sale will likely only submit one offer to the bank, however, the bank may have specifically requested to see ALL offers on the home. If you are interested in a short sale contingent property, have your agent call the listing agent of the property and check in on the status of the home. Have your agent ask the listing agent if the offer looks solid, or if the buyer looks like he/she may walk. Ask for your offer to be put in “back up” position in case the first offer walks. Buyers walk for all sorts of reasons – such as not wanting to wait any longer, not agreeing to a bank’s counter offer, not being able to obtain financing, or not liking inspection results. It’s not always a horrible thing to be put in back up position…you can keep looking for other homes while having a home you like in your back pocket.

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