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Allowing Your Sacramento Short Sale Home to Become a Dump is Stupid
The only thing worse than not being able to show a home, from a Sacramento Realtor point of view, is when a buyer’s agent opens the door with an eager buyer in tow to discover the occupants of the home are slumped toward the TV, half-dressed on the sofa, slurping Big Gulps and chomping on Cheez-Its, slopping orangey bits everywhere. The zombies don’t even look up nor acknowledge there is another presence in the room. Stuff scattered everywhere, dog poop on the floor, not to mention flies buzzing the stack of dishes dumped into the kitchen sink. Not a pretty sight. And not an easy way to sell a short sale home in Sacramento.
Yet, we deal with these situations every day. Sometimes, Sacramento short sale sellers will rationalize the condition of the home by nodding: “it’s a short sale,” as though that explains it, and it doesn’t. Just because a home is a short sale does not mean the condition can go to hell in a hand basket. Because the bank will definitely still demand market value. And a buyer won’t offer market value when the house is in a shambles. Big disconnect. Huge problem.
Where is the dignity? You can sell your home as a short sale and still maintain your dignity. In fact, that’s the reason most people want to do a Sacramento short sale, because they want to sell with integrity intact. They prefer to witness a final solution and know that they are selling the home, not abandoning it.
If you want to abandon your home, then you might want to consider doing what so many before you have chosen to do and walk away from your home. Just let the home go to foreclosure. Let the bank deal with the repercussions. That’s sticking it to the bank and ruining your credit as well, but that’s a choice some people make.
Just don’t ask an agent to sell your home as a short sale to a precious buyer who is willing to wait 2 to 3 months for the bank to approve your short sale at market value while maintaining the home in a condition unfit for human habitation. The only entity you’re sticking it to in that situation is yourself.
Why Home Buyers Won’t Buy a Short Sale in Sacramento
Like any other home on the market today, even the few short sale homes need to be highly desirable in some way to entice a home buyer to buy a short sale in Sacramento. Price alone won’t do it because the short sale lenders will demand market value. I get emails from agents who ask if I would consider wasting my time and the seller’s time to submit garbage offers on behalf of their greedy little buyers who love to lowball, and you’ve got to wonder what planet these agents live on. As additional information, the agents might offer up the fact they’ve been successful with this approach once years ago, like anybody cares.
Oh, geez, thanks for telling me. I smack my head. Dang-nabit, I had no idea.
They might say let me tell you about my buyer. No, don’t tell me. I don’t care. I don’t want to hear about his or her motives, angles, mission. I care only if the buyers are willing to do what it takes to get the lender to approve the short sale. Will they wait for approval and not cancel? An agent asked yesterday if it was OK for the buyer to cancel after I worked my tail off to obtain the short sale approval letter, in the event there was something about the property the buyer didn’t like. Sure, I replied, but be aware that I will then drive over to that buyer’s home and slash the tires on his car. Oh, he laughed and laughed.
Wow, we really want to take that offer. The buyer sounds so dedicated.
Today’s buyers, most of them, don’t want to wait for the short sale process. If they do decide to buy a short sale, it’s because the home is unique and it’s the only one like it on the market for miles around. Other short sale buyers are those who have a home to sell, and they are are buying contingent on selling. No fuss, no muss, no risk. If the contingent home is my listing, for example, I know their home will sell because they will be realistic, so those generally work out. But there is not a flood of buyers for short sales today.
I sold a Victorian short sale home in downtown Sacramento a few days before I left for my long winter vacation early last December. I worked on that short sale while enjoying an oceanfront view and warm breezes. Everybody was happy at the inception. We submitted all of the required paperwork to both banks: to the Bank of America short sale department and Chase. Chase had recently joined Equator but was not yet in Equator for this type of Chase short sale. Before the end of January, we had HAFA short sale approval from Bank of America. Eureka!
Chase Bank, because its HELOC department wasn’t yet in Equator, dragged its feet for another 60 days, despite repeated requests and hammering. The negotiator at Bank of America refused to give us an extension on the short sale and instead insisted on starting over. An unusual shitty move when the servicing was not sold. When Bank of America re-opened the file, it somehow messed up processing it as a HAFA. A logical person would think Bank of America vendors look at the previous file, but that would be like expecting a Sacramento real estate agent to study the history in MLS of a previous listing — just ain’t gonna happen.
