A Team Approach is the Best Way to Short Sale Success

Many homeowners who attempt to get their home “short sold” suffer great frustration with the process. There are a number of causes for this. The process can be arduous, time consuming and often complicated. It seems as though short sales have a thousand moving parts. One is simply because many listing agents do not have the time, experience or skills to achieve an agreement with the homeowner’s lenders in a timely fashion, if at all. That said, there are qualified agents familiar with short sales who are successful in helping their clients through this daunting process. In my opinion, they are to be commended.

Because of the complexity, and the long term consequences to home owners, we approach short sales with a team of people – each with their own expertise.

Our approach is simple:

• First, determine the homeowner’s situation and what their goals are;
• Analyze the situation and present them their options;
• And if a short sale option is chosen,

Get the best team of professionals together and dedicate them to achieving the goals of the homeowners.

My team consists of an attorney who focuses on assisting clients in financial difficulty; who has on staff a highly skilled negotiator who has executive and other high level contacts at almost all of the mortgage servicing companies and lenders; an appraiser – who I employ at my expense to determine the value of the property to price it properly for a sale in a timely fashion. (And provides ammunition to get the lenders to approve the price); and myself as listing agent, whose background and experience for numerous years has included short sales, as well as 32 years in the real estate business.

With new federal regulations such as MARS and programs for homeowners such as HAFA – one MUST have an experienced team to navigate the process quickly and safely for the homeowner.

Although no one can guarantee that a short sale can be successfully done, our team’s success rate for the last 9 months is 95%, compared to an average of 40% industry wide for short sales.

What is MARS?

As a homeowner, you may have never heard about MARS, which is an acronym for Mortgage Assistance Relief Services, but you NEED to know about it if you are going to embark on a short sale.

MARS, a set of rules, was created by the Federal Trade Commission (FTC) in 2010, largely because there were so many mortgage relief scams that would basically charge large upfront fees to assist homeowners to modify their loans and then never achieve results and pocketing the money. Some of the worst took the upfront fees and never did any work!

So if you are trying to pick a Realtor to list your short sale, make sure that any and all people that they work with to get you through the process are MARS compliant.

The FTC states that Realtors are not covered by the MARS rules, but there is some cloudiness with regard to this.

Some of the basic rules are:

If a mortgage relief company advertises or makes promises, they must disclose that:

• They are not associated with the government, nor are their services been approved by the government or the consumer’s lender;
• The lender may not agree to modify the homeowner’s loan; and
• If companies tell consumers to stop paying their mortgage, they must also tell them that they could lose their home and damage their credit rating.

There are many rules for these mortgage relief companies, largely to prevent false and misleading claims in the areas of promising results, amount of money you might save using their services, the cost of their services, etc.

Attorneys, on the other hand are exempt from these rules, as long as they meet certain conditions, including: they are engaged in the practice of law, they are licensed in the state where the consumer or the dwelling is located, and they are complying with state laws and regulations governing attorney conduct related to the rule. To be exempt from the advance fee ban, attorneys must meet a fourth requirement – they must place any fees they collect in a client trust account and abide by state laws and regulations covering such accounts.

My belief is that although MARS compliant non attorneys can be successful for you to employ, it is always good (and safer) to consider the use of an attorney/negotiator team. With the complexity of multiple loans, HELOCs which have been used for non-house expenditures, the role of deficiency and anti-deficiency laws depending on the state, and completion of the short sale without fear that a lender may come back to you later because of a court judgment, it may be better to be safe than sorry.

Report to Congress On Foreclosure Crisis

A detailed report has been submitted to Congress outlining how our housing meltdown occurred and what steps should be taken to ensure that this doesn't happen again in the future. It's a lengthy document and although some of it is rather dry reading, it's extremely informative. This document is likely to be quoted as our lawmakers look into regulating the financial community. Something I think we should all be interested in.

Not a surprise to most, one of the key factors in this whole meltdown was the availability of credit - even in situations where that credit should never have been extended. For awhile the word on the street was if you could fog a mirror you could get a loan to buy the house of your dreams. This wasn't just subprime mortgages, it also relates to the Option Arms and more esoteric loan types that are fueling our new spate of foreclosures.

Lenders also overleveraged themselves and took extreme risks with the securitization of mortgages. This situation could only continue as long as credit was freely available. When that began to dry up, the house of cards began to collapse.

