short sale

When we started selling homes in 2001, short sales were unheard of in Metro Detroit.  Foreclosures were rare in Oakland County.  But times have changed and this year we have had an enormous uptick in our short sale business.

Short sales are taking place in every price range.  In the last 30 days we’ve helped buyers and sellers to close on homes with list prices between $110,000 and $999,000 in communities like Bloomfield Hills, Royal Oak and Orchard Lake.  We’ve got 5 other short sale homes in the pipeline right now, all with offers on them and in to the bank for evaluation.

Some scenarios can make a short sale even more challenging to handle successfully.  Dmitry recently navigated treachorous waters with a short sale that involved private lien holders in addition to the banks.  Three individuals had made personal loans to the owner and did not really want to accept anything less than payment in full.  The banks were offering a few grand to them to scram.  If the home and gone to foreclosure they would not have seen a nickle.  In the end there was intense drama for a few weeks but Dmitry got everyone to the closing table.  The buyers got a great house and the seller got out of a bad situation.

Buyers, you can get a deal with a short sale, but it comes at a price.  If you have the time and the patience you could be rewarded handsomely.

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Unfortunately, the number of people who owe more than their house is worth is increasing in Metro Detroit.  If you are staying in your house, you don’t have a pressing issue, though the new housing bill that is coming out on March 4th may provide you with some relief.  More on that later when the details come out.

If you have to sell your home now, and you are upside down, there are some things you should know. Some people have the cash to bring to closing when they owe more than it they’ll net at close. Most simply don’t.

One option is a Short Sale. This is when the lenders agree to accept the shortfall and write it off. They may ask you to contribute as much as you can, or they may write off the entire amount. If there is a first mortgage and a second mortgage, then both lenders will need to agree to the outcome. Other liens will complicate the picture too.

You need someone experienced in short sales to help you. Chose wisely. The bank is not expecting to deal with you: they are want the package put together by a professional.  In order to have any success with the bank, the transaction requires great attention to detail and follow through. Banks notoriously lose short sale packets over and over.  Last summer I faxed a short sale packet to a lender at least 12 times.  I called to confirm receipt.  Each time I called in, nobody knew where it was… That’s just the reality.

You will not be paying the Realtor’s commission, or, most likely, many of the other things associated with a short sale, like tax prorations, transfer tax, etc. The bank usually pays most of those expenses.

You need to be 100% committed to the process. Short sales are not quick and easy, but with a solid plan, the pain can be reduced.

There is really nothing “short” about short sales.  They usually take much longer than the typical sale, mostly because we are waiting for banks to make decisions.

Banks usually don’t tell you how much they will accept until after you have an offer. That means we start the process without knowing how it will end.  It is important to have a very good grasp of the market.  You need an offer to get things really started. Pricing and marketing are key.  Buyers can be scared off by short sales because they don’t want to take on the uncertainty.  We have to do a good job of demonstrating that we are on top of the process.

There are some things you will need to do to facilitate your short sale:

1. Write a hardship letter. In your own words tell the bank why you are not able to pay the shortfall on the mortgage. Typically banks are looking for things like illness, job loss, etc, but just tell them honestly what the problem is.
2. Gather your last 2 tax returns, w-2′s and current bank statements and current pay stubs.
3. Talk to the bank. The banks don’t want your house, and they need to hear from you. You might run into some brick walls, but start the dialog. If you chose to work with us on the short sale, we will take over most of the bank discussions after we list the property. We will also keep you informed about our progress with the bank. We have to work together as a team to succeed, so it is important that you keep us informed to any changes in your status.

Short sales have generally not impacted a seller’s credit score as much as a foreclosure. You may wish to consult with a tax adviser to determine if you will have an tax consequences from a short sale.

Short sales can be a great path toward avoiding foreclosure and a real relief for a strapped home owners.  If you need help or guidance about working on a short sale for your Metro Detroit home, we would be happy to talk to you.

Here are some other articles we have written about short sales:

11 Things about Buying a Short Sale in Oakland County

A Short Sale Question

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Any Realtor that has sold a short sale will warn you that the process is arduous for the buyer, the seller, the agents, and everyone else connected to the process. Right now the system works requires that the seller, who owes more than the value of the home, first find a qualified buyer before they can begin negotiating with the bank or banks. In other words, nobody knows what the banks will actually accept, and it can take months for a file to pass through the system with uncertainty at the end of that long wait. Lots of agents are steering their buyers away from short sales because there are enough other good deals out there that the uncertainty becomes unnecessary.

