This question was prompted recently by a client who had questions about whether or not they needed to be behind on payments in order to qualify with their lender to sell their home short of what they owe.  The simple answer is: “it depends on who the investor is.”

Before I comment on the topic, spend a few minutes watching this phenomenal presentation by Jonathan Jarvis, outlining the flow of money during the high times in the real estate market back in 2005.

The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.

Now that you have somewhat of an understanding of what happened back then, you can see that the company to whom you make your payments may not necessarily be the company who actually owns your house.  It’s likely that they simply process the payment, take a small portion as a processing fee, and send the rest to the real investor.

So, where does your mortgage payment go?  It goes to the investor who actually bought your note.

(Note:  It’s possible that the investor who currently holds the note paid far less than the value of the note because the original investor went bankrupt, which means they may stand to make money on the short sale, rather than lose money.)

Sometimes that investor requires that you be delinquent by at least 30 days before they’ll even consider approving a short sale on your property.  Some investors are wiser than that, and they realize based on your financials, that you will soon be delinquent anyway so “what’s the point of waiting.”  After all, if they recommend you fall behind, it will affect their cash-flow too.

Nonetheless, if the investor won’t pay attention to you, which is happening every day, then it’s possible that you may need to fall behind.  This basically forces you into a strategic default instigated by the recommendation of the lender.  It’s ludicrous, if you ask me.

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.

Every so often I do a tech tip that inevitably helps others in the real estate community.  This is one of those times.

ZipForms is a great tool that most of use now to create and fill out the various contract documents associated with a real estate transaction.  ZipForms Online is the online version, which by most standards, I would find perfect for what I need to do, but there’s something about the online version I don’t like, which is why I’ve been using the desktop version.

The desktop version is installed locally on your hard drive which allows you to work offline.  As connected as I typically am, I decided that blowing $60.00 every month on a mediocre wireless access card through one of my cell providers wasn’t a great use of my money, considering that I’m usually near a WIFI hotspot.

Even with that in mind, there are certain limitations to the online version of Zipforms that have nothing to do with Zipforms, and everything to do with the internet connection that you’ve joined for the time being.  Sometimes coffee shops just don’t have the bandwidth I need to get my contracts written.  I tend to work much faster than an internet connection can accomodate, so being able to do the meat of the work offline, create my digital packages to send to my clients, then connect and send is much more efficient.

The Problem

ZipForms desktop is fantastic when it comes to offline editing of files.  It’s not fantastic when you’re someone who not only uses multiple applications on one computer, but multiple computers.  I have a desktop at home, a Windows based laptop, and now, a MacBook Pro.  The desktop version stores all of the information about your transactions on the computer you’re using, not on the internet, so you cannot access a contract written on one computer on the other…unless you employ the following tool…

Microsoft has a great synchronization tool that allows you to choose a folder, or set of folders on one computer that can be synchronized through the internet to another set of folders on another computer.

ZipForms Desktop stores all of your transactions, clauses, templates, etc., in the same folder on each computer, so it’s quite simple to setup synchronization between those folders to ensure that all of the changes you make in one transaction are nearly immediately available on all of the other computers involved.

Getting Started

Before you can sync files over the net, you’ll need to create a Windows Live Login.  I know, this is probably one of many options on the internet, but to date, it’s the most reliable I have used, and even though it’s a Microsoft product, which I typically cringe at, it works.

Head over to http://login.live.com and create an account if you don’t already have one lingering around from years past.  Once you have an

Soonr.com is an online cloud.  It’s a place where I can store specific files permanently so they are away from my computer.  It works in the background, simply monitoring folders that I specify on my MAC or PC.  When a file is added or changed, the Soonr.com agent which is always running sends that changed file to my cloud on Soonr.com.  Coupled with the iPhone, it gives me a very easy way to access those files.

What Soonr.com doesn’t do is what I really need it to do, and that is keep not only files on one computer synchronized to the soonr.com website, but also synchronized to another computer.

All of my transaction documents, contracts, HUD-1′s etc., are stored in a set of folders which is nested beneath a single folder on my desktop.  Since I use two different computers for most of my work, having quick access to the most recent file on each computer is vital to my productivity and it’s one of the main reasons I am able to deliver such quick responses to document requests.

In order to make sure that a folder on one computer appears on the other computer as well, I employ a simple program called Windows Live Sync.  I’m not a big fan of Microsoft products, but since both of these computers that I’m using are PC’s, and I’ve been working with Microsoft products for years, I figure it’s the best I can do for free.  Windows Live Sync does what Soonr.com doesn’t.  It monitors a folder on your computer, synchronizes it with the Windows Live website, then synchronizes it with any other computers that have been assigned to the same folder.