To see the report in it's entirety, follow this link;

http://docs.google.com/fileview?id=0Bzo_OMhj37jnNTU3MGMwNDEtODczMy00MzVhLWE5NGYtZWQxZjE0MTU1ZDM4&hl=en

Credit and Debt Collection Laws That Protect You

There are three federal laws that you should be aware of regarding your rights regarding credit and debt collection:

Fair Credit Reporting Act:

This is a federal law that regulates the activity of the credit reporting agencies, also called the "credit bureaus." It provides a way for you to remove inaccurate, false, or outdated information from your credit report.

If you find that some of your information is incorrect, you may write to the credit bureaus, which then have to verify the accuracy of the information within a specific period of time. If they can't verify it, it must be removed from your credit report.

The law also states that any information more than seven years old must be removed, with the exception of certain bankruptcy information, which can be reported for ten years.

Because the burden of proof is on the credit reporting agencies and not you, the consumer, this law is very powerful.

Fair Debt Collection Practices Act:

This law regulates collections agencies, and what they and your creditors can and cannot do when trying to collect a debt from you. Under this law, creditors and debt collectors must work with you in a professional and reasonable manner. This means that they cannot harass you; call before 8 a.m. or after 9 p.m.; call you at work if you don't want them to; or use profane language, threats of imprisonment, seizure of property or violence.

Congress passed this law to prevent harassment and abuse, by making creditors and collection agencies accountable for their actions when attempting to collect debts. If you're being contacted by creditors and debt collectors and feel that they're dealing with you in an unprofessional and disrespectful way, tell them to stop by using this exact phrase:

"Pursuant to the Fair Debt Collections Practices Act..." and finishing the sentence by saying they cannot continue the behavior that you find uncomfortable and harassing. If it doesn't stop, you may report the creditor or debt collector to the Federal Trade Commission.

Regardless of the behavior of the creditor or debt collector, if you just want the letters and phone calls to stop, you can write a "cease and desist" letter. Your attorney can give you a sample copy.

Remember: While a "cease and desist" letter will stop a creditor or debt collector from contacting you in the future, it won't stop them from taking legal action against you for your unpaid debt.

Fair Credit Billing Act:

This law is designed to help consumers challenge information on their credit card bills. Under this law, if you notice a mistake in your credit card bill, you can contact the company who made the charge, in writing and within sixty days of receiving the bill. Be sure to include your name, address, account number, and any details of the mistake in the letter.

The company then has thirty days to respond and investigate the issue. If an error is found, the company is required by law to tell you how they're fixing the mistake and remove any fees or charges associated with it. If an error isn't found, they're still required by law to inform you.

Frequently Asked Questions Regarding Short Sales

1. Help - I just received a Foreclosure Notice - Is it too late to do a Short Sale? No it isn't. Contact me and I can help postpone the auction date and try to sell your property.
2. Am I qualified to do a Short Sale? Please refer to the Short Sale Requirements article to determine qualifications.
3. Will a short sale really help my situation? A short sale will affect your credit, but a foreclosure will impact your credit more negatively.
4. Do I have to pay real estate commissions and selling expenses if I short sell my property? No - these are typically paid by the Lender.
5. Why should I use a CDPE? A Certified Distressed Property Expert (CDPE) is especially trained and EXPERIENCED in dealing with Short Sales and is uniquely QUALIFIED to help property owners with hardships.

Short Sale Investor Contracts

I came across one of the best articles regarding Short Sales and Investors. It was written by John Michailidis and you can read it at

http://www.brokeragentsocial.com/article.php?article_id=332

John calls it a Pre-Foreclosure Investor Buyout (PFIB). It is one of the best ways to get your short sale purchased, negotiated and closed.

"A property owner facing foreclosure has likely exhausted all options prior to considering a short sale:

- Tried to sell the property conventionally – either through a real estate agent or “for sale by owner.”
- Tried to renegotiate the loan terms with their lenders (loan modification).
- Tried to refinance.

So there they sit, alternatives exhausted, waiting for what to them seems to be an inevitable foreclosure and all of the anguish, credit damage, and self-esteem issues that go along with it. They realize that they owe more than the property is worth, so they understand that no matter what happens they will not be recouping any equity on the property. They just want to be able to walk away, without a foreclosure on their record, and with as few financial repercussions as possible."

