Someone called me the other day with a question about short sales and HOA fees. She wanted to know whether a homeowner should continue to pay HOA fees if they are involved in short selling their home, and are awaiting lender approval. The answer is YES.

Unlike other fees which short sale lenders typically agree to pay (such as county transfer fees and certain document fees, escrow and title fees, etc.), lenders normally will NOT pay late HOA fees. In most situations where the homeowner is behind on these fees, the buyer will end up having to pay for them. This obviously could be an issue if the balance is hefty.

The even bigger problem is that the HOA could file a lien on the property for the late fees. This could hold up the closing of the short sale, or even worse: cause the parties to miss the closing deadline that was specified in the lender approval letter.

The best advice to give short sellers (and I always do so right from the start)  is to stay current with HOA payments, even when they are no longer current with their loan(s). This will assure a much smoother transfer of title and avoid any problems that could lead to a bungled short sale and a foreclosure.

If you have any other questions regarding short sales or questions related to legal ramifications of selling your home, please feel free to contact me at Rachel@LaMarRealEstate.org.

You have heard the term “shadow inventory.” It was initially coined to refer to the housing inventory that lenders owned, post-foreclosure, but had not yet placed on the market for sale. It has been feared for years and is the subject of much speculation – how much are those lenders really holding back? Since the inception of the term years back, it has been used broadly, as has included inventory that has not yet gone into foreclosure but may. The media has blown the term out of proportion, and the average American thinks it is something to really worry about…but it is NOT.

The tides of the real estate market have really turned in the past year. Lenders have created their own programs, along with federal and state programs, that have actually kept the foreclosure numbers down. Lenders are accepting more short sales and moving forward with less foreclosures, precisely because the lenders do not want to sit on inventory that they have to rehabilitate and sell. They are in the business of lending money, not selling homes.

I’ll put it another way: lenders do not want distressed inventory. In fact, Alex Charfen, founder and CEO of the Charfen Institute and regular commentator for MSNBC and Fox News, agrees that shadow inventory does not exist. He points to the actual bank holdings (which he has seen), and bases this assumption on actual communication with those at the highest levels within the lending institutions. He states flat out that “banks are not holding properties off the market.”

The bottom line is that “shadow inventory” is not a concern. In fact, if you want to be afraid of something real estate related, chew on this:

- It is less expensive to purchase a home then to rent. The last time in history that such was the case was in 1973.

- Housing is more affordable than it has ever been…BUT inventory is very low. Statistics say that inventory will take 3-5 years to shift. In that time, it is safe to say that interest rates will likely rise.

- Standards of getting a loan, while offering more protection for buyers than ever before, have shifted and it is now harder to qualify for a loan.

- Meanwhile, due to the lack of inventory and the greater demand in the housing market, prices continue to rise and competition is fierce – cash investors purchased 30% of homes in 2011 (and that number will likely be higher for 2012).

If you have been considering buying a home, now is the time. I don’t say this because I want to sell more homes, but because it is simply the truth. Many people waited back in 2006/2007 to sell – they saw prices rising like crazy and thought they would wait until they got just a tad higher, so they they could sell and reap bigger profits. Many of those people went into foreclosure or had to short sell their homes after the market plummeted. Don’t get left in the cold.

Bank of America issued a notice recently to agents about the possibility of selling off loans in the middle of a short sale, which could drastically affect your short sale (and even cancel it last minute). It is very important that both homeowners and their agents understand what is happening, before listing a property for short sale.

As is customary, many lenders sell loans, even those that are delinquent – this is nothing new. But the fact that B of A sent out a notice about it is concerning, because of the timing that is mentioned for possible sales. The notice states that while in the midst of a short sale, borrowers’ loans may be sold to other servicers. If that happens, there is no guarantee that the pending short sale will close. Here are the steps by which this may happen (as spelled out in the notice):

•  Bank of America will send the homeowner a letter 15 days before the servicing transfer date.

•  Bank of America may call the agent to advise of the impacts to the short sale.

