As part of the American Recovery and Reinvestment Act of 2009 (ARRA), the Department of Defense (DoD) expanded the Housing Assistance Program (HAP) to provide benefits to service members who are moving (in military jargon, PCSing – Permanent Change of Station), among others.

To be eligible for HAP, military members must have, 1) Purchased their home prior to 1 Jul, 2006, and 2) Have PCS orders dated 1 Feb 2006 thru 30 Sep 2012.

Have you heard of HAP?  Many service members have, but few homeowners understand just what it takes to sell their home using their Housing Assistance Program entitlement.  To educate service members, DoD and the Army Corps of Engineers have provided specific, informative guidance on their HAP website.

The website explains, among other things:

1.  Who Is Eligible

2.  How to Apply

3.  The Benefits HAP Provides

4.  Where HAP is Implemented

In addition, applicants are able to download the necessary application package  to be sent in for eligibility.  Their FAQ (Frequently Asked Questions) section, not only responds to the questions most of us have about applying and how the process works, but also provides updates on the Expanded program.

HAP is providing other ways for eligible members to get answers to their questions.  Coverage is handled by the three regional offices in Savannah, Fort Worth & Sacramento.  They do answer their phones and are ready to reply to questions about the program.  As well, representatives from the National Program Office will provide informational briefings if requested.

In the Fredericksburg and Stafford area, C21 AdVenture has been fortunate enough to host HAP’s Assistant Program Manager (PM), Mr. Donald Chapman, for an informational briefing last month for local Realtors.  While his presentation answered some of our HAP questions, the opportunity to ask questions was the perfect opportunity for him to dispel some of the misconceptions held about the program by those in attendance.   As a follow up, he’s returning in March to speak to a much larger audience of local military homeowners.

HAP leadership is pedaling as fast as they can in their attempt to inform military and civilian home owners who qualify, how to apply and participate in this timely offering.  To make this program work, all involved need to know what the requirements and expectations are.  Most endeavors take a little time to get off the ground, and this one is no exception.  They’ll certainly be bumps in the road for sellers and buyers who participate in this process.  Preparing yourself, by using the resources HAP is providing, may go a long way in making those bumps a bit more tolerable.

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This morning’s Boston Globe ran a story of a real estate investment venture gone bad.  Sound familiar?

In this case, a young Virginia Beach couple, among others, were sold “a bill of goods”, left high and dry, broke, and are facing a lengthy legal battle to simply try and reclaim their good name.   If there ever was a real estate swindle that exemplifies the worst aspects of the buying and selling of real estate, for profit or not, it’s this one.  It has all the necessary elements:

1.  The Promise of Easy Money

2.  The Smooth Talker

3.  Fraudulent Loans

4.  Fabricated Appraisal Figures

5.  A Gross Lack of Due Diligence

This is but one of the many tragedies left as a result of the housing market run amok.  Kind of like teenage boy on steriods driving a school bus without a governor (you know, the device that restricts their speed).  Before you invest your time, effort, and your money into any venture – especially one that sounds too good to be true – please take the time to do a risk analysis, and ensure that the road ahead isn’t full of quicksand!  

Most of us have realized, usually through trial and error, that success depends a great deal upon building a firm foundation to begin with.  And, in Social Media, it’s no different.  It begins by understanding who you audience is and what they want.   In Social Media “speak”, it starts with the 5 W’s.

1.   WHO

Who is saying things about your products and service?

2.  WHAT

What are they saying about you and the product you provide?  Is it good?  Bad?

3.  WHEN

When are they talking about you?  If your business is cyclical, are you only being mentioned during the busy season?  If you specialize in one area of your profession, does the discussion occur only when your specialty is hot?

4.  WHERE

Where are these conversations taking place?  On blogs related to your business?  On other popular discussion platforms? 

5.  WHY

Why is anyone commenting, discussing, or examining you and what you have to offer.

