This is the fifth and final installment in my Tucson Short Sales series.  I would suggest reading part one (Tucson Short Sales – Part 1 – What are Short Sales?) part two (Tucson Short Sales – Part 2 – I’m Ready to Short Sale My Home.. What Are The Repercussions?)  part three (Tucson Short Sales – Part 3 – How to Short Sale My Home) and part four (Tucson Short Sales – Part 4 – The Offer is in to the Bank) before reading this article.

Once your purchase package has been submitted to the bank it will typically pass through several levels before reaching someone who has the actual authority to make a decision on the offer.

Larger lenders have different negotiators at each level who each have a specific task. A bottom level negotiator will typically review a package for completeness and ensure that everything is signed as required. A mid-level negotiator will typically order an appraisal or BPO on the property to find current market value and then attach that to the file and pass it on. And a high level negotiator will take all of the information provided along with the valuation of the home and render a decision.

The same process applies for smaller banks but usually one negotiator handles all of the tasks listed above.

“How much will the bank accept?” is the question I am usually asked by potential clients.

You will usually hear that there is a magic formula that lenders use to decide whether or not a short sale offer is sufficient. And truthfully, there probably are. But there isn’t an industry standard that can be cited in this article that you can use to accurately gauge your chances of obtaining a short sale acceptance.

It is different for every lender and for every situation. I’ve had deals with the same lender (Bank of America) where they were willing to accept different percentage of payoffs for properties just months apart. By the time you read this article the standards will have probably changed again and they will continue to evolve for the next few years as we work our way out of this mess.

If you would like to search the Tucson MLS for Short Sale, Bank-Owned, or Foreclosure homes, search for Tucson Homes for Sale or contact me for a comprehensive list.

If you would like assistance in avoiding foreclosure feel free to contact me for a no-cost consultation.

Related posts:

1. Tucson Short Sales – Part 4 – The Offer Is In To The Bank This is the fourth installment in my Tucson Short Sales...
2. Tucson Short Sales – Part 1 – What are Short Sales? Since the real estate boom of 2003-2005 the Tucson real...
3. Tucson Short Sales – Part 3 – How to Short Sale My Home This is the third installment in my Tucson Short Sales...

This is the fourth installment in my Tucson Short Sales series, I would suggest reading part one (Tucson Short Sales – Part 1 – What are Short Sales?) part two (Tucson Short Sales – Part 2 – I’m Ready to Short Sale My Home.. What Are The Repercussions?)  and part three (Tucson Short Sales – Part 3 – How to Short Sale My Home) before reading this article.

After the offer has been submitted to the bank (typically to someone in the Loss Mitigation department), your file will probably be assigned to an intermediary or negotiator. These people have many files just like yours on their desks and their job is to evaluate each offer to see if it warrants further consideration. Many banks have a bottleneck at this stage in the process and simply cannot keep up with the number of short sale packages coming across their desks.

The bank has to know what the actual market value of the home is before it can intelligently evaluate a buyer’s offer. They will usually order an appraisal or Broker Price Opinion (BPO) to determine the market value of the property which will help them decide which course of action to take with an offer (accept, reject, counter).

The next step in the process is usually the one that takes the longest. After a valuation of the property has been completed and the offer has been deemed complete the holder of the note has to decide what to do.

You see, many times a mortgage has been resold by your mortgage company to an investor or group of investors (whether individually or in a “bundle” or other mortgages). When this is the case (the bank doesn’t hold the mortgage note), the investor(s) has to evaluate the offer and choose either to accept, reject, or make a counter-offer.

This step can be even further complicated when there are multiple lenders (80/20 or 80/10/10 loans, for example).

The short sale process typically takes no less than 30 days. There are some lenders, smaller ones usually, who can respond more quickly to an offer. I have seen short sales take seven months from contract submission to close of escrow, and I have seen countless short sales that have gone to foreclosure because the bank did not respond soon enough. This is definitely the most stressful and frustrating part of the short sale process because it involves waiting. And more waiting. And then, more waiting. Sometimes you’ll get lucky and have a responsive lender but nine ten out of times you won’t.