•  The new servicer will send a letter or statement advising the homeowner where to send payments.

The scary part is that B of A is giving itself an out – why would a lender approve a short sale, only to then sell the loan while the property is in escrow? This makes not sense whatsoever. B of A states, “Real estate professionals should advise homeowners that, similar to foreclosure, a servicing transfer is a risk that may occur at any time during the short sale process. This is why it is important to move as quickly as possible to facilitate the short sale.” Wow – if I have to tell this to potential short sellers, why would they want to risk a short sale? Why would a buyer want to risk making an offer, with the very real prospect of losing money and not closing? And why would I, as an agent, want to risk spending marketing dollars and time in selling the property? NO ONE WINS!

It seems to me here that B of A is trying to cover it’s behind, but this warning and the described act is contradictory to short sale approvals.

The solution here is this: if you have a B of A loan and are considering a short sale, you need to have your agent or negotiator discuss this with B of A before listing your home. I would ask to get something in writing that B of A will not sell the loan after the short sale has been approved and during the escrow period, up until the deadline that is provided in the approval letter. This applies whether you have a first or second loan with the bank. If B of A is not willing to do this, you can either take a risk or look into other options.

This move is a step in the wrong direction by B of A, and thus they remain on the top of my “lenders who are not cooperative” list. What a shame that this bank – Bank of AMERICA, for goodness sake, is not willing to truly help American homeowners. Maybe they ought to think about a name change.

Beginning November 1 there will be some significant changes to how short sales are handled, and the new guidelines could be a big benefit to those sellers who otherwise may not have been able to short sell their homes. A short sale is when a home is sold for less than the amount owed on the mortgage(s), allowing the borrower to escape some of the harsher ramifications from a foreclosure.

The Federal Housing Finance Agency (FHFA) is changing the Fannie Mae and Freddie Mac short sale guidelines, which will allow borrowers to be qualified by their servicers for short sales in a more timely manner, and will apparently streamline the short sale process, making it smoother and, dare I hope, quicker. How are they planning to do this? Here are the changes that are anticipated:

• A single short sale process will be created for Fannie and Freddie short sale programs. This will allow for smoother and streamlined processing time, which will enable agents and homeowners to determine timeframes for approval and closing. Servicers must respond to short sales within 30 days, with a final decision for the borrower by 60 days after submission.

• Borrowers who are current on their mortgages will be able to qualify for short sales (subject to showing they have a hardship), without waiting for short sale approval from Fannie and Freddie, and instead of waiting until payments are missed, thus eliminating further damage to credit scores and helping to clear short sale inventory much quicker. Most importantly, the guidelines for proving hardship will be loosened.

•Provides special treatment for military personnel who have received permanent change of station (PCS) orders. Personnel who are being relocated will automatically be eligible for short sales, even if they are current on their mortgages.

• May provide up to $3000 in relocation assistance to those borrowers who qualify.

• Allows and standardizes foreclosure suspensions on approved short sale properties. This one is big – it will prevent servicers from foreclosing on your property if your short sale has been approved, so no more worrying during the short sale process that the home will be sold at auction during that time.

• Payment to secondary lien holders by Fannie and Freddie of $6,000. Although this happens frequently already, it will be nice to have a guarantee that Fannie and Freddie will offer these subordinate lien holders money, which makes getting their approval on short sales a bit easier.

The potential downside of these changes is that there may be large supplies of short sale inventory in some areas, which could have a negative effect on area home sale prices, at least until the supply is sold.

The upside to this new process is that it will clear the market of distressed property, which will allow a return to “normal” growth cycles in the future, and instill higher levels of consumer confidence in the markets. It will also be positive news for those home sellers who would have headed toward foreclosure, providing an easier way out from under a mortgage that was literally sinking them.

These new guidelines are a step in the right direction, as we need to clear out this inventory and make the process easier and not so mysterious. The proof will be in the pudding, however, so I am definitely looking forward to November 1, and streamlined short sales. If you have questions about short selling your home, please feel free to contact me.

