This week, my buyers specialist Susan and I experienced yet another contract fall apart only days before closing. This time we were dealing with an investment property that sounded great on paper but when the buyer discovered the reality of what he was buying, the entire deal soured. It was a total disappointment from our camp because the only reason why this portfolio of properties are not closing is as a result of a lack of disclosure.

Regardless of what you’re selling, it is important to paint an accurate picture to buyers. You may be able to trick a few people into believing that your 25 year old Hyundai is as nice as a new Mercedes but when the buyer comes to see, touch, and feel, they’ll always walk away. The same holds true for real estate. Agents are notorious for “puffing” and so much so that it’s covered in real estate text books in pre and post licensing. Puffing is the act of over-stating a home’s attributes within certain limits.

When a home is small, it’s referred to as quaint.

When a home is near a highway, easy commute.

When a home is on fire, motivated seller…you get the idea.

The harm in puffing comes when you have to disclose what you’ve been saying isn’t at all accurate. Take this transaction: listed as a portfolio of occupied and rented properties - winner! The reality: two tenants are being evicted and 2 units are rented by the room. Until this week, the leases didn’t even exist. Also, the properties were sold as completely renovated, which again can disappoint when it comes to ones expectations as to what they’re anticipating.

In real estate, it’s best to disclose every bit of information up front, especially anything that may affect whether or not a buyer would make an offer. If not up front, what other time would be opportune to disclose improtant information regarding the transaction you’re working on….at closing, after closing, during the inspection, or never. Also, agents who play the “don’t ask, don’t tell” rule with regards to material facts will quickly discover that they are liable for what they knew and should have known. Sorry guys, ignorance isn’t an excuse.

I’m big on real estate disclosure because I like my job and I plan to be doing it for a very long time. Agents whom omit important details that are discovered by the seller later on are quickly ushered out of the business as a result of a number of lawsuits or sanctions by the real estate commission.

It’s a shame that my client wasted his time and money to discover the truth of what was being held back in the situation. For us, we’re now 30 days into a failed contract and have to start over to find another opportunity to sell this client. Had everything been as it was sold, we would be going to closing this week and everyone would be happy. Instead, because of a lack of property disclosure and probably too much puffing, it’s back to square one.

Charlotte NC Homes For Sale

On November 30 2009, the Treasury Department released it’s guidelines to improve and standardize the short sale process called “Home Affordable Foreclosure Alternatives - Short Sale and Deed-in-Lieu of Foreclosure”.  While the guidelines can be read in their entirety on the Making Home Affordable website, here are the program highlights:

• This Making Home Affordable ” program does not go into effect until April 5, 2010 and expires December 31, 2012.
• The short sale and deed-in-lieu standards only apply to first mortgages where the investor is Freddie Mac or Fannie Mae.  Other investors may opt-in to the program but are not required to. (Ok, behind every mortgage is a servicer and an investor.  If you obtained your loan through Bank of America, chances are Bank of America is only the servicer of the loan and not the investor of the mortgage.  For Conventional mortgage, the servicer could be Freddie Mac, Fannie Mae, or a private investor like a mortgage-backed security, or even another bank.)
  
• The property must be the borrower’s principal residence.
• The mortgage (remember first mortgage only) must have been originated on or before January 1, 2009.
• The borrower (seller in the case of a short sale) must be behind on their mortgage or the default is reasonably foreseeable (i.e. I lost my job and I can only live off on my savings for two months).
• The current unpaid principal balance of the loan must equal or less than $729,750 (this amount increases for multi-family residences).
• The borrowers total monthly mortgage payment must exceed 31% of the borrower’s gross income.

Banks will begin reaching out to borrowers
Borrowers in default on their mortgage will be notified by their mortgage lender that they be eligible to participate in the “Home Affordable Financing Alternatives” program.  If the borrower fails to respond to the bank’s suggestion within 14 calendar days, the bank is under no obligation to extend the offer.  Therefore, sellers in trouble will want to contact their bank to see if they qualify for the program.  A mortgage representative will pre-qualify borrowers verbally and if eligible, will request supporting information from the borrower.  The bank will also determine the value at the time of pre-qualification at no charge to the borrower unless the borrower fails to complete the program.  Currently, the valuation of the property (either through a broker-price-opinion or appraisal) is not completed until after the home is listed, contract is received, and hardship is evaluated.

