Short sales in Sacramento -- will they amount to a significant part of the market in 2023 and beyond? Your short sale questions answered...

In the last month or so, I have noticed some buzz online about the potential for the return of short sales to our Sacramento real estate market -- ironically I have found myself explaining mostly to other agents more than anyone else exactly what short sales are. Realistically I suppose if someone has been an agent for under a decade they likley will not have much, if any, experience with them. Short sales have not been a significant portion of the Sacramento real estate market in probably 8 or so years -- and candidly doing a quick search in MLS today, short sales barely register a blip on the radar. Though I would expect that as values stagnate or possibly decline further we will see some sellers faced with some difficult choices. 

By my count today, there are 13 active and pending short sale listings in all of Sacramento County (out of 2,450 active and pending listings). That is approximately one half of one percent. So in other words today, 99.5% of listings are not short sales, and 0.5% of listings are short sales. That is a drop in the bucket. Back in the Great Recession, the vast majority of my listings were short sales. And short sales and other types of distressed property listings absolutely DOMINATED the market. Between my own client listings, and the listings of other agents where they contracted with me solely to negotiate the short sale side of the equation -- I closed well over 100 of these highly complex transactions. 

Keep in mind that listing or purchasing a short sale is A LOT different than a traditional resale real estate transaction with a traditional seller who has home equity. I tell my clients to take everything they think they know about buying real estate and throw it out the window. 

So putting my Short Sale Agent hat on, here are the answers to some commonly asked questions:

What is a short sale? A homeowner who needs to sell ultimately owes more on the property than it is currently worth, so they list the house with a real estate agent who then attempts to negotiate a lower payoff with the owner's mortgage company so the owner can sell the house. For example, if the property is worth $500,000, however the owner has a mortgage for $550,000 the owner would not be able to sell the home and pay off the mortgage with the proceeds of the sale. The property would be listed for $500,000, an offer received from a buyer and accepted by the seller SUBJECT TO LENDER APPROVAL, and the agent would negotiate with the mortgage company to accept the net proceeds of that sale at its current market value. An important note -- usually there needs to be a compelling reason to sell or a financial hardship on the seller's end for the mortgage company to entertain allowing a payoff for less than the mortgage amount owed.

Is a short sale quick? How long will I wait for approval? The term "short sale" is often confused with a quick time period and close of escrow. Short sales are not usually quick. While some mortage companies will provide for a pre-approved short sale process, the average waiting period for the seller's mortgage company to approve the short sale is probably 30-60 days once an buyer offer is submitted. Some take less time...some take A LOT more time. The fastest approval I have received on one of my short sale listings was 11 days. The longest was almost 2 years. Once a short sale is approved, then the bank typically allows the buyer somewhere from 21-30 days to close the transaction. There are SO many variables that will dictate the length of time it takes to get approval...like which lender services the mortgage, which entity owns the mortgage, how many loans there are on the house, how knowledgeable the listing agent is, how cooperative the seller is with the process, if the seller is trying to use a government short sale program, etc. There is also no guarantee a mortgage company will approve a short sale at all. So.......fasten your seatbelt.

Does the seller have to be delinquent with mortgage payments to get a short sale approved? No. I have successfully closed several short sales where the seller stayed current with payments.

Who decides what the listing price is? The price listed in MLS may not be the price the seller's mortgage company is willing to accept. Usually the listing agent will set the price based on market value, and in consultation with the seller. Some mortgage companies offer a pre-approval process for short sales but I would guess that very few listing agents and sellers do this in advance of listing the property for sale. The seller's mortgage company will do its own valuation or appraisal (often referred to as a BPO - or Broker Price Opinion) to validate the offered price. The bank may counter your offer. Heck, they may counter a perfectly reasonable market value offer too... in addition to the possibility of countering the price you offer, the lender may counter the terms of your offer. 

Who pays the real estate agent commissions? In a short sale scenario, the lender(s) who agree to forgive debt and allow a short payoff of the loan(s) pay for the real estate agent commissions - generally by absorbing the costs of the commissions out of the proceeds of the sale. As a side note, oftentimes these commissions are re-negotiated by the lender(s) during the process. Note: Real estate commissions are always negotiable and NOT set by law or local custom. 

Who pays title insurance, escrow fees, and transfer tax fees? These are negotiable between buyer and seller when the offer is initially negotiated (before it is submitted to the lenders for approval). For example, perhaps the buyer and seller agree initially that the seller will pay for 100% of title insurance and escrow fees, 100% of county transfer tax, 50% the city transfer tax. The lender(s) may negotiate that the buyer pay a different split of these fees...however the portion that is paid by "the seller" is absorbed into the overall debt forgiveness and short payoff. Occasionally you will see a lender agree to pay one of these fees, up to and not to exceed a certain amount (for example, they may agree to cover up to $750 of the escrow fee that costs $1200). Generally then, the buyer would cover the unpaid portion of that fee. So basically, again, the lender(s) will absorb many of those types of fees. 

Who pays for a home warranty? This is negotiable between buyer and seller when the offer is initially negotiated (before it is submitted to the lenders for approval). Generally though, I would prepare any buyer of a Sacramento short sale property to expect to pay for this cost, even if you ask the seller or short sale lender to cover it. In my experience, this is paid by the short sale lender in less than 20% of my approved short sales. 

