The Realty Butler Blog

The Right Loan Modification Help

Allen D. Butler, MSSC, GRI, CDPE (The Realty Butler/West USA Premier Properties) — Wed, 02 Dec 2009 01:57:15 -0600

Imagine for a moment that your wallet, purse, or handbag was stolen from your car. All of your personal and credit information was included in the "transfer" of ownership: your multiple IDs, social security card, home address, credit cards, spare house and car keys; everything. Now, you have some work to do. You need to cancel your credit and membership cards and get new ones, set up a credit monitoring or credit security service to lock credit activity, change the locks on your doors, go to the DMV and get a new license, dig through family photos for replacements, get a new cell phone and replace all your contacts, programs, music, etc. Getting your life back together is going to take awhile. You'll be on hold for hours, talking with hapless bureaucrats, minimum-wage-earning call center human robots, jumping through hoops, providing documents to people who either don't get them or lose them, and standing in line at the DMV.

Processing a loan modification is a lot like this, only much worse. Whereas a dedicated and persistent person could recover from stolen personal effects in a few weeks at most, negotiating with a lender on a loan mod, short sale, or deed in lieu of foreclosure routinely takes months, and can take over a year. Real estate attorneys, agents, and short sale processors who have experience in dealing with lenders and negotiations on behalf of homeowners are not surprised by this; they expect it. They spend their days on hold, taking copious notes, demanding to speak to supervisors, "expediting" the process, verifying paperwork, and pushing through to the ubiquitous "next level" in the process. This is their job, and in most cases, they are paid well for it.

There are now hundreds of businesses and "servicers" clamoring for the distressed homeowner's attention, offering "help" with their foreclosure troubles. I get many of them myself, and I'm not even "distressed," at least not about real estate! Needless to say, there are many scams being perpetrated on homeowners, and care should be taken. Selecting the right company, attorney, or agent to help you can be daunting and anxiety producing. The following are some tips when shopping for loan mod help:

Be Wary of Paying Money Up Front

If possible, look for an agreement that provides payment if, and only if, the loan modification is completed on a permanent basis. It should be understood however, that this is a very labor intensive process, and there is no real guarantee of success. The company that worked on your behalf for all those months will likely want compensation if, in spite of all their best efforts, your modification is denied. Remember, there is risk involved for both the homeowner and the processor, and that risk can and should be negotiated, or shared. Perhaps you could work out a deal where only half the fee is due up front? Be very cautious about paying in full up front, with a promise of "your money back," if the loan mod fails. Some suggest that you insist on paying with a credit card, so that charges may later be disputed if something goes wrong.

Make Sure the Processing Charges Appear on the HUD-1

When and if the lender agrees to a permanent modification, new loan documents will have to be generated and executed by the borrower, the lender, and the Trustee (in AZ). This will usually happen at a title company, where the documents will be notarized, filed with the county recorder, and distributed to all parties. A regular HUD-1 or "Closing Settlement Statement" will be issued for the transaction. The party who processed your loan modification should be listed on the HUD-1, along with their attendant processing fees. You would then bring that fee to the closing table to as your cost for "settlement charges".

Make Sure the Processor Understands the Process, and Can Explain It

Make sure that whoever you choose has a plan or strategy in place for fully educating you on the process. Whether this means they meet with you in person or on the phone, or send you a flow chart, graph, or handbook, you should be aware of milestones, what is coming up next, and where you stand with the over-all process. Someone with a good "bedside manner" is what you're looking for here, as you are in trouble, and you need to feel confident that the process is under control by a competent professional.

Make Sure Communication Lines Are Clear

You will need to have open lines of communication with your processor. They will have questions for you, and will need you to deliver documents to them periodically. The best practice is email communication, as it is an excellent way to keep records of who said what when, and what documents were sent and when. If you have the ability to scan and email documents through email, you should also do this. The documents will be attached to their original emails, and saved in the system. This is record that you have complied with all pertinent information and data requests. If you have to, use a fax machine for documents, and keep the "Transmission Record" of your having sent it. Only hand-deliver or mail documents as a last resort, and only if they are certified (i.e., someone has to sign for them on the other end). Bottom line: keep neat records of communication and documentation sent.

Your communication lines will also keep you up to date on the progress on your file. You should receive weekly updates, in writing. This should be a log of all activity on your file. Good processors keep notes on a "transaction" or "processing" form of some kind. Any time they have a conversation with your lender, send some document, or make a call to any third party, the conversation is recorded in this log. You want an updated copy of this log each week. The log should show that the processor is contacting your lender at least once per week, what your lender said, what your lender wants, what the hold up is, etc. Depending upon your level of comfort, you may ask for this document, along with a call to discuss it, on a designated day and time each week.

Make Sure You Check for Experience and References

You should ask any potential processor what type, and how much, experience they have with loan modifications, how many of their loan mods have been successful versus unsuccessful, and whether they can provide a list of potential references for you to call. You might also visit your local BBB web site to look up the company's history. Sometimes, a simple Google search with "[Company Name] Scam" is sufficient to root out trouble makers. If there are several Web sites, Blogs, or news stories connecting the word "scam" with the company or person you have selected, well. . . I'll leave you to your own judgment.

Moving Forward

If you decide to hire someone to help modify your mortgage, follow the above guidelines to minimize your exposure to scams and ensure the best professional selection. Also remember, there are no guarantees that your loan modification will be successful. If you would rather complete the process yourself, in our next installment we'll provide guidance and best practices for going it alone.

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Disclaimer: We DO provide loan counseling services to our clients, but we NEVER charge the homeowner money. Please also remember: I am NOT an attorney, and neither do I play one on TV or the Internet. None of these pontifications should be construed as specific legal advice. If you need specific legal advice regarding your personal situation, give us a call. We can help you ourselves, or provide a list of housing counselors that are free!

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Arizona Short Sale Overview

Allen D. Butler, MSSC, GRI, CDPE (The Realty Butler/West USA Premier Properties) — Thu, 19 Nov 2009 14:43:40 -0600

TRANSCRIPT:

PART II: Pre-foreclosure Options (SS Overview)

Today we'll continue with our series on pre-foreclosure help for Arizona families. Last time, we talked about loan modifications and the problem with negative equity. Let's review that for just a moment:

Remember, if you want to stay in your home, you can either bring your account current, or you can modify your loan to make it more affordable. Loan modifications are a personal choice that should be taken cautiously, and with an eye to the future. Also remember, the payments will go up again, and you may be in the home for quite awhile.

Now, for those who can't keep their homes there are other options to minimize foreclosure damage. Today, we'll deal with one option, and that's a short sale.

A short sale is nothing more than selling your home for less than you owe the lender. You are asking the lender to allow you to do a "short payoff" or short sale on the home. Here is an example.

If you owe $250,000 to your lender on your home, and you can no longer pay, you can get permission from your lender to place your home on the market at the current fair market value and find a buyer.

In Arizona, negative equity is tremendous, and it's not uncommon for a home like this home to be listed on the open market for $120,000. Once an offer is secured, this offer is submitted to the borrower's lender, and the lender agrees. They'll allow you to sell it for $120,000.

However, there is still $130,000 left on the loan balance. What will happen to this "extra debt" you owe the lender? Many times, the debt is simply forgiven and written off by the lender. Of course, there is more to this, as there are lots of legal, credit, and tax pitfalls to look out for. We'll deal with those in future episodes, but remember, these are serious topics for qualified professionals.

The question begs itself at this point: why would a lender do that? Why wouldn't they just foreclose on the home and sell it themselves? It's a good question, and one that we'll answer in a moment, but first: why would a HOMEOWNER do a short sale? What are the benefits to THEM?

First, for homeowners facing foreclosure, a short sale can

1.) Minimize credit damage resulting from foreclosure

2.) Avoid a foreclosure on credit and/or public records.

3.) Make the foreclosure process less disruptive to personal life.

4.) May allow the borrower to make a new home purchase much quicker.

Now, as to why a lender would do a short sale, it helps to understand the inner workings of the foreclosure process from the lender's perspective, and it's ALL about money and finance.

1.) First a lender has to spend LOTS of money to remove a homeowner from their home.

2.) Second, lenders will have to spend thousands on maintenance and holding costs.

3.) Third, lenders can SEE what a home is worth TODAY, but cannot know what the home will be worth later. If prices continue to fall, lenders will lose even more money.

4.) Finally, every time a lender forecloses on a family, it causes further depreciation of the market and THEIR OWN loan portfolios.

A short sale actually benefits both homeowners AND lenders, and is probably the best idea if you simply can't stay in your home. Let's take a look at eligibility requirements.

1.) First, any homeowner who has a verifiable hardship can pursue a short sale.

2.) Second, the home has to have negative equity to pursue a short sale.

These really are the ONLY two requirements to pursue a short sale. However, how a short sale is processed and how it works is considerably more complex. One of the most serious complexities is the tax, legal, and credit considerations. Let's look at those briefly.

1.) Sometimes, due to special circumstances with second lien-holders, insurance companies, or a HELOC, the homeowner may be asked to contribute to the loss, either up front, or with a promissory note.

2.) For some, the Mortgage Debt Forgiveness Act of 2007 may not protect them from having to pay taxes on the discharged debt from the lender.

3.) In rare cases, the lender may demand that the homeowner waive their rights under the Arizona Anti-Deficiency Statutes.

4.) The credit damage arising from mortgage default can also be substantial in cases where short sale processing is anything but "short," and drags on for almost a year.

These are SERIOUS potential consequences, and you absolutely MUST protect yourself.
1.) First, always talk to trained, certified, professionals about your specific circumstances.

2.) Seek a real estate agent with short sale experience, and at least 3 short sale references from clients with completed short sales.

3.) Know and understand the tax and deficiency laws in your state.

4.) Never pay anyone for help. Almost ALL reputable loan counselors and short sale agents DO NOT charge ANY fees to the client, ever.
Now, this has been a brief overview of the short sale, and in our next installments, we'll break down short sales even further. Next time, we'll deal with verifiable hardship, and the immediate actions to take when hardship comes.
Please, if you have questions or concerns about loan modifications, I encourage you to call our offices, or simply send an email. We are always here to help. Also, remember, these broadcasts are just my own personal opinions. The things I say should NEVER be construed as specific legal, credit, or tax advice. If you have questions regarding your specific set of circumstances, I encouraged you to call my offices, and also to seek the appropriate professional counsel.
Until Next time, this is Allen Butler, Managing Director of The Realty Butler LLC, and agent of West USA Premier Properties, signing out.

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Arizona Loan Modifications vs Negative Equity

Allen D. Butler, MSSC, GRI, CDPE (The Realty Butler/West USA Premier Properties) — Mon, 09 Nov 2009 14:37:09 -0600

PART II: Pre-foreclosure Options (Modification)

Hello again, and thank you for joining us today at the Butler Blog. As always, I am your host, Allen Butler, Managing Director of The Realty Butler LLC and agent of West USA Premier Properties. Before we get started, let me remind our audience again regarding pre-foreclosure options: there are really only two; you can work it out so you can stay, or work it out so you can leave. Today, we’ll discuss your options for STAYING in the home, and there are two: either rectify the loan, or modify the loan.

