Selling Northern Virginia Blog!

Your hardship letter is important – it is the story of why you are where you are and the foundation of your request for a short sale.   It will not get your contract approved, nor will it get you off the hook of any deficiency that you may have.   What it does is put a story behind the numbers.

When you submit your financials, the negotiator will see if you can or cannot afford the mortgage.   In your short sale package we will outline your homes value and why this contract is worth their time.   But your hardship letter is your opportunity to get the emotions of hardline decision makers involved to accept your situation.   There are a couple of key items that each letter should have, and a couple of mistakes that you will want to avoid.

Must Have – Intent
Tell them that you were excited about owning the home, that you were a proud homeowner and that you have taken care of the home.   Let them know that this was not a building but a place where you lived or raised your family.   Give them the understanding that this is not an easy choice.

Avoid – Playing The Blame Game
Don’t tell them that you think banks are bad and the cause of all things evil in the world.   Don’t blame the shoddy lending practices that caused this problem in the first place.   Now is not the time for sour grapes.

Must Have – Your Hardship
They do not need to hear every detail of why you are in this situation, but let them know what happened.   Tell them that you lost your job of 26 years, or that your marriage is ending…You need to make them understand that your life has changed dramatically and that you are facing a short sale because you owe more than your home is worth.

Avoid – Don’t Tell Them You Are Not Going To Pay Them
You attract more bees with honey than you do vinegar – you do not want to be confrontational or even show signs of causing trouble.   All though you want to tell them to stick it, remember that the individual reading this did not cause the problem.   However…

Must Have – Tell Them What You Want
It’s simple – accept the contract as full payment for the amount outstanding on the home.   That is the goal, to get them to accept a partial repayment of what they are owed.

There are a couple more items that you will definitely want to have in your hardship letter.   If you need a copy of some successful hardship letters, feel free to contact me and I will be happy to share them with you.   Remember, you are not alone in this…there are people who can help.

Jimmy Mulhern
www.virginiashortsalehelp.com

Check out this new Single-family property that I just posted on my Web site. It is in Fairfax.

Check out this new Single-family property that I just posted on my Web site. It is in Fairfax.

This past week, we had three appointments with sellers looking to sell their home for less than what they owed.   Each situation was unique – one involved a family being transferred out of the area, another a job loss, and the third was simply living in a home that was too small for the addition to the family that was coming.   Short Sales come in all shapes and sizes.   But the interesting aspect of each appointment was the expectations of the individual sellers.   I have listed some interesting points that developed from these conversations and many others that we have had over the past couple months that you need to understand if you are facing the possibility of a short sale:

Assets vs. Liabilities: Not being able to make your mortgage payment due to a job loss is scary.   At first glance, it seems like no issue to contact the bank and have them accept a shortage rather than foreclosing on the property.   However, if you are showing a surplus in assets…such as significant stock holdings, cash on hand, or even another home that is paid in full…the bank looks at those as resources to pay the loan.   Even in a situation where you do not have enough to cover the amount owed, the bank will look at cash on hand as a way to make ends meet until you are able to secure employment.   I am not defending the banks, but please do not think it will be a cake walk if you are showing a significant positive in your assets over your liabilities.

Foreclosure is not a positive option:   A short sale is a lot of work…but the damage a foreclosure does to your credit and psyche is far worse than the effort to try and sell your home short.   A foreclosure can cause you to lose your job if you are required to hold a security clearance, and now more employers are checking credit history’s during the hiring process.   Also, on any future credit application, you will have to answer questions relating to a foreclosure.   A short sale can avoid all the headaches down the road that may not seem too important right now.

Sometimes, you have to miss a payment:   There are two schools of thought when it comes to paying the mortgage on a short sale property.   One side of the equation says that you should never throw good money at bad money.   The other says that if you stop making the payment then the foreclosure process starts and the deadline for resolving the problem shortens.   If you have to miss a payment to keep afloat, then you have to miss a payment.   The goal is to sell the home and the reason is because the mortgage can not be paid anymore.   Do not waste money trying to save a sinking ship when the co-captain is not offering any assistance!

