A slow but steady return is projected by all.

InfoGraphic

We believe the housing market is recovering. We believe that sales will be robust through the rest of the year. However, we also believe that the increase in demand will not impact prices in a big way as we think there will also be an increase in the supply of homes coming to the market. This increase in supply will offset the increase in demand. The increase in supply will be fueled by two categories of inventory:

1. Foreclosures entering the market as a result of the National Mortgage Settlement
2. Pent up supply of homeowners who have been unable to sell their homes over the last several years

There have been several recent headlines making strong statements about home values in the country. We must be sure to read the ENTIRE report – not just the headlines. Here are four headlines and the portion of the report that reflects the caution in their cautious optimism .

HEADLINE:

LPS Home Price Index Shows U.S. Home Price Increase of 0.2 Percent in February; Early Data Suggests Further Increase of 0.3 Percent is Likely During March

CAUTION:

 Reasons for caution are clear, as we've been here before. Non-seasonally adjusted prices increased for a few months in early 2009, 2010 and 2011 trends that all ended by summer, after which all the gains and then some were lost. As is true this month, those temporary increases were on low sales volumes about 30 percent lower than at any point since 1998. Furthermore, the inventory of distressed homes remains high, which will continue to put a drag on prices.

HEADLINE:

Foreclosure hotspots show signs of housing turnaround

CAUTION:

However, much will depend on the continued health of our economy, specifically job rates, and how lenders will release their foreclosure inventories now that the 49 state AG Agreement has been signed.”

HEADLINE:

Fiserv Expects Home Prices to Stabilize

CAUTION:

On the other hand, nearly one-half of the metro areas, or 191, saw prices decrease by more than 2 percent, including double-digit losses in Atlanta (-12.8 percent), Reno, Nevada (-10.8 percent), and Tucson, Arizona (-10 percent).

In the fourth quarter of 2011, the average price of a U.S. single-family home fell four percent from the year-ago period, and Fiserv Case-Shiller projects a further decline of 0.8 percent by the end of 2012.

HEADLINE:

Home Prices in March Show Monthly Gain: CoreLogic

CAUTION:

Even with price gains above 5 percent for leading states and CBSAs, Capital Economics said in response to the CoreLogic report that over the year, prices are more likely to stabilize rather than make a dramatic climb.

There are fears in some quarters, triggered by recent disappointing GDP and payrolls data, of a sharp slowdown in economic growth which could derail the fledgling improvement in the housing market, said Paul Diggle, property economist for Capital Economics.

This week, we have spoken about the importance of using an agent trained in the short sale process when selling or buying a home as a short sale. Today, we want to address how to identify those agents who are truly qualified. There are many local instructors who have done excellent work in this field. We appreciate their dedication and commitment. However, there are three designations recognized on a national basis. Here they are:

Certified Distress Property Expert (CDPE)

One of the first designations available in the field, CDPE has reached the milestone of 40,000 real estate professionals trained in foreclosure avoidance tools and strategies through the Certified Distressed Property Expert (CDPE) Designation course. CDPE is the fastest-growing independent designation in real estate industry history.

The CDPE designation is administered by the Charfen Institute which educates and trains real estate professionals and small business owners to find opportunities in chaos either by providing solutions to the foreclosure crisis or empowering entrepreneurs with strategies to embrace their companies full potential.

The growth of the CDPE designation has been assisted by the support of top brokerages, including RE/MAX, LLC, Keller Williams Realty Inc, and Century 21 Real Estate LLC, as well as industry icons such as Chairman and Co-Founder of RE/MAX Dave Liniger, RealtyTrac, Realogy, Fannie Mae and Founder of Buffini & Company, Brian Buffini.

Short Sale and Foreclosure Resource Certification (SFR)

This is the designation offered by the National Association of Realtors (NAR). The SFR Certification is NAR's short sale training program developed and continuously updated by industry leaders. The training covers both the seller and buyer side of the short sale transaction. Designed to prepare the agents for the short sale process from the first meeting with the seller through the marketing, contract writing and submission of the short sale package it has prepared over 50,000 REALTORS across the country to successfully navigate the distressed property waters.

Short Sale Certified (SSC)

A newer entry into the field, the Short Sale Certified designation (SSC) focuses on local laws and trends in the agent's footprint. The course was developed by Brandon Brittingham, a top producing agent who has personally completed several hundred short sales, and Gee Dunsten, a former national CRS president who has instructed and written short sale courses all over the country and is considered an industry expert.

SSC has just announced an alliance with the Leading Real Estate Companies of the World to offer short sale training to the 100,000+ agents in the network. This will include live training as well as distance learning.

