This free workshop will break down the short sale process and review all possible options for people who are upside down and struggling. Be at my office, 7801 Laguna Blvd. Ste. 100 in Elk Grove, CA 95758 at 6pm June 30th- THIS THURSDAY evening! Even if you decide not work with me right now, you WILL benefit from the information, so please mark your calendars and be there!
IMPORTANT NOTICE: Better Homes & Gardens Real Estate is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan. If you stop paying your mortgage, you could lose your home and damage your credit. 2. Even if you accept this offer and use our service, your lender may not agree to change your loan.
As of July 1st 2011 all homes in the state of California are required to have carbon monoxide detectors in them! I highly doubt that the government will be sending any inspectors to your homes to confirm that you’ve complied. I mean, how often to you hear about men in black suits knocking on random doors to verify a property has smoke detectors or that their water heater is properly braced to the wall? BUT, if you are selling your home and you will record after July 1st, you will need make sure that you have these detectors before you record to ensure that your property is up to code. If you’re not selling your home any time in the near future, you may want to consider picking up a few of these detectors anyways… You never can be too safe, right? As always, From the first time home buyer to the savvy investor – from the seller with equity to the seller underwater and needing options – I am here for you.
As you know, I like to keep you posted on the mortgage market via news from the desk of Monica Jones- Certified Mortgage Planner with RPM Mortgage. In my opinion, she’s one of the best in the business and this is what she has to say this week:
“You sound like a broken record…” or so the cliché goes. And lately that saying certainly applies to the phrase the media has been repeating recently: Don’t fight the Fed.
So what does “Don’t fight the Fed” mean exactly, especially when it comes to home loan rates? Let’s answer that by going back a few months. In early November, when home loan rates were at all time lows, the Fed announced their plan to purchase $600 Billion in Treasuries through mid-2011. Dubbed Quantitative Easing 2 or QE2, the Fed had three goals:
- Boost Stock Prices
- Lower unemployment
- Create inflation
After just two and a half months, an argument could be made that the Fed has been somewhat successful so far. Stocks are higher, the unemployment rate has improved (though more improvement is certainly needed), and as we saw last week inflation has ticked higher.
Both the Consumer Price Index (CPI) and Producer Price Index for January were hotter than expected and, as the chart shows, the more closely watched Core CPI, which strips out food and energy, came in at the highest level since March 2010. And we’re not just seeing hotter inflation here. Reports last week showed inflation is heating up in China and England, too.
So what does all of this mean for home loan rates? Inflation is the arch enemy of Bonds and home loan rates, and usually any hints of inflation cause both to worsen. Yet, you may be wondering why Bonds and home loan rates improved slightly last week. There are two things to note: First, while last week’s inflation data was a touch hotter than expected, overall, it’s still on the tame side. Second, last week’s Initial Jobless Claims was a disappointment, suggesting that the labor market continues to improve but at a very choppy and sluggish snail’s pace.
The bottom line to remember is the phrase we started out with: Don’t fight the Fed. If the Fed wants to create inflation as one of its three-fold goals for QE2, it will likely succeed…and Bonds and home loan rates will likely worsen over time as a result. That’s why if you have been thinking about purchasing or refinancing a home, this is a great time to get started! Call or email me if you have any questions at all – I’m always happy to talk to you!
Here’s a quick break down of the overall process, and why it seems to take so long.
- Once an offer is made it has to first be accepted by the home owners. This is usually not a difficult step, as the average home owner is not overly concerned with the net sheet because it’s ultimately not that person’s net loss.
- After the homeowner accepts the offer, their agent then submits it to the bank(s). In the best case scenario, the subject property will only have one mortgage, and in turn one bank to negotiate with. We’ll assume that this the case for now, and then go over the possible differences at the end of my spiel.
- Normally, the agent will put together a short sale package containing a myriad documents that are requested by the bank to go along with the offer. Each bank has its own requirements, but almost all banks will ask for the following:
- Listing Agreement
- MLS history for the property
- Comparable Listings to justify the list price (usually 3 active, 3 sold, and 3 pending if possible)
- Executed Purchase Agreement
- Pre-Approval letter or Proof of Funds for the buyer making the offer
- A HUD-1 Statement for the purchase (this breaks down the banks expected net loss from the sale after all fees are accounted for)
- Financial Statements for homeowners applying for the short sale including but not limited to: bank statements, retirement accounts, investment portfolios, pay stubs, evidence of other income, a signed 4506-T granting the bank access to your tax returns, a completed budget worksheet which breaks down the homeowner’s end-of-month net after all necessary expenses are deducted from their gross income, etc.