Fannie Mae announced yesterday that they are testing a pilot program in Phoenix and Orlando that will pre-approve short sales for 400 sellers.

I am hopeful that they will have quick success and will roll out a nationwide program. A short sale is often the best way for a seller to save themselves from foreclosure and do whatever they can to protect their credit history along the way.

Even with this protection in hand, a short sale seller will need to good advice and counsel. If you are a Metro Detroit home seller, you need to make sure the agent you are working with has experience handling short sales. The knowledge required is very different from a regular retail transaction, and the agent and seller have to both be very committed to making sure the sale is successful. Without that commitment and knowledge, it really will not work. Our team has been working with Oakland County home sellers on short sales for the last few years. If you need help, we are happy to talk to you.

h/t Santa Clarita Real Estate Blog

photo by Dimitri Neyt

Other short sale information:

From the Mailbag: A Short Sale Question

Short Sales: The New Frontier for Bank Fraud

11 Things About Buying a Short Sale in Michigan

The Foreclosure Process in Michigan

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This week we got a question from Tim.  He writes:

My son and his family are relocating back to Oakland County after 4 years in the military. Their financial situation is fairly strong. They have a serious interest in a house listed as a short sale. The listed price for the home is about half the price of other listings in the neighborhood. The house is only 3 years old but has not been well maintained and needs some work. The question: How long can a home linger in a short sale status before it moves to the Sheriff’s Sale and ultimately foreclosure? It seems like a short sale is kind of in a twilight zone….neither here nor there. The home is currently occupied by the homeowners.

Tim, I wish there was a quick and easy answer to this question, but there isn’t.  First of all, the lender is under no obligation to begin the foreclosure process.   They could, quite literally, wait years without a payment before they begin the foreclosure process and proceed to having a sheriff’s sale.  After the sheriff’s sale the homeowner usually has 6 months to redeem the house, or sell it in a short sale, before the bank will take the house back and have them evicted if they are still living there.

I sincerely hope your son has a buyer’s agent, preferably one experienced with short sales.  They need to be asking the seller where they are in the process and to see some evidence of this.  Public records should give some indication if the sheriff’s sale has taken place.  Find out if there is a bankruptcy involved or a pending divorce.

The other bugger about short sales is that the listed asking price means NOTHING most of the time.  Banks won’t talk to sellers about a short sale until they have an offer.  The Realtor’s job is to generate an offer.  The bank can, after months of waiting for a response, counter at a much higher price than the seller and the purchaser have agreed upon.

The other thing to remember is that while this short sale is being processed by the bank, the current owners will probably continue to neglect it, as they already know they are losing it.

There are many, many potential pitfalls in buying a short sale.  My personal advice to most purchasers is to find a motivated seller who can sell without involving the bank, and don’t even look at the short sales.  SHORT sale is a misnomer.  There is nothing short about it for the buyer.  And there is no easy road map.

I wish your son the best of luck and I thank him for his service to our country.

photo by Kevin Dooley

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A recent client wanted a completed NEW home in Birmingham.  With a budget of $2,000,000, one would have thought we would have had plenty to chose from.  We did not.

Spec building in Birmingham, and throughout Oakland County, has almost come to a stop.  We are still seeing a few spec homes going up around town, but not many at all.  Most builders are holding off starting new projects, with a few exceptions.

One prominent local builder told me that other builders are having trouble getting lines of credit for construction.  Many of those who have access to cash are risk averse, and not building specs, reserving their work. Anyone who has lived here more than a few years will notice that there are less construction sites throughout the city.

In some ways, this is a good thing. It will help some resale home sellers who might have lost a buyer to new construction, but did not have that option. As the inventory of resale homes diminishes, that can put supply more in balance with demand. Eventually prices will start to head back up, and builders will start building again.

Personally, if I were a savvy builder, I would be looking to acquire land, even if I did not plan to build this year. There are some super values out there, and if the property is rentable it can have a decent positive cash flow for a while.

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Metro Detroit has it’s own celebrity foreclosure. It might not attract national media attention like Ed McMahon, but then we already have Mayor Kilpatrick garnering the spotlight from late night talk show comedians, so what more could we want?

