BY BETH THOMA ROBINSON – The inventory of distressed properties in many of our Hawai’i real estate markets has declined dramatically. The foreclosure pipeline closed down to a mere dribble when Act 48 took effect a year ago (May 5, 2011).
As predicted, the fact that banks could essentially no longer use the relatively quicker, easier non-judicial process to foreclose was a benefit not only to homeowners hoping to stay in their homes, but also to those listing their homes as short sales.
As short sale agents, we did not have to spend time and energy tracking auction dates and fighting for postponements – and so could focus on getting the deal approved. With short sales becoming more feasible, the backlog of short sale listings has also been reduced.
Fewer Foreclosures in Hawai’i Results in More Successful Short Sales
The second benefit is a bit more technical. The way banks decided whether or not to approve a short sale is relatively straightforward. They order a valuation (appraisal or broker price opinion) to determine current market value…and then make an analysis. We submit a sellers statement showing how much they will net after closing costs with the offer on the table.
They also calculate what they believe they will net if they foreclose, taking into consideration the cost of foreclosing and the additional costs with holding the property once acquired and until sold. Having foreclosures in Hawai’i take the judicial rather than non-judicial route meant, generally speaking, our short sale offers suddenly looked better to the bank than they would have a few months earlier.
While that was a factor peculiar to Hawai’i, the timing corresponded with a shift in the attitude of major lending institutions in general. Banks would rather accept a short sale than foreclose…but at first the volume was overwhelming and the learning curve was steep. Most of the horror stories you hear are quite different from my experience today.
In fact, I find the lenders treating short sale agents more as partners and their borrowers as still being customers. At first, the negotiators were as inexperienced as we were, and we were often at odds. Now, collegiality and civility are hallmarks of my conversations with negotiators on most days. We are veterans and understand the job we have to do and how to get it done!
Resort, Second Home, and Investment Short Sales Present Special Challenges
The short sales I do are a mix between primary residences and second home/investment properties. Even among real estate agents doing a large volume of short sales on the Mainland, few have experience with the kind that are our bread-and-butter: investment properties with multiple unrelated persons on title in a state allowing for deficiency judgments.
Our more difficult transactions might also involve many months of delinquent HOA dues, or unpaid taxes on rental income. These latter two situations mean that in addition to getting short sale approval from the owner’s mortgage holders, we might have to negotiate with the homeowners association, and even figure out how to pay those taxes so that the state will allow us to close without withholding 5% of the sales price for HARPTA.
Increasingly, though, the owners I find considering short sales have somehow managed to stay current on HOA dues and even their mortgages. They want to minimize the damage to their credit, but have put themselves in financial distress trying to keep the property afloat.
Luckily, as long as they have any of the situations lenders consider legitimate hardship (loss of income, loss of job, divorce, death, illness), it is usually possible for them to qualify for a short sale. We check to see whether their mortgages are owned by Fannie Mae or Freddie Mac, who will not consider a short sale unless the borrower is in default. Few Big Island resort properties qualify for conforming loans, so usually this is only an issue for single family homes.
How to Select a Short Sale Professional to List Your Property
Being a successful listing agent for short sales requires a mix of skills similar to that any owner should look for in a professional to represent them in the sale of their home or condo…but you need to put those skills on steroids and then paradoxically take up meditation or yoga to develop the patience and equanimity required!
So, how do you select a real estate agent if you are considering a short sale? While lenders won’t make recommendations, Bank of America has just started a website to connect homeowners with agents who have completed a short sale with them. All you have to do is input the zip code of your property and you get a list of agents, organized by distance of their office’s zip code from your property, and then alphabetically. Now you have a long list…but you still need to choose.
I recently got a call from a couple who had been approached by a third-party firm used by Bank of America for their cooperative short sale program. They had been pre-screened for eligibility, and were even given the name of an agent they could use. However, the form said they could use any agent of their choice.
“This is important to us and we wanted the best,” they said, “So we did a web search. First we typed in that agent’s name and ‘short sale’…and then we just searched for search sale agents in Hawai’i. [pause] We are wondering if you would consider representing us.” By the way…the cooperative short sale process worked very well, and we received a decision on the offer within 3 weeks.
In addition to using your favorite search engine, you can check for real estate agent reviews onwww.zillow.com. The escrow company, mortgage broker, or real estate attorney who assisted with your purchase might also have some insight into which agents are active in short sales…as might your HOA board members or management company. Speaking of attorneys, it is a good idea for you to contact your tax accountant and possibly an attorney, as many of the questions you are likely to have are ones a real estate agent is not qualified to answer.
To be honest, there are many days I swear I’ll never take another short sale listing. My listing partner, Pam Deery, and I are often on the phone at 5 or 6 a.m. Hawai’i time speaking with negotiators on the East Coast before heading out for showings. Some days I just get weary. And then, we make it to closing, and I remember why I do them. At that moment, I always feel it has been such a privilege to assist my clients through the process.
No short sale is easy on the seller, and it can be a highly emotional period lasting months or even years. It’s not just our client’s credit and financial future we try to protect. Knowing we helped keep our seller’s dignity intact is our best reward.
Submitted by Beth Thoma Robinson, R(B), SFR of HawaiiLife.com