Changes to the Short Sale Process
In a short sale, the bank allows the borrower to list and seller the mortgaged property with the understanding that the proceeds from the sale may be less than the total amount due on the mortgage.  Changes, additions, enhancements to the short sale process include:

• A standardized Request for Approval of a Short Sale and Short Sale Agreement form will be issued to the borrower (samples of which can be viewed here).  It will outline the marketing terms, the listing price as determined by the investor’s guidelines, and the responsibilities of the borrower.
• The short sale agreement is only good for 120 days but may be extended for total term of 12 months.
• The property must be listed by a local licensed real estate professional.
• The Short Sale Agreement will specify the the list price or the acceptable sale proceeds before the home is listed (BIG change from the way things are handled now).
• Real estate agent’s commissions will be capped at 6% for all sides involved and that includes any fees paid to a third-party negotiator.
• If successfully closed, the borrower will be released from all liability of repayment from the first mortgage debt (and this includes loans with mortgage insurance). No more promissory notes!
• Subordinate liens (2nd mortgages), in the order that they are filed, will receive a maximum of up to 3% of their unpaid balances; up to a total of $3,000.  The Treasury Department will offer additional incentive of up to $1,000 to the subordinate liens for their release of the deed.
• The borrowers mortgage will be modified to 31% of their gross monthly income during the term of the short sale.  If the borrower fails to pay during this modification period, their short sale agreement may be terminated.
• If the borrower abides by the terms of the Short Sale agreement, the bank WILL NOT foreclose on the home.

Short Sale “Investors”: Your Opportunities are Eliminated.  A couple of years ago, real estate investors discovered that they could put a short sale home under contract and then while they negotiated the sale with the bank, sell the home to a buyer at a higher price.  Once the short sale was approved, they would close on the home in the morning and their buyer would close on the home in the afternoon.  Their tenure of ownership would last a mere few hours and for the trouble, they could make 3-10% of the market value of the home.  If they aren’t successful, they let the home go into foreclosure.  Under this program, the buyer of the home may not re-sell the home for 90 days after closing. 

Sellers are FINALLY Compensated
Borrowers who participate with the terms of the short sale agreement will receive $1,500 at closing as a relocation incentive.  Currently, borrowers in a short sale may not receive any money at closing under any circumstances.

Obligations of the Seller

• Provide all information and sign documents required to verify program eligibility.
• Cooperate with your real estate agent to actively market the property and respond to bank inquiries.
• Maintain the interior and exterior of the property in a manner that will mean a quicker, higher priced sale.
• Work to clear any liens that may prevent title conveyance.
• Make the monthly modified mortgage payment in the Short Sale Agreement, if applicable.

How you can get kicked out of the program

• Your financial situation improves or the borrower brings the account current or otherwise pays the account in full
• Your real estate agent fails to act in good faith in listing, marketing, and/or closing the sale or violates the terms of the Short Sale Agreement
• The condition or value of the property changes significantly
• The bank discovers evidence of fraud or misrepresentation
• The borrower / seller files for bankruptcy and the Bankruptcy Court declines to approve the Short Sale Agreement
• Litigation is initiated or threatened that could affect the title to the property
• The borrower fails to make the monthly modified mortgage payment

Warning: if you are kicked out of the program, you may be held responsible for the costs associated with the property valuation and servicer fees. 
Short Sale Approvals will be within 10 business days.
Once a contract is received on the home, the listing agent will have 3 business days to submit the file to the bank for final approval.  Since all of time consuming work is done up front, the bank will be able to approve or disapprove the sale within 10 business days.  Sure beats the 6+ months most sales are taking these days.  Additionally, the sales will be AUTOMATICALLY approved if the net sale proceeds are equal or exceed the minimum net determined in the Short Sale Agreement and the other terms have been met.  Real estate agent’s commissions not be reduced below the amount set-forth in the Short Sale Agreement (6%).

The bank will still specify when a closing will occur however the bank must allow the buyer at least 45 days from the approval to close the file.

