San Diego Housing Bubble News and Analysis

A Lender might do it but usually proof of a "hardship" is required. I think this requirement comes from the need for the lender to have a case for any PMI, for maintaining credibility with investors and maybe because regulators could have a say so in it. It would also be a bad business practice for it be too easy. In this day and age though, who knows to what extent good business practices have to do with anything.I believe shortsales will get easier soon, for some time going forward.Maybe they already are with some lenders?

The short sale package from the bank is generally pretty robust. It "could" ask for tax returns, complete asset and liability statements, a hardship letter, and pretty much all proof that the seller is facing a hardship. That said, it is completely up to the bank to accept or decline the short sale. Generally most banks will not entertain short sales until the seller is technically in default. Given that a notice of default does not happen until about 3 or 4 missed payments it would seem improbable that this guys bank will approve of the short sale. If he got a price near what he is asking I don't know why he would not just take the offer rather then deal with the short sale. Also not all short sales that are accepted by the bank are done with a "walk away from the loan" note to the seller. Some banks will actually only accept the short sale if the seller signs a promissary note to the bank for the deficiency. Now that means the home still conveys but that the seller still owes money to the bank. The loan so to speak is not secured by a property anymore.

Ask you agent to call the agent for the seller to see if the seller has indeed sent in the short sale package yet. If he did get all the offers he claims then he should of sent the full package in.

Both responses above are not accurate. Short sale packages from most banks are pretty cursory IMO. Short sales can and do happen when there are no late payments and the seller can make the payments. I closed one such transaction last week and another will close next week. The key is understanding how to negotiate them properly with the lenders and why I will likely have a career year in 2009.

sdrealtor,
I don't see how anyone was inaccurate. We were pretty obviously generalizing and going with historical norms and you are pretty obviously using a few specific examples and going with the current situation. In any case, I have said here several times that short sales will probably get easier sooner or later.In my post I said it was possible that it could happen. Starting a few weeks ago I said it seems like they are getting easier.I don't have any proof that short sales are "cursory" but I believe you have a few examples to give that opinion and that is great...I think. Lots of people have not done one or many because they we so problematic. If they are doable for you and others more and more agents will catch on and I am sure there will be squabbles over who is the real short sale expert. Maybe an elbow in some one's eye here and there. Gotta love it.

In any case it all depends on lender motivations.Much more than Realtor expertise. If they see short sales as a better route than foreclosure will see more going better. The troubled borrower has to be somehow motivated as compared to walking away, or perhaps even taking one of these modification or workout deals,if they are an option. We will see what trend prevails.

It is great to have sales people providing such great information here on piggington's. Did your clients have to sign anything with regard to owing the lender non-securitized amounts? Any other advantages or disadvantages come to mind with these deals?Any possibility that some of these short sellers have another better option, that we might steer them to for ethical reasons?

Sincerely,
Grasshopper

This guy has a pretty interesting blog going on short sales.http://blog.franklyrealty.com/2008/02/va-short-sales.html

Rus,
A couple things. While you were generalizing, you gerneralized comments and SD R's would like lead readers to arrive a false conclusions. Based upon all the short sale nightmares I hear from other agents and the utter lack of nightmares I have had with mine, I believe Realtor competence has a lot to do with it. My clients did not sign anything and got written full releases from future deficiency judgements. Both clients should have relatively little credit damage and should be back in homes they can afford in 2 or 3 years. Btw, I am not a "short sale expert" and never claim to be. There is no such thing. The folks claiming to be short sale experts are setting themselves up to be sued in a big way down the road. One of the biggest voices out there posts approval letters on his site claiming they are full releases when clearly they are not. I expect that he will be sued many times in the next few years.

sdr

I agree realtor competence is important.I tried to edit that part because it wasn't necessary but you posted first. This area is a little bit more complex than the average transaction but people can pick it up. Hopefully, before they start causing lots of trouble for other people.

I think it is pretty certain that if asset and income are part of the a required "hardship" claim all short sellers are not going to be honest about those. Also,since this post started off with a case where a seller was telling a buyer he really "wasn't in trouble", without accusing that particular individual, I would say that is information to be justifiably suspicious about. BS detector goes off.

If seller is moving out of the country that in and of itself could be cause for the lender to take the deal if presented properly.

Realtor guys,
I just like to play the villian around here every once in a while. Every good story needs a villian and I'm always the good guy in real life. Just having fun online........

