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Selling a Sacramento Home as a Short Sale After Bankruptcy
There is only one way to sell an underwater home in Sacramento after a bankruptcy has been discharged and finally dismissed, and that method is through a short sale. Doing a short sale after bankruptcy is a greater challenge than doing a short sale before bankruptcy. A short sale after bankruptcy is not a slam dunk, like your lawyer might have promised (lawyers don’t sell homes nor typically negotiate short sales). Sometimes, people think these abandoned homes are great bargains, but generally the banks still insist on receiving market value, and market value is subjective — especially when the home sits in ruins as compared to the surrounding homes and the bank won’t take that condition into consideration when determining value.
See, that’s the thing. People erroneously believe that a bank cares about the condition of a home, and that belief is a foolish assumption. Yes, it makes logical sense that a bank would care, so I understand why you might have formed that assumption because to presume otherwise goes against all that is sane and objective, but let’s remember, we’re talking about our financial banking institutions in the United States. Let’s get real. Banks don’t care.
I closed yesterday another Sacramento home as a short sale after bankruptcy. Bankruptcy does not release the home from the seller’s name. That title and mortgage lien(s) remain. I’m not sure why homeowners sometimes do not understand that they still need to get rid of the house after bankruptcy is over, and that the house is generally not very desirable at that point. Squatters break in. Water leaks develop. Mold can happen. Stuff breaks. And it’s generally been vacant for 6 months to a couple of years, depending on how long the bankruptcy took, and lawyers don’t enjoy a reputation for fast service.
After a home has been discharged in a bankruptcy, the lenders cannot ask a seller for financial records such as bank statements, tax returns and payroll stubs. However, that did not stop Bank of America nor Green Tree from demanding those documents, even after I informed them they are quite possibly breaking federal law. Sometimes, you have to decide on which hill you want to die, and the sellers did not want to die on the paperwork hill, so they submitted the demanded paperwork in protest.
Service Link, representing Bank of America, managed to mangle the HUD 12 ways from Sunday. We submitted various adaptions and argued and argued until Service Link finally accepted the fact that certain customary expenses are seller-paid fees in a short sale transaction. You can’t really blame them because these third-party vendors work on short sales in many other states and customs vary, although it doesn’t explain why they operate unsupervised.
Later, Green Tree came back just prior to closing and insisted that the sellers sign a letter stating they do not have to submit their paperwork because this was a short sale after bankruptcy. Of course, by then it was water under the bridge, and I honestly don’t know how this company stays in business, apart from the Peter Principle that plagues many corporate entities. Oh, wait, I hear Green Tree is under investigation by the FTC.
Fortunately, I managed to sidestep a big fight with Green Tree on the payoff. That’s another thing people don’t understand after a bankruptcy, they think the banks will rollover because the liens are worthless. I’m telling ya the banks won’t. They fully realize the fresh start sellers still require the bank’s cooperation.
Then, several months into the short sale, Bank of America — as has been its policy lately with these underwater mortgages — elected to sell the mortgage to another company, in this case, Bayview. Just as Bank of America was ready to issue the approval, whammo, it forced us to start the process over with Bayview. Did I mention I only get paid once and I get paid the same whether it’s a short sale or a regular equity sale?
Bayview then conducted its own BPO and decided the price needed to be about $25,000 higher, which it may as well have offered to burn down the house, that demand made about as much sense. Part of the “price valuations” is they have often little to do with actual value and are more about how much the bank needs to net. This is akin to a seller telling me she needs to sell at $500,000 because she needs the cash when her home is worth $300,000. Her needs in that case are not relevant and completely unobtainable.
The demand for a higher price from Bayview happened right after thugs broke into the garage, and they also swiped the AC unit, including the lockbox off the front door, along with the front door handle. There was no compensation to the buyer for that, of course, and that was a delicate situation to overcome.
The good news is we closed escrow yesterday, about 6 months after I listed this home. This was actually a fairly fast short sale after a bankruptcy. The types of problems I’ve shared with you concerning bankruptcy and short sales are very common as well. If you need an agent to sell your home after a bankruptcy, you should call your Sacramento short sale agent Elizabeth Weintraub at 916 233 6759. There is no reason to list your home until the bankruptcy has been fully completed. An order to discharge does not count; you need the case closed.