Despite the HUD identifying this transaction as a HAFA and the notes I routinely slipped into Equator as a reminder, nope, it was processed as a traditional. A short sale agent doesn’t ordinarily discover these types of bank screw ups until the counter is issued in Equator. The seller didn’t care about HAFA by that time.
At several points, the buyer wanted to cancel. She was tired of waiting and didn’t really understand the delays. She delivered ultimatums, which don’t work. At another time, the sellers wanted to cancel. They had moved out and no longer cared about receiving the HAFA incentive; they just wanted it closed. The opportunity to eat the negative cash flow and rent it was beginning to look attractive to the sellers. In between, neighbors called to ask if was OK for them to steal the seller’s cats and take the critters to city animal control. Like wha? My main concern was the amount of time it would take Bank of America to process this as a traditional short sale after Chase finally got its act together.
I find my way around stumbling blocks. It’s what I do. The short sale closed this week, with the original buyer happy as a clam, extremely excited and relieved. The sellers are ecstatic. They appreciated my calm demeanor and keeping them on track. Approval from both banks took 5 months. That’s unusual and a long time.
Although I have closed hundreds of short sales in Sacramento, there is never a guarantee that we can get both of the short sale banks to cooperate and issue approvals at the same time. Often issues and delays pop up, regardless of how streamlined we make the process. If something can go wrong on the other side, it often does. Patience is the key to a short sale. And buyers in Sacramento don’t have a lot of patience in today’s real estate market.
What’s In It for Agents To Do a Sacramento Short Sale?
There are days I ask myself why as a busy agent would I ever do another short sale, and then before I answer that question, I take it on. It’s not just me, the short sales in Sacramento, the few that still exist, are becoming more convoluted and complicated, if that’s possible after all these years. Nothing is a straight story anymore. There is no such thing as a simple hardship letter and automatic short sale approval. Nope, all of the short sales seem to involve years of delinquent dues, past due utility liens, judgments, court settlements, bankruptcies, horrific medical setbacks, in addition to having two or more mortgages to short sale, layered with mortgage insurance on top of Fannie Mae.
Not to mention, some of the buyers for these are no walk in the park, either. They’re probably VA buyers or obtaining CalHFA loans, and the properties probably require repairs, which could involve 203K loans and / or energy efficient mortgages. These additional complexities are more than most agents can handle or want to handle.
There are not very many Sacramento short sale agents in town who a) know how to handle these and b) are willing to handle these types of transactions. Why would any agent in her right mind do a short sale today when she can sell a regular sale and be done with it in 30 to 45 days? I’m sure that’s a question that some agents ask themselves. It’s a question I brought up to sellers last week as well, and I just put it out there on the table.
Now, I made them wonder. What was in it for me, the agent? Why would I agree to do their short sale when it’s so much more work and extremely time consuming? It’s not like I get paid more to do it because I don’t. I charge the same commission to do a short sale as a regular sale. I get paid the same. And I do tons more paperwork, all of which is contingent until the bank approves the sale. There is no transaction unless the bank approves it.
So what’s the deal? See, now I have you wondering, too.
The answer is somebody has to do it because otherwise sellers would have to pay a lawyer. And most sellers can’t afford to hire a lawyer. So, I handle the short sale for them at no out-of-pocket expense for them. All of my fees are paid from the proceeds of sale. It’s basically a free service for the seller. I know how to close these tricky little suckers, so what the hey. It’s a little bit like combining a public service with a business enterprise. A little pro bono work.
Then, yesterday, I received approval on 3 short sales that each had their own particular set of circumstances that would cause a normal agent to drink Draino. Because a normal agent would not have received approval on those short sales. I have a talent for it. What can I say?