Who pays for home inspections, certifications, or repairs? These are negotiable between buyer and seller when the offer is initially negotiated (before it is submitted to the lenders for approval). Most short sale lenders will not agree to cover things like pest or termite inspections, roof inspections, sewer line inspections, or any corresponding repairs or certifications. A lot will depend on the circumstances with the condition of the property, how many loans are involved, the buyers' loan program, if the property is in default, the length of time of negotiation, etc. As a safety net - buyers, do not expect that lenders will grant these requests. Generally short sale properties are sold "as-is" and sellers can not afford to make repairs anyway. 

Will the short sale lender(s) give the buyer credits for closing costs or interest rate buydowns? These are negotiable between buyer and seller when the offer is initially negotiated (before it is submitted to the lenders for approval). I have seen this vary widely from the short sale lender(s) agreeing to pay up to 3% closing costs for the buyer, to the short sale lender(s) rejecting those requests. Again, much will depend on the circumstances surrounding the sale of the property. 

Who pays delinquent property taxes or unpaid utility liens? It depends. Sellers, if you have not been paying your property taxes or county utilities, you really need to let your agent know this ASAP! I work closely with the title company on this to make sure that we know of any lien issues in advance, but because it can take several weeks or months to get approval, new liens may pop up during the lender negotiation process. When I negotiate short sales, one of my worst fears is that after the short sale is approved an unexpected lien will pop up. This has happened to me before, and for lack of a better way of describing it - this sucks! If you can let your agent know in advance that these items are unpaid, it will save lots of headaches all the way around. IF WE KNOW in advance that these liens exist, there is a great chance that the short sale lender will absorb these costs into their overall debt forgiveness and short payoff. IF WE DO NOT KNOW in advance that liens exist, once the short sale is approved - this will halt the transaction until we can find a way to pay these liens. The seller is often financially unable to pay them, the buyer usually does not want to pay, the agents commission has already been reduced, and the short sale lender has already taken a loss on the loan. Sellers - please save everyone a headache and communicate with your agent.

I have IRS and FTB Tax liens, can I do a short sale? Yes. There is a parallel process to get what's known as a "valueless discharge" of liens when doing a short sale. This does not release you from owing IRS or FTB tax debt but it does release the debt from the property so it can be sold. Again, be up-front with your agent if these exist so your agent can initiate the paperwork and process asap.

Can I buy a short sale property from my sibling/parent/cousin/spouse/relative? No. Short sales must be "Arm's Length" transactions and all parties will have to sign an affidavit stating no parties are related.

Are there tax or legal ramifications for sellers who do a short sale? The best answer I can provide here is that you need to speak to a CPA or an attorney. Every seller's circumstance is different. Some may face income tax on forgiven debt while others may not.

Clear as mud, right? My advice to you is to find a competent Sacramento short sale agent to help you navigate the process. I have done A LOT of these transactions and would be happy to answer your questions.

Erin, where are all the homes that should be for sale in Sacramento?

I was quoted in a Sacramento Bee article last week, that among other things discussed the imbalance of supply of homes for sale and demand to purchase homes. I was quoted in the article saying "At some point there is going to be this backlog of sellers who have forgone selling. We are going to see those people put their houses on the market."

BUT WHEN?

That is a fabulous question. I thought I'd take a minute to describe some of the things I have been hearing from my clients, as well as some of the bottlenecks and challenges sellers have in this environment. At some point the trickle of new listings will be a little more steady, but we have some things to work through in our Sacramento real estate market.

(1) Some sellers still do not feel safe having buyers in their homes. Some homeowners who want to sell have a higher or lower risk tolerance than others. While the COVID19 vaccine has recently become more widely available, it will still be several months before the majority of the population in our region has been fully vaccinated. And cautious sellers who fear catching COVID19 have been staying put. I have conversations with would-be sellers in this category all the time. It does seem like there is a light at the end of the tunnel, but every would-be seller will have a different comfort-level here.

(2) The court systems have been backed up. You may not realize how many transactions are dependent on court orders or other legal processes. For example the probate court system, which governs who will manage the estate of a deceased person, was closed for a few months. There is a tremendous case backlog, and those who will ultimately decide if and when to sell a home that was owned by someone who died are not able to manage the estate affairs without a court order. I have one client who filed for probate back in the summer 2020 who was just recently finally granted authority to handle his father's estate. Courts also often weigh in on the sale of homes in divorce/family law and bankruptcy cases too.

(3) There is an eviction moratorium and various "just cause" ordinances in place preventing landlords from displacing tenants. While I feel for the plight of tenants who face a COVID19-related hardship, there are property owners who would love to sell if they were able to end the tenancy of their current renters. It is often challenging to sell a home with tenants for a variety of reasons. I was contacted by a single-family homeowner last year who had a non-paying tenant, and ultimately they were advised by their attorney that they could not evict the tenants and should not try to sell until the tenants were either paying rent or move out. 

