Seattle Real Estate Blog by David Monroe: February 2010

Washington State is a non-judicial foreclosure state, meaning that the lender is not required to sue the borrower in default in order foreclose.  Most home loans in Washington State are based on a deed of trust (mortgage instrument) with a “power of sale” clause that pre-authorizes the sale of the property to pay off the balance of the loan in the event of a default by the borrower.  When this clause exists, the power given to the lender to sell the property is usually executed by the lender’s representative, typically referred to as the trustee.

While Washington State has minimum timelines required by state law, this is the timeline typically followed by most lenders:

90 days after the first missed payment:  Lender sends a “Notice of Default” to the borrower.  The notice will be posted at the property (usually taped on or near the front door) or delivered to the borrower in person.  The notice may also be mailed to the borrower, usually by certified mail.  The borrower has 30 days to respond before the actual foreclosure process is started and the property is scheduled for public sale.

120 days after the first missed payment:  Lender records a Notice of Trustee Sale with the county recorder, stating the scheduled sale (auction) date.  The notice of sale must be recorded at least 90 days before the sale date.  The notice of sale is also posted at the property or delivered to the borrower in person, and mailed to the borrower and any other affected parties (such as additional lienholders).

Approximately 7 months after the first missed payment:  Property is sold at public auction to the highest bidder, who must pay in cash at the time of the auction.  If nobody bids the minimum bid amount set by the lender, ownership of the property will revert back to the lender.  The winning bidder, or the lender if there were no bids, can take possession of the property 20 days after the foreclosure sale.  The borrower has no right to redeem the property after the foreclosure sale.  Foreclosure sales are usually held on the county courthouse steps each Friday, or the next business day if Friday is a holiday.

The timelines above are the most common timelines.  Actual timelines specified by Washington State are:

• The foreclosure sale must be scheduled a minimum of 190 days from the date of default.
• The borrower has up to 11 days before the foreclosure sale to stop the foreclosure process by paying the past due payments, plus expenses and legal fees.
• The lender may postpone the foreclosure sale at their discretion.  This will often times occur when loan modification, short sale, or other agreement is being negotiated with the bank.
• The lender or the high bidder at the foreclosure sale can take possession of the property 20 days after the foreclosure sale.

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Authored by David Monroe, Realtor and Pre-Foreclosure and Short Sale Specialist.
Access Seattle area short sale help and foreclosure resources including selling in foreclosure, and 8 Ways to Avoid or Stop Foreclosure.

Copyright (c) 2010 by David Monroe (Home4Investment Team at Keller Williams Seattle Metro West).

I’ve received many calls from prospective buyers interested in my short sale listings asking if the listing price has been approved by the bank.  On a short sale, the seller owes more than their house is worth, so the seller’s lender(s) must approve the sale price and accept a discounted loan payoff in order for the house to be sold.  However, is it not common in these situations for banks to pre-approve a listing price for a house.

Because there are so many short sales on the market, buyers are searching for short sale information on the Internet and finding a wealth of information and advice on how to handle short sale situations.  I did some searching myself, and while there was some good information available, I found a lot of incorrect or incomplete information. 

Many websites advised buyers to ask the listing agent if the list price had been approved by the bank.  However, buyers aren’t necessarily getting the whole story.

Here are some situations that may lead a listing agent to claim that the bank has approved the listing price, along with some things to consider:

1. The seller’s loan is an FHA loan, and HUD has sent the seller a letter stating the minimum net payoff proceeds that they would accept.  This can be fairly reliable as long as all of the conditions set by HUD are satisfied.  In this situation, you also need to know the following:
   
   
   1. When is the deadline for obtaining a signed Purchase and Sale contract from a buyer?  The HUD pre-approval is only valid for a specific period of time, usually around 90 days.
      