There are a number of variations of the 5 Ws.  Many, recently, have focused on web sites and blogs.  Earlier this week, Inman News’ featured an article “The 5 W’s and your Web site“, by Robert Hahn.  Other informative articles on the 5 Ws include, “Knowing What’s What and What’s Not the 5 W’s (and 1 H) of Cyberspace“, and The Five W’s of Web Site Evaluation.   

Social Media platforms are useful marketing tools, and today, they’re all the rage.  A careful analysis of any marketing devices and means is is not only useful, but a necessary factor in identifying what works and what doesn’t.  The 5 W’s is another, and value added, method way of determining what we need to pay attention to, by identifying who may be listening, and what they’re interested in.  And, if that’s the case, do you think it might be helpful for Realtors to pay attention?

Other than the dramatic shock to financial markets during the year following the height of the housing market and subsequent rapid fall in home prices, the sales market has been fairly predictable.  Once lenders got a grip on the deluge of foreclosures and short sales, and this glut of properties began to be adequately handled by them (O.K…so, they’ve still got problems with Short Sales, but they’re getting there), the housing market has been relatively stable.

Today’s latest news on the surge in home sales isn’t news to those of us in the business.  As one prospective home buyer in the latest USA Today article mentioned, the market is “insane….I’ve never seen a market like this before.” 

That, after having finally securing a home following unsuccessful offers on 20 Las Vegas homes.  And, while the rush to “get in” and take advantage before the First Time Home Buyers tax credit offer expired can partly be credited with the robust sales numbers, it doesn’t hurt that home prices, in many locations nationwide are 30-50% less than they were in 2005, or that interest rates are rock bottom.

Many believe that home prices have stabilized.  But, with more foreclosures and Short Sale properties landing on the market weekly, we may not have seen the bottom quite yet.  With extension of the tax credit, and mortgage rates in a low holding pattern, the surge in home sales numbers may, if we’re fortunate, become a trend instead.

Let’s be honest, the “Short Sale” isn’t going anywhere.  I know what you’re thinking, “Of course it isn’t going anywhere(in other words, no action by the lender!)”, but, what I mean to say is, they’ll be here for a while.  In other words, we’ll be seeing plenty more of them in the the next few years.  As long as the economic downturn is with us, there will be homeowners in states of distress who are unable to pay their mortgages.  So, how do we turn this lemon into lemonade?  (And, believe it or not, it takes more than a lot of sugar!)

Earlier this week, a few local Brokers and Instructors had the opportunity to sit down with Lem Marshall, the Special Counsel to the Virginia Association of Realtors(VAR), to discuss ways the Realtor community can improve the short sale process.  By improve, we mean, enhance the chances of a successful short sale.  During his presentation, Lem volunteered some helpful hints at how Realtors can maximize their chances of succeeding in dealing with Short Sales.

He began by reminding us that on average, about one in four short sales transactions, nationwide, are successful.  While the real estate community doesn’t control all the variables involved in the process, there are a couple of items we do influence.  It is those items or factors, if handled and executed properly, that can sometimes mean the difference between success and failure.  While Lem conceded that lenders are the main short sale players doing most of the transaction decision making, Realtor’s decisions and actions, if done incorrectly, doom the transaction.

The starting point for Realtors in any transaction, but especially in Short Sales, is competence, according to Mr. Marshall.  Understanding the process involves an appreciation for all the moving parts.  To begin with, the agent must know what they are doing, and what they’re dealing with.  Agents will consider and interact with four main participants in this transaction; the other agent, the property, the client, and, most importantly, the third party, or lender.  Let’s begin by looking at the importance of understanding the first two.

THE OTHER AGENT 

Since a short sale is a special type of real estate transaction, understanding what’s required takes more than a license to sell real estate.  Being aware of what the agent on the other side (especially the Listing agent) of the transaction knows about short sales is important in considering the likelihood of success.  If they know what they’re doing (proper valuation of the property, good communication with the lender’s representatives, etc), then chances for success – all things being equal – are probably fairly decent.  If they don’t know what they’re doing and are unfamiliar with what’s required, then watch out!  You’ll be doing a lot of hand holding (with the other agent, as well as your client), but may be doomed from the beginning. 