- A well written, one page hardship letter explaining what event(s) have occurred that have left the homeowners less able to pay their monthly mortgage payment than they were on the day they were approved for their home loan. It’s important to note that being upside down in itself is not generally accepted as being a true hardship for the purposes of a short sale. There must be an extenuating circumstance that lessens your ability to afford your regular payment, i.e. loss of employment, death in the family, unexpected medical expenses, an adjustment in your ARM loan, reduction in income, or some other catastrophic event.
- When your agent submits this well organized package to the bank, there will be an administrative person who receives it from the bank’s short sale department in most cases. This person’s function is to ensure that the package is complete and ready to be reviewed for negotiation. If your package is not complete, it will not be sent to a negotiator’s desk, so make sure everything is done right the first time around.
- Once your file has been reviewed and accepted as a complete package it will then be assigned to a negotiator. This alone may take two to three weeks. Keep in mind that yours is just one of many files on the negotiator’s desk, which will absolutely mean a delay between the time he/she receives your file and the time he/she actually begins reviewing it.
- The negotiator’s job is to protect the bank financially. He/she needs to examine the numbers and ensure that the net loss on the short sale will overall be less expensive than a foreclosure would potentially be. He/she also needs to determine that foreclosure is eminent if a short sale is not approved (this is where all of those financial documents and hardship letter come in). Keep in mind that in most cases the bank sells off mortgage debt to third party investors which means the bank must be able to justify any losses to those individuals.
IF the homeowner can be financially interpreted on paper as being able to afford the mortgage payment, then there is no real reason for the bank allow that person to do anything less than what was agreed upon in their contract- which is pay the full amount due, with interest, as promised .
IF though, that person’s financial situation has drastically changed and it’s clear through their financial records and hardship letter explanation of their circumstances, that there is just no possible way for them to continue paying the loan payments, regardless of whether or not a short sale is granted, and if it isn’t granted then the home will in all likelihood end up in foreclosure (an expensive process in itself), then the bank will be more likely to negotiate for an acceptable loss.
- Usually the negotiator will calculate a “Magic Number” so to speak that the bank needs to be able to net in order for it to be financially sensible for them to accept a short sale, but of course they will not normally share this number with the agent until the very end of negotiations (if at all) in an effort to maximize their earnings from the sale. They will then take the difference between that number, and the number at hand with the given offer on the table and attempt to trim costs as necessary. They may do this any number of ways. For example: it’s very rare that a bank will pay any non-essential fees, or costs that could potentially be passed on to the buyer (i.e. home warranty, closing costs, excessive commissions, etc.)
- Once all of this back and forth has been handled you might be ready to close! UNLESS THERE ARE SECONDARY LIEN HOLDERS (and there often times are).
- IF the property has a 2nd mortgage and/or a HELOC you will need to negotiate a payoff with them as well. All of the same rules that come with negotiating with the 1st bank will apply to the other bank(s) involved in the financing. Other possible lien holders include Home Owner Associations, or government entities for unpaid tax liens. Each secondary lien holder will have to be settled independently of each other. Once the secondary lien holders have agreed upon their respective payoffs, your agent will then add their payoff amounts to the HUD-1 to be paid through escrow once the home is sold. The bank that holds the 1st mortgage must agree to the payoff amounts for each secondary lien holder, and each secondary lien holder must be paid through escrow. It is ILLEGAL for a buyer to pay a secondary lien holder outside of escrow!
If all the payoffs have been negotiated and approved by the 1st lender, AND if the remaining balance after those payoffs are made is still enough to satisfy the 1st mortgage’s previously mentioned “magic number” THEN you will have the makings of a successful short sale. Of course all of this is dependent upon a very strict time table, because in many cases there may be a looming foreclosure on the horizon.
Bottom Line? Short Sales are complicated, and time consuming, and stressful. That’s just part of the deal. They are also a means of salvation for the struggling home owner under water who is looking to minimize the long term damage to their credit so that they can start rebuilding towards future home ownership. AND they are often competitively priced because of the added frustration that comes along with the process, which means a golden opportunity for buyers on a budget!
Feel free to contact me if you have any questions or concerns specific to your situation that I may be able to address for you. Before you consider a short sale, I highly recommend you speak with a real estate attorney to determine the possible consequences that may or may not apply to your unique situation.
1. Get pre-approved
Before writing an offer – and ideally before you even begin your search – meet with your bank or other financial advisor; the one who will be giving you your mortgage, and get pre-qualified or pre-approved. When it’s time to put forth an offer, the seller will know it’s serious.
