Liveblogging a "Short Sale" Real Estate Seminar

I love to learn things, even if I don’t need them, and I am going to
learn how to negotiate short sales. That’s a situation in which people
need help, and help is what I am about. Short sales involve learning to
negotiate with banks, which is learning to negotiate with people who
want to say no, and I am good at that, too. Besides, California is
number 1 in foreclosures, Arizona is number 3. I live in both places. So
this is not an issue that will go away in my life. At least I can be a
source of advice, and perhaps I can put this license I’ve had for 25
years to use again.

I’m listening to a real expert; a man who both invests in short sales
and also brokers them. He is doing 92 sales right now. This instructor
takes 7% commission on his short sales, and keeps 4% for himself. The
bank always argues with him, but it never says no. He does that many at
a time because it takes six months to close one, and because he says he
can’t control the time it take him to find a buyer for the home once he
gets the seller and the bank to agree with a short sale. This is not
easy, because the market’s full of misinformation.

The lecturer (he has now talked for two hours without a stop) is
wearing a western hat and talks like a Texan; he’s a real cowboy. I
won’t be like him. But I can certainly learn from him. There are many
seminars coming around to educate real estate agents, and most of them
are scams. He’s accredited and licensed himself, so presumably he can be
trusted.

Definition of a short sale: someone MUST be shorted, so it’s the sale of
a property for less than is owed on the mortgage. It’s always the bank
who gets shorted, so of course the banks don’t like it. The owner of the
property has to have no equity in it , but shouldn’t be bankrupt before
he does a short sale. [Bankruptcies delay short sales or foreclosures,
by 30-90 days. The bank will always file a brief to have the house
excluded from the bankruptcy. So if you are thinking about it, don’t
declare bankruptcy until you have sold the house].

Popular myths about short sales:
Banks will not do short sales – not true
You can’t short a note that’s current – not true
Shorts protect the owners’ credit – sometimes true. Hits your credit for
about 50 points
Shorts can get big discounts for banks – nope. bank will always try to
be within 10% of fair market value – they will go about 10% below the
bottom number
All shorts are good – not necessarily
Shorts protect the seller’s credit – only if your payments aren’t late
Lawyers and Realtors have a better chance of getting them done. Realtors
do, lawyers don’t. Lawyers scare banks.
You will be responsible for your debt–mostly not true
You may have a tax liability for phantom income– depends (Congress is
trying to put through legislation to get rid of phantom income)

I’ve come to the conclusion that for my California house, where I’m
under water, a short sale might be the way to go. Foreclosures stay on
your credit history for ten years, while short sales do not really
impact credit much. “Settled for less than owed” hits your credit score
for 50 points. “Terms as amended” shows up on your credit as 30-50
points or none. Those are the terms the bank reports to the credit
reporting agency.

Remember, the speaker is a Realtor. He says not all short sales have the
same chance of succeeding. They offer two challenges: banks and thieves.
Thieves, in his view, could be the homeowner.
On the bank side of the equation, some banks think rules and laws don’t
apply to them — especially Bank of America
Thieves, on the other hand, see a smorgasboard of money in a short sale
– they can take out cabinets, appliances, bathtub, toilets, all of which
are commonly stripped out of homes the owner is leaving. The owner of
the home has the right to do that; he has the right to take all the
fixtures until the bank owns the house, which is after it goes to a
foreclosure auction. But if you are thinking about doing that, he warns
although Arizona is a non-deficiency state, if you clean out your house,
the bank can come after you for the deficiency

Although banks don’t want to own real estate, they are still not
pre-disposed to negotiate. And sometimes they just don’t know what they
are doing. For example, my lender, Aurora, has three different computer
systems that don’t talk to each other. Likewise, Bank of America
acquired Countrywide, and their systems aren’t integrated. So a
negotiation becomes even more difficult. You don’t know who you might be
talking to.

However, today almost any bank will agree to fair market value as long
as an agent can get a contract and close. The problem is that fair
market value changes by the day, and REOs lower the value of
neighborhoods. Banks don’t want to pay for all the appraisals, so they
often take a broker price estimate instead

Some interesting issues: short sale opportunities will increase by 30%
next year over this year
About 1/3 of the population is either late on their payments or in
foreclosure
No matter what stimulus package they are promoting, this problem is not
going to go away, so the FHA now needs to help agents make money selling
foreclosures and short sales to get the number of vacant houses down. In
addition, the banks are now more willing to do short sales, because if
not, they sell their houses as bulk foreclosures and get only 47% of
the loan.

Most Realtors find that short sales don’t work because they can’t sell
the houses. But if a neighborhood is a good place to live and there is
demand, a short sale will sell. And the buyer can get a great deal.
Today it’s really common for a buyer to come in and want a bank to pay
their closing costs and costs to repair the house to HOA specifications.

When this guy does a short sale, on the seller’s behalf he asks the bank
involved to waive the deficiency, mark the loan paid as agreed, and give
the buyer a 1099. That 1099 can be waived by the IRS because short sale
itself creates a period spot insolvency: at this point in time, I’ve
lost my job, and my liabilities are higher than my income. I have to
liquidate stuff to keep going. You take the 1099 and the H-1 to your
accountant. You can write off whatever your numbers say.

By the end of this day, I will know it all, or I will know whom to
call:-)