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Close Of Escrow in the Short Sale World Is A Squeaky Beast

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When a normal real estate contract is written, the buyer requests a close of escrow date, which is typically dependent upon multiple conditions being met.  There are a lot of people involved, a lot of documents involved, and contractual time lines to follow.  Normally, that time frame is somewhere around 30 to 45 days.  In the case of FHA financing, it’s on the longer end.  In the case of a cash purchase, it can be as quickly as Title can complete their work, or simply a matter of days.

When a buyer writes an offer on a Short Sale, there is no close of escrow date.  Instead, the close of escrow date typically reads, “See Short Sale Addendum.”  In the Short Sale Addendum, you’ll see on line 38:

Close of Escrow: Close of Escrow shall occur thirty (30) days or _________ days after delivery of Agreement Notice.

The Agreement Notice is the letter that your lender(s) provide upon reaching an agreement to sell for less than you owe on the property.  According to lines 22-23 of the Short Sale Addendum:

Agreement Notice: If Seller and Seller’s creditors enter into a short sale agreement, the Seller shall immediately deliver notice to buyer (“Agreement Notice”).

Once the letter(s) reach the buyer, even though there has been initial contract acceptance by the seller at the start of this process, for the purposes of the contract time lines, we consider this the date of contract acceptance.  Technically, we have already had an executed contract during the entire negotiation period, with a Short Sale contingency.

In most of the short sales that I have listed, I make sure the buyer and seller understand that we are going to fast track this to closing within 21 days of the Agreement Letter receipt.  I do this on line 38 of the Short Sale Addendum because 9 times out of 10, the agreement letter affords us only 30 days to close, and the last thing we want is to run up against the expiration of this letter, coupled with a potential impending Trustee Sale date.  And, since we’ve had so much time for the buyer to sit around and basically do nothing, it’s assumed that the financing documents are already in order.  This is why it is critical, buyers, to have all of your documents ready to rock at your lender so when the agreement letter arrives, your lender will be able to push forward.

The Squeakiest wheels are typically caused by buyers’ lenders not having everything they need to proceed.  While most transactions outside of the short sale world are relatively smooth, even with all of the turbulence the transaction can experience, COE in a Short Sale is more of a balancing act and must be taken very seriously.  Lenders don’t like to bend once they’ve made their decision.

Understanding 16 Causes of Financial Distress

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It is estimated that most American Families can only maintain their current living expenses for 60 days or less when their income is interrupted for any reason.

My financial counselor, Dave Ramsey, provides a 6 step plan to lending visit website financial success.  The first step is to sock away $1000.00 in an account that’s very easy to draw upon in times of emergency while you work hard at step 2.  The reason it’s only at $1000.00 is because the debt that you may be carrying, which is knocked out in step 2, needs your full financial attention before you build your full emergency fund of 3 to 6 months living expenses.  That’s step 3.

If your monthly expenses are $2000.00, then you need to have $6000.00 – $12,000.00 in reserve just for emergencies. This money should be in an account you have quick and easy access to, and should be used ONLY for true emergencies.  A prom dress is not an emergency and niether is a vacation.

If you don’t have this, you are like most Americans with a mere 60-days worth of reserves.  To make matters even worse, a majority of those people will rely on credit card limits to continue to carry them past the 60-days, which will send them diving into a spiral of financial defeat.

That is distress.  So, what are some of the causes of financial distress?  Hopefully the following 16 points will give you a greater understanding of what causes the distress that you may be right in the middle of.

1.  Payment Increase or Mortgage Adjustment

Currently, this is the most common reason for financial distress.  Billions of dollars of bad loans were written during the most recent real estate boom, and many of them were “creative products” designed to bring borrowers who couldn’t normally afford to buy a home into the home-buying game.  Now that those products are adjusting, the result is typically a payment that the borrower can no longer afford.  The tragic part is that the terms of the loan make it clear that the adjustment is part of the plan, yet most home owners do nothing to prepare for the change.