What is the Problem With 2014 Sacramento Short Sales?
The problems with Sacramento short sales in years past used to lie with the banks and the buyers, but those days are long gone. Buyers and short sale banks are not the source of our misery today. Most of the buyers who enter an agreement to buy a short sale are willing to wait it out and realize there are a few fees the bank might not authorize such as pest and home warranties and 100% of the escrow fee. They possess realistic expectations. The banks have invested money and effort into establishing entire short sale departments that mostly did not exist from 2006 to 2008. They’ve put systems and procedures in place, and are constantly tweaking their efficiency and effectiveness.
There are some banks that face little struggles now and then such as the Chase HELOC departments in Equator and the banks that try to satisfy regulations and cope with the fallout from the National Mortgage Settlement, yet cause months of delays due to ineptness, but for the most part, you can’t really blame the banks anymore when a short sale takes forever. OK, you can blame Fannie Mae and Freddie Mac, but even those guys are shaping up their systems. Rarely a day goes by when I don’t receive a timely email from somebody at Fannie Mae to say by golly they have received the BPO, and they’re still working on a pre-approved value. It’s better than a poke in the eye with a stick, even if it’s sorta meaningless after 2 weeks.
I’m not getting a lot of pushback and attitude from buyers either because they are educated now. They do their own homework online, they talk to their buyer’s agent, and they’re prepared to wait for short sale approval. They realize that when they go into an escrow in which the Best Sacramento Short Sale Agent is negotiating, that escrow is likely to close. I cannot remember the last short sale that did not close, and I’ve closed hundreds of them — more than any other real estate agent in a 7-county area since 2006.
The problems I’m seeing today do not stem from buyers nor the short sale banks. Nope. They cannot shoulder the blame anymore in today’s Sacramento short sale world. Instead, the problems tend to stem from the sellers themselves. There’s not always a full proof way to figure out which sellers deserve help and which don’t really give a crap. So, try not to blame the agent if the short sale goes south because the sellers messed it up. Most of the short sale agents I know are professionals who care deeply about their sellers and sometimes can inadvertently overlook their shortcomings.
Short sale agents need to be more vigilant, especially since short sales make up such a small portion of our market (about 10%) — short sales now appeal to smaller pools of buyers and will take longer to sell. Fact, Jack. My advice to fellow Sacramento short sale agents is try to make certain the effort you expend is for a seller who is willing to cooperate and see it through to the end. Otherwise, cut the losers loose. You owe it your own sanity, and you owe it to the buyers. You may represent the seller, but you still owe honesty and good faith dealings to the buyers.
Where Have All the Sacramento Short Sales Gone?
My topic today — where have all the Sacramento short sales gone — brings up a few musical notes rattling around in my brain. Do you remember The Jayhawks and the tune Blue? It starts out: where have all my friends gone, they’ve all disappeared. Turned around maybe one day, you’re all that is here. That’s the song that a lonely Sacramento short sale agent who had not developed any other business is probably singing right now.
I received a chart a few days ago from the California Association of Realtors, which I have inserted above. It clearly shows the direction of foreclosures known as REOs, the short sales in Sacramento and the traditional equity sales. The dark blue on the bottom is regular homes in Sacramento for sale. It’s just about squeezed out the short sales and foreclosures, which is excellent news for our real estate market. Short sales are in red and the light blue on top is foreclosure homes.
It seems like only a few years ago that short sales dominated the market, and I went back to check. Sure enough, if you look at the time frame from November of 2010 through January of 2012, you will see that 36% of the market was short sales. Even more dramatic, 45% of the pending sales were short sales, and 32% of all closed sales were short sales.
The reasons why short sales no longer dominate the market in Sacramento are simple. We’ve had a huge uptick in appreciation. Our median sales prices rose about 45% across the board from the beginning of 2012 (which was the official Year of the Short Sale) to the summer 2013, when price increases leveled off. On top of this, most people who had ever thought about doing a short sale have already closed a short sale. These were the people who bought or refinanced from 2004 to 2009.
