Diane Wheatley’s Blog

I recently found this post on the internet asking if flipping short sales is a good opportunity.  After reading this it made me analyze the big picture here. 

 

 

Forsaking sounding “Pollyannaish” here, but isn’t this type of business transaction for the sheer benefit of the investor and only the investor bordering on fraud?  Granted that the big banks are devilish to deal with in negotiating short sales.  I do it every day.  I have very little respect or sympathy for the devil no matter how badly it claims to be wounded.  I have a lot to say about that subject but don’t have enough hard disk space on my desktop to discuss it in detail. 

 

However, I am a California real estate broker who oversees a well respected real estate brokerage and prides myself on always playing it straight and never placing my needs before my client’s.  That goes for the agents in my office as well.   I may be one of the last remaining white hats out there but at least I can bank on having kept my word and integrity as the foundation and cornerstone to continue to build on.  In a cyclical industry we must protect whatever we have left in order to survive the tough times.  And that does not include riding on the coat tails of another or at the cost of another’s misfortune.

 

I’m an advocate for risk taking as long as all parties are aware of and accept the terms of the deal.  Having the ability to procure properties for 80% of the BPO before it hits the MLS smells bad to me.  This individual offers properties to investors for less than market pricing for the reward of “earning” two commissions.  Smelly, smelly, smelly. 

 

With new government directives released on April 4, 2010 and Fannie and Freddie’s versions on June 1, 2010 known as HAFA there are a number of guidelines that include verbiage to prevent short sale flipping.  One that prominently comes to mind is that Buyers cannot sell the property again for 90 days. This is meant to prevent investors from “flipping” homes by purchasing at a low price and selling at a quickly inflated price. 

 

Some blogs denounce short sale flipping while others encourage and celebrate it.  Which is it?  My hands are clean and I think I’ll stay clear of playing in the mud but I do feel that this type of business dealing is becoming an epidemic that needs to be addressed.  Can I hear your thoughts on this to help me understand if this game is made up of fair players where no one gets hurt?

 

Diane Wheatley, Broker

www.MoveUpProperties.com

sales@moveupproperties.com

 

Courtesy of Danielle Graychik, Realtor with Move Up Properties -

We all know Wachovia’s reputation for taking the initiative to streamline the Short Sale process.  Working with a Wachovia short sale is almost like the days where standard sales dominated the market.

I took a listing last week on a Friday.  I listed it on the MLS Saturday and had offers within a couple of days.  The buyers accepted an offer on Wednesday and I submitted it to Wachovia first thing Thursday morning.  This listing had a pending Trustee sale date scheduled for 10 am the following Wednesday (June 2nd) following a 3 day weekend to boot.

By Tuesday (June 1st), the day after memorial weekend, not only did I receive the confirmed postponement to the trustee sale, I also had full written approval on the offer I submitted with no variations on value, closing costs, commission or concessions.  My client is elated as they will receive a $5,000 incentive to relocate if we close escrow within 45 days.  

On a personal note, I have to really thank the negotiator assigned to this file.  I would be happy to give her name out but I’m afraid she might get inundated with phone calls that she may not need in order to work her files as effectively as she did for me.  

Thank you Wachovia for providing me with such a rewarding breath of fresh air.  Now if the others would follow suit and learn that the agent is NOT the enemy and that our efforts can be used as an essential tool to orchestrate the short sale process to a win-win solution for all, the world would be a happier place.   

 

 

  I certainly do not mean to offend my fellow Real Estate Professionals, but sometimes I can’t help but wonder.   Recently at a continuing education class, I met a colleague who is new to the business and is now trying to acquire some investment property with her husband.  After a brief conversation we had with other licensees in the class, she pulled me aside to ask some questions.  She told me about some concerns she had regarding her current transaction.

It turns out that she had being trying to purchase property with the help of her broker.   She sent out several viable offers that would surely be considered acceptable by a short sale lender.  However, not one of her offers was accepted by the listing agent.  Someone in her circle suggested that she use the listing agent to represent her to submit an offer.  This would force her to pass on the commission she would earn by allowing the listing agent to double theirs.