Wayne County Prosecutor Kym Worthy is doing a short sale on her home. Personally, I don’t think this would even be newsworthy if she didn’t happen to be heading up the case against Kwame Kilpatrick. Perhaps the Mayor’s office slipped this tidbit to the Freep so that they would take the heat off of Kwame for a day or two, and to shake up Worthy just a bit.

I have no information about Kim Worthy’s foreclosure. Frankly, I think I would be hard pressed to find a neighborhood in Southeast Michigan right now that has not been touched by foreclosure and short-sales. We’ve seen multi-million dollar homes go through foreclosure. In fact, this summer we listed and sold a foreclosure in Birmingham that had been listed for $2,000,000 at one point.

Worthy has a good job. She makes over $150k a year. Yet something happened that is not allowing her to pay her bills. No judgment from me–I am sure there is a good reason. Medical bills and messy divorces often leave people in financial dire straits these days.

Ask anyone who has been through the short sale process as a buyer or as a seller, and they will tell you it is painful. Worthy is losing her home. Her credit is messed up. It will be messed up for a while. On top of that, she is in the midst of preparing for THE CASE of her career. I don’t envy her right now.

I wish her the best and hope she can focus on making sure that she represents the people well in the case against Kwame Kilpatrick.

Photo by SparkyO5

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A new program about home staging is set to debut on HGTV Sunday night (10pm EST). The Stagers joins a plethora of shows (six that I can think of off the top of my head) focusing on preparing a house for a quick sale. This one promises to “go inside the hectic world of as they rush to transform a problem house into a showroom — often in just a few days. Amid the tantrums and turmoil are tips and touch-up ideas you can put to work in your own home.”professional home stagers

In speaking with other home stagers, I have found that we all have mixed feelings about the way staging is depicted on television.

While we are thrilled that staging is in the public spotlight and is being introduced to those unaware of it’s power, we fret that these shows give sellers unrealistic expectations.

Designed to Sell, another HGTV program, transforms houses on a $2000 budget. They do spectacular things with that budget in a couple of days, and are able to report a quick sale most times. But what may escape the notice of the viewer is that the $2000 budget does NOT include labor (generally 4 or 5 big, burly carpenters off-camera) or the staging fee. Their final tally is for materials only.

Anyone who has ever installed new cupboards and granite in their kitchen knows that the labor alone for those jobs far exceeds the Designed budget. Add the staging fee to plan, orchestrate and accessorize that kitchen, and you can plan on at least double the bill.

Another issue of concern is color choices made by TV stagers. A&E’s Sell This House is a bit more realistic in that they reuse and re-purpose many of the seller’s furniture and accessories. Sell’s resident stager Roger Hazard, however, has a tendency to paint rooms crazy colors. Pumpkin orange walls? Not a chance! A good stager’s mantra is neutral, neutral, neutral. Orange? Definitely NOT neutral. I just staged a house with an orange bedroom, and I advised them to repaint! Roger and Company don’t quote staging fees either, and they generally don’t report how long it took to sell the house. Maybe their results are affected by the neon green walls.

Most real-world home stagers choose their words carefully when consulting with homeowners. We won’t embarrass the client or berate them for their decorating choices as a certain mother-daughter team does on one of the shows. We’re much more diplomatic than that!

Will The Stagers depict staging in it’s true light? Or will it be a rehash of the other misleading staging shows currently on the schedule? Time will tell. I, for one, will be tuning in. Despite my disparity with some of their methods, I do pick up useful tips and ideas from these shows. I consider them my CEU’s.

If you want to experience the hectic world of turmoil, deadlines, sore muscles, creative differences and eventual success that is REAL home staging, take a ride along with me on one of my jobs. I’ve had some doozies. I can guarantee a show-ready property for $2000, but it probably won’t include a new kitchen. I assure you though, it won’t include fuschia walls either!

Go Tigers!

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Dogs are people too, right? Not when it comes to selling a house.

As hard as it may be to accept and implement, when a property is on the market all traces of your beloved pets should be out of sight. This includes the food dishes, toys, cages, pet beds, litter and yes, the pet itself.