(4) There is a moratorium on foreclosures. While we have been in an increasing price market for a while in Sacramento and distressed property listings (short sales and foreclosures) account for a very small fraction of listings, these listings are not coming on the market as quickly. (4b) Homeowners who are unemployed or under-employed are propped up by federal stimulus, additional pandemic unemployment insurance income, and loan forbearance. At some point, some of these homeowners will sell when the federal assistance expires.

(5) It can be a little more difficult to prepare a home for sale. I have spoken to many contractors are reluctant to work on occupied homes. For those that do, their schedules tend to be booked out for weeks or months. Some organizations have stopped taking certain donated items, so clearing out the house can take longer. Many building materials, supplies, and appliances have become scarce and can be difficult or expensive to obtain. (I personally am still waiting for delivery of a new cooktop I ordered in early March. I will be lucky to have it by the end of May according to the supplier. No it is not stuck on the Ever Given!)

(6) Where will the seller move once they sell? In this low inventory environment for both purchasing AND renting homes, sellers often express concern that if they sell their home they may not be able to purchase or rent something else. Not every seller has an easy move-out plan. I easily have 8 would-be sellers who would list tomorrow if they were confident in finding a replacement property. There are still plenty of ways to work through this, but some of the options can be a little stressful for risk-averse sellers/buyers.

So hopefully this is informative. And as I was quoted in the Sacramento Bee article -- at some point sellers who have not listed their homes WILL sell. I have a queue of many people who very much want to sell. And at some point we will see those homes come to market. There are ways to work within many of these challenges with a little creativity and determination. I am still listing plenty of homes...

The good news is I am seeing a little more inventory as we inch more into the spring. This is the time of year when we normally see more listing inventory...and I can only hope it takes some of the upward pressure off the market for home buyers, as the current trajectory of the market is not sustainable for the long term. but we all know there is less that is the normal we are all used to. 

COVID19 Temporary Mortgage Payment Relief Toolkit

As you may have heard, the federal government has directed Fannie Mae, Freddie Mac, and HUD to provide borrowers experiencing a COVID19-related financial hardship with temporary mortgage payment relief. This is indeed true, however in order to take advantage of any suspension of mortgage payments, homeowners must apply directly with their loan servicers (aka, the mortgage company).

Since we in Sacramento County have been directed to "stay at home" I have had a little extra time on my hands as I avoid meeting with people face-to-face. I wanted to put  that extra time to a productive use.

I have created a detailed DIY Mortgage Relief Toolkit to help my clients through the process of asking for a forbearance or suspension of payments. If you would like a copy for yourself or for anyone you think may need it, please shoot me a quick email to erin@erinstumpf.com or text me your email address at 916-342-1372. I will forward you a copy. It's FREE. And it is my hope this toolkit will aid those seeking mortgage payment relief as we all go through this crazy time together.

Here are some links to federal government directives:

Fannie Mae Assistance Options for Homeowners Impacted by COVID-19

https://www.fanniemae.com/portal/media/corporate-news/2020/covid-homeowner-assistance-options-7000.html

Freddie Mac: COVID-19 Response

http://www.freddiemac.com/about/covid-19.html

HUD/FHA: COVID-19 Q&A

https://www.hud.gov/sites/dfiles/SFH/documents/SFH_COVID_19_QA_03_18_20.pdf

VA: Special Relief for those Potentially Impacted by COVID-19 

https://www.benefits.va.gov/HOMELOANS/documents/circulars/26_20_7.pdf

USDA: Foreclosure and Eviction Relief in Connection with Presidentially Declared COVID-19 National Emergency

https://www.rd.usda.gov/sites/default/files/USDA_RD_SA_Foreclosure_and_Eviction_Relief_COVID19_NationalEmergency.pdf

Consumer Financial Protection Bureau: Protecting your credit during the coronavirus pandemic

https://www.consumerfinance.gov/about-us/blog/protecting-your-credit-during-coronavirus-pandemic/

Find a HUD-approved housing counselor:

https://www.consumerfinance.gov/find-a-housing-counselor/

Sacramento City Council approves a temporary moratorium on tenant evictions relating to hardships caused by COVID-19

Our local elected leaders, responding to calls from tenant advocates to provide relief to renters experiencing hardship related to our current public health situation, enacted an ordinance aimed at preventing renter displacement.

Last night, the Sacramento City Council approved a temporary moratorium on tenant evictions relating specifically to COVID-19. Keep in mind, this applies to all residential rental units within the city limits of the City of Sacramento.

Details of the new ordinance:

• Effective Immediately, but not retroactively applied if tenant was already delinquent in rent
• Moratorium applies to evictions due to nonpayment of rent due to COVID-19
• Tenant was sick or caring for COVID-19 family member 
• Tenant experience layoff or other income reduction associated with COVID-19 
• Tenant’s compliance with a recommendation from a government agency to stay home, self-quarantine, or avoid congregating 
• Tenant needed to miss work to care for a home-bound school-aged child 
• Tenant must do all of the following: 
• Notify landlord in writing before rent is due that the tenant has a valid reason for delayed payment 
• Provide verifiable documentation of a covered reason 
• Pay the portion of rent the tenant is able to pay 
• Tenant has 120 days after the termination of the Sacramento County public health emergency order to pay landlord all unpaid rent. 
• Landlord and Tenant may voluntarily agree to an alternate timeline for payment of rent due in arrears. 