It’s unfortunate, but until specialized training in short sale procedures is mandatory for all agents handling these transactions, many agents will be unprepared to properly handle what’s necessary.  The Certified Short Sale Professional (CSP) course provides agents a comprehensive examination of the requirements of the entire process, and what is required for success.  Other than actually handling a short sale transaction, it’s about as good as it gets in preparing agents for dealing with the short sale of a home.

But, as mentioned earlier, if you’re dealing with an inexperienced agent, and that simply means, in this case, one that is inexperienced with short sales, that’s not been trained, then the chances of success are minimal.  Why?  Because, it is imperative that the Realtor is aware of the specific ins and outs of this unique process.  To begin with, the listing agent must be able to properly price the property to be sold.

PROPERLY PRICING THE PROPERTY

Absent a proper valuation of the short sale property, the lender has little incentive to consider any proximate offers on the property by prospective buyers.  Real property is worth what someone is willing to pay, nothing more…or less.  Believe it or not, lenders are aware of this.  

Determining what price a home should be marketed for, whether a regular home sale, or a short sale, depends upon the use of accurate comparables.  In other words, what are like or similar properties in the area selling for?  Successful Short Sale Specialists advise that these properties be priced just below ($10,000-$15,000 below) the lower price range of similar homes on the market.  Remember, lenders WILL be appraising these homes, or ordering a Broker Price Opinion (BPO), at the least.  Lenders aren’t going to give these homes away, they’re trying to limit their losses while getting the property out of inventory.  So, accurate pricing by the listing agent is a must.  Banks, like any normal home reseller, will be asking for market value, or maybe, a little less.  That doesn’t mean 20-50% below market value, despite what you might hear from uninformed experts.

Improving the success rate of short sales involves an understanding of what’s required, and the successful completion of the necessary steps by all the parties involved in the operation.  For Realtors, not only must they know what’s needed in order to succeed, but it also helps to know what the other side of the transaction knows, as well.   With a good idea of what the other agent and their listing have to offer, agents will be better able to communicate effectively and accurately with their client(s) and the third party that’s involved.  Those are just the initial steps on the path towards completion of a winning short sale.

The term “Short Sale” has become common place in housing markets over the past few years.  Yet, for many, what a short sale is, and how it becomes a reality, is still a mystery.  A short sale is a sale of real estate in which the proceeds from the sale are less than, or “short of”, what’s owed on the balance of the loan securing the property being sold.  

The Good

At first glimpse, one might wonder why a lender would ever entertain such an arrangment,  accepting less than what’s owed on a loan.   In most cases, the owner(s) are “upside down” with their mortgage.  In other words, they owe more than their property is currently worth.  While there are various reasons why owners are in their current distressed state, the good news is that banks have begun to embarace the short sale process.  Foreclosing on properties isn’t in anyone’s interest – especially banks.  According to the legal counsel for the Virginia Association of Realtors (VAR), the average foreclosure costs the bank approximately $65,000.  That’s not what they lose on the loan payoff.  That is simply what it costs the bank to handle or manage the foreclosed property.  For banks, avoiding foreclosure simply makes monetary sense. 

Additionally, the Administration and Congress have moved to stem the foreclosure rate and make short sales a more standardized and acceptable choice for lenders.  A push from lawmakers to improve and simplify short sales has encouraged banks to embrace this option for homeowners, avoiding further emotional and financial pain that would ensue if foreclosured on.

The Bad 

From a Realtors point of view, handling a short sale transaction is never easy.  On the selling side, there are two other major participants in the process, the homeowner (Seller) and the bank (Lender).  Each of these bring with them potential problems.  The good thing is, the homeowner is usually approaching the transaction as a motivated party.  Unfortunately, that rarely seems to be  the bank’s case.  

