Short Sale Start to Finish. A Home Owners Guide to Short Sales

February 9, 2012
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5 Million Home Owners Likely to Face Foreclosure

By Jeff Donnellan RE/MAX

I attended a RealtyTrac webinar earlier today and the host projected that up to 5 Million home owners could face foreclosure between now and 2014.  This figure is shocking, but not surprising.  Most economists project the true unemployment rate at 13-14% including everyone who has stopped looking for work or is under employed.  The report showed slides how foreclosures mirror the unemployment rate.  To throw one more devastating blow to a weak housing market, millions of loans with teaser rates or ARM are about to reset to much higher rates ( average increase of $1000 per month).

The 1st option for any home owner who is having trouble making payments but is able to stay in their home should be to use HARP or HAMP the government sponsored refinance or modification programs.    If staying in your home is not realistic and you need to sell a short sale is a much better option than letting the home foreclose.  The major banks are supporting this as I detailed in an earlier blog “Why Would a Bank Accept a Short Sale“.  Chase Bank is even offering up to 5% ($45000 in some cases) of the loan amount back to the owner at closing if they complete a short sale.

The short sale process can be long, complex and is always evolving to better refine the procedure and speed of the transaction so here is what a home owner attempting a short sale should expect:

1. Contact your bank.  Let them know there are problems and you’re listing your home as short sale.  This will alert their loss mitigation department to assist in this matter. The longer you wait the less time you will have to sell your home and avoid foreclosure.  See if you qualify for HAFA.  Home owners can receive up to 3k in moving expenses.

2.  Contact an experienced short sale Realtor who can guide you through the process.  Be careful not all Realtors are short sale experts.

3.  Your bank will require documentation.  A hardship letter explaining why you are unable to make payments, 2 years tax returns, 2 recent bank statements, 2 recent pay stubs & a financial worksheet.

4.  The next step will be to list your home for sale.  Make sure your agent does a CMA and lists the home near market value.  This will show your bank you are trying to get top dollar and not creating a fire sale or blind auction.

5. Home values may be shifting in your market so make sure to use regular price drops to stay current with surrounding home values.  This will also create a record to show your bank you tried to sell for market value.

6.  Getting an offer from a qualified buyer is extremely important.  Check out their financing to make sure it’s solid.  I see a lot of transactions fall apart because of weak financing.

7. Negotiate the highest possible offer before accepting.  Make sure the buyer gives earnest money and does their due diligence right away.  It’s important to know the buyer is committed to stay with the process and flush out problems early on.

8.  The next step is to submit the offer to your bank.  It may take time to have a contact assigned but be persistent with regular calls.

9. The 1st sign the bank is processing the short sale is when they order a BPO or broker price opinion.  A real estate agent not associated with the transaction will do an independent  valuation and submit this as a starting point for the negotiation.

10.  Usually with in 10-14 days after the BPO the bank will ask for additional documentation and counter or accept the buyers offer. They outline terms, release of liens & waive the deficiency.  Usually 60 days in from step 8 offer submission.

11.  After all terms are agreed upon everything will be submitted to the investor ( owns the loan ) &  a short sale approval letter will be issued.

12. Closing has to happen 30-45 days after acceptance so make sure the buyer has their financing ready.

Choosing the right agent is everything.  National average for successful short sale closings are 30-40%.  Realtors with the CDPE (certified distressed property expert) have a 75-80% success rate.  Let the right person guide you through the complex process and save you from foreclosure.


Is Your Mortgage Weighing you Down? Short Sale v.s. Foreclosure

February 3, 2012
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What Home Owners Need to Know about Avoiding Foreclosure

By Jeff Donnellan RE/MAX

25% of Home Owners are underwater on their mortgage due to 5 straight years of home price declines and home prices have reverted back to 2001-2002 values in most markets.  This means that anyone who  has purchased a home in that time & didn’t make a large down payment owes more than what their home is worth.  During this time  many Americans have lost their job, experienced wage reduction or other hardships that made paying their mortgage extremely difficult.  This is nothing to be ashamed of because most people in this situation spend all of their savings just trying to keep their home.

Our neighbors are suffering in silence. 1 out of every 7 homes in the U.S. is in some state of foreclosure.  7 out of 10 do absolutely nothing about it.  It doesn’t have to be so.  Their are foreclosure alternatives such as a short sale, renting the home or a deed-in-lieu.  A foreclosure is an extremely traumatic event for a family and the worst thing that can affect your credit score (worse than bankruptcy).

