I never thought this would happen to me…

March 19, 2013

I hear that phrase more often these days as more and more people who have been just barely hanging on by their fingernails finally get out of denial and call me about a possible short sale. These are not people who did anything wrong. They did not borrow frivolously, nor live extravagantly beyond their means. They are just regular people whose circumstances have changed; some through the loss of a loved one, some through the loss of a long-time job.

Most of these people were so sure that this would never happen to them that they entered a period of denial when those circumstances changed; sure that things would somehow change back and everything would be OK again, somehow. That really never happens. So they used what savings they had and perhaps borrowed against what retirement savings they had built up and now they realize that they are in trouble. They’ve started getting nasty letters from their mortgage elderly womancompany or other creditors.

This situation is especially hard on the elderly, who were brought up in a society that still put value on personal responsibility and paying one’s debts. Just the thought of being in this situation is too embarrassing for them to discuss easily, even with friends and family, much less a complete stranger. And yet they must get it out in the open in order to do something about it.

I have a web site – www.mishortsales.com – that they often find or that I send them to read. I tried to create that site to allow someone in this circumstance to have the ability to read, in anonymity – about the options that they might have in this situation. It’s not a fancy site, as I state on the opening page; but, there’s nothing fancy about this situation that brings people to it. It is just a few pages of straightforward information that I hope will help people better understand the options and make better choices for a course of action. I get lots of call from that site from people far out of my coverage area, so I refer them out to agents with short-sale experience on other areas. If they’re in my area I try to help.

As is pointed out in the reading material at the site, success with a short-sale is far from guaranteed. Many of the big banks are so inept at doing them that the foreclosure departments from the same bank often win the race to see who can take the house first. Bank that took bailout money from the government are also required to offer alternatives such as loan modifications, but many of the big banks have also figured out ways to get around those laws by selling off the servicing of those loans to smaller companies. The fat cats will always find a way to game the system.

So, while the real estate market is improving, short-sales and foreclosures still make up about 40% of all sales locally and I will continue to get those calls from people who never thought they would be in that position. I’ll help if I can.


In Short Sales Ignorance is Risk

November 7, 2012

In my real estate business I run into a lot of people who seem to fit the old saying, “Ignorance is bliss.” I’d probably put it a different way – Ignorance is risk. Because I run a web site called MIShortSales.net, I get to talk to a lot of people who have already made some bad decisions or who have had some bad turn of events in their lives that have left them in distress. We start out talking about the possibility of doing a short sale, but I usually am quick to try to educate them on some things that can only compound their problems and about which many people are blissfully ignorant.

Many times I find that the distressed homeowner has moved on, usually to pursue work somewhere else. Almost all of them are too far underwater to be able to sell at a market price that would cover what they owe. Some have rented out their homes and some have friends or relatives living there. Some have just locked the place up and are leaving it sit empty. Many of these people just rent somewhere else, but some have actually bought another house. What almost none of them understand are all of the risks that have come into play, based upon that decision.

For those who have actually established residency in another state or area, there are several issues that are raised about their old home. One issue that is most often overlooked is that fact that once the old place isn’t your primary residence anymore the Homestead Tax Exemption needs to be revoked. For most, I suspect that this is a decision that was made overtly and not a case of ignorance; the homeowner just doesn’t want the taxes to go up 30-40% based upon it now being viewed as an investment property. That is risky because it is illegal and there are fines and penalties involved if the local taxing authority finds out. In the past local Townships and cities didn’t have any focus on this issue, but now all are looking for any extra revenues that they can find; so don’t take the risk that, “they’ll never find out.”

Insurance is another thing that is often overlooked, mostly out of ignorance. Insurance companies write normal homeowner policies for owners who actually live in the house. If the house is now a rental a different policy is required (to cover the structure) and the tenant should be required to have their own policy to cover their possessions and their own liability. If the place is sitting empty, there is yet another,  different  insurance policy that can be written to cover that scenario. Vacant home policies are more expensive, but better than having no coverage, which is what ends up happening, if the insurance company finds out based upon a claim that the house was empty. Empty houses are still being targeted by copper thieves and vandals, neither of which would be covered for a vacant house under normal homeowner policies.

Another risk for homeowners who choose to lock the place up and let it set is that of plumbing damage in the winter, should the heating system fail. As a realtor, if I take on a vacant property in the winter, I require that the place be properly winterized. Michigan winters can be harsh and the amount of damage that can be caused by frozen and split pipes pales in comparison to the $200-$300 to have the house winterized. Winterization involves completely draining the plumbing system and putting anti-freeze in all elbows. Even if you have a brand new furnace, it isn’t worth the risk to just turn the heat down to 50° and hope that the power stays on. I’ve lived through too many multi-day power outages to be comfortable with that strategy.