Complicating matters further is the lack of national standardized short sale procedures, and no mandated cummunication timelines between banks and realtors (who represent their clients).  If there’s anything more frustrating for the real estate community than their fruitless attempts to reach the proper point of contact at the bank when dealing with a short sale, I’m unaware of it.  If the short sale cummunication and coordination process was designed any poorer, it would be DOA.  But, fortunately, despite the piecemeal structure, many of the transactions do close….eventually.  But, “muddling through” is no way to conduct business.  

The difficulty in successfully executing a short sale is due to more than poor coordination and communication.  Aside from these stumbling blacks, two other hurdles must be overcome.  The first involves the banks, the other, the real estate community.

The Ugly   

While we’re almost four years into the Mortgage Meltdown, banks have yet to hire enough personnel to handle their short sale and foreclosure workload.  We’re routinely informed that negotiators and asset managers are beset with caseloads of 300 or more.  With numbers like those, how can we expect success?  Within the Realtor community, it isn’t the numbers that are the problem, it’s the lack of know how.

Many Realtors handling short sales or foreclosures lack the training needed to properly do the job.  The Commonwealth of Virginia has no training requirement for handling these types of transactions.  Many agents, if trained at all, do so after “muddling through” their first few such transactions.  Wouldn’t it be smarter to have the training prior to accomplishing the task?  How can a professional do the job without knowing what has to be done?  And, who is paying for the mistakes made along the way? 

Both Short Sales and Foreclosures have excellent certification programs available.  For the former, the Certified Short Sale Professional (CSP), and the latter, the Certified Foreclosure Specialist (CFS).  But, unfortunately, many who should be taking these courses aren’t.

Today, in many regions of the country, shorts sales and foreclosures account for more than fifty percent of real estate transactions.  Luckily, there is an abundance of information on the subject available from lenders, the real estate community, and best of all, online.  Time and experience has resulted in greater success in navigating each of these unconventional property sales approaches.  But the players involved, and the processes, have miles to go before can begin to claim the process works well.                

Unfortunately, there are a number of reasons for the general failure of the short sale process. 

1)  One of the biggest obstacles to a successful short sale is the lack of communication between the listing agent and the lender.  Coordination between the real estate agent, who has listed the property, and the lender, or the asset manager handling the property is crucial for a successful transaction.  Communication between the asset manager and real estate agent is problematic at best.  In almost all short sale cases, attempts to contact the lender’s loss mitigation department or asset manager are rarely successful.      

As any agent whose handled  a short sale transaction will tell you, in a transaction whose success depends on coordination, frequent and easy communication with the asset manager handling the transaction is rarer than rare.  Despite agent’s best efforts, it’s normally a struggle (and that’s putting it midly!) to contact the lender’s point of contact.  Building this bridge between the listing agent and the lender is crucial to the success of any short sale.  Without this relationship, the short sale is destined to be Dead on Arrival (DOA).

2)  The asset managers are overwhelmed by their case loads.  Like most of America, lenders were blind sided by the subprime mortgage mess, and are in the crisis management mode attempting to stop the financial bleeding.  In other words, the lender’s employees, especially those in loss mitigation, are peddling as fast as they can.

3)  The real estate community, much like the lenders on the other side of this short sale joy ride, are, in most cases, lacking the preparation needed to properly market the property in coordination with the lender.   To begin the process of coordiation with the lender, the listing agent must compile a full package with supporting documentation from the seller.   Rarely, if ever, will the lender even begin to listen to an agent without a complete short sale package in front of them.  This short sale submission package should include, among other things:

1.  A synopsis of items enclosed.

2.  Completed financial disclosure.

3.  A hardship letter, preferrably hand written.  Remember, this the opportunity to relay the seller’s “story” to let the lender know why they’ve missed payments and won’t be able to make them in the future.