Here is a link to a Delay in Payment Notification Form provided by the City of Sacramento.

The County of Sacramento has not taken similar action as of now, nor have the other cities within Sacramento County.

What does the new Tax Reform Bill mean for home buyers, sellers, and homeowners?

A few weeks ago, right around Christmas and just before the end of the year, the president signed the final version of the Tax Cuts and Jobs Act of 2017. The legislation -- two separate bills -- was advanced in both the United States House of Representatives and the United States Senate pretty quickly, then elements of the two bills were blended together (via a process known as "conference"), resulting in a final bill...

Regarding tax implications for homeowners, several items were on the table for pretty significant changes in both bills. And for a while it was difficult to determine what actually made it into the final bill that was signed into law.

Now that the chips have landed -- here is a summary of what is in the final bill that will affect residential home buyers, home sellers, and homeowners.

Capital Gains Exemption on the Sale of a Primary Residence
The good news here for sellers is the final bill had NO CHANGE. For as long as I can remember, the law has been that up to $250,000 (for individuals) or $500,000 (for married couples) of  the gain (aka profit) from the sale of a primary residence is exempt from capital gains tax, provided that you have lived in the home for at least 2 out of the last 5 years. Both of the original House and Senate bills sought to change this timeline for exemption to 5 out of the last 8 years. This would have placed a huge hardship on many homeowners. Life happens, and many people look to sell and move into larger homes, downsize, or relocate after a short time in a home...so thankfully that change was not part of the final bill, and homeowners can still sell and take their equity with them, untaxed to those amounts, after 2 years.

Mortgage Interest Deductibility for Primary Residences
The good news here is that the final bill only capped tax write-off for mortgage interest at loan amounts of $750,000 or less. The original House bill sought to cap the mortgage interest deduction at loan amounts of $500,000 or less (in fact you may recall I made an appearance on the KCRA News when the original bill was announced). Overall this is still a reduction from the $1,000,000 cap that had been in place for as long as I can remember...though at $750,000 that will not affect too many people purchasing homes in the greater Sacramento region. Our current median home price in Sacramento County is in the mid-$300k range. For those with pre-existing home loans between $750,000 - $1,000,000 -- you are grandfathered in and may still write-off that mortgage interest. Also of note is that interest on home equity lines of credit (HELOCs) is no longer deductible, however it is still deductible on home equity loans (aka, second mortgages). Clear as mud, yes?

Mortgage Interest Deductibility for Second Homes
The good news here is that the final bill did not eliminate the mortgage interest deduction for second homes! The original House bill would have completely eliminated the mortgage interest deduction for second homes (aka vacation homes).

So that is enough information to use as a guideline. The National Association of Realtors also published a detailed Q&A which you can refer to here. Please be sure to confer with your CPA to determine how these things apply specifically to your situation.

Bank of America Short Sale Forms Advisor

While short sales in Sacramento are not nearly as common today as they were a few years ago, there are still some of them out there. And thankfully after nearly a decade, Bank of America has made it easy to determine just which forms are necessary to submit to request a short sale.

In order to obtain a complete checklist of documents necessary for a Bank of America short sale, you will need to know a couple of things:

• What entity owns or insures the loan? It could be Fannie Mae, Freddie Mac, FHA, VA, USDA, or none of the above;
• Is there anyone in the household that pays household expenses who is not a borrower on the loan? That should be easy enough -- a non-borrowing spouse, domestic partner, boyfriend/girlfriend, parent, child, roommate, etc.

Bank of America will require income, expenses, asset and hardship documentation from the borrower(s). This usually involves providing recent bank statements, paystubs, tax returns, etc. and possibly consenting to a credit check. Additionally, they now require similar documentation from any non-borrower who contributes to the household expenses.

The Bank of America forms advisor is here: https://homeloanhelp.bankofamerica.com/en/document-checklist.html 

How to apply for a temporary discharge of a federal IRS tax lien so you can close your Sacramento short sale....

While short sales are definitely a much smaller part of the Sacramento real estate market now than they were a few years ago, I am still doing plenty of them. And something that seems to be pretty common, that is seldom discussed, is the fact that many of the folks facing financial hardship also have unpaid income taxes. The IRS may place a Federal Tax Lien on you and your property if you have unpaid income taxes. This can be an issue if you need to sell a home because those liens need to either be paid in full or released before a sale can close. Luckily, there is a process to temporarily discharge tax liens so that a home can be sold.

The IRS wants quite a bit of documentation, packaged up in a certain way, and it can't be submitted until several other milestones in the short sale process have been reached.

I have done this for several of my transactions and it is definitely within my area of expertise. There is not a separate fee for my services to do this, and it is a part of services when I negotiate short sales for my seller clients.

The sellers will need to complete and sign IRS Form 14135 (Application for Certificate of Discharge of Property for Federal Tax Lien), and IRS Form 8821 (Tax Information Authorization) which provides permission for a real estate agent to talk to the IRS on the seller's behalf. Form 14135 outlines in detail the supporting documentation that needs to be sent in with the application. The list of items includes a description of the property, a copy of the deed for the home, a formal appraisal of the home, county valuation of the home, a copy of the formal tax lien as filed with the county, a purchase contract to sell the property, preliminary title report, short sale approvals, an estimated closing statement, and other supporting information as necessary.