As you can see by reading other posts on my blog, I often refer Monica Jones with RPM Mortgage as excellent Certified Mortgage Planner. You can actually apply for your pre-approval online at MortgagesByMonica.com.
2. Understand the local context
List prices are often subjective. Look to your Better Homes and Gardens® Real Estate sales associate to advise you on pricing strategy. In the end, it’s important that you know the real estate situation yourself to determine if the property is fairly priced, based on comparable, recently sold properties. There’s no rule of thumb that says going in under asking is expected. Market conditions will dictate the selling price. Keep in mind that homes will also occasionally be under-priced to attract multiple offers. This circumstance may call for a bid over the initial asking price.
3. Understand and adjust to the seller’s interests
Asking the right questions prior to writing an offer can often make the difference between an accepted offer and a stalled negotiation. Some contract terms may be of great significance to the seller, whereas only a slight inconvenience for you. Should the seller want to rent the place back, for example, for a few days or weeks after escrow, your written flexibility on the move out/in date could close the deal in your favor.
4. Make a strong deposit part of your offer
You’ll want to submit an earnest money deposit when writing an offer, payable to a reputable escrow company, to be delivered by your agent no more than three business days after the acceptance of the offer. Even when delivering an offer below asking price, offer a large deposit if possible, and it will pay dividends in the end. Down payment strategies however may vary. In some areas, a smaller deposit is the norm. Regardless of location, a higher deposit will most likely strengthen your negotiating power.
5. Provide an appropriate time for the seller’s response
Time is of the essence once you decide to take the plunge, especially regarding a newer listing in which the risk is high that other buyers will potentially submit offers. Typically, the seller is given until 5PM on the third day from receipt of the offer to respond, unless you write in a different date and time. If the offer is strong, speed up the response time. Your Better Homes and Gardens Real Estate sales associate can advise you on what strategy will work best.
This is a fascinating letter originally written by Richard Russell in 1958 (though it has been revised several times over). Read, learn, and enjoy. I did! See the actual letter at dowtheoryletters.com.From the first time home buyer to the savvy investor – from the seller with equity to the seller underwater and needing options -I am here for you.
AH PERFECTION: Strange, but the most popular, the most widely-requested, and the most widely quoted piece I’ve ever written was not about the stock market — it was about business, and specifically about what I call the theoretical “ideal business.” I first published this piece in the early-1970s. I repeated it in Letter 881 and then again in Letter 982. I’ve added a few thoughts in each successive edition. But seldom does a month go by when I don’t get requests from subscribers or from some publication or corporation to republish “the ideal business.” So here it is again — with a few added comments.
I once asked a friend, a prominent New York corporate lawyer, “Dave, in all your years of experience, what was the single best business you’ve ever come across?” Without hesitation, Dave answered, “I have a client whose sole business is manufacturing a chemical that is critical in making synthetic rubber. This chemical is used in very small quantities in rubber manufacturing, but it is absolutely essential and can be used in only super-refined form.
“My client is the only one who manufactures this chemical. He therefore owns a virtual monopoly since this chemical is extremely difficult to manufacture and not enough of it is used to warrant another company competing with him. Furthermore, since the rubber companies need only small quantities of this chemical, they don’t particularly care what they pay for it — as long as it meets their very demanding specifications. My client is a millionaire many times over, and his business is the best I’ve ever come across.” I was fascinated by the lawyer’s story, and I never forgot it.
When I was a young man and just out of college my father gave me a few words of advice. Dad had loads of experience; he had been in the paper manufacturing business; he had been assistant to Mr. Sam Bloomingdale (of Bloomingdale’s Department store); he had been in construction (he was a civil engineer); and he was also an expert in real estate management.
Here’s what my dad told me: “Richard, stay out of the retail business. The hours are too long, and you’re dealing with every darn variable under the sun. Stay out of real estate; when hard times arrive real estate comes to a dead stop and then it collapses. Furthermore, real estate is illiquid. When the collapse comes, you can’t unload. Get into manufacturing; make something people can use. And make something that you can sell to the world. But Richard, my boy, if you’re really serious about making money, get into the money business. It’s clean, you can use your brains, you can get rid of your inventory and your mistakes in 30 seconds, and your product, money, never goes out of fashion.”
So much for my father’s wisdom (which was obviously tainted by the Great Depression). But Dad was a very wise man. For my own part, I’ve been in a number of businesses — from textile designing to advertising to book publishing to owning a night club to the investment advisory business.
