agreement

Pre-Approved Short Sales, What It Means

February 8, 2012 By Jon Griffith Leave a Comment

Short sale approval letters are settlement agreements written by the home owner’s lender setting forth terms and conditions that the seller must meet through the sale of their home.

Most have an expiration date requiring that the settlement agreed upon be paid by that date. Although it’s of little consequence, in my opinion (as it’s a debt settlement between the seller and seller’s lender), they also stipulate the name of the buyer on the agreement.

This would naturally mean that any settlement agreement would be invalid if the buyer stipulated were to cancel the transaction. However, since the most important factor to the investor who owns the note is the net payoff, an approval tips their hand to the dollar amount they’re willing to accept, regardless of the buyer.

Sometimes a lender will be pro-active about the prospect of a short sale, and will “pre-approve” a sale amount and terms that will be acceptable to a future buyer.

So, a pre-approved short sale is one of the following:

It’s a property that has previously had an offer that met the investor’s payoff requirements but has lost its buyer-OR-
It’s a property that has been given a pre-approved price without an offer.

A house is only worth what someone will pay for it. Period. If the investor has pre-approved a short sale that has not yet had an offer, it’s likely they’re unrealistic about the asking price, so the 2nd example above is less likely to be a success, but still possible.

On the other hand, if the property has already been approved based upon a contract that was previously submitted from a qualified buyer, then the terms of that deal can be used to attract a new buyer.

Buyers who find short sales opportunities in the middle of this scenario are often pleased to find that it takes a fraction of the time to acquire a new settlement agreement from the lender.

Filed Under: Short Sales Tagged With: agreement, buyer, property, short sale

Client Q&A: Why Don’t We Have An Attorney?

November 30, 2010 By Jon Griffith Leave a Comment

Client Question:

I also checked out a 2nd opinion in which these realty specialists stated we should have a real estate attorney so we don’t get the shaft. Reading newspapers and online articles, banks are making it harder for us to short sale and/or foreclose. I don’t want to kill our credit. Why don’t we have a real estate attorney?

Dear Client:

Attorneys are important when it comes to representing you in legal disputes, or verifying that a legal document is in your best interest. The primary challenge of a short sale is to prove to the lender that the offer we have is the best we can get. Until we have an offer, we cannot do that. Once a lender approves the sale, which can take time, as you know, based on the lender’s experience, organizational level, and work-load, it’s important that the letters of agreement conform to what’s in your best interest. You will be signing an agreement with the lender once they approve the sale, and that agreement must do the following:

Release the lien so you can sell the home.
Release you from all future liability on the note.

You basically want the lender to allow the sale and declare a zero balance on your account in writing. That is what an acceptable Letter of Agreement contains.

Some lenders are crafty with their language, but for the most part, since they know that Arizona is a non-deficiency judgment state, they provide letters with both of these stipulations already in place, which is exactly what you want.

However, just to be cautious, and to protect your interests as a seller, in the purchase agreement, as a part of the short sale addendum, I will always write in a 5-day period for the seller to cancel the contract if the letter of agreement from the lender does not meet these two requirements. Once the letter of agreement is acceptable to the seller, it is delivered to the buyer, and the standard inspection period begins and everything moves towards a successful close of escrow and a successful short sale.

As for your credit, there is no way to avoid having a scar on it. When you complete a short sale, the lender has to write off a large sum of money and then they report it to the credit bureaus as something on the lines of “Settled for less than the amount owed.”

It will affect your credit, and it will take about 2-3 years to recover. This is an estimate, as the entire industry can’t seem to agree upon the effects of these things on your credit as it is. If you were to walk away from the home, and just foreclose, it will go on your record as a foreclosure, which is MUCH worse. In fact, it could affect many aspects of your life, such as employment, insurance rates, security clearance, etc. You definitely don’t want that.

The deficiency that the lender writes off could potentially become taxable income. In order for someone to write off a bad debt over a certain dollar amount, they have to report that the recipient of the “forgiveness” received the deficiency amount as a “gift.” In other words, if the home is worth $100K and you owe 200K, and you sell it for 100K, you’ll be forgiven of 100K, which will most likely be reported as income to you.

Whether or not you will be liable for income tax ON that amount is something you’ll need to discuss with your CPA.

Filed Under: Short Sales Tagged With: agreement, Client Question, Dear Client, short sale

The Basic Short Sale Process

October 1, 2009 By Jon Griffith 5 Comments

Handling a Short Sale for a client is a very complicated and detailed process, but at its core, there are only a few basic steps involved. The real success of the Short Sale is attributed to the experience level of the agent representing the seller. If they don’t know what they’re doing, it’s likely you won’t have a very smooth transaction. In fact, if they are attempting to short sale your home without experience, then they are doing you a disservice, as its our fiduciary as Realtors to represent your best interests, which cannot happen without proper experience.