For the next step in the Short Sale process (End Game Short Sales) stayed tuned!

• Tucson Short Sales – Part 1 – What are Short Sales?
• Tucson Short Sales – Part 2 – I’m Ready to Short Sale My Home.. What Are The Repercussions?
• Tucson Short Sales – Part 3 – How to Short Sale My Home
• Tucson Short Sales – Part 4 – The Offer Is In To The Bank
• Tucson Short Sales – Part 5 – End Game Short Sales

If you would like to search the Tucson MLS for Short Sale, Bank-Owned, or Foreclosure homes, search for Tucson Homes for Sale or contact me for a comprehensive list.

If you would like assistance in avoiding foreclosure feel free to contact me for a no-cost consultation.

Related posts:

1. Tucson Short Sales – Part 1 – What are Short Sales? Since the real estate boom of 2003-2005 the Tucson real...
2. Tucson Short Sales – Part 3 – How to Short Sale My Home This is the third installment in my Tucson Short Sales...
3. Tucson Short Sales – Part 2 – I Am Ready to Short Sale My Home.. What Are The Repercussions? This is part two of my Tucson Short Sales series....

This morning I went back through our MLS data and charted how many sales there have been for short sale and lender owned homes for the past few years. I was curious to see what the trends looked like and if they matched up what I’ve been seeing lately, and for the most part my assumptions were true. Below are the numbers:

Keep in mind these results are from the Tucson MLS and because I searched on the keywords “short sale” and “lender” we may have a few extraneous results. I’ve been in touch with the MLS staff concerning the lack of Tucson MLS designations for short sale and bank-owned homes and apparently they are working on a solution.

What we see are several trends dating back to 1999. There was a mild rise in short sales/bank-owned homes in 2002 which fell off during the housing boom, and then in 2005 there weren’t any short sale records in Tucson.. not surprising considering the inflated market.

In 2006, however, we see almost a 300% increase in bank-owned homes with only two short sales. This can be attributed to a couple things:

1. Housing market was starting to trend downward
2. A lot of people who refinanced and/or took out HELOCs in 2005 with the thought of selling in the near future were suddenly faced with a mortgage higher than their home’s value
3. Short sales were still fairly uncommon to real estate agents and homeowners

In 2007 as real estate agents became more educated on short sales and received the proper training closed short sales went up. So far this year, in only seven months, we are already at 132 closed short sales which is a dramatic increase from just last year.  Lender owned homes have also mushroomed to 297 closed deals this year and will likely surpass 450 sales before the year is over.

So what will the next year or so look like for short sales and bank-owned homes? Personally I think we will probably spike at the end of this year, perhaps next spring, and hold fairly steady for a bit while banks unload their excess inventory and agents continue to be successful in short sales.

If the “Housing and Economic Recovery Act of 2008” being proposed by Senators Chris Dodd (D-CT) and Richard Shelby (R-AL) actually is passed I think this number may go up in the short term; in my opinion the bill, while well intentioned, is fraught with potholes and danger signs that can’t be ignored and it practically enourages homeowners to go into default on their mortgage. Read the .pdf linked above and see if you come to the same conclusion!

Related posts:

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2. Tucson MLS needs new designations Since the influx of short-sale and bank-owned homes I have...
3. Tucson Short Sales – Part 2 – I Am Ready to Short Sale My Home.. What Are The Repercussions? This is part two of my Tucson Short Sales series....

Since the influx of short-sale and bank-owned homes I have been waiting for the Tucson Association of Realtors (TAR) to get on board and add specific designations in our MLS system to address these items. It is entirely too cumbersome to search the Tucson MLS on keywords in the description fields when looking for a lender-owned home or home going through a short sale.

I don’t know how many times I’ve run the same search with the following keywords in the “Description field” and gotten different results: lender, bank, reo, foreclosure, foreclosed, short sale, short. And then, some agents only put these keywords in the “Agent Remarks” section (only us Realtors get to see those) so that makes it even more time consuming.