A key component to the success of a short sale involves working with a Mortgage Originator who is well versed in the short sale process. The short sale negotiation process is a patience testing task. The complications are many, however if the buyer is securing mortgage financing and is working with an originator that understands that short sale process the buyer and seller can be rest assured, in most circumstances, that the transaction will get to the closing table.

There are 5 key questions to ask when choosing an Mortgage Originator for the purchase of a short sale transaction.

1.) Are they versed in the Anatomy of the Short Sale process?

The proper mortgage origination process pertaining to a short sale purchase is a bit different than a normal non-distressed property purchase. However, it is always my belief that in order to lead the cavalry one must have sat in the saddle. Putting this in terms of the short sale process, in order to originate a loan for a buyer who is interested in a short sale, one must understand the entire anatomy of the short sale process. This includes the challenges that the sellers faces regarding financial difficulty and hardship, the challenges that the selling agents face regarding listing and negotiating the short payoff and most importantly the strict timelines that come along with a short sale transaction.

2.) Will they issue a  TRUE pre-approval prior to Short Sale approval?

A complete short sale package should include a mortgage pre-approval for the buyer if the buyer is securing mortgage financing to purchase the property. The originator should have taken a full mortgage application, documented income, assets, reviewed the buyers credit and submitted the file through the appropriate automated underwriting service (ex. DU,LP) prior to issuing a pre-approval letter to the buyer.

The pre-approval process for a short sale transaction should not be any different than the pre-approval process in a non-distressed sale. Having said this, we have closed over 2500 short sale transactions nationwide. Many times, because of the long timeframes that are involved in a short sale, originators are not properly pre-qualifying the buyer prior to short sale approval. Originators are waiting until the short sale is approved by the short selling bank to submit the client profile to underwriting and is some cases to even issue a complete pre-approval. That is too late!  In every circumstance the pre-approval process should be done thoroughly before the short sale approval.

3.) Will they order the appraisal prior to Short Sale approval?

In a non-distressed sale typically, once the purchase contract is signed, the Mortgage Originator or their processing team will then order the appraisal for the property so that it may be reviewed by underwriting. Underwriting will then make sure the property is acceptable as collateral based upon the loan that is being applied for.

This process should hold true if the buyer is buying a short sale. Many times however, the appraisal is not ordered until the short sale is approved by the short selling bank. Often, this will delay the closing timeframes.  Also, consider this, if the short selling bank based upon their appraisal, counters the buyer with a higher price, the buyer who has already had their appraisal done will have the ability to issue a rebuttal based on their appraisal.  The Buyer's/Lender's appraisal is a great tool to negotiate value disputes with short selling banks.

4.) Will they communicate with the Short Sale Negotiator?

There is one line of communication that is a must during a short sale.  This is the communication between the Short Sale Negotiator and the Mortgage Originator. The Mortgage Originator should be in touch with the negotiator on a weekly or bi weekly basis to obtain the status of the negotiation. It is imperative that the originator be informed of such deadlines as closing dates, approval expirations, BPO time lines, contract changes, etc.

5.) Will they keep the Buyer engaged throughout the process?

In a non-distressed sale the timelines are usually short from pre-approval to closing. The potential buyer will obtain a pre-approval for mortgage financing; they will shop for a home, make an offer and then close on the property.  Most cases this process takes between 30-60 days.

In contrast, the short sale purchase timeline could take the normal 30 to 45 days of shopping but, from the time a buyer puts an offer on a property to the time they actually close could take 90-120 days. During this time frame, the mortgage originator must keep the buyer engaged. The information gathered in the pre-approval process meaning paystubs, bank statements, etc. will need to be updated appropriately so that when the short sale bank issues their approval the buyer is ready to close on time and within the approval guidelines.  All too often short sale negotiators are asked to obtain short sale approval extensions from the short selling bank because the buyer could not close on time. Most of this stems from the Mortgage Originator scrambling to obtain last minute documentation that could have been avoided if the buyer's credit file was routinely updated throughout the entire short sale process.

In closing, with the abundance of short sale transactions permeating the marketplace, it is imperative that all interested parties to a short sale work with a Mortgage Professional that understands this segment of the marketplace. By keeping the 5 questions above in mind, you may alleviate the possibility of a short sale transaction failing because of buyer financing falling apart.

It's likely you've heard the term short sale thrown around quite a bit. But what, exactly, is a short sale?

A short sale is when a bank agrees to accept less than the total amount owed on a mortgage to avoid having to foreclose on the property. This is not a new practice; banks have been doing short sales for years. Only recently, due to the current state of the housing market and economy, has this process become a part of the public consciousness.