Market The Home To Be Sold:   The latest short sale listing we put on the market last Friday is awesome.   The owners worked very hard to get the home to look spotless.   Their extra efforts mean that their home shows extremely well compared to other short sale properties in the area.   It is important to make the buyer feel at ease during the process.   You also need to have a full marketing effort from your agent.   This means that they have to spend money…even though they may not end up with a closed transaction.

Document Everything:   Be upfront and honest – the bank will follow the paper trail!   The big boy word for this is Fraud – lying to the bank will cause the transaction to fall apart, and open yourself up to prosecution down the road.   Your agents responsibility up front is to outline what you will need to present your case to the bank.   If they do not have a detailed packet, find a new agent.   There should be about 30-40 pages that will be sent off to the bank – that gives you an idea of what you should expect from your agent.

Exhaust every option first:   Being transferred to another area is one type of short sale that is hard on a family.   Your still employed, showing good incomes, but the home you are leaving is like a 50 lb weight hanging around your neck.   Part of your short sale package should be a section on renting the property out and if that will still present a shortage.   The bank will want to see that every effort has been made to find the best solution possible.   It is your agents responsibility to make sure that due diligence is handled and that the bank understands this.

Short Sales are going to be the future of the real estate market for the next couple of years.   This has nothing to do with the economy, or even the sub prime lending issues of the past.   People will still need to move, and buyers will still be looking for homes.   The most important action you can take is to make sure that your family is mentally prepared for the journey, and that your agent is professionally prepared to get the job done.

Jimmy Mulhern

Http://www.HowToAvoidForeclosureInVirginia.com

Http://www.HomesInVirginia.net

The Internet is full of fact and fiction – each page offering contradictions and power statements.   The lack of positive/correct information can be daunting for a homeowner facing the difficult decision of selling their home when they owe more than it is worth.   We created a website to help answer questions that you or someone you know may have regarding a short sale.   Visit http://www.HowToAvoidForeclosureInVirginia.com for in depth information on the short sale process and how you can give yourself the best odds of getting to the settlement table.   Below are some myths about Short Sales.   As always, feel free to add your comments and questions at the bottom.

Myth 1 – I have two mortgages…there is no way I can do a Short Sale.

WRONG.   When the short sale process was just beginning, many people did not try a short sale if they had a second trust that was going to be shorted.   After the huge wave of foreclosures, 2nd trust holders wised up.   Now instead of foreclosing on a property and receiving $0, they have started to accept pennies on the dollar…which is better then getting nothing.   In situations when the first is also going to be shorted, the 2nd will usually ask for a low dollar amount from the first or from the seller.   Usually a repayment plan can be worked out that is very favorable to the seller.

Myth 2 – I should never accept a payment plan from the bank…they should forgive all my debt.

Let me tell you a story…seller gets his home sold as a short sale.   Offer goes to the bank and finally gets to BPO time.   First trust accepts the payoff…2nd trust comes back and asks for $10k to be paid over 5 years with a 5% interest rate.   Seller says no way he wants to pay nothing…2nd rejects the sale, buyer walks away, home ends up in foreclosure.   All over a $200 monthly payment in place of a $4,000 mortgage.   If it makes sense, why would you not solve the problem with a simple solution like this?

Myth 3 – Pricing the home lower will create a buzz and build contracts to submit to the bank.

Most buyers are still of the mindset that they should not pay over asking price.   Most short sales fall apart because the home was under priced and the bank wants the sale to be close to Fair Market Value.   If you list the home for a fair price and prove to the bank that the home was “Seasoned” it increases the odds that the offer will be accepted.

Myth 4 – Short Sales do not get accepted.

At the end of last year, the numbers showed that about 10% of short sales were accepted.   Since then, agents have started to learn what the banks are looking for, and banks have started to realize that a short sale is the best alternative in a foreclosure situation.   Agents who have a plan and a system in place are having a huge success in getting their short sale accepted.   In the right hands, a short sale can be presented to the bank as the only solution.   Make sure that you contact a CDPE which is the industry designation for agents with specialized training for short sales.

Myth 5 – A Short Sale is embarrassing…a black cloud will be hovering over our house.