4.  Purchase contract.

5.  Net sheet or HUD1.

6.  Proof of income for the last two pay periods.

7.  Copies of last two bank statements.    

8.  Copies of last two years tax returns with W-2s and 1099s.

9.  Third party authorization form.

Some additional items that may be helpful include, a Broker Price Opinion (BPO) or Comparative Market Analysis (CMA), neighborhood foreclosure stats & proof of active listings in the area that are priced low but aren’t selling.  All of these will assist you in presenting the seller’s case to the lender.

Pricing the property correctly is another must.   A simple method is to take the low end of the comparables, and price the property $10,000-$20,000 lower.  It’s important to price the property to peek interest, but the pricing needs to be realistic as well.

An opportunity for a short sale is beneficial to both the seller and lender.  For both parties, it’s an escape from a difficult financial predicament.  The seller unloads a property they can no longer afford, as does the bank, with minimal damage to the credit rating they need for future investments.  The bank, unlike a foreclosure, can avoid managing a property, and unload one on much better terms than if foreclosed.  

With the attractions of the short sale option, we can only hope the practice gets much better before the window of opportunity for this “bargain” creeps closed.   There’s work to be done on both sides of the transaction.  For lenders, establishing a routine and regular avenue of communication with the real estate agent listing the property is a necessary first step.  For agents, taking the time to learn the steps necessary to comply with lender requirements might make the coordination process on the other end a bit easier to navigate.  In either case, progress is measured in dollars, not finger pointing.  So, what are we waiting for?  

According to REALTOR.ORG, a short sale is,  ”when the net proceeds from the sale of a home are not enough to cover the seller’s mortgage obligations and closing costs, such as property taxes, transfer taxes, and the real estate practitioner’s commission.”   In other words, the proposed sales price is short of what is required to pay off the home loan or mortgage.  You might ask, “why would the bank/lender allow a home to be sold for less than what is owed.  To put it simply, short sales are normally done prior to a home going into foreclosure in order to save money.  Yep, to save money.  According to the Virginia Association of Realtor’s special counsel, Lem Marshall,  outside of the loss incurred to pay off the mortgage, lenders spend approximately $65,000 dollars on foreclosed properties.  So, as you can see, to begin with, it makes sense for the bank to consider a short sale in order to head off further expenses resulting from the expenses of a foreclosed property.  But, the benefits of a short sale aren’t simply financial.  There are other benefits as well.

In the communities plagued with foreclosed properties, neighborhoods often begin to go downhill in a hurry due to the lack of attention to the foreclosed properties.  Since these properties are no longer occupied, they are often neglected and rarely properly maintained.  Often, they are vandalized. 

 Click here to view the embedded video.

Remember, banks aren’t in the property management business, nor do they want to be.  But, unlike foreclosures, in the case of a short sale property, the occupants inhabit the house, and are there to look after the property.  While they may have ceased making their mortgage payments, in most cases, the owners or tenants remain in the house until it is sold, or when repossessed by the bank in the case of a foreclosure.   A short sale is also in the best interest of the home owner. 

Homeowners facing a possible foreclosure can avoid the stigma, embarassment and credit problems a foreclosure entails.  By opting for a short sale, homeowners not only can remain in their home, but the damage to their credit score is small compared to the penalty they face if their home is foreclosed on.  Most lenders report “settled” upon successful closing of a short sale instead of the term “foreclosed.”   Recent reports indicate the owners who complete short sale proceedings (who have missed 2-5 mortgage payments) have their credit score affected by only 30 to 60 points.   Conversely, for those suffering through a foreclosure, their credit score will be penalized 140 to 200 points, or more.  That’s a huge difference.  So, as you can see, a short sale in lieu of a foreclosure makes sense for all parties involved.  But, if that’s the case, why are so few short sales successful?   Why is it so difficult to get to a Win-Win scenario?  Who is to blame?  More importantly, what remedy is their for a process designed to prevent property foreclosure, yet rarely does?  We’ll leave those questions for Part II of our short sale discussion.