An experienced real estate agent will be able to gather all of these documents and assemble the package for submission. If you are selling a home I would not suggest trying to complete this process yourself. It can be complicated. Even just filling out the forms correctly can be a daunting task if you haven't done it before.

When it is time to submit documents to the IRS, you will need to FedEx everything to them at once. For northern California properties, you will need to send everything to the IRS offices in Oakland. In the photo above, all of those documents amounted to about 160 pages, not including the real estate transaction or the short sale negotiation itself. You will need to track the package and find out who the file is ultimately assigned to. Then...follow up! This is not a difficult process but there are several nuances involved. I have closed several of these transactions. If you have questions or are in this situation, I welcome your call.

California AB 1404: Neighbors and adjoining landowners must now share the cost of fencing...

Have you ever heard the expression that "good fences make good neighbors"? Well thanks to California Assembly Bill 1404, starting January 1, 2014, good neighbors will now legally have to share the expense of good fences.

The legislation makes the assumption that adjoining property owners share an equal benefit from any fence dividing their properties, and unless otherwise agreed to in writing, are  equally responsible for the reasonable costs of construction, maintenance, or replacement of the fence. So if one neighbor decides repair, build, etc. a fence, there is a process to notify the neighbors. A property owner must give each affected adjoining owner a 30-day prior written notice of any intent to incur costs for a division fence. The notice must include the following:

1. A notice of the presumption of equal responsibility for the reasonable costs of construction, maintenance, or necessary replacement of the fence; 
2. A description of the nature of the problem with the shared fence; 
3. The proposed solution for the problem; 
4. The estimated construction or maintenance costs to address the problem; 
5. The proposed cost sharing approach; and
6. The proposed timeline for addressing the problem.

Sounds reasonable, right? So if you have a house and the fence is in need of being rebuilt, just send your neighbor a letter with all of that info. Building a regular 6-foot pine or redwood fence with 4x4 posts and 2x4 rails? Sounds like what typical fences are made of in the Sacramento area...BUT, what if your neighbor wants to build an expensive masonry wall with a mural that's 10x the cost of a regular wood fence, and they want you to pay half??

An adjoining property owner can dispute the assumptions mentioned above by demonstrating by a imposing equal responsibility for that kind of fence would be unjust. To determine whether equal responsibility for the reasonable costs would be unjust, a court will consider the following:

1. Whether the financial burden on one property owner is substantially disproportionate to the benefit conferred upon that property owner by the fence;
2. Whether the costs of the fence would exceed the difference in the value of the property before and after its installation;
3. Whether the financial burden to one property owner would impose an undue financial hardship given that party's financial circumstances as demonstrated by reasonable proof;
4. The reasonableness of a particular construction or maintenance project, including the extent to which the costs appear to be unnecessary, excessive, or the result of one landowner's personal aesthetic, architectural, or other preferences, and;
5. Any other equitable factors appropriate under the circumstances. 

There are some exclusions to this law -- it does not apply to a city, county, political subdivision, public body, or public agency.  This new law is known as California Civil Code section 841.

Are you a "Move-Up" Buyer? How to sell your current Sacramento home and buy another one...

With home values on the rise again in the Sacramento area, I have gotten several inquiries in the last 12 months from folks who want to sell their current home and purchase another one. WHAT!? This is a huge change from the demographic of the Sacramento home buyer in 2006 - 2011. That Sacramento home buyer was typically either an investor or a first time home buyer...but what we Realtors refer to as "move-up buyers" had been scarce. Let me tell you -- move up buyers are back, and have been back for a while now.

Many Sacramento area homeowners have some newly discovered equity. Sacramento home values have increased 30%+ in the last year and a half, and many folks who had the luxury of waiting out the market, who didn't have a financial hardship, and have patiently made their mortgage payments during the roller coaster Sacramento real estate market are ready to sell. Many folks are selling that starter home and moving into something bigger and better, out to the suburbs, or perhaps in a better school district, closer to work, etc. Many are now "empty nesters" and selling the home they raised their children in, and would like to downsize, or move back out of the suburbs into the central city. Whatever the case, now has turned into an opportune time for many to sell their homes.

So how do you pull this off exactly?

Well, some people who want to do the sell-and-buy tango are lucky enough not to absolutely have to sell their home in order to buy another. If you are in the position to be able to purchase your "replacement home" before you sell your home -- this is an enviable position to be in. This requires some strong financial positioning...you will need to be able to qualify to obtain your new loan, while maintaining your current house payment and other debts. You will need to have your downpayment funds in hand, and have sufficient income to make all of your payments under the lender's "debt-to-income ratio" guidelines. So this is relatively simple -- get pre-approved for your loan, find an agent to assist you, purchase your home, move, and then list your other home for sale. Or keep it as a rental (though many people don't want to be landlords). You have the luxury of waiting until the right house comes on the market and buying it. If this is you -- congratulations! But you will be in the vast minority of "move-up buyers."