A Short Sale is a regular sale!   There is nothing different in the way that you as a seller prepare to sell your home, and we as the agents list and market your home.   We do not advertise our listings to the public as a Short Sale…what advantage does that bring to you?   There are requirements to advertise in the remarks to agents that the home is a short sale, but that is only to help them counsel their clients on the process.   Short Sales happen to people with good jobs making good money.   It simply is a situation where you must sell and do not have the means to make up the difference.   You should never feel or be made to feel embarrassed about the situation.

Myth 6 – Any agent can list a short sale.

Amazing that agents listed short sales for clients in trouble to learn on the fly.   The fact of the matter is that most agents do not have a system or plan in place to list a short sale.   To give you an example, our area of expertise is buying and selling property.   We have a specific pre-listing system for short sales, and a tailored marketing plan that assists in the short sale being accepted.   It basically gives the banks what they want to see in a home sale.   We hire attorneys to represent our clients in negotiating the terms of the short sale – at no expense to you.   That is their area of expertise.   See it’s not about us advertising that we successfully negotiated short sales…it’s about giving our clients the best chance to move on.

Visit our website for more answers.   If you or someone you know is looking for an experienced agent who can help, please give us a call.   The worst thing you can do is avoid the problem and become another statistic.

Jimmy Mulhern

http://www.HomesInVirginia.net

We truly are blessed to live in the country we do – Thank you to all who devote your life to making this country what it is…I hope you were able to celebrate our nations bold anniversary of declaring independence with an enjoyable weekend!  

Now that we are back to reality, I wanted to address the common misconception of who qualifies for a short sale.   Many homeowners think that a short sale is about people going into foreclosure or buying homes that they could not handle – that is very far from the truth.   In fact, most people in a short sale situation now are the ones who could handle the storm, but the individuals who defaulted dragged the values down so low that the rest of us are left to clean up the damage.   A short sale is simply a sale in which the mortgage outstanding is higher than the sales price on the home.   A successful short sale must include these three key ingredients:

1. Financial Hardship – This is very broad and can be the result of many things.   Our website has a list of all the acceptable forms of hardship, but the most common are job loss/transfer, divorce, adjustable mortgage, loss in wages, or illness/death of a spouse.   Simply unhappy about your homes value is not acceptable.

2. Monthly Shortage – A bank or investor will not be too quick to accept your request to have your debt forgiven if they see that you are still showing a positive monthly inflow.   If you are asking for a short sale but pulling in $1,000 more each month than your expenses, then why would the bank accept your short sale.   However, if you have been transferred and now you have to find housing in your new job location, then you do not have extra money and thus would qualify.

3. Insolvency – Simply put, are your assets greater than your liabilities.   Now most people are worried about their retirement and 401k – in most cases these are not counted in a short sale since most bankruptcy laws protect them from creditors.   But if you have a significant amount of money saved or invested…even as a “Rainy Day” fund…then this is something that the bank will attach their debts to.   Think about it this way, if you have $100,000 in the bank but are asking the investor to forgive $75,000 you owe them, how likely do you think they would do that?

Qualifying is the first step.   Getting your home sold and in the proper hands is another.   Our team has now hired a law firm to represent all of our clients facing a short sale situation.   Our profession is buying and selling property, not providing legal opinions.   As a free service to our clients, our team of attorneys will sit down and provide a one on one counseling session to qualify your short sale and negotiate the terms of your short sale with the bank.   What do you think has the better success rate…a short sale where the agent tries to wear all the hats at one time, or the Team that has qualified professionals handling both aspects of the transaction?

This service is free and part of our specialized resources to help all homeowners in trouble.   There is a difference…don’t waste your time hoping things get done.   Put your best foot forward first and start living again.

Jimmy Mulhern

http://www.HowToAvoidForeclosureInVirginia.com

Any individual who practices real estate had to laugh when the FHA refinance program was announced.   The Making Home Affordable program was inadequate when it was released – but yesterday they finally made an adjustment that is more in-line with what homeowners are really facing.