Will Housing Money be Spent on Housing? The national mortgage settlement with some of the biggest U.S. Banks (from the the robo-signing scandal last year) is supposed to provide many states with money to help with housing issues. California, set to receive a $410 million settlement, could create more programs to help distressed homeowners stay in their homes, strengthen counseling services, fix up neighborhoods that have suffered from foreclosure blight, help people qualify for loans to purchase homes…the list is long and the possibilities endless. Sounds great for housing, right? Not so fast. While State Attorney General Kamala Harris says half of the money will be put into the housing sector, Governor Brown announced that the other half will be used to dig California out of debt. Do you really want my opinion on this one?

Bank of America Offers Up to $30k to Short Sellers: Bank of America announced at the end of last week that it has initiated a new nationwide program that will give up to $30,000 to distressed homeowners upon completion of successful short sales. There are some restrictions – the seller must work with B of A to get a preapproved short sale price before accepting a contract, and the short sale must start before the end of this year and close before September 26, 2013. But B of A says that homeowners in the midst of a short sale may be able to take advantage of this program as well. To find out if you are eligible call 877-459-2852.

Just a quick note – one of my sellers called B of A this morning to see if he was eligible for this new program, but he felt the representative was not very knowledgeable about the program. If anyone has success with this program please let me know.

Condos May Soon Be Easier to Purchase: The FHA announced that it may be changing some of the restrictions that frustrate condo buyers and investors, thus making these properties easier to purchase. Two of the restrictions – a 50% minimum owner-occupancy requirement and a refusal to approve complexes when the delinquency rate on homeowner association dues is over 15% – have made many condos unattainable for those who require loans. There are several other restrictions that are being looked at, and there are no details yet, but it will be good news for buyers and the housing market if these restrictions are loosened.

One of the biggest frustrations in my work is dealing with short sale lenders. With all the recent claims that these lenders are going to embrace short sales and make them quicker, the reality is that is not happening. Why is this so? Your guess is as good as mine, but let’s look at some simple ways the banks could improve on short sale response times, saving everyone aggravation and getting more homes sold, which of course helps the real estate market.

Time frames/mandatory check in times with agents on files. We need to make the short sale process more streamlined. There should be time frames established for each task, including response times. The negotiator for the bank should have daily updates for the agents on status, and be made to comply with the time frames. In a dream world every lender would have to follow the same protocol, which would make short sales easier to understand and close.

Assign one negotiator/closer to each file. One negotiator should be assigned by the bank to the file from the start, regardless of whether the bank uses an electronic system like Equator. The negotiator can then at least be familiar with the file to some extent, from reading his/her notes. Once a task is completed and the file needs to move up the chain of command for signatures, the assigned negotiator should be in contact with the higher-up, and remain actively involved with the file – that way we know the status and do not have to track down who actually has the file. Again, deadlines must be adhered to. I am tired of it taking 3-4 weeks to get a signature – if everything has been approved why does it take so long to sign off? This is ridiculous.

Make electronic systems more flexible. Some systems, like Equator, are great for keeping track of documents and progress. But these systems need to be maintained. When your file is full, oftentimes you are unable to leave further messages for the negotiator, and of course this is the only way you are supposed to contact them. These systems need to be maintained daily, and if they get to a full status they need to be archived so more messages can be input to the file.

Strict time frames for investor-lender communication. One of the most difficult aspects of short sale approval is that while the lender may actually be quick to respond, the investor (the one who actually holds the note, as opposed to the bank/servicer) often takes a long time to approve (and this is required for escrow to be opened). This problem has caused many short sales to fall apart after months of waiting and negotiating, even after the servicing bank says the sale looks good. Investor banks need to establish communication guidelines with the servicers, and stick to them.

Sadly, until these lenders decide to actively do something to  make these sales more streamlined, there is nothing we agents can do. I would love for the bank executives in charge of the loss mitigation programs to have a big press conference, where real estate agents could attend and ask questions…there are so many I can think of. But it would be fascinating to hear the answers. The unfortunate thing is, I don’t believe they even understand why they can’t get these sales closed faster, and they probably have no idea what goes on in reality. Well, at least we can always hope.