      
   2. What is the appraised value of the property?  The pre-approved price set by HUD is based on a percentage of the appraised value, usually 88%.  Since this is the net amount after all selling expenses (including commissions and closing costs), that translates to a purchase price of approximately 97% of appraised value.  However, HUD will often times accept less than the pre-approved amount depending on how long the property has been on the market—A buyer’s agent that specializes in short sales will know when you can make a lower offer that will net HUD less than their pre-approved amount and still have it approved by HUD.   If your agent doesn’t know this, you could be paying more than you should for the house.
      
      
   3. How long has the property been on the market?  This relates to Point (b) above—HUD may accept a lower payoff than their pre-approved amount depending on how long the property has been on the market.
      
      
2. The bank has verbally approved a listing price or has verbally disclosed the minimum payoff that they’ll accept.  This is possible, but rare.  Banks want the property sold at the highest price possible and don’t want to leave money on the table.  If they approve a listing price of $300,000 and the property could have been sold for $320,000, then they haven’t done their job of mitigating the loss.  Most banks prefer to receive an offer, then determine if the price offered is acceptable.  Also, if the price approval was not in writing, there’s no guarantee that they’ll follow through with their verbal commitment (banks are notorious for “forgetting” verbal commitments that they’ve made).
   
   
3. The bank has given written approval of the listing price.  As in Point #2, banks rarely approve a price prior to procuring a bona-fide buyer for the property.  If the listing agent claims to have written approval of the listing price, ask them to send a copy to you in writing.  If they say they can’t because it contains confidential information, ask them to black out the confidential information with a marker and send a copy to you (make sure they don’t black out the borrower’s name or property address).  If the letter states an approved price, make sure it also states the net payoff proceeds that the bank will accept.  The bank is less concerned about the sale price—They’re concerned about the amount of money they’ll end up with after the deal is done.  You’ll want to avoid potential situations where the bank approved a listing price but comes back in the eleventh hour and says something like, “That price was based on 4% in real estate commissions, not 6%,” or “That price didn’t account for prorated real estate taxes, homeowner association dues, etc.”
   
   
4. A previous buyer’s short sale offer was approved by the bank, but the buyer backed out or could not complete the transaction.  This situation would seem like a slam-dunk since the bank had already approved another buyer’s offer.  But beware—Just because the bank approved another buyer’s offer at the same price doesn’t guarantee that they’ll approve your offer.  The previous buyer may have had different financial qualifications and the terms of the previous offer may have been different than the terms that you’ll offer.  Maybe the previous offer didn’t include an inspection contingency, and that made it desirable to the bank.  Also, short sale approvals are usually good for up to 30 days, or sometimes 45 days.  If the bank finds out that a different buyer was substituted, they could reject the short sale.
   
   I had a recent transaction where we had a short sale approval (approved specifically for the original buyer), we sent in a new offer to the bank for approval at the same price, and the bank changed their mind and decided they wanted a higher price.  We had to fight with the bank for the next month to get them to come back down to the original price that they approved the first time around.
   
   My point here is that just because the bank approved an offer from another buyer doesn’t necessarily mean that you can just substitute a new buyer and expect the deal to go through.  The only way to assure that the bank will go through with the deal after the approved buyer backed out is to submit the new offer and get a new approval.  Depending on the bank, this could take anywhere from several days to several weeks.
   
   If you find yourself in this situation, ask the listing agent to send you a copy of the short sale approval letter.  Make note of the deadline.  Many banks will issue an updated approval letter for the new buyer but won’t change the date that the approval expires (the deadline for closing).

Keep in mind that I’m not saying that you should completely discount any claim that the price of a property has been approved by the bank.  Just make sure you know the facts behind the claim, so you’ll be able to set the proper expectations.

Most banks won’t start short sale negotiations or discuss any price they’ll be willing to accept until an offer is received from a buyer, although there are exceptions.  As time goes by, we’ll probably see more banks opening up to the idea of pre-approving prices for short sales to speed up the process.