At the end of the day, a process might look like this.  1) I create a new PDF file in the transaction folder.  2)  Windows Live synchronizes it with all of the computers I have setup for synchronization.  3) Soonr.com shuttles the file up to the Soonr.com site so I can view it from any computer, AND from my iPhone.

With both tools implemented, not only do I automatically duplicate my files for a quick backup to my other computers, but I also send a version to my cloud at Soonr.com, ensuring it’s permanently preserved.

Soonr.com treats each computer separately, and doesn’t link the two together, which means you won’t see a file on one computer that you created on another computer without accessing the Soonr.com site directly and downloading the file.

Until Soonr.com implements this feature, I’ll stick with what I have, which is working just fine.

(May 11, 2009 - Photo by Clive Brunskill/Getty Images Europe)

As a listing agent specializing in short sales, I have run into many situations that raise red flags throughout the short sale process. One of those is finding out that the home owner isn’t prepared for the commitment involved in pursuing the short sale.

When you enter into a short sale listing agreement with your brokerage, represented by your REALTOR, you are hiring them to not only market your property, but also negotiate the short payoff to your lenders. While there is no official difference between a short sale listing, and a regular listing, the fundamental game-plan that we implement when we market your property is quite different than a traditional sale.

Your agreement to sell short is taken very seriously by your agent because of the amount of work that is involved after receiving an offer. It also must be taken very seriously by you, the owner. If at any point in time you doubt whether or not you really intend to walk through the process of a short sale, then you may not be a true candidate for a short sale. You see, even if your circumstances would support a short sale, you need to be completely committed to the process and you need to see it through to the end, whatever result that may be.

Supply and Demand Basic Curve

Every short sale needs a pricing plan.  Every home on the market needs a pricing plan.  In any market, it’s in the best interest of the home owner to sell the home for the highest possible amount.  In a distressed market, with a distressed property, sometimes there isn’t enough time to “hope” for a higher price than the home will bring.  Knowing that, it becomes critical to the life of the listing to have a scheduled price reduction plan.

Every short sale that I have listed has received an offer, because I implement a pricing plan, depending on the amount of time left before foreclosure, which prices the home slightly above market value, then systematically reduces over time at regular intervals. When the price reaches market value or below, it will most likely draw an offer, and as a result of the planning, enough data has been captured to make a solid case to the lender that no higher offer is possible. This is all driven by supply and demand.

It’s very important to illustrate to the banks (because they have no idea about real estate) the gradual increase in showings over time as the price is slowly reduced on a schedule.  When we can show a lender that an over-priced home is receiving no showings, yet when we reduce the price, the number of showings increase, we make a good case for the offering when it comes.

Yikes.  That’s probably the first thing you’re thinking.  We just received this thing called a “Notice of Trustee’s Sale” and we have no idea what went wrong (“except that we stopped paying our mortgage a few months ago.”)

AHA!  That’s the problem.  What’s happened is the bank has taken action to recover the home to cover the note.  The fact that the note is greater than the value of your home, most likely, is irrelevant at this point.  The bank is going to take your house back.

The good news for you is that the bank doesn’t really want the house.  They want as much money out of the house as possible, but they don’t want the house because it costs tens of thousands of dollars for them to auction it, take it back, maintain it, re-market it, and sell it.

The real error in the entire situation was the fact that you didn’t recognize that you needed to have this house on the market a long time ago.  The banks will tell you that you need to miss payments in order to put your house on the market and have a short sale approved, but this is not true.  With a true hardship, whether or not you can pay your mortgage today or not isn’t important.  What’s important is whether or not you are headed for the dreaded foreclosure in the near future.

If you are, then you don’t need to miss payments.  In fact, if you are able to keep up with the payments, you are more likely to be able to down-size by buying another home after this process.  The key is whether or not you are keeping up to date on all of your payments.

So, what do you do now?

You’re headed for foreclosure.

• You can re-instate and get caught up, which will cost you more than the amount you’re behind
• You can walk away from the house and experience turmoil, have a larger than required deficiency, and potentially face future law-suits and high tax liabilities;
• or you can attempt to buffer the losses and have your lender release you from your note by selling the house!

But we owe more than the house is worth!  Right, that’s why it’s a short sale.  You’re going to bring a market value offer to the lender, and you’re going to get them to approve it and allow the sale.

It happens all day long in this market, and it’s going to keep happening for years to come.  Short Selling your home is the best preventative measure you can take now that you KNOW you’re being kicked out.