There is a lot going on in the short sale and foreclosure arenas, and much of it may effect buyers, sellers and underwater borrowers. Here is the latest news:

Short Sales: Will They Soon be Shorter? There has been talk about making short sales shorter – not a new topic of course but this time the talk comes down from the Feds. The latest is that they want to make short sales more reliable as far as timing. The guidelines will only apply to Fannie Mae and Freddie Mac loans, and the full plan will be announced September 30.

Here are some of the highlights, according to the California Association of Realtors (CAR):

• Second liens: The plan entails better standardized rules between Fannie and Freddie regarding second liens and how they are to be dealt with (of course, there is no elaboration here). There is also a plan to set fixed amounts so that banks will know in advance how much they can expect to collect in a short sale. If there is no guessing and haggling with the first lender and/or the buyers and sellers to come up with an agreeable number, the second lender will be more likely to acquiesce to the short sale.

• Mortgage Insurers: The idea here is to prevent mortgage insurers from dragging out short sales. Rules will be introduced that prevent their ability to do so (via timelines), which is one of the causes of breakdowns in short sale negotiations.

• Mandatory Timelines: While there has been no information on what these might be or how they will be enforced, this is the crux of the short sale approval problem – if we can establish timelines in which a lender must respond, short sales definitely will become shorter.

• Valuation Problems: Another big problem in getting short sales accepted is valuation – there is a push to get lenders to take steps to get better property valuations, and to disclose the lowest price they will accept on a short sale property. I for one feel that lenders should eliminate agent BPOs and rely on local appraisers to come up with these numbers – I have had bad BPOs and bad appraisals almost ruin transactions.

Changes in Settlement Structure for First and Secondary Lien Holders: Second lien holders tend to get the short end of the stick when negotiating short sales, and usually walk away with very little money toward the debt that was owed. First lien holders, on the other hand, have more power in negotiations with the seller and tend to far far better, thus creating problems where subsequent lien holders refuse to settle, which of course can cause short sale approval to take a very long time or not happen at all. A new plan proposes the first and second lien holders share equally in the losses through the short sale settlement.

Banks are Overvaluing Homes, Making Foreclosures Worse: A recent article in the Huffington Post last week stated that banks are not making proper valuations on distressed properties, which in turn makes it less likely homeowners can get loan modifications, sending more properties to foreclosure. Using proper valuation methods to come up with correct numbers could prevent more foreclosures, allow more short sales and auction sales to third parties, and also allow for the possibility of more loan modifications.

Foreclosures are Down from a Year Ago, but on the Rise: Foreclosures are down from the same time last year, but are up from the previous month. Typically foreclosures slow down during the holiday season, and combined with the robo-signing settlement this could be why their numbers went down at the end of the year and into 2012. However, some say the declining numbers show progress in the mortgage industry…hmmm, what do you think? For statistics on specific states and more information on foreclosure numbers you can read this article from DSNews.

These days it is frustrating to figure out options to avoiding foreclosure. Many homeowners who call me to discuss short selling have similar questions: what are my options. Of course, there are options out there – like refinancing (HARP2 will be able to help some underwater borrowers starting in a few weeks – see previous blog) and short selling.

Lately you may have heard talk about banks selling underwater homes to third parties, allowing the sellers to remain in the home as tenants. This idea is not new, but it has been considered lately as one solution to preventing foreclosures. There are positive and negative elements to establishing a program of this nature.

The positive side: If you are a homeowner the ideal situation for you, if you are underwater and will no longer be able to pay your mortgage, would be to stay in your home. The government agrees, and it wants the banks to sell your home to an investor, keeping you in the property as a long term renter (you still have to qualify as a renter, of course, so no unemployment). Your payments would likely drop substantially, and although you would not longer “own” the home, you would be able to stay there. Sounds good, right?