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Authored by David Monroe, Realtor and Pre-Foreclosure and Short Sale Specialist.
Access Seattle area short sale help and foreclosure resources including selling in foreclosure, and 8 Ways to Avoid or Stop Foreclosure.

Copyright (c) 2010 by David Monroe (Home4Investment Team at Keller Williams Seattle Metro West).

Many real estate agents in Washington State use unlicensed third-party negotiators to handle their short sales.  I have always discouraged that practice (see my March, 2009 blog post, Is Your Real Estate Agent Breaking The Law?).

The Washington State Department of Licensing has now taken an official stance on this.  On their website under “New Real Estate Law Frequently Asked Questions”, they state that short sale negotiators must hold active real estate licenses or be appropriately licensed by the Department of Financial Institutions, and work under the authority of their designated broker.  The department of licensing is currently investigating complaints of unlicensed short sale negotiators (see Real Estate Commission Meeting Minutes).  Real estate agents who are using unlicensed short sale negotiators can be charged with aiding or abetting unlicensed activity and are subject to disciplinary action, according to the Department of Licensing.

Unlicensed third-party short sale negotiators are responding by stating that they’re really “facilitators”, not “negotiators”.  That may technically be true, but that doesn’t mean that the state sees it that way.  I certainly wouldn’t want to be standing in front of a judge trying to explain the difference between “facilitating” and “negotiating”.  And as a real estate licensee, I wouldn’t want to risk my license being suspended while my relationship with an unlicensed short sale negotiator is being investigated.

If you're a real estate agent and you prefer to use a third-party negotiator, make sure they're properly licensed.  Washington State doesn't care what they call themselves.  If they're contacting the seller's lender with the intent to get the lender to approve a short sale, they need to be licensed.  As real estate agents, we need to keep our business practices above-board and eliminate opportunities for any bad press relating to real estate agents.  Would you put your license at risk?


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Authored by David Monroe, Realtor and Pre-Foreclosure and Short Sale Specialist.
Access Seattle area short sale help and foreclosure resources including selling in foreclosure, and 8 Ways to Avoid or Stop Foreclosure.

Copyright (c) 2010 by David Monroe (Home4Investment Team at Keller Williams Seattle Metro West).

Is there such a thing as an unsellable house?  There’s a wealth of information available on preparing and staging a house to sell, but what about situations where the house can’t be properly prepared or fixed up to sell?  I work a lot with short sales and pre-foreclosures, and in many of these situations the houses aren’t in great condition.  Often times the seller has no motivation to fix up or clean up the house.

One house I recently sold was no exception.  It was in foreclosure and we had to sell it quickly.  The house was only 13 years old and needed new flooring, interior paint, and some landscaping work, but it looked much worse.  The owner had multiple large dogs that were allowed to go in and out as they pleased and the house smelled like a wet dog.  Nearly every room in the house had boxes, clothing, and other personal belongings stacked floor to ceiling, and some of these rooms were so cluttered that it wasn’t even possible to get inside the room.

In the listing, I requested that agents contact me prior to showing so I could warn them of what they were walking into and help set the proper expectations.  I could see the potential of this house, but most buyers and their agents could not.  Some buyers turned around and walked out as soon as they opened the front door.

Critical Feedback

I always request feedback from agents that show my listings.  I received several scathing comments about this house from other agents:  “Get it off the market!”, “You should be embarrassed for listing this house”, “It stinks!”, not to mention some of the direct insults to the seller even though the agents had never even met the seller.

The seller was actually a very nice, thoughtful, intelligent, and hard-working couple.  They got in over their heads on a couple projects, and as a result had a lot of distress in their lives.  They were spending so much time putting out fires in their lives that taking care of the house became a low priority.  Many people are quick to judge because they’ve never been in true distress.  They don’t understand that most people make different decisions when in distress than they would in normal situations.