I’m on a bit of a tirade today as I work through a few short sale issues and personal banking issues that shouldn’t exist.

I have a firm understanding of my value to a large corporation.  It’s purely monetary, and I’m just a number.  To further exacerbate the problem, one of the companies mentioned in the title is owned by the Government, and the Government is the last entity on the planet that I place my trust in.  The only thing that I can trust in is my own ability to survive.  I am 100% responsible for 100% of my actions 100% of the time.  Period.

Things don’t happen to us.  They are a result of choices we make, and today, I choose to shift my entire financial strategy from big bank, to small bank.  Here’s a simple illustration of what drives me to be suspicious of big banks.  I recently noted two independent tweets from the “team” of twitter support people at both Wells Fargo and Bank Of America.  Let me first disclaim that I don’t believe that either bank has genuinely taken an interest in supporting their customers through twitter for any other reason than to appear as though they care.  There’s no possible way for them to support all of their customers through twitter.

A recent Tweet fromWells Fargo:

@jimgoodman I work for @Ask_WellsFargo & saw ur tweet. (I also replied to @corkz.) Plz follow & DM with the details. We want 2 help. ^JR

…and now a similar response from Bank of America:

@RealScottsdale I work for Bank of America. Were you able to find a resolution to your Equator question? ^km

Perhaps they care, perhaps they don’t.  It’s possible that they both follow a basic protocol that has organically grown through the phenomenon known as Twitter, or it’s possible that they have both hired a 3rd party support organization who answers questions based on a list of policies and procedures.  It could be that they are just hiring whomever to “do it the way the other guy does it.”

Either way, the only responses I have ever received from the “support” department from a lending institution has been something to the tune of, “I work for the bank, so I can help you, I hope we helped.”  No real help is being offered.  They’re simply fielding tweets to gauge customer perception, and they should probably already know that the amount of bad comments will inherently outweigh the good comments, because that’s how people work.  People will always tell 10 people how terrible something is before they’ll tell one person how good something is.

GRRRR.  Good bye big banks!

Dear Wells Fargo,

After nearly 20 years of banking with you, I am leaving.  I will be finding someone else who cares about me more.  I will find someone who doesn’t charge me to hold my money, who doesn’t rip me off when I use the ATM that’s part of the “network,” who doesn’t eat up my money every month at a rate of return that makes what you pay me look like a fee in itself.

I will find someone who makes decisions based on who I am as a customer, not as a number.  I will find a company who is in touch with their client, and who doesn’t hire a team of people to “handle customer service issues” through one twitter account with canned responses.  I will put my money where I can shake the hand of the people connected to the pulse of the company’s culture, who understand and believe in the vision of the company, who aren’t sheep, controlled by a corporate attitude.

Bank of America?  No.  Chase?  No.  Citi?  No.  Don’t worry Wells Fargo, I’m not going to leave you for another famous bank.  I’m going for the bank next door, cause she’ll care more, and we can raise a family of children named Benjamin, Lincoln, Grant, Jefferson, and Washington together.

When I deposit my certificates of appreciation, I do so trusting that you appreciate it, and so far, you have not appreciated me.  So, farewell.  I’ll never come back.

Last year in Maricopa County, there were roughly 35,000 single family homes that sold.  That number almost matches the prior year.  Of those homes sold in 2009, 12,975 of them were Short Sales.  That’s 37% of the market.  That’s HUGE!  Most of those can be attributed to the sub-prime mortgage crisis and subsequent market crash.

While there are reports that have surfaced about the market improving, prices on the rise, etc., one of the more important topics that needs to be addressed is the impending wave of 5-year option-arm “smart loans” that will be resetting this year.  During 2010, I believe that we will see a huge influx of foreclosures in the 400K+ market.

In 2005, buyers were qualifying for homes that were twice as expensive as they could afford because of products that had interest only payments with huge adjustments on the horizon.  At the time, people believed that real estate just continued to go up in value, so it seemed to make sense to purchase a $400,000 home based on income that would qualify you for a $200,000 home, in the hopes that within the next 5 years, the home would be worth at least $600,000.  That’s not what happened.  Now homeowners in the jumbo and luxury market are as stuck as the rest of us, being completely upside-down in their homes.  As a result, they are trapped with a ticking time bomb.  As soon as those 5/1 ARMs reset, they’ll be headed for foreclosure, and the 2nd wave will begin.

I would encourage you to watch this video created by Jonathan Jarvis which explains why our market experienced what it did, and also makes a great case against borrowing money.

The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.