Now, before we get too far ahead, I want to go back for just a moment here and pull the timeline of foreclosure, and review the “Action Zone” for homeowners. Remember, the quicker you call for help, the more options you’ll have. And, you’ll feel better knowing that a plan is in place for dealing with the problem.

Now, the reason for you loan “delinquency” is very important, because it determines your options in dealing with the foreclosure. There are two reasons for delinquency.

One reason is Hardship. This can be any number of things, from death to divorce to illness to military or job transfer. Notice that these “certifiable hardships” are something over which the homeowner has little or no control.

The other reason for delinquency is Strategic. This is where homeowners CAN pay their mortgage, but simply don’t want to because the house is too far “upside – down.” Whether fortunate or not, there is no help for people who have the money to pay, but choose not to.

Now, if you have a verifiable hardship, you have two options to STAY IN YOUR HOME:

1.) First, you can bring your balance current. If your hardship was temporary, or you have some way to come up with the money to clear the back payments and fees and continue the payments, you CAN get yourself our of foreclosure, right up until the home is sold at auction. Obviously, this will not be an option for many.

2.) Your only other option to stay in the home is to request a loan modification from your lender. Let’s examine these loan mods, and how they work.

Earlier this year, the US Treasury Dept issued the Home Affordable Modification Program or “HAMP” for short. The program has guidelines to determine eligibility for a loan mod, and it identifies four methods of doing loan mods. We’ll deal specifically with HAMP, as 85% of all mortgage servicers in the US use it, or a program like it, to modify loans.

Now, the primary goal of HAMP is to make loans more “affordable,” and it identifies an affordable mortgage as one that is not more than 31% of monthly net income. It is important to note that all modifications are on a trial bases for 90 days, and if the payments are made in full and on time, and all requested documents are provided to the lender, the modification will be “locked in” for 5 years.

In order to be eligible for HAMP:

1.) You have to either already be behind on payments, or in a position where your ability to make payments is about to stop.

2.) You must also have a certifiable hardship, as discussed previously.

3.) The loan must have been written BEFORE January 1st 2009

4.) Second mortgages and Home Equity Lines of Credit are NOT eligible for this program. The Dept of Treasury is currently working with investors and industry trade groups to develop ways to include second lien-holders into the program.

5.) Finally, your loan balance cannot be greater than $729,750

If you are eligible, your loan can be modified in up to 4 ways:

1.) Most loan modifications are done by lowering the interest rate. Rates can go as low as 2%. At the end of 5 years, the rate will go back to either your original rate, or the Freddie Mac 30 year fixed rate at the time of the modification, whichever is lower. If a rate adjustment is NOT sufficient to reach 31% of your monthly income, the lender can next adjust the term of your loan.

2.) HAMP says that lenders can extend and re-amortize loans for up to 40 years. However, many loans are sold in packages to loan servicers using “Pooling and Servicing Agreements”. These agreements usually will not allow servicers to extend the term of only one loan within the pool.

3.) Now, if lowering your mortgage rate and extending your term are not enough, lenders CAN do principle “forbearance.” This means that a portion of the mortgage will be “lopped off” and placed into an insulated “bubble”. You won’t pay any interest or principle on this portion for a while, but that amount is still attached to the mortgage, and the entire amount is still owed.

4.) The final modification is “principle forgiveness”. This means that a portion of your loan is again, lopped off, but this time, it’s entirely forgiven and “disappears”. Of the 1700+ permanent loan modifications made under HAMP so far, only 5 were achieved by principle reduction. In other words, the chances of this happening are SLIM. Now, this highlights a problem. Let’s talk about that for a minute.

I mentioned in our first installment that negative equity was a large part of the foreclosure crisis. Now, in comparing the problems of negative equity and unemployment against the programs in place to combat this foreclosure crisis, we see that these programs may simply delay the inevitable.

Let’s do a simple example for an Arizona family in trouble with their mortgage.

So, this family bought a home in 2005 for $250,000, and the monthly payment is $1,887 per month. Now, hardship comes, the mortgage is modified, and the new payment is only $1025 per month. Now the family can afford their home. Remember, the family still owes $250,000 on the house. The fact of the matter is, right now, the home in question is really only worth $100,000 TOPS. Now, let’s fast forward. In year 6, the loan interest rate goes back up. Is the family making more money now, so they can afford the re-adjusted payment? If not, they’re in the same boat they were in 5 years ago. But that’s only part of the problem.

Remember, the family still owes close to $250,000 on the home, and it was only really worth $100,000 at the time of the loan modification. If any life change forces a move, you’re in the same place you were in 2007; upside down, in a big way. What will the real estate market look like in 2017? Who knows, but I’ll ask you, the viewer: how many years do YOU think it will be before home values in Arizona DOUBLE from what they are now, so these people can sell if they need to? My professional instincts say it’ll be PLENTY longer than 5 years. It’s already been 4, and the problem seems to just keep rolling along, impervious to efforts to stop it.

See, the bottom line is, loan modifications are a personal family decision regarding the home, and families should definitely proceed with caution. Also, be sure to keep an eye toward the future when planning your long term strategy. Remember:

1.) Your payment WILL go up again. IF you can afford to make the new adjusted payment, you’ll live happily forever after.

2.) You may be living in the home well, “forever after”. . .

Now, please listen, and listen carefully: I AM NOT advocating that Arizona homeowners should decide against a loan modification. What I AM saying is: do not jump in blindly, thinking that a loan modification will resolve the underlying issues. And remember that for the remaining 97% of the country where home prices have NOT crashed and burned, a loan modification may be exactly what those families need. They may have a very good expectation that they’ll be able to recover the equity they need to sell their homes again in 5-7 years.

Please, if you have questions or concerns about loan modifications, I encourage you to call our offices, or simply send an email. We are always here to help. Also, remember, these broadcasts are just my personal internet ramblings. The things I say should NEVER be construed as legal, credit, or tax advice. If you have questions regarding your specific set of circumstances, I strongly encouraged you to seek the appropriate professional counsel. In our next installment, we’ll cover the SHORT SALE, what it is, who can do one, and why they would do one. Until then, if you have questions or concerns regarding your personal pre-foreclosure situation, I encourage you to contact me. My staff of highly trained and certified mortgage default specialists is always ready to take your calls or emails. Until Next time, this is Allen Butler, Managing Director of The Realty Butler LLC, and agent of West USA Premier Properties, signing out.

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Direct: (602) 499-4798 Email: therealtybutler@gmail.com

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Arizona Foreclosure Process

Allen D. Butler, MSSC, GRI, CDPE (The Realty Butler/West USA Premier Properties) — Thu, 05 Nov 2009 16:41:47 -0600

Transcript:

Hello and thank you for joining us today at the Butler Blog. As always, I am your host, Allen Butler, Managing Director of The Realty Butler LLC and agent of West USA Premier Properties. Today I want to examine some of the issues and strategies involving loan delinquency, mortgage default, and foreclosure affecting Arizona's families.

For nearly everyone being affected by this foreclosure crisis, the foundation is almost always negative equity and financial hardship: If financial hardship comes, and you can't sell the house because it's "upside down," you are likely about to stop, or have already stopped, paying your mortgage. This is when the process of foreclosure begins.

It is absolutely critical that you know the process and timelines of delinquency, default, and foreclosure, and what your options are in dealing with them. The entire foreclosure process starts with your first missed payment. Let's take a look at the timeline.

When you miss your first payment, you will likely start getting all kinds of communication from your bank. They want to know where their money is, and if you can't bring your payments current very quickly (usually within 30-90 days), a "notice of default" will be issued.

The Notice of Default is a legal notice filed by your bank, indicating they have notified the courts that you are seriously delinquent on the loan. This notice also indicates that if you do not clear the delinquency within 90 days, the property will be scheduled for public auction.

When the home is scheduled for public auction, a Notice of Trustees Sale will be posted on the home itself, and filed with the courts. This notice identifies the place and time of the trustees' sale, the loan servicer and/or legal office pursuing the sale, and the homeowner against whom this action is being taken. The auction date for the trustees' sale is usually 30 to 90 days after the posted notice date. When and if the property is sold at auction, it now belongs to someone else, usually the lender who filed the action.

The next step in the process is eviction. Once the home has transferred ownership at the trustees' sale, the new owner is going to take possession. Sometimes, the lender will contact the occupants of the home, and offer a "Cash for Keys" deal in exchange for leaving the home within 15-30 days. If the occupant is uncooperative or not able to be contacted, a forcible detainer action will be filed, and eviction proceedings will commence.

Now, it is absolutely vital that you understand your "Action Zone." This is the time during which you can act to contain and mitigate the damage to YOURSELF, your family, your credit, and your future. The Action Zone starts before you even miss a payment, and ends just a few weeks after the Notice of Trustees Sale. It is during this time that you absolutely need to contact someone for help with your situation, as there are several programs in place by lenders, and federal and state governments to help.

In our next installment, I'll discuss these foreclosure prevention programs, how they work, who can do them, and who should do them. Until then, if you have questions or concerns regarding your personal pre-foreclosure situation, I encourage you to contact me. Both myself and my staff of highly trained and certified mortgage default specialists are always ready to take your calls or emails.

Until Next time, this is Allen Butler, Managing Director of The Realty Butler LLC, and agent of West USA Premier Properties, signing out.

Loan Help By Phone or Email!

Direct: (602) 499-4798 Email: therealtybutler@gmail.com

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Arizona Loan Modifications: What is it, and who can do one?

Allen D. Butler, MSSC, GRI, CDPE (The Realty Butler/West USA Premier Properties) — Mon, 19 Oct 2009 03:39:27 -0500

*In this first part in the series, we'll cover what a loan modification is, and who is eligible. Please keep in mind that if you have lost your job, or have extremely limited income, you probably will not qualify for a loan modification. You must have income in order to pay any loan, even a modified one. If you are in this category, help may be on the horizon. For now, please start with our Help with Arizona Short Sales and Foreclosure series. Next time, we'll look at the pros and cons of doing a loan modification.

The Rise of "The Loan Mod"

Until just this last March, if you couldn't afford your home, you had little choice but to allow the lender to foreclose, or try to do a short sale. In other words, you were moving; there were no options to stay in your home. Now, in an effort stop foreclosures and stabilize the economy, the federal government has created some programs to enable you to stay in your home and avoid foreclosure by modifying the terms of your current mortgage.

There are currently four federal programs to make mortgage modifications available to the public: HARP (Home Affordable Refinance Program), HAMP (Home Affordable Modification Program) HOPE for Homeowners, and the FDIC's Mortgage Modification Program for IndyMac. Of these four programs, only HAMP has made any real progress in modifying mortgages. The other programs do not have broad lender participation, and the guidelines are too strict for many borrowers.