In the end, this house did sell—The short sale was approved and the bank took a $190,000 loss.  It was sold to a retail buyer, not an investor as many people might assume.  This buyer saw great potential in this house and ended up getting a great deal.

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Authored by David Monroe, Realtor and Pre-Foreclosure and Short Sale Specialist.
Access Seattle area short sale help and foreclosure resources including selling in foreclosure, and 8 Ways to Avoid or Stop Foreclosure.

Copyright (c) 2010 by David Monroe (Home4Investment Team at Keller Williams Seattle Metro West).

Consider this scenario:  You paid off your house a few years ago now you’re selling it for $300,000.  You figure that you would make a better return on your money by offering owner financing instead of cashing out and investing the money somewhere else.  This is a big part of your retirement, so it’s a very important investment decision.

A buyer is willing to pay your asking price of $300,000.  Here’s a snapshot of the buyer’s situation:

• The buyer can only give you $11,000 down.
• The down payment is part of a $17,000 gift received from the buyer’s parents, the remainder of which will be used to pay closing costs. The buyer has no savings outside of that. 
• The buyer has marginal credit with a credit score of 620 and had a couple 30-day late payments on credit cards just over a year ago when they had some unexpected car repairs.
• Based on conventional lending guidelines, the buyer has just enough monthly income to make the mortgage payments. 
• The buyer has been pre-approved for an FHA loan (assuming a seller contribution toward the buyer’s closing costs), but they figure they can save on some of the closing costs and FHA insurance costs by going with the seller financing.
• The buyer loves the house, wants to live there forever, and assures you that their mortgage payment will always be the first check written every month. 

Based on that information alone, would you do the deal?  FHA would.  I would not.

Let’s look at the statistics.  Edward Pinto, a former Fannie Mae chief credit officer, recently testified before a House panel that that an estimated 20 percent of FHA’s entire portfolio will end up in foreclosure, which was also supported by estimates that FHA provided to Congress.  That’s one in every five loans. 

If you have to foreclose, you could be looking at $15-$20,000 in legal fees and lost interest, not to mention that you may have to make repairs before putting it back on the market, and if the market has declined, you would lose more money in the form of a lower selling price.

Why do we expect our government to take financial risks that we’re not willing to take ourselves?  Is it because it’s not money?  Well, it is our money.  And if we don’t support responsible lending, we’ll end up bailing out the FHA program as well.  Adding to our national debt to bail out FHA will lead to higher taxes, which will lead to less disposable household income, which will lead to less available money for home purchases, which will lead to declining housing prices.

Instead of blaming the government for damaging the housing market because of the more stringent FHA rules that were announced, perhaps we should be thankful that a low down payment program such as FHA exists at all.


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Authored by David Monroe, Realtor and Pre-Foreclosure and Short Sale Specialist.
Access Seattle area short sale help and foreclosure resources including selling in foreclosure, and 8 Ways to Avoid or Stop Foreclosure.

Copyright (c) 2010 by David Monroe (Home4Investment Team at Keller Williams Seattle Metro West).

We’ve all seen the horror stories relating to short sales, and some of us have experienced them.  As a short sale specialist, I often times find myself questioning the logic of banks.

The government has even stepped in on occasion, passing legislation and proposing guidelines that are supposed to improve how banks handle the short sale process.  However, each time, banks find loopholes and nothing really changes.  The legislation isn’t specific enough, because the people writing the legislation don’t understand the short sale process.

Here Is My Proposal

Establish required timelines for each specific step in the short sale process:

1. Acknowledge receipt of short sale package and assign to a negotiator (3 business days)
2. Negotiator introduction call to seller, agent, or third-party negotiator (3 business days)
3. General property evaluation and appraisal or interior BPO (10 business days)
4. Mortgage insurer and/or investor approval (10 business days)
5. Decision letter issued (2 business days)

Total time required for short sale approval:  28 business days (5 ½ weeks).