In essence for a PFIB to happen, the Investor writes a contract on the property. The Investor then, with his professional negotiators and BPO agents, immediately starts to negotiate a short sale price with the Owner's lender. At the same time, the Investor lists the property for eventual sale to an end buyer. Immediately starting the the negotiation process with the lender is huge because in a "normal" short sale process it make take months before an offer is made and then several months for the negotiation to complete. Most end buyers won't wait that long and drop out, thereby leaving the original Owner probably going to forclosure.

The Investor's interest is to stop the home from going to foreclosure and to make a fair and equitable profit after his expenses (real estate commissions, negotiator fees, etc.) are paid. If there is an end buyer who has a valid contract and there isn't enough for the Investor to cover his expenses and make a profit, the Investor will step aside and allow the end buyer to close on the home - again the original Owner prevents a forclosure.

As John states in his article, it is a win-win for all parties involved and the best part is that a foreclosure is prevented for the over-stressed homeowner.

Consequences of Short Sale vs Foreclosure

There are several areas where you will be affected quite differently if your home goes to foreclosure rather than having a successful short sale. They are quite stark and worth reviewing carefully:

Future Loan with any Mortgage Company

Foreclosure - you must answer Yes to the question "Have you had a property foreclosed upon in the last 7 years?" This will affect future loan rates.

Short Sale - There is no similar declaration or question regarding a short sale.

Credit Score

Foreclosure - Your score may be lowered anywhere from 250 to over 300 points. This will typically affect your score for over 3 years.

Short Sale - Primary impact to your credit score generally comes from the late payments notices that have been sent to the credit bureaus. How the short sale is recorded can also have an affect. A short sale's affect can be as brief as 12 to 18 months.

Credit History

Foreclosure - Foreclosure will remain as a public record on a person's credit history for 10 years or more.

Short Sale - Short sales are not reported on a credit history. The loan is typically reported as "paid in full" or "settled".

Security Clearances

Foreclosure - The most challenging issue against a security clearance outside of a serious misdemeanor or felony. Depending on the position, can be grounds for revocation of the clearance or in some cases even termination of the position.

Short Sale - A short sale on its own does not challenge most securtity clearances.

Employment

Foreclosure - Employers have the right to check credit for current or prospective employees. A foreclosure can be grounds for reassignment or termination or not being hired, depending on the employer.

Short Sale - A short sale is not reported in a credit report and is therefore not a challenge to employment.

Deficiency Judgment

Foreclosure - In 100% of foreclosures (except in those states where there is no deficiency) the bank has the right to pursue a deficiency judgment.

Short Sale - In some successful short sales it is possible to convince the lender to give up the right to pursue a deficiency judgment against the homeowner.

Why Consider A Short Sale

There are 3 very good reasons to choose a short sale if you have a financial hardship that is preventing you (or soon will prevent you) from meeting your mortgage payments:

1. Banks prefer to do a short sale over a foreclosure.
2. Banks are not in the business of owning property and do not want to foreclose on you.
3. Short sales would not negatively impact your credit as much as a foreclosure would.

Short Sale Requirements

In order for a bank to accept a short sale, the owner must show a demonstrable financial hardship.

Categories of financial hardships are:

1. Loss of job
2. Business failure
3. Damage to property
4. Death of spouse
5. Death of a family member
6. Severe illness
7. Inheritance
8. Divorce
9. Mandatory job relocation
10. Medical bills
11. Military service
12. Payment increase or mortgage adjustment
13. Insurance or tax increase
14. Reduced income
15. Separation
16. Too much debt
17. Incarceration

The owner must "need" to sell. Just wanting to sell typically won't be sufficient for the bank to allow the property to be sold at less than the mortgage amount.

Economic Stimulus Plan and Housing

Recently signed by President Obama, the $787 Billion Stimulus Plan is made up of tax cuts and spending programs aims at reviving the US economy. Although the package was scaled down from nearly $1 Trillion, it still stands as the largest anti-recession effort since World War II. Home owners and potential homebuyers stand to gain from key provisions in this stimulus plan.

Here is what we know as of today...

First-time homebuyers who purchase homes from the start of the year until the end of November 2009 may be eligible for the lower of an $8,000 or 10% of the value of the home tax credit. Remember a tax credit is very different than a tax deduction - a tax credit is equivalent to money in your hand, as opposed to a tax deduction which only reduces your taxable income. The tax credit starts phasing out for couples with incomes above $150,000 and single filers with incomes above $75,000. Buyers will have to repay the credit if they sell their homes within three years.

So this is good news for sellers - this means that there should be more buyers in the market for a new home!