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This is one of the most common questions I hear lately. Many homeowners know that if they don't sell their home soon, they won't be able to make the payments anymore so they want to sell before they miss a payment. It makes a lot of sense. The main thing that hurts your credit in a short sale is the missed payments. In fact, recent FHA guidelines state that a borrower is immediately eligible for an FHA insured loan after a short sale if they were current on their mortgage and other installment debts at the time of the short sale. Sounds great! You can remain current on your mortgage payments, do a short sale, and immediately buy a more affordable home. Yes, in theory you could.
Let me share a conversation I had yesterday with IndyMac. The borrowers/sellers I am representing in a short sale wanted to preserve their credit as much as possible. As soon as I listed their home I asked IndyMac if they would consider a short sale if the borrowers were current and they said yes. That's great! I relayed the message and the borrowers made the decision to continue making payments. We had a fair offer within one week that I submitted to IndyMac. When I later called to check on the status I was told that they had received the short sale package and had initiated the short sale but they were still waiting for the investor, Fannie Mae, to initiate the short sale on their end. I called back yesterday to see if it had been done and was told that Fannie Mae will not consider a short sale until the borrower is at least 30 days delinquent. Seriously? Let me see if I understand this. The mostly government owned entity that received billions of TARP dollars to help get us out of this housing mess is essentially telling people to stop paying their mortgage if they want to do a short sale. Just wait, it gets better. When working with most banks, when you submit a short sale offer, the lender will postpone the foreclosure date until the short sale has been either approved or declined. In my experience, Fannie Mae will not. If the short sale cannot be finalized prior to the auction date, Fannie Mae will foreclose -- even if the reason the short sale is not approved is due to delays at Fannie Mae! I'll write another post about the recent announcement that Freddie Mac and Fannie Mae will now participate in the HAFA program but for now, know that the other government backed entity, Freddie Mac, is requiring borrowers to be 60 days late to be eligible for a HAFA short sale.
To answer the question "Do I have to miss payments to do a short sale?" I will say you better check to see if your loan is backed by Fannie Mae or Freddie Mac. If it is, the answer is probably yes. I have heard from a few agents that they were able to get a short sale approved while the borrower was current (and the mortgage was backed by Fannie or Freddie) but it's very rare.
 The states that took the brunt of the housing bust—like Florida, California, Nevada, and Arizona—also contain some of the nation's most enviable markets in which to retire. Moody's Analytics compared price-to-income data for 384 metropolitan areas to pinpoint affordable retirement spots. Bend made the top 10 for the following reasons:
"Stiff demand from second-home buyers helped nearly double median home prices in lovely Bend, Ore., between 1999 and 2006. But the subsequent real estate collapse has dragged the area's price-to-income ratio from 3.4 in the third quarter of 2006 to 1.7 in the fourth quarter of 2009. That's below Bend's average price-to-income ratio of 2 for the 15 years ending in 2003. This increased affordability makes retirement property in Bend particularly attractive today. Lester Friedman, president-elect of the Central Oregon Association of Realtors said 'Central Oregon has always been a place where people came to get away. And, of course, that is kind of the definition of retirement.' Friedman points to a number of activities that can keep seniors busy in Bend year round, including hiking, mountain biking, skiing, fishing, boating, and volunteering. 'We have wonderful college facilities, so continuing education is easy,' he says. 'You name it, we've got it."
Other cities in the top 10 include Las Vegas, Phoenix, Napa, Fayetteville, Punta Gorda, Burlington, Fort Meyers, Santa Fe, and Santa Cruz. Here's the entire article: 10 Cities for Retirement Property Steals
April stats look an awful lot like March stats. There are 1122 homes for sale, 189 contingent sales, 325 pending sales, and 187 homes sold with average days on market of 180 and a median sales price of $200,000. For bank owned homes there are 77 for sale, 75 pending, and 72 sold. The average days on market was 84 with a median sales price of $165,000. Short sales make up 208 of the homes for sale, 182 contingent sales, 101 pending sales, and 43 of the homes that sold with average days on market of 259 and a median sales price of $190,000. For the traditional sales, there are 836 homes for sale, 7 contingent, 150 pending, and 72 sold. The average days on market was 228 and the median sales price was $256,000.
View the complete statistics: April 2010
I don't typically take a political stance in my blog but I strongly support an upcoming constitutional amendment being considered. Oregon does not currently have a statewide real estate transfer tax. A real estate transfer tax is a state or local government imposed tax that is collected when you transfer ownership of your home, land or commercial real estate and depending on what the law stipulates, must be paid by either the buyer or seller or split by both parties. Typically, once the tax is initiated, the rate can be increased by the state, county or city at any time. During the last 5 legislative sessions there have been 10 attempts to authorize such a tax. There is a current effort to place a measure on the upcoming ballot that will amend the state constitution and permanently prohibit the imposition of real estate transfer taxes in Oregon.
