Before watching the video, please be advised that there is adult language and is not work appropriate.

I’m including this video here for two reasons. First, it’s impossible to find online because YouTube keeps yanking it off its servers. So if you were looking for the video, here it is. Second, there’s a lesson to learn here somewhere. In this instance, I’d say that Casey Haynes, the big boy, is you, me, and every other typical American. The little bully would be the banks. And that horrific body slam? That is us regular joes walking away from our houses and going into foreclosure.

How can that possibly equate, you ask? Well, that kid got suspended from school for body slamming his schoolmate. This is just like how your credit is ruined for seven years because you have a foreclosure on your record. So what would have been the appropriate action? I’d say turning the kid in along this video. Then, you don’t get suspended from school! That, of course, would be the short sale. You solve your problems responsibly, nobody gets hurt, and you’re on the road to recovery.

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• No deficiency allowed after foreclosure of home
• No foreclosures by second mortgages
• Lender can sue borrower of non-purchase money loan
• Protection unclear if “cash out” refinancing
• Anti-deficiency statutes unchanged
• Rights of tenants after foreclosures
• No liability for short sale difference unless agreement
• Cancellation of short sale while waiting on lender approval
• Listing broker and buyer’s broker not required to reduce commission if demanded by lender
• Tax consequences of debt forgiveness in short sales and foreclosures

As you may recall, I recently wrote about deficiency judgment from foreclosure.  In that article, I presented that it is imperative in structuring the short sale approval properly, or else the homeowner will be in a worse off position.  In this newer legal opinion, the authors believe that if the lender is releasing the lien to allow the short sale to go through, then they’ve agreed that they will not be coming back.  Unless of course, you agree to sign a promissory note.

This is an incredible article.  If you’d like a copy, sign up below

Disclaimer: I am not an attorney, and the opinions expressed here are not to be interpreted as legal advice. Before making any decision legal decision, you should seek the counsel of a qualified attorney.

Distressed properties have been common for a few years now.  I’ve been a part of the solution for the last 3 years, and I’ve even taken some classes to become a Certified Distressed Property Expert.  However, it wasn’t until the day I picked up mosquito fish from Maricopa County’s Vector Control that I realized how much distressed  real estate has become my life.

Mosquito fish in my car

We normally advise clients that keeping the utilities on can help sell their home, even though it’s a short sale.  Sure, the sellers don’t care how much the home sells for, but it certainly makes the process faster, and by bringing in a higher price, it increases the likelihood of a successful short sale.  That said, most people that are in this situation can’t afford to keep making payments while the banks dilly dally about what to do with an offer.

As a result, we end up with green pools that look like this.  Green pools by themselves are not that big of a deal.  You can always shock a pool, add some chemicals, and voila, you have a great looking pool again.  So if the color isn’t a problem, then what’s the point of this article?  Well, if you take a close look at the image, you might notices that this pool is infested with mosquito.  There’s larvae everywhere in this pool.  It’s hard to tell when looking because the larvae stay mostly still.  It wasn’t until I introduced the mosquito fish into the pool that you can see the mosquito scatter.

West Nile Virus has become a serious concern in AZ the past few years. I don’t know anybody that’s contracted it, but it’s been in the news a bit. To read more about it, you can go to http://www.azdhs.gov/phs/oids/westnile/. The biggest risk is contracting encephalitis from a mosquito bite. In addition, it’s much easier to attack the mosquitoes while they are stuck in the water. Once in the air, they’re a pain in the rear.

It is very hard to capture with still images what happens when the fish are introduced into the pool. Also, the fish were very shy. I had about 15 fishes, but when I dumped them in the pool, they stayed mostly away from the surface. I was able to capture a couple images of the fishes snacking away.

Did you know that it is our responsibilities as AZ residents to prevent mosquito growth? Chapter III, Regulation 2 of the Maricopa Environmental County Health Code states:
No person shall cause, maintain or, within his control, permit any accumulation of water in which mosquitoes
breed or are likely to breed. The owner, occupant, or person in control of any place where mosquitoes are
breeding, or which constitutes a breeding place for mosquitoes shall take all necessary and proper steps to
eliminate the mosquito breeding and to prevent its recurrence through the elimination of or the institution of
necessary control measures at mosquito breeding sites.

To get these fish for free, visit the Vector Control. Be sure to call for directions as using your GPS will get you lost in Tent City, and unless you’re friends of Sheriff Joe, I would recommend against that.

One thing you will notice is that this chart shows a Trustee’s Sale is different than a Judicial Foreclosure.  Trustee Sales is what happens every day at the court house steps and in law offices.  These are by far the most common form of foreclosure.  The alternative is Judicial Foreclosure.  This is what happens the lender goes through the court room to foreclose.  For the most part, lenders don’t like this route for a couple of reasons.  One is that there is almost no benefit to them, and second, there is a redemption period, and that makes the waters too murky for the lenders.