Deed-in-Lieu of Foreclosure
Similar to the short sale process, a deed-in-lieu occurs when a seller sells the deed of their home to their mortgage lender instead of facing a foreclosure.  A deed-in-lieu agreement can be viewed here. Changes to this process include:

• Borrower will have at least 30 days to vacate the property from the Deed-in-Lieu agreement date
• Borrowers will be able to receive a $1,500 relocation incentive for participating in the program
• The home is able to be conveyed free and clear of all other liens
• The bank may require the borrower / seller to attempt the short sale before accepting a deed-in-lieu.  Some Short Sale Agreements may default to a Deed-in-Lieu agreement if the home fails to sell through a short sale.

Changes on How Short Sales and Deed-in-Lieu’s are reported to the Credit Bureau’s
When a seller / borrower agrees to a Short Sale Agreement or Deed-In-Lieu agreement, it will be reported at that time to the credit bureaus.  Successful short sales will now report on your credit reports as “UA: account paid in full for less than the full balance” while Deed-in-Lieu sales will record as “89: deed-in-lieu of foreclosure on a defaulted loan.”

As an REALTOR that specializes in short sales and pre-foreclosure listings, I am excited by these changes.  Often times, short sale listings are overlooked by other real estate agents and buyers because of the hassle and horror stories associated with the uncertainty of the process.  If adopted and implemented as stated, this program will make purchasing a short sale home as hassle free as purchasing any other form of real estate.  I am also pleased by the incentives offered to the seller for participating in the short sale process as it should greatly reduce the number of foreclosures.

Charlotte Short Sales and Pre-Foreclosures

Good news: The recession is over according to our Fed Chief.  As a result, buyers will be rushing out to purchase $800,000 and up properties…right?  In all seriousness, the near million and up housing market in the Charlotte area is where buyers are finding the best deals.

In August, sellers in the $800,000+ price range are reducing the price of their homes an average of 17.2% and buyers are receiving an additional 7.07% discount for a total of 24.27% from the original list price to the final sales price.  No other price point in our area yields nearly a full quarter discount.  This amounted to a little more than 13 million dollars from the original listing price to the final sales price for the 31 closed transactions last month.

As you might expect, there are fewer buyers in the million dollar price range.  August was the third highest month for $800,000+ this year with July and June being the best months respectively.  Unfortunately, sales for this August were down to levels not seen since 2003; 69% fewer than in 2007.

Among the best values in the luxury market was a foreclosed home in Waxhaw that closed last month for $850,000.  This home features 5 Bedrooms, 5 Full Baths, 2 Half Bahts, 6500 sq. ft. on over 4 acres of land.  It was regarded to be among the nicest homes in Union county and was listed for as much as $2,699,000.

189 properties have sold in the Charlotte area in the $800,000+ price range, yielding a 3 1/3 year supply of homes on the market.  That’s 1,446 sellers that are looking to sell the homes and are willing to do what is necessary to sell.  So the next time you’re looking for a deal that you can brag about at the next country club social, try the luxury home market.  Charlotte’s on sale like a red tag sale at Macy’s.

Charlotte NC Homes

Pre-foreclosure short sale information for Bank of America Home Loans.  Please feel free to update this post by posting new information in the comments section. 

Contact Information:

Bank of America Home Loans 1st Mortgage and 2nd Mortgages: 1-877-444-8291

Bank of America Home Loans 2nd Mortgage Only: 1-866-413-3757 ext 4

Documentation:

3rd Party Authorization: Bank of America has their own authorization letter that you can download here.  While they will recognize an authorization letter from a third party, they will insist the seller sign one on their own letterhead. 

Short Sale Application: Here is a copy from one of our recent files.  We have modified it for our use however feel free to print, white out my info, and replace your own. 

Supporting Documentation:

• Last two months of bank statements for all accounts
• Last two pay stubs (if any)
• Last two years tax returns
• Hardship Letter
• Documentation of Hardship
• Application
• HUD-1 showing the settlement offered to Bank of America
• Listing Agreement
• Sale Contract

Tips for Working with Bank of America Home Loans

While some may not share my experience, Bank of America Home Loans is by far the easiest bank I have ever worked with on a short sale.  That may say less about them and more about how bad some of the other banks are but in all, very easy.  It is imperative that you call into their department and setup your file verbally with the right department.  When you do this, they will give you the fax number for the person who will process your file…and they use E-FAX!!!! (Believe it or not, some banks are still using paper faxes).  Make sure that the loan number is on top of all documents in case your fax misses a document.  Also, make sure your cover page as an index of documents since they use E-Fax and can flip through your document very quickly to retrieve information.