What’s the hold up? Apparently ARMLS (the MLS for the Greater Phoenix Area) has two such indicators to search on, “Lender/Corp Approval Required” and “Lender Owned Property”. Many other MLS’s across the nation have the same capability and yet we have not caught on.

It reminds me of the short sale addendum situation for TAR; I was at a special short-sale information session a few weeks ago and TAR finally has a draft of an official TAR created short-sale addendum; I just wish it would have been done last year.

Granted, most offices/companies already have their own version of a SS addendum but the TAR form should eliminate the headache of not having a standardized form.

Not only would having these additional search criteria make it easier for us Realtors but it would make it easier for consumers as well. Let’s hope it gets changed soon!

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2. Tucson Short Sales – Part 2 – I Am Ready to Short Sale My Home.. What Are The Repercussions? This is part two of my Tucson Short Sales series....
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This is part two of my Tucson Short Sales series. If you haven’t read part one (Tucson Short Sales – Part 1 – What are Short Sales?) please read it first for the proper background.

In this article of the series we will go over the ramifications of a short sale. Keep in mind that you should not go ahead with this decision lightly and I would recommend exhausting every other possible avenue before considering a short sale. Also keep in mind that I am not an accountant, a lawyer, or anything other than a Realtor.

Alright, here we go. You’ve called up your accountant, talked to your lender (or tried to), asked your Realtor for advice, asked your friends and family for advice, and you haven’t had much luck. You’re upside down on your mortgage and/or you can no longer afford your mortgage and/or your job is transferring you and/or you’re PCS’ing to another base. The truth there is there are many possible reasons why you may be considering a short sale. Here are the issues we will be going over:

1. Credit Impact
2. Tax Implications
3. Personal Liability

Credit Impact

This is the first question to pop into many homeowners’ minds; Will my credit be affected? The short answer is: YES! A short sale is reported differently then a foreclosure to the credit bureaus but can still result in a 200 to 300 FICO score decline.

Now keep in mind, we are assuming the homeowner doesn’t have the assets to cover the difference between their mortgage and whatever they are able to sell their home for. These assets can include: 401k, IRA, Money Market Accounts and Mutual Funds. If you can come to the closing table with a check to cover the difference then there will be no issues at all!

After a short sale your credit report will probably show a “settled for less than owed” connotation which essentially prevents you from getting any sort of loan for a 24 month period. Fannie Mae recently changed their guidelines for lending to previous short-sale homeowners in the wake of the recent credit crunch. Effective June 1, 2008, for loans to be considered by Fannie Mae from any potential borrowers their credit history must be cleared from any foreclosure activities for at least 5 years. And after those five years, a borrower would have to have a Fair Isaac Corp. (FICO) credit score of 680 and put 10 percent down. These guidelines will probably continue to change during the next few years as more foreclosures and short sales promulgate the market.

National trends suggest that banks are becoming more willing to negotiate new terms with homeowners facing foreclosure, so please call up you bank if you are having trouble making payments!

Tax Implications

The tax implications in a short sale are actually quite complicated and exist in several layers. We will begin by discussing federal income tax implications. Let’s say you bought your house for $200,000 three years ago. You now owe $195,000 but it is only worth $165,000 and you short sale the home.

Now, the bank has a couple of options here. One is to sue you for the difference ($30,000). If you can’t pay this difference your credit is hit with a “deficiency judgment” which hurts it even more (in addition to the short sale.

Another option is for them to choose not to sue but instead to claim a “tax write-off” of the $30,000. But in the eyes of the IRS the $30,000 difference between what you owe the bank and what you paid the bank (from the proceeds of the sale) is seen as “phantom income“. The IRS would actually kick the homeowner while they were already down, forcing them to pay income tax on $30,000. Assuming a tax bracket of 25%, that is a whopping $7,500!

Fortunately for homeowners, in December 2007 President Bush signed into law IRS Revision Bill HR3648. In a nutshell, this bill removes the tax liability from the homeowner in the event of short sale, but there is EXTREMELY stringent criteria to be able to qualify for this assistance. Please carefully read the Bill and consult with your tax professional to see if will benefit. In addition, this bill also extended the tax deductibility of Mortgage Insurance through December 31, 2010.