Actually not all short sales are nightmares and as usual your dream shortsales are more then likely the exception rather then the norm sdr. In fact I am dealing with a short sale that has been going on since June from a very experienced and well respected Coldwell Banker agent and she is pulling her hair out.

So I would suggest that perhaps it is your posts that may mislead readers into believing that short sales are not a problem. Your posts make it sound as if you have dealt with a myriad of different lenders and negotiators. I am not a short sale expert either by any means. Some of them are smooth and some of them are not. However to claim that since a few of them have gone smoothly for you then portrays that all short sales will go smoothly as long as the Realtor is competent is as usual an inference by you of competence on your part and incompentence on mine and other parts.

Actually the bottom line is that competence matters but that same competence must also be present on the lenders side as well. When I dealt with Wilshire credit corp they wanted a hell of alot more then just cursory documentation. Your inference was again incorrect on that count.

I would think it would be more responsible to say that the lenders you worked directly with required little or cursory documents rather then generalizing it to all lenders.

Rustico:

Sorry to threadjack, but I thought that was a very interesting link you posted there on short sales.

If what he says is true for the SD area as well, that explains a lot of things about market conditions.

SD R, I suspect they are the exception rather than the rule but I have a couple dozen of them that seem to be exceptions. Every one of them that i have seems to be an exception.

Being experienced and competent as a Realtor does not necessarily equate to be so with short sales. A year ago, I figured out that this business would be all about short sales and REO's for a few years and sought to capitalize on it. I spoke with many people and figured out how to streamline the process and build something that could scale up. I left a big brokerage because the process would not work in that environment. I have dealth with many negotiators and lenders already. Across the team of people I have assembled to assist me, we have done over a hundred short sales with just about every lender and every combination of lenders. Before we even submit the offer, they tell me how it will likely proceed and generally are spot on. What we do isnt rocket science. I just modelled my short sale business after the way the best REO guy I know conducts his business. Anyone with half a brain who took the time to figure all this out could do what I'm doing and I'm surprised more arent.

As for the depth of information they request, I have worked with every major lender out there and have found that sellers can provide limited information without being dishonest and not get asked for more indepth information. It has happened over and over again. I'm surprised they arent more rigorous in their reviews.

Well I can honestly say that on the listing side I certainly have not done a hundred as you have. Over a hundred short sales in the past year is quite impressive I must say. On the selling agent side, representing the buyer, I do not have any control over what activity the listing agent does or does not get done with the negotiator. As far as the short sale process, your implication that there is little documentation at all that is required from sellers while my experience is different. My experience also is that a notice of default has been recorded. Perhaps yours is different as well. Also my experience has been mixed with regards to the lender requiring a note to cover the deficiency, some do and some don't. So while your experiences are different, the is nothing invalid or misleading about what I wrote contrary to your implications.

It would be interesting to hear what the other realtors experience is with regards to the short sales as well.

I have not done a hundred however the team I assembled has been party to over 100. I did not say that little documentation is required, I said that the documetnation they require is inadequate in my opinion to adequately analyze the selelrs situation. For example, they typically ask for a couple months bank statements but make no effort to determine if there are additional bank accounts. They also do not ask for retirement accounts or brokerage account statements as a matter of course. I have completed short sales when NOD's were never filed (in one case despite no payments made in over 1 year) and when payments were never missed. There are strategies for getting short sales done in such circumstances that are very effective. There are strategies that work when the 2nd is sold out and the 1st is not but the 2nd doesnt want to deal. There are more strategies then I could write in an hour that we have employed successfully.

Here is your comment:
"Generally most banks will not entertain short sales until the seller is technically in default. Given that a notice of default does not happen until about 3 or 4 missed payments it would seem improbable that this guys bank will approve of the short sale."

There is no way for you to say it is improbable without knowing the details of his situation, who is negotiating on his behalf, what strategies they are employing, who his loans are with, are they purchase money or recourse loans and on and on. That is what you said that was misleading.

sdr,

You're saying:

"For example, they typically ask for a couple months bank statements but make no effort to determine if there are additional bank accounts. They also do not ask for retirement accounts or brokerage account statements as a matter of course"

I mean, how close to the fraud line are we here? (no offense to you). The lender may be incompetent, but isn't there some part in the applicaton where the seller signs under the statement "these are all my assets, to the best of my knowledge"?

I mean, I never keep more than a few thousands in my checking account. And yet, like many people nowadays, I have substantial assets elsewhere. I would feel extremely uncomfortable providing a couple of statements and claiming that's all the money I have. I'm no lawyer, but this sounds like fraud to me.