Finally there is ignorance of the changing real estate landscape. A few years ago it was common practice for Realtors® and even lawyers to advise clients to stop making mortgage payments, in order to get the proper attention from the lender for a short sale attempt. The attitude of lenders has changed as the recession and housing bust have played out. Now they would much rather deal with clients who have, in good faith, tried to keep up with the mortgage, but who are just tapped-out now.  The lenders also have more refinance options and more latitude to use programs that encourage proper behavior on the part of the homeowner, rather than the vindictive and destructive behavior that has been displayed in the past. Lenders even have the ability to offer the distressed short seller a small amount of money to help with their move to somewhere else.

In Michigan, leaving a vacant house and getting behind bring up another risk – seizure. Lenders have the right to try to determine if the property has been abandoned. They hire people to do nothing more than travel around peering into windows to see if there is anyone still living in the property. If they don’t see furniture and people around they will normally post a notice on the front door that states that the owners should call the lender within 48-72 hours. If the lender doesn’t get that call (and they won’t if you’re not there to see the notice) they have the right to seize the property, change the locks and immediately foreclose on it.

One thing that most people are also complacently ignorant about is that the law that made it illegal to issue a 1099 Tax Form for the balance that was forgiven in a short sale is set to expire January 1, 2013. That 1099-Form treats the amount that was forgiven as if it were income that you earned but upon which you paid no taxes. The current Congress recessed without acting on bills that have been introduced to extend that law. There will be a “lame-duck” session before the end of the year in which this might be taken up and passed, but that is not assured. You should let your Congressman (woman) know that this is an important thing for them to renew. Otherwise, short sellers whose sale doesn’t close until sometime in 2013 could be facing the ugly surprise of a big tax liability.

So, now you aren’t ignorant on these issues anymore and hopefully you understand the risks involved. The choice to take the risks or to take action to mitigate these risks is still yours to make. In every case the cost to mitigate is far less than the cost if the risk is realized.


Short Sales still a fact of the current market…

September 22, 2012

I had another short sale closing this week and have had more inquiries about short sales lately. Short sales are still a significant part of the current market, although, like foreclosures, they have declined as a percentage of total sales.

Just about the only thing that most people know about short sales is that the sale of the house is done for less than is owed to the bank. In other words, it’s a sale of a house that is “under water”. There are lots of misconceptions about short sales and some mis-information out there about them, too. I have created and run a Web site just for short sales in Michigan called mishortsales.com. There is lots of good reading material there about the process and the potential consequences on a person’s credit and taxes. If you or someone that you know is contemplating a short sale, that would be a great site to visit to find out more about this alternative to foreclosure.

I get asked a lot, “Can my family just buy the house in the short sale and rent it back to me?” The short answer is NO! Due to the amount of fraud in the early days of this recession, lenders all require the buyers and sellers to sign an affidavit that specifies that none of the parties in the sale are related in any way. That means that neither your relatives nor your in-laws can be a party to the sale. The way the affidavit is worded, even a family friend would be excluded. The bottom line is that you are not going to be in the house when it is all said and done. It’s gone. You’re out. Deal with that and get on with life.

There are lots of other questions that I get asked about short sales and they are covered in the FAQ section of the mishortsales web site. One of the big points that I try to get across at that site and help people understand is that a shot sale is way better than letting the property go into foreclosure or declaring bankruptcy. There are great articles to read about the credit and tax consequences of the various alternative routes that can be taken.

Another point that I make there is that this is a process that involves both real estate issues and legal issues related to negotiating with the lender(s) involved. I’m a Realtor® and I can take care of the real estate issue; however, I am not a lawyer, so I engage the help of a company that specializes in short sale negotiations and has lawyers on staff to help with those aspects. People considering short sales should understand how both sets of issues – real estate and legal – are going to be handled and by whom. I’m also not a CPA or financial advisor, which is why I have links to articles on the mishortsales.com website by people who are experts in those areas and can help you understand some of the financial and tax issues involved.

One aspect of short sales has remained fairly consistent – they take a long time. I normally advise people looking to do a short sale that they should plan on at least three months and as much as six months (sometimes even more) for the short sale process. Even though the banks have been doing these short sales for years now, they are still way understaffed and the internal process within the banks way to convoluted and committee oriented. It can take weeks to even get an answer to the simplest question or request.