Setup time is generally 15-30 days.  Eight months ago, we had a short sale approved through them on a second mortgage in less than 72 hours.  However understand that is the exception, not the rule and that most files will take 45-60 days.

All contracts must be within 15% of market value as set by the bank.  Offers for less will be rejected.  For sellers and agents, it is best to try and get as close to FMV for your house as possible as, with every short sale,

Charlotte Pre-Foreclosure Short Sale

Let’s face it: the economy stinks.  Unemployment is high and the fear of losing ones job is the number one factor keeping home buyers on the sideline.  So what if you find yourself on the wrong end of a pink slip, out of work and the bills mounting?  Here a few tips that should

1. It’s time to get real with your situation

When the shock of being let go wears off, it’s time for you to have a “get real” meeting with your spouse and family.  Far too often, I have been called by sellers asking for assistance in short selling their home that had this conversation with themselves far too late.  It’s important to analyze your situation with regards to outstanding and reoccurring debts, sources of income (how much and for how long), prospects for employment, etc.  This isn’t a tough thing to do because for many of us, myself included, it’s easier to ignore the bills and the phone calls than to face reality.  Unfortunately, this is the main reason why so many homes are in foreclosure.

I mentioned getting the family involved too because I believe that as a family, you need to support one another.  Also, the last thing you ever want to have happen is to have your son or daughter greeting the sherrif when he’s serving foreclosure paperwork.

2. Call your bank

The good news is that you’re not alone.  With so many out of work, almost every bank has program to assist you in making payments or delaying payments when you have fallen on hard times.  The key is to notify the bank as soon as you are aware of your situation.  Often times, you can save your credit by being proactive.

3. Seek help from a community credit counselor

In your community are non-profit agencies designed to help folks going through your exact situation.  The banks can be like that relative or co-worker that you really don’t like to interact with because they have no understanding and no personality.  These agencies can intercede on your behalf for free with the bank and may have information on local and state grants, foundations, etc that may be able to assist you as well.  In the Charlotte area, contact Alliance Credit Counseling or United Family Services.

BE VERY CAREFUL WHEN NOT DEALING WITH EITHER AGENCY BECAUSE THERE ARE A NUMBER OF SCAM ARTISTS WHO’S GOAL IS TO RIP YOU OFF.  If you are ever asked to pay any money up front, turn and walk away.

4. Call your mortgage servicer and good Realtor® who knows distressed sales

A house is just that: a house.  Sure, it may be a status symbol for you and a place to call home but in the end however if you can no longer afford to keep it, you must look at it as four walls, a roof and foundation.  Consult with your bank regarding the options that may be available for you.  Another resource for help is Alliance Credit Counseling and United Family Services in your community.  Be wary of anyone who advises you to stop making your mortgage payments and cease communication with the bank.  These local non-profits are available to aide homeowners with their hardship and may know of state and local agencies that may be able to offer assistance as well.

Also, it’s good to talk with a local real estate professional who understands the short sale or pre-foreclosure process and can get your home to closing.  Choosing the right agent may be difficult because the process of the short sale is fairly fluid.  Regulations are changing much the same as in lending and there are a number of factors that can cause a sale to go sour.  However an agent who is in that market will be able to do what it takes to get your home to closing before the sale date.

With inventories at record highs, sellers are looking for a way to make their property stand out and sell quickly.  However, that usually means offering an above average home at a below average price which can be a tough pill to swallow.  Many sellers are considering a lease-purchase or lease-option which would allow the buyer to rent the home for a period of time before purchasing it.  This is risky and not for everyone.  However another alternative may be to offer seller or owner financing.

Essentially, in owner financing, you, the seller, are acting as the bank for the buyer.  They qualify based on your criteria, pay you a mortgage every month, and they own the house.  Much like the bank, if they are late on a mortgage payment, you can foreclose based on the terms of the mortgage and when the sell it, they will pay you the balance.  While it is risky and isn’t for everyone, it can be extremely profitable and an excellent source of income though the interest paid on the loan.