As a homeowner in Oregon, you already pay taxes on your property based on a portion of your property's assessed value. A transfer tax would impose a second tax on your home or property at the point-of-sale. This tax is imposed whether there is any equity in your home or not. Currently 36 states impose real estate transfer taxes and the tax rates range from 0.1% to 4% of the sales price. Imagine you sell your home at a loss for $300,000. In addition to your typical closing costs, you also have to pay a 1% transfer tax of $3000. Or imagine you're a home buyer with a very limited down payment. In addition to your down payment and closing costs, you also have to come up with a percentage of the sales price to cover the transfer tax.
In the current economy, many families are being forced to sell their homes because of a job loss or pay cut. With home values dropping, many are selling at a loss. It is unfair to impose additional taxes on people who are already facing severe financial hardship. Furthermore, Oregon’s housing market is struggling. A real estate transfer tax will make it harder and more expensive for people to buy or sell a home.
This measure needs more than 150,000 signatures of registered Oregon voters turned in to the Secretary of State by July 2, 2010, in order to qualify for the November ballot. If you're interested in signing in support of prohibiting a real estate transfer tax, please contact me.
Today I just want to vent. One of my short sale listings is going back to the bank, even though we had a full price, cash offer. The lender, American Home Mortgage Servicing Inc (AHMSI) approved the sale but wanted to retain their right to pursue a deficiency down the road. The sellers would not agree to the sale unless AHMSI waived their deficiency rights. In the state of Oregon, if the first lien holder files a notice of default and election to sell and chooses to pursue a non-judicial foreclosure, they have no right to a deficiency claim after the foreclosure. In this case, since AHMSI would not waive their deficiency rights, it's actually in the sellers' best interest to allow AHMSI to foreclose knowing that AHMSI cannot pursue a deficiency. I'm really frustrated because I worked really hard on this deal, the buyer was really excited about the house, and the sellers were relieved to sell the house but the lender decided foreclosure was the better option for them. The most ridiculous part of this whole situation is that the full price cash offer we got was for $89,000. By electing to foreclose, AHMSI will now incur roughly $75,000 for the foreclosure process AND there's no way they will be able to sell this house for $89,000 once they finally relist it. That makes me smile a little bit. Enjoy your new house AHMSI!
A new federal law went into effect on April 22, 2010, that affects all homes built prior to 1978. That's over half of all homes in the U.S., including about 33,000 here in Central Oregon. The new EPA "Lead: Renovation, Repair and Painting Rule" or "RRP", is intended to protect U.S. citizens from the health hazards associated with construction work around lead-based paint. (The EPA estimates that about half of all homes built prior to 1978 contain lead-based paint. Lead was banned as an ingredient in household paint in 1978.)
The new RRP rule is complex, but the key points are as follows:
- Effective April 22, 2010, all contracting firms disturbing painted surfaces or replacing windows in pre-1978 homes must be EPA certified and must have at least one employee additionally certified as a Certified Renovator. (I have a list of Certified Renovators.)
- The contractor is required to provide the customer with a copy of the EPA, "Renovate Right" brochure, prior to beginning the renovation.
- All work must be conducted using EPA designated lead-safe work practices, including approved warning posters, dust containment, paint removal methods, cleanup and disposal.
- The Certified Renovator must keep detailed documentation on file for three years to prove compliance with all RRP requirements.
- The EPA can seek penalties of up to $37,500 per day against a contractor for noncompliance with the RRP rule.
The following situations are exempt from the RRP rule:
o Homeowners doing their own work on their own home.
o Contractors disturbing less than 6 square feet of interior paint per room or 20 square feet of exterior paint.
o The portion of the house to be renovated is tested and found to be lead free by a Certified Lead-Based Paint Risk Assessor, Certified Lead-Based Paint Inspector, or Certified Renovator.
How the New RRP Rule Affects Homebuyers
Homebuyers considering a pre-1978 home have always had to consider the possibility of lead-based paint and its associated health risks. The RRP rule now adds a cost consideration. Many buyers of older homes do so with plans to renovate or repaint. Contractors performing this work will now have added costs to comply with the RRP and these costs will be passed on to the customer. The EPA has estimated the additional cost to the contractor will be around $35, but most contractors I've talked to say that's unrealistically low and expect the actual cost increase to be in the hundreds on small projects and easily above a thousand dollars on large projects like kitchen remodels or exterior house painting. Homebuyers planning large renovation projects would be smart to get written estimates from EPA certified contractors prior to purchase.