2.  Loss of Employment

No income?  No payment.  If you lose your job, in most cases, unless you’re fortunate enough to receive a severance package, you are without income immediately.  This will suddenly become a source of seemingly insurmountable stress.

3.  Business Fails

For the self-employed, your income depends on your skills as an entrepreneur, and the market you’re in.  Without a solid contingency plan for your business finances, the loss of your business also means the loss of your income.

4.  Unexpected Damage to Property

“It will never happen to me.”  Sure it won’t.  When there’s damage to your home, it will cost you.  When your credit insurance company fails to provide for the full amount of your claim, you’ll be left filling the gap, which in many cases exceeds 60 days reserves.

5.  Death of a Spouse

One of the most devastating life experiences is the loss of a loved one, especially if they were the primary income earner in the family.  This is why it is critical that you have a plan in place and have proper life insurance for your situation.  If your primary wage earner dies, it’s just like losing your income, instantly.

6.  Death of a Family Member

When a family member who is not earning income dies, it is emotionally devastating and the ripple effects will spread throughout every area of your life, affecting your work, your business, and your relationships.  This can produce undue stress and affect your earning ability.  It may even lead to needing to support survivors which will increase your costs.

7.  Severe Illness

No insurance for that cancer diagnosis?  Good luck covering your costs with 60-days reserves.  Illness can lead to extremely high medical debt and loss of income during recovery.  Disability insurance and health insurance are two very important planning products that you need to consider to avoid distress as a result of severe illness.

8.  Inheritance

Believe it or not, an inheritance isn’t always a blessing, especially if it’s happening in the midst of grieving from an unexpected family death.  If you inherit a home that isn’t paid for, you inherit the debt and the expenses of keeping it up as well.  Your 3 to 6 months of reserves will need to be much higher now.  Even if the property you inherit has significant equity, carrying the cost of maintaining it and paying the remainder of the mortgage may lead to foreclosure.

9.  Divorce

This is an extremely common reason for distress.  It can be an emotional and expensive situation to be in.  Spousal support, child support, attorney’s fees, etc., can all lead up to distressed finances.

10.  Separation

One step below divorce is separation, and it can strain a 2 income earning household as housing costs will typically double, and now the person left holding the big house will no longer be able to afford it.

11.  Relocation

Sometimes your employer will require that you move, which may mean you’ll have two households to maintain.  Again, your costs just doubled, and even though you may be able to rent out your current residence, in this market, it’s unlikely that you’ll be collecting more in rent than you’re paying in mortgage payments.  Your relocation may end up adding an entire household’s worth of expenses.

12.  Military Service

Except for relief provided in very specific situations by the Servicepersons Civil Relief Act (SCRA), military service can lead to unexpected financial issues.  There are thousands of service personnel who have had their periods of active duty unexpectedly extended and are now suffering a tremendous amount of financial pressure.

13.  Insurance or Tax Increase

With only 60 days of expenses on hand, if that annual tax bill goes up, or an unexpected increase in insurance premiums occurs due to a claim, you’ll be draining that reserve much faster, and that can cause distress.

14.  Too Much Debt

Mortgages, Credit Card Debt, Auto Loans, Student Loans.  These are all weighing millions of Americans down.  If you graduate, you now have additional payments to make if you haven’t deferred your student loan payments.  Your credit card rates may be unexpectedly increased, etc.

15.  Reduced Income

There’s always the possibility that your commissions will be less than they were last year due to the economy, or your company may scale back and reduce bonuses or even reduce your salary.

16.  Incarceration

How are you going to make a living from the slammer?

Many of these are no-brainers, but the key to avoiding the distress that results from any of these is to have a plan, make sure you have the right insurance in place, pay off all of your debt, and keep a healthy emergency fund of at least 3 to 6 months living expenses socked away.

Most of these are things that “will never happen to me.”  Well, that’s just not true.  You never know what will happen from one day to the next, but you can be sure that if you have a plan, you will not find yourself looking for a way out of foreclosure.

For more info please visit: Ciya.com.

How Much Should a Short Sale Cost?