If you are the other 95%, you will need to sell your current Sacramento home in order to qualify and have the downpayment to purchase your new replacement home. I have helped several sellers/buyers with this lately. And you have some options...and decisions to make.

Option A: Make a "contingent offer" on your replacement home, then simultaneously list your current home. Finalize the new purchase and sale concurrently.

Option B: Sell your home, do a "rentback" and then purchase your replacement home.

Option C: Sell your home, find a temporary home, and then purchase your replacement home.

Rather than write a novel here, over the next week or so I will write individual posts to elaborate on Options A, B, and C. Each has many pro's and con's, certain contractual implications, and certain financial ramifications that sellers should be keenly aware of. So stay tuned...and if you have questions, feel free to ask them. You can comment here, call or email me.

November 19, 2013: How to make a "Contingent Offer" on a Sacramento home. AKA, how to concurrently sell and buy a new home...

FHA Shortens the Waiting Period for new loans after Short Sale, Foreclosure, Deed-in-Lieu of Foreclosure, or Bankruptcy...

Well, I will be emailing many of my past short sale seller clients shortly. Last week, FHA issued Mortgagee Letter 2013-26, which in a nutshell, shortens the waiting period to get a new mortgage loan for folks who did a short sale, deed-in-lieu of foreclosure, foreclosure of bankruptcy. This waiting period to obtain a new FHA loan for a purchase for these folks has generally been about 3 years after a foreclosure or short sale. Now, for potential buyers who had a "defined Economic Event" can get a new FHA loan for a purchase as soon as 12 months after a short sale, deed-in-lieu of foreclosure, foreclosure, or bankruptcy. This create a huge opportunity for folks who suffered hardship during the recession.

To quote part of Mortgagee Letter 2013-26 directly:
"As a result of the recent recession many borrowers who experienced unemployment or other severe reductions in income, were unable to make their monthly mortgage payments, and ultimately lost their homes to a pre-foreclosure sale, deed-in-lieu, or foreclosure. Some borrowers were forced to file for bankruptcy to discharge or restructure their debts. Because of these recent recession-related periods of financial difficulty, borrowers’ credit has been negatively affected. FHA recognizes the hardships faced by these borrowers, and realizes that their credit histories may not fully reflect their true ability or propensity to repay a mortgage. 

To that end, FHA is allowing for the consideration of borrowers who have experienced an Economic Event and can document that: 

• certain credit impairments were the result of a Loss of Employment or a significant loss of Household Income beyond the borrower’s control;
• the borrower has demonstrated full recovery from the event; and,
• the borrower has completed housing counseling.

Housing counseling is an important resource for both first-time home buyers and repeat home owners. Housing counseling enables borrowers to better understand their loan options and obligations, and assists borrowers in the creation and assessment of their household budget, accessing reliable information and resources, avoiding scams, and being better prepared for future financial shocks, among other benefits to the borrower."

So what does this mean? A Sacramento borrower who can now qualify for an FHA loan under this Mortgagee Letter STILL must meet other standards of credit-worthiness. You must have solid income, no recent delinquent (late) payments, meet the "debt-to-income ratio" requirements, etc. BUT if you did a short sale, deed-in-lieu of foreclosure, foreclosure, or filed bankruptcy 12+ months ago you may now qualify much sooner for a new mortgage.

Some examples of "defined Economic Events" include things like loss of employment (layoff, company closed,  for you or a spouse, ex-spouse, etc), loss of household income (like in the case of a furlough, reduction of hours for you or a spouse, ex-spouse, etc.), and others.  You will need to prove you had good credit before the economic event took place, and you will need to document this.

One thing I will point out, is lenders may not be super quick to adopt the new guidelines in this Mortgagee Letter...so if you call your favorite lender right this very minute, they may not be prepared to give you a loan right away. These new guidelines were just released on August 15, 2013 -- so it may take weeks or months for lenders to start actually lending based on these guidelines. If you need a referral to a good loan officer who can help you navigate this, email me and I am happy to point you in the right direction.

It's August 1st...Have you started your short sale yet? Time in 2012 is running out...

No, I am not referring to the 146 shopping days left until Christmas. I am referring to the time left (152 days) in 2012 that short sale sellers can still take advantage of some of the state and federal debt forgiveness tax laws. Many short sale sellers who occupy their home as a primary residence and meet other criteria will have little or no tax consequence from completing a short sale in 2012. Many short sale sellers have benefited from legislation in place protecting them that will expire December 31, 2012. The difference in closing a short sale in December 2012 and January 2013 could cost a distressed homeowner several thousand dollars in taxes. I am not a CPA and refer my clients to tax professionals to seek advice in this regard to make sure these laws apply to their situation.

In a nutshell (and completely over-simplified), if a homeowner does a short sale and owes $300,000, and the NET proceeds from the sale that a bank will accept in a short sale equal $200,000, the seller of the property receives a 1099 from the bank for $100,000 (the amount of the "forgiven" debt). You will get this 1099 regardless of when you close your short sale, BUT for short sales closed in 2012, many sellers will not have to pay income tax on this "forgiven debt." If you close in 2013, if the current legislation in place remains un-extended to a later expiration date, you could have a very large tax bill to pay when you file your taxes the following year. Again, speak to a CPA regarding how this affects your situation. If you need a referral to one, contact me and I am happy to give you one.