The Congressional Oversight Panel (who oversees these programs) in their review released in October 2009, reported that 85% of all servicing lenders are either participating in the HAMP program, or have programs of their own that are comparable. For this reason we will focus exclusively on HAMP, as this is how most people will modify mortgages. HAMP modifications are made on a 3 month trial basis first, and if you make the new payments and provide all documentation that your lender requests, your loan modification will become locked in for five years. After the five years, your loan will gradually revert to either your original loan interest rate, or the Freddie Mac 30-year fixed rate at the time of your modification, whichever is less. (The Freddie Mac rate is currently around 5%.)

How Does A Loan Mod Work?

How is a mortgage modified to make it more affordable? First, we have to define "affordable." For the purposes of this plan, the government has determined that a monthly mortgage payment that is 31% or less of your monthly income is affordable. If your monthly mortgage is more than 31% of your monthly income, it is not. In order to reach this 31% affordability level, lenders can make several changes to your mortgage. Before we get to the actual modifications that can be done, we must first advise of a few key points of the program.:

-Lower your interest rate to as low as 2% for a period of up to 5 years.

*After 5 years, your loan rate goes up again. This is the method used in almost all modifications. The average modified loan rate goes from 7.58% to 2.92%.

-Extend the term of your loan, or re-amortize, for up to 40 years

*Most lenders are not doing this for two reasons, 1.) an interest rate reduction will usually work to reach the desired 31%, and 2.) most lender's Pooling and Servicing Agreements (PSAs) will usually not allow them to modify loan lengths.

-Principal Forbearance

*A portion of your loan is "lopped off" and placed into a "bubble" that you don't pay any interest or payments on. This portion of your loan is due "later". This is very rare.

-Principle Forgiveness

*A portion of your loan is again "lopped off," but this time, it's forgiven. It's gone. This is not only rare, it's an anomaly: of the 362,348 borrowers placed into HAMP loan mods, only 5 had principal forgiven.

Who Can Participate in The Loan Mod Program?

So, does anyone who can prove that their mortgage is more than 31% of their monthly income get a loan modification? How do the government and lenders determine who is eligible? The eligibility requirements for HAMP are fairly simple, but also prohibitive for some:

#1.) You must be in default or be in imminent danger of default.

*Default is defined as "behind on payments," and in order to be eligible, you must have either already stopped making payments, or demonstrate that your ability to make payments is about to end.

#2.) You must have a certifiable hardship

* You must be able to explain why you now CAN'T pay your mortgage, whereas you COULD before. Did you lose a job? Get divorced? Get ill? These reasons and others like them are certifiable hardships.

#3.) Your loan has to have been issued prior to January 1^st, 2009

#4.) Only 1^st Mortgages are eligible under the program's guidelines

*2^nd loans or home equity lines are not eligible (Treasury is working to include these.)

#5.) Mortgage balance cannot exceed $729,750

* If a review of your finances indicates that 55% or more of your income is servicing consumer debt (credit card, mortgage, etc), enrollment in a credit counseling program is mandatory for program participation.

What's To Come:

While mortgage modifications will be a ray of hope for some homeowners in distress, many more will either not qualify for a modification, or will choose not to do one. Next time, we'll explore the difficulties and challenges of loan modifications in the market today. Stay tuned.

*I am not an attorney, and neither do I play one on TV or the Internet. This article should NOT be construed to impart specific legal recommendations or advice to ANYONE. If you have questions regarding your specific set of circumstances, please call or email our office, or contact an attorney. (Our Office: 602-499-4798 ---Email: therealtybutler@gmail.com)

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Arizona Real Estate Buyer Strategies: Offer Strategies

Allen D. Butler, MSSC, GRI, CDPE (The Realty Butler/West USA Premier Properties) — Wed, 07 Oct 2009 15:58:13 -0500

Since launching our Wise Buyer Strategies planning earlier in the year for our select buying clients, we have been pleased to discover that the strategies planning worked so well, and our clients were so thrilled with it, we have decided to publish the entire strategy series on line. If you'd like to start at the beginning, please start with our Wise Buyer Strategies home page.

In this first part of our new series on how to strategize your offer on an Arizona foreclosure, short sale, or owner-occupied home, we’ll deal with the basis of all purchases, the price. In later articles, we'll cover the remaining offer strategies (terms, concessions, inspections, repairs, costs, and closings). Our hope is that once the series is complete, you’ll have a clearer picture of how to write a strong offer on the Arizona home you want, and actually get it. In regards to your offer pricing, you have a few considerations: How much should you offer? Do you have to pay full price, or even over full price to get a home right now?

How do I determine what a home is worth?

Home prices are always approximate, and are based on what similar buyers are paying for similar homes, in similar neighborhoods, in the last few months. This will be the case for all homes in neighborhood tracts, condo complexes, etc. Custom homes in custom locations will differ slightly, but not much. For example, when your real estate agent runs a market analysis on the home you would like to make an offer on, they’ll give you a list of homes that are similar to the one you are considering, that have sold most recently. In this example, the prices people paid for those homes will range in price from say, $125,000 to $137,500. This means that if the “Market Climate” is good for sellers, the seller will be expecting to get near, or over $137,500. Why would a seller expect to get over what the market says a home is worth?

How Market Climate affects home values.

Market Climate is an expression that means, “Who is in control of the real estate market?” There are two controlling sides here, the buyers and the sellers. Therefore, we have “Buyer’s Markets,” and “Seller’s Markets.” (There is actually a “transition period” between these two that is very short and usually imperceptible called “Stability”.) When you’re a buyer looking for a home in a market where there are many more buyers than there are homes for sale, and competition is fierce, this is called a Seller’s Market. The seller is on control. When the market is flooded with homes for sale, and buyers are few, a buyer is in home-buying-heaven: the Buyer’s Market. Market climate at the time of this writing is definitely a strong Seller’s Market. In a Seller’s Market, there are likely to be multiple buyers bidding on a single home, and someone is going to offer more than what the seller is asking. This places pressure on prices, causing them to rise.

Wise Buyer Pricing Strategy

The first thing that you must remember when the buyer market is competitive is that you probably will not be able to buy a home at the top of your price range. If you have $150,000 cash, or a bank says they’ll lend you the $150,000 to buy a home, should you go look at and bid on homes that are priced at $150,000? Why would you? Chances are, there are at least 5 other people just like you that are interested in that same home, and at least one of them is likely to bid more than the asking price, and then you’re stuck. You’ve got nowhere to go. The first part of the strategy involves looking at homes that are priced below your spending limit. This will get you into negotiations, and some wiggle room for when you get there. The second part of the strategy is to carefully balance the negotiations from this point. Remember the golden rule of pricing: a house is worth what someone is willing to pay the owner in cash. If you’re paying cash, you can pay whatever you want. But, if you’re getting a loan, a problem can come up: you may be willing to pay the owner X, but the bank you’re borrowing the money from may not be. This is where the appraiser comes in. The appraiser’s job is to tell the bank if the house is worth the price you are offering. Remember those homes that sold from our previous example for between $125,000 and $137,000? The appraiser will look at that data, and make a determination. Can he tell the bank that the home is worth more than the current sold comparables indicate? Yes, he can, but only by a little. What is a safe range in this example? I personally would not advise a client to offer more than $140,000, and would advise them of the dangers of doing so. What is the danger? The danger is that the appraiser comes back with a figure of $138,500. Does the seller want the $140,000 you offered? Absolutely, but they can’t get it. You are under no obligation to pay what you offered, but unless the seller agrees to lower the price to the appraised value, the deal falls apart. So, when pricing your offer, look carefully with your agent at the comparable sales, and determine a safe range for your offer, keeping in mind the appraisal issue. If you’re paying cash, your strategy will be slightly different. If you are a cash buyer seeking guidance on your offers on investments, give us a call for alternate strategies. Click any image to continue.

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Arizona Short Sales: Shorty "The Short Sale 'Expert'"

Allen D. Butler, MSSC, GRI, CDPE (The Realty Butler/West USA Premier Properties) — Sat, 12 Jul 2008 14:02:55 -0500

In Arizona right now, we have two kinds of homes selling. Those that are in the foreclosure process, and those that have already gone through the process. My own anecdotal evidence suggests that these are really the only two types of listings that are selling. There undoubtedly are a few (very few) homeowners who have both the equity and the stomach to price their homes in line with foreclosures, and are selling. What does this indicate? What it has always indicated: if you price the home to sell, it will sell. In June (remember June? It was just a few days ago), 5265 homes sold. That means that there ARE people buying homes. And those numbers are actually very good compared to January, where only 2471 homes sold. Literally, home sales have very close to doubled in the last few months. This great news leads me to my next point: the pricing of short sales in Arizona.

As an agent who handles both short sales and lender owned homes, I see the following scenario played out on a weekly basis. I get a call from a lender indicating that they want me to sell a home for them that they have just "taken away" from some unfortunate homeowner. When I go into the data systems to examine the property, about half the time I find the subject property is actively for sale still as a short sale. Needless to say, the short sale didn't work for those poor people. I immediately find out why though, and it's not pretty.

A ficticious conversation will illustrate nicely:

Me: "Hi. I was calling about your listing at 12345 W. Elm St."

Shorty the "Short-sale expert": "Yes! That property is still available. Would you like to see it?"

Me: "Actually, I have seen it. I met your nice homeowner, and informed him that he needs to leave the home. It doesn't belong to him anymore."

Shorty: "That's news to me! Who are you anyway? Do you work for the bank?"

Me: "That's right. I do work for the bank. It appears that your short sale effort has not paid off. The lender has taken your client's home away."

Shorty: "And you are the lender's new listing agent?"

Me: "That's correct. I'll need you to cancel your listing, and remove your sign and lockbox from the property. Also, you may want to help your client find a new place to live."

Shorty: "The short sale negotiator from XYZ Bank told me that if the home went to foreclosure that they would give me the listing to sell for them."

Me: "Uh. . .you might want to call that person back and see what they say now. Sorry about the confusion. Good luck to you. . ."

Now, what does this conversation illustrate? A few things, actually, none of them good for the poor homeowner who lost his home to the bank.

First, the fact that Shorty tried unsuccessfully to complete a short sale over a period of six months strains the bounds of credulity. How does one fail at short sales? By over-pricing. Same as any other failed home-sale attempt. A home will simply not sell if it's over-priced. Doesn't matter if it's a short sale, foreclosure, builder spec home, or traditional sale. If it's over-priced it won't sell. Period. Second, it seemed to me that Shorty the short sale expert had more hope of getting the REO listing from the lender than he did of completing the short sale. Can you spell F-I-D-U-C-I-A-R-Y? In a nutshell: you place the client's needs needs above your own. Period.