The bank should allow Steps 1-3 to occur prior to receiving an offer from a buyer, as long as the property is listed for sale.  This way, only 12 business days are required for written approval once an offer is received from a buyer.

Loan servicers are currently required to forward all buyer offers to the investor, but that often times does not happen.  A bank negotiator may prevent an offer from reaching the investor because they don’t want to go through the hassle, or they have a personality conflict with the seller, agent, or third-party negotiator.  I propose establishing a requirement that all bona-fide offers must be forwarded from the loan servicer to the investor within 3 days after receipt, or be fined at least $5,000 for each failure to comply.  A bona-fide offer is a valid Purchase and Sale Agreement with a pre-approval letter from the buyer’s lender or proof of funds for a cash offer.

Loan servicers would receive at least $1000 for each short sale approved within the required 28 day timeline, in addition to any other fees established in the contract between the loan servicer and the investor.  The only problem here is that the $1000 really should be paid by the investor that owns the loan (not the government), but it would be difficult to force all investors to revise their contracts with their loan servicers even though it would be in their best interests to do so.

Lenders would be given 60 days to start complying with the new short sale regulations, which would give them sufficient time to hire and train additional staff if necessary.  The additional $1000 per approved short sale would more than pay for the additional labor and office expenses.

• Short sales would no longer have the bad stigma currently associated with them. 
• Short sales would sell for higher prices, because buyers wouldn’t require significant discounts to compensate for an indefinite short sale approval period.
• Real estate values would stabilize, because short sales and foreclosures wouldn’t have as much of a negative impact on prices.
• Banks would reduce their losses, because short sales would sell for closer to market value.  With a defined short sale approval timeline on all short sales, the buyer pool for short sales would expand since many buyers who are avoiding short sales now would be likely to consider short sales with a guaranteed short approval period.

In an effort to keep this blog post from running on, I left out many other details that would need to be included.  However, this should serve as a general starting point.


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Authored by David Monroe, Realtor and Pre-Foreclosure and Short Sale Specialist.
Access Seattle area short sale help and foreclosure resources including selling in foreclosure, and 8 Ways to Avoid or Stop Foreclosure.

Copyright (c) 2010 by David Monroe (Home4Investment Team at Keller Williams Seattle Metro West).

I specialize in short sales, and I’ve observed many actions by banks that seem to defy logic.  This particular experience is no exception.

A while back, I had a short sale listing that was being negotiated with the bank at $300,000.  The buyer ended up backing out right before we received the short sale approval, because their financial situation changed.  We received the short sale approval letter, and the approval was conditioned upon the seller signing a promissory note for $20,000 or coming up with $10,000 cash at closing.

We managed to quickly find another buyer who was willing to pay $10,000 more, but the bank refused to even consider the offer and asked to have the offer rewritten at $300,000.  They also said that regardless of the price offered, the seller would still be required to sign a promissory note unless the bank was receiving a full payoff.  Since full payoff would have been $450,000, that wasn’t going to happen.

We gave the bank what they asked for -- $300,000 plus an additional $10,000 cash at closing, but the bank said they wouldn’t accept the additional $10,000 from the buyer—It had to come from the seller.  So what was the motive here?  To punish the seller?

In the end, the offer was reduced to $300,000, the seller signed the promissory note (at 0% interest, payable over 10 years), and the deal closed.  I typically don’t like the idea of sellers signing promissory notes in these situations, but this seller’s situation was a bit unique and they felt it was in their best interest to do so.  They’ll most likely file for Chapter 7 Bankruptcy, which will wipe out the note.  The money was on the table and the bank refused it.  Now they’ll end up with nothing.


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Authored by David Monroe, Realtor and Pre-Foreclosure and Short Sale Specialist.
Access Seattle area short sale help and foreclosure resources including selling in foreclosure, and 8 Ways to Avoid or Stop Foreclosure.

Copyright (c) 2010 by David Monroe (Home4Investment Team at Keller Williams Seattle Metro West).