Given the length of time that short sales take, if you want to complete a short sale in 2012 you need to start the process NOW.  Think I'm exaggerating? Assuming a seller doesn't have some odd circumstances, the lifespan of a typical Sacramento short sale looks something like this:

-Listing the property, preparing for showings, gathering financial and hardship info to submit to short sale lender: 7-14 days. My vast short sale experience tells me that most folks can't (or won't want to) list the house tomorrow and start showing it by this weekend. If your average seller called an agent today, met with that agent tomorrow, then spent time gathering their financial info and making the house presentable making arrangements for pets, extra house keys, etc., the house would realistically hit the market within 2 weeks.

-First on market day, showings, and seller accepted offer to submit to lender: 7-10 days. Let's face it, if a property is priced correctly and the seller is flexible with access to the house for showings, given the current lack of homes on the market, this process should be relatively quick.

-Lender receives all financial and hardship information from the seller, purchase contract and supporting documentation, assigns a negotiator and orders BPO valuation of the property: 7 - 14 days. Some short sale lenders are faster than others. Most of the larger banks (Chase, Wells Fargo, BofA, GMAC, CitiMortgage, HSBC, etc) have pretty streamlined processes for getting the files assigned to folks and the initial BPO values established.

-BPO agent/appraiser visits property and returns value analysis report to short sale lender: 7-14 days. For the sake of defining it, a BPO essentially an appraisal ordered by the short sale lender. This is their method to best validate the buyer's offer received and determine the fair market value of a property. The folks who do these BPO's are unaffiliated 3rd parties who might have 20 other BPO's to do at the same time. Once the assignment is received, it might take them a few days to fit visiting the property into their schedule (longer if the house is occupied and they must coordinate access to the house with someone else), then visit the property, then complete the report and submit back to the short sale lender that ordered the BPO.

-BPO received by negotiator, analysis of file: 7 - 45 days. Yikes. This can take a long time...the file could be re-assigned to a new negotiator and it could go to the bottom of that person's stack.

-Submitted to investor or management for final approval: 3 - 30 days. Again yikes. Depending on who actually controls the decision-making process of the loan, this could be super fast, or painfully slow. Best case scenario is that the loan is owned by the short sale lender itself and it's just making a management decision if the short sale fits within its internal guidelines, OR, perhaps Fannie Mae or Freddie Mac must approve the short sale. Or perhaps the loan is owned by a Hedge Fund, or a Retirement Fund. If it turns out that the Missouri State Teacher's Retirement Fund owns the loan for example (not to pick on them, if they even exist LOL), and Margie in Accounting is the ultimate decision-maker, you might be in for a longer wait.

So then approval issued! Yay! Now what...well depending on the offer you received from your buyer, you will be looking at 21-45 days to close your escrow, barring no additional surprises with the buyer's loan or inspections, of course.

So on the fast end of the normal timeline spectrum from the day the house hits the market to the day the short sale is approved -- you are looking at about a month if all the stars align, plus the time it takes for the buyer to close escrow. If you are this fortunate and have a very straight-forward short sale and no surprises, congratulations you still have plenty of time to complete your short sale before the end of 2012.

On the longer side of the normal timeline spectrum from the day the house hits the market to the day the short sale is approved -- you are looking at 3-4 months, plus the time it takes for the buyer to close escrow. This timeline is more realistic for most short sales, AND it will push you to the very end of 2012. It'll be stressful, but you have time to get your short sale closed.

So...if you need to do a short sale and can benefit from the tax laws that will expire at the end of 2012 - what are you waiting for? I welcome your call if you have questions I can answer or to see if we are a fit to work together.

Looking into a Short Sale with CitiMortgage on your Sacramento home? Here is what you need to gather...

Well...it's not a secret that I do A LOT of short sale transactions in the Sacramento area...and I have done several with CitiMortgage (aka, Citibank, CitiFinancial...or just plain Citi). Citi's short sale process is generally (and of course, relatively speaking) on the faster side of the spectrum for negotiating short sale approval. So if you are looking to do a short sale on your Sacramento-area home and have a mortgage with Citi, here is a list of the documentation you need to gather as you get ready to list your home with a Realtor;

CitiMortgage

Loss Mitigation / Short Sale Tel: 972-653-1000

Seller's Documents Generally Required for a Short Sale:

-3rd Party Authorization Letter

-Hardship Letter

-Last 2 months of bank statements

-Last 2 months of pay stubs

-Unemployment stubs and award letter (if applicable)

-Proof of Homeowner's Insurance

-Most Recent Property Tax bill

-Last year's federal tax return

-Most recent quarterly Profit & Loss Statement (ONLY if self-employed)

-Evidence of SSI, Pension, Disability Benefits (if applicable)

-Rental Lease (ONLY if investment property)

-Citi Household Financial Summary

-IRS 4506-T

I welcome your call if you have any questions regarding an CitiMortgage short sale in the Sacramento area.

