Short Sales...Not For The Feint Of Heart

I have always had a fascination with the English Language and having studied linguistic anthropology I became even more interested and even a bit amused. Did you ever think about the way we say things like "how much does that run," when what we really are trying to ask is how much does the item cost? Why do we do that?

American idioms are a great source of entertainment- we use phrases and words in ways that native speakers typically understand without thought but are completely confusing to the non-native speaker. We say things like, "lipstick on a pig." I get the idea behind it - a quick fix to make something seem more attractive than it is... but really? Who had the chutzpah to put lipstick on the pig and did they really think it made the pig better looking? I wish I could have seen this little event- I can't even successfully give my cat a pill- I can't imagine getting the pig to hold still long enough to get a lovely shade of mauve applied to it's whiskery mouth. Perhaps my vision of applying the lipstick to the pig is too grounded in the literal or concrete ...but still what a fun visual.

In all fairness, I have to say that even though we have tortured the language with our slovenly grammatical habits and imprecise use of words, the language has never been all that clear. We have always had multiple meanings for words, and much of spoken language is contextual and non-verbal. We say the word "bear," which sounds just like "bare," and from the context of the sentence we determine which version of the word is being referenced and apply meaning to the sentence- all in the blink of an eye without even conscious thought. But what about when we get confused about the the meaning? Like the term "short sale," which is a source of great confusion for native speakers and non-native speakers alike.

The popular misconception is that a short sale will move through the transaction process and close more quickly( shortly in terms of time if you will), which it will not. A short sale is perhaps the longest transaction a buyer and seller can experience. The term "short" comes form the idea that the seller in this transaction is asking their lender to release their interest in the property. their lien, for less than the full amount that is owed- in effect allowing the seller to sell the property "short." There are a lot of component parts in these transactions: the seller must answer the question of why they stopped making payments or why they feel that they will no longer be able to make payments and they must demonstrate a true hardship. If they are able to do this then the next step is to establish the value of the property- or asset as it is known. The seller's lender will generally order a BPO (Broker Price Opinion) to get a guideline. After which, they may order an appraisal or another BPO. Once the lender is satisfied with the value they will respond to any offer that is on the table. There a lot of misconceptions about this portion of the transaction as most banks will not respond to a seller's request to short sale until they have an offer in hand- then they will evaluate the seller's docs and the buyer's offer. If the seller has a failed offer then they can honestly say their short sale has been approved, but it is important to remember that each offer is evaluated on its own merits. Just because a short sale was accepted at a certain price previously, there is no guarantee it will be again.

All of this verification of seller status and asset value can take a while so the informed, "would be short sale purchaser" should plan on 30-60 days to get a response to their short sale offer. Once agreement is reached on the offer price the bank will typically give a 30 day window in which to close with a per diem amount payable by the purchaser for any delays in closing. When contemplating purchasing a short sale properties there are additional considerations:

• Short sales are never guaranteed, neither to the seller, the buyer nor even the agents
• Contrary to popular belief banks do not have to accept a short sale- they can opt to foreclose, take ownership of the asset and do with it as they please.
• If a bank participates in short sales it is as a courtesy to the borrower
• If you decide to write an offer on a short sale property- do not get married to the idea- your odds of getting it are much narrower than on other types of transactions including REO properties, which are already owned by a bank.

When opting for a short sale, whether you are a would be buyer or a would be seller find yourself an agent who has experience with short sales and plan on a long and sometimes frustrating transaction. Short sales, although ubiquitous in the current market place, are not for beginners nor are they for the feint of heart. Contracting with a broker who has the certifications but lacks experience will do you little or no good as every short sale deal is different and good brokers learn from each transaction they successfully complete. A broker can never guarantee the outcome when they attempt a short sale but if they have a strong track record- your odds are better, so ask how many short sales they have attempted and how many they have successfully completed. If you are a seller this is especially important as you are relying on them for a great deal. As a seller you need a broker that is prepared to go the extra mile for you- to fight for you and creatively problem solve the obstacles that are guaranteed to pop up. Best of Luck to all in your real estate endeavours.

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Condos- To Buy or Not to Buy?

As I was on my way to the townhomes at Upper Larimer to work my open house the other day I noticed an entire development project for sale- not just individual units for sale but the whole project-all of the units to be sold to one buyer. The construction seemed to be over and the units were just sitting like so many forgotten toy soldiers- still at attention... waiting...just waiting for their new owners- for the families, the people, who would move in and bring the project to life, much as children bring their toys to life.

So you wonder: why is it that some developer who had the knowledge (or know-how) and the moxy to purchase land and go through the entitlement process- the process of getting the city to agree to let you build whatever you intend to build on your land, as well as actually bringing a development out of the ground and getting to the point where he or she could "turn the lights on" would essentially give up. Why didn't this apparently savvy developer who built what appears to be a reasonably viable project turn his back on it instead of renegotiating his pricing and his loans? Unfortunately, mis amigos, I suspicion ze answer lies with the current mortgage market.

The mortgage industry has essentially turned its back on condominiums, both acquisition financing and refinance monies. As my grandfather would say, "it's scarcer than hens' teeth." Much if not most, of what happens in the mortgage world is predicated by the infamous Fannie Mae. And Fannie Mae currently says that she doesn't care if it's a townhome or a traditional condominium there will not be any conforming conventional financing until at least 70% of the units are sold. That means that the consumer, the buyer, can not get a fixed rate conventional loan to buy a condo until the majority have already sold...the buyer has to rely on so called portfolio loans which can have a higher interest rate and a shorter term. In a strange quirk most of the existing condos can qualify...if and only if they were built as condos adn not converted from apartments to condos. Sound confusing? It is but none of it is insurmountable. However, it makes it all the more important to have a qualified mortgage lender- be it banker or broker and an experienced Realtor to help you navigate the waters.

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Investors Beware

As our community, our global community, is assaulted daily with frightening financial news we start to think about exploring alternatives to traditional financial investment vehicles. And this is the time to beware, despite the tightening of credit guidelines, or perhaps because of the new lending practices,there are predators on the street. These wolves may look very innocent and seem as though they want nothing more than a "win-win." Instead of the traditional predatory practices that led up to our current economic situation, the new predator offers opportunities to invest with them and realize greater cash returns than through banks or other financial institutions.

Typically they will ask you to loan them money to acquire real estate promising that once the investment property is sold you will realize 10% 20% or even more annually on your money. They will claim that your investment is safe as it is secured by real property. It is important to remember that your investment is only secured by real estate if you are on the title- typically a warranty deed of some sort or you hold a lien on the property. If the entity offers you a personal note this does not guarantee that your money is directly tied to any particular property. So if approached by an individual or group offering this type of "opportunity," be smart, contact a lawyer and ask them to review any and all documents prior to signing anything or handing over any money. You should also contact a tax professional as even though you may actaullay realize the promised returns, there could be serious tax consequences.

I am not suggesting that real estate is a bad investment - in fact there are many financially distressed properties that could present significant equity gain in coming years but rarely is it a short term investment. The wise investor consults with his or her real estate professionals, broker and mortgage banker as well as their attorney and tax consultant, and sets specific goals for the investment. Historically, over the long term there have been very few vehicles with as strong of returns as real property. So if you decide to invest in real estate do your homework-we call it due diligence- learn everything you can and analyze, analyze, analyze and plan for any unforseen contingencies.

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