Let's look at the home in question. The short sale was listed at $249,500. When the bank called me to sell the property for them, they asked me what I thought it was worth. I did my research, and determined that the home was worth $150,000, tops. The lender (not having any emotional attachments, simply wanting the home sold) agreed with my assesment, listed the property at $147,900, and had it sold within two weeks.

Seems like common sense, doesn't it? So how did Shorty miss this? The short sale listing sat on the market for 6 months, without having had a price reduction once. Wouldn't the lack of people going to see the home have been one clue? How about other properties selling all around this one for far less? A second clue perhaps? Or how about the fact that the lender kept calling asking for an offer on the property? Where was Shorty? Did he go on vacation? What was he telling his client this whole time? I don't know. It was frustrating for me to see. And now, I have to kick this poor guy out of his house!

Bottom line? You MUST price your short sale to actually sell! My own policy? Price it at what you think the market will bear. If you don't get an offer in the first two weeks, drop the price. Repeat and rinse. Price drops every two weeks until sold. Works every time. See, here's the thing: if I can't sell it for a certain price, the lender won't be able to either. Whatever the price is that someone's willing to pay, they'll pay whether its for sale as a short sale, lender owned, or owner sale.

This scenario is further complicated by one salient fact, and the fact that drives the entire short sale process: the only reason to do a short sale is to salvage your client's credit. Every month that your client misses a payment is another "ding" to their credit. The longer it takes, the more damage your client suffers. You pricing their property above what someone is willing to pay is simply destroying your client's credit! Don't do it.

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Short Sales and Multiple Offers--What to do?

Allen D. Butler, MSSC, GRI, CDPE (The Realty Butler/West USA Premier Properties) — Sat, 14 Jun 2008 14:11:13 -0500

So,

As the short sales go rumbling along in our various real estate markets, a question has arisen, and the answers are varied and contradictory. The question is: how do I, as the listing agent, handle a multiple offer situation on a short sale?

Make no mistake, however you decide to handle it, people are going to be upset. It's just like any multiple offer situation. There are winners, and losers. There are essentially two views of how to handle this scenario with short sales. We'll assume for the sake of clarity, that these multiple offers come in, not all at once, but successively, over a period of a few weeks. If they all come in at once, it's a no-brainer. Your seller chooses the highest and best offer, with the most likelihood of passing lender scrutiny. However, even if a bunch of offers come in, and you pick the best one, another one is probably going to come in after this initial flurry, and what are you going to do with that one? Suppose it's higher than the highest and best you have in hand?

One group of agents will simply take the next offer that comes in, and submit it to the lender also. If any offers come in, each offer is simply passed along for the lender for consideration. Some agents will not even take the highest and best of the bunch of initial offers; they'll just submit them all. As justification, they say that they are "serving the interests of their client".

I personally believe that not only is this operating unethically, I also believe it is damaging to the interests of your selling client. Let me explain:

First, when your seller and a buyer sign a contract for purchase, it is LEGALLY BINDING. Just because there is a caviat that indicates the contract is subject to the ultimate purview of the lender does not make it any less valid as a contract. Remember in real estate school when your professors talked about "VOID vs VOIDABLE?" This contract, because it is subject to lender approval is voidable. And, it is not VOID unless the lender, in their ultimate wisdom, deems it such. You cannot simply take each successive contract and send it to the lender. Why not? Because the first buyer could sue you, your brokerage, and your client, and rightfully so.

So, how do you handle it? You have two options. You can:

a.) have each buyer who submits a contract sign a waiver relinquishing their right to positional heirarchy. This means that each buyer who submits a contract understands that all offers will be submitted to the lender, and that the lender will choose the best one. This, in my opinion, is the coward's way to handle contracts. You are going to run into all kinds of disclosure issues. What is each buyer's question?

"How much are the other offers? I want mine to be the best."

Unless you have a signed agreement with your seller to disclose the details of offers, you simply can not do this. It is a violation of contract law. You can ONLY disclose the existence of offers, not their respective details. Do YOU want to get into making full disclosure of every offer to every buyer's agent, and have them simply fight it out? Don't do it. It's a recipe for disaster. You can also:

b.) handle multiple offers with honesty and integrity. If an offer comes in that you think has a chance of getting through the lender's scrutiny, send it to them. When other agents call to inquire as to availability, simply say what you would in any such circumstance:

"I have an offer on the property at this time. You are more than welcome to submit your offer for consideration in a back-up position."

Now, that wasn't so hard, was it? Simple, efficient, to the point. And it's LEGAL! What are the benefits of doing it this way? You protect your client from a lawsuit by an outraged buyer, and you increase your chances that the lender will approve the sale. I can hear you scratching your head. How does this help my client's chances of having the sale approved by the lender? Simple: if you send multiple offers to the lender, you'll simply confuse them. They're confused enough already. Don't help them. Sencond, by sending multiple offers, you might unwittingly be creating the impression that you've got a hot little property on your hands that might be worth more money. This is going to make the lender cocky. Their demands for money are going to go up, and worse yet, they may get the impression that it's a better idea to take the property away from your client and sell it themselves for more money!

Frankly, unless your seller client is going to be liable for taxes and/or definciencies, they could care less how much the property sells for. They're off the hook if the property sells, period. By "accepting" multiple offers, you are violating contract law, and doing your clients a disservice.

Caution and Disclaimer: I am NOT an authority on contract law, although I like to pretend that I am. All questions about such issues should be addressed to and by your individual broker or firm's legal counsel. This is their job, along with taking a hefty cut of your money.

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Arizona Real Estate Market Begins To Heat Up

Allen D. Butler, MSSC, GRI, CDPE (The Realty Butler/West USA Premier Properties) — Mon, 05 May 2008 01:55:43 -0500

What does the data say?

It says that for March and April:

1.) the amount of homes for sale has dropped,

2.) the number of homes currently under contract have gone up

3.) the number of homes sold in the previous 30 days has gone up

4.) the average days on market have gone down.

What does it MEAN?

It means that the market in the six cities that I have selected is rapidly improving! The question now becomes, "Is this pick-up growth sustainable?" Unfortunately, there is really no way of knowing right now. However, we'll certainly take any good news we can get! I know that with the housing market having taken a bad turn in late '05 until now, many people are on the edge of their seat waiting for the sky to completely fall down. Looks like that may not happen. The best thing we can hope for is that this rate will either remain steady or even increase. Keep in mind though, that the Arizona market usually picks up this time of year as families get their kids out of school and prepared for a move. So, you might be saying, "Oh. . .I thought this was good news." It is! You see, in 2006 & 2007, the pickup in the market during our normal buying season didn't really happen at all. So it really is good news! Stay tuned for more.

Allen Butler

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We have partnered with lenders to sell their unwanted inventory homes all over the valley. This means that we'll soon have a huge inventory of homes at unbelievable prices, in all price ranges, all over the valley. Visit The Realty Butler Foreclosures often and find the one you want!

We are now offering expert help for people who are facing foreclosure. Over the last year and a half, we have helped countless homeowners save their credit and get out of costly homes and loans they simply couldn't afford any more. Don't go it alone! If you or someone you now is having trouble paying the mortgage, ACT NOW and SAVE YOUR CREDIT! Visit The Realty Butler Foreclosure Resources Page.

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22046 W. Casey Ln--Immaculate & Move In Ready!!

Allen D. Butler, MSSC, GRI, CDPE (The Realty Butler/West USA Premier Properties) — Sat, 19 Apr 2008 02:43:58 -0500

Allen Butler, GRI | West USA Premier Properties | 602-499-4798

22046 W. Casey Ln, Buckeye, AZ

Best Deal In Buckeye!

4 Bdrm Single Family House

offered at $129,900

Year Built	2004
Sq Footage	2,267
Bedrooms	4
Bathrooms	3 full, 0 partial
Floors	2
Parking	2 Car garage
Lot Size	11,815 sqft
HOA/Maint	$26 per month

DESCRIPTION

This spectacular home has it all, and is move-in ready right now! Home has 4 large bedrooms (1 downstairs) and 3 full baths. Features a full size gourmet kitchen that opens to the spacious living room and dining room. All brand new paint, flooring, and amenities. Also features a huge loft! The best part? Home has the lowest price in the entire city of Buckeye! Why buy something that may continue to lose value as soon as you buy it? This one is depreciation-proof, and your investment has no where to go but UP. Don t wait on this one. It will sell in just a few days. Don t suffer regret! Call NOW!! This is a fabulous investment opportunity.

see additional photos below

PROPERTY FEATURES

Central A/C	Central heat	Walk-in closet
Tile floor	Family room	Office/Den
Breakfast nook	Laundry area - inside	Yard

COMMUNITY FEATURES

Garage parking

Playground

ADDITIONAL PHOTOS

Seller contact info:

Allen Butler, GRI

West USA Premier Properties

602-499-4798

For sale by agent/broker

Equal Opportunity Housing

Posted: Apr 18, 2008, 10:20pm PDT

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Making the Case for Blundering Nincompoopery

Allen D. Butler, MSSC, GRI, CDPE (The Realty Butler/West USA Premier Properties) — Wed, 16 Apr 2008 21:52:00 -0500

Did I spell that right? Hope so. . .

So anyway, I'm back with more "tales from the dark side." I am going to continue on my Saga, while throwing Papa John's Pizza into the mix. Let me just state flat out, in as clear a way as I know how, that CountryWide's loss mitigation department is the most incompetent group of blundering nincompoops that I have ever seen.

Case #1: I have a certain short sale that Countrywide has had in their possession since February 19th. Two loss mitigators later, and they just ordered the appraisal yesterday.

Case #2: On another active file, newly minted, fresh outta loss mitigation school comes Paul Romero (the name has NOT been changed, so as to shame the guilty) . Now Paul, bless his little heart, indicates that he's gonna "send the file to the investor" to get their response. Uh. . .Paul? Countrywide owns the loan. He calls me back two days later to indicate that he was wrong. Problem? He's suddenly discovered that there is PMI on the loan, and he's "sending the file to them immediately." That's great Paul, but their is no PMI on this loan. He argues with me for awhile and says he's gonna send it to the PMI company to get their response. In the meanwhile, I'm off to demonstrate conclusively that there IS NO PMI on this loan. Within about 3 hours, I have written confirmation that there is indeed NO PMI on this loan. Fast forward 24 hrs. Here's Paul on the phone again: "Uh. . .the PMI company has denied the short sale. They think the property is worth more than the offer you have given them". Ok. Paul, let me explain this to you again, real slow. . .: There is no pmi on this loan. He proceeds to tell me that he's sorry, but the short has been denied. Okay Paul. Give me the policy number, inception date, & contact information for the person handling the case at the PMI company. "Uh. . .I don't have that information." Well then how did you send them our offer? "Uh. . .I'll have to get back with you. Click.

So, I call today. The case has indeed been rejected. Case closed. The peons at the loss mitigation department can't seem to figure out why, based on Paul's notes. About an hour or 6 later, I get a call from Paul's boss:

"We're sorry Mr. Butler; there was a mistake. There is no PMI on this loan. We'll have this file ready for you in a few days".