Most people never consider why a bank would every consider lending money to someone who couldn’t pay it back.  However, all one needs to do is to pull up an amortization chart to realize the profit involved in mortgages.  For an example, take a $200,000 mortgage at a 5.5% interest rate.

In the first year, the buyer has paid the seller $10,932.72 in interest and only $2694.20 in principal.  The next year, the seller would receive $10,780.78 in interest and $2846.18 in principal.  Year 3: $10,620.24 and on and on and on.  At the end of five years, you would have earned more than $53,000 in interest payments in alone.

So with all of this upside, is there a downside?  Yes.

First, if the buyer defaults, you have to foreclose on them which can be expensive.  However at the end of the foreclosure, you get the house back to sell again.  Unlike these big mega banks. you can foreclose or react to a buyer in distress quickly compared to those that are not foreclosing until a year after the buyer stopped making payments.

Second, it’s not for everyone.  As you might expect, you won’t be able to have a mortgage on the home yourself.  The buyer may elect to have a second mortgage through someone else but you will not be able to.

Third, if not executed properly, it will cost you dearly…but what investment wouldn’t.  When you choose to explore this opportunity, consult with your own real estate attorney who can draft up the documents and advise you on the laws in your state.  You will want to have the deed and mortgage recorded, you will want to be in first position on the deed like any bank, and you will want the buyer to purchase mortgage insurance if not putting 20% down.

Ok ok ok, so you may be wondering why would a buyer consider a home that is owner financed?  Well, if the buyer is self employed or in sales, they are having a tough time getting a mortgage even with good credit.  Divorced folks on alimony, someone starting a new career, a recent relocation, and others would jump at the opportunity.  Your property may not allow for financing in its current configuration or condition (i.e. a CO-OP condo not in New York).

In todays market, being create may be what it takes to get your home sold.  Owner financing isn’t just create but profitable as well

Charlotte Real Estate

If you have been actively selling real estate over the last year, you will noticed that a large numbers of sales are falling apart due to financing.  Since the beginning of 2009, my group has only had one transaction close on time and that was a cash deal.  Ask the loan officers and they blame the underwriters.  Ask the underwriters and they’ll blame the loan officers and the appraisers.  Regardless who is to blame, there are far too many contracts falling apart these days due to the sloppy habits many of these lenders were accustomed to a few years back.

Upon reflection, the only conclusion that I am able to reach is that far too many people are being “pre-approved” that should never have been approved whatsoever.  However, the pre-approval process itself is a joke.  Lenders boast about how painless and effortless the process is.  Some will say they can have an approval in less than 10 minutes.

10 minutes?  What can be done in 10 minutes?  You’re telling me that it takes longer to make frozen pizza than it does to get a mortgage approval?  I know that in 10 minutes, the lender took the buyer’s income at their word and reviewed their credit to see if they meet the minimum credit scores.  However, I know lenders hungry for a deal will even stretch a buyer who is close by not really able to get approved.  The end result is that you have a buyer who thinks they can shop with confidence, an agent who is hauling and hoping for a contract, and a seller who is depending on the sale to close to accomplish their goals.

So to protect our sellers, our buyer clients, and ourselves, our group will no longer accept any lender’s pre-approval letter.  After all, they’re worthless born out of laziness and greed….I think you’re getting my point.  Instead, every agent should demand that their client meet with the lender pre-home search and allow the lender to review ALL their information before hand.

Back when I sold real estate in Maryland in 2003-2006, as listing agents, we demanded the sellers provide a full-loan commitment needing only a contract, termite, and appraisal.  During those days, I only can recall one transaction falling apart due financing (and I wasn’t selling to sub-prime borrowers).  Today, I would put the numbers as high as 50%.  Even a year ago, I had one transaction fall apart a quarter and found that to be rare but not alarming.  Today, that market being what it is, far too many agents are writing contracts for under qualified buyers and anxious sellers and their agents are all too eager to accept.

I want to encourage you to adopt our loan committment standard to assist in ensuring that your contract closes…period.

Charlotte Real Estate

Real estate is seasonal regardless of the market.  Typically, more homes sell in the spring and summer than in the fall and winter.  December is the one odd month as many buyers rush to cash in on the tax incentives by closing before December 31.  That being said, there is a much better time to sell your home in the summer than any other.