To be eligible for a short sale you first have to qualify!

To qualify for a short sale:

• Your house must be worth less than you owe on it.
• You must be able to prove that you are the victim of a true financial hardship, such as a decrease in wages, job loss, or medical condition that has altered your ability to make the same income as when the loan was originated. Divorce, estate situations, etc., and also qualify.

Now that you have a basic understanding of what a short sale is, there are some huge misconceptions when it comes to a short sale vs. a foreclosure. We take the most common myths surrounding both short sales and foreclosures and give a brief explanation. LET'S BUST SOME MYTHS!!

1.) If you let your home go to foreclosure you are done with the situation and you can walk away with a clean slate. The reality is that this couldn't be any farther from the truth in most situations. You could end up with an IRS tax liability and still owing the bank money. Let me explain. Please keep in mind that if your property does go into foreclosure you may be liable for the difference of what is owed on the property versus what is sells for at auction, in the form of a deficiency balance! Please note this is state specific and in most states you will be liable for the shortfall, but in some states the bank may not always be able to pursue the debt. Check your state law as it varies widely from state to state.

Here is an example of how a deficiency balance works:

If you owe $200,000 on the property and it sells at auction for $150,000, you could be liable for the $50,000 difference if your state law allows it.

Not only could you be liable for the difference to the bank, but in some situations you could also be liable to the IRS! Although there are exemptions (mostly for principle residences) under the Mortgage Debt Forgiveness Act, there are times when you could be taxed on both a short sale and a foreclosure, even in a principle residence situation. Since the tax code on this is a little complicated and I am not a CPA, I advise always talking to a CPA when in this situation as you are weighing your options. Hard to believe?  Well, believe it or not, the IRS counts the difference between the sale and the charged off debt as a “gain” on your taxes. That’s right-you lost money and it’s counted as a gain! (I didn’t make that rule, that's a wonderful brainchild of the IRS). Banks and the IRS can go as far as attaching your wages. Not to mention if you let your home go to foreclosure you will have that on your credit, as well.

Guess What? A short sale can alleviate your liability to the bank, in most situations. There are also exceptions to this, but in most cases banks are releasing homeowners from the deficiency balance on a short sale.

2.) There are no options to avoid foreclosure. Now more than ever, there are options to avoid foreclosure. Besides a short sale, loan modifications along with deed in lieu are also examples of the many options. In most cases (but not all) a short sale is the best option. Either way, there are more options today than there have ever been to avoid foreclosure.

3.) Banks do not want to participate in a short sale, or, it is too hard to qualify for a short sale. Banks would rather perform a short sale than a foreclosure any day. A foreclosure takes a long time and creates a huge expense for the banks; a short sale saves both time and money. Banks have more foreclosure inventory than ever before, and certainly do not want any more. Banks more than ever welcome short sales. Qualifying for a short sale is easier than you think, you need to have a true financial hardship, or a change in your finances and your house has to be worth less than what you owe on it. Not only do consumers, but banks also now have government incentive to participate in short sales.

4.) Short sales are not that common. At this present time, short sales range from 10-50 % of sales in various markets and it is predicted that in 2012 we will have more short sales than any other year, to date. Due to economic changes in the last few years, this is something that is affecting millions of Americans. Short sales are in every market, and are not just limited to any particular income class. This has affected everyone from all facets of life. A short sale should be looked at as a helpful tool, not a negative stigma. That is why the government is offering programs that actually pay consumers to participate in short sales. It is not just affecting one community; it is affecting communities and consumers across the nation.

5.) The short sale process is too difficult and they often get denied. Though the short sale process is time consuming; it is not as difficult as the media would have you believe. The problem is that most short sales are denied because of a misunderstanding of the process.  It is true that if the short sale process is not followed correctly there is a good chance of getting denied. An experienced agent knows how to avoid this. Short sales require a lot of experience, and a special skill set. If you are looking to go the option of a short sale make sure your agent is skilled and experienced in this area.

6.) Short sales will cost me money out of pocket.  A short sale should not cost you any out of pocket money. In fact, you could get between $3000-up to $30,000 to participate in a short sale. In many ways, a short sale may put you in a better financial position than prior to the short sale. Almost every short sale program now has some type of financial incentive for the home owner, as long as it is a principle residence, and we are even seeing relocation money being paid on some investment/second homes. As a seller of a property you should never have to pay for any short sale cost upfront to any professional service. Realtors charge a commission that is paid for by the bank. In most communities there are also non-profits and HUD counselors who can help you with foreclosure prevention options for free. The only potential cost you could incur is if the bank would not release you from a deficiency balance in the short sale, which is happening less and less now.