The not-so-pretty fine print: The problem with the above scenario is twofold: first, we have to consider the effect it may have on the housing market. At what discount will all these homes be sold to the third party investors? It would have to be a big discount, to make sense from an investment perspective. This will devastate neighborhoods, bringing the comparable sold properties down even lower.

But so do short sales and foreclosure, you argue, right? My second point demonstrates another issue…

Allowing homeowners to stay in their homes as renters will make things even worse for housing, because what kind of message does it send? Hey, if you can’t afford your home, you can still live there and just rent it! I can see this becoming a problem, and some homeowners will undoubtedly try to take advantage of it, hurting local markets and neighborhoods even further.

A smarter solution to the housing nightmare is to make the banks approve short sales faster. Although it is so difficult for homeowners to have to short sale their homes, they have an opportunity to start over and get back on their feet, make smart decisions and be homeowners again in the future. I do think that turning the vacant bank-owned inventory into rentals could be a positive spin on things, but I DO NOT think the government should be in the business of renting homes, so for this option to work an investor would have to come in and buy the bank-owned property and rent it out. But of course, this brings us back to the issue of deteriorating prices.

Trying to figure out the best ways to help both distressed owners AND the housing market is tough. I say the banks should bless the short sales and make the process more streamlined, so at least we can get more inventory on and off the market quickly, and get people on their way to healing. What do you think?

If you have ever considered a short sale, or would like to learn more about how they work, I have the seminar for you…and it’s free! Shortsaleopedia and I have collaborated to hold monthly seminars to help homeowners in San Diego, and the first one is this Wednesday, February 15, from 6:00-8:00 p.m. at the Encinitas Community Center in Encinitas.

I have put together a phenomenal panel of experts – from real estate and credit attorneys to a CPA, short sale bank negotiator, mortgage professional, escrow and title professionals and of course Realtors who specialize and are trained in short sales. We will teach you all about the intricacies and ramifications (legal, credit and tax) of short sales, programs that may be available to help you, and how current and upcoming laws could make your sale easier or more challenging.

Please join me and my wonderful expert panel this Wednesday. You can sign up here: http://shortsaleopedia.com/events/event/event-expert-panel-san-diego-az-2012-02-15/. The Community Center is located at 1140 Oakcrest Park Drive in Encinitas. If you are investigating options for distressed property, this event will be valuable.

Well, as surprised as I am, Chase has been kicked from the number one spot on my least favorite short sale lender list (but it is still a close second), making room for the new #1: Wells Fargo.

I work with many short sale buyers and sellers – some say I’m nuts to do so, but I think that you have to embrace reality, so that is what I do. I also thoroughly enjoy getting these sales closed, because it feels so good to accomplish a difficult task AND to know that I helped someone.

Along with working short sales comes frustration, mostly where the lenders are concerned. As a short sale agent, I and others keep hoping that one of these days these sales will become more uniform, easier to work and quicker. But, alas, sometimes they seem to be getting more challenging. The latest news is important for anyone who holds a loan with Wells Fargo, OR if Wells Fargo is the investor on your loan. Now this latter part is key, because some people have no idea who the investor (the one who actually holds the note) is on their loan(s).

Wells Fargo recently decided, in all it’s wisdom, to require agents to submit short sale offers 30 days prior to the auction date. This was not made public. While there could still be a chance that an offer submitted sooner might get approved for short sale, I implore you to not risk it. Wells sold a short sale listing of mine at auction this week, despite the fact that we had a well qualified buyer and had submitted a contract.

Please do not let this happen to you. It is a terrible feeling, and I am disgusted with Wells Fargo – so much so that I am considering pulling all my accounts with them. I have banked there for many years, but this leaves a very nasty taste in my mouth. While other lenders are trying to embrace short sales, Wells gets the stick for being uncooperative, uncaring, and plain ridiculous.

With short sale lenders constantly changing rules, it is very difficult to keep track of everything. If you are considering a short sale, make sure you find out who your investor is, as it is often not the same as the service provider.