And during this time, the crazy thing is that the bank can be pursuing a parallel course of foreclosure. Even though you have an accepted offer for the sale in-house they will often continue that foreclosure process, which can be confusing for the sellers, because they are getting two different sets of letters and communications from two completely different groups within the same bank. The problem is that the two different bank groups don’t talk to each other and don’t know what the other group is doing. Crazy? Yes!

So is a short sale right for you? Is it the right thing to do in your circumstances? Only a meeting with your Realtor can tell. You can read about the process and the things that you should have in order to pursue a short sale on my web site. Also on that site are some guidelines about what the expectations are on the banks, in terms of the reason (most often call the “hardship”) that they should accept as your justification for the short sale. Read the stuff there and then give me a call. We’ll discuss your situation.


New short sale information available

August 11, 2012

Distressed sales – foreclosures and short sales – still make up about 40% of the local southeastern Michigan real estate market sales (higher in a few of the markets that I track and lower in others). Of that 40% the majority in this area are still foreclosures, with short sales tending to be prevalent in the lower end of mid-range of the market – the $100K to $300K segment – right now.

Short Sales occur when a homeowner sells his/her home for less than what is owed to the bank on the mortgage balance. Bringing money to closing is one obvious way to deal with the situation, albeit not a very popular way.  A homeowner who makes up the difference themselves by bringing money to the closing table is selling short, but it is not recorded as a short sale, since the bank got what it was owed. In the sales that are officially reported as a “Short Sale” in the local Multi-list Service, the bank has agreed to take less than the amount owed on the mortgage. There are credit implications to an official short sale, as well as many other possible implications. You can read more about those implications at my web site www.mishortsales.com .

A recent article on the RealtyTimes web site focused upon short sales and had links to two good short sale readings – one posted by the National Association of Exclusive Homebuyer Agents on the “51 Critical things that you need to know about short sales” and the other a pointer to the web site of a homeowner who when through a couple of short sales herself and decided to write a book about it. You can buy the eBook on that site. Go to http://realtytimes.com/rtpages/20120809_shortsales.htm to read the Realty Times article or you can just access the links below.

Reports 51 Critical things you need to know about short sales (a sizable PDF file of 16 pages)  –

http://www.exclusivebuyeragentsblog.com/wp-content/uploads/2012/06/20120621NAEBAShortSaleReport.pdf

and

The web site for the lady who wrote a book about her experiences with short sales –

http://www.ahomeownersguidetoshortsales.com/

As I emphasize on my short sale web site, no one really likes having to do these short sales. Short sales are generally better, in terms of credit impact, than foreclosures or declaring bankruptcy; but, they are often frustrating for all of the parties involved. The most apparent “winner” in these transactions is the buyer of the short sale house; although the frustrations and long waiting periods involved can certainly dull the thrill of that victory. Short sale buyers may also be passing up the opportunities on other homes while they wait; thought many continue to “shop” while they are awaiting an answer.

Statistically, the majority of short sales actually fail to close. Many don’t happen because the lenders often pursue the foreclosure process in parallel with the short sale process and the foreclosure happened first. You might think that the bank’s foreclosure department would know that the short sale department is pursuing a sale, but you would be wrong – most banks are so silo-ed in their organizational structure that those two departments almost never talk to each other. During the process it is not unusual for owners to get two letters from the lender the same day or week  – one from the short-sale department of the lender and the other from the foreclosure side of the house.

Low appraisals also contribute to the failure of many short sales, which generally means that the sale price, even if set below what is owed to the bank still does not reflect the value that has been lost in the current recession. Some are also lost because the would-be buyers have grabbed a little too far for the brass ring and can’t really afford it once their “mortgage pre-approval” gets to the underwriters.

For owners the goal is a full release of the loan obligation of the mortgage and any future recourse by the lender. In between replies from the lender that range from  “No” we won’t do it to a full and complete release of the obligation to the lender is an array of options that the lender might pursue, some of them almost as onerous as a foreclosure might have been. That’s one reason why sellers need the assistance of a short sale real estate team to help with the negotiations.

So, if you are contemplating doing a short sale in the southeastern corner of Michigan read these items and/or go to my web site – www.mishortsales.com for even more on the process and possible outcomes and consequences. Then give me a call and we’ll discuss whether a short sale may be right for you and your circumstances.  If you are a buyer who believes that a short sale provides you with the best opportunity to get the most house for your money, call me and let’s discuss what’s involved in the process of buying a short sale house and whether it’s right for you.