Today, those short sale numbers for Sacramento County in January 2014 are . . . are you ready for this? We closed 100 short sales. One hundred short sales. Is this like 100 bottles of beer on the wall? I could sing that song, too. They breakdown like this:
- Active short sales comprise 10% of the market January 2014
- Pending short sales comprise 16% of the market January 2014
- Closed short sales are 11% January 2014
I pulled those statistics from Trendgraphix reports. Fortunately, although I managed to accrue quite a specialty in short sales and even wrote a book about short sales in 2009, I still sold regular traditional real estate, and I’ve sold even more regular homes last year. I sell in the range of 8 to 10 homes a month, in case you’re wondering, so I see a wide spread of activity across our four-county area and move a lot of inventory.
Can’t say I’m sorry to see short sales disappear. They aren’t really my friend or anybody’s friend. They’re a regular pain in the neck but a necessary component of real estate for some sellers. If you’re thinking about doing a short sale, it’s not too late as there are so many good rules about short sales for sellers today that were not in place 8 years ago. It’s not the stigma it used to be, and most sellers pay no tax and have no liability because they are lucky enough to live in California. Our rules are different than other states. I can help. Nobody has sold more short sales than I have over the past 8 years in this region.
If you want more information, call Elizabeth Weintraub at 916.233.6759.
Image: California Association of Realtors
5 Things Your Bankruptcy Lawyer Won’t Tell You About a Short Sale
A bankruptcy lawyer in Sacramento who dabbles in Sacramento short sales once shared with me that being a bankruptcy lawyer is like representing the bottom of the barrel as far as clientele is concerned — but I suspect what the lawyer really meant was the speciality itself carries its own stigma. I’m fairly certain bankruptcy clients come from all walks of life and all income levels. If bankruptcy lawyers are wrong about that, it might make one wonder what else they could be wrong about. Here are things that a bankruptcy lawyer is probably loathe to disclose to potential clients contemplating a short sale.
#1) You Should Probably Do Your Short Sale First and the Bankruptcy Second. However, if you go that route, you might not need the services of a bankruptcy lawyer, and I won’t get paid. Most of the debt accumulated by stressed out borrowers is mortgage related. In California, a short sale for your residence not only wipes out the debt but it wipes out personal liability and short sale taxes on the canceled debt, both federal and state.
#2) Your Mortgage Loans Don’t Vanish After a Bankruptcy. Unlike a foreclosure, in which the home reverts to the first lender and any subsequent loans are released, a bankruptcy leaves all of those loans still in the public records and still filed against the borrower, which can prevent the borrower from obtaining another loan to buy a home. Ever.
#3) Your Mortgage Lenders Will be Tougher to Deal With After the Bankruptcy. If you thought your lenders were relentless before the bankruptcy, wait until it is over and you then try to short sale. For starters, your financial situation will be improved and you might not even qualify for the short sale. Lenders are not required to grant a short sale. If that hard-money second lender was initially unreasonable, just wait, the collection department will be even more harsh and difficult after the bankruptcy. There will be no cash for a short sale for you.
#4) I Have Little Experience in Bankruptcy Law and Won’t Personally Handle Your Case. Lawyers have it tough making a living, just like anybody else who is self employed, and when they fail at one specialty, some will turn to bankruptcy law. But one thing doesn’t change, and that is the paralegal will most likely prepare and process your paperwork. You will talk to your lawyer when you write a check and when the bankruptcy has closed, not during the process.
#5) Your Real Estate Agent Knows More About Selling Homes and Cares More About You More Than I Do. Veteran real estate agents often are empathetic because it comes with the territory. On the other hand, bankruptcy lawyers do not as a rule sell short sales and have little to no experience negotiating with short sale banks much less fully understand the process of selling homes in Sacramento. A home that has been abandoned during bankruptcy proceedings becomes much more difficult to sell 6 months to a year down the road, if it will sell at all. HOA dues pile up, property taxes remain unpaid, utility bills accumulate and often the home is vandalized — none of which the bank will authorize for payment from the proceeds. A buyer won’t pay it, either.