Huh. I'm speechless.

Then there's Papa John's. My wife has unfortunately fallen in love with this new pizza they have. So I ordered some . . . . . . . . . .and waited for almost 2 full hours to receive it. When I did receive it, it was cold. THAT'S FABULOUS! So I call. They offer to deliver a new one. "When? A couple of hours from now?" No sir, it'll be there in 30 minutes. Great. How about you throw in a little 2.99 desert thingy to make it up to me and my family? Sorry sir. The manager says no. FABULOUS.

I guess my point is this: when someone actually gives even adequate customer service, they are heralded as "amazing" and people marvel. What has the world come to?
Allen

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New Arizona MLS System coming to Phoenix in July!!!

Allen D. Butler, MSSC, GRI, CDPE (The Realty Butler/West USA Premier Properties) — Sat, 12 Apr 2008 20:21:32 -0500

Folks, this is terribly exciting to me. Many of you other agents in other parts of the country have MLS systems that simply trample Arizona's underfoot. Well, that appears to be soon to change! Here's a look:

NEW ARIZONA MLS SYSTEM

A special thanks to Bob Bemis, CEO of ARMLS, for sending out the link.

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Arizona Short Sales Not For The Faint of Heart

Allen D. Butler, MSSC, GRI, CDPE (The Realty Butler/West USA Premier Properties) — Sat, 29 Mar 2008 00:25:14 -0500

I've commented before about short sales on this blog, but not to much extent, and I haven't seen many of the other contributers do it either. I wonder why? Does everyone abhor them? Are they afraid of them?

I have written on my home blog about The Ins & Outs of Arizona Short Sales, and lo and behold, people started coming out of the woodwork. And I don't mean a few. Let us just say it's been a fabulous return on investment. I have agents calling me from around the country asking for short sale help. I have homeowners calling me (from around the country, no less) about the possibility of doing a short sale on their home. I refer them out. (Incidentally, if you are from some other state than AZ, and you are familiar with short sales, send your contact information to me, I may have clients for you.)

I would like to first give a shout out to Real Estate Radio USA . It has been very cool and helpful for me professionally, and is entertaining to boot.

When I say that short sales are not for the faint of heart, I mean that in two distinct ways: for realtors, and for sellers. Realtors are running up against brick walls with "The Gate Keepers." That's what I call the people who protect the actual "loss mitigators" like the Swiss Guard protects the Pope. Loss mitigators are behind bullet-proof glass, tucked away somewhere in a bunker under the Potomac river, without email, which out phone lines, whichout fax machines; they are completely incommunicado. They send messages between the bunker and the outside world by carrier pigeon. The particular brand of pigeon they use is not one of the kind where you separate it from its home turf by a thousand miles, thow it up in the air, where it circles a few times and "goes where it knows." The kind they use soars into the air, flies crazily for a few weeks, and then lazily makes its way to where ever it happens to be open season for pigeons. This is enough to drive any semi-sane realtor into a nut house.

Then there are the sellers. They come in a few varieties. The first is the charming couple who believes that because their home is worth less than they own against it, they are eligible for a short sale.

The second is current on their mortgage, and will use credit cards for as long as necessary to "stay afloat" while they continue to pay their mortgage, while at the same time, pursue a short sale, hoping that the lender will look favorably on their "diligence." This is in fact true, as the lender does indeed look favorably on the payment of mortgages. In fact, the lender's advice to the homeowner at this point is predictable: "Keep it up! You're doing great! Keep sending us your money!"

I think I'll pause here and offer some advice for those unlucky homeowners who happen to read this blog, and fall into category two. Mortgage debt can be forgiven. Credit card debt cannot. Unless you want to go to foreclosure AND declare bankruptcy. If you are truly screwed, and are digging yourself a hole of unsecured debt to continue to pay the mortgage on a house you will ultimately loose, STOP IT! You're throwing your money away. Just come to grips with the fact that you are losing your home. The sooner you face this reality, the better.

The final type is the truly destitute homeowner, who truly CANNOT pay his or her mortgage any more. They have come to face the fact of the loss of their home, and are ready to proceed with their lives. They have a real hardship, they are ready to provide all the documentation needed to demonstrate this, and they are already moved on to a new rental home. This is the golden client. This is where short sales actually work. This is where the realtor has some reward for his or her (copious) labour. Short sales are definitely not for the faint of heart, whether seller or realtor, but they do work. Unfortunatey, in Arizona, that's where the market is.

The Land of The Lost Equity.

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Is The Bottom of the Arizona Real Estate Market Around the Corner?

Allen D. Butler, MSSC, GRI, CDPE (The Realty Butler/West USA Premier Properties) — Tue, 25 Mar 2008 10:47:45 -0500

Is the metropolitan Phoenix real estate market actually at the bottom of its cycle? Many seem to think so. Consider this article from Greg Swann in the Arizona Republic. Seems that investors and second home buyers are greedily lapping up the properties that are priced low enough to be a smart investment (and there are many). It has recently been observed (by ME!) that there are now plenty of nice homes, that need very little work done, that could be rented out for slightly more than the monthly mortgage amount. That, my friends is a recipe for investment.

Consider this lender owned home in Surprise.

That's a money-maker.

Or, consider this lender owned home in Phoenix.

Both of these homes are in good shape, and are waiting for some hungry strategist to take advantage of them. There are homes like this all over the valley of the sun, and they are being snatched up at an alarming (good) rate. I currently have 4 buyer clients who are well qualified, have cash, and are ready to buy. Problem? I can't seem to get them a home! Every time one comes available, it gets picked up within 24 hours of being placed on the market. This is all over the valley. We haven't seen this type of market frenzy since mid-2005.

Let's hope these investers keep the deals rolling.

Allen

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A Question About Short-Sales

Allen D. Butler, MSSC, GRI, CDPE (The Realty Butler/West USA Premier Properties) — Wed, 19 Mar 2008 12:43:08 -0500

This question came in the in-box yesterday, and I wanted to share it with the other inquisitive folks out there who may be wrestling with similar issues, and I'm sure there are many! Remember, if you need help, don't be afraid to ask for it! You can also look at The Realty Butler Foreclosure Help Resources Page. Talk to you soon. . .

Question:

Hi. My husband and I are considering doing a short sale on our townhome. We owe $195,000 on our home but cannot get that amount for it due to the comps in our neighborhood. We are current on our payments and have good credit but our realator said we could do the short sale to sell our home lower so we can move to Missiouri. My question is basically will we be able to buy once in Missouri with the short sale on our record? I know that with missed payments it damages your credit a ton but will it damage ours as much since there won't be any missed payments? We just need to sell our house so we can relocate. Thank you!

Answer:

Thanks for the question. Generally speaking, lenders are very averse to allowing borrowers who are current on their payments to do short sales. The whole premise of a short sale is based upon hardship, however, and it doesn't necessarily have to be a financial hardship. Let's put it this way: is staying where you are causing a hardship that would be alleviated by moving to Missouri? If that's the case, the lender may look at your need to move. It might depend on how far the townhome is "upside down". Also, most credit damage resulting from a short sale is the result of missed payments. So, if your lender agrees to a short sale with your being current on the mortgage, very little, if any, damage will result. When I say very little, it is because of this: when your loan is payed off (in whole or in part), an annotation is made to your credit report. The note says something like "loan remitted." Some lenders may make a small footnote to that footnote, that says, "remitted for less than amount owed". There is some debate as to whether that little footnote will affect a borrower's credit at all. Hope this helps.

Remember, I am not an attorney, nor do I play one on TV or the Internet. If you have specific questions about your unique legal situation, contact qualified legal counsel. If you think I may be able to help, send me an email: abutler@realtybutlerhomes.com

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Anti-Deficiency Judgements in Arizona

Allen D. Butler, MSSC, GRI, CDPE (The Realty Butler/West USA Premier Properties) — Sat, 08 Mar 2008 02:40:24 -0600

Here we are again. Unfortunately, a lot of questions have arisen lately about Arizona's Deficiency Statutes regarding foreclosure. I say "unfortunately" because I feel somewhat less than qualified to definitively answer these questions. Greater legal minds than mine (and mine is decidedly NOT legal) will be required to put the issue to rest. I will, in spite of the danger of blatantly misrepresenting the facts, case law, and statutes, attempt to answer one (NON-) simple question:

"If I do a short sale, or my property is taken from me by foreclosure, can the bank 'come after me' for the difference between what the property eventually sells for, and what I owe them, including sale costs, legal fees, etc?"

First, let me point the reader in the general direction of actual legal minds on this issue. Here is a rather esoteric treatise on the subject of getting sued for a deficiency judgement. Very good read, and fairly definitive on the issue.

Here is another article, that is more user-friendly on the same subject. Now, because I have a public education, and am somewhat literate, I will attempt to provide a synopsis of the above:

In Arizona, there are two types of "notes" given for real property: a "Deed of Trust" or a "Mortgage". Despite the common parlance of the term "mortgage," most people in most states do not actually have Mortgages. They have Deeds of Trust. I won't go into the differences here, but suffice to say that a Deed of Trust has three parties to the agreement, and an actual Mortgage has only two. Actual mortgages are very uncommon in most states.

Now, the remedy of a lender for a home in default depends on what type of note was used to secure the property. If there is a true mortgage in place, the lender must sue in civil court in a process known as "judicial foreclosure." The particulars of a judicial foreclosure are not completely relevent to our discussion here, but here are a few key points.

1.) The legal fees associated with a judicial foreclosure action are substantial.

2.) A jucial foreclosure takes more time than "the other method" (hold on there. . .).

3.) A lender may sue for a deficiency judgement with a judicial foreclosure, but only in the case of non-purchase money loans. (A "purchase money loan" is one that is applied to the purchase of real property. A "non-purchase money" loan is money you pulled out of your home to buy "stuff".

Herein lies a very poignant distinction. If you got a line of credit, and spent all the money on a new boat, fancy clothes, and a new haircut, the lender can indeed sue you for that money. HOWEVER, they will have to use the process of judicial foreclosure to do it, which I have already explained is a lengthy and costly process. In real life: probably too expensive for the lender, with very little likelihood of getting money back from someone who is "insolvent" to begin with.

If the note used to secure the property is the much more common Deed of Trust, the property will most likely be subject to a "Trustees Sale," in which a notice is posted that the property will be sold to the highest bidder on the courthouse steps. If this happens, there is no recourse for a lender to "come after" the homeowner for money. Now, a lender, who is party to a Deed of Trust, may also use the process of judicial foreclosure to take your house away. Any yes, this does give them the right to attempt to get a deficiency judgement against the borrower. Does this happen often? No. Why? For the reasons mentioned above: it's expensive, and time consuming.

