Short Sale Blog

We’ve already presented you with recent numbers straight from the Federal Housing Finance Agency: more and more distressed homeowners nation-wide are taking advantage of short sales to relieve themselves of mortgages that they can no longer afford. http://seattleshortsales.com/_blog/Short_Sale_Blog/post/Short_Sales_Continue_to_Grow_in_Spite_of_Decline_in_Other_Foreclosure_Prevention_Actions/

Well, our own numbers at Seattle Short Sales, Inc., are now in for June. And they clearly show that short sales are growing here in the Seattle area. Comparing the number of short sale approval letters that we negotiated over the last six months of 2010 to those from the first six months of 2011, we found that:

• The number of new short sale approval letters that we were able to obtain from lenders grew by 43% over the six month period. In the last half of 2010 we negotiated 123 approval letters for our homeowners, and in the first half of this year that number was up to 176 new approvals.
• The average discount that the homeowner received on their balance owing also grew by 6% in the first half of this year, compared to the last half of 2010. In the second half of 2010, the average discount a homeowner received from their lender to pay out their mortgage was $96,480. But in the first six months of this year, that average discount had grown to $102,278.
• The total mortgage debt that we managed to get discounted for our homeowners grew by 52%. The total mortgage debt discounted for all the approval letters we negotiated in the second half of 2010 was $11,867,000. For the first half of 2011, that total debt discount was up to $18,000,001.

The majority of our short sale approval letters come with full deficiency waivers. This means that the homeowners, who were in a negative equity situation (owing more on their mortgage than the house was worth) are not responsible for paying back the debt discount - the shortfall on the discounted amount they paid back of their loan. They were able to rid themselves of the mortgage that they could no longer afford, and are free to get a new financial start in life.

If you are a homeowner, and would like to learn more about short selling your home, please go to: http://seattleshortsales.com/homeowners/

If you are a real estate agent, and would like to learn about our no-fee short sale service, please go to: http://seattleshortsales.com/agents/

My, how things have changed in a year or two!

It was not so long ago that struggling homeowners had to beg lenders to approve them for a short sale. But now, some of the major lenders are making the first move - contacting the sellers themselves to propose a short sale, and even offering cash incentives to homeowners!

These short sale incentive programs are not widely publicized, and they are considered to be “by invitation.” As banks realize that they may recover more of their losses by allowing a short sale than by pushing to foreclosure, they are targeting homeowners who are at risk of defaulting - often, before they are even in mortgage trouble.

The lenders proactively contact these homeowners, suggesting that they undertake a short sale, and often offering a hefty cash payment to the homeowner upon completion of the short sale. These cash payments are reported to range from a few thousand dollars to up to $35,000.

Some of the lenders implementing these incentive programs, and the reported incentives, are:

Bank of America Cooperative Sale Program - upon completion of the short sale, the homeowner receives a $2,500 to $3,000 relocation payment, and the real estate agents receives a 6% commission.

Citi Proactive Short Sale Program - according to the HousingWire, the average cash payment to sellers this year was $12,000

Chase - offers cash payments up to $30-$35,000 to sellers

GMAC - there are reports of cash incentive payments to sellers of up to $1,600

Litton - reportedly offers cash incentives to sellers of $3,000 to $5,000

Wachovia/Wells Fargo - offers cash payments of 1% of the sales price (minimum $2,500) for sellers.

Although these programs are considered “invitation only” - meaning that the lenders contact the homeowners, rather than homeowners applying for them - there are some reports of short sales negotiators successfully requesting that the homeowners they represent be considered for incentive programs.

But the big take-away from this story is that lenders no longer merely consider short sale requests - but that they are now proactively initiating short sales. This means that they are far more likely to consider and approve any short sale offer put to them than they were a year or two ago.

As Citi’s senior vice president of loss mitigation told the HousingWire, "We're not going to turn anybody away if the short sale meets the net requirement we're looking for." This means that the lenders are no longer looking for stories of exceptional hardship in order to approve a short sale. As long as the short sale represents the best way for the lender to maximize their recovery on a distressed asset, they will approve it.

If you are a homeowner, and would like to learn more about short selling your home, please go to: http://seattleshortsales.com/homeowners/

If you are a real estate agent, and would like to learn about our no-fee short sale service, please go to: http://seattleshortsales.com/agents/

An article published this week in the Wall Street Journal, with the title “Second-Mortgage Misery,” makes it sounds like it’s all doom and gloom for underwater homeowners with second mortgages. The trick to dealing with second mortgages is knowing how to negotiate: showing the lender how it is in their best interest to approve the short sale, even if it means that they waive all rights to any deficiency balance owing.