7.) If I am behind on my payments, I can perform a short sale any time. The farther you get behind on your payments, the harder it is to get a short sale approved. The closer a property gets to a foreclosure the harder it is to convince the bank to perform a short sale. As they get closer to a foreclosure sale more money is spent, thus deterring them from doing a short sale. If you think you need to perform a short sale, time is of the essence; the sooner you start the process, the better. Waiting too long can trigger the ramifications of a foreclosure, losing the ability to do a short sale as a viable option.

8.) I have already been sent a foreclosure notice so I can't perform a short sale. For the most part just because you received a foreclosure notice or notice of default it does not mean that you do not have time to perform a short sale. The timeline and specifics do vary from state to state, but having done short sales all over the country, I have seen banks postpone a foreclosure to work a short sale option as close as 30 days prior to the scheduled foreclosure auction, but the longer you wait the less chance you have. If you have received a legal foreclosure notice, please reach out to a professional right away. The longer you wait, and the closer you get to foreclosure, the fewer options you have. If you have received a notice to foreclose this means the bank is filing paperwork and starting the process to take legal action to repossess the house. You still have time at this point to prevent foreclosure, but do not hesitate! The closer you get to the foreclosure date the harder it becomes to negotiate with the bank for whichever option you choose.

9.) I was denied for a loan modification, so I know I will get denied for a short sale.  Short sales and loan modifications are handled by two separate departments at the bank. These processes are totally different in approval and denial. If you got denied for a modification you can still apply for a short sale; in some cases you can get a short sale approved faster than a loan modification, as some loan modifications are denied because they cannot reduce the loan low enough based on the consumers income.

10.) If I go through a short sale I cannot buy another house for a long time. The time to buy another house depends on your entire credit picture and can vary from 12-24 months. There are even a few FHA programs that allow for a purchase sooner than that. I have worked with clients who went through a short sale and bought another house in less than 12 months.

These are just a few of the common myths surrounding short sales and foreclosure. With the options available today, no homeowner should ever have to go through foreclosure, and hopefully this information can help a few more homeowners think twice before walking away from their home not realizing the possible long term ramifications a foreclosure can have.

It seems that there is a significant amount of confusion when it comes to purchasing a short sale. There are many misconceptions when it comes to this type of transaction, so below I have provided some information to potential buyers of short sales. If you are looking to purchase a short sale, understand that it is not the same as a normal sale and the approach is very different.  There could be several parties involved and issues that are unknown to the buyer and buyer's agent that can affect the transaction. If you are looking to purchase a short sale here is some helpful information.

1. On average, to get a short sale approval, it can take 60-90 days.

There could be mortgage insurance and an end investor on the loan as well as the servicer, which means it has to go through three different processes. Bank of America could be the servicer on the loan but they do not actually own the loan, so, the short sale has to pass their guidelines, then go to the mortgage insurer if there is one, then to the end investor like Fannie Mae and Freddie Mac. If you are a buyer and can't wait at least 60-90 days for an approval and then another 30 days to go to closing, then you need to look at other houses. The worst thing you can do is tie up a house that is in a short sale with no intention of being patient while waiting for a short sale approval. Approvals can come sooner than 60 days, but industry standard is at least 60 days to get an approval or denial.

2. There is a general assumption that you can purchase a short sale for 40-50% under its listed price.  In a short sale the bank comes out and does a valuation of the property and will expect a slight discount, but will not accept a huge amount under the market value.

Hopefully, if the agent who is handling the sale is experienced, they will have already gotten an approved list price from the bank by the time you are interested in making an offer. The bank will usually be willing to negotiate on that price, but will not, in almost every case, take 40-50% off of that price. To that point, you may be able to get a reasonable deal on a short sale, though it will not be, in most cases, as much of a deal as you may be able to get on an REO (foreclosed property). Also to that point, most short sales will be in better condition than an REO. When you look at the potential repairs a comparable REO needs and the time and expense it can take to do those improvements vs. a short sale being sold at a slight market discount with improvements already made, the investment could even out. There are REO properties that can be picked up for a huge discount, but require massive repairs that a comparable short sale may not require.

3. Short sales are a very difficult process and it takes a qualified person to handle this type of transaction.

With this type of transaction it takes a very experienced agent on the listing side as well as the buying side. Make sure before you move forward on the transaction that the listing agent has ample experience dealing with these types of transactions, or you could be tied up in a contract for months that never goes to settlement. There are several different types of short sale processes and each bank's process is somewhat different; it takes a professional who has had experience with all of these different types of short sales to help facilitate a successful transaction.