She agreed and decided to submit a low offer through the representation of the listing agent to see what would happen.   Sure enough her first offer was accepted and submitted to the lender for approval.  The first offer!   Coincidence or intentional?   Please don’t tell me maybe this was the best offer out there because I simply won’t buy it.

In my opinion this was a simple case of double ending a commission.  This brings me to my question.  Where is the professionalism?   Where is our oath to the Realtor’s code of ethics?  Where is the fiduciary duty we owe to our sellers to act in their best interest and present all available offers?

The scary part is that it appears to be a pretty common practice in today’s real estate environment.   I’ve felt the effects of this business practice being used in the REO market as well.

Don’t get me wrong, I understand the market can be brutal for some and I know we are coming out of a pretty tough year, but the rules haven’t changed just because the market may be fierce.

You may be saying “well, no harm no foul, the seller has anything to gain anyway.  He or she will not be gaining any financial benefit from this transaction other than salvaging one’s credit to begin home ownership once again sooner rather than later.”   I say wrong, the seller may have a lot to gain by selling the property for the highest possible value.

     We need to make something very clear here, not all short sale sellers will qualify for the debt forgiveness act.  Chances are that the seller will receive a 1099 at the beginning of next year stating that they may have incurred tax liability on the difference between the closing price of their home and the amount they owed to the lender.   That is the precise reason the listing short sale addendum here in California indicates to the seller to consult a legal or tax professional to know what the tax consequences may be.

Real Estate Professionals are obligated to inform you of this possibility.  If not, then they have no right to be selling real estate in the first place.  Secondly, once the sellers are given notice by the IRS or their State Tax Board that they have potentially incurred a tax liability they were never told about, it will be too late.   

If this story rings true for any real estate professionals out there then you should be ashamed of yourself and understand that you are lucky you only lost a client this time, next time you could end up on court and possibly lose a lot more than just a client’s trust.  

Most Real Estate Professionals out there are knowledgeable, responsible and accountable individuals who serve the public in the manner in which they are obligated.  But unfortunately it only takes a few bad apples to tarnish the integrity of those of us who consider ourselves the serious professionals we set out to be.

Let me hear your opinions.

 

Leading the Way...® in Real Estate Law

Brought to you by the CALIFORNIA ASSOCIATION OF REALTORS®

NO MORE STATE TAX ON FORGIVEN DEBT

"Qualified principal residence" indebtedness is defined as debt incurred in acquiring, constructing, or substantially improving a principal residence.  It includes both first and second trust deeds.  It also includes a refinance loan to the extent the funds were used to payoff a previous loan that would have qualified.

The tax breaks apply to debts discharged from 2009 through 2012.  Californians who have already filed their 2009 tax returns may claim the exemption by filing a Form 540X amendment.
 
Taxpayers who do not qualify for the above exemptions (e.g., second home or rental property) may nevertheless be exempt under other provisions.  Most notably, taxpayers who are bankrupt are exempt from debt relief income tax.  Also, taxpayers who are insolvent are exempt from debt relief income tax to the extent their current liabilities exceed current assets.

For more information about mortgage forgiveness tax consequences, go to California Franchise Tax Board's Mortgage Forgiveness Debt Relief Extended webpage and the Internal Revenue Service's Mortgage Forgiveness Debt Relief Act and Debt Cancellation webpage.  The full text of Senate Bill 401 is available at www.leginfo.ca.gov.

Just a quick question based on a buyer's view of the upcoming changes in the California State Tax Credit vs. the current Federal Tax Credit. 

My buyers opted to cancel their newly created escrow due to their belief that the California State Tax Credit would be a better choice for them.  After months of looking at homes we found a charming home in the exact area they were hoping for.  Shortly after we opened escrow they called to cancel due to the California State Tax Credit on the books to begin May 1st, a day after the federal tax credit will expire for them if they are not already in contract.

I disagree with them in their interpretation of how the State tax credit will benefit them more than the Fed Tax Credit.  And, if they don't purchase something very soon the funds available to them for the State tax credit may not be available to them either which causes a lose-lose. 

Anyone dealing with this scenario?  I sent them to a tax accountant but that still did not seem to get through to them.  Your thoughts are appreciated.  Thank you!

I wanted to follow up on my recent post regarding Promissory Notes required in order to facilitate short sale approvals.