In Washington State, if a home goes into foreclosure and is sold at a trustee sale, the first lender loses their right to pursue the deficiency - but the second lender may retain the deficiency right. For this reason, second lenders may be reluctant to waive deficiency rights in a short sale, believing that if they allow the home to go into foreclosure they will have a better chance of collecting more of their debt.

However, this is not always the case: it can be costly for a lender to try to sue a borrower for money they probably don’t have anyway.

Borrowers who have second mortgages are more likely to be underwater with their home (i.e. they owe more on their mortgages than the home is currently worth). According to the WSJ article, 38% of homeowners who have taken out second mortgages are underwater, compared to just 18% of homeowners who only have a first mortgage. And the average amount of that negative equity is also higher for homeowners with second mortgages: homeowners with second mortgages are underwater by $83,000, on average, whereas those with only first mortgages are underwater by $52,000.

With home prices down 34% nationwide since 2006, this problem is not likely to resolve itself quickly on its own. But the WSJ makes this sound like this is a real stumbling block for people with second mortgages.

While a second mortgage does mean that there is one more party to work with at the negotiating table, it is not necessarily a stumbling block to getting a short sale approved. This is where having experienced negotiators, who have worked on numerous short sale approvals and who know the ins and outs of how each lender proceeds, can make all the difference. Because if a home goes to foreclosure, the second lender gets nothing.

Working with all parties to come up with a deal where the second lender gets something (beyond only the right to pursue costly legal action that may not result in any payment anyway), and where they get it now, can often be enough incentive to get a second lender to approve a short sale. And that way all parties: seller, buyer, first lender, and second lender, can close their books on the case and move forward - a resolution that is of value to everyone.

If you’ve been following our blog posts this past month, you’ll see that we have been analyzing our record of achieving deficiency waivers for our clients. In March, (the month we did a thorough analysis of), 80% of our approval letters came with deficiency waivers - and many of those were for second mortgages.

Please take a look at our short sale approval letter database for examples of real approval letters from both major and small lenders. Some examples of our recent approval letters waiving deficiencies on second mortgages are:

Bank of America Short Sale Approval Letter: Homeowner approved to sell home and pay off 1st and 2nd mortgages with $198,000 total discount, waived of having to pay back deficiency. http://seattleshortsales.com/LiteratureRetrieve.aspx?ID=85958

Litton Short Sale Approval Letter: Homeowner approved to sell home and pay off 2nd mortgage with $51,000 discount, waived of having to pay back deficiency. http://seattleshortsales.com/LiteratureRetrieve.aspx?ID=86277

Real Time Resolutions Short Sale Approval Letter: Homeowner approved to sell home and pay off 2nd mortgage with $30,000 discount, waived of having to pay back deficiency.  http://seattleshortsales.com/LiteratureRetrieve.aspx?ID=85849

GMAC Short Sale Approval Letter: Homeowner approved to sell home and pay off 2nd mortgage with $55,000 discount, waived of having to pay back deficiency. http://seattleshortsales.com/LiteratureRetrieve.aspx?ID=87264

Chase Short Sale Approval Letter: Homeowner approved to sell home and pay off 2nd mortgage with $9,000 discount, waived of having to pay back deficiency. http://seattleshortsales.com/LiteratureRetrieve.aspx?ID=85890

If you are a homeowner, and would like to learn more about short selling your home, please go to: http://seattleshortsales.com/homeowners/

If you are a real estate agent, and would like to learn about our no-fee short sale service, please go to: http://seattleshortsales.com/agents/

According to a new report published yesterday in the Wall Street Journal, lenders are easing up and offering loans to people with a less than perfect credit record - including those who have defaulted on their mortgages.

A study quoted in the article indicates that 64,500 borrowers who had defaulted on their mortgages received a consumer loan between February 2009 and August 2010. The majority of those were credit cards, but 40% of those borrowers received a personal loan or car loan or line of credit.

In evaluating clients for loans, banks are aware that many homeowners who are actually responsible found themselves in financial trouble due to the housing bubble and bust. So, although borrowers who have defaulted on multiple loans will still experience difficulties in negotiating any new loan, borrowers who have defaulted on their mortgages but are current on all other loans are actually considered to be low-risk clients.

While a blemished credit history may not prevent consumers from negotiating a loan, they still may end up paying more in interests than borrowers with a perfect credit report. Credit card interest rates could be 5 to 10% higher for these borrowers, and interest on a car loan could be three or more times higher than for low-risk borrowers.

If you are a homeowner, and would like to learn more about short selling your home, please go to: http://seattleshortsales.com/homeowners/

If you are a real estate agent, and would like to learn about our no-fee short sale service, please go to: http://seattleshortsales.com/agents/