Another option for a lender is to "forego" their interest in the home, and sue the borrower directly for the money owed to them. All of it. Lenders very rarely do this however, for the reasons stated above: it is expensive and time consuming; more importantly, if a borrower is going into foreclosure, there is a pretty good likelihood that the borrower has no money to "go after." Also, in the landmark case of Baker v Gardner heard before the Arizona Supreme Court in 1988, the justices hold forth in the Holding & Conclusion that ". . .the legislature's objective in enacting [its anti-deficiency statutes] was to abolish the personal liability of those who give trust deeds encumbering properties of two and one-half acres or less and used for single-family or two-family dwellings. . . The holder of the note and security device may not, by waiving the security and bringing an action on the note, hold the maker liable for the entire unpaid balance."

So, can you be sued for a deficiency on your mortgage? Who knows! Go ask your attorney.

Disclosure: I am not an attorney, and I do not play one on TV or on the internet. I am simply an inquisitive idiot with a penchant for holding forth opinions. Have specific legal questions regarding your specific circumstances? Contact competent (how do you test for that?) legal counsel.

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More Short Sale Help

Allen D. Butler, MSSC, GRI, CDPE (The Realty Butler/West USA Premier Properties) — Wed, 05 Mar 2008 14:27:01 -0600

I've had an unbelievable number of people call me, both from Arizona, as well as other states, looking for help with selling their home in a short sale, or asking me more about the process. For those who may have missed it, you can see my Arizona Short Sale Help stuff here. Also, I've had a lot of questions about what forms & such are necessary for a short sale. Here is a list of Short Sale Documents that are applicable in any state in the union. Again, if you need a short sale specialist in Arizona, you may contact me. If you need a Realtor in another state for a short sale, I have a list of great referral agents. Just drop me a line, and I'll find the right agent for you and your situation.

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Short-Sale Primer Part V

Allen D. Butler, MSSC, GRI, CDPE (The Realty Butler/West USA Premier Properties) — Fri, 22 Feb 2008 11:53:20 -0600

Here it is. Our final installment. This is one of the most important parts: How Will A Short Sale Affect You. If you missed any of the preceding parts, you can find them here:

Arizona Short-Sale Primer Part I

Arizona Short-Sale Primer Part II

Arizona Short-Sale Primer Part III

Arizona Short-Sale Primer Part IV

This part is most critical, and is the subject of great speculation and debate, and is surrounded with misunderstanding. I strongly advise you to seek appropriate legal counsel regarding your specific circumstances and any legal, tax, or personal credit consequences for your unique situation. State law varies on these issues, and many issues are still being worked out and examined by CPAs, attorneys, and state legislatures.

Three Key Issues

The three most important considerations for anyone looking to do a short sale are, lender's recourse, taxes, and credit. It all boils down to: how is this going to affect me? Why would I do a short sale, as opposed to just letting the bank foreclose on the home and take it away from me? These are the issues we'll tackle today, and I'm fairly certain that there will still be plenty of questions in your mind. This is a complex beast, and we'll take the issues in stride. One of the key considerations, and an issue that changes things dramatically, is: What is the nature of ownership?

Do You Actually Live There?

There are many "protections" in place for people who are down and out and facing foreclosure. Many of these protections are for people who are facing the loss of their home. People (and the law-makers that derive form them) have a broken heart for those who are hurting and need help. The heart-strings of the masses do not however, play a sad dirge for "speculators". Let's make a distinction here. You either bought a home to live in it, or you didn't. This does not apply to those of you who purchased a home and lied on the application in order to get a primary occupancy rate on your mortgage. Many of the legal protections in place do not apply to investors or short-term "property flippers" who simply got stomped in a series of poorly timed events. So, what are the protections for the standard homeowner?

The Mortgage Forgiveness Debt Relief Act of 2007

In late 2007, the U.S. Congress passed, and President Bush signed, The Mortgage Foregiveness Debt Relief Act of 2007. Go check it out. I'll paraphrase it here, for those of you who aren't versed in political speak: If the bank agrees to take less that you owe them on the sale of your primary residence, you will not have to pay taxes on the forgiven amount. Before the passage of this legislation, for example, if the amount "forgiven" is $50,000, the person being forgiven the debt would receive an IRS Form 1099 for that amount. This means that, for tax purposes, and in the year in which the debt was forgiven, you just made an addition $50,000 of income. And the government wants its cut. Now, with the passage of the bill, you are forgiven the tax debt also. Very nice.

Recourse vs. Non-Recourse

Here is the pertinent Arizona Revised Statute in regards to Recourse on Loans for Real Property. This statute is a little verbose, and in order to clarify as best I may, let me offer this by way of explanation. If an individual buys ". . .a parcel of real property of two and one-half acres or less which is limited to and utilized for either a single one-family or single two-family dwelling," and if the property's value has not decreased ". . .because of voluntary waste committed or permitted by the. . ." homeowner, then the bank does not have recourse (the right) to make you pay the difference if the short-sale is less than the amount owed. This also applies to the circumstance wherein the home is foreclosed upon. In other words, you cannot be made to pay a deficiency on the loan, unless it can be proved that the property is worth less than you paid for it because you decreased its value by intentional neglect or wanton destruction. So, if you are being foreclosed upon, and you are angry, and a generally hostile personality, you may tear the house apart in your wrath. You will however, have to pay for the damages you cause. Don't do it. As a side-note, mortgage notes have clauses in them that deal with whether or not they are recourse vs. non-recourse in nature. If you have a loan in Arizona, and the loan documents state that it is a "recourse loan," if you otherwise qualify under the above circumstances, there is no recourse for the lender. Regardless of what the loan documents say. So, does this Arizona Statute on recourse apply to investors, or people who buy the home for something other than living there? On the surface, it appears that it does. I cannot however, make this assertion definitively. It would require a legal mind and case law greater than mine to answer this question.

The Case Against Your Credit Rating

If you are involved in a foreclosure or a short sale, will your credit score suffer? Absolutely. There is only one case that I know of where the borrower's credit score was not directly damaged, and I detailed that case in Part I of this series. Now on to the larger question. Where and how does the damage occur? Consider this. The real damage occurs because, if you are having a hardship, and you are not paying your mortgage, every time you miss a payment, it counts against you. For example, if you have determined that you are going to let the property go into foreclosure, and you are not going to pay your mortgage any more, each payment you miss counts against you. How many are you going to miss? Plenty. It will take, on average, 6 -9 months for the foreclosure process to be complete. Every one of those months of missed payments counts against you. On top of that, when the property is foreclosed upon, the fact that a foreclosure took place will also be noted on your credit report. A double whammy. The

Case For The Short-Sale

So, if you're going to have credit damage either way, why do a short sale? Well, it's a matter of degrees of damage. Usually, a short sale will take 2 - 4 months to completely process. Therefore, the damage is limited to the amount of months of missed payments. If the homeowner has determined that they are having a hardship, it pays to look at all options to resolve the conflict sooner, rather than later. It you are already behind on payments, it pays to get the short sale started ASAP. This alone will mitigate the damage to your credit score. The longer you hold on, or do nothing, the greater the damage.

What Does The Future Hold

How long is the damage going to last? Depends on the degree of initial damage. It has been guestimated (too early to tell, really) that a person who undergoes a short sale will probably not be able to get a new loan for another home for a minimum of 2-3 years. If, on the other hand, you undergo a complete foreclosure, you can expect to not be abe to get sufficent recovery so as to purchase a new home for 5-7 years. So, I have presented as much information as I have, and I hope it has been helpful and informative for you. Thanks for waiting patiently for this final installment, which I'm fairly certain was of primary interest to you who are considering a short sale. As always, I am NOT an attorney, a CPA, nor anything else important-sounding, and I don't even play one on TV. If you need help with your specific case, you are encouraged to seek the advice of competent legal counsel. If you have a need for help in any specific area, you are welcome to contact me for a referral to a qualified professional in your area. Thanks for joining us. Allen Butler (602) 499-4798 abutler@realtybutlerhomes.com

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Arizona Short-Sale Primer Part IV

Allen D. Butler, MSSC, GRI, CDPE (The Realty Butler/West USA Premier Properties) — Tue, 19 Feb 2008 18:31:42 -0600

Here we are again. In case you missed them, and need to get caught up, here are the first three parts in this series.

Arizona Short Sale Help Part I, Arizona Short Sale Help Part II, Arizona Short Sale Help Part III

Today we want to take a step by step look at the process of a short sale. Now, if you've looked at my Arizona Foreclosure Help Page, you know that a short sale may not be the best option for you. But if it is, here's how the process goes.

Sell Means Sell

To do a short "sale" the home has to be up for sale first. If you've already determined that you are a great candidate for a short sale, you next have to find an agent who will put your home on the market. Just like any time you put your home on the market, choose the best agent you can find. Choosing the wrong agent to do a short sale can cost you dearly. This agent should also be someone you trust, or comes with a good referral from a friend or relative, as they'll become intimately familiar with your situation and your financial life. The first step is to hire an agent and get him or her authorized to speak on your behalf with your lender. You should contact your lender and ask them how to get your agent affiliated with your account. They will either provide the documentation you need, or tell you what to send to them. Usually, the lender will want a note from you that authorizes the agent to speak on your behalf, with the appropriate data included, like the agent's name, company, contact information, you loan number, your signature, and the date. This should be the last time that you are in contact with the bank, as the agent will take over from here.

What's Wrong With This Picture?

I recently began working with a client who was attempting to do a short sale with another agent in town. I'll not reveal the name of this agent, so as to protect the ignorant, but here's what happened. This home has been up on the market for 4 months as a short sale. Now, you might be thinking that, in a market like this, 4 months isn't too bad. Actually, 4 months on the market, for any seller, even in this market, is bad. For a short sale to be on the market for 4 months is absolutely wrong, and is a serious detriment to the seller of the home. The agent in this case was trying to get the seller "top-dollar" for the home. Consider this (and we'll cover this more thoroughly in our next installment): what good is "getting top dollar" doing for the seller? He's already upsidedown on his mortgage. By leaving his home on the market for 4 months, the agent is not doing him any favors, and is doing serious damage to his credit rating! Short sales need to happen fast in order to be protective of the client. Protection of the client's interests is the only reason to do a short sale. Not only was this home on the market for more than 4 months, the agent in question was actually having the client doing his own negotiating with the bank! The agent would actually call the client for news on how the short sale was going! Incredible! (If you want referrals from me about agents in your area who are experienced in short sales, just drop me a line. I'll give out my information at the end of this post.)