I compared contracts received on listings in both Union and Mecklenburg counties dating back to 2005 between June 1 and September 1.  I also excluded out all of the new construction sales, which have little relevance for this topic.  In Union county. 54% of all the contracts written in the summer came in before July 4th.  The remaining 46% for those years were then spread over the last 58 days.  Therefore, it makes more sense to get aggressive early on to sell your home than to wait until mid-summer, as your chances for success dimish substantially.

Mecklenburg county was slightly different from 2005 to 2008 as 54% of all sales happened prior to July 12.  The balance is as a result of higher selling volume in Mecklenburg county as opposed to Union, and Union’s lopsided location of sales.  The majority of the sales in Union county occur north and west of Monroe, while sales in Mecklenburg occur all over the county.  So in a seasonal real estate market, Union’s lack of sales volume has made it even more season than its neighboring county.  Also, with the majority of Union’s residents having relocated from Mecklenburg, it only makes sense that those with children would wait until after school had ended.

So what’s the end result?  If you’re a seller and you don’t have a contract by July 4 or 12, you may want to consider getting aggressive with your price and marketing if you’re planning to sell before September 1.

Charlotte Real Estate

Yesterday, the HUD secretary officially released the details of the FHA’s plan to allow first time home buyers to use their $8,000 tax credit at closing.  When the plan was first announced, the speculation was that it would have allowed buyers to all or a portion towards their down payment.  However yesterday’s press release explained that buyers will only be able to apply the amount to closing costs or towards an additional down payment.  Buyers will still need to make a down payment of at least 3.5% to qualify for an FHA mortgage. 

While this may have some impact in other markets, in Charlotte this move by HUD will have very little, if any, effect on improving our market.  Since the end of February, 2,193 single family detached homes have sold in Mecklenburg, Cabarrus, and Union counties below the FHA limit of $303,750.  Of those sales, 54% of the sellers offered the buyer a concession, most likely paid closing costs.  When you subtract out the number of cash sales (since a cash buyer wouldn’t care what the seller was paying…it effects their net price anyway), the number jumps to 69%.  Of the 1,645 sales at or below $200,000, 55% of sellers offered concessions (including cash sales, which would increase that number further). 

So with closing costs, the buyer could use the money in addition to their down payment to lower their monthly payments.  That sounds nicer than it really is.  Study any amortization chart and you’ll see that at today’s interest rates, every thousand dollars and down payments only lowers the monthly payment by about $4.80.  Applied completely, it would lower the buyer’s payments around $144 a month, which isn’t much of a windfall. 

Sellers hoping this would have helped them move up should think again.  Unfortunately, I think this revision to the first time buyer tax credit will have very little impact here in Charlotte. 

Charlotte Real Estate

Putting your home for sale to take advantage of the spring market is a big task.  In order to take advantage of the buying frenzy that occurs in March through July, you must make sure that you home is among the very best on the market.  This typically involves touching up the paint, pressure washing the exterior, freshening the landscape, and making your home warm and inviting.  However, most sellers do that and more and completely ignore the most critical step which is previewing the competition.

Selling real estate is, to an extent, a beauty contest.  The judges (the buyers) will be evaluating your home against their own expectations and against the home homes in your market.  Therefore, it just makes sense to see what the other homes are offering.  One way is by the computer, visiting a real estate website and seeing what homes are for sale around you.  If the site has a way for you to sign up to receive other homes for sale when they come on the market, take advantage and sign up.  However, the best way is to go in person which will either involve your Realtor or waiting for an open house.  I’ve done this many times with clients since I’ve usually been through their competitor homes already.  The advantage to going in person is that your senses are able to experience what this home has to offer inside and out, most importantly what the listing agent’s photos are leaving out.  That a home has a heavy pet odor or that a home was occupied by a smoker are usually things not found in the general listing description.  After all, most buyers don’t say “I’d love a house that smells like urine!” but that may be the reason for that low price.  Other things to look for is the overall condition (inside and out) of the home, including layout. 

While this may take a few hours of a weekend, it is well worth the visit to your competitor homes as the information gathered from your excursion will guide you during the listing process.

Charlotte Homes