So what does this table tell us?  Regardless of whether you are the owner occupant or you are an investor, as long as the property is a single family dwelling or duplex and on 2.5 acres or less, you will not have any deficiencies from any lenders if it goes through a trustee sale.  Any junior deeds of trusts get wiped out after a trustee sale.  Please note that these do not wipe out judgments or HOA liens.  The way it has been explained to me is that even if it’s a cash out refi or you bought 10 big yellow hummers, you’re fine as far as deficiency goes.  Uncle Sam will be knocking on your door for sure, though.

Now, if this is a situation where the home is on more than 2.5 acres or is neither a single family dwelling or duplex, then through a trustee sale, the lenders can come after you for the difference.  However, the Arizona Revised Statutes (ARS) state that the lender has 90 days to file, or else they’re out of luck.  We hear 6 or 7 years thrown out a lot, and it is simply untrue.

So what happens if the bank decides to go through a Judicial Foreclosure?  Well as long as the property sits on 2.5 acres or less, the home is single family or duplex, and all the debt is purchase money, you’re safe.  If even one of those is not true, then the distressed homeowner is subject to a deficiency.

So with all those questions answered, we now have to consider short sales.  It looks like anybody doing a short sale needs to ensure that their short sale approval letter states there won’t be any deficiency judgments.   In most of my short sale approvals, the language goes something like “Paid in full for less than the full balance.”

This is a lot of information to digest, so please feel free to comment below or contact me directly for clarification.  As always, I am not an attorney or an accountant.  Please do not make any legal or tax decisions based on the information here.  Please consult a lawyer and tax professional when you are ready to make any type of decision.

For the full flow chart, review the deficiency judgment flow chart.

Some people sing praises of how wonderful HAFA is.  I’ve heard that it has sped the process up significantly.  You get a pre-approved short sale price in only 10 days!

In my experience, HAFA has hurt a few of my short sales.  After getting approval on a short sale from the bank that buyer, seller, and bank were all happy with, we were about to open escrow.  It all came to a screeching halt when we heard the words, “Congratulations, you are approved for HAFA.”  It’s been three weeks since, and now nobody knows what’s going on.

In another one of my listings, we got another HAFA approved short sale.  Guess what?  It’s been three months, and the bank is still reviewing the documents.  It’s not that I’m angry for the government trying to fix what problems we have.  It’s just that if they would stop helping, we’d be fine already.  Anyhow, that’s just one little guy’s feeling.  So much for 10 days, huh?

To read more about the HAFA article by Anderson, you can go to http://www.azcentral.com/business/realestate/articles/2010/07/15/20100715biz-shortsalebonus0715.html

Cheers!

Unfortunately, a recent client of mine had the misfortune of dealing with this awful BoA/Fannie combo.

From the BoA CEO’s office this morning.  They had to research this file since it was being mishandled by BoA so badly. This is what the person who was helping me has explained:

1)      The closing officer, and the negotiator, did not do their diligence, and their jobs by not helping to correct the approval.  I spoke to the closing officer yesterday who informed me that she sent the correct approval letter a couple of weeks ago. I asked her to show me where she sent it, and I then proved to her that she forgot to send it. She told me that she thought my next plethora of emails were just duplicates…. Her managers are holding her accountable for this, I assure you.

2)      The negotiator did not put in the foreclosure request in time even though I was personally told that it was in, and that everything was being taken care of. He too is being held accountable for his lack of actions. The CEO’s office person has assured me of this.

Fannie Mae is taking just about everything to sale when it comes to short sales. The government is telling us that they are helping homeowners, but having their companies send everything to sale.

This is pretty awful news.  Fortunately, we can still help you if you have a Fannie mortgage, but we need to start quickly, because Fannie will not postpone the sale date.

1)      It’s a government program.  Name one that works correctly and efficiently…do you need more elaboration?  Oh good because we’re going to.

2)      The seller must make mandatory “minimum” payments during the process.  Last time I checked the reason you do a short sale is because you have a hardship (I.E. no money, loss of income, etc.).  This is one of the key components of it where the seller makes the payments, the bank doesn’t get an offer (because of their idiot valuation techniques, see below) and then they foreclose.  Good thing they got a minimum payment from that seller for 3 months though (or longer).

3)      The “pre-approved” price – ah the golden ticket that makes life great for a realtor again right??? WRONG!!!! The pre-approved price has parameters (known as investor contractual restrictions) that state certain criteria such as, but not limited to, commission can only be 2% total (yes this is one investor that is participating guideline), no money for 2^nd liens, they won’t pay recording fees, courier fees, HOA dues, HOA transfer, taxes, etc.  So who ends up paying this?  The seller with their 3k “incentive” (this most likely will just cover HOA dues or possibly the junior lien) and then the good ole greedy agents out there can pay the rest out of their commission (always a fun time).  Pre-approved…ha we were better off with the guessing game.  One other great investor contractual restriction (I wish I was making this up) is: The preapproved value must be 150% of what the fair market value is.