Doing a Sacramento-area short sale with Homeward Residential (formerly AHMSI / American Home Mortgage Servicing Inc)? Here is what you need...

Well...it's not a secret that I do A LOT of short sale transactions in the Sacramento area...and I have done several with American Home Mortgage Servicing Inc (aka, AHMSI, and recently re-branded "Homeward Residential"). Their negotiation process generally (and of course, relatively speaking) on the more "straight-forward" side, and their loss mitigation negotiators seem to be on top of their game and different short sale programs. So if you are looking to do a short sale on your Sacramento-area home and have a mortgage with Homeward Residential / AHMSI, here is a list of the documentation you need to gather as you get ready to list your home with a Realtor;

Homeward Residential / AHMSI
Loss Mitigation / Short Sale Tel: 877-304-3100

Seller's Documents Generally Required for a Short Sale:

-3rd Party Authorization Letter

-Hardship Letter

-Short Sale Financial Worksheet

-Last 2 months of bank statements

-Last 2 months of pay stubs

-Unemployment stubs and award letter (if applicable)

-Most recent 6-months Profit & Loss Statement (ONLY if self-employed)

-Last year's federal tax return

-Evidence of SSI, Pension, Disability Benefits (if applicable)

-Copy of most recent property tax bill (can be obtained online if you don't have it)

-Rental Lease (ONLY if investment property)

-IRS 4506-T

I welcome your call  or email if you have any questions regarding an Homeward Residential short sale in the Sacramento area.

Five reasons I like doing GMAC short sales...

I love doing Sacramento short sales with GMAC for a couple reasons...the first reason is that they generally use the online system Equator to facilitate their short sales, which makes transmitting documentation and information to the short sale negotiator pretty simple and (relatively) painless. The second reason is that I usually receive the direct contact info for the short sale negotiator employed by GMAC. The third reason is that they are usually pretty fast to respond to the initiation of the short sale process with a few proprietary documents -- for example they usually send an "Affidavit of Arm's Length Transaction" document with buyer and seller names within a week or so of receiving all of the info. The fourth reason is that GMAC is generally pretty quick to order their BPO's (Broker Price Opinion -- essentially a type of appraisal / valuation of the property used to validate the price that has been offered by a buyer)....AND the fifth reason I like to work with GMAC short sales is that they generally overall seem to approve their short sales in less than 60-days. I even once received one GMAC short sale approval within 2 weeks! So, if you are going to be selling a short sale in Sacramento with GMAC, here is what you need to gather;

GMAC Mortgage

Loss Mitigation / Short Sale Tel: 214-874-2500

Seller's Documents Generally Required for a Short Sale:

-3rd Party Authorization Letter

-Hardship Letter

-Last 2 months of bank statements

-Last 2 months of pay stubs

-Last year's federal tax return

-Most recent quarterly Profit & Loss Statement (ONLY if self-employed)

-GMAC Financial Analysis Packet (includes an IRS 4506-T, Dodd-Frank Certification, and Hardship Affidavit)

Doing a Sacramento-area short sale with HSBC? Here is what you need...

Well...it's not a secret that I do A LOT of short sale transactions in the Sacramento area...and I have done several with HSBC Mortgage. I like HSBC's short sale process. It's generally (and of course, relatively speaking) on the faster side of the spectrum for negotiating approval, and their loss mitigation negotiators seem to be on top of their game and different short sale programs. So if you are looking to do a short sale on your Sacramento-area home and have a mortgage with HSBC, here is a list of the documentation you need to gather as you get ready to list your home with a Realtor;

HSBC

Loss Mitigation / Short Sale Tel: 800-395-3489

Seller's Documents Generally Required for a Short Sale:

-3rd Party Authorization Letter

-Hardship Letter

-Last 2 months of bank statements

-Last 2 months of pay stubs

-Unemployment stubs and award letter (if applicable)

-Proof of Homeowner's Insurance

-Most Recent Property Tax bill

-Last year's federal tax return

-Most recent quarterly Profit & Loss Statement (ONLY if self-employed)

-Evidence of SSI, Pension, Disability Benefits (if applicable)

-Rental Lease (ONLY if investment property)

-IRS 4506-T

I welcome your call if you have any questions regarding an HSBC short sale in the Sacramento area.

Doing a short sale with Chase? Here is what you need to gather...

Well...it's not a secret that I do A LOT of short sale transactions in the Sacramento area...and many of them lately have been with Chase. I like Chase's short sale process. It's pretty predictable and their loss mitigation negotiators seem to be on top of their game and different short sale programs. So if you are looking to do a short sale on your Sacramento-area home and have a mortgage with Chase, here is a list of the documentation you need to gather as you get ready to list your home with a Realtor;

-Last 2 paystubs or other proof of income
-Most recent bank statement
-If self-employed, your profit and loss statement
-If self-employed, last 4 months of bank statements
-Most recent tax return
-A recent utility bill in your name showing the property address
-Rental Lease Agreement if the property is occupied by tenants
-Chase Request for Consideration of Short Sale Form
-3rd party authorization letter (allows your Realtor to speak to Chase on your behalf)
-Hardship Letter
-IRS 4506-T

I welcome your call if you have any questions regarding a Chase short sale.