Also remember there may be further tax state implications. Check with your local state laws for further information.

Personal Liability

The amount of your personal liability depends heavily on several factors and here is the quick explanation:

A “non-recourse” loan is one in which the borrower does not have personal liability for the loan; the property is the collateral. A “recourse” loans is where the borrower does have personal liability for the loan.

What this means is, if you obtained a non-recourse mortgage and foreclose or short-sale the home, the lender cannot go after your personal possessions (car, boat, other homes, kids) to satisfy the debt. If you have a recourse loan, they can (except probably for the kids).

Now how do you know what type of loan you have? Go read your loan documents! It should be spelled out quite clearly. Here is an unofficial list of states that have non-recourse loan laws:

Alaska
Arizona
Arkansas
California
Colorado
District of Columbia (Washington DC)
Georgia
Hawaii
Idaho
Mississippi
Missouri
Montana (as long as non-judicial foreclosure is used)
Nevada – note that the lender CAN get a deficiency judgment
New Hampshire
Oregon
Tennessee
Texas (but even in a non-judicial foreclosure, the lender can pursue a deficiency judgment)
Virginia
Washington
West Virginia

The other thing to remember is that refinancing or second mortgages typically are not covered under non-recourse loan laws; check with you lender or loan documents for further clarification.

Summary

I hope the information I provided above is useful to some of you homeowners out there. Please keep in mind that these are merely guidelines to begin your quest for information, be sure to follow up with more qualified individuals.

In light of the magnitude of this issue I will be adding one more article to my Tucson Short Sales series, the outline will now be:

• Tucson Short Sales – Part 1 – What are Short Sales?
• Tucson Short Sales – Part 2 – I’m Ready to Short Sale My Home.. What Are The Repercussions?
• Tucson Short Sales – Part 3 – How to Short Sale My Home
• Tucson Short Sales – Part 4 – The Offer Is In To The Bank
• Tucson Short Sales – Part 5 – End Game Short Sales

If you would like to search the Tucson MLS for Short Sale, Bank-Owned, or Foreclosure homes, search my Tucson MLS or contact me for a comprehensive list.

If you would like assistance in avoiding foreclosure feel free to contact me for a no-cost consultation.

Related posts:

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Since the real estate boom of 2003-2005 the Tucson real estate market has been flooded with homes going into foreclosure, short sale homes, and bank-owned homes. Many consumers aren’t completely clear on what a short sale is, but the easy explanation is this: Whenever you are trying to sell your home for less than what you owe on it (your mortgage), it is considered being short, or a short sale.

Why would a bank want to accept less than what you own on it? Well for the same reason that banks are in the banking industry: to make money! The average foreclosure process (notices, paperwork, court proceedings, publications in the local newspapers) costs a bank on average $50,000! That isn’t including the market value loss from the house, just the cost of actually processing a foreclosure.

You can understand why banks are much more receptive to a short sale than a foreclosure (in most cases).
In many cases banks will be more open to renegotiating terms of a loan (forbearance, principal reduction, loan modification, deed-in-lieu) instead of accepting a short sale.

A homeowner in distress should always call the lender first if you are having trouble making payments, or foresee trouble making payments in the future. National foreclosure statistics indicate too many homeowners are not calling their lenders for assistance and are instead falling into foreclosure.

Believe me, the banks don’t want you to lose their home and they will try hard to keep in your house.

Stay tuned for:

• Tucson Short Sales – Part 2 – I’m Ready to Short Sale My Home.. What Are The Repercussions?
• Tucson Short Sales – Part 3 – How to Short Sale My Home
• Tucson Short Sales – Part 4 – The Offer Is In To The Bank
• Tucson Short Sales – Part 5 – End Game Short Sales

If you would like to search the Tucson MLS for Short Sale, Bank-Owned, or Foreclosure homes, search my Tucson MLS or contact me for a comprehensive list.

If you would like assistance in avoiding foreclosure I can help you also, feel free to contact me for a no-cost consultation.

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