4. In most short sale transactions the properties are sold as-is and no repairs will be made.

Although there are some exceptions to this rule, speaking in general, short sales are sold as-is and no repairs will be made even if they are found during a home inspection. In most short sale transactions the bank will require both the buyer and the seller to sign an addendum that states the property is being sold  as-is and no repairs will be made.

These are just a few short pointers for buyers who are looking to purchase a short sale as they are a reality in every market, and if you have the patience you may be able to get the home you are looking for at a discount!

It seems that the banks have finally realized that a short sale is a better option than foreclosure for them, the homeowner and the neighborhood. It is for this reason we believe that 2012 will come to be known as the year of the short sale. CNN Money reported on this exact point:

 "We believe 2012 could be a record year for short sales,” said Daren Blomquist, Vice President at RealtyTrac.

Banks are showing signs of being more open and willing to approve the deals — even if it means accepting less money. The average sales price for a short sale was $174,120 in January, down 4% from December and 10% year-over-year.

Market Watch also addressed the short sale situation recently:

Fitch expects the increase in short sales to continue because of the potential benefits afforded to both lenders and borrowers. Some borrowers may prefer short sales because, though they cannot stay in the property, they often walk away with cash incentives from lenders and healthier credit reports unmarred by foreclosure. For lenders, short sales provide a more efficient and cheaper alternative to the increasingly lengthy and costly foreclosure process.

Why Are the Banks Now Leaning Towards Short Sales?

The simple answer is that the banks lose less money when doing a short sale. The CNN Money article mentioned above explains:

Typically, banks get about 20% less for a foreclosed home. Foreclosure can also take years to unload, during which expenses, like property taxes, insurance and other expenses, mount up.

The Market Watch report breaks it down further:

Short sales& are currently getting completed 20 months after the last payment made on the loan, approximately 10 months less than the average time to foreclose. Shorter timelines reduce lenders’ carrying costs (i.e. accrued loan interest and property taxes, insurance, and maintenance) and eliminate most of the legal expenses associated with foreclosure and liquidation. As a result, loss severities tend to be considerably lower. Historically, for loans with similar attributes, short sales have severities 10%-15% less than REO sales. As the proportion of short sales increases, we expect average loss severities to improve further.

How Many Short Sales Could Be Completed?

JPMorgan has projected that over 500,000 short sales will be done this year. Also, NECN.com recently reported:

RealtyTrac estimates that if the January numbers it found hold up, there would be about 105,000 “pre-foreclosure” sales of homes, most of them short sales, during the first quarter of this year, and at that rate something like 400,000 for the year.

How Long Will Short Sales Be a Major Part of the Market?

The NECN article shows us that short sales are here to stay for some time.

According to the Mortgage Bankers Association, there are nearly 3.5 million homeowners delinquent on their mortgages by at least one month, including 1.5 million who are 90 days or more behind on paying their mortgage. And there are 12.5 million homeowners still who are “underwater,” owing more on their mortgage than their home is worth. That suggests that at the current rates, barring some spectacular economic recovery, it would take years, even decades, for short sales alone to clean up the mortgage mess that remains.

Short sales are here to stay. We must accept this fact and work hard to learn the process and apply it where it makes sense.

Every day there seems to be more positive news about the real estate recovery. We attempt to give you two things in this blog:

1. The actual data that indicates where the housing market is headed.
2. Quotes from analysts who have scrutinized this data.

Today, we want to give you a quote by Ivy Zelman which appeared last week in a Wall Street Journal article Stunned Home Buyers Find the Bidding Wars Are Back.

“We very much believe we’ve hit bottom.”

Why is the quote from Zelman important? She is an industry expert consistently recognized by Institutional Investor, Greenwich Associates, StarMine and The Wall Street Journal as an industry-leading analyst. She has been nicknamed  Poison Ivy for her harsh positions on housing over the last several years. Now, Zelman is calling a bottom and projecting prices to moderately increase in the next twelve months.

Again, another expert on housing is calling a bottom; another bear turns bull.

Here is a graph showing pending sales over the last twelve months:

METHODOLOGY (as per NAR)

The Pending Home Sales Index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing.

The index is based on a large national sample, typically representing about 20 percent of transactions for existing-home sales. In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity parallels the level of closed existing-home sales in the following two months.

An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined as well as the first of five consecutive record years for existing-home sales; it coincides with a level that is historically healthy.