4)      Streamlined paperwork – government forms at their finest! 52 pages of government forms for the realtor and homeowner to fill out! Oh and don’t forget to send us all the other standard documentation (wow so streamlined).  And then there is the mighty catch….we lost a paystub, your file is declined. We lost the cover sheet to the fax, your declined.  Oh and here is the best part…if the seller doesn’t pick up the phone when the bank calls, the file is declined! Ain’t that rich! No wonder this will be streamlined, no short sales will ever be approved! Yay REO central here we come!

5)      The program will not work because there are too many variables, just like it’s very unsuccessful brother HAMP (the modification program). Through an investor, an investor’s investor, Mortgage Insurance (which may or may not participate…more to come on that later) and then Pool Mortgage Insurance and guess what….you have 4 cooks in the kitchen and the meatloaf was just burnt.

6)      Valuation for pre-approval/approval of short sale – they use ZILLOW!!! This is considered a “fair market value” appraisal technique.  Are you kidding me???  According to Zillow we would be rich…guess what we’re not rich!

7)      Once the home sits there for 90 days with no offers, bloop next day it can go to foreclosure! Yay America….we are on the road to recovery. What a joke.

Here is our most recent HAFA short sale (in all its streamlined glory)

Didn’t know this one was HAFA, sent all documentation like a normal short sale. Got everything in, reviewed, assigned to a processor, BPO ordered (on 4/9/10).  Called on 4/12/10, 4/15/10 and 4/19/10 and was told “This loan is HAFA congratulations.”  To which I respond “Oh god what does that mean for this investor?”

Here is what we are facing now:

Have an offer of 260k, according to their valuation technique (ZILLOW) the home is worth 315k.  Last sold comps are 240k, 250k, 270k, offer is within line.  They also tell us “Seller must make a minimum payment” (I’m thinking maybe 10% of mortgage around 200 bucks).  They tell us “This investor requires the seller to make their full payment every month during the short sale process (umm hello….really?? where is the incentive for the investor to take a short sale if the seller is paying their full mortgage payment every month).  Luckily on this one I don’t have a junior lien but there is HOA…and guess who is going to pay for it????

Needless to say, we are not impressed with this joke of a program.  I want to go back to the old days of banging my fist against the desk, not my head.  More to come on this late breaking government catastrophe.

If you’ve been “selected for HAFA” please contact me to fix your situation.

So what is an Angel Investor? Housing angels come in to buy homes from distressed home owners and allow the sellers to stay in the house at market rent.  They purchase the properties through the short sale process.  The terms can vary, but generally, the distressed sellers typically sign 2 or 3 year leases at market rent.  At the end of the lease, they agree to buy the home back at appraised value.

It may seem odd that such a simple solution exists for distressed home owners.  Many people find it suspicious when others are willing to help for what seems little gain. In reality, these investors are buying these homes at incredible discounts.  Even some of the homes I helped investors buy last year for $30k and $50k are now at $70k and $80k.  In addition, with inflation coming around the corner, buying these homes for cash are the safest investment where they often collect over 12% ROI every year.  Even if they sell the home at the same price they bought it for, they will still come out ahead on the monthly cash flow.

So this turns out to become a win-win-win situation.  The home owners don’t have to move and stay at market rent if they like, with the option to buy back later.  The investor makes money on the deal any way you slice it.  And finally, the investors keep the real estate market from going any lower.  As the investment vehicle appears better, more and more investors come in.

Why bulldoze when you can short sale?

Well, it turns out that he fell out of luck with the IRS, and as a result he fell out of luck with his bank.  I can certainly feel sympathy for the guy.  According to the story at http://www.wlwt.com/news/22600154/detail.html, he had an offer that would have allowed him to pay his debt off in full.  The bank decided that they could get more money at a foreclosure auction, and they decided to move forward with the foreclosure process.  Certainly the greed here was a major factor.

So what do we learn from this story?  Well, this guy is probably going to face some major jail time.  I can’t speak of Ohio laws, but in Arizona, we sign a contract stating that we will do our best to maintain the property’s value.  Last I checked, only in Michigan does scraping a house improve the property’s value.

The best thing to do if you’re facing a looming foreclosure is to avoid jail time.  That means that you should seriously consider a short sale instead of bulldozing your house.  Remember, you learned that lesson here.

There is also a big lesson in this story.  Do NOT touch your retirement to placate the lenders.  The banks cannot touch your retirement in a short sale or a foreclosure, so why ruin your future?  As long as we are working towards your short sale, they will not foreclose on your home.  I hope that this provides some insight into the business, and if you need help, I want to help you.