Reason Against Foreclosure

  • A foreclosure is worse than bankruptcy
  • A foreclosure is public record for 10 years
  • A foreclosure could jeopardize future employment because employers check credit.

Reasons for a Short Sale

  • Home owner is in control of the selling process, allowed to sell and move with dignity
  • Less impact on credit score. Can drop as little as 50 points v.s. foreclosure 300 or more
  • Owner can qualify for another mortgage in 2-3 years, 7-10 after a forclosure
  • Short sale will be recorded as ” Paid in Full” or “Settled”
  • Owner can receive up to 3K to moving expenses under HAFA guide lines

Most mortgage companies and banks are now more cooperative than ever by participating in programs such as HARP, HAFA, & HAMP.  These programs are meant to help home owners  refinance or modify their mortgage and stay in their home or short sell their home if the hardship is too great.  In a previous blog  Why Would Your Bank Accept a Short Sale I detailed why banks don’t want to foreclose and how they are trying to help home owners relieve the burden of a mortgage they just can’t afford.

To find the best option contact an experienced short sale Realtor.  Since each person has a different situation, an experienced short sale Realtor can make recommendations what is best for you.

This Article was written by Jeff Donnellan RE/MAX CDPE (Certified Distressed Property Expert).  Find more information about Foreclosure prevention and short sales at

Chicago Real Estate: 10 Things to Know Before Buying a Short Sale

January 31, 2012
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Roughly 15-20% of the Chicago Real Estate Market would be classified as a short sale.  This is when a home owner owes more than what their home is worth, (usually behind on payments ) and is asking their bank permission from their bank to pay less than what is owed on the mortgage.  According to MLS data from Oct. 2011 short sales sold for 77.3% of market value where as traditional sales and Bank Foreclosures sold for 92.1% & 88.6% respectively.   So how does the average home buyer go about taking advantage of this deep discount.

1. Be patient!  Short sale can take as little as 60-120 days but in some cases up to 6 months.  It’s a complicated process and moves      slowly because most banks are understaffed in this department or experience high turnover.

2.  No short sale is ever the same.  Find out what bank owns the loan and if there is a 2nd loan on the home as well.  Some banks are easier and faster to deal with than others.

3.  If the price of a home is too good to be true than it probably is.  Ask how the listing Realtor determined the listing price.  Is it based upon market value? Did the bank determine the asking price ?  Or was it a negotiated price of a previous offer?  Did the agent just make it up?

4.  Be sure to find out how much the seller owes on their loan(s).  The less they are shorting their bank the more likely the sale will be approved.  If they are asking 150k and their loans are 400k chances are it will be difficult to prove the drastic loss.

5.  Ask if the listing agent has previous short sale experience.  This is critical.  An experienced agent will have all the documentation necessary to submit a complete short sale package to the bank for approval.  Incomplete packages are the number 1 reason for delays.

6.  Has a BPO been completed or ordered?  This is the 1st milestone in the short sale process.  The bank will order a BPO or broker price opinion after receiving the short sale package.  This is done by a 3rd party and helps a national bank determine home values in a specific neighborhood.  Some times this valuation will come back higher than the offer price or even the listing price.

7.  Another key question to ask “have there been any previous offers?”  Often times if a previous offer fell short critical information was learned like issues during the home inspection, problems financing the home because of repairs needed, acceptable sale price for the bank or just how quickly did the bank respond.

8.  Make sure the seller is cooperative.  A short sale seller is going to be dealing with a hardship like loss of job, income reduction or insolvency.  As a buyer you want to know they are engaged in the process and not in denial or stalling for time.  You will know this if they make the home available for showings, timely completion of contract, and short sale package submission.

9.  Be sure to ask for regular updates.  Usually every 1-2 weeks events will take place as a sign the short sale process is moving along and the listing Realtor is actively following up with bank.

10.  Be ready to close.  Make sure you have an approval letter submitted with your offer and your loan ready to close before the banks final acceptance.  This will greatly speed up the process on the back end by not waiting 30 days for loan processing.

When choosing a Realtor to help in your purchase make sure they are experienced and comfortable with short sales other wise you could miss out on 20% of the homes and some of the best deals.

Jeff Donnellan Re/MAX

Why Would Your Bank Accept a Short Sale?