Thanks to Pillar to Post Professional Home Inspection in Bend, OR for this informative summary.
On April 5, 2010 the Home Affordable Foreclosure Alternatives (HAFA) program went into effect. HAFA was designed to help owners who are unable to retain their home under the Home Affordable Modification Program (HAMP). HAFA provides incentives in connection with a short sale or a deed-in-lieu of foreclosure (DIL) used to avoid foreclosure. Servicers participating in HAMP are also required to comply with HAFA. HAFA provides the loan servicer, junior lien holder, and sellers incentives for these transactions and is designed to simplify and streamline short sales and deeds-in-lieu of foreclosure.
Who is eligible for HAFA?
The borrower must meet the basic eligibility criteria for HAMP:
- The home must be your primary residence.
- First lien originated before 2009.
- Mortgage must be delinquent or default is reasonably foreseeable.
- Unpaid principal balance no more than $729,750 (higher limits for 2 to 4 unit dwellings).
- Borrower’s total monthly payment exceeds 31% of gross income.
In addition, loan servicers must consider HAMP-eligible borrowers for HAFA within 30 days after the borrower does at least one of the following:
- Does not qualify for a HAMP trial period plan.
- Does not successfully complete a HAMP trial period plan.
- Is delinquent on a HAMP modification (misses at least 2 consecutive payments).
- Requests a short sale or DIL.
What are the benefits of HAFA?
- Allows borrowers to receive pre-approved short sales terms before listing the property (including the minimum acceptable net proceeds and approvable closing costs).
- Requires borrowers to be fully released from future liability for the first mortgage debt (no cash contribution, promissory note, or deficiency judgment is allowed). In my opinion, this is the critical element. In addition, Junior lien holders accepting a HAFA incentive must also release borrowers from future liability.
- Uses standard processes, documents, and timeframes/deadlines.
- Provides financial incentives: $3,000 for borrower relocation assistance; $1,500 for servicers to cover administrative and processing costs; and up to $2,000 match for investors for allowing a total of up to $6,000 in short sale proceeds to be distributed to subordinate lien holders.
- The loan servicer cannot complete a foreclosure during a fully executed short sale agreement or while determining the borrowers eligibility.
Not all loan servicers are currently participating in HAFA. Most of the big lenders are, including Bank of America, Chase, GMAC, and Wells Fargo. HAFA does not apply to FHA or VA loans. If your loan is owned or guaranteed by Fannie Mae or Freddie Mac you are not eligible for HAFA. How do you know? Try these links:
Fannie Mae Loan Lookup
Freddie Mac Loan Lookup
Having been on the buying and selling side of numerous short sales, I've encountered many things that can derail a short sale transaction. While many of these will be beyond your control, it's good to be aware of them before you list your home as a short sale or pursue a short sale as a buyer.
1. Buyer offers too little: Every buyer wants a deal. When you find a home you'd like to make an offer on, make sure your Realtor runs a CMA report (comparative market analysis) so that you'll know the current market value of the home. If the home is priced competitively and is in line with recent sales, I strongly advise making a full price offer, or an offer very close to full price, especially if you LOVE the home. This is beneficial for a couple of reasons. When your offer is submitted to the seller's lender, the lender will either hire an appraiser or get a few broker price opinions (BPOs) to determine the market value of the property. Lenders do strongly consider market value before making a decision. If your offer is fair, the lender is more likely to accept it without making a counter offer. If the lender has to give you a counter offer, it adds time to an already lengthy process. Secondly, because many lenders want to see all offers that come in on the property, if your offer is low, the seller and listing agent will be actively seeking higher offers. If a higher offer comes in, you could get bumped. In many cases, the listing agent will notify all parties that another offer came in and advise all parties to submit their highest and best offer. There's a chance you could retain your position but again, you've added time to the process.
2. The seller changes their mind about selling: I just had this happen to some buyers I'm working with and there's really nothing you can do to avoid this scenario. The sellers decided to pursue a loan modification rather than do a short sale. I've also heard of sellers who were unemployed and needed to sell their home but then got employment and decided to keep their home.