Now before you label me anti-animal, let me assure you nothing is further from the truth. My household has included pets of all shapes and sizes for two decades. At one point, I was Zoo keeper (and Proud Mama) to a dog, five cats, two guinea pigs and numerous fish. Our menagerie has been reduced to a more manageable number of pets now … God rest all of my late pets’ souls. The majority of our charitable donations go to animal-based organizations. Most days I like animals more than people.

As a home stager, however, I know that animals pose a problem when trying to sell a property.

When homeowners live with a pet, they become immune to the scents that are left behind. Even if the cat litter is cleaned religiously, odor lingers. A dog left out in the rain can emit that certain “wet dog” smell for days afterwards. As for pocket pets such as hamsters, gerbils, and guineas … well, they just stink.

There are other issues as well. Case in point: I staged a house a couple of months ago, and when I let myself in the side door I noticed the home owner’s two geriatric dogs were confined to the kitchen by a gate. While you may think this is a reasonable solution to showing a house with dogs, I’m here to tell you it is not. Amidst their frantic barking, one of the dogs promptly piddled on the wood (!) floor. My first five minutes were spent cleaning up dog urine. Had I been a potential buyer, the tour may have ended there. At the very least, I would have scrutinized the flooring throughout the house looking for evidence of previous “accidents”.

Sometimes pets can just be pests. At another house I staged, a 7 pound Yorkie followed my every move, and came dangerously close to being stepped on a few times. I suspect other visitors to the house had the same experience, as the owner made no attempt to isolate the dog.

Then you have the homeowners that think it’s great fun to teach their birds cuss words and these birds will always choose the most inappropriate times to show off their amusing skill. In addition, birds have no aptitude for potty training. If the owners allow the birds out of the cage to spread their wings … well, you get the idea.

Personally, we had a guinea pig who embraced her “pigness” and squealed every time someone walked by. Although I thought she was adorable, she drove me nuts. I’m sure our family members were the only ones who found her adorable.

When it comes to snakes, iguanas and other slithery, slimy creatures there are two camps: those that love them and those that are totally creeped out by them. Which camp does YOUR potential buyer belong to?

Someone with allergies to pet dander may find touring a pet-occupied house quite uncomfortable. I wouldn’t count on them making an offer.

There are lots of other issues with pets: barking, nipping, inappropriate sniffing, furballs, using the sofa as a scratching post, sneaking out the door while visitors are entering, as well as a visitor’s fear of animals.

So, as much as we love our pets and consider them part of the family, the best thing to do while showing a house for sale is to remove them. Find a good friend or family member to care for them while the house is on the market. Many doggy day cares have opened in the metro Detroit area recently and may be the perfect solution. If it is not possible to find a temporary home for your furry (and slimy) friends, then at the very least, take them with you on a car ride while the house is being shown. It may be the difference between “For Sale” and “Sold”.

Go Tigers!

THANK YOU WINGS!!

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I hesitate to write this post because I hate to put ideas in anyone’s head about how to commit fraud. The perpetrators are always one step ahead of the banks and “the system” and, just like with mortgage fraud, the rest of us will all end up paying the bill for the latest trend in sticking it to the bank. I learned about this today from Greg McClelland, the Michigan Association of Realtors legal counsel, who is seeing this taking place.

Here is how it works:

Nice, honest, and unsuspecting Realtor Jenny takes a short sale listing. Deciding it is more work than she can handle, she accepts the assistance of a “short sale expert” (I’ll call them SSE) who promises to facilitate the deal with the banks. Personally, I understand Jenny’s motivation: short sales are a TON of work for the listing Realtor, and the likelihood of actually getting compensated for that work can be pretty low, especially to an agent inexperienced in short sales. Not to mention that the banks, as a rule, look to the Realtor’s commission as a great source of funds for reducing their losses, ie, they like to cut commissions as much as they can.

Jenny has had the house listed at $200k and is getting a fair amount of activity, but no offers yet. Jenny feels her market analysis is right, and the house will achieve something close to asking price.

SSE tells Jenny to slash the price to $125K, and tells the owners to make the place look as dumpy and undesirable as possible. Jenny is told to remove all decent photos of the house from the MLS and the internet. Jenny is also told that if she meets or talks to the bank’s appraisers or BPO agents that she will lose her commission on the deal. SSE handles all communications with the lenders.