January 26, 2012
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Bank’s are not in the Business of Owning Real Estate

Contrary to popular belief, banks to do not want to foreclose. Actually it has become the last thing they want to do. So why are there so many foreclosures? 1 in 7 homes in the U.S. is in some state of foreclosure and the Chicago market where I work as a short sale Realtor is right in line with National averages. 7 out of those 10 home owners do absolutely nothing about it, so their bank has no choice but to foreclose. This is one of the most traumatic experiences a family can go through and some may be in denial or just not know there are foreclosure alternatives like a short sale.

Why would a bank want to help a home owner complete a short sale. A home could lose 20-60% of its value by foreclosing. When buyers see foreclosure they automatically assume it has hidden problems and want a massive discount because so much is unknown about a vacant home. Estimated loses for a short sale are 13-21% and the owner stays in the home, possibly paying the mortgage, utilities and some maintenance fees. The costs of foreclosing for a bank are astronomical when adding attorney fees, months with out receiving payments, holding costs, inability to borrow against a non-performing asset and other selling costs involved.

The most important contributor to the downward spiral of home prices are the effect that a foreclosure has on a neighborhood. Just 1 foreclosure in a neighborhood can drop the prices of all surrounding homes by 30%. So if Bank of America owns 20% of the loans for a neighborhood than they would lose hundreds of thousands of dollars in loan values and increase the chance that other home owners would let their homes slide into foreclosure.

Most of the major banks are now complying with HAFA or Home Affordable Foreclosure Alternatives. This program has set guidelines for response times, slows down the foreclosure process. Postpones a foreclosure sale date and offers a maximum of $3000 in moving expenses for the home owner. Some Banks like Chase are now offering up to 5% back to home owners for completing a successful short sale.

The other word that is synonymous with foreclosure is vacancy and it’s proven that vacant homes increase crime. So my job as a member of my community and you as a member of yours, is to spread the word how there are alternatives to foreclosure.

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Chicago’s Shadow Real Estate Inventory

January 24, 2012
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A Wave of Foreclosure Homes to hit the Market

Remember your neighbor that lost their job 2 years or had wages reduced?  Well they have probably  missed mortgage payments too.  But that was 2 years ago.  How have they managed to stay in their home so long with out the bank foreclosing?

For a few years now there has been talk of a “shadow” real estate inventory or homes that are working their way through the foreclosure process before coming up for sale as REO or Real Estate Owned.  Roughly 15% of homes in Illinois are in some stage of the foreclosure process and this shadow inventory has been building up for over a year now and is a dam ready to burst.  In wake of the  “Robo-Signing” scandal, (fraudulent documents being signed to speed up the foreclosure process) a moratorium has been placed on foreclosures, stopping delinquent loans working their way through the foreclosure pipeline.  Since the scandal broke in the fall of 2010 many home owners haven’t made a payment in almost 2 years because the Attorneys General of all states have put a halt on many of the large banks.  The “Robo-Signing” law suit involving the 5 largest mortgage lenders ( B of A, Chase, Citi, Wells Fargo, & Ally) is about to be resolved and the foreclosure machine to start churning again.  2011 Foreclosures were down 34%  the lowest total in 4 years, now we could see them all in 1 year, the tidal wave that could be approaching.  The foreclosure crisis didn’t just disappear. Millions of home owners are still in distress, upside down, and dealing with adjusting mortgage rates.  Government backed mortgage modifications & refinances (HARP & HAMP) have been largely ineffective helping only around 1 million of our nations 30 million house holds.

So what does all this mean?  The banks and mortgage companies will start moving home owners past the delinquency state and through foreclosure again in the 1st part of the year and will come to market as REO sales in the 2nd half.  This means thousands of REO homes flooding the market.  Some estimates say that just 1 foreclosure in a neighborhood drops the entire neighborhood’s value by 30%. Think of how this will affect the you and your neighborhood.

I feel like a real Debby Downer with all these negative statistics, but there is also empowerment that comes from knowledge.  These statistics and numbers are real people and real families, they are our friends, our family, our neighbors, our community and they are in distress.  Now how can we help them through this frightening time and help yourself as well?  Everyone knows some one who was laid off during the recession and now we all know some one who is in danger of losing their home to foreclosure.  On my website I have created a foreclosure prevention resource that helps guide distressed home owners through the process and all the foreclosure alternatives that exist.

Jeff Donnellan


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