Savour The Sensation

If you have a good agent, ad the marketing is done well, you should have an offer on your home within 30 days. Unfortunately, this is a difficult time for sellers, but they can actually relish the idea that their home actually has a potential buyer! There are many a homeowner who would love to have an offer on their home. Any offer. Now, here's what's gonna happen:

Getting It Together

Your agent, being the fabulous agent he or she is, has already spoken with the bank, and has a list of documents that the bank will want to accompany the offer on your property. This will undoubtedly include: a.) a hardship letter that explains why you can no longer repay your mortgage b.) all of your fiinancial documentation which demonstrates the hardship; this will include your pay stubs, all of your checking and savings account ledgers, your w-2s, your 06 -07 tax filings, any IRAs, 401Ks, everything. c.) the fully executed offer on your home, along with the buyer's qualification letter, and any and all addenda, counters, etc. d.) an estimated HUD-1 settlement statement from a title company (or an estimated net sheet) e.) a copy of your and your agent's listing agreement f.) a copy of the MLS plano sheet g.) any comparable sales and tax documentation that supports the value of the offer on the home, along with a letter explaining such from the agent So, there you have it. A mountain of about 50 pages that need to be faxed to the lender.

The Waiting Game

Now, because everybody and their dog is going into foreclosure, you'll have to wait your turn to get assigned to a loss mitigator to review your file, check for file completion, and make a decision about whether the bank will accept the short sale. Your agent should call the bank the same day, or the day after, the documents are sent, in order to confirm receipt. Many agents will simply wait for the bank to call them with a decision. This is not the best idea an agent ever had, as I am personally convinced that unless you call them periodically (like once a week), they tend to forget you exist. When I call, I don't expect a dicision. I'm just letting them know that I still exist, and that we are waiting patiently. Kinda. I'll also want to make sure that they don't have any more documents that they need, or questions they need answered. Expect that an actual dicision will not be made on the short sale for a minimum of 45 days. Sometimes in can take 60 days.

Milestones To Watch For

There are a few things that need to happen before the bank can make a decision, and things which your agent will want to watch for. First, you'll want to confirm that the lender has ordered, or will order very soon, an appraisal or BPO, or Broker Price Opinion. This is done for the simple reason that the bank is not going to take your agent's word that the home is worth what they have suggested. They'll want 3rd party confirmation. If your agent has suggested that the property is worth $300,000, and your offer is for $280,000, great. But, if the bank does an independent review and finds that the home is actually worth about $375,000, they will not accept the sale. Your offer is too low. Another milestone to watch for is that your case has actually been assigned to a loss mitigation negotiator. It will take about two weeks for your case to be assigned to someone. Once this happens, it will usually be a fe more weeks before this person makes a decision. The final milestone is the actual negotiation. When the loss mitigator begins to call your agent and talk about the terms of surrender, you'll know you're close. The end is in sight.

Crossing The Finish Line

So, all the negotiations are done, the bank has agreed to the short sale, and the property now goes into escrow for processing. This will take an average of 30 - 45 days to complete. At the end of this period, you have moved out of the home, the new buyer has moved in, and your ordeal is over. Or is it? Tune in next time for the consequences. You didn't think this was over did you? For specific questions about your situation, or if you need help, please call me direct at (602) 499 - 4798, or email your questions to abutler@realtybutlerhomes.com. Finally, the disclaimer: This information is for educational purposes only. Seek attorney, tax, and residential legal help for your specific situation.

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Short-Sale Primer Part III

Allen D. Butler, MSSC, GRI, CDPE (The Realty Butler/West USA Premier Properties) — Sat, 16 Feb 2008 13:34:02 -0600

Here we are again. Thanks for following along. I have received quite a few questions from poeple about specific topics, and I can confirm that all of your questions will be answered in the course of this (rather long) treatise. Today, we discuss how to prepare yourself for a short-sale. Before we begin though, if you missed part I or II, here they are:

Arizona Short-Sale Primer Part I

Arizona Short-Sale Primer Part II

What, Exactly, Are We Preparing?

You need to prepare yourself in two ways, really, for a short sale. You need to prepare yourself mentally & emotionally, and also financially. Both aspects are critical. Like any challenge, you cannot simply go around it. You must go through it. Trying to avoid problems in life will lead you to a comfortable beach. Only, you won't be lounging with a Mojito. You'll be looking for a place to bury your head. First, let's check your head:

Where's Your Head?

Here's the reality folks. I cannot in good conscious inform you that this will be a painless process. Yes, your credit score is going to take a hit, but we'll cove that in depth later. More to the point is the emotional and psychological trauma of losing your home. Now, some of you out there may be saying, "Psychological trauma!? I've never even seen the home I'm losing to foreclosure. It's an investment property." Or, you might be trying to rationalize (FYI: The Step Before Acceptance) in this way, "Well, we'll take a little hit for awhile, but we'll be all right in the long run." While I certainly applaud the positive attitude, take just a moment to actually acknowledge that losing a home, whether it's an investment property or your "home sweet home" will be a troubling setback. None of us, no matter how much we have in the bank, are immune to financial loss. Now, without getting too "mushy" here, let me just say this: Suffering this kind of loss can and WILL throw you into a bit of a psychological tailspin. Men, in particular, if they are facing foreclosure or serious financial setbacks, can be "emasculated," so to speak. One minute you're riding high on the hog, things are looking great, the family is well, the kids are playing in the yard. The next thing you know, money's getting a little tight. The credit cards come out more. Lor forbid, you have a mortgage that is adjusting upwards. Suddenly, there is real fear in the air, and you find yourself in a trap that you can't, seemingly, get out of. Many of us have faced these issues. Believe me, when the mortgage and housing markets crashed (and the rubble is still settling), many of my formerly well-to-do friends and colleagues were happy as clams. Right now, I can count on one hand the number of my compatriots who are still selling real estate or loans. They are truly, truly, in trouble. And losing their own homes as well! Things to remember during this crisis: 1. Most, if not all, truly wealthy men have declared bankruptcy at least once. 2. This too shall pass. . . 3. Your most powerful earning years are still ahead of you. 4. It's happening to lots and lots of people. You are not alone.

Getting The Financial House In Order

Now, you've discovered that you are a prime candidate for a short-sale. What are you going to need? What is the bank going to want from you. The answer to these questions is fairly simple. You've got a financial hardship, right? That's whay you're doing this. Now you have to prove it. Remember when you were filling out the paperwork to get the loan on that fabulous new house? You made yourself look as good as possible. You assessed and reported every nickle you could verify. You proudly paraded your credit score. It was like a first date. Gotta look good, right?! Well, this is exactly the opposite. Now, you'll need to very carefully document all of your expenses. EVERYTHING. Groceries, gas, insurance, child support, alimony, that repair to the car last month, all of it. The bank wants to get a clear picture of your economic hardship. You'll turn over a lot of documents to help you support these assertions of hardship. Here are some tht you'll need: 1. A hardship letter explaining the nature, cause, and extent of the hardship. 2. Copies of your last 3 month's bank statements, for all accounts. 3. Copies of your last 2 month's wage earnings receipts (check stubs). 4. Copies of any additional income receipts (support, disability, etc). 5. Copies of the last 3 year's tax documents (W-2s, final tax workout forms) These are a good start. These are almost always requested by a lender for a short-sale.

Until next time, if you have specific questions, please email them to me at abutler@realtybutlerhomes.com or call me at (602) 499 - 4798. You can also visit our foreclosure resource center on the realtybutlerhomes.com webpage.

Legal Notice: The information contained in these articles is for educational purposes only, and should not be construed as specific legal advice. Readers are encouraged to contact legal counsel with questions regarding their own specific circumstances.

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Short-Sale Primer Part II

Allen D. Butler, MSSC, GRI, CDPE (The Realty Butler/West USA Premier Properties) — Thu, 14 Feb 2008 12:38:18 -0600

Hello Again!

Here's part II in our continuing series on Arizona Short Sales. (Here's Part I of the Arizona Short-Sale Primer.) I wanted to address something that everybody seems to be asking me about lately, and is next up on our list of topics: who is eligible for a short-sale, and why would a bank be interested in accepting one?

Who Is Eligable For A Short-Sale?

There really are no hard and fast rules about who is eligible and who is not. You might hear that a person has to have a demonstrable "hardship" in order to do a short-sale. This can be death, divorce, job loss, health problems, and a host of other things. This tidbit of wisdon is generally correct. A person must have a good reason to attempt a short sale. Banks are not going to forgive tons of debt to people who simply don't like their homes anymore and wish to move, or those who are thinking something like this: "Hmm. My house is worth $100,000 less than I payed for it, and my mortgage payment is pretty high. Doesn't is make financial sense to simply dump this home and then rent for awhile, let my credit rebuild, then buy a new home when the market is done crashing? I could save thousands of dollars per month by renting. Let's see. . .my current mortgage payment is $3,200 per month. I can rent a similar home for about $1,200 per month. Good GOD! That's a lot of money. In a few years, when my credit is back to normal, and homes are a lot cheaper, I could buy again. And, I will have socked away tens of thousands of dollars over those two or three years! The logic sounds impeccable doesn't it? How could you not think that way? Furhermore, I am not here to say whether or not that is "logical," "moral," "ethical," or anything else. I am saying that with that type of thinking, a short-sale is not the answer. But can you actually do a short-sale without a verified hardship? The long and short of it: depends.

Going It The Hard Way.

I have a certain client who wants to do a short-sale. He is current on his payments, and is not in a real "hardship." He simply has a really good reason to move. He's got a great job offer in another state. However, his house is worth, on the open market, about $10,000 less than he owes the bank. Can he do a short-sale? Indeed. He can and did. Now, before you get excited about this news, here's the rest of the story. . . For this particular client, I simply went to the bank with an offer on the property, for about 10k less than my client owed.

Me: "Will you take this offer for less money than my client owes?"

Bank: "Uh. . .maybe. Why?" Me: "Well, my client wants to move. Will you do it?"

Bank: "Absolutely NOT! Are you joking?!"

Me: "Well, I had to try. Will you do it if my client pays you back the money?"

Bank: "Your client is willing to sign an agreement, and pay us the difference?

Me: "Sure. He really wants to move."

Bank: "Alright. Let me run this up the flagpole, and see if it'll fly. And you know what? It did. Moral of the story: There's always an exception.

Why Would A Bank Do That?

Banks are not in the habit of giving away money, despite bait-n-switch offers on TV. In order to understand why a bank would consider a short-sale, we have to think pragmatically. Consider this: If you don't pay your mortgage, the bank is not earning any money, right? Well, if you continue to not pay your mortgage, the bank has no choice but to try to get their collateral back from you. That "collateral" is your house. That's why they loaned you the money in the first place. It's not because you are good looking, or even your credit score or your financial ability to repay the loan. The real issue is, the money they loaned you has "backing," in the form of the actual house on the land.