Note: If the investor for that loan is Fannie Mae or Freddie Mac, it’s just about impossible to get the same sales price as a home that is fixed up, shining and ready for occupancy, but trust this Sacramento short sale agent, that’s exactly what the investor will still demand after a borrower completes bankruptcy.
Sellers who are considering bankruptcy would be wise to talk to an independent legal counsel, a CPA, and most likely wait until after the short sale before filing bankruptcy. As always, this agent does not give legal nor tax advice.
For more about Bankruptcy vs. Short Sale, from About.com
Image: Twitter.com. Better Call Saul, coming to you this fall on AMC.
Do You Need a Lawyer for a Sacramento Short Sale?
You may not need a lawyer in Sacramento to short sale a single family home.
Because of the liability that can befall a Sacramento real estate agent who does not tell a client to get legal advice when the client asks legal questions, every smart real estate agent will advise a client, especially a short sale client, to get legal advice — even if the client doesn’t really need a lawyer. Knowing this, a client might ask whether legal advice is necessary and, again, that is a tricky situation because we’re damned if we tell them no and we’re damned if we tell them yes. Besides, we’re not lawyers.
If a seller who is contemplating a short sale hires a lawyer, that seller will most likely pay the lawyer somewhere between $3,000 and $6,000. Out of pocket. Once — out of all the $65 million in short sales that I have negotiated over the past 8 years — I can recall only one time in which a negotiator agreed to pay a small portion of the lawyer’s fees. So, while a lawyer might tell a seller that they will ask to be paid from the proceeds of sale, it doesn’t really happen very often and, when it does, that payment is probably not in full.
If a seller who is contemplating a short sale hires a Sacramento short sale agent to handle the short sale, the commissions paid to the agent are paid from the proceeds of sale. There is no arguing with the negotiator about paying the agents because the commissions and all of the ordinary closing costs are paid from the proceeds of sale. Nothing out of pocket for the seller to pay, not to mention, a bank cannot under CA Civil Code 580e force a seller contribution; it’s against the law. A seller who hires a competent short sale agent basically gets the short sale completed for free.
Every so often, I might run across a situation in which the seller could use a lawyer’s assistance. It’s not to get a release of liability because you don’t need a lawyer for that. It’s not to avoid a deficiency judgment, because you don’t need a lawyer for that, as long as you’re doing a short sale. It’s not to advise whether the seller should do a short sale because short sales trump foreclosures. Short sales win hands down.
When I first started to do short sales, often I would refer the difficult cases to a lawyer, but I have discovered that I can handle them with ease (not to mention, laws favor the sellers now), so why not save the seller some money? Today, I might advise that a seller should hire a lawyer if the bank continually rejects the short sale for one reason and one reason only: because banks typically don’t want to mess with lawyers. Agents? Pfff.
I closed a short sale this week that I’ve been working on for almost 18 months, which is an unusually long period of time. We had received 3 or 4 rejections. I suggested that the seller hire a lawyer during the last go-around, but the seller said she could not afford it, and besides, she had “faith” in me. OK, I don’t give up — I have a ton of perseverance, and I am analytical. She begged me to re-submit one more time. I repackaged the short sale and resubmitted, and was accepted! Maybe short sale sellers don’t need a lawyer? Maybe sellers need only a top notch short sale agent who stays up to date on all of the changes in short sales?
Many lawyers hand over the package to paralegals or assistants and they don’t personally negotiate the file anyway. They also might not know much about real estate or have extensive experience in real estate. I’ve talked with lawyers who did not know how to fill out a HUD for Bank of America. The bell curve applies to just about any profession. You’ll find bankruptcy lawyers who offer to negotiate short sales because it’s another avenue of revenue for them. When short sales go away, they will go back to bankruptcy cases. Some will suggest bankruptcy alongside a short sale, which doesn’t make a lot of sense to me. You can’t do both simultaneously.
But people are afraid when it comes time to do a short sale and they don’t know where to turn. They think they need a lawyer to do a short sale. They are worried about consequences and liability and taxes when laws mostly remove those concerns. Will a lawyer tell a potential client that they don’t need a lawyer to do a short sale? If you ask a real estate agent if this is a good time to go on the market, what would an agent say? Same deal. Except most people in California do not need a lawyer to do a short sale.