I have listed 6 shorts (2 as assists). One has closed. Another is in escrow. One seller decided he wanted to walk away (its about to go to a trustee sale). One negotiator forgot to tell the trustee we had an accepted offer(it sold at trustee sale). 2 are still active (though one of those has a verbal negotiator acceptance).

I think the most accurate version of what I am seeing is that which sdr describes. The diligence of the listing agent is really the primary deciding factor. Competence is as competence does.

What has had the most effect for me has been a fax (or 3) every day with a phone call following it. What I have seen in other agents leads me to believe that the trick is persistence and imagination. I have been working for a while with an agent who specializes as a short sale consultant. His recipe really seems to be a more developed version of what I do.

Getting good with specific negotiators certainly seems to be relevant but the real trick is learning
to how make progress before losing heart. It really can be discouraging.

My opinions and observations fwiw.

Daniel
Definitely not taking part in any fraud. The lenders ask for certain things and you provide them. I'm shocked that they dont ask for more but they don't. The seller typically signs something that says all the information I have provided is truthful and accurate, which it is.
sdr

Speaking of competence, he comes a rant. I have a client that has been trying to buy a home from one of the top most "competent" agents at one of the major brokerages RSF office. This guy is such a blowhard. He has listed about 20 properties over the last 2 years (mostly $2M or more). He has actually sold 1 of his listings which was priced about $250,000. In over 2 years he has failed everyone of his cleitns miserably!!

I sent him a cover letter last year with an all cash offer of nearly $2M on a property he had and still has listed which told him exactly what would happen if they did not take the offer. I just re-read it for the first tiem and it was amazing prescient if I do say so myself.

They sent it back with rejected in red ink written on it. In the last 12 months they have invested an additonal $150K improving the property, paid over $20K in RE taxes and serviced $1.5M of debt while the property is now worth less than we offered 1 year ago. By my calculations, this competent jackass has cost his clients over $500,000 because they wont take anything under $2M. In antohter few years they will probably get that $2M. That is after spending another $500K carrying the property and losing about $1M. The punchline to it all is that the owner is a retired Wall Street exec who sells videos about how you should downsize and simply your lifestyle. They deserve each other.

The bank sets this up so that they don't look at more than one offer at a time.

In some ways it is similar to how they evaluate reo offers.

sdr is totally accurate.

The banks have very specific items they want and really seem to value certainty and simplicity over accuracy.

But again, the banks are not our clients.

Thanks, sdr, for clearing this up. It's quite amazing that lenders don't push harder. Maybe they figure the sellers won't pay even if they can afford to, and would walk away rather than participate in the loss (which is probably true).

An interesting fact: among the major economies, only the USA has no recourse mortgage loans. It also has an expensive and slow legal system, which makes it not worth it going after a borrower (even if the lender were allowed to).

To be honest, I can't see who in their right mind would invest in mortgages under these circumstances. Ummm... oh yeah, I know: you and me and the rest of the taxpayers...

Actually most of the loans I am dealing with are recourse.

The lender just chooses not to follow for the deficiency balance.

AK, Are you still camping out by the Mendenhall Glacier?I am pretty impressed with that blog. the broker takes a lot of guff but it brings out good information.

Adam, I think you probably know most of my view on this is from observation and study including conversation with my broker. I have purchased a short sale before. I have started prospecting modestly for the first time in years and have passed on a few probable short sale opportunities.

How many of these short selling clients are in part or whole being inspired by the lenders?

What reasons, advantages/disadvantages are you giving to your clients to short sell?

In what situations is it more practical or ethical to suggest something else tot he seller?

Generally speaking what pencils out better for the mortgage holder. The short sale or "walking" away.

Thanks.

Just curious... are any non-realtor piggs lurking who find this topic interesting at all?

Rus,

Yes to your last question, but I am not a true pigg. I mostly read alot over the last 3 years and not post much. Ya'll are quick, thorough, gramatically correct and sometimes lengthy. I am not there.

See Ya.

This is a great discussion on short sale. I am interested in two shortsales right now.
For the first one, the owners plan to move next spring so they are still making payments. They have $470K on the first loan and $70K on the second (I am buying closer to half of their loan). The owners probably plan to buy/rent another place once they move, therefore they are still making all the payments to keep their credit healthy. My agent says that it is an impossible scenario to get approved, is it a fair estimation?
For the second one, the house is an approved short sale at $270K. However, comps show that a few other properties nearby were sold at slightly lower price. My question is, is it possible for me to offer at a lower price but still getting quick approval? For approved short sale, what range of offer price would the bank accept without going through the approval process all over again? I'm tempted to overpay a little bit to avoid all the hassles of waiting for an approval.
A side note, both are priced at end of 2001 (or beginning of 2002) range. So I think they are fairly priced compare to the market price.