It’s said that every business needs (1) a dreamer, (2) a businessman, and (3) a S.O.B. Well, I don’t know about number 3, but most successful businesses do have a number 3 or all too often they seem to have a combined number 2 and number 3.
Bill Gates is known as “America’s richest man.” Bully for Billy. But do you know what Gates’ biggest coup was? When Gates was dealing with IBM, Big Blue needed an operating system for their computer. Gates didn’t have one, but he knew where to find one. A little outfit in Seattle had one. Gates bought the system for a mere $50,000 and presented it to IBM. That was the beginning of Microsoft’s rise to power. Lesson: It’s not enough to have the product, you have to know and understand your market. Gates didn’t have the product, but he knew the market — and he knew where to acquire the product.
Apple had by far the best product in the Mac. But Apple made a monumental mistake. They refused to license ALL PC manufacturers to use the Mac operating system. If they had, Apple today could be Microsoft, and Gates would still be trying to come out with something useful (the fact is Microsoft has been a follower and a great marketer, not an innovator). “Find a need and fill it,” runs the old adage. Maybe today they should change that to, “Dream up a need and fill it.” That’s what has happened in the world of computers. And it will happen again and again.
All right, let’s return to that wonderful world of perfection. I spent a lot of time and thought in working up the criteria for what I’ve termed the IDEAL BUSINESS. Now obviously, the ideal business doesn’t exist and probably never will. But if you’re about to start a business or join someone else’s business or if you want to buy a business, the following list may help you. The more of these criteria that you can apply to your new business or new job, the better off you’ll be.
(1) The ideal business sells the world, rather than a single neighborhood or even a single city or state. In other words, it has an unlimited global market (and today this is more important than ever, since world markets have now opened up to an extent unparalleled in my lifetime). By the way, how many times have you seen a retail store that has been doing well for years — then another bigger and better retail store moves nearby, and it’s kaput for the first store.
(2) The ideal business offers a product which enjoys an “inelastic” demand. Inelastic refers to a product that people need or desire — almost regardless of price.
(3) The ideal business sells a product which cannot be easily substituted or copied. This means that the product is an original or at least it’s something that can be copyrighted or patented.
(4) The ideal business has minimal labor requirements (the fewer personnel, the better). Today’s example of this is the much-talked about “virtual corporation.” The virtual corporation may consist of an office with three executives, where literally all manufacturing and services are farmed out to other companies.
(5) The ideal business enjoys low overhead. It does not need an expensive location; it does not need large amounts of electricity, advertising, legal advice, high-priced employees, large inventory, etc.
(6) The ideal business does not require big cash outlays or major investments in equipment. In other words, it does not tie up your capital (incidentally, one of the major reasons for new-business failure is under-capitalization).
(7) The ideal business enjoys cash billings. In other words, it does not tie up your capital with lengthy or complex credit terms.
(8) The ideal business is relatively free of all kinds of government and industry regulations and strictures (and if you’re now in your own business, you most definitely know what I mean with this one).
(9) The ideal business is portable or easily moveable. This means that you can take your business (and yourself) anywhere you want — Nevada, Florida, Texas, Washington, S. Dakota (none have state income taxes) or hey, maybe even Monte Carlo or Switzerland or the south of France.
(10) Here’s a crucial one that’s often overlooked; the ideal business satisfies your intellectual (and often emotional) needs. There’s nothing like being fascinated with what you’re doing. When that happens, you’re not working, you’re having fun.
(11) The ideal business leaves you with free time. In other words, it doesn’t require your labor and attention 12, 16 or 18 hours a day (my lawyer wife, who leaves the house at 6:30 AM and comes home at 6:30 PM and often later, has been well aware of this one).
(12) Super-important: the ideal business is one in which your income is not limited by your personal output (lawyers and doctors have this problem). No, in the ideal business you can sell 10,000 customers as easily as you sell one (publishing is an example).
That’s it. If you use this list it may help you cut through a lot of nonsense and hypocrisy and wishes and dreams regarding what you are looking for in life and in your work. None of us own or work at the ideal business. But it’s helpful knowing what we’re looking for and dealing with. As a buddy of mine once put it, “I can’t lay an egg and I can’t cook, but I know what a great omelet looks like and tastes like.”
In today’s market, potential home buyers need to be prepared for the stringent guidelines enforced by mortgage companies. If you have any concerns about your ability to qualify for financing contact Monica Jones today at MortgagesByMonica.com or call her at 925-339-1764. She is always my first go-to person in the lending arena, and she will happily guide you through the process of credit repair.