Jenny gets an offer for $125K on the house from a buyer produced by SSE, and SSE submits it to the bank and tells Jenny to leave the house on the market. Jenny gets another offer for $195k, gives it to SSE who never submits the second offer to the bank.

The bank approves the short sale at $125k. It closes, and the same day SSE’s buyer sells the house to the buyer who was willing to pay $195k, netting a very nice profit, which is presumably shared with SSE.

Realtors beware. I am sure there are some wonderful short sale experts out there, but if it does not pass the sniff test, I would walk away as quickly as you can.

[tags] short sales, short sale, short sale fraud[/tags]

Photo courtesy of Chris Boyle

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Yes, that headline is correct. Sales are up over last year for the fourth month in a row, according to our MLS, Realcomp II. We’ve told you, we are seeing a lot of activity, and we are busier than ever. Spring has sprung! Here is Realcomp’s report

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• Yesterday I tried to show 4 Birmingham homes. Two of them went under contract over the weekend. The third was a short sale and there is an offer in it too. The 4th was just put up for rent and sale, and a tenant had put in an application. So we will keep looking because others got there before we did.
• An agent who I respect enormously for his market knowledge and decades of experience said to me last week, “2008 will be the year that people look back and wish they had bought a new home.” I think he is right.
• That said, a seller still needs to be aggressive in pricing a home and completely on top of making sure it is in the best possible condition. Especially with homes that have already experienced a long marketing history. We just had a stager go into two homes and I am excited about relaunching them now that they have been freshened up and repriced.
• Buyers, there is nothing wrong with paying full price or more. Sometimes the house is actually worth more than the list price. You might miss out on a great house because you’ve been told that your first offer in this market needs to be low. Agents from throughout South East Michigan are all telling me that they are seeing multiple offers on the best properties this Spring (if it is well priced and in great condition…)

Want to know more? Give us a call.

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In today’s Metro Detroit real estate market, there is almost no way a prospective buyer cannot run into a few short sale properties or foreclosures during a home search. Each is much different from a standard “retail” home purchase where you are working with Susie and Sam Seller, their agent and your agent.

In a short sale you have at least one other interested party: the bank. Quite often you have two banks if there is a first and a second mortgage. You may also have bankruptcy courts and lawyers, but we will leave those for another post.

1. Typically, your first round of negotiations is with the home owner. Once they have arrived at a written agreement with you, they will submit a short sale package to the bank(s) for consideration. A complete short sale package will include things like your offer and preapproval, a current CMA, the seller’s financial statement, hardship letter, tax returns, a seller’s net sheet and w2′s.
2. The bank(s) will send out an independent agent to provide a broker’s price opinion. This will give the bank a better sense of if the offer is reasonable or not.
3. You will usually have a lot of waiting and uncertainty to deal with. Hopefully your patience will be rewarded with a speedy approval, but be prepared for a wait.
4. The bank can counter the offer you have with the seller. If they feel the property is worth more, they might ask you to come up in price.
5. Some sellers will continue showing the home and presenting other offers to the bank after they have accepted yours. Have your agent ask the seller’s agent what he plans to do once your offer has been accepted just so you know.
6. If a sheriff’s sale is scheduled while your offer is being reviewed, the listing agent can ask to have it postponed until after your closing date.
7. If the sheriff’s sale has already taken place, you need to close before the redemption period expires or the deal is off.
8. The listing agent is very important in a short sale. She will be contacting the banks on regular basis for status updates and to keep the file moving. I have been known to call a couple of times a day. Or fax. Or email. Or all 3…
9. The seller may have some extra emotions associated with this sale since it has likely been a stressful experience. They’ve probably been dealing with the bank and difficult personal financial issues for months.
10. I typically write my buyer’s purchase contracts so that they do not have to pay for things like home inspections or appraisals until AFTER the bank has provided approval.
11. The reward can be worth the wait for those buyers who have the patience and nerves.

I’ve learned a lot from each short sale we’ve completed. Every bank is different. Every loss mitigation officer is different. Most are overworked and underpaid. Being nice, and presenting a complete package go a long way.

Short sales are here to stay for a while. You can steer clear, if the uncertainty is not for you. Or dive in with your eyes wide opened if you’ve found the home you want.

PS. Dmitry and I have attended numerous training courses on short sales and we are short sale certified.  If you are a Oakland County home seller in need of a short sale, we may be able to assist you.

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