Loss Mitigation

Each bank now has (if they didn't before) a "Loss Mitigation" Department. This department's sole cause of existence is to "stop the bleeding." If they can, they'll work out a deal with you to get you to keep paying them. They might wave a payment or two in order to get you "caught up." They may re-negotiate your mortgage at a new interest rate. These are a bank's primary method of trying to stop the continued loss of money. Sometimes, none of these scenarios will work. You may have lost your job, or gotten a divorce, or what have you. In this case, no matter what kind of "sweet deal" the bank offers, you simply cannot continue to pay. At this point, the bank may themselves suggest that you find a real estate agent to sell your home for what you can get. It will obviously be less than you owe the bank, and they're generally speaking, "okay with that." Why? Because of the "bird in the hand, two in the bush syndrome," only in this case it's "a bird in the hand and 'three-quarters of a bird' in the bush." You see, if you bring the bank an offer on your home in which, at the end of the day, they will lose $40,000, that's a "known quantity." If they don't accept your offer, they will lose even more later. They will be forced to "foreclose" on your property. This is a legal proceedure which is very expensive to complete. So, whereas now they will lose $40,000, with the cost of the foreclosure process, they are now losing $80,000. Yes, a foreclosure will cost them all of that and sometimes more. Much more. It has been projected by legal experts that a foreclosure in Maricopa County can cost a lender as much as $75,000 - $85,000!!! And, it takes almost a full year sometimes. Certainly not less than 6 months.

But Wait. . .There's More

If the bank waits for the foreclosure process, and eventually takes your home, they're also going to have to get the home ready to sell again (utilities on, clean-up, landscaping, locks changed, etc.), pay a real estate agent to sell it (eating those costs as well), and hope the market doesn't continue to depreciate more during this rather lengthy process. Ouch!! So, doesn't it make sense that a bank would always agree to a short-sale in order to save themselves a ton of cash? You'd think so, but there are always these little things called "bureaucracy" and "principles" that get in the way. We'll touch on those next time. . .

***Keep in mind, these articles are intended for educational purposes only, and should not be construed as specific legal advice. Always consult a qualified attorney or tax advisor with questions about your specific circumstances. If you have questions regarding any of the issues presented here, you are encouraged to give me a call: 602-499-4798 or email me: abutler@realtybutlerhomes.com Allen Butler, GRI, AHWD

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Short-Sale Primer Part I

Allen D. Butler, MSSC, GRI, CDPE (The Realty Butler/West USA Premier Properties) — Wed, 13 Feb 2008 22:01:43 -0600

Unfortunately, one of the hottest topics in today's Arizona real estate market is the subject of short-sales, foreclosures, and lender owned properties (REO). Now, I'm going to begin a whole series here on short-sales, but you'll get the answers to your questions on the other subjects as a matter of course. There is a LOT of information to cover, but cover it we will, and in as logical a manner as possible. Here are a list of questions that we will answer, and when they are all done, I'll post it in the archives: 1.) What is a short-sale? 2.) Who is eligible to do a short-sale? 3.) How do I prepare myself, my home, and my finances for a short-sale? 4.) What is the process of doing a short-sale in Arizona? 5.) What are the consequences of doing a short-sale on my home?

What Is A Short-Sale? A short-sale occurs when a home is sold for less than the current owner owes to the bank. It's really that simple, but like a lot of things in life, simple doesn't necessarily mean "easy." Short-sales are a rather unique occurance in that they almost always happen in a market that is "depreciating," that is, a market where home prices are actually going down. Such is currently the case in most of the country.

A Logical Flow The following progression will explain the differences bewteen short-sale, foreclosure, and lender owned properties, or REOs. However, remember that the circumstances leading up to a short-sale, foreclosure, etc. will be very different. We'll cover that topic more thoroughly in our next installment. Now, for the sake of discussion, let us say that a certain homeowner, for whatever reason, either a.) needs to sell his home and move, or b.) is having a financial hardship, and can't pay his mortgage. So, Mr. Troubled Homeowner calls Mr. Real Estate Agent. Aghast, Mr. Homeowner listens as Mr. Agent tells him that his home is worth less than he owes on it. Feeling suspicious and a little physical sensation of a not very pleasant variety in his bowels, Mr. Homeowner calls another Mr. Agent. The second agent essentially confirms what agent #1 had indicated. Mr. Homeowner has two choices. He can either a.) sell the home for what current market value is, and bring the difference between the sale price and what he owes the bank to the table out of his own pocket, or b.) he can try to work something out with his bank. If he doesn't have the money to bring to the table, he must negotiate with the bank to find a solution. Banks have a very keen interest in Mr. Homeowner staying in his home, and continuing to pay the mortgage. To that end, the bank will try to offer solutions to help. They may offer to forego a payment or three (with or without simply re-applying that amount to the principle on the loan --"a forebearance"--), or they may adjust the interest rate for a time, or other possible scenarios. If none of these scenarios will work for this homeowner, he moves to step two: the short-sale.

Your Intermediary So, not having liked any of the scenarios that the bank had to offer to alleviate his homeownership distress, Troubled Homeowner calls back the agent (you know, the one who told him his house was worth more? ;>) and asks if he knows anything about short-sales. Of course, you already know the answer to that question. He's an "expert" on short-sales. He read an article about it in the Arizona Republic.

Plowing A Tough Road Now, Mr. Homeowner and Mr. Agent, working together, place the home up for sale at or a little below current market value (below in order to expedite the sale). A buyer arrives, likes the home, and makes an offer. Mr. Agent collects all the data, sends it to the bank, and the bank makes a decision. If the process works, Mr. Troubled Homeowner sells his home. Now, there are plenty of issues involving that "sale," of which I will discuss in depth in our following installments. Let us say, for the sake of dicussion, that the bank doesn't like the idea of the short-sale, for reasons which will be discussed later, and they reject it. What happens next?

Foreclosure Over the coming months, Mr. Troubled Homeowner will begin a new phase of his troubles: debt collectors. He'll be called at home, at work, his parent's home, his ex-wife's home, and his best friend from high school's home. The bank wants their money, or they're going to "repossess" his home. How will they do it? Through a legal process called a foreclosure. The bank will hire attorneys to represent their interests, and essentially go to court to take Mr. Homeowner's house away. During this time, Mr. Homeowner will receive multiple notices of the impending doom, right up until Sherrif Joe knocks on his door and has his posse remove Mr. Homeowner and his belongings. Now, if the bank is unsuccessful at liquidating Mr. Homeowner's property at the courthouse steps, they will become the new owner of the home. Since banks are not in the habit of owning real estate, they will hire a new real estate firm to sell the home and get it outta their collective hair, and off the books. When the home goes on the market again, it is said to be an REO property, meaning the bank owns it. You might be thinking, and I hope you are, that it makes more sense for the bank to just take the home away from a delinquent homeowner, and sell it as an REO. Why would a bank actually consider a short-sale, when they can take it away and sell it themselves? The answer: the foreclosure process is very expensive, and can take up to 8 or 9 months. Next time, we'll look at the homeowner's qualifications for a short-sale, and the reasons a bank might be inclined to take one.

Go To Part II of the Arizona Short-Sale Primer Until then, if you have specific questions, please email them to me at abutler@realtybutlerhomes.com or call me at (602) 499 - 4798. You can also visit our foreclosure resource center on the realtybutlerhomes.com webpage.

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Simply Ridiculous

Allen D. Butler, MSSC, GRI, CDPE (The Realty Butler/West USA Premier Properties) — Wed, 31 Oct 2007 18:24:48 -0500

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On Podcasting

Allen D. Butler, MSSC, GRI, CDPE (The Realty Butler/West USA Premier Properties) — Sat, 10 Feb 2007 21:23:04 -0600

Hello Folks!

It's been a very interesting few days. I have become involved with the dogs of The Bloodhound Gang, helping out with some podcasting they're doing over there. First, I must say that the people over there are just a total class act; you couldn't ask for a better-hearted group of people. Those guys are going places, maybe even to heaven.

Well, as it happens, I have some experience with professional audio engineering, and offered to help by cleaning up some audio files so that they could post them on the site as pod-casts. First, I did one for Kris Berg in SoCal when she interviewed the CEO of Redfin, Inc. You can listen here.

Next, I "scrubbed" some audio for a seminar on web potency for Realtors that was conducted by Dustin Luther from Move.com & Realtor.com. You will find these pod-casts at BloodhoundBlog soon, I'm sure.

I'm very excited to help these guys out, as audio engineering is actually rather relaxing for me. It's a really fun hobby (although extremely expensive), and gives me a chance to exercise the other side of my brain. One of the things I would like to offer to the world at large, is just a bit of advice on how to go about setting up a very affordable and professional sounding portable audio rig to do some recording. For the purposes of this brief treatise, I will assume an absolute ignorance of all things audio, so if you're a know-it-all, just indulge me for a moment.

I have come up with a plan that includes 3 or 4 very small and inexpensive pieces of audio gadgetry that together would cost less than $400, and would capture audio for both interviews and seminars (or anything else, for that matter) with aplomb. Now, these items that I am about to list are readily available, and are cheap. (Note to Audio Geeks: I know that there are much better tools for this job, and you're foaming at the mouth to make a recommendation. Let me just preemptively state that I am aware that this job can also be done admirably for around $12,000. Just go back to your corner.)

The first scenario that I envision is that you'll want to interview a person and record it for posterity. Maybe you've found a really neat person whose opinion really matters, and you want to share it with others. Maybe you would like to record your next listing presentation (is this a real estate site?) so that you can hear how ridiculous you sound. Well, here's what you'll need:

1 Digital Recorder

2 Lavalier Microphones

2 Cables

There you go! Two close microphones to pick up the sound, two cables to carry the sound, and one stereo digital recorder to capture your every breath! NEAT! And it all runs on batteries.

Now, the next scenario presupposes that you are at a ~~geekinar~~ seminar where there's going to be a master guru sales weasle. First, you'll want to ask him if it's okay (maybe you should've asked the guy you interviewed too, sheesh! Details!) if you record him giving his talk. If he says it's a great idea and asks for a copy, you're golden. If he looks around for his attorney, or his bodyguards, make a break for the crowd and try to blend in. Once you've got permission (in writing?) you just slap this puppy on the table near where he'll be pacing and ranting, and BAM! You've got it.

I hope that you'll take these little ideas and run with them. Make beautiful audio recordings. It's fun!

Allen

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Direct: (602) 499-4798 Email: therealtybutler@gmail.com

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Working With Prison Inmates

Allen D. Butler, MSSC, GRI, CDPE (The Realty Butler/West USA Premier Properties) — Fri, 27 Oct 2006 22:04:10 -0500

I have had a fabulous time with this latest one.

The client is serving time in the federal penitentiary for a slew of offenses, and I'm trying to communicate with someone who is essentially incommunicado. They don't, apparently, have faxes in prison; neither do they have mail service that is reliable. They keep transfering my client around the country so that he's in one place just long enough for me to send a package after he leaves there.

I've been trying to close this property since Sept. 28th, and it finally closed today!!

I can already hear you saying, "Have you ever heard of a power of attorney?" Why yes, I actually have. Seemingly, my client has not. And when the concept was explained to him, he was horrified that his lovely and gracious wife was going to "juke" him and take all of his money. A reasonable suspicion I guess.

Well, I learned my lesson on this one: plan ahead, and get some clients who are not in the clink.

Allen

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Direct: (602) 499-4798 Email: therealtybutler@gmail.com

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