The previous plan to allow homeowners to refinance to a fixed loan if they owed less than 105% of the current market value was foolish and simply thrown out there to say “Hey look we are doing something”.   Since 2006, almost every market in the country has seen average declines of 18% in home values.   So even the homeowner who had put 20% down was still going to to unable to refinance under this program…Now they have raised it to 125% – more in-line with where it should have started.

There is a reason why this program has only helped 4,000 of the over 7,000,000 homeowners who need the help.   Maybe we should help the homeowners who buy the cars then the company’s that make them – but that is an argument for another day.

If you are in a loan that has higher than a 6% interest rate – especially if you have a second – you need to find out more information about this program.   If you have a first at 5%, and a second at 8%, you may be better off refinancing into one fixed loan.

Visit http://www.makinghomeaffordable.gov/ to see if you qualify for this program.   If you are unaware of your homes value, fill out the form to the right for a complete market synopsis of what is happening in your neighborhood and areas around you.

Jimmy Mulhern

http://www.HomesInVirginia.net

When consulting a homeowner facing a short sale, the first question I am usually asked is “What will this do to my credit?”   Now comes the generic answer…it depends!   With the large amount of foreclosures and late notices, banks have had to take into consideration the overwhleming amount of delinquencies.   This has caused them to take a less aggressive approach to how they handle consumers with poor credit.   But again, each scenario is different.

If you stopped paying your mortgage, it does not matter what you do your credit will be impacted!   A short sale will not save your credit from the 30-day late notice…but it is significantly better than what a foreclosure will do.   Even in this scenario, a short sale can be reported that can eliminate the negative account which will help your overall score.

When you list your home as a short sale, it does not necessarily mean that you are facing a foreclosure.   Plenty of people are being transferred out of the area for work that owe more on their home then what it is worth.   These are employed individuals who can meet their monthly payment requirements, but just owe more on their house.   This is where the “it depends” part comes in.   When your short sale is accepted, the key ingredient to a “Success” is how you are able to negotiate the note.   This means that when the bank accepts your payoff, they report to the credit bureau on the mortgages status.   The best solution is a “Paid In Full” or “Paid As Agreed” status.   This should have no impact on your credit score and is the ultimate goal.   These are easier to get accepted when there is an agreement between the bank and the seller for a payment schedule on the amount owed.   It is definitely a scenario that you must keep on the table to avoid the damage that a lowered credit score can have on you.   Remember, this does not just impact future loans – it impacts rates you have on credit cards, insurance rates, and even some job opportunities.

If you are in a scenario where you are asking for the bank to forgive the debt you owe them, the first priority you have to get them to forfeit the rights to a deficiency judgment.   Basically this is simply wording in the acceptance letter saying they will not seek a judgment against you.   Now, if you are not able to negotiate out a “Paid In Full” status, you may have some credit implications.   Do not let anyone tell you that you will never be able to get a home loan, or that you will have to wait “X” amount of years until you can get one.   That is dictated by the loan you had, and the Fannie and Freddie programs usually will make you wait 2 years before you can get a home loan.   However, there are too many banks out there that are all competing for business and one may give you a loan.

Most short sales have a minimal impact on your credit scores with a 100 point drop being an extreme case.   The most important factor in what your credit will look like is whether or not you missed any payments.   If not, then a successful short sale will allow you to continue on the road to financial freedom and ease the troubles of a home that is underwater.

Jimmy Mulhern

http://www.HowToAvoidForeclosureInVirginia.com

I am starting to see it advertised all over – “Successful Short Sale Agent” – mainly in the remarks of listings that only agents see as ways to entice that agents buyers and make them feel at ease.   It is funny how “Successful” can be thrown around when talking about a short sale for the fact being that this individual agent had completed less than 50% of their listings successfully as it relates to short sales.   I am not saying that they failed – I am saying that the word successful is an interesting choice since the failure rate is higher than the success rate.   In some of these cases, the listing they had expired, the sellers listed with another agent and they were able to close the short sale transaction.   Does this mean the agent touting their short sale success should be discredited – no.   It just means that the preparation and the package that the individual agent has is more important than the success rate.

This is my point – each situation is different!   What works for one lender one time may not work for the same lender the next time.   To succeed in Short Sales, it is about the preperation of both the seller and the agent involved in the process.   Any agent who is out there telling you that they can garuntee success is lying.   What you need to make sure that you have on your side is an agent who has a proven system in place to increase your success rate from 10-30% to 90%.   How is this done?