Thanks KCTxr,

I don't know about the compliments on written language skills. The need for spelling improvement wasn't all inclusive. However, progress was significant... once Former San Diegan tuaght us how ot activate teh speel check feeture.

The banks still have the agility of an oil tanker but are actually moving in a way that favors their interests more.

If they (the banks) wanted to truly act in their best interests, they would do prep for a short sale first and then give approvals on offers within a week of offer submission.

But we are not there yet.

how is a short sale ANY different from the bank simply renegotiating with the existing owner and changing terms and/or forgiving balances?

if I am a homeowner and don't pay , can't pay, whatever - and the bank fears I am going to default - a short sale coudl occur and along comes buying X with money - the bank sells the house to him and takes a big loss - but they keep getting some income.

If I am the homeowner, and don't pay, can't pay, whatever - and the bank fears I am going to default - but I tell them to knock off $100k off the house and I will stay and keep paying - they theoretically could wind up in the same position had they done a short sale - only quicker and with less costs.

so if banks will do short sales - why wouldn't they just flat out cut a deal with the existing owner?

i swear - the more I read this stuff - i figure why not just STOP paying my bank - and tell them to renegotiate with me or to come and "take it" and take the $150k loss too???

problem is for me, i can affod my home - but I guess I could go out and buy a ferrari and then say I have too many bills and can't make the mortgage..b/c of other obligations... i'm having a hardship... :)

this whole thing sounds like a big game and a lot of BS. play by the rules and you get scrwed. lie and cheat and you win.... WTF??!

The short seller is typically under some hardship and doesnt want to or cant stay in the home. The current lender has the surety of getting a distressed loan off their books. A new owner comes in at a lower price and hopefully with a well underwritten loan they can afford.

That is the difference.

When it wasn't "play by the rules and you get scrwed. lie and cheat and you win"? Although karma does come back, just look at OJ.

Carlsbadworker. I gave your two scenarios in you post above my best shot earlier but the site timed out for some reason and lost it.

In the first one I would say you want your agents investigate the listing agents position and progress in the short sale at the least. Maybe he or she has the bugs worked out? In any case I would think there is an element or a "crapshoot" in much of this, so don't be satisfied with no for an answer, if this is a property you want to explore.

The second case might jsut be about pricing,not "short sale"(although there could be other issues because of that too). I think it has the potential to be dealt with in a reasonable time frame even with a lower offer if you can find and present good reasons for it to be. Have your agent ping the listing agent on the willingness and ability of the three main parties on that side to perform, at the price you find suitable.

When I bought my shortsale it was a good candidate for a "shot across the bow" and I delivered it, verbally at 30% below list and eventually got it at 30% below that list but they reduced the price once in the interim ,so I got it at 15% below last list. It took around a month for those negotiations. That is a case where the lower pricing was approved at reasonable pace. Like I said and you know, you're kind of just throwing things out there(as competently as possible). Any fool can bid full price or over.

I see you have adjusted your offer strategy from aggressive to much less aggressive for this second one. I am guessing this might be because of interest current interest rates? Or maybe because you really like it? Anyway, Based on what you have said I would suggest you think more about those comps you mentioned, about market time and traffic, at this list price. If this all lines up in the buyer's favor then I would try to stay with your original aggressive strategy, or find some middle ground when the situation makes low-balls extremely unrealistic.There are some REO houses that are presented as "informal auctions" and some phony short sale pricing. In those cases you have to adjust accordingly too.The properties you have mentioned seem like pretty standard cases as far as pricing goes.

Be ready to be told that they have other offers on almost anything. Might be true might not be.

Thanks, Rustico. I think I'm turning slightly less aggressive because all the comps. All three homes sold in the last 2 months very close to this location are below its listing price. Although this is definitely a nicer house with bigger yard, it does feel like overpaying. Plus, I wasn't planning to low-ball at all. Part of me want to offer $260K instead of $270K listing price, but part of me don't know if it is worthwhile to have bank re-approve (listing price was approved because the original offer at the price fell off escrow) just for $10K. But it is not really easy to save $10K, I'd rather spend it on nicer furniture/appliance. It is not a popular one on redfin and median popular on ziprealty, I don't know about the foot traffic.