3. The lender wants the right to pursue a deficiency: Generally, in the state of Oregon, if your lender files a Notice of Default and pursues a non-judicial foreclosure on your primary residence, after the foreclosure sale, the lender has no right to a deficiency claim on your primary mortgage. (I am not an attorney and am not providing legal advice. If you are faced with this situation, please contact a real estate attorney to discuss.) What I'm seeing happen more and more frequently is that the lender approves the short sale but includes language in the approval letter reserving their right to pursue a deficiency. If the listing agent or the seller's attorney cannot get this language removed, the seller will often terminate the deal and let the property go to foreclosure. I have heard listing agents tell their seller clients that although the lender includes this language in the approval letter, it doesn't necessarily mean the lender will go after them. I think this is based on the fact that we're not seeing it happen very often right now. Keep in mind that the lender has up to 6 years to pursue the deficiency. Just because we aren't seeing it now does not mean they won't down the road. It's ultimately up to you to take your chances but I would never advise my clients to move forward with a short sale based on the fact that we haven't really seen lenders pursue the seller/borrower. The bottom line is, with that language in the approval letter, they can.
4. The 2nd lien holder demands more money: Many homeowners have 2 loans (or more) on their property. The 80/20 loan was very popular during the peak when home values were still rising. Let's say the current value of the property is $200,000 and the seller has a first loan in the amount of $280,000 and a 2nd in the amount of $70,000. In this case, if the property sells for $200,000 the first lien holder loses $80,000 and the 2nd gets nothing, unless the first lien holder agrees to pay the 2nd something in order to facilitate the sale. Most often, the 2nd would rather accept a payoff of around $5000 from the 1st than let the property go to foreclosure and get totally wiped out. Sometimes they will hold their ground and take their chances because they plan to hire a collection agency after foreclosure to pursue the homeowner.
5. The seller's lender determines that the seller has not truly suffered a hardship: Before the lender will agree to a short sale, the seller has to prove that they are unable to keep the property. There must be a hardship, typically things like divorce, unemployment, or overwhelming medical bills. Wanting to sell your house because you're underwater is typically not a hardship. The buyer may wait for 2-3 months for an answer only to have the lender deny the short sale because they determine the seller should be able to make payments and keep the home.
Unfortunately, you don't have much control over these things happening but you can prepare yourself. If you're considering purchasing a short sale, ask your agent to gather as much information as possible from the listing agent about the seller's situation.
- Have the sellers truly suffered a hardship?
- How many lenders are involved?
- Is the seller committed to a short sale?
- Will the seller accept and submit multiple offers to their lender?
- Is the seller prepared to move forward even if their lender wants the right to pursue a deficiency?
Short sales are no fun for anyone involved but they'll be around for quite some time. To make the process less painful, make sure you are using an experienced short sale agent, whether you're on the buying or selling side. A special designation is not necessary, but make sure you ask how many short sale transactions the agent has closed.
There are currently 1120 properties for sale in Bend, 185 contingent sales, 359 pending sales, and 178 homes sold in March. The median sales price in Bend is $205,500, up from $193,000 in February. Overall days on market for all sales was 162.
There are 85 bank owned homes for sale, 107 pending bank owned sales, and 69 bank owned homes sold in March. 34% of the sales in March were bank owned properties. The average days on market for bank owned homes was 90, which includes time in escrow, typically 30-45 days if the buyer got a loan.
Short sales make up 208 of the homes for sale, 178 contingent sales, 120 pending sales, and 42 of the homes that sold in March. Overall, 62% of the sales were distressed properties (bank owned or short sales) while only 26% of the homes for sale are distressed. The average days on market for short sales was 256.
I’m really curious to see how the new Home Affordable Foreclosure Alternatives (HAFA) program affects short sales in our market. It sounds like a great program and several of the key banks have agreed to participate. From my experience with HAMP, I’ll just say that sounding like a good program and actually being a good program are very different things. HAFA allows borrowers to receive pre-approved short sales terms before listing the property (including the minimum acceptable net proceeds). If the lender agrees to a short sale, the borrower/seller must be fully released from future liability for the first mortgage debt (no more promissory notes or deficiency judgements allowed) and there are strict timelines the lender must follow for approving the short sale once an offer is received. If it all works out, we should see the days on market for short sales go down drastically.
 (SOLD 5/14/10 - $150,000) Are you looking for a charming west side Bend cottage but don't want a fixer? This home in The Cottages is a great option. This home was built in 2002 and is 1016 sq. ft. with 2 bedrooms, 1 bath, plus an upstairs bonus room. This is a house but the neighborhood is run like a condominium complex. The HOA dues of $273/month cover exterior maintenance, water, sewer, garbage and cable. There is also an oversized detached single car garage. Great live in or investment home near Central Oregon Community College and Newport Ave., home to lots of shops and restaurants. The address is 1940 NW Monterey Pines Dr. #10.
   
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Cheri Smith
Bend,
OR
More about me…
Total Property Resources
Office Phone: (541) 330-0588 x 106
Cell Phone: (541) 788-8997
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