First, you have to choose someone whom you can work with.   This means that you have to have an agent who gives you their honest answers, not what you want to hear to get your business.   There has to be a solid working relationship.   In our business, I solely focus on Short Sales, while other members on my team handle our other business.   It’s simple – a short sale requires the full attention of an agent to make sure that everyone is on the same page.

There also has to be a system – our system was designed by the CDPE organization which now boasts over 10,000 members.   What does this mean to you – instead of you being our guinea pig, we already have a plan in place that maximizes what each individual lender is looking for.   Not every agent can or knows how to handle a short sale.   Sure they will take the listing and see if it can fly, but who is going to suffer if something was screwed up along the way?   Our goal was not to simply dive in and learn on the fly – we took the time to research the best system possible and put it into action.

So again – can a short sale be successful?   Of course it can.   Sometimes these transactions are looked at with disdain and have a black cloud hovering over them – it is actually quite the opposite.   Right now, we have two contracts on short sale listings, and the process has been a bit of a relief.   Buyers are struggling to find homes right now, and most of the foreclosures (the listings with the prices they want to pay) are in horrible shape and have multiple bids on them the first day.   In a short sale, they are still facing multiple bids, but the homes are priced very competitively, and they are usually in better shape than anything else out there.

The homeowner in this situation can have the stress of losing their home, or not being able to sell their home, removed by taking the time to try.   It is amazing, but almost 70% of homeowners facing a foreclosure do nothing!   In one of the two closings we have mentioned above, the buyer and seller have personally met and created a relationship.   It is a positive experience, and saving someone from foreclosure is what I call the success.

Jimmy Mulhern – CDPE

http://www.HowToAvoidForeclosureInVirginia.com

Step #3 – Document, Fix, And Prepare

The number one mistake that is made when listing a short sale is the dreaded As-Is statement.   The number one reason why short sales fall apart is because the buyer walks either when the bank takes too long, or they get nervous and feel as if they are making a mistake.   A short sale is just like every other sale, it’s just that the seller needs to get approval from the bank to short them.   Buyers should expect the home to be just as nice as any other home for sale.   A diligent agent will price the home according to it’s condition and the time-line for which it goes to foreclosure.   This would mean that homes that are priced below market value are there due to the work and repairs that need to be taken care of.   In the even that the seller can not afford the repairs necessary, then there can be a negotiation involving the bank and the buyers for what will be taken care of.   Selling the home As-Is is a safeguard for the seller…but you have to be willing to work with the buyers and make sure they make it to settlement.   Unless it is related to the electrical, HVAC, or plumbing, you do not have to do anything.   But you want to make the buyer feel comfortable buying your home and excited to get to closing.

Once you decide to contact an agent to help you with the sale of your home, you will need to document every bit of financial information you have.   This is very important for the agent to qualify you for a short sale.   The bank will not be too willing to accept your short sale if you have $80,000 in liquid assets, but in general retirement accounts are not counted and the banks are not able to access them.   Remember, short sales are not just about people who received loans they could not afford.   These are homeowners who sometimes have good jobs, but have to move.   It is not always a situation where people can not pay their bills.   It is very important that you take good notes and have all of your finances transparent for the bank to see.

When selecting your agent, the key is to choose someone with a detailed short sale packet.   If they do not have one, find someone else.   This is the key to agents success in this field.   A detailed packet will give the bank everything they need to approve the sale of the home, and move your transaction to the top of the pile.   Loss Mitigators see hundreds of packages a day…which do you think they will work on first, the one where they have to chase down information or the one that has everything already sitting there for them?   The first document that you should sign is an Authorization Form.   This allows your agent to speak to the bank on your behalf, removing you from having to make the daily phone calls and allowing you to get back to your life.

This is not a complicated process, but it does require organization and a system.   Never give up, and make sure that you have all the information before you make your decision.   There are people here to help…All you have to do is ask for it!

Jimmy Mulhern – CDPE

Http://www.AvoidForeclosureInVirginia.com