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What could be worse, in times of financial hardship, than receiving news from your real estate agent that his or her services will cost you, out of pocket, before any work begins?

Now that would be adding insult to injury.

In a normal real estate transaction, the cost to sell a home is typically on the shoulders of the home-owner who has hired a listing agent to market the home.  A rate is negotiated, and the resulting fees are split evenly between the listing broker, and the selling broker, and these fees are drawn from the proceeds of the sale of the home at closing.

A short sale is a different beast altogether, because it’s assumed that the homeowner has fallen on hard times; specifically that they owe more on the house than it will sell for (see the article “What Does It Mean to Be Upside Down in Your House”)  When the amount you get at sale is less than what is owed, the seller either needs to come to the table with cash out of pocket to bridge the gap, which most cannot do, or seek out the approval of the lender to release the property for less than is owed.  Sometimes the lender will ask the seller to sign a personal note for the difference.  This is commonly asked, but rarely agreed to.  This happens all day long and for good reason.  Banks aren’t in the real estate business.  They’re in the money business.

The prime time  for a short sale to be approved by a lender is when it’s clear to the lender that the home is headed for foreclosure, or there’s an inevitable need to sell due to other unforeseen circumstances.

In the event of a short sale, whereby the seller has no money left over when the house sells, how do the REALTORS® receive compensation for their work?

That’s easy.  Fees are built into the transaction and paid for by the lender releasing the note.  The banks know that it takes time and expertise to properly sell a home, and since they aren’t in the real estate business, they’re more than happy to partner with REALTORS® to ensure the job gets done.  Selling your home short of what you owe lightens the blow on the property values in the neighborhood which is an additional plus for the banks, as they may own multiple properties near your home.  Save one, save many.

So, on a house that sells for $120,000.00 that has a payoff of $150,000.00, the bank will subtract the broker fees and closing costs from the final sales price, resulting in an even lower net payment to the bank.  In this example, it’s possible that the bank will only receive a payment of $105,000.00, maybe more, maybe less.  It all depends on what they’re willing to take.

What this ultimately means is that you, the home-owner, receive top notch professional representation at ZERO OUT OF POCKET COST to you.

There are implicit associated costs when you sell your house for less than you owe, but they come in the form of a temporarily affected credit rating, and potential tax consequences.  The impact upon your credit score if you foreclose is far greater than if you sell short.  What does zero cost mean to you?

It means my services are completely free of charge to you.

But what if we don’t want our credit to be affected?

The only way to protect your credit from the effects of a short sale (which are far less damaging than foreclosure), is to sell the home and cover the difference between what it sells for and what you owe, so the lender will report your account as “Paid in Full.”  Either cash at sale or a note for the deficiency will accomplish this.

If you have any questions about the process of preventing foreclosure, whether you’re just now considering it might be a possibility, or you’ve already received a Notice of Trustee sale, please contact me today: (602) 312-3262

Five Reasons to Avoid Foreclosure

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Experiencing foreclosure is an extremely emotional event in one’s life. It ranks in the top 5 most-traumatic things that can happen to an individual. The ramifications of foreclosure reach much further than most people understand. Here are the top five reasons why avoiding foreclosure is the best choice you can make:

Disclosure

For the rest of your life, you will always have to disclose that you have been through a foreclosure.  When you fill out any application that asks whether or not you’ve been through a foreclosure, you’ll find that the only options are YES, or NO.  You will be required to answer truthfully in order to avoid being involved in mortgage fraud.

Credit Score

When your bank repossesses your home, your credit score can drop by 300 points or more.  It takes a long time to repair your credit history, and this will surely knock you into a no-qualify position financially.  Not only that, but it will affect other service providers that you may have, and could affect your future employment.  Some insurance companies check your credit score and use that as a measurement of risk.  Your rates could sky-rocket as a result.  You can be assured that your credit card rates will also be raised the next time your creditors check your credit status.  All of that can be extremely costly down the road.