Short Sales Process at its Basics

Listing: The first step is to list the property for sale. Traditional marketing does not typically apply to short sale properties because we’re pricing it to sell as quickly as possible. The seller doesn’t make any money, and they don’t approve the sale, so essentially, the seller really isn’t the seller. The bank is ultimately in charge.

Offer: A qualified buyer presents an offer. Just like any other sale of any other property, ensuring the buyer is adequately qualified to actually purchase the home is just as important on a short sale as a normal sale.

Execution: The seller signs the contract. Provided the offer is within reasonable fair market value of the comparable sales in the neighborhood, when the offer is presented, the seller will sign it and it will be considered executed or “accepted,” but not “approved.”

Submit to Lender(s): Along with all of the required documentation, the offer and all associated listing paperwork, addenda, financial statement, etc., is submitted by your Realtor to the lender(s) on the property and the approval process begins.

Receive Letter of Agreement: When the lender approves of the sale, meaning they’re taking what they can get from the deal, they provide a letter of agreement which the seller reviews and approves or disapproves of. If the seller agrees to their terms, the normal closing time line begins.

Due Diligence: It’s now time for the buyer to conduct their inspections and obtain their funding. If everything checks out okay, and the property appraises for at least the contract purchase price, then the buyer moves on to the next step.

Signing: Woo hoo! This is where the buyer signs their final paperwork. Title will then record the property transfer with the county recorder and the new buyer will take ownership of the property.

That’s it. Those are the basic steps of a short sale. From start to finish, this entire process is completely dependent upon how cooperative each party to the transaction is, and no two short sales are the same. This entire process can take a few weeks, to more than 8 months. So, as a buyer or a seller, be prepared to wait.

Filed Under: Short Sales Tagged With: agreement, Closing, due diligence, letter of agreement, RECORD, short sale, short sale approval

How Do Real Estate Agents Get Paid?

November 7, 2008 By test 2 Comments

…and who pays them?

Before I was a REALTOR, I was a consumer, and I bought a house. Fortunately for me, or maybe it wasn’t so fortunate, my REALTOR was my father. He also owned the house that I purchased. This worked both for and against me, but we won’t go into that now. The point is, I had no idea how REALTORS made a living prior to diving into the business myself, and you may also have questions about how we get paid.

Real estate agents are 100% commission based jobs. That means, we don’t get a paycheck unless we do business. Makes sense. Open up shop, provide a service, get paid, or sit on the couch all day wondering what to do.

Real estate agents also work as sales agents under a real estate Broker. That broker typically collects a percentage of what we make to cover the costs of running the company. At Realty Executives, we pay a premium to use the name while we conduct business according to their standards and the standards of the Arizona Department of Real Estate and the National Association of Realtors.

If we don’t sell a home, we still pay our broker, mortgage, utilities, etc. So we’re always in a position where cash is flowing out, but not always in a position where cash is flowing in. We’re also in a business where we need to be available when most of the rest of the world is not. This means that we sometimes have to work on the holidays that you get to spend having fun. On the other hand, we have the freedom to “take a lunch” whenever we want.

What does having a Realtor cost the Buyer? Answer: Nothing. Zero. Zip. Nada.

When you meet me for the first time and express an interest in purchasing a home, I assess how serious you are about purchasing, and then I begin to spend money on you to help you find that home. Searching for a home with a REALTOR costs you only time. You will spend nothing out of pocket, but we will commit a large portion of our business day(s) and marketing budget to provide you with the most pleasant showings as we possibly can. We fill our tanks, fill your stomachs, and become your city tour guide for the duration of your search. If you purchase a home without using us after spending all that time, we don’t get paid, but we also don’t hold it against you, because you may not have known, which is why I’m writing about it.

When the seller hires a broker to sell their home, the broker charges them a commission to do so. When that broker lists the property on the MLS, they indicate how much of that commission will be paid to the agent who brings YOU (the buyer) to the table to purchase the home.

The buyer won’t have to open their wallets until an offer is accepted, at which point a series of events begin that justify why the selling broker is willing to pay us in most cases half of the agreed upon commission.

What does having a Realtor cost the Seller?

The seller is the one who has the highest expense. From fixing up their property to staging it, the seller will bear the majority burden of cost in selling a home.

When the seller strikes an employment agreement with the broker, they typically agree to a set commission of the final sales price of the home and they offer a portion of that to anyone who brings a buyer. When the property closes escrow, the funds owed the listing brokerage are distributed according to the agreement between the two brokerages and each real estate agent is paid accordingly.

Filed Under: Real Estate Basics Tagged With: agreement, broker, commission, cost, paycheck, percentage, REALTOR