Franchise Tax Board Exempts Short Sale Taxes in California
For those of you who follow my Sacramento real estate blog and listen to me blab, you already know that the IRS has issued its IRS mortgage debt relief letter that exempts certain California residents on a federal level from paying tax on the deficiency after a short sale. Everybody wants to know about short sale taxes in California, and now you can read the IRS response to short sale letter at Scribd. This isn’t much help to homeowners in other states, but I sell real estate in California, so I follow closely mostly what happens to short sale sellers in Sacramento.
This morning I feel like one of those Ron Popeil commercials, but wait, there is MORE! Not only are most short sale sellers in California exempt from paying tax on mortgage debt relief to the IRS, but the State of California has issued a letter ruling that Californians are exempt from state income tax liability for a short sale as well. Short sale taxes in California just headed south. The letter was issued by the California Franchise Tax Board and obtained by the California State Board of Equalization, as announced by the California Association of REALTORS, working with Senator Barbara Boxer.
What does all of this mean? It means while homeowners are left chewing on their fingernails about the 2007 Mortgage Forgiveness Debt Relief Act expiring at the end of 2013, coupled with the fact California still has not extended its own version of the act for 2012, that sellers can pretty much raise a middle finger and call it a day. Goodbye short sale taxes in California. Doesn’t seem to much matter what our legislators do, on a national or state level, because we now have letters of clarification that provide protection for the bulk of distressed sellers after a short sale.
George Runner, a member of the Board of Equalization, is in the spotlight for obtaining the letter. I can’t find the letter on his website, though. For the interim, those of you who would be exempt if our men and women in the legislature had ever gotten it together enough to rub two nickels and pass the darn exemption, can coast through this concern. Be sure to check with your accountant to ensure that and your short sale qualifies for the exemption from mortgage debt relief.
Today’s Risk in a Sacramento Short Sale
This fact seemed to come as a shock to a buyer’s agent the other day, but home buyers who are buying a short sale in Sacramento and waiting for short sale approval don’t get Brownie points for acting like a buyer. Buuuut my buyer waited, and he put his money in escrow, and that should count for something, the agent lamented. The agent was upset because the bank updated its BPO and now wanted more money. Sorry, behaving like a home buyer doesn’t earn anybody special favors.
Besides, that’s the risk of a short sale. With rising homes prices in Sacramento this spring, it’s even more of a risk as we move into summer. There is no guarantee that the price a buyer enters escrow with will be the same price a buyer will close escrow at. In fact, with the way some agents price short sales in Sacramento, there is no guarantee that the bank will even take that price. Unless there are extenuating circumstances, short sales ought to be priced in line with the comparable sales or where the comparable sales will rise, not below the comps.
I had explained to the agent when we received the counter offer that there are no renegotiations with this particular investor. There rarely is negotiation because the banks write the rules; and I’ve sold hundreds of short sales over the past 9 years — I’ve learned a thing or two from my closed short sales. It eats up more time to run around in circles with the bank, escalate the price issues and then be informed that the price is firm, like it was in the first place, than it does to replace the buyer. I’ve been working on this particular short sale for 9 months as buyer after buyer bailed as we watched BPOs bounce around. The buyer’s agent, however, still expected negotiations and didn’t appreciate the fact when I pointed out my advice seemed to have landed on deaf ears.
Sometimes I feel like I’m talking to a wall when I warn: no renegotiations. I’ve been to hell and back with this investor. It’s best to just give the investor what that particular investor demands and then close the deal. If that means issuing a Notice to the Buyer to Perform to sign an addendum increasing the price, then that’s what we do because we work for the seller. We treat all parties fairly, but my loyalty, as long as it’s not dual agency, lies with the seller.
If the buyer refuses to meet the investor’s demands, then the seller will find a buyer who will. Because those buyers are there.
I’ll tell you this, if you’re in a short sale situation right now as a buyer, thank your lucky stars if you get approval at the price you offered. I just closed another Elk Grove short sale this week that had dragged on since last fall. It was priced way below today’s prices. The bank did not increase the price. This lucky buyer was buying a home in Elk Grove at September 2012 prices. Which means when the vacant home was vandalized, and the buyer demanded a reduction, we chuckled. Hey, go out and see what you can buy at this price today. Nothing? Right! Now, let’s get this closed and stop whining about it.