 

I took a short sale listing in February 2009 on a condo with one purchase money loan at a 97% LTV.  The condo was purchased for $325,000 in 2007.  I have a transaction going with the lender, buyer and seller for $189,000 with $5,000 allowance to the buyer, FHA.

 

In June 2009 I received a conditional approval from Aurora Home Loans.  The terms of the original offer were acceptable to Aurora but not to Guaranty Mortgage Insurance Co.  They made a request for a $25,000 promissory note to be signed by the seller in order to proceed.  She would not sign the note and the buyer walked.  Back to square one.

 

In August 2009 I submitted another offer to Aurora Home Loans along with updated financials, bank records, proof that my client had lost her job and an appropriate hardship letter. 

 

This is nearly the end of March 2010 and I’m days away from closing this transaction (I hope).  On February 19, 2010 I finally received an approval letter from Aurora Home Loans after an exhaustive 6 month wait.  The buyer hung in there the entire time. 

 

The bulk of the timeframe was waiting on the MI company’s stamp of approval with no promissory note required.  I suppose my client’s hardship was more severe after a longer period of time had elapsed depleting ALL of her remaining resources.  She is now officially insolvent.

 

Now here is the kicker.  And I want to kick myself too.  The super patient buyer decides to switch lenders midway through our 30 day escrow period.  After all this waiting and constant follow up calls with Aurora to speed up the process, I could not believe that I would need to ask for a two week extension! 

 

One week prior to our closing date I notified Aurora that we would need until the end of March to close this escrow.  I was granted an extension to the end of the month by Aurora VERBALLY with the written approval of the extension to be fax’d within 48 hours of my request made on March 14th.   This written form of approval is imperative as a prior to fund condition.

 

It is now March 26th and guess what?  No written extension has been delivered yet.  I have called Aurora every single day, twice a day since the 14th explaining the crucial need for this follow up letter so that we can close by the end of March.  I’m promised every day that I will receive it within 48 hours.

 

Well today I found out that the formal approval must come from the MI company and it is relatively out of Aurora’s hands.  I’m technically in breach of the agreement and losing hope that we will have a chance to close by month’s end anyway without this letter. 

 

Just when you think it’s almost over, it ain’t over.  This short sale will be my career short sale transaction.  Wish me luck, lots of it. 

 

 

In my experience of dealing with literally hundreds of trial loan mods I have only witnessed one borrower who received a permanent loan modification. I read the paperwork including its terms with my very own eyes, touched the documents with my own hands and could hardly contain myself with the thought of suspicion. But the borrower's documents were the real thing and he was on his way to deliver them to Bank of America's loan processing unit that day.

These docs were similar to full loan docs you would sign in a closing agent and a notary. The terms were outstanding. The mortgage payment was less than half of what he was paying previously for the first year, increased by less than $100.00 a year for the next four years where it would be reamortized over the life of the loan using an interest rate not to exceed 5.3% for the remaining term.

I felt as if I was touching a winning lottery ticket - an extremely rare find. This individual is in the title insurance business and had been attempting to negotiate his loan modification for a year and a half only to be declined three times in a row. He had trial mods that failed for lack of documentation as noted by Bank of America (untrue). He had spiral binders filled with each phone call's conversation, inquiry and requests. He had file folders filled with copies of documentation sent to B of A each with a return receipts attached proving signed delivery. I was truly amazed by the tedious yet thorough documentation he had to prove every move he made.

What finally made all the difference began a work related event where he made the acquaintance of a "loan modification specialist/attorney". You know the kind.....

Well come to find out that this particular attorney was for real. He collected no fees upfront or otherwise unless he was able to perform his task to the satisfaction of the client. He had a streamline approval processor at Bank of America who would provide an answer to any feasible submission with a day or two. And within exactly five days from the time he met this attorney his loan package was delivered to his doorstep via Fedex ready for signature and processing. Lickity split. Wow!

So it goes to show you that it is all about "who you know" and nothing to do with "how hard you try" that matters. But didn't we all think that there had to be an inside track to this process afterall? With less than 5% of all loan modification attempts being approved.....come on.

Diane Wheatley, Broker
diane@moveupproperties.com
Upland, CA