Permanent

Foreclosure is a permanent event.  You cannot have a foreclosure removed from a credit history report.  In fact, the only information you have have modified on your credit history is data that is considered an error.  All other events will remain on your report for a long time.  A foreclosure will stick with YOU forever, even if it disappears from your report.  You will always be obligated to report it if asked on a legal document.

Security Clearance

If you work in an industry that requires security clearance to do your job, such as the military, or other high level security jobs, you will be at risk of losing that clearance.  In most cases, when people lose their clearance, they lose their job.  Foreclosure can lead you to unemployment.

Job Hunting

There are plenty of companies who run your credit history report when you apply for a job.  If your record is tarnished by a foreclosure, your future employer may consider this when they compare you to another candidate with a clean record.  You want to remain as marketable as you can, so having a foreclosure will impact your ability to find new work.

There is a clear difference between living with foreclosure and moving forward without it.  I can help you prevent it through the process of a short sale.  Contact me today for more information.

  1. For the REST OF YOUR LIFE, you will ALWAYS have to disclose that you have been through a foreclosure when you apply for a mortgage.
  2. Your credit score will drop by up to, and perhaps more than 300 points.  Credit scores are being reviewed by insurance companies and other service providers to assess risk and determine what they’re going to charge you.  In EVERY CASE, a low credit score costs more than NO credit score or a high credit score.
  3. It is virtually impossible to reverse or repair your credit report and the foreclosure will remain on your record for up to 10 years.  Regardless of the length that it remains on your credit report,

How do Real Estate Agents Get Paid

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…and who pays them?

Before I was a REALTOR, I was a consumer, and I bought a house. Fortunately for me, or maybe it wasn’t so fortunate, my REALTOR was my father. He also owned the house that I purchased. This worked both for and against me, but we won’t go into that now. The point is, I had no idea how REALTORS made a living prior to diving into the business myself, and you may also have questions about how we get money on our european wallets.

Real estate agents are 100% commission based jobs. That means, we don’t get a paycheck unless we do business. Makes sense. Open up shop, provide a service, get paid, or sit on the couch all day wondering what to do.

Real estate agents also work as sales agents under a real estate Broker. That broker typically collects a percentage of what we make to cover the costs of running the company. At Realty Executives, we pay a premium to use the name while we conduct business according to their standards and the standards of the Arizona Department of Real Estate and the National Association of Realtors.

If we don’t sell a home, we still pay our broker, mortgage, utilities, etc. So we’re always in a position where cash is flowing out, but not always in a position where cash is flowing in. We’re also in a business where we need to be available when most of the rest of the world is not. This means that we sometimes have to work on the holidays that you get to spend having fun. On the other hand, we have the freedom to “take a lunch” whenever we want.

What does having a Realtor cost the Buyer? Answer: Nothing. Zero. Zip. Nada.

When you meet me for the first time and express an interest in purchasing a home, I assess how serious you are about purchasing, and then I begin to spend money on you to help you find that home. Searching for a home with a REALTOR costs you only time. You will spend nothing out of pocket, but we will commit a large portion of our business day(s) and marketing budget to provide you with the most pleasant showings as we possibly can. We fill our tanks, fill your stomachs, and become your city tour guide for the duration of your search. If you purchase a home without using us after spending all that time, we don’t get paid, but we also don’t hold it against you, because you may not have known, which is why I’m writing about it. 🙂

When the seller hires a broker to sell their home, the broker charges them a commission to do so. When that broker lists the property on the MLS, they indicate how much of that commission will be paid to the agent who brings YOU (the buyer) to the table to purchase the home.

The buyer won’t have to open their wallets until an offer is accepted, at which point a series of events begin that justify why the selling broker is willing to pay us in most cases half of the agreed upon commission.

What does having a Realtor cost the Seller?

The seller is the one who has the highest expense. From fixing up their property to staging it, the seller will bear the majority burden of cost in selling a home.

When the seller strikes an employment agreement with the broker, they typically agree to a set commission of the final sales price of the home and they offer a portion of that to anyone who brings a buyer. When the property closes escrow, the funds owed the listing brokerage are distributed according to the agreement